The Queen’s Speech this week paved the way for dozens of forthcoming parliamentary bills — but there was precious little to address the problem of soaring household bills.
The absence of legislation for a windfall tax or any new measures to address the worsening cost of living crisis has left the government looking like it has run out of ideas, or simply doesn’t care.
With calls for an emergency Budget growing louder by the day, leaders of consumer-facing businesses have been speaking up about how soaring inflation is hitting the UK’s consumer-led economy.
This week, think-tank NIESR said 11.3mn households were struggling to make ends meet, predicting that 1.5mn were due to face food and energy bills greater than their disposable income.
John Allan, chair of Tesco, said the UK was already seeing “real food poverty for the first time in a generation”, with customers routinely asking cashiers to “stop when you get to £40”. Allan, who is also president of the CBI, backs a windfall tax on energy companies, which is saying something.
The head of Centrica hit back by saying this would be tantamount to “burning the furniture to stay warm” — just as the London Fire Brigade issued safety warnings against doing just that after a man looking to save money on energy bills unwittingly burnt down his house in the capital.
The head of ScottishPower warned the government that time to rethink its existing energy support package was “running out fast”. As political pressure mounts, the Treasury has indicated it could announce more support in August, when the level of October’s energy price cap will be known.
If the cap rises to £2,900 this autumn, as ScottishPower predicts, up to 40 per cent of UK households could be in fuel poverty, spending more than 10 per cent of income on energy bills.
The company suggests setting up a “deficit fund” to knock £1,000 off the annual bills of struggling households on prepayment meters or in receipt of means-tested benefits. This would cost a cool £10bn, funded by a £40 annual levy on everybody’s power bills for the next decade.
Directing the most help to the poorest is how the chancellor should have targeted his existing help measures, but if average bills hit £2,900 the finances of middle-income families will also be horrifically squeezed. Is it right to deny them any help?
It’s not like the Queen’s Speech hinted at any better solutions, other than “growing the economy” and boosting renewable power generation in years to come.
In his speech on Tuesday, Boris Johnson, the prime minister, admitted it would be impossible to “completely shield people from the fallout” but the halfhearted promise to “continue examining what more we can do to ease the pressure over the coming months” just doesn’t cut it.
With more households running deficit budgets, one thing we can be certain of is a huge increase in late payments, mounting arrears and bad debts that will blight the personal finances of millions for years to come.
The finance bill in the Queen’s Speech should have contained more innovative measures to address this.
To quote ScottishPower’s chief executive Keith Anderson, this crisis is hitting “people who have never found themselves in debt and have never struggled to pay the bills”. Many will rely on credit to bridge the gap.
Credit card spending has soared, and this week the Financial Times revealed some hard-up households are resorting to “buy now, pay later” loans to cover rising energy bills.
Overall levels of financial resilience are worryingly low. New research from PwC estimates 16mn UK adults would have to use credit to afford an unexpected £300 bill. However, more than 20mn do not meet the credit requirements of mainstream lenders (up from 16mn before the pandemic) making borrowing even more expensive for them.
A series of scandals involving high-cost credit providers has taken out many subprime lenders, leaving people vulnerable to illegal loan sharks.
With millions reliant on high cost credit to cover emergencies, it’s high time the government galvanised support for not-for-profit lenders, such as credit unions and community development financial institutions (CDFIs). They charge much lower rates of interest — but suffer from a lack of awareness (and lending capital).
“More and more people don’t have a buffer, and are turning to community lenders when emergencies tip them into crisis,” says Theodora Hadjimichael, chief executive of Responsible Finance, the trade body for CDFIs. “We are seeing people from higher income levels and more working families, which shows the level of financial exclusion is increasing.”
CDFIs can only lend if it’s affordable, but if customers are turned down for a loan, many will still try and help in other ways. “That could be using benefits checkers to make sure customers are claiming all the help they’re entitled to, referring them to energy charities or even formal debt advice,” Hadjimichael says.
Currently the sector is tiny, lending about £36mn a year to 67,000 customers. Scaling it up is a cause the government — and high street banks — should be getting behind.
Many customers are now referred to responsible lenders via “signposting relationships” with local authorities, housing associations and financial advice charities.
“If mainstream banks signposted our services to all of their basic bank account holders, that would be a huge boost,” she says, adding that customers who build up a credit history with community lenders will be more likely to access mainstream credit products from their bank in future.
With millions set to be knocked back by their banks in the year ahead, pointing rejected borrowers in the direction of non-profit lenders seems a sensible move — but there’s one problem.
For community lending to work at scale, more lending capital is urgently required. In the UK, CDFIs don’t hold deposits, which gives them more flexibility in who they can lend to, but means they are reliant on external sources of finance to fund their lending.
In the US, banks have an obligation to support community lenders — so why not legislate for this in the UK?
The government could provide more capital via the dormant assets bill, which has already received royal assent. A consultation into how to use £880mn of cash in forgotten bank accounts and pensions will launch this summer and community finance initiatives deserve to receive a big chunk.
It has set up Fair4All Finance to increase access; the financial regulator is supportive and as the sector starts to build more scale, the hope is impact investors could really get behind it too. But we don’t have time to waste.
So I appeal to those with the most insight into the dire state of consumers’ finances — the heads of our retail banks. Why wait for the government to force your support? Show us that your corporate social responsibility programmes really count for something and get behind the community lenders today.
Claer Barrett is the FT’s consumer editor: claer.barrett@ft.com; Twitter @Claerb; Instagram @Claerb