Capping Pay Day Loans or George Osborne – Economically Illiterate Marxist

by George_East on November 25, 2013

George-Osborne-laughing[1]Those of you old enough to remember the furore over Ed Miliband’s Labour Party conference speech in which he pledged to freeze energy prices for two years, will recall that the reaction on the right was to characterise the move as Stalinist economic planning.   This wasn’t just the reaction of the right wing media and Tory politicians but also self-styled Blairites like the Independent’s John Rentoul (who in typical fashion went so far as to suggest that the energy markets are functional and the prices we pay rather reasonable compared to those inflicted upon Johnny Foreigner).  

David Cameron in his typical blustery red faced style said at PMQs that Ed Miliband was occupying a Marxist universe for advocating an energy price freeze and across the commentariat there was a shaking of the heads in disbelief that anyone could be so economically illiterate (these are by and large the same columnists who have advocated faith based expansionary contraction for the past 3 years and who have been calling for interest rate rises in a still thoroughly depressed economy).  George Osborne was describing price caps as failed socialism (deriving from Marx’s Das Kapital) as recently as his conference speech in October of this year (intriguingly this speech has now joined the pre-2010 speeches and been given the Grant Shapps Stalin treatment by being disappeared from the Tory Party website).

Much to the annoyance of the Westminster Village, Ed Miliband’s call for an energy price freeze has dominated the political agenda pretty much ever since – as Labour rightly identified that for most people a modest return to headline growth is irrelevant when real wages are falling and the prices of essentials (like heating) are soaring.   The living standards crisis has become something that no one can ignore.  

The consequence of the living standards crisis has been a huge up tick in people relying on short term pay day loans to tide them over.  These usually come with annualised interest rate levels of 1000% or more.    There was a very revealing Twitter exchange earlier today when the always impressive Faisal Islam of Channel 4 news tweeted that the average interest rate for a Wonga loan was 17% and the average repayment period was 17 days.    Alex Massie of the Spectator immediately suggested that it wasn’t much different to a bank’s interest rate and was lower than a credit card – only to be slapped down by Islam who pointed out that 17% for 17 days is very different to 17% for a year.   The chasm-like detachment of the professional (right leaning) middle classes from the experience of ordinary people was again underlined.

This morning has seen George Osborne pledging to cap the interest rates and charges of pay day loan sharks like Wonga.  Now this policy move is to be welcomed though the devil will undoubtedly be in the detail – Osborne, will I suspect, want nice headlines whilst inflicting the very minimum of pain on (big Tory donors) Wonga and others.   Huge kudos has to go to Stella Creasy who has fought a long and tireless battle against pay day loan sharks and to Ed MiIiband for forcing living standards issues to the front of the political agenda.

However, let’s be absolutely clear the only difference between a ‘cap’ and a ‘freeze’ is nomenclature.  If ‘interfering’ in the sacred market place by freezing energy prices is somehow economically illiterate socialism, then so equally is capping loan rates.  The market right’s response ought to be lowering entry barriers to enable other providers to come into the market place offering loans at lower rates than the current providers.    To be fair some of those on the right (like Fraser Nelson and Paul Staines, who tweeted ‘We Are All Socialists Now’ in response) understand this.

But from Gideon Osborne we have, yet again, another example of his cynical hypocrisy.  Your market intervention is Marxism, mine is common sense.   The truth of it is that ‘the market’ in many sectors of our economy – utilities, financial services, transport etc has completely failed.   Ideological obsession is seeing it imposed on schools and healthcare (and throughout the public sector).  Its ultimate results will be the same a poorer, more expensive service and huge levels of publicly-subsidised profiteering from those providing the service.   The real economic illiteracy is failing to recognise this reality.

{ 2 comments… read them below or add one }

Mike Killingworth November 25, 2013 at 3:20 pm

Your market intervention is Marxism, mine is common sense.

Unlike you, I am old enough to remember this being Edward Heath’s line too.


George_East November 25, 2013 at 10:18 pm

Plus ca change…and all that Mike.


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