THE next Labour government will cap the total amount that can be paid in overdraft fees or interest payments in a bid to free three million people from the “low-paid debt trap,” shadow chancellor John McDonnell will pledge today.
The policy announcement comes as real wages are lower than when the Tories first took power in 2010. Labour argues that this decline in workers’ spending power has created a “vicious circle” of debt for some of the poorest and most financially vulnerable households in Britain.
Campaigners have warned of the danger of “persistent overdrafts,” where high fees and low wages keep families trapped in debt.
Labour expects that its plans will help the roughly 2.7 million people who, according to the Financial Conduct Authority, are stuck with their overdrafts and incurring higher charges.
Surveys show that nearly three million people have to rely on overdrafts to buy food and pay bills.
Mr McDonnell said: “The Tories’ rigged economy has seen real wages fall and insecure work multiply, while they hand out huge tax giveaways to the super-rich and the banks.
“The national scandal of the low-paid debt trap has to end. More needs to be done to level the playing field and bring greater fairness in consumer finance.
“Labour will end the misery of permanent debt and extend the cap on borrowing charges to overdrafts.
“We’ll also introduce a £10-an-hour real living wage and build an economy that works for the many not the few.”
Socialist actor Michael Sheen welcomed the policy, saying: “Millions of people across the UK are trapped in their overdrafts by extortionate rates of interest charged by reputable high street banks and are already struggling as a result of low wages, rising costs and a lack of affordable credit options.
Regulators must “keep doing what is needed to make providers deliver a fairer deal for all those suffering now,” he added.
Centre for Responsible Credit director Damon Gibbons hailed the proposal as an “important step towards ending the debt crisis.”
“Too many families have become trapped by a failing model of financial services provision which sees banks and other financial institutions making often significant profits out of people stuck with permanent, high-cost debts.
“It’s time for a fresh approach, with better regulation of our financial institutions in the interests of households and consumers.”
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