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Labour pledges law to cut credit card debt John McDonnell 'would bring existing PFI contracts in-house'
(about 2 hours later)
Legislation limiting the amount of interest that can be charged on credit card debts is being promised by the Labour Party. A future Labour government would bring "wasteful" PFI contracts back in the public sector, shadow chancellor John McDonnell has said.
Under the changes, nobody would pay more in interest than they had originally borrowed. He told Labour's conference the contracts were set to cost the taxpayer £200bn over coming decades and private companies were making "huge profits".
Shadow chancellor John McDonnell says more than three million people are "trapped" by credit card debt. He said Labour, which has previously promised to strike no new deals, would bring PFI contracts "back in house".
He will unveil the planned change in the law in a speech at Labour's conference in Brighton. Labour sources later said this meant they would "review" all PFI contracts.
Labour said the changes would work in a similar way to measures on payday loans, which came into force in 2015. This means it is not clear whether all existing PFI contracts would be brought back "in house".
The Financial Conduct Authority has called for new measures to help people in "persistent debt" as a result of credit cards. The PFI model of funding public services such as new schools and hospitals was pioneered by the Conservatives in the 1990s and has continued under successive governments.
The regulator says more than three million people are in persistent debt, which it defines as having paid more in interest and charges than they have repaid of their borrowing over an 18-month period. But Mr McDonnell told activists in Brighton that it was draining the public sector of resources and its time was at an end.
Labour said its "total cost cap" would help "tackle the persistent debt spiral", claiming growing consumer debt was becoming a "threat to our economy". "The scandal of the Private Finance Initiative has resulted in huge long-term costs for taxpayers while providing enormous profits for some companies," he said.
Addressing delegates in Brighton, Mr McDonnell will say: "The Financial Conduct Authority has argued for action to be taken on credit card debt as on payday loans. "Over the next few decades, nearly £200 billion is scheduled to be paid out of public sector budgets in PFI deals. In the NHS alone, £831 million in pre-tax profits have been made over the past six years.
"I am calling upon the government to act now apply the same rules on payday loans to credit card debt. "Jeremy Corbyn has made it clear that under his leadership, Labour will sign no new PFI deals. Never again will this waste of taxpayer money be used to subsidise the profits of shareholders, often based in offshore tax havens.
"It means that no-one will ever pay more in interest than their original loan. "I can tell you today that when we go into Government. We'll bring these contracts and staff back in-house."
"If the Tories refuse to act, I can announce today that the next Labour government will amend the law." 'Not free'
UK Finance, which represents the financial and banking industry, said it was committed to responsible lending and that consumer credit was important for economic growth. The BBC's assistant political editor Norman Smith said such a move would "end the 25-year consensus" on using the private sector to fund major projects but to do so would require a "massive" compensation bill and it was not clear where the money would come from.
It added that "the last thing the industry wants is to see those who are most vulnerable being pushed towards the hands of unscrupulous and unregulated lenders". One leading economist, John Appleby, from the Nuffield Trust, told the BBC that the NHS alone was repaying private firms about £2bn a year for PFI schemes and the cost of interest payments for completed projects was likely to total £56bn by 2048.
But he added: "The trouble with these kind of announcements is the fine print of the details. Taking them back into public ownership does not come free. The money will have to come from somewhere."
Mr McDonnell said Labour had proved doubters wrong by making gains in June's snap election and its goal was to get into power, "rescue" the UK from austerity and "set the political agenda for a generation".
"We have proved we are an effective campaigning party," he said. "We now have to prove we will be an effective governing party."
In his speech, he also promised legislation limiting the amount of interest that can be charged on credit card debts.
Labour said the changes on credit card debt would work in a similar way to measures on payday loans, which came into force in 2015, "tackling the persistent debt spiral".
"I am calling upon the government to act now apply the same rules on payday loans to credit card debt," he said. "It means that no-one will ever pay more in interest than their original loan. "If the Tories refuse to act, I can announce today that the next Labour government will amend the law."
UK Finance, which represents the financial and banking industry, said it was committed to responsible lending and "the last thing the industry wants is to see those who are most vulnerable being pushed towards the hands of unscrupulous and unregulated lenders".
When the FCA called for action in April, the UK Cards Association, which represents the major credit card providers, said the industry was "committed to helping the minority of cardholders who do not use a credit card in a way which is in their best interest".When the FCA called for action in April, the UK Cards Association, which represents the major credit card providers, said the industry was "committed to helping the minority of cardholders who do not use a credit card in a way which is in their best interest".
The Conservatives said action was already being taken to outlaw "rip-off credit card charges" and ensure companies help customers clear debt.The Conservatives said action was already being taken to outlaw "rip-off credit card charges" and ensure companies help customers clear debt.
Risks
The Bank of England's Financial Policy Committee warned on Monday that banks were "underestimating" the potential risks to their balance sheets from consumer debts that might never be re-paid in the event of an economic downturn.The Bank of England's Financial Policy Committee warned on Monday that banks were "underestimating" the potential risks to their balance sheets from consumer debts that might never be re-paid in the event of an economic downturn.
It has highlighted longer interest-free periods on new credit cards, encouraging people to build up debts, as one of a number of developments that have contributed to a nearly 10% increase in unsecured lending at the end of last year.
On day two of Labour's conference, the party is also warning that levels of student debt will reach a point where the current tuition fee system in England and Wales is no longer sustainable.
The Institute for Fiscal Studies has said seven out of ten students are unlikely to repay their loans in full given that, under the current system, any outstanding sums will be written off 30 years after they become eligible to be repaid.
Mr McDonnell said this was not tenable and a future Labour government would abolish fees.
"The number of people not paying their debt means that, I think, at the end of day some government, whoever it is, will have to intervene. We think it is better done now than it is in the future," he told BBC Radio 4's Today.
Labour, however, has insisted it has no current plans to write off existing student debt. The Conservatives say their opponents have backtracked after Jeremy Corbyn signalled action was needed to reduce the graduate debt burden during the election campaign.
Are you affected by the issues in this story? Have you faced credit card debts? Email haveyoursay@bbc.co.uk with your experience.Are you affected by the issues in this story? Have you faced credit card debts? Email haveyoursay@bbc.co.uk with your experience.
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