Not only do we now live in one of the most unequal societies in the ‘developed’ world – in terms of the distribution of money between rich and poor – but far too many experience the double injustice: Those with the least money frequently pay the most.
As my good friend, John Taylor, CEO of the US Community Reinvestment Coalition memorably said a few years ago, ‘we need to make capitalism work for the poor.’ But sadly, at present, capitalism (or ‘free markets’ more precisely) simply aren’t working for the poor. Left to their own devices, ‘free markets’ frequently offer those with little money inferior products (or no products at all), at much increased prices.
Increased prices for their gas or electricity (for those required to pay via pre-payment meters); increased prices for their food (corner shops charging inflated prices for poor quality products); increased prices for insurance (if they can get any at all), and worst of all – inflated prices for accessing money in the first place. In recent years we have witnessed an explosion of payday lending in the UK, mirroring what happened in the US: Companies aggressively marketing instant loans at APRs in excess of 2,000, with predictable consequences in terms of increased levels of debt
Last year Save the Children put a figure on the ‘Poverty Premium’ of nearly £1,300 a year for the average family on low incomes. £1,300 a year (or £22 a week) is a huge extra bill to shell out when you haven’t got much to start with.
So is it time to make capitalism work for the poor. But what would this look like?
Firstly, fair access. Whatever the arguments are about the ‘right use of money’, in a modern western economy, it is hard to argue the case that it is possible to function as a citizen (or consumer) without any access to money. And yet, there is still no universal service obligation on the financial services industry (as there is, for example, for the water industry). And I’m not meaning here second rate ‘Basic Bank Accounts’, but a universal obligation to provide access to the full range of financial services – insurance, and yes, credit. Banks may be under pressure to strengthen their balance sheets, but surely not at the expense of refusing to serve 10 or 20 percent of the UK population?
And secondly, fair prices. Much of the ‘logic’ of the way markets have developed in recent years is to move towards ‘risk (or cost) pricing’ and away from shared risk. Some of the assumptions behind this are extremely dodgy: The majority of high cost lenders claim that their premium prices are based on the ‘risk’ of lending to low income customers… any yet, when customers pay week after week, year after year, the cost doesn’t go down. But fundamentally, is it socially (or morally) acceptable to operate ‘cost’ pricing models which force the poorest to pay most? How can companies square all their talk in recent years of corporate social responsibility, with charging their poorest customers the most?
And if individual businesses are unwilling to offer products to low income consumers at fair prices (not least by claiming they can’t do so if their competitors don’t), then is there not a role for market intervention?
Yet, in spite of all the heroic efforts of Stella Creasy MP, the Centre for Responsible Credit (and a host of others), the Government appears to remain steadfast in opposed to any form of price cap or regulation – which interferes with the ‘free’ operation of markets – whatever the social costs of failing to do so.