Mike Dailly, Principal Solicitor, Govan/Govanhill Law Centres

Poverty, injustice and hardship existed long before the credit crunch in Scotland. Strange as it may seem the difficult economic times ahead this year present an unique opportunity to right some unquestionable wrongs. Who would have thought we would be nationalising the banks in the 21st century? If we can do that we can do anything.

At GLC’s ‘Tacking the credit crunch in Scotland’ conference last month Scotland’s advice sector and anti-poverty campaigners came together to look at what the UK and Scottish Governments could do right now to help Scottish households keep the roof over their heads. It became clear that just a few simple legal and policy changes could make all the difference to the most vulnerable members of our society.

Around 100,000 Scots receive the statutory hourly minimum wage of £5.73. Many employers oppose any increase to the minimum wage for a variety of reasons. Leaving that debate aside, when it comes to businesses supplying goods or services from publicly funded contracts we could easily use taxpayers’ money to lift Scottish households out of poverty through a ‘living wage’.

This could be done through the public procurement process. It’s already been done around the world. The ‘living wage’ movement started in Baltimore, USA in the early 1990’s and has already been pioneered in London.

In Scotland, public contracts for goods and services are worth a massive £8 billion pounds each year. The Scottish Government could easily make it a condition of all public tenders in Scotland that any company securing a tender must pay its workforce no less than around £7 per hour.

This would put an extra £50 each week into the wage packets of low paid workers in Scotland. It would cost the taxpayer nothing and could be done immediately by the Scottish Government. Significantly, it could help lift up to 100,000 Scottish households out of poverty.
In November the Joseph Rowntree Foundation published a report which showed that while pensioner and child poverty in Scotland had fallen over the last decade, poverty among the ‘working poor’ has remained static.

Empirical research on the London living wage tells this story: "The experience from London is that a living wage lifts families out of poverty wages and ‘achieves an adequate level of warmth and shelter, a healthy palatable diet, social integration, and avoidance of chronic stress for earners and their dependents’.

There is a maxim that the poorest people in our society pay for the most expensive credit. It’s shockingly true. Low income households are often unable to access affordable credit and have to turn to the ‘home credit’ market, where door to door salespeople (aka debt collectors) sell them little bits of credit at 300% APR.

Many people quickly get into arrears with these interest rates and are sold more credit to pay off arrears. A loan of £200 suddenly becomes £750, then £1,500 and families are locked into a cycle of extortionate debt.

I say extortionate but these interest rates are not unlawful. Indeed the same companies that provide 300% APR deals sell ‘pay day loans’ where the interest rate charged is the equivalent of 1000% APR.

The UK Competition Commission has investigated the home credit market and found it wholly lacking in competition. Why don’t we make these rates illegal? Why doesn’t the UK Government introduce an interest rate cap for consumer credit?

When the UK Government looked at this a few years ago the Department of Trade and Industry was worried that poor people would be unable to get any credit or would have to borrow from loan sharks if an interest rate cap were introduced.

The reality is that vulnerable people already borrow from loan sharks and we need to do all we can to drive the loan sharks out of our communities. But if the concern is that those in poverty won’t be able to access credit with an interest rate cap the solution is to intervene in the home credit market.

For example, the Scottish Government could fund credit unions to target a form of home credit to low income households at 9% APR instead of 300% APR. This is permissible under competition law under the Service of General Economic Interest exemption.

Until 1974 there was a statutory interest rate cap in the UK at a rate of 48%. France, Finland, Germany, Greece, Holland, Italy, Ireland and many states in the US all have interest rate caps.

In Germany an interest rate cap of around 20% has worked well for 25 years. With an international credit crisis and recession looming its time the UK reintroduced a statutory interest rate cap at around 20% which is similar to the French and German models.

Why doesn’t the Scottish Government introduce a right to free representation at the sheriff court for anyone facing homelessness as a tenant or homeowner? Free services are usually provided subject to ‘need’. Doesn’t keeping the roof over your head mean you are in need?

Repossession in Scotland has become a gravy train where the banks add on a myriad of ‘admin’ charges to your mortgage account, while lenders gleefully run up a huge legal tab because your paying for it.

The Scottish Government could easily amend the Conveyancing and Feudal Reform (Scotland) Act 1970 to introduce a fixed fee for the bank’s reasonable legal costs as opposed to the current blank cheque.

If the Scottish Government chose to amend the 1970 Act they could also use that opportunity to introduce a tougher statutory based ‘pre-action protocol’ to ensure that repossession in Scotland was a genuine last resort.

These are just a few ideas that could be introduced very quickly. We
need more solutions from our political leaders and we need them now.