Labour party leader Ed Miliband plans to introduce a new tax on payday lenders if his party is elected into government in 2015.There are no details on how big the tax on firms' profits would be, but Labour says it wants to raise enough cash to double the £13 million the Government currently gives credit unions each year (see our Payday Loans guide if you've no other borrowing alternatives).
Companies such as Wonga will already pay a levy when they start being regulated by the Financial Conduct Authority next year. But Labour says its proposed tax would boost options for households who cannot borrow through mainstream lenders (see the 'About bloody time' Ė payday lending crackdown MSE News story).
Labour has already proposed a cap on the cost of credit, which has not yet been implemented, and Prime Minister David Cameron told the House of Commons yesterday he has not ruled out a similar proposition.
Payday lenders offer short term, high interest loans to people who need a quick cash boost. The industry has been widely criticised for lending money to vulnerable customers and charging interest rates in excess of 5,000% APR.
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'Protecting the vulnerable'
Miliband is to visit a credit union in south London later today, where he is due to say: "Almost a third of the payday loans taken out in Britain at the moment are to cover the cost of people's gas and electricity bills. For too many families, the end of the month is now their own personal credit crunch.
"We must protect the most vulnerable people in our society from the worst of exploitation by payday lenders. And it is right that the companies that benefit from people's financial plight accept their responsibilities to help ensure affordable credit is available."
Miliband also announced that Labour's competition and consumer affairs spokeswoman Stella Creasy has been given special responsibility to lead a campaign against abuses by legal loan sharks.
The Walthamstow MP is an outspoken critic of the payday lending industry, and says she is determined to introduce a cap in the UK to "give British consumers the protection they deserve".