Living on Tick
From Shakespeare’s Shylock to Dickens’ Scrooge, moneylenders have generally had a bad literary press, probably revealing people’s instinctive reaction to them, but their place in society remains central. We examine the role of debt in working-class life.
Robert Roberts’ The Classic Slum describes life in Salford in the first part of last century. The pawnshop was an essential part of the local community; many people were dependent on the short-term loans offered, with women often pawning the family’s ‘best’ clothes on Monday until the following Saturday. There was a social hierarchy among the working class, with skilled workers at the top, and various ‘disreputable’ individuals at the bottom; and position ‘was judged not only by what one possessed but also by what one pawned’. True destitution meant pawning not just clothes but also pots and rugs, and finally not being able to redeem what had been left with the broker. The interest charged was usually a penny in the shilling per week; sky-high, but less than the moneylender, who charged threepence in the shilling per week.
Pawnbroking is not now the widespread industry it was in the days Roberts was writing about, but it began to grow again from the 1980s. There are now over two million loans a year, and the market as a whole is worth £850m, though the average loan is less than £200 and is for three or four months. The National Pawnbrokers Association states that 88 percent of loans are redeemed, but that still leaves around 250,000 which are not (though this does not mean that the value of the goods has been completely lost). The NPA describes pawnbroking as ‘a serious alternative to using the services provided by the High Street bank’ and ‘a modern, friendly and convenient way of getting cash quickly’. They claim it is cheaper than a bank loan or using a payday lender.
In July 1954 war-time food rationing came to an end, as did restrictions on hire-purchase (‘never-never’) agreements for consumer durables such as radios, fridges and vacuum cleaners. This meant buying what were then relative ‘luxuries’, in contrast to buying essentials such as furniture this way back in the 30s. Nowadays, hire purchase is often used in buying cars, including companies buying a fleet of cars. For personal consumers, it avoids the need to pay a big sum up-front, but it can lead to problems: if you return an item after paying less than half its cost, you have to pay enough on top of what you’ve already paid to make up that half cost (so you might get just three months’ use of something but have to pay a year’s worth of instalments).
The extreme case of hire-purchase is that of the weekly payment stores, which make big profits, primarily from the massive interest rates they charge on their loans and the service cover they also sell. Back in 2012 the Guardian gave an example of an oven that could be bought from one such company for £562 (or £389 elsewhere) but would cost a whopping £1433 if bought on weekly instalments from that same company with service cover over three years. Sales pressure plus an inability to pay by other means can easily result in people taking on such commitments without quite realising what they are letting themselves in for.
If people are having trouble repaying any kind of debt, they may well have recourse to one of the payday loan companies that now exist on almost every high street. But these again are incredibly expensive, with annual interest rates sometimes topping several hundred percent. The debt charity Step Change gives an example of someone borrowing just £200 for twenty days at the maximum allowable rate of 0.8 percent a day. If you repaid the loan on time, you would pay back £232, which is already quite a stiff rate of interest. But if you are late, then the interest mounts up, a late fee is added and you have to pay interest on the late fee. If you are ninety days late repaying, you would repay £400 (double the original loan, and the legal maximum that can be charged).
As this suggests, being poor is in itself expensive. Using prepayment meters for energy is more expensive than a standard tariff; and borrowing money means a higher rate of interest if you do not have a good credit record. No wonder debt counselling has become a minor industry in its own right. Some writers have even referred to there being a ‘poverty industry’.
Mortgages are of course the biggest source of debt, while students typically have over £40,000 in debt when they graduate. But plenty of people borrow – especially from payday loan companies and even doorstep lenders – to pay for everyday expenses such as food and energy as they struggle to make it to the next payday. They also borrow to pay for Christmas and so avoid disappointing their kids. And they borrow to pay off existing debts, which can swiftly lead to things spiralling out of control. Losing your job, falling ill, the break-up of a relationship: all these can tip people over the edge into chronic indebtedness.
The Money Charity provides a great many statistics on the extent of debt. For instance, in February this year, the average debt per household, including mortgages, was over £54,000. Outstanding consumer credit lending was £180bn, including £63bn on credit cards. Every day over two hundred people are declared insolvent or bankrupt, and twenty-five properties are repossessed. Other sources have noted the big increase in household debt over the last year or so, with the average increasing by over a third to £13,500 (mortgages aside). Shelter reported that one in ten parents thought that they might be unable to pay their rent or mortgage bills in January this year. Moreover, in March the increase in borrowing was the biggest since March 2005, before the recession began, leading debt charities to become increasingly worried.
The definition of ‘problem debt’ is when a family pays more than 25 percent of their gross monthly pay on servicing unsecured debts, and this applied to 3.2 million families by 2014 (up from 2.5 million in 2012). The pressure of debt can be overwhelming. In the words of one man who eventually did cope with his problems: ‘I felt like I was drowning, felt trapped. There was no light coming from anywhere, it was horrendous. And at one point I did go really dark and I did want to end it all’ (BBC Online, 20 January). Some people do in fact commit suicide because of their debt problems. In November 2013, for instance, a 60-year-old man from Southampton killed himself after taking on £20,000 in debts from twelve payday loan firms: his jobseeker’s allowance had been stopped on the grounds that he was fit to work, even though he had an illness that prevented him from swallowing (Daily Mirror, 22 July 2014).
Pawnbroking dates back at least to Ancient Greece, but it takes capitalism, with the cash nexus touching almost all aspects of life, with the never-ending influence of advertising, and with the insecurity felt by many workers, to make so many people subject to the worry and pressure of debt.