Banks should play fair with interest rates
IN recent weeks the coalition government has been expending energy on clamping down on welfare cheats, trimming away benefits payments paid to middle class families, and declining incapacity benefits to those who are capable of work.
There is no doubt that the benefits system needs overhauled. The level of welfare dependency across the United Kingdom, and in particular in Northern Ireland, has become both economically and socially unsustainable.
A system that was supposed to provide a hand up in hard times has been allowed to become a lifestyle-sustaining handout.
It is increasingly difficult to explain to people why they should work, pay taxes and become self-reliant when they see plenty of people living well without the hindrance of employment.
There are, of course, limits to the extent to which welfare costs can be reduced while the economy remains in the doldrums, but one clear target is benefit cheats.
Fiddling the dole is unfair to the rest of us, and it is estimated some 1.5 billion a year is stolen from the taxpayer by benefit fraudsters.
Now that sounds like a lot of money, until, that is, you remember that 850 billion was spent bailing out the banks, and that their continuing behaviour is hardly less reprehensible.
If David Cameron wants to avoid seeing the Conservatives regain the 'nasty party' tag that he worked so hard to lose, he needs to ensure that he does not just roast the small fry while the larger fish are left unfried.
The government is right to respond to rising public resentment to benefit cheats, but it should not ignore the continued widespread dissatisfaction at the behaviour of the financial institution who are also dependent on the taxpayers' cash, and who continue to pay themselves massive bonuses while turning the ratchet on consumers.
The UK base rate remains at an all time low of 0.5 per cent and the LIBOR rate, effectively the rate that banks can borrow money at, is 0.727 per cent. However, the rates that banks charge to their customers is skyrocketing.
They stand accused of being unwilling to lend on fair terms to businesses in need of investment and of extracting record profit margins at a time when the rest of us can least afford it.
Officially, personal loans currently cost around 13 per cent, credit cards around 19 per cent, and overdrafts are somewhere in between.
However, when the small print kicks, in some publicly funded high street banks are actually applying authorised overdrafts rates of up to 33 per cent – the sort of rates more usually associated with loan sharks.
If this is not scary enough, think what might happen if base rates have to rise to control inflation.
While customers who borrow money see double figure interest rates, savers are shown a very different and less generous set of numbers.
A quick trawl of the comparison websites shows that the best savers can hope for is around 2.5 per cent, and even then if you do not abide by stringent requirements the return can plummet to a 'nominal rate' of 0.01 per cent.
This is not a new complaint. Last month the business secretary Vince Cable and Northern Ireland's church leaders attacked what they saw as unfair banking practices.
Mr Cable said: "One of the negative side effects of this crisis is that our banking system, which was already very concentrated, is now even more concentrated, and so there's less competition, less choice and bigger temptation for banks to earn margins at the expense of their customers."
It was characteristically strong stuff from Mr Cable, but we have yet to see the words converted into action.
In their defence, the banks say that they should not be pressurised into making the sort of unwise spending decisions that got them and us into the big mess in the first place.
This would sound like a fair enough defence if it were not for those continuing massive bonuses which are also a large part of initial problem.
The banks have also lost the defence that as private enterprises in a competitive market, it is no one's business but their own as to how they decide to conduct their affairs.
The moment that the major banks took the government shilling the game changed; and not just for the specific institutions that received bail-out cash, but for the whole banking sector that was effectively propped up by taxpayers' cash.
No one is saying that banks should become charities or make reckless and foolish decisions, but selfish, short term profit maximisation can no longer be their only motivation.
As Church of Ireland Archbishop Alan Harper said: "There is a culture of aggression and threat where the only priorities are the banks' priorities."
David Cameron tells us that "we are all in this together" and that should include the banks. It would only seem fair that if hard discipline is to be dispensed, then those in pinstripe suits should be held to the same standards as those in replica soccer tops.
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Thursday 24 May 2012
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