WHAT TODAY’S CONSERVATIVE MANIFESTO MEANS FOR THE CREDIT INDUSTRY

The result of the election seems a foregone conclusion. But manifestos are important nonetheless, not only for the specific policy commitments they contain, but as indicators of the tone and nature of the political debate to come over the next 5 years.

For us in the credit industry, there are also important signposts of what we can expect in terms of regulation and political pressure on our businesses. So what does it say that’s relevant?

It has two overarching themes – strong leadership in the Brexit negotiations to get the best deal for Britain; and, on the domestic front, using the power of government to tackle social injustice and create a ‘Great Meritocracy’ where everyone can succeed based on merit.

This second point is remarkable. Theresa May’s version of ‘One Nation Conservatism’ heralds an historic, ideological departure from the central tenets of ‘Thatcherism’ — something no Conservative leader since Thatcher has been inclined or dared to do, not even David Cameron during his mission to modernise and ‘decontaminate’ the Tory brand.

Mrs. May states she ‘rejects the ideological templates provided by the socialist left and the libertarian right and instead embraces the mainstream view that recognises the good that government can do’.

Expect meters of column inches on this topic.

Team May has talked for months about the ‘Just About Managing’ and the manifesto certainly doesn’t disappoint. Many of the policy prescriptions are written specifically for them: ‘an industrial strategy to spread opportunity across the whole UK’, ‘a higher national living wage and rights and protections at work’, investment in the NHS, schools, social care, and so on. All geared to giving JAMs better life chances and greater ‘economic security’.

Further into the document we get to the parts of direct relevance to credit businesses, and there are several items of note.

Under ‘Cutting the Cost of Living’, the Conservatives commit to “making consumer markets work more fairly, and in doing so reducing the cost of the essentials that families have no choice but to buy”.

Importantly, it then adds that “these costs make up a much larger share of working class household budgets than those of better-off households.”

This is highly significant. ‘The poor pay more’ has long been a mantra of the Left, but historically a step too far for the Right. No longer. If Conservative governments were once greeted with relief by the credit industry and other sectors, they won’t be anymore.

The next section, ‘Fair Markets for Consumers’, builds on the theme:

“Poor information, complex pricing and exploitative behaviour prevents markets operating efficiently for the benefit of all … Since 2010, we have capped the cost of credit for expensive payday lenders … We will now go further to reform markets in the interests of consumers and reduce the cost of living.”

This too presages further intervention in credit markets.

The document goes further, promising more power for the FCA and FOS:

“A Conservative government will strengthen the hand of regulators. We will strengthen the powers of consumer enforcement bodies to order fines against companies breaking consumer law and deliver redress for wronged parties.”

And it warns against behaviors that could harm vulnerable consumers:

“We will put the interest of vulnerable consumers first, including considering a duty on regulators to weigh up their needs. We will investigate how switching sites can better serve competition, including by providing shoppers with information about quality of service and complaints.

The much-trailed cap on energy bills is there:

“Energy suppliers have long operated a two-tier market, where those constantly checking for the best deal can do well but others are punished for inactivity with higher prices. Those hit worst are households with lower incomes, people with lower qualifications, people who rent their home and the elderly. A Conservative government will act in their interests.”

And the coup de grace comes at the end of the chapter. Under the heading ‘Fair Debt, it says”:

“For some people, the cost of living can become too great. Problem debt can be hard to escape and can compound family breakdown, worklessness, stress and mental health issues. We will adopt a “Breathing Space” scheme, with the right safeguards to prevent abuse, so that someone in serious problem debt may apply for legal protection from further interest, charges and enforcement action for a period of up to six weeks. Where appropriate, they will be offered a statutory repayment plan to help them pay back their debts in a manageable way. This will give eligible debtors time to seek advice and assistance to apply for a sustainable solution to their debt.”

Six weeks of breathing space is unlikely to satisfy the debt campaigners, but it is significant nonetheless. It will be interesting to watch how the scheme is implemented and administered.

The Upshot?

The manifesto is an historic departure from free market Thatcherism and a charter for government intervention where market outcomes penalise poorer or more vulnerable consumers. Credit markets will undoubtedly be in the frame.

There will be a strengthened hand for the regulator. The FCA is by instinct a ‘conduct and competition’ regulator, but it will be happy to intervene on price if it has the political and legal cover to do so (which it now will have).

If, as expected, Mrs. May wins big on 8 June, her parliamentary team will be bound to the manifesto that delivered it. She will have a large and loyal band of new MPs who will owe their parliamentary careers to her (possibly 100+).

There will of course be a significant rump of Conservatives who will be uncomfortable with the proposed interventions in various consumer markets. These are bound to make their voices heard but they will be a minority. And nor will Mrs. May’s interventions be likely to encounter parliamentary opposition from Labour, the SNP or the Lib Dems (if the latter return in any numbers). Their rejoinder will be the Government isn’t going far enough!

So in summary, challenging times ahead for all credit businesses, but especially those that price for risk.

https://www.conservatives.com/manifesto