What Does Responsible Credit for Low Income Households Look Like?

 

It was supposed to be the bankers who got punished for the 2008 financial crisis. 

They were the ones who got high on "all the money waiting to be made" from selling ill-backed loans to people who'd been encouraged to lie about their means to repay the loans.

They were the ones who targeted those least able to afford credit.

They were the ones who covered up accounting black holes in their banks' reserves.

They were the ones who lied, again and again, to the public, the media, and to governments.

But, inevitably, in the end, they managed to paint the public as the bad guys. If ordinary people just hadn't been so greedy for things like secure housing, vehicles to get to workplaces that were inaccessible by public transport, high quality nutrition, childcare so they could actually leave the house to go to work, the desire to start their own businesses, to work towards building their futures, and their families' futures, then the drama of 2007-2008 wouldn't have happened.

People just shouldn't require more money than their job provided them, no matter how hard wages were suppressed, or how high the cost of living got.

But bankers absolutely needed their bonuses - and they worked so hard. They deserved those bonuses, they shouldn't be made to take the blame for what went wrong.

In the UK, governments of all stripes have had a fondness for blaming their citizens ever since the Winter of Discontent, if not before. They dislike and distrust the "ordinary working people" - unless and until they can use them as a heartstrings-tug in their electioneering, can pit them against "Johnny Foreigner" and "scroungers and skivers on benefits" in venom-fuelled rhetoric against immigration and the welfare State, or argue that people choosing the peace that comes with fully inhabiting and expressing a sincerely felt identity are putting them at risk.  It was easy for British politicians to accept that the fact was that the British people just couldn't be trusted with easy access to credit, and that access needed to be taken away from them.  

So-called 'payday loan' companies were either shut down, or given such stringent, legally-mandated lending criteria that their clients had to meet that it became impossible for them to survive, as the only clients they could lawfully lend to were those who already had access to mainstream credit - which was significantly cheaper to repay than the payday lenders' offerings, and would therefore always be chosen over them by those who could choose.  Those who couldn't, because high street lenders had always closed their doors to them, were left with no choice.

And those people were often the least able to afford to live on the wages their jobs paid.  They were retail, care, and hospitality workers making minimum wage. They were people trapped in social housing in high cost-of-living cities. They were people forced to balance childcare, kinship care for adult family members, and part-time employment. They were single-income households with family commitments which prevented them "just getting a second job."  They were young people who needed to have a car or moped to get to work, and whose parents were not in a position to buy one for them.

16 years on from the 2008 crash, lenders have forgotten, and are slowly working their way back into the so-called 'sub-prime' credit arena, mostly through easy-access credit cards, but also through mortgages - the ultimate trigger for the 2008 collapse.

It would be easy to say "well, people shouldn't borrow money they know they can't afford to pay back!", but there are increasing pressures on people that they can't just dismiss. In the West, it's seen as a "failure to be a functional adult" if someone is still living at home with their parents - especially for men.  Rental costs are spiralling, and people have to have somewhere to live - social housing waiting lists are vastly oversubscribed, and the criteria to even be accepted onto the waiting list is so stringent, only a fraction of the people in genuine need of affordable housing actually get accepted to 'maybe eventually' get it.   I was told, for example, that "as you're male, we're not obliged to house you, because there's no risk to you sleeping on the streets" - except that rough sleeping is regarded by the police and business owners as unlawful. Except that violence, and ill-health due to exposure, happen regardless of gender.  I  initially had to stay in proximity to a violent abuser, and now live in a house which needs major repairs I can't afford to carry out. 

(The house was purchased with my share of my late father's life insurance policy.  I was living in an unheated, no-means-to-attach-to-the-mains, minimally watertight caravan on the driveway of my mother's house, after she had attacked me at knifepoint, while I waited for the life insurance claim to be processed. I was out of work at the time, having lost my most recent job when I took a single day off to deal with my mother having a serious mental health flare, informing my manager of this, and returning the following day to find a woman already employed in my role - not entirely a surprise, as my manager had been very forthright at interview about how she "didn't rate men as cleaners", and had constantly followed me round while I was working, checking every single aspect of my work - she never found fault, and I'm not sure who was doing her actual job while she was bothering me, but them's the breaks..., and having lost the job before that because I got diagnosed with schizophrenia, which my employers decided was an example of "gross misconduct" on my part...Being unemployed, I wouldn't have qualified either for a mortgage or private-sector rent at the time.)

Year on year, more people find themselves in the situation of having no choice but to get into unmanageable debt just to have shelter, to have childcare so they can go to work, to afford to travel to work, to take ever-more qualifications, to try and get "better" jobs (which pay at most £2k a year more than the minimum wage), and, in some cases, to afford Right to Work evidence so they are even allowed to work at all - a passport costs close to £100.  A replacement birth certificate costs £13, £30 if you need it pronto. DBS clearances cost money. Professional registrations cost money. If you're transgender, and either transitioned before the Gender Recognition Act was updated, can't afford to travel to London, or don't have the 'right kind of proof', that's you paying at least three different doctors for letters to back up your passport application - and those letters can cost up to £50 a time. And then you have to use the more expensive postal application route for the passport itself.  If your parents ever changed your name for any reason, again, that's you shelling out for the postal application route for a passport.  

With the NHS at breaking point, many people, especially those living with disabling conditions which are actually preventing them from achieving or maintaining full time employment, are being driven to seek treatment privately - which costs money.

Being successful in job interviews requires having the 'right' clothes, a 'decent' haircut, for women, an appearance which only makeup can achieve - all of which costs money. And that's before you've even managed to get to the interview, which, if you're on Universal Credit, can be up to 90miles away. (That's what the Department for Work and Pensions considers a "reasonable" commuting distance for the able-bodied... Even being registered blind, and having a serious psychiatric diagnosis, I was expected to be okay with spending 90mins each way on the bus to get to the "nearest" city, before I finally managed to get assessed as having limited capacity for work-related activity - which still didn't result in even half the minimum income standard for a single person, never mind the two disabled adults, myself and my wife, I have to support...)

It all costs, and, since high street lenders won't even consider offering affordable credit to the unemployed, and Universal Credit doesn't even allow for half an 'acceptable' standard of living, never mind extras like commuting travel, good haircuts, or decent clothes, the money has to be found from somewhere.

There needs to be a better solution for lending to those least able to afford to borrow.

Being in debt means people genuinely cannot take minimum wage or part-time work - because that income won't pay their debt obligations and their bills.

The thresholds to get debt forgiven actually encourage people who are struggling, but trying to 'do the right thing', and pay down their debt themselves, to give up - if I'm three grand in debt, and the threshold for  getting government-backed support to get 80% of my debt written off is five grand, I'd be a mug to struggle on trying to clear three grand from a minimum wage or Universal Credit income - just give up paying it until it reaches five grand, then apply to get most of it cancelled. The money I was paying to do practically nothing about the three grand debt can now cover utility bills I'm behind on, get some essential repairs done, or buy actually decent, nutritious food.

The Truth About Low-Income Living

When you're in a low-income household, you're often in a job which has strict embargoes on you doing another job - even a 'side hustle' - alongside it. Even if the hours don't clash, and the two companies aren't in competition.

You're also less likely to be able to work from home - usually because the job can't actually be done from any location other than the actual job site, or because your employer considers remote working to be a "management perk".

Your company is less likely to offer more than six weeks' statutory maternity pay, they're less likely to have actually relevant sick pay, they're more likely to require you to take compassionate/family emergency leave as unpaid leave, and they typically offer no or minimal flexibility around working hours.

Getting into jobs with 'better' employers, as we've discussed already, is expensive when you're starting from a position of low or zero-income, and you inherited health vulnerabilities and neuroses, rather than generational wealth.

You can't afford a cleaner, a Roomba, food delivery, or an air fryer, so everything takes longer, and uses more physical energy, than the lifestyle of someone on better pay demands.  And that's on top of the fact that your job is usually a lot more physically demanding than theirs, too.

You can't afford to bridge the gap between the childcare hours the State will pay for, and the hours you actually have to work to make it worth going to work when you have 101 other demands on your time - housework that needs doing, kids that need watching, repairs that are threatening to become critical, family members who actually need more support than a care worker popping in for fifteen minutes twice a day, the impacts of your own health issues and disabilities - so you're constantly dashing from childcare to work, work to childcare, to try and avoid being sacked by your job, or fined for late pickup by the childcare provider or school.  Because you were chivvied back to work by the Jobcentre the very minute your kids started primary school - assuming you hadn't had to go back way before that because you can't actually live on Universal Credit when you're trying to raise a whole other human being - and you couldn't afford an au pair, the law may claim that darling Timmy can legally be left home alone while you top up the Exchequer's coffers with a chunk of tax you don't get the option of "avoiding", but the feral little get has had no training in how to not blow the flippin' place up inside an hour, and if he so much as scribbles on the wall of the shower, you'll be booted out if you can't completely wash it off before the landlord stalks round to make sure you haven't dared to put a splash of colour on the walls, or sublet the sofa bed, so you're not going to risk it. Plus, her at number 92 is always sticking her nose in other peoples' business, and she wouldn't hesitate to be on the phone to social services howling about "the poor little mite, all alone in there for hours, he is."

It simply isn't true that "everyone has the same 24hrs in a day."

It takes me 40 minutes to go 10miles up the road on the bus.
It takes me an hour to do a shop at a supermarket that's 2.5-3miles away.
It takes me 90minutes to travel 40miles, if I can't afford to take the train.

I can't afford to order takeaway from Just Eat or Deliveroo, or decide to go out to eat instead - I have to take the time to prepare and cook food at home. To wash up and clean the kitchen afterwards.  

And I don't have kids - add kids into the equation, and whole chunks of time that I have disappear from the days of parents.

What's the answer?
. Better support 

- The Living Wage actually secures an individual a take home salary which exceeds the Minimum Income Standard; State welfare provision is paid at the Minimum Income Standard.

- People who've retired from "C-level" (senior executive) roles should be encouraged to serve as mentors to those who have been out of work for six months or longer; these retired execs will have access to contacts and networks that are simply not available to people from lower income backgrounds, and are very heavily veiled from those who are out of work entirely.

- Greater honesty from the government about the most-likely future of all jobs, but especially lower-income jobs, and a realistic assessment of the threat posed by increased automation, global competition, and AI.

- Greater clarity, in more accessible formats, on the pathways between seemingly diverse jobs - people from low-income households often have "patchwork" careers, and employers are a lot less enthusiastic about 'low-level' transferrable skills than executive level transferrable skills.

- The DWP actually providing meaningful financial and mentoring support to individuals with a fully developed business plan who want to pursue entrepreneurship/self-employment - and support to create fully developed business plans for those who struggle with this, but have a genuine drive to succeed in self-employment, especially where they are facing systemic barriers to PAYE employment, such as kinship care responsibilities, age, disability, or a criminal record.

Greater levels of realism from societal leaderships

- Rent control, with landlords allowed to charge no more than their area's Local Housing Allowance, and severe punishments for refusing to accept low-income individuals as tenants.

- Requirement for mortgage lenders to offer extended 'grace periods' to struggling home owners, and greater support for those seeking home ownership from a low-income background, without family money supporting them.

- An obligation for employers to prioritise currently unemployed applicants, and a requirement for new businesses to either offer full remote working, or to be established alongside frequent-service bus routes, with working hours which sync to the bus service provision.

- Removing the 'Right to Work' requirement, so people without a fixed address, who cannot afford to provide documents they have to pay to acquire, can actually get jobs. The situation we currently face, where homeless people can be begging in front of shops advertising paying jobs, because those individuals don't have, and cannot get, the "necessary documentation" to even be allowed to have a job, is patently ridiculous.  'Right to Work' is driven by ideological racism, and harms British nationals as an unintentional backswing action.

Genuinely social lending

- Allow everyone to access up to three times their monthly take-home pay, with repayments capped at 10% of that take-home pay, and an interest rate of 10% annually. (Eg, someone with a take-home salary of £1,200pm could borrow up to £3,600, with £360 interest, and repay £120pm, with the full amount repaid in a little under three years.)
This style of lending would be open to all, including those from higher-income backgrounds; by fully opening it up, there becomes the potential for larger loans, with higher interest amounts, which more readily top up the funds available.

These funds would be provided by central government, and achieved through income tax on religious organisations (which is not currently paid), and a redistribution of income gained through inheritance tax, so that bereaved families can see genuine good being done with money it feels callous for the government to demand from them. Non-profit organisations which benefit from government contracts would also be expected to contribute a percentage of their total income to social lenders in their operational area, and the investment sector should provide free portfolio management services, to enable the maximisation of resources for these social lenders.  

There should be at least one social lender in each UK town, with full government support provided for these to be established by interested parties.

- Scrapping credit scores.  A number where the processes by which it is arrived at are deliberately obscure and complex should not prevent someone from accessing housing, the means to commute to work, or the ability to manage emergencies in their lives.

In place of credit scores, require people to undertake financial literacy and social responsibility training, where all the options available to them, including borrowing money, are clearly presented, and thoroughly discussed, and ensure proper justification for the loan - eg, to secure housing, to fund necessary repairs, etc.  Where systemic injustices are indicated as a cause for people seeking credit, this should be fully and frankly reported to central government, as it indicates areas of concern which are their responsibility to address.

Public records, with identifying information redacted, can be kept of debt obligations honoured through this simplified and more accessible form of lending.  Affordable but impactful penalties for late or non-repayment of loans can be used to fund further lending, with measures in place for these funds to be collected directly from income received.

How do we pay for it?

Efficiency Savings:

. By raising both the Living Wage and welfare payments to levels which exceed in the former case, and meet in the latter, identified Minimum Income Standards, savings are made in the following areas:
- Healthcare: People who can afford to access low-pollution outdoor areas, regular exercise, preventative healthcare, and high quality nutrition are a lower cost to the health service overall.

- Welfare: While it may seem counter-intuitive to suggest that raising welfare provision significantly will actually reduce it long term, the reality is that it allows for a streamlined administration, and associated efficiency savings, prevents those who are out of work temporarily, or unable to work longer term, from falling into debt in the first place, which means those able to work are in a position to accept a wider range of jobs than they might otherwise have been. 

Cost Savings:

. Welfare: Meeting the Minimum Income Standard for people in receipt of State assistance means that costs such as prescription charges, rent, council tax, childcare, and dental and optical care do not have to be met piecemeal, as people are in a better position to fund these things themselves (and should be strongly encouraged, if not compelled, to do so.)

. Housing - combined with the earlier suggested rent controls, and a consistency in career progression, together with greater transparency of average wages, landlords and vendors will likely adjust the costs of tenancy and home ownership, and lower the barriers to entry, reducing significantly the need for subsidised social housing, and removing this cost from the State.

. Public transport - with more people able to purchase private transport, and to afford public transport costs (which themselves should fall on employers who persist in refusing to recruit local labour), subsidies for public transport provision will be less needed and will therefore reflect a cost saving to the State.

Income Generation:

. With increased Living Wage and State welfare provision, individuals and families are able to spend more money on high-ticket items, which, in turn, results in greater returns to the Exchequer.

. Improved access to affordable lending, and a greater engagement across all sectors of society in supporting entrepreneurship, especially in demographics which might otherwise see high levels of economic inactivity owing to systemic exclusion, both the draw of local populations into their town and city centres, and the tourism appeal of Britain more widely, is improved, with both results again bringing increased revenues to the State.