And now for something completely different ... The majority of my column this week will be devoted to this issue of affordable credit - how do we find a way of making small sums available at short notice to those with limited credit histories, without ending up with the level of costs to the borrowers that was deemed unacceptable in the case of the 'Pay Day Loan' companies and the like?
This is a crucial and complex issue, but first permit me a short re-visiting of my recent concerns with poor productivity performance and its impact. The saga continues. UK GDP growth was muted in the first quarter of 2015. While UK growth slowed, inflation fell into negative territory. However, the Bank of England said 'worry not', growth will pick up again later this year and into next, and we are not facing harmful deflation merely a brief period of beneficial negative inflation which will encourage consumption and be done and dusted 'ere long.
I just about accept the second half of this tale. Core inflation - excluding volatile aspects like oil and commodities - remains positive and the CPI should return to positive territory unless oil, etc. prices fall further. But why should growth pick up? The answer from the Bank is that productivity growth will return to the long term norm, after a period of eight years or so in the doldrums, apparently because reversion to the norm will usually/always happens.. I am not convinced.
But back to affordable credit. I was asked a while back by the Carnegie UK Trust to co-chair a short-term working group on this topic. My interest first arose while I was a member of a Church of Scotland Commission on the purposes of economic activity. More recently the Moderator of the Church has re-taken the initiative in liaison with colleagues in England.
The dilemma is clear. Folk from relatively disadvantaged backgrounds periodically need small sums of credit at short notice - today or tomorrow at latest please. This is an area where the high street banks, even with their basic bank accounts, will not venture. The payday lenders were ready to oblige, but at massive APRs. Following investigation a cap was placed on these rates and consequently the payday lenders have been retreating to more secure, lower cost, lending ground. The demand for the product they were providing remains and the risk is that - as the UK government seeks to reduce benefit expenditure by a further £12 billion - that demand will burgeon. An available option for many will be illegal money lenders, involving high costs and high risks more generally.
So is there an alternative way of meeting this demand legally and at 'reasonable' rates of interest? Could a re-invigorated credit union movement fill the gap or are new institutions required? Is there a role for the church and/or central or local government and/or the financial sector?
Our investigations to date indicate that for this sector the cost of borrowing will always be relatively high. An APR of 50per cent may be necessary, even for not-for-profit lenders, although as volumes increase so cost per loan will fall. These costs include those of finance, staff, property and overheads and bad debts. Experience with specialised institutions such as Moneyline (in the northwest of England) and Scotcash (in Glasgow) suggests that over a number of years a sustainable model can be established, which meets the needs of this particular group of borrowers. But over the first few years subsidised finance is probably essential, as is support with cheap or free property and qualified and experienced staff. The latter are critical if the level of bad debts is to be contained, while meeting demand from those with limited credit history or collateral. These institutions will blossom, and can work alongside the credit union movement. There is a way forward.
Ensuring that way forward is viable will mean following more than one path and involving all the key parties referred to above. To be fully sustainable, after the first few years, will mean managing bad debts - through economic thick and thin - and coping with primarily commercial sources of funding. I am convinced that ways can be found of providing the short term support that seems essential; and also some continuing support so far as staff and property/overhead costs are concerned. On our working group we are receiving support from all these interested parties and should be able to propose models - based upon a range of experience - which could and should be developed across Scotland. Such development should be a high priority for all those looking for enhanced welfare for all.
Jeremy Peat is visiting professor at the University of Strathclyde International Public Policy Institute
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