Sir Iain Duncan Smith: ‘Sub-crisis’ emerging as loan sharks capitalise on rising cost of living

With more than 1m Brits in debt to predatory illegal lenders, a “sub-crisis” may emerge as soaring costs of living heap added pressure on those with fragile finances.

Former Conservative leader and ex minister at the Department for Work and Pensions, Sir Iain Duncan Smith has been campaigning.

But not for an election.

The veteran politician is desperately bringing attention to an “urgent” situation, appealing directly to the prime minister, home secretary, and the police, with a failure to act “now” meaning “people’s lives are going to be destroyed”.

The MP sits on the board of the Centre for Social Justice (CSJ), a centre-right think-tank which recently published a report laying bare the problem of illegal loan sharks in modern Britain.

It estimates that as many as 1.08m Brits are indebted to a loan shark, 700,000 more people than the last official study.

Almost two thirds of victims, some 62 per cent in 2021, had an income of below £20,000 a year with 45 per cent of victims saying they borrowed the money to cover everyday costs, including council tax, gas and electricity bills as well as essentials such as school uniforms and push chairs.

Among the harrowing details, the report found widespread evidence of loan sharks demanding sexual favours as a form of repayment from their victims, with these often explicitly written into the contracts borrowers are forced to sign.

Testimony from victims including people having borrowed £3,000 to pay off a loan and cover household bills, which turned into £20,000 in three years and a 22-year-old man who took his own life after his debt of £300 spiralled to £3,000 in just 12 weeks.

Talking exclusively to City AM, Iain Duncan Smith said he “spoke to the Prime Minister about it briefly” last Monday, at a dinner attended by 100 other Conservative MPs, and has been “pressuring ministers” to act.

“They’ve seen the report, and they know what the issue is.

“There’s now a sense that there is a real problem. The government has undertaken, in various departments, to look at this very carefully.

“They accept there is an issue.”

With inflation putting pressure on the price of food, fuel and day-to-day living, Sir Ian Duncan Smith said the problem of illegal debt is “certainly going to get worse”, and that it may be “heading now into a sub crisis.”

“At the bottom end of income, you will find staggering numbers of people locked into foul debt and abuse as a result of this, and some of this ends up with some women being trafficked as a result.”

Sir Ian Duncin Smith

“In addition to a Westminster debate in the coming weeks”, he said, “we’re going to demand meetings with ministers”.

When asked about whether there was a timescale to turn words into action, he said: “No, you can’t.

“You just have to say now. It’s got to be done.

“Now.

“This is urgent, really urgent.

“This is people’s lives that are going to be destroyed.”

Turning to how loansharks can be tackled, he said the collapse of legal pay-day loan firms like Wonga, “as bad they were” left “a vacuum, and into that vacuum, entered all the illegal moneylenders”.

“The police have got to move in where there’s any evidence of illegal money lending or any of abusive behaviour.

“The police need to action it, and the sense is at the moment that they’re not. It’s not one of their priorities, but it should be.”

Ian Duncan Smith

The problem has gone “unnoticed by the government” despite having been “warned” about it before, with Duncan Smith stressing the need for more literacy when it came to matters of money.

“It needs to be the automatic recourses for people to go into proper money management, so that they can understand what they can afford, what they can’t afford.

“Millions of people left school early, didn’t take exams or don’t have any sense about money movement, or how money works. We need to make sure that is introduced it in to education.

“It’s an area of schooling that is completely missing.”

Change

The head of debt at the CSJ, Matthew Greenwood, said the think-tank is now moving into the post-report stage, lobbying ministers and trying to enact “incremental” change in Westminster.

The organisation spoke to victims through Illegal Money Lending Team England, which is an arm of the treasury, and said “the reason it’s so persistent is because it’s not just economic, it’s kind of social and cultural as well.

“It tends to take place amongst people on the lower end of the income spectrum. And therefore, in addition to urgent need for money, and the lack of available creditors, there is also the kind of distrust of authorities, which is why it of becomes something which is quite internal to some communities.”

An added element which makes it hard to get rid of, is that “people would generally prefer to borrow from someone they perceive to be a friend”, adding that around 55 per cent of people who borrow from an illegal lender perceive the person to be their friend when they first take the loan.

There is also a “cohort of people who just cannot get credit from a legal provider, and therefore, they don’t actually have that much choice”, he commented, as he echoed Duncan Smith’s call for a wider financial education package.

Saying the current offering “is still just years and years out to date”, he called for wider education reform, including through better debt advisers, who he said are not always “consistent” when asking those in trouble about who they are owe money to.

“A lot of the time, a person borrowing from an illegal lender will say, ‘well, I owe money to a friend’. And in response, the debt adviser will say, ‘well, that’s not a priority’.”

Matthew Greenwood

“The victim will say, no, it is a priority. That has to be paid.

“And yet, debt advisors don’t always pick up on it.”

He added, said loan sharks are those who ‘conduct a consumer credit business without a licence’, and so prosecutors need to look at “what looks and sounds like a business”, when putting forward evidence of an organised scheme.

The CSJ is now moving into the stage of political engagement, with a focus on reforming legislation around credit unions. Saying “change is realistic”, while admitting campaigning on these major issues can be a “multi-year thing”, he said it’s “not something we’re going to drop”, and that there is a “reasonable amount of scope for change, particularly around affordable finance”

Any immediate difference is likely to be “incremental” though, such as reducing regulation on credit, to make more affordable loans available.