Iwan Doherty investigates how businesses profit from poverty and billions are invested to increase indebtedness.
Over the past 10 years, poverty in this country has dramatically increased. Even those in work are not safe from being just one missed payment away from losing their home or unable to turn the heating on. Four million people in work in the UK now live in poverty, foodbank usage has rocketed and rough sleeping has increased significantly since 2010.
The combination of the financial crash and Tory austerity has left an underclass of people perpetually trapped in poverty. While this group is villainised, the truth is that most people are never more than three misfortunes away from joining them.
40% of working age Britons have less than £100 in savings, 25% have none at all. This means that 16 million of us are living pay cheque to pay cheque, at risk of dropping into a world of food scarcity or homelessness.
Poverty has come to be accepted as a by-product of our economic system and, shockingly, companies now exist to counter the effects of the social safety net.
Preying on the Poor
Industries such as banking, housing and utilities effectively prey on the poorest in society, trapping them in desperate situations.
It has always been cheaper to consume goods and easier to gain money when a person has money, but now predatory businesses stalk those who have slipped into unfortunate circumstances, with the intent of ringing them for every penny they have while they strive to stay afloat.
Where we see poverty and vulnerability, corporations see profit. Companies now don’t just exploit the poor; they rely on it and it is central to their business model.
This can be seen most starkly in the financial industry. Private debt is a growing problem in the UK, with unsecured debt recently hitting a new peak of £15,400 per household. Unsecured debt is debt that is not a mortgage and it has now risen to £428 billion – well above the £286 billion peak in 2008, ahead of the financial crisis. This continued rise shows that Brits continue to live beyond their means in a worsening economy for those on the lowest incomes.
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This desperation fuels predatory business that is best exemplified by the banks’ penalties for lacking money in the form of overdrafts and payday lending.
More than two million people in the UK are stuck permanently in their overdrafts, trapped in a vicious cycle. In 2017, banks made more than £2.4 billion from overdrafts and around 26 million of us get charged for using overdrafts a year. This is a dramatic rise from £1.2 billion in 2016.
Banks have recently been hiking their overdraft fees to in excess of 40% but, in comparison to payday loans – or high cost credit – overdrafts are cuddly. Payday loans are the last resort for those whose credit is not good enough to gain an overdraft. They are usually short-term but still come at huge costs with APR rates exceeding 1000%. In a one-year period in 2017-2018, these companies made 5.4 million loans, equating to a total of £700 million in interest alone. This industry is vast but its main consumers are below 30 and earning less than £1,500 a month.
Prior to the financial crisis in 2009, around 250,000 people yearly took out a short-term loan. By 2012, these firms lent over £2.2 billion in loans to 1.8 million people. New regulations on these companies may have pushed this business elsewhere but new rules on overdrafts could push people back to pay day loans to cover their expenditures.
Studies observe that payday lenders congregate in neighbourhoods with higher rates of poverty, lower education and minority populations and the average lender is using these loan companies six times a year. The predatory nature of this market cannot be under-emphasised. They rely on consumers with bad credit and while these loans can be in demand, they exist purely due to banking practices.
Countless industries have systems where consumers are penalised for their poverty. Overdrafts, payday loans, pre-credit utilities are all systems of penalising the poorest in the society.
Companies aren’t just targeting individuals. A more recent development is the large private companies in the housing sector that exist to make money out of the housing crisis and our cash-strapped councils.
Councils using private housing company providers as temporary accommodation has cost them more than £215 million in the last financial year. Firms charged on average £10,000 per booking and a third of these bookings breached guidelines on costs for temporary accommodation. These companies can only exist due to our homelessness crisis and the Government’s lack of action on housing is costing people while lining the pockets of the super-rich.
So-called ‘luxury’ industries also form a part of the problem. The gambling industry is an example of one that preys on those in poverty through different but equally sinister methods.
Gambling has always been predatory but it is now hyper-advertised, with people becoming addicted to it for a variety of reasons. 7% of gamblers say that they gamble to “earn money to get by day to day”. Recently, the large betting companies have been exposed as relying on impoverishing a tiny number of addicted gamblers to survive. One betting firm took 83% of all deposits from 2% of its customers.
Worse still, the owners are playing both sides, with Betfred’s owners making millions from a company treating those addicted to gambling. The gambling industry is growing fast, being worth £8.4 billion in 2011 to roughly 14.4 billion in 2018. Both big gambling firms and the lottery rely on vulnerable people to make their money and its rate of growth may explain the increasingly organised efforts to tackle gambling. It’s no coincidence that betting shops tend to be found on the same streets as pay day lenders.
It’s not possible to delve into how people become trapped in poverty without considering the Conservative Government’s flagship Universal Credit policy.
Universal Credit – a single monthly benefits payment which replaces six other benefits for those who are unemployed or a low income – is leaving millions worse off and the punitive sanctions applied to the policy means that our poorest citizens are ending up indebted to the welfare state that should be aiding them. This makes them easier prey to poverty businesses.
Food bank use has increased by 52% in areas where its roll-out has been completed. The Trussell Trust, a charity that runs food banks in the UK, has found that 40% of foodbank users reported having some form of deduction or debt to the Department for Work and Pensions. Two-thirds of households referred to foodbanks have experienced problems with the benefits system in the past 12 months.
With a new Conservative majority Government, Universal Credit is unlikely to be changed anytime soon as we have a new Government. Although there are solutions such as credit unions and charities offering debt advice, we can expect millions more to be driven to debt and food banks over the next five years.
The Human Cost
The human cost of the growing poverty business is a major issue in our society as millions struggle with poor mental health brought on by the stress of debt.
As long ago as 2014, the Debt Support Trust identified that one in seven of us struggled with sleep because of debt and that 50% of people struggling with debt have considered suicide.
The evidence shows that it is time to start a campaign to divest from shares in companies that build their business and profits on the backs of the poor because there is little hope of government regulation in this area, even though there is a glaring need for it.