The Office for National Statistics has released new figures looking at the effects of taxes and benefits on household incomes in 2011/12.
- Disposable incomes have fallen since the start of the economic downturn, with average equivalised income falling by £1,200.
- Average original income (before any taxes or benefits) was £31,500.
- On average, households paid 20% of their gross income in direct taxes such as income tax and council tax.
- The top fifth of households had an average income of £78,300, 14 times that of the bottom fifth, who had an average of £5,400.
Inequality of disposable income fell to lowest level since 1986 in 2011/12, according to new figures released by the Office of National Statistics.
This was partly driven by earnings falling for higher income households and by changes in taxes and benefits.
These changes include an increase in the income tax personal allowance and changes to National Insurance Contributions and Child Tax Credits.
Geoff Brown, of Hampshire Credit Union, says the Office of Fair Trading guidelines make it clear there is "an overarching principle of fairness in dealing with people".
He says, based on the OFT's report, payday lenders are not following this advice and "need to".
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Citizens Advice welcomed the Office for Fair Trading's (OFT's) decision to refer the payday lending industry to the Competition Commission for a full investigation, saying the lenders' focus on speed "means proper checks fall by the wayside".
Chief executive Gillian Guy claimed payday lenders are "recklessly quick to hand out loans" and should instead focus on the "cost of credit and how they treat customers".
Ms Guy said: "Citizens Advice evidence found that in 64% of cases loans come without any checks to make sure the borrower can afford to repay, revealing that lenders aren’t taking the time to establish whether a payday loan is suitable for the customer.
"Debts quickly spiral out of control as those struggling to repay are hit with high interest rates and charges.
"The industry is in desperate need of a transformation from predatory firms to a responsible short-term credit market.”
Martin Lewis, creator of consumer help website MoneySavingExpert.com, said the trading watchdog's decision to refer the payday lending industry to the Competition Commission was "shamefully late".
Mr Lewis called for a cap to be placed on the total cost of loans and said lenders should be forced to take more notice of poor credit histories.
He said: "Finally, politicians and regulators are picking up the ball. Yet it's shamefully late. Millions of people have already spent billions of pounds on these often disgustingly expensive debts that lead many people into financial hell.
"The lax regulation and enforcement in the UK means we've been easy pickings for these lenders.
"Couple that with the gradual diminishing of the Social Fund, which was the one route for people on benefits or with little cash to get short-term, interest-free loans, and it's no surprise so many people fall foul".
The Office for Fair Trading (OFT) said it is concerned that payday lenders are mainly competing on the availability and speed of loan approval, rather than how much it will cost the borrower.
The trading watchdog said:
The competitive pressure to approve loans quickly may give firms an incentive to skimp on the affordability assessment which is designed to prevent irresponsible lending and protect consumers.
The OFT is also concerned about business models that appear predicated on making loans which are unaffordable, leading to borrowers paying far more than expected through rollovers, additional interest and other charges.
The OFT's chief executive, Clive Maxwell, added, "The Competition Commission can now conduct a detailed investigation to get to the root causes and, if necessary, use its far reaching powers to fix the payday lending market".
The Office of Fair Trading (OFT) announced it has referred the payday lending industry for a full investigation by the Competition Commission.
Here are some findings about the industry:
- 240: Number of payday lenders in the industry
- Two billion: Estimated worth of the sector in pounds
- 50: Number of payday lenders warned by the OFT to prove they are up to scratch
- 12: Number of weeks lenders were given to show they had addressed the problems
- 270: Typical size of a payday loan in pounds
- 50: Percentage of payday lenders' revenues that the OFT found came from 28% of loans that are rolled over or refinanced at least once
- 12 or more: Number of consecutive rollovers that some payday loan customers had in the most severe cases found by OFT inspectors
- 5,853: The APR advertised on loans from Wonga, one of Britain's best-known payday lenders