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How are payday loans affected by the EU Brexit debate?
Are you in, or are you out?
It seems like everyone has an opinion. On Facebook and Twitter, it is hard to avoid the political conversation.
The two sides are ‘Brexit’, for leaving the EU, and ‘Bremain’ for continuing as part of it.
As strong as opinions seem, there are still people sitting on the fence and undecided at this late stage.
Perhaps the biggest issue is that the EU has such an impact. Being part of the European Union has shaped Britain in recent decades. Whether you believe that to be a good thing or a bad thing.
There are so many factors at play, so many different threads that unravelling a clear path is almost impossible. In fact, the task is one that many are claiming should be left to the politicians.
Each voter will have their own priorities. Here, we are addressing the impact of the Brexit vote on the UK payday loans industry.
There are no certainties with the Brexit vote.
It is widely agreed that the Brexit vote cannot make any guarantees.
What will happen if Britain leaves the EU is anybody’s guess. This doesn’t mean that votes for leaving are being made on blind faith. But it does mean that nobody can say for sure what would happen if Britain struck out on its own. Certainly, educated predictions can be made.
What is certain, as stated in the HM Treasury analysis of the immediate economic impact of leaving the EU, is:
“the decision…will affect families, jobs and the future [of Britain] for decades to come”.
What might be the impact on population levels and jobs?
2015 immigration statistics, showed 330,000 people entered the UK as immigrants the previous year. 183,000 of those were from European Union countries.
Consistently, Britain is accepting more immigrants from non-EU countries. More than it is through EU membership.
A Principal Research Fellow at the National Institute of Economic and Social Research had this to say. States leaving the EU would not bring dramatic change to the current situation. He argues that there are no concrete plans for a new immigration policy.
A reduction in EU immigrants might open Britain to higher levels of immigration from non-EU countries. If Britain wishes to avoid this, some dramatic changes will need to occur. These are changes not currently thought about.
Portes also explains how Britain is doing ‘well’ attracting skilled migrants. Something which means that remaining in the EU will allow this success to continue. He says there are only ‘small wage impacts even for low-skilled earners’ under the current system. Also that there’s little evidence of impact on average wages. He also believes that the impact on productivity is likely to be negative if we leave the EU.
Michael Gove, believes remaining in the UK will bring a population growth of 5 million within the next 15 years. He believes that a vote to remain is not a vote for the status quo, but for changes as EU power and coverage expands. According to the Vote Leave campaign, net migration could increase to 428,000 people per year if EU membership continues. Gove has considerable concerns about the impact of population growth on the state of the NHS.
What could leaving the EU mean for British workers?
If Portes is to be believed, the implication is voting Leave would change little for the average UK worker.
Wages can’t expet to rise and unemployment levels will not improve. Workers currently relying on short term loans to help with budgeting, won’t find themselves earning more.
If Gove’s forecast is accurate, the pressure on the NHS might make you consider payday loans. More so to cover the increasing costs of healthcare if a considerable population forces a move towards privatisation.
What might be the impact on the UK economy?
As is the case with every aspect of the Brexit campaign, economic consequences are difficult to predict. Open Europe estimates that, by 2030, GDP could be anything from 2.2% lower to 1.6% higher. Realistically, we would be looking at a GDP between 0.8% lower and 0.6% higher.
GDP affects every British household. It is a figure that not only takes into account exports and government spending, but consumer spending. If GDP decreases, we could be looking at a situation where spending levels drop and we enter into another lengthy recession.
Lower GDP is typically associated with job losses and lower levels of disposable income. Also with scenarios where people may feel they need short terms loans to manage their expenses.
At the same time, payday lenders could be more reluctant to lend money. And, as a consumer, you might find that you’re less likely to pass an affordability check.
If economic growth is to be successful, import and export deals will have to be carefully managed. Open Europe states Britain will need to strike up a Free Trade Agreement (FTA) with the EU, along with the rest of the world. Difficulties surrounding imports and exports may lead to job losses and business failures. Or at least a lack of business growth, potential redundancies and lower average pay levels.
What potential impact is there on the FCA and the financial industry?
The Financial Conduct Authority (FCA) reports to the Treasury.
The FCA sets standards for financial organisations, such as payday loan companies and loan brokers. This includes policies and regulations. Those protecting consumers and ensuring that lenders are being fair and responsible. There is no suggestion that FCA operations would need to change, whether Britain remains in the EU or leaves.
What is worth noting is that the financial services industry may be dramatically affected.
To ensure continued access to the single market, many financial companies expect to move their operations out of Britain. Especially if the Brexit vote prevails. This could mean banks and loan providers currently based in Britain would be operating from other countries.
The majority of Britain’s leading payday loan providers currently have British headquarters and operate primarily within the UK. Although some are expanding operations to other countries. There is a chance a Brexit vote might see some well-known British companies and organisations moving to other financial hubs.
Important things to consider
- There are no right answers. A vote to remain is a vote for more stability – sticking with what’s known. A Brexit vote is a risk that could result in great things, but it could also create disaster. The likely impact of leaving the EU will be somewhere in the middle of the two. Thus neither negative nor positive, but certainly a different economic landscape.
- The EU Referendum date is 23rd June 2016. Britain will then need to notify the European Council of its intentions, if the Brexit vote prevails. There is a two year notice period, which means that the actual exit would not take place until at least June 2018. That’s not to say that there would be two years of stability before the changes happen. For some time, companies and organisations have been making adjustments based uncertainty levels. A vote to leave the EU would result in huge changes, even before Britain’s independence. Companies would use this time to get away from Britain, if they were planning to do so. Currently, the two industries showing the most significant changes in the face of a potential Brexit vote are the financial and motor industries.
As much as it would be helpful to know what is around the corner, there are no certainties about the future of Britain after a Brexit vote. British voters are asked to make a choice between what they know and a new alternative that could be better or worse.
A vote to leave the EU may not do much to change immigration levels, wages or productivity levels. But, remaining in the EU as it grows in size may lead to increasing immigration in the future.
Potentially, this could place enormous pressure on British public services such as the NHS.
If Britain leaves the EU, it has a difficult task ahead when negotiating trade deals.
Import and export negotiations are arguably going to be the most important focus. If trade deals aren’t well managed, thousands of British businesses may fail. If things go well, there could be potential for improved trading across the world.
The EU offers stability and comfort. If Britain leaves the EU, there are many global organisations and large British companies that may jump ship and move elsewhere. The financial industry will certainly suffer. The changes are already planned.
This is a decision that isn’t made lightly, or swung by a voter’s opinion of one topic. A Brexit vote could force the country into an economic depression. It could lead to the closure of thousands of businesses and leave many British families struggling to get by. With limited credit options and increased unemployment levels.
If this happens, the short term loan industry will likely see an increase in consumer demand as more and more people struggle to make ends meet.
A Brexit vote might also open up new opportunities for trade. One which could see British businesses thriving and leave families with more spending money in their pockets.
Whatever the outcome, the decision is firmly in the hands of British voters. What happens afterwards is a story yet to unveil.