Polluter pays?

Understanding austerity through debt advice in the UK

Ryan Davey

● Do policies made in the name of austerity actually succeed in reducing public expenditure?
● Davey argues that it rather brings about new models for revenue generation and net patterns of public expenditure
which ultimately reinforce socio-economic inequalities
● Looking at how institutions escape budget reductions
● What survives, or even thrives, under austerity?

The UK Debt advice sector

● Austerity began in 2010
● Debt advice wasn’t subject to same level of austerity cuts in UK
● The UK had 2 policymaking tendencies: bailing out banks, seeking to revive and religitmise the financial industry -
and impulse in austerity policy to cut public expenditure from social welfare services
● Encouraging people to reenage with credit markets - debt advice serves interests of financial industry. How do
policymakers, debt advice managers and lenders reconcile these actions with their declarations of scarcity of public
funds?
● Health of financial markets prioritised at the direct expense of redistribution
● Davey draws on policy reports,interviews, participant observations at local debt advice centres
● Free advice emerged in 1980s alongside expansion of consumer credit
● “In practice, much of the work of debt advisers also involves persuading the more disaffected clients to
recognize their debts as moral obligations (Kirwan 2016).”
● Cuts to state spending → generalised insecurity → precarious work, stagnating wages, benefit sanction, insecure
tenancies
● Debt has thus become a flawed substitute for the ‘safety-net’ once provided by the mid-century welfare state
(Montgomerie 2013).
● Increase supply AND demand of consumer credit is linked to austerity.
● Sovereign debt bonds to commercial banks - 1990s - bank of england transferred capital from state to commercial
banking system - they could then trade on their expectations of receiving payments from central banks
○ Which partly fuelled growth of financial derivatives trading, which further increased the capital with which
commercials banks could speculate by lending to ordinary people
● Lenders were motivated to cast their nets wider in this way by both the invention of financial instruments such as asset-
backed securitization that enabled them to measure, manage and speculate on the uncertainty of borrowers
defaulting (Langley 2009),4 and by Thatcher’s removal of the cap on interest rates (Deville 2015).
○ Hence, the reproduction of socio-economic inequality is built into this model of ‘risk-based pricing’ for credit
(ibid.)
● As a result of these financializing processes – at both personal and state levels – the extraction of rents in debt relations
has displaced the exploitation of productive labour as the ‘centre of gravity’ of class-based economic extraction today
(Graeber 2012: 75)
● Debt advice centres like financial inclusion fund being funded by bank levys.
● How free debt advice has obtained funding from lenders - two ways - firstly, ‘fair share’ contributions from creditors;
second, from the bank levy, which works on a ‘polluter pays’ principle.
● This model of taxation – an industry-specific levy, channelled towards offsetting the harms that industry produces – is
one of the ostensible ‘alternatives to austerity’ this article explores. BUT it is self-defeating alternative BECAUSE it
 taxes the agencies that lend to poorer people at high rates of interest in order to give those same people increasingly
redundant advice.

Giving their ‘fair share’

● 1990s - claim that debt advice would serve lender AND debtor
● Fair share contributions - every payment a lender receives from a client like payplan (debt advice)m the lender will pay
payplan around 10% of what they receive - its ‘fair share of the repayment it has helped to bring about,

The bank levy

● Polluter pays - deriving funds from creditors
● Emerged after coalition government’s announcement of a programme of austerity in 2010. Curbing ‘wasteful
government spending’ and bringing about ‘fiscal responsibility.
● In 2011 - gov said it would axe debt advice funding. 2012 - changed it minds, would set up new Money Advice Service
across england and wales
● Unusual source of funding - would be funded by a new levy imposed on financial indsutry by the Financial Conduct
Authority. This was the bank levy. The IMF had recommended this
● The tax was also intended to raise funds that could offset the future costs of the systemic risk to the economy generated
by the liberalized financial industry. The IMF proposed that governments put these funds away for a rainy day, such as
the next bank bailout or financial crisis. The UK government, however, modi-fied the IMF’s proposal by channelling
the funds straight into the Treasury
● Money Advice Service had a hybrid public-private status
● Critics of bank levy says its only marginal gains
● “With the ‘polluter pays’ principle, a ‘harm industry’ (Benson & Kirsch 2010) is called upon to offset the new
and continuing harms it causes by providing the funds for a public service designed to alleviate those harms.”
● The ‘polluter pays’ principle thus applies a logic of offsetting to the resourcing of social welfare, whereby funds for a
public welfare service are not sought from general taxation but instead from the industry responsible for the harm that
the service seeks to address.This would ‘bring about the industry’s redemption’
● ‘Polluter pays’ is one way of conceptualizing this flow of money from creditors to debt advice providers. But another
framing emerged alongside it. The bank levy was also justified on the basis that debt advice serves the economic
interests of the credit industry. The government’s review of the Money Advice Service, for instance, said: ‘customers
tak[ing] expert advice can lead to increased levels of debt recovery, lower bad debt write-off levels ... reduced costs
associated with chasing arrears, and reduced costs of debt collection and enforcement’ (Farnish 2015: 15)
Advice-giving under austerity
● Money advice services - increases in efficiency in helping people
● But workers are unhappy
● Front-line advisers frustrated that they can’t serve clients interests
● Moral attributions to people's debt problems - lack of skills, reckless spending etc done by advisers. BUT such
attribution embedded within the bureaucratic procedures/documents of the advice service itself
● Generalised advice → not tailored. Focus on ‘empowerment’
● Advice is becoming increasingly unhelpful because of the more prescriptive guidelines in advising.
●