Prof Prem Sikka: Visiting pawnshops showed me how people are struggling during the cost of living crisis
“My brief visits to the pawnshops are by no means a scientific study, but they do provide insight into the tragedies inflicted by years of poor distribution of income and wealth, poverty, inequality and an obsession with privatization. which has left many staggering.”
Prem Sikka is Emeritus Professor of Accountancy at the University of Essex and the University of Sheffield, Labor Member of the House of Lords and Editor of Left Foot Forward..
In October 2019 the average annual household energy bill in the UK was around £1,143 but will now rise to £3,549 from October 2022. In the year alone to October 2022, the average household energy bill will increase by 178%, while wages will increase. 5% and state pensions and benefits 3.1%. The energy bill is expected to hit £7,700 early next year. The Bank of England expects the average net salary (after tax) in 2023 to be around £2,054 per month. Around 21 million adults (over 40% of adults) have an annual income of less than £12,570.
Some 1.3 million families had no savings before the pandemic. A third rely on friends and family for help with unexpected expenses. Almost half of the families had savings worth less than a month’s income. In June 2022, personal debt stood at £1,805.7 billion and millions of people lack the extra capacity to absorb higher household expenses.
Ministers are not going to knock on doors to find out about people’s distress. Most people don’t have a spare £3,000 they can use to buy a dinner ticket to speak to a minister at the Conservative Party’s annual conference.
Cold economic data doesn’t even begin to tell the human stories behind the numbers. So I decided to visit a few pawnshops in the South East of England to see what was going on. I spoke to store managers and stood outside to talk to people entering stores.
People go to pawnshops to pawn valuables and get cash. Some are reasonably well off and need immediate cash, but lack the kind of security a bank would accept. So they turn to pawnbrokers. Many cannot obtain bank loans and overdrafts due to low income or lack of acceptable collateral.
Depending on the amounts and duration of the loan or agreement, the interest rate varies. A pawnbroker gave an example: “Credit amount £100; duration of the agreement 6 months; interest rate 119.9% (fixed) per annum Total amount to be paid: £159.94 in one payment”, and another mentioned a rate of 155.8% APR. The Bank of England base rate is 1.75%. Each increase in the base rate has a knock-on effect on the interest rate charged by pawnbrokers.
At the upper end of the social strata, pawnbrokers will advance money for watches, jewelry, artwork, designer handbags, and antiques. The loan is usually around 70%, or less, of the item’s market value.
A lady, accompanied by her daughter in school uniform, pawned her wedding ring and hoped that in six months she would be able to repay the loan and get her ring back. She was a single parent with two young children and worked 60 hours a week for minimum wage. Since the pandemic, her rent had gone up and she was struggling to pay her food and energy bills.
Away from high-end pawnshops, people were promising microwave ovens, vacuum cleaners, televisions, radios, game consoles, laptops, iPads, cell phones, DIY tools and accessories. other everyday objects to collect a few books. A man pawned his bike to pay for repairs to his car, without which he couldn’t get to work. Another had been ill and had pawned his television as he needed money for food and was heading to the nearest charity shop to buy clothes. A lady came with a toaster as she was hoping to gain a few pounds.
A store manager explained that there was a drop in the number of people claiming the pawned items. By law, after six months, pawnbrokers can sell the unclaimed collateral to recover the amount owed to them and return the excess, if any, to the borrower. Another explained that there were fewer customers buying second-hand items – a sign of squeezed disposable income. This particular pawnshop had rented additional storage space and was now more selective about the valuation and loans it offered. Most hoped to move their stock in the lead up to Christmas.
Some people regularly visited pawnshops and had little left to promise. So, I asked what they would do to make ends meet. The overwhelming opinion was that they would stop paying council tax and additional energy bills. Some had not paid their rent and had stopped contributing to private pension plans. There is fear, anger and helplessness in their eyes, and disillusionment with the political system. Rising energy bills to £3,549 and £7,700 would be catastrophic.
My brief visits to the pawnshops are by no means a scientific study, but they provide insight into the tragedies inflicted by years of maldistribution of income and wealth, poverty, inequality and an obsession with privatization that has left many staggering.
I worry about the effects on young people of the despair of their families. Would they organize to seek political change and build a just society? If so, where is the political leadership and organization? Or would right-wing parties, gangsters and drug dealers step into the void and inflict even more damage?
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