Warning over payday loans 'disease'

Workers are increasingly turning to payday loans firms because their wages run out before the end of the month, creating a "debt disease" which is spreading rapidly across the country, a new report has warned.

Research for Unite among 24,000 workers revealed the "shocking" finding that one in eight regularly turned to loan companies such as Wonga, Quick Quid and Money Shop to tide them over in the week before getting their wages.

The union said workers faced "horrific" levels of interest of up to 4,200% as they take out loans averaging £200 a month. Unite said that at such high levels of interest, it would take people three working days a month to pay back a loan of £200.

Two-fifths of those drawing loans used the money to pay their rent or mortgage and food, while a further 15% spent it on utility bills.

Londoners borrowed the most for housing, while workers in Scotland were most likely to use loans to buy food. A local authority worker from the East Midlands told researchers she would borrow up to £400 and pay back £560, adding that it was difficult to escape from the cycle of borrowing.

The study, conducted by social research firm Mass1, also showed that workers were cutting back on buying healthy food and even considered leading supermarkets to be too expensive.

Unite general secretary Len McCluskey said: "This is the true cost of the banking crisis and this government's mindless austerity addiction. Working men and women are under horrific strain, lumped with wage cuts and rising costs.

"Their falling wages simply do not last the month and in trying desperately to get by they are being driven into the arms of vulture lenders. The government may crow that it is paying off the deficit, but all it is doing is pushing ordinary men and women deeper and deeper into debt.

"Right now, in this week, thousands will be borrowing to get by, and they will be paying horrific levels of interest on these loans.

"Instead of spending their wages in local shops and businesses, they are handing three days' worth over to companies like Wonga. This is a crazy way to run an economy, and it is grossly irresponsible of this government to preside over this spreading debt disease."