Price ceilings and financial markets

Until recently, UK financial products markets have been free of price controls for a number of decades. However, the government has recently brought in caps on the cost of short-term consumer finance (payday loans). The government had previously rejected such price control for good reasons. The evidence from overseas suggests that restricting consumer credit can drive the market underground or lead vulnerable consumers to complete financial breakdown and thus make all credit and financial services difficult to access in the future. The UK government is also introducing controls on pensions charges. Again, this is happening after such controls were rejected and despite evidence that the market was working effectively. The government concedes that it is likely that price controls will inhibit new entry and competition in the industry. One government agency suggests that the price cap might become a ‘target’ for providers who might otherwise have priced their products lower than the cap. It is clear from the development of the charge capping agenda that the proposed regulation will be driven by political rather than economic considerations