Some countries slap a tax on anyone owning a credit card. Should the UK follow suit?
No one can deny that we in the UK love our plastic. In 2005, there were nearly 142 million payment cards in issue, with 70 million of these being credit cards, 67 million debit cards and around 5 million charge cards. This means that, on average, UK adults each have 1.5 credit cards and 1.4 debit cards in their pockets. Blimey!
So what on earth are we doing with all of these cards? Well, spending seems to be pretty high on the agenda. According to the UK payments association APACS, we spent over £292 billion on our cards last year - that's four times more than a decade ago, with over £122 billion on credit cards alone. It is perhaps unsurprising that according to the British Bankers Association we owed over £66 billion on our credit cards at the end of March, 75% of which was interest bearing debt!
But why do so many people need more than one card? Well, a popular reason is to take advantage of 0% credit card deals. By transferring the balance of an expensive card to one charging 0%, you have a certain amount of time during which you can pay off the debt without accruing any more interest. This could potentially save you a lot of money. Credit cards are also issued free of charge, and while most charged an annual fee a few years ago, this is pretty rare these days.
And of course, banking in the UK is free so there are no fees for the provision of a debit card or chequebook. Having a more than one account is typically popular amongst couples to manage their finances, as they can have an account each with another for joint expenses, such as bills and mortgage/rent payments.
But would this be a very different situation if we were taxed on the cards we carry? For example, the Irish Government charges Stamp Duty on its financial cards. Bank cards are charged according to the functions used - so if you only use your card to withdraw cash you'll be charged €10 annually. You will incur the same charge if you just use it as a debit card - and if you use both functions you'll be charged €20. Duty is collected by your provider each December in arrears.
Credit and charge cards incur duty at €40 per account, which is payable each financial year in April. Switch cards during the year and you could end up paying double duty. So, a cardholder with two credit cards and two debit cards could end up paying €120 / £80 each year, and more if they switch cards!
However, it's worth noting that some credit card providers in Ireland effectively cover their stamp duty if you spend a certain amount on your card during the year. Take out an Ulster bank credit card, for example, and you will get €40 credit if you spend over £6,000 on the card in a year. Naturally, banks prefer you to spend more on your cards as this way they are more likely to earn interest from you!
Some would say the argument to implement some form of tax on credit cards in the UK is a strong one, bearing in mind the high levels of personal debt. It would certainly make us think more carefully before snapping up yet another card, and with fewer cards, the lower the potential level of borrowing. I would certainly think twice before applying for a second credit card if I knew I'd be charged £27!
However, credit card providers may have mixed views. Although this would hopefully reduce the number of bad debts, it would also mean that fewer cards were issued, which is bound to have a marked effect on profits.
It's worth remembering that, carefully used, a credit card can be a fantastic tool for the consumer. By paying off your balance in full, each month, you can benefit from greater protection against fraud and merchants going bankrupt, plus some cards give free insurance if the items you buy are lost or stolen and offer the opportunity to extend warranties on electrical items. And this could all be achieved by having just one, sensibly used card in your wallet.
So before you consider applying for a new credit card, remember to think carefully. Do you really need it? And if you do, could you cancel the one(s) you have? Use your cards carefully and make the most of the benefits they give, and appreciate the fact you can have them tax-free!
