This is not what they say they want to do of course, they are telling us that this will make credit cheaper for those who find it difficult to get. But the net effect will be to make something currently difficult and expensive into something impossible:
Credit card companies would be forced to write off billions of pounds in long-term customer debts if Labour got into power under a policy to be unveiled at the party's conference.
John McDonnell, the shadow chancellor, will propose capping the amount of money lenders can charge in interest so that no one has to pay back more than double what they borrowed.
He will say the policy will help three million credit card holders who are “trapped by their debt”.
As the Federal Reserve has pointed out over in the US interest rates, just like other prices, are not things we can just randomly assign at our whim. They're actually a bit more important than that:
Even though payday loan fees seem competitive, many reformers have advocated price caps. The Center for Responsible Lending (CRL), a nonprofit created by a credit union and a staunch foe of payday lending, has recommended capping annual rates at 36 percent “to spring the (debt) trap.” The CRL is technically correct, but only because a 36 percent cap eliminates payday loans altogether. If payday lenders earn normal profits when they charge $15 per $100 per two weeks, as the evidence suggests, they must surely lose money at $1.38 per $100 (equivalent to a 36 percent APR.) In fact, Pew Charitable Trusts (p. 20) notes that storefront payday lenders “are not found” in states with a 36 percent cap, and researcherstreat a 36 percent cap as an outright ban. In view of this, “36 percenters” may want to reconsider their position, unless of course their goal is to eliminate payday loans altogether.
We would also point out that if this was applied to debt, rather than simply credit cards, then this would rule out mortgage interest rates rising above 5.5%. No, really, a 30 year repayment mortgage at 5.5 % pays back more than twice the sum borrowed.
Prices, even the price of money, aren't some random digits we can apply as we wish. They're actually the way the world works. Not that we expect John McDonnell to understand this but the rest of us should.