Select Committee on Treasury Thirteenth Report

1  Introduction

The importance of banking services

1. Banking services are central to the challenge of financial inclusion. In an earlier Report which also arose from our inquiry into financial inclusion, we examined the importance of issues relating to credit, savings, advice and insurance.[1] In a subsequent Report arising from the same inquiry we will examine the challenge of enhancing financial capability and the roles to be played by Government, the FSA and other partners in promoting financial inclusion. The current Report concentrates on banking services, examining their crucial role in financial inclusion and the steps taken by the banks, the Post Office, the Government and others to improve access to banking services, and setting out the further steps which should be taken to ensure that services which most take for granted are available to all.

2. People who do not have access to banking services are limited in undertaking a wide range of everyday financial transactions, and those limitations are arguably increasing as such transactions become more sophisticated. For example, without a bank account a person may not be able to obtain competitive loans or insurance policies or enter into a mobile telephone contract. Those without bank accounts often lack security in storing money, leaving them vulnerable to theft or loss. Employers very often require that wages are paid into a bank account, limiting employment opportunities for the unbanked. It can also be difficult to start a business or engage in entrepreneurial activity without a bank account. In recent years, the Government's welfare strategy has placed greater emphasis on direct payment of benefits into bank or Post Office accounts, enhancing the importance of success in endeavours to "bank the unbanked" and in the development of the Post Office Card Account and any successor to it.

3. Appropriate access to banking services serves as a crucial stepping stone to full financial inclusion. Those with bank accounts find it easier to use other financial services and grow more used to handling their own personal finances. A reduction in the proportion of individuals and households without access to bank accounts is not only an important goal in itself; such a reduction also makes a crucial contribution to wider success in tackling financial exclusion.

Our inquiry into financial inclusion

4. This Report is the second of three Reports arising from our broad inquiry into financial inclusion. The earlier Report gave more detailed information about the conduct of our inquiry, including evidence received and visits undertaken, and all of the published evidence is also included with that Report.[2] In the context of the current Report, we were particularly assisted by our visit to Services Against Financial Exclusion (SAFE) at Toynbee Hall in Tower Hamlets, by discussions during our visit to New York and Washington DC about the operation of the US Community Reinvestment Act and by evidence from the Post Office, the Banking Code Standards Board (BCSB) and senior representatives of the major high street banks. We are grateful to all those who contributed to the development of this Report.

Structure of this Report

5. The next chapter of this Report examines the background to our work, including an analysis of the scale of the problem of the unbanked and developments in recent years designed to tackle the problem. We then outline different approaches that have been advocated for tackling the problem in future and set out the approach which underpins the analysis and recommendations in this Report. In subsequent chapters, we focus in more detail on issues relating to the opening and operation of basic bank accounts, before turning to other banking issues and then to the Post Office Card Account.

1   Treasury Committee, Twelfth Report of Session 2005-06, Financial inclusion: credit, savings, advice and insurance, HC 848-I and -II Back

2   HC (2005-06) 848-II: all references to written evidence ("Ev") and to oral evidence (Q or Qq) in this Report are to evidence published in that Report unless otherwise stated. Back

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Prepared 19 November 2006