Select Committee on Treasury Thirteenth Report

2  Background

The unbanked

6. The Family Resources Survey, a periodic survey undertaken by the Office for National Statistics (ONS), indicated that in 2002-03 around 1.9 million households in Great Britain (around 8 per cent of the total number of households) were without access to a bank account of any kind. These households contained around 2.8 million adults and at least 1 million children. A further 1.1 million households did not have access to a current account. As the chart below shows, while the proportion of households without a current account had fallen over time, the number of households without an account of any kind had remained broadly constant.

Chart 1 : Households without bank accounts

Source: Family Resources Survey, 2002-03

7. Certain groups are over-represented amongst those unbanked households. Unbanked households were reported in 2004 to be concentrated at the lower end of the income distribution, with over 65 per cent of households with no account in the bottom three income deciles, meaning an average household income of just under £14,500.[3] One Parent Families told us that, while 95% of couple families have a current account, this figure is only 80% for all lone parent families and 67% for those lone parent families where the parent works less than 16 hours per week.[4] The New Economics Foundation found that, "when reviewed against deprivation indices, the percentage of individuals without accounts increases dramatically: 35 per cent of individuals living in deprived areas lack basic accounts".[5] Help the Aged provided evidence indicating that lack of access to bank accounts "increases with age so whilst 7% of 50-59 year olds do not have access to an account, this increases to 12% of over 85s".[6] Around 60% of unbanked households rent accommodation from a local authority or housing association.[7] The evidence we have received indicates that those without access to a bank account are likely to be on a low-income, the long-term inactive or unemployed, the elderly, lone parents and council and housing association tenants.

The development of basic bank accounts

8. The importance of access to basic banking services was highlighted in the report to the Treasury published by the Social Exclusion Unit in November 1999 on Access to Financial Services.[8] That report recommended that banks continue the development of basic bank accounts for customers who did not wish to open, or had been refused, a full current account. Following that report, the banking industry worked with the Government to introduce a basic bank account founded on a common model which was "specifically designed to address the needs of the financially excluded".[9]

9. All major high street banks offer a basic bank account, although such accounts are not a completely uniform product; they are offered by banks operating within a competitive market, and partly reflect the different operations of different banks. However, basic bank accounts as they have developed, particularly since 1999, share a number of common features. Basic bank accounts enable people to pay in cash and cheques, receive their wages or benefit payments, make cash withdrawals and pay their bills by direct debit. Basic bank accounts have no overdraft facility and there are no charges for day-to-day banking, although some banks levy significant charges if there is insufficient money in the account to pay a direct debit.

Establishing the "shared goal"

10. In December 2004, the banks and the Government agreed to work towards the goal of halving the number of adults in households with no account of any kind and to have made significant progress in that direction within two years.[10] The baseline was set with reference to the data from the Family Resources Survey of 2002-03 to which we have already referred, which had indicated that 1.9 million households, containing around 2.8 million adults, lacked access to an account of any kind. In view of this baseline, for the goal to be met, the number of adults in households with no account of any kind would need to reach 1.4 million. No threshold has been set by the Government for what it considers to be the "significant progress" which the Government and the banks wished to be achieved by the end of 2006.

Beyond numerical targets

11. It was suggested in evidence that progress towards financial inclusion through access to banking services should not simply be associated with progress towards the numerical targets implied in the shared goal. The National Consumer Council told us:

Numerical targets for achieving financial inclusion will not deliver useful and appropriate services to the unbanked. The focus must shift to the design of basic bank accounts. Ensuring that accounts are more attractive and useful to financially excluded people is a far more sensible way of improving and sustaining a higher level of take-up.[11]

Professor Elaine Kempson summarised the views of many witnesses when she told us that there was concern that "attention has become focussed on the numbers of people without a bank account with much less consideration of whether these accounts are actually used or their usefulness to people on low incomes".[12] Mr Ed Balls MP, the Economic Secretary to the Treasury, accepted that these were valid points, and told us that work was being carried out not only on the number of accounts being taken up, but also on the kind of attributes that people who do not have bank accounts would like to see.[13] The analysis in this Report reflects the importance of two different dimensions to access to banking for the socially excluded—opening an account and being able to operate an account in an appropriate manner.

3   HM Treasury, Promoting Financial inclusion, December 2004, p 10 Back

4   Ev 415 Back

5   The New Economics Foundation, Basic bank accounts: the case for a universal service obligation, 2005, p 2 Back

6   Ev 330 Back

7   HM Treasury, Promoting financial inclusion, p 12 Back

8   Access to Financial Services, Report of Policy Action Team 14, HM Treasury, November 1999, pp 1-3 Back

9   HM Treasury, Promoting financial inclusion, p 5 Back

10   HM Treasury, 2004 Pre-Budget Report, para 5.47 Back

11   Ev 397  Back

12   Ev 425 Back

13   Q 980 Back

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Prepared 19 November 2006