Memorandum submitted by the Chartered
Institute of Housing
The Chartered Institute of Housing (CIH) is
the only professional body for individuals working in housing.
Its primary aim is to maximise the contribution that housing professionals
make to the well being of communities. Membership status is dependent
on completion of a professional qualification and a track record
of professional achievement.
CIH has over 18,000 individual members working
for local authorities, housing associations, Government bodies,
educational establishments and the private sector. Many of our
members working for social landlords are engaged in work to promote
financial exclusion amongst their tenants.
CIH welcomes this inquiry and the opportunity
it provides for consideration of the approaches so far being made
and the potential for making even greater strides towards promoting
financial inclusion in the future.
INTRODUCTION
Tenants of social landlords are some of the
most financially excluded people. Research by Richard Newcombe
et al. in 2002 showed that as many as 84% of financially-excluded
people may be social housing tenants[66]
and between 60 and 70% of those who do not have a bank account
with a high street bank are social housing tenants. Also, research
by Elaine Kempson and Steve McKay for DWP in 2004[67]
showed that arrears on unsecured borrowing were commonest among
those with gross incomes under £15,000 a year and was higher
among tenants than among families buying a home with a mortgage.
Social landlords, including local authorities,
arms-length management organisations (ALMOs) and housing associations,
are increasingly seeing it as their business to encourage their
tenants to develop good financial management skills as more and
more becoming aware of the benefits, both to themselves and to
their residents, of reduced levels of debt and higher levels of
financial awareness and inclusion. Financial inclusion is an important
element of a "sustainable community" since inability
to access mainstream financial services leads to poverty, social
exclusion, local economic instability and crime, all of which
serve to destabilise communities. Two quotes from social landlords
help to explain the case for them promoting financial inclusion:
"We are aware that our residents do suffer
from financial exclusion and see this as a part of our work in
relation to building sustainable communities".
"Housing associations provide the largest
loan fund for Britain's low-income families. It is known better
as rent arrears. Virtually every association in the country knows
that tenants will often miss rent payments to pay other bills."
Most social landlords already provide informal
advice to tenants on how to maximise their income and help them
to fill in the relevant forms as and when required and many also
provide access to debt counselling for those who have significant
levels of rent arrears. A much smaller but increasing number of
social landlords are taking quite a sophisticated approach to
tackling financial exclusion among their residents more holistically
and are looking at debt prevention and positive approaches to
helping them become good at managing their personal finances.
Many are working in local partnerships with credit unions and
community development finance institutions (CDFIs).
While there is some excellent work going on,
the more sophisticated and strategic approaches are still very
small scale. We consider that there has been insufficient recognition
nationally of the role that social landlords can play in promoting
financial inclusion and insufficient policies aimed at promoting
this role.
CIH will soon be publishing Life After Debt:
tenants, social landlords and financial inclusion[68]
that highlights work being done in this area and makes recommendations
for developing and embedding the role in landlord activities.
The CIH, in partnership with the Citizen's Advice and nine social
landlords, is making a bid to the Financial Inclusion Fund to
expand the level of independent debt advice provided to social
housing tenants and homeless people. Another aim is to embed the
referral arrangements for advice into the management processes
of the landlords and add value to the advice element by combining
it with other activities as appropriate.
The CIH and Shelter's HomeSave proposal[69]
has a significant financial inclusion element. Providing incentives
to tenants to open a bank account, receive money advice and encourage
a habit of saving are all features of the proposal. One of the
goals is to ensure people with debt problems are offered money
advice, recognising that they might need an incentive to persuade
them to take it up.
Our submission to the Inquiry focuses on, though
not exclusively, ways in which social landlords can work to improve
promote financial inclusion.
1. ACCESS TO
BANKING SERVICES
Action taken by govt and the banking industry
towards reducing the 1.9 million households in the UK without
a bank account
Consumers without bank accounts are overwhelmingly
the most vulnerable in society—according to research into
basic banking for the National Consumer Council (NCC) by policis,
half have been receiving benefits for more than five years. One
of the key recommendations made by PAT14 in 1999 was the need
for basic bank accounts as a means of dealing with financial exclusion
and providing a gateway to wider mainstream services. The banking
industry does not encourage poor customers. Despite this, all
major high street banks now offer a basic bank account and it
is estimated that around 1 million such accounts have been opened
(as of December 2004), so some progress has been made towards
making banking services accessible.
There is still some way to go before bank accounts
are universal and new approaches are needed. Government could
work with and provide incentives for a wider range of partners,
such as social landlords, to encourage take up of bank accounts.
Research findings show that personal contact is important in the
communication of advice. Individuals will not always find their
own way to the bank or building society to open an account or
savings scheme and there is a job to be done to persuade them
that it's possible and that it's worth doing. Housing officers
working for social landlords already have a good deal of contact
with their residents. They can be trained to use these opportunities
to provide residents with some basic information and encourage
them and assist them in opening a bank account. Indeed, some landlords
already provide their tenants with information on opening a bank
account, although precisely how many do this, how they do it and
the success of their approach, is not widely known.
Access to banking services, including the operation,
usefulness and regulation of basic bank accounts and access to
cash withdrawals
Basic bank accounts provide essential financial
services such as enabling people to pay their bills by direct
debit, pay in cheques and cash, withdraw cash 24 hours a day and
receive income and benefit payments. They are specifically designed
to minimise the risk of an unauthorised overdraft so that a credit
check is not required. In practice, this lack of an overdraft
facility has led to high charges being levied when a direct debit
or standing order has been processed with insufficient funds in
the account.
The NCC/policis research found that having a
basic bank account does not necessarily result in meaningful financial
inclusion—half of basic bank account holders still prefer
to manage their money in cash. Also, the use of a bank account
for money management can undermine previously successful cash-based
money management strategies. Low-income consumers with bank accounts
have higher levels of borrowing and arrears than their counterparts
without a bank account. Unless individuals are also helped to
manage their money well, having a bank account can exacerbate
problem.
Since 1995 over 3,100 bank and building society
branches have closed. Landlords report a decline in mainstream
banking services in many of the most deprived communities. Also,
there is a lack of cash machines in poorer areas, including areas
with high levels of council or housing association dwellings.
Where cash machines are available in these areas (such as in shops
etc) there is more likely to be a charge for their use than for
machines on high streets.
2. ACCESS TO
AFFORDABLE CREDIT
Measures to enable households excluded from mainstream
credit to have access to affordable credit
Credit at the levels required by people on low
incomes and at reasonable rates of interest (ie affordable) must
be made more widely available. The only alternative for many people—to
borrow at high and often extortionate rates—keeps then indebted
and is an obstacle to them becoming financially included. Providing
access to small amounts of affordable credit repayable over short
timescales carries too heavy an administrative burden on transactions
for mainstream banks ever to be interested in.
It is, though, an issue that increasing numbers
of social landlords are aiming to address, often in conjunction
with a credit union or CDFI. In a recent survey undertaken by
CIH, 13 landlords (out of a sample of 49) were providing access
to affordable credit to their residents, compared with none just
six years ago.
Notting Hill is developing a particularly innovative
approach to providing access to affordable credit. The Rent Plus
scheme makes it easier for tenants to save by taking overpayments
on tenants' rents of at least £10 a week and gives them access
to the savings they have accumulated. A bonus of three weeks'
additional payments will be paid after a year by the landlord.
On top of that any Rent Plus saver who does not make use of the
repair service and keeps their home in good condition will receive
a further £300. The scheme provides an easy to access source
of affordable credit whilst at the same time it fosters a saving
culture among lower-income households.
The role of credit unions and community development
finance institutions
Credit unions, that are local, small scale and
provide specialist services, play an extremely important role
in delivering access to affordable credit to people on low incomes.
In 2003, there were 655 credit unions in Britain serving over
410,000 members. Many social landlords are working in partnership
with credit unions and supporting their work, both financially
and in other ways, and also providing the "common bond"
that members share.
Despite their focus on people on low income
their ability to offer affordable credit is limited. They usually
require the member to have saved a certain amount before being
able to withdraw, so the most destitute who are unable to save
cannot participate. While this principle is commendable, it is
important that credit unions works in conjunction with the Social
Fund that can provide credit to those who are unable to save at
all.
A number of CDFIs have become lenders of small
amounts of credit at affordable levels in recent years, and a
number of housing organisations are now actively involved in the
CDFI sector.
A good example is CHANGE, a division of London
& Quadrant Group which was launched in 2003 with support from
Family Housing Association, Hyde Housing Group and Metropolitan
Housing Trust. It has now the support of 15 London housing associations.
Its main objective is to help reduce the financial exclusion of
CHANGE residents by improving access to financial services, and
providing information and advice. From earlier this year CHANGE
plans to start an affordable credit pilot aimed at combating the
reliance of many social housing tenants on extortionate credit
provided by doorstep lenders and loan sharks. Other examples are
South Coast Money Line offering personal and business loans at
a competitive price, which Portsmouth Housing Association helped
to set up, and Leicester Moneyline, which provides home improvement
loans, personal loans and business start-up loans.
Currently, the level of lending is quite small.
For example, between August (when its operation started) and November
2005, Leicester Moneyline made 17 loans with a combined value
of £13,000, although the target for the first four years
is to provide 3,500 personal loans. Also, while the interest rates
are considerably lower than those charged by door-step lenders,
they are still fairly high with APRs for personal loans varying
between 24% and 31% APR.
CDFIs are fairly new types of organisation in
the UK. There are non that are yet operating on a large scale
and they remain reliant on grant funding. Their activities are
limited, for example they are not able to take deposits. The regulatory
framework for banking in the UK, including FSA regulation, regulation
on consumer credit, European competition policy and taxation policy,
has been designed to regulate very large financial institutions.
CDFIs (and credit unions) are aiming to fill this gap by providing
services to individuals who cannot make use of mainstream facilities,
but the regulatory framework is presenting barriers to the growth
of the community banking sector that is aiming to provide services
designed to meet the needs of individuals on low incomes. More
certain prospects for the long-term sustainability of CDFIs would
be welcome.
The provision of interest-free loans from the
Social Fund
The Social Fund is one of the main sources of
affordable credit and the government has recently made improvements
to the operation of the Social Fund to give greater consistency
and transparency in access to loans and to better target it at
those who have the greatest needs. One of the key advantages is
that the credit is interest-free, but there are other good aspects
too.
However, there are some disadvantages and the
Social Fund could be further modernised by making the fund more
widely accessible. Budgetary loans are currently only available
to people who have been in receipt of income support or income-based
jobseeker's allowance for at least 26 weeks, but this does not
necessarily coincide with times of need. The rules governing the
scheme are not well understood and there is a need for better
publicity and information among eligible benefit recipients. To
make the Social Fund more comparable with other sources of credit,
repayment rates would need to be reduced to ensure they are between
five and 10% of income.
In their study for the National Consumer Council
Affordable Credit[70],
policis found that more than one in five applications for Social
Fund budgeting and crisis loans were unsuccessful. Yet almost
50% of crisis loan refusals were overturned on appeal, indicating
that people with genuine needs were being turned away. Their research
shows that the majority of people who were rejected from the Social
Fund simply do without, but one in four has to borrow from high-cost
doorstep lenders and unlicensed loan sharks.
There is scope for more fundamental change to
the Social Fund to modernise it further. David Blunkett, then
Minister for Work and Pensions, said in a speech on 5 July 2005
"In the longer term, we must look more widely
at whether the Social Fund should be operated by government or
whether there is scope for greater partnership arrangements with
third sector lenders. Social Fund reform could also link to the
Saving Gateway and the wider financial inclusion agenda—so
people build assets, become more financially confident and do
not need to rely on emergency payments from the state in future."
3. FINANCIAL
EDUCATION AND
ACCESS TO
FINANCIAL ADVICE
The role of the FSA, the DfES and others in promoting
and supporting improved financial education in schools, other
educational institutions and the workplace and the progress of
the national strategy for financial capability
There is evidence that, if run in an appropriate
fashion, financial education could be successfully delivered to
residents of social landlords.
The DfES Community Finance Learning Initiative
(CFLI) pilot to deliver financial awareness training included
a number of social landlords. Both the evaluation by ECOTEC Consulting
and the experience (anecdotal) of the landlords presented a mixed
picture. The educational focus of the initiative did not strike
much of a chord with residents and it was thought that they did
not want to share information in a classroom setting. However,
there was evidence that providing an incentive encourages people
to attend sessions and as does disguising the real aim of the
financial learning or information sessions.
Indeed, when these elements have been present,
there are instances in which education programmes innovatively
applied have been successful. For example Impact Housing Association
has had positive results when they used a trivial pursuit-style
board game they called Financial Pursuits with young people aged
16-25 in their hostels. This was coupled with the Basic Skills
Agency CD-ROM learning tool called Money Go Round (the chances
of winning the game are greatly enhanced by working through the
CD-ROM). There is some evidence that the financial awareness of
those playing the game had been increased.
In the case where organisations have successfully
run classroom based training courses, demand for these came from
tenants themselves and was not "imposed" by the landlord.
High Weald Housing Association for example encourages its tenants
to raise their training and learning needs through their contact
with housing managers. As a result the association is currently
running a numeracy skills course, which also contains elements
of financial literacy. A course with an explicit financial literacy/awareness
focus is scheduled to go ahead in conjunction with a local college
in February of this year. The course entitled Money Matters is
centred on budgeting and better management of finances.
The provision and regulation of generic financial
advice about debt and savings
There are forms of information and advice that
can be offered without the need for regulation. Some housing providers
are already delivering basic information to their tenants on,
for example, how to open a bank account and how to maximise their
income through applying for welfare benefits.
Training could be provided for housing officers
on these and other types of information such as on the various
government initiatives (eg the Saving Gateway and the Child Trust
Fund) and where to find more in depth advice on their own situation.
Clarity is needed regarding the types of information
that landlords can legally and usefully give their residents as
well as clarity over the circumstances in which they would be
best to refer residents to an independent money or financial adviser.
4. INCENTIVES
AND BARRIERS
TO SAVING
FOR PEOPLE
ON BELOW
AVERAGE INCOMES
The impact of the Basic Advice Regime in encouraging
saving
CIH has no comments relating to this question.
The extent to which decisions on saving are influenced
by factors affected by financial services regulation, such as
the cost of regulated advice, as opposed to other factors such
as the State benefits system
Having a low income and little money to spare
is a key barrier to saving. Others include the lack of a habit
of saving and the welfare benefit eligibility rules regarding
savings.
The Saving Gateway has been designed to encourage
people to save by providing a financial incentive. Pilots show
that many of those opening accounts and savings had not saved
regularly before and 2-3 said that they would continue saving
afterwards. However, one drawback for some tenants of social housing
who participated was that they has to travel some distance to
the Halifax to deposit quite small amounts of money, which incurred
bus travel costs making it not worthwhile making a deposit.
There is a good deal of scope for social landlords
to increase take up of the Saving Gateway scheme, with some small
changes. For example, they could (not an exclusive list):
— provide information to their tenants
in an ongoing and accessible manner including through discussions
with them;
— set up savings arrangements with
local banks and credit unions or make arrangements to collect
tenants' deposits locally;
— encourage tenants to meet with a
money advisor; and
— add to the financial incentives provided
through the Saving Gateway (many landlords now offer "extras"
to tenants who meet all of their tenancy conditions or other more
specific criteria).
CIH recommends that a third Saving Gateway pilot
should be set up in conjunction with a number of social landlords
to assess in more depth the added value that can be gained by
the input of landlords.
5. THE ROLE
OF GOVERNMENT,
THE FINANCIAL
SERVICES AUTHORITY
AND OTHER
BODIES AND
ORGANISATIONS IN
PROMOTING FINANCIAL
INCLUSION
The work of the Financial Inclusion Taskforce
and the use of resources from the Financial Inclusion Fund
Given the increasing numbers of social landlords
that are promoting financial inclusion among their tenants, and
the fact that there is no representative of social landlords on
the Financial Inclusion Taskforce, it is important that the Taskforce
makes a particular effort to find out about their potential role
and make some recommendations as to how to expand their role and
increase their impact.
Also, the Treasury needs to work more closely
with other government departments as well as DTI—such as
the ODPM in relation to developing the role of social landlords.
The Financial Inclusion Fund is highly targeted
at providing debt advice. Prevention for those who are at risk
of accumulating debts is also extremely important and can be much
more cost effective than always concentrating on the more difficult
cases.
Lessons from successful local or regional initiatives
designed to address geographical concentrations of financially
excluded households
There have been a few publications highlighting
the work of social landlords, including the CIH's publication
Breaking Free: financial awareness and the role of social landlords
in 2003 and Life After Debt: tenants, social landlord and
financial inclusion, that to be published shortly. Others
have also recently published material or run training courses
on this subject, including the Housing Corporation and Impact
Housing Association.
If successful in its bid to the Financial Inclusion
Fund, CIH will evaluate and disseminate the findings widely through
a variety of means including training courses, seminars, conferences,
good practice material and through incorporation into our education
programmes for housing professionals.
6. THE BENEFITS
OF FINANCIAL
INCLUSION AND
THE EXTENT
TO WHICH
FINANCIAL INCLUSION
MEASURES CAN
CONTRIBUTE TO
COMBATING POVERTY
AND REDUCING
BARRIERS TO
EMPLOYMENT
The extent to which problems of financial exclusion
can be tackled by actions in the sphere of financial policy as
opposed to wider policy developments relating to welfare policy,
pensions and benefits
The forthcoming report by the CIH[71]
shows that social landlords are increasingly seeing it as their
business to encourage their tenants to develop good financial
management skills. They see financial inclusion is an important
element of a "sustainable community" and consider that
inability to access mainstream financial services leads to poverty,
social exclusion, local economic instability and crime, all of
which serve to destabilise communities. Providing an individual
with access to mainstream banking services is an important step
towards not only financial but also to social inclusion.
Financial inclusion is also (usually) a pre-requisite
to becoming a home owner. Government is increasingly promoting
home ownership as the main means of accumulating assets and is
encouraging social housing tenants through new schemes such as
Social Homebuy, as well as tried and tested schemes such as the
Rights to Buy and Acquire. Many tenants aspire to own their home
but there is evidence that only a small proportion can actually
afford to own. About three quarters of Notting Hill's tenants
would like to buy a home yet in a recent exercise Sovereign Housing
Group found that less than 5% of those showing an interest in
home purchase were actually in a sufficiently secure financial
position to buy.
Notting Hill's financial inclusion work is closely
linked to the homeownership agenda. The association believes that
many tenants would be capable of "getting a foot on the property
ladder" if they had the appropriate information and advice.
Their Home Options scheme which will be piloted early this year
is designed to help tenants acquire the skills needed to make
informed decision about all aspects of personal finance as well
as giving support during the home buying process.
January 2006
66 Newcombe, R, Cox, A, Neuburger, J and Whitehead,
C (2002) Partnerships for financial inclusion: housing associations
and financial institutions. Cambridge University. Back
67
Kempson, E and McKay, S (2004) Characteristics of families
in debt and the nature of indebtedness. University of Bristol. Back
68
CIH, (Forthcoming), Life After Debt: Tenants, Social Landlords
and Financial Inclusion. Back
69
CIH (2005) HomeSave: increasing choices for tenants to own
assets. Back
70
Affordable Credit, report by policis for the National Consumer
Council, July 2005. Back
71
CIH (forthcoming) Life After Debt: tenants, social landlords
and financial inclusion. Back
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