Memorandum submitted by the Financial
Inclusion Taskforce
This submission sets out the Financial Inclusion
Taskforce's evidence to the Select Committee Inquiry into financial
inclusion. The submission covers the background to, and Terms
of Reference of the Taskforce and sets out the Taskforce's progress,
next steps and the key questions it will be seeking to address
going forward.
BACKGROUND
The Financial Inclusion Taskforce was set up
by HM Treasury following the publication of "Promoting
financial inclusion" in December 2004. It was established
to advise Government and others on progress towards tackling financial
exclusion and was launched in February 2005.
2. The Taskforce's terms of reference, defined
by HM Treasury, cover three priority areas identified by the Government:
— access to affordable credit; and
— access to free face-to-face money
advice.
3. The Taskforce's role is one of monitoring
progress and advising the Government and others on what more needs
to be done. In particular, the Taskforce will monitor and report
on progress towards the goal to halve the number of adults in
households with no bank account of any kind,[102]
and will advise the relevant government departments on the administration
of the £120 million Financial Inclusion Fund,[103]
although the Taskforce has no formal responsibility for the Fund.
The full terms of reference are at Annex 1.
4. The Taskforce's terms of reference are
narrower than those identified by the Committee for this inquiry.
However, the Taskforce has noted the link between its three priority
areas and wider issues such as financial capability, financial
advice and savings. The Taskforce will continue to examine wider
issues where they impact upon the financially excluded in line
with its remit to report to Government and others on what further
steps need to be taken.
5. The Taskforce recognises that the barriers
to financial inclusion are complex, relating to markets, consumer
attitudes and legal constraints. It is also recognised that solutions
to these barriers are best reached by consensus and in consultation
with stakeholders, industry and Government.
6. The Taskforce members are drawn from
a wide range of stakeholders and bring with them considerable
knowledge and experience of different elements of financial inclusion.
Between them, they have extensive experience of the banking industry,
consumer representation, money advice, research, front line service
provision and the voluntary sector. A full list of members can
be found at Annex 2.
7. The Taskforce has met four times since
its launch to progress its terms of reference and has convened
specialist subgroups to take forward specific actions. Work will
continue to be taken forward in this way in 2006.
8. In the first months of its work, the
Taskforce has focused on developing a clear and coherent definition
of the problem in order to provide a framework within which to
consider solutions in the priority areas identified by the Government.
The following sections set out these definitions together with
a summary of the progress that has been made by the Taskforce
so far, planned future activities and key issues that have been
identified for further consideration.
BANKING
Terms of Reference
9. The Taskforce's terms of reference under
this heading are to:
— report to HM Treasury and the banking
industry on progress towards the shared goal of halving the number
of adults in households without a bank account, and of having
made significant progress in that direction within two years;
and
— monitor provision of banking services
to the financially excluded, including access, and report to the
banks and HM Treasury on findings.
Defining the Problem
10. The Taskforce recognises that operating
without a bank account can lead to significant costs for individuals
and families. It recognises the progress made by the banks over
recent years, but considers that there remains more to be done
to ensure that appropriate mainstream banking services are available
and that these services meet the needs of low-income groups. It
would like to see everyone who could reasonably benefit from transactional
banking services able to do so. These are accepted by the majority
of people as a basic service of everyday living. The Taskforce
wants to ensure that everyone has the option of accessing such
services and the appropriate information to make an informed decision
on whether or not to do so.
Progress
11. In order to monitor progress towards
the shared goal, the Taskforce has commissioned a series of questions
to be asked quarterly in the ONS omnibus survey. Comparisons between
this and the 2002-03 FRS survey, on which the goal to halve the
number of unbanked was based, will need to be drawn with care
since the surveys are not directly comparable. However, this interim
survey will provide an indication of the direction and speed of
progress, and has the advantage of allowing progress to be tracked
more regularly. The commissioning of survey work has been necessary
as the FRS data for the years 2003-04 and 2004-05 has been collected
in such a way that data directly comparable to the 2002-03 results
is not available. This problem has been addressed for subsequent
surveys.
12. In recognition of the fact that the
objective is not only to improve access to bank accounts, but
also to ensure individuals are able to make effective use of them,
the Taskforce, via Treasury and HMRC, has also commissioned research
into how low income groups access cash and transmit money. This
research covers all households and contains a booster sample for
those on low incomes. Amongst other things, the results of this
work will provide objective data on the extent to which fee-charging
ATMs are used by the financially excluded.
13. In addition to monitoring progress towards
the goal to halve the number of adults in households with no bank
account, the Taskforce wishes to pursue with the banks their strategies
to ensure this goal is met. These discussions are underway with
retail banking representatives of the banks. The Taskforce wishes
to work with the banks in order to identify the barriers to opening
accounts, drawing on available evidence such as the recent Banking
Code Standards Board report. This report highlighted that, despite
progress, problems remain in ensuring that the banks' corporate
commitment to opening basic bank accounts is reflected in what
customers actually experience when they attempt to do so. In addition,
Taskforce members have offered to share their practical experiences
of working with financially excluded consumers in order to give
banks deeper insights into the problems actually experienced by
these individuals.
Activities and deliverables in 2006
14. In line with its remit to report annually
on progress towards the goal to halve the number of adults in
households with no bank account, the Taskforce will make its first
report in March 2006. In addition, the results of the research
into how low income groups access cash and transmit money are
due by mid-2006.
15. The Taskforce will pursue its discussions
with the banks about progress towards the goal and their strategies
to ensure it is met. Discussion will also focus on how barriers
to opening new accounts can be removed. The Taskforce will report
as appropriate to the banks and the government.
Key issues for consideration
16. As well as examining existing barriers
to opening accounts, the Taskforce will be exploring with the
banks how some of the demand-side barriers can be reduced by looking
at the appropriateness of the products currently on offer. The
Taskforce will also draw on the findings of the survey into how
low income groups access and transmit their money to inform this
work.
17. In addition, the Taskforce is interested
in working with the Government, the banks and others to ensure
that an appropriate balance is struck between on the one hand
ensuring anti-money laundering regulations are effective and,
on the other, allowing reasonable access to banking for those
who are currently excluded. The Taskforce responded to the recent
Joint Money Laundering Steering Group consultation on this issue
and continues to consider this to be an important challenge.
18. The focus of this work is on the short-term
achievement of the goal to halve the unbanked. However, whilst
the Taskforce recognises that this is an essential first step,
it is also looking further ahead to other opportunities that may
arise to encourage individuals to open bank accounts, for example
the ending of the contract to provide Post Office Card Accounts
in 2010.
19. In the context of this longer-term work,
the Taskforce will be considering whether, for the future, market
solutions are likely to result in effective removal of the problem
of financial exclusion in the long term or whether additional
measures by government or others are needed.
AFFORDABLE CREDIT
Terms of Reference
20. The Taskforce's terms of reference under
this heading are to:
— monitor the increase in provision
of affordable credit by third sector institutions. This information
could then be used by HM Treasury and the DWP to inform the distribution
of financial support to third sector lenders and evaluate outcomes;
— monitor the scheme whereby, under
certain circumstances, loan repayments could be made by deduction
from benefits and make recommendations to HM Treasury and the
DWP following the outcome of the evaluation of the scheme; and
— consider ways in which the capacity
and skills of volunteers and staff within third sector lenders
can be enhanced.
Defining the problem
21. The Taskforce recognises that, for people
on low incomes, credit can often be necessary for day-to-day financial
management. It would like to see a range of accessible credit
products supplied in a competitive market, at fair and transparent
rates, where consumers have the appropriate information and capability
to make informed borrowing decisions. The Taskforce recognises
that, even when these conditions are met, providing low-value
loans to low-income groups may result in higher costs and therefore
higher prices for some. It is investigating additional measures,
whether by government or by providers of credit products, that
may reduce these costs.
Progress
22. The Taskforce's work on affordable credit
has, in the first instance, focussed on giving advice to the DWP
on how to design the "growth fund" of £36 million,[104]
so as best to achieve the objective of increasing the coverage
and capacity of third sector lenders (credit unions and community
development finance institutions) whilst recognising that EU state
aid requirements constrain the design of the fund to a certain
extent.[105]
The Taskforce has made available the experience and views of its
members who represent the sector (as well as those with wider,
eg banking, experience). This work will continue as the DWP finalises
the eligibility and administrative arrangements of the scheme.
Activities and deliverables in 2006
23. The Taskforce will be monitoring the
effectiveness of the Government's measures to improve access to
affordable credit, through not-for-profit organisations, by commissioning
a bespoke survey of how low-income households use credit in areas
of deprivation. Given that the growth fund will not begin to flow
until June 2006, the intention is to begin the monitoring work
at that time and to report later in the year. In addition, the
Taskforce will monitor the progress of the DWP's affordable credit
scheme through which loan repayments could be made by deduction
from benefit under certain circumstances, and will report following
the implementation of the scheme expected in late 2006.
24. The Taskforce has begun to consider
how it can facilitate the development and sharing of skills between
third sector lenders, including the role of formal training and
how to capitalise on current training arrangements.
25. In pursuing additional measures to reduce
the cost of lending to people on low incomes, the Taskforce has
begun to explore with BACS[106]
whether steps could be taken, within the payment system, to increase
the certainty of repayment and will continue to pursue this.
Key issues for consideration
26. As the monitoring of the effect of the
Government's affordable credit measures goes forward, the Taskforce
will be considering how much of the demand for affordable forms
of credit amongst low income groups can be addressed by the third
sector. (The Taskforce welcomes the Government's recent announcement
of the intention to increase the cap on interest credit unions
can charge on loans; this decision is in line with the Taskforce's
response to the consultation on the matter and it allows the flexibility
for credit unions to increase their capacity to lend to low income
groups.) In addition, work is underway to assess whether other
types of organisation, for example mainstream banks or sub-prime
lenders, could play a greater role in providing affordable credit,
or in reducing the cost of credit available.
FACE-TO-FACE
ADVICE
Terms of Reference
27. The Taskforce's terms of reference under
this heading are to:
— identify areas of best practice,
and gaps, in the provision of free face-to-face money advice.
This information could then be used by HM Treasury and the DTI
to inform the distribution of financial support for face-to-face
money advice and evaluate outcomes; and
— monitor the progress of the debt
outreach pilots, and consider the outcomes of the evaluation of
the scheme.
Defining the problem
28. The Taskforce recognises that, for many
people on low incomes, credit can be a useful tool in managing
household expenditure, and that most people are able to keep borrowing
under control. However, some people have difficulty managing their
borrowings and encounter problems meeting credit commitments or
paying households bills. The Taskforce notes that people at the
lower end of the income scale are more likely to be over-indebted.
Those at the bottom end of the income scale are also more likely
to experience difficulties accessing mainstream products such
as bank accounts and mainstream credit. The Taskforce would like
to see money advice available to all those who seek it and delivered
in ways that meet their needs.
Progress
29. The Taskforce's work on money advice
has initially focussed on advising the Legal Services Commission
and the DTI on the design of their respective Financial Inclusion
Fund schemes, the £6 million for outreach pilots[107]
and the £45 million face-to-face advice project.[108]
This has ensured the LSC benefited from the experience of Taskforce
members in designing its proposals to pilot different money advice
outreach services that meet the needs of those who do not normally
present themselves to free face-to-face money advice services.
Additionally, the Taskforce has provided advice to the DTI on
its guidance to bidders for the element of the Financial Inclusion
Fund that is being devoted to increasing the supply of face-to-face
money advice; this is to ensure that the funding achieves its
objectives effectively and that the DTI's proposed bidding arrangements
are feasible and appropriate.
Activities and deliverables in 2006
30. The Taskforce will monitor the evaluation
of the Government's measures to increase the availability of money
advice. The Taskforce will start monitoring these schemes when
funding begins to flow from early 2006 and will make recommendations
to Government following the outcome.
31. The Taskforce is also undertaking work
to identify gaps in the provision of money advice and examples
of best practice. Following a consultation exercise, it has identified
a shortage of comprehensive information about the current range
of provision, and sources of funding, of money advice and will
be undertaking a study, as early as possible in 2006, to build
a fuller picture of the sector before presenting recommendations.
Key issues for consideration
32. Although outside the Taskforce terms
of reference, the issue of financial education and capability
building before the point of crisis is closely linked to that
of money advice. The Taskforce has had discussions with the Financial
Services Authority and has encouraged it to ensure that its capability
strategy addresses the needs of the financially excluded. The
Taskforce will seek to remain informed of progress here and will
consider whether it should look more closely at this issue.
FACILITATING ACCESS
Defining the problem
33. In the course of considering the three
priority areas identified in its terms of reference, the Taskforce
has concluded that the problem of financial exclusion is not solely
one of availability of products or practices of providers. There
is also a need to stimulate demand for appropriate banking services
and credit products amongst financially excluded groups, and to
motivate action by intermediaries in order to equip individuals
to make the most appropriate choice for themselves. The Taskforce
recognises that in order to do this, individuals may benefit from
assistance with understanding the options available to them, the
potential benefits of different products, and the requirements
for accessing products. Practical assistance in, for example,
applying for a bank account may also be appropriate. This kind
of "informed choice" process may be usefully facilitated
through organisations such as:
— those with which individuals are
already in touch, such as housing associations or Job Centre Plus;
— others which individuals already
trust, such as voluntary sector organisations or community groups;
or
— central or local government.
Progress
34. As part of its approach to this, the
Taskforce wishes to hear and understand, at first hand, the views
and concerns of those experiencing financial exclusion. For this
purpose, it proposes to run a series of deliberative workshops[109]
involving financially excluded people directly.
35. Initial consideration of demand side
barriers suggests that it would be valuable to use trusted organisations
such as housing associations, local authorities, community groups,
voluntary sector organisations and advice providers to deliver
consistent and objective information and advice about the choices
available to individuals and to offer practical assistance with
making them, including help with overcoming any misgivings about
financial services products. The Taskforce has been researching
existing initiatives in this area and is considering how to generate
further support and action. It is exploring a range of possible
options to raise awareness and promote action, including establishing
a financial inclusion alliance of key stakeholders and running
a financial inclusion campaign. The Taskforce will report to Treasury
on its proposed approach in due course.
CONCLUSION
36. The Financial Inclusion Taskforce is
in the early stages of its work. However, it believes that good
progress has been made, in particular to put in place a framework
for monitoring progress towards tackling financial exclusion and
in advising government on the administration of its £120
million Financial Inclusion Fund. Work is underway with the banks
and others to ensure that the supply-side issues that result in
individuals being excluded are effectively addressed. In addition,
thought is being given to demand-side measures that will facilitate
excluded groups' access to mainstream financial services. Key
questions have been identified that will become the focus of the
Taskforce's work over the coming months.
January 2006
Annex 1
TASKFORCE TERMS
OF REFERENCE
The Financial Inclusion Taskforce will monitor
progress towards tackling financial exclusion. In particular it
will:
— report to HM Treasury and the banking
industry on progress towards the shared goal of halving the number
of adults in households without a bank account, and of having
made significant progress in that direction within two years;
— monitor provision of banking services
to the financially excluded, including access, and report to the
banks and HM Treasury on findings;
— consider ways in which the capacity
and skills of volunteers and staff within third sector lenders
can be enhanced;
— Monitor the increase in provision
of affordable credit by third sector institutions. This information
could then be used by HM Treasury and the DWP to inform the distribution
of financial support to third sector lenders and evaluate outcomes;
— monitor the scheme whereby, under
certain circumstances, loan repayments could be made by deduction
from benefits and make recommendations to HM Treasury and the
DWP following the outcome of the evaluation of the scheme;
— identify areas of best practice,
and gaps, in the provision of free face-to-face money advice.
This information could then be used by HM Treasury and the DTI
to inform the distribution of financial support for face-to-face
money advice and evaluate outcomes;
— monitor the progress of the debt
outreach pilots, and consider the outcomes of the evaluation of
the scheme; and
— make recommendations to HM Treasury
on tackling financial exclusion in areas not covered by PBR proposals.
Annex 2
FINANCIAL INCLUSION
TASKFORCE MEMBERSHIP
Brian Pomeroy—Chair.
Geoffrey Cooke—former Chief Executive
of the British Cheque Cashers Association.
Benny Higgins—Chief Executive Retail Banking
at RBS.
Elaine Kempson—Professor of personal finance
at Bristol University.
Chris Lendrum—former Vice Chairman of
Barclays plc.
Mark Lyonette—Chief Executive of the Association
of British Credit Unions.
Bernie Morgan—Chief Executive of the Community
Development Finance Association.
Nick Pearson—National debt advice coordinator
at Advice UK.
Teresa Perchard—Director of Policy at
Citizens Advice.
Faith Reynolds—established Services Against
Financial Exclusion (SAFE).
Susan Rice—Chief Executive of Lloyds TSB
Scotland plc.
Claire Whyley—Deputy Director of Policy
at the National Consumer Council.
102 The goal was published in the Pre-Budget Report
2004 (Pre-Budget Report, HM Treasury, December 2004). The terms
of the goal were agreed between the five biggest retail banks,
the BBA and the Treasury. Back
103
Promoting financial inclusion, HM Treasury, December 2004. Details
of the breakdown of the Fund can be found at http://www.hm-treasury.gov.uk/documents/financial_services/financial_inclusion/Financial_inclusion_index.cfm Back
104
http://www.hm-treasury.gov.uk/documents/financial_services/financial_inclusion/Financial_inclusion_index.cfm Back
105
http://www.dwp.gov.uk/advisers/growthfund/ Back
106
BACS Payment Schemes Limited (BPSL) administers the payment scheme
for low-value, high-volume payments in the UK. These payments
include direct credits, direct debits, standing orders and telephone
and internet payments. Back
107
http://www.legalservices.gov.uk/aboutus/jobs/appointments.asp Back
108
http://www.dti.gov.uk/ccp/topics1/debtadvice.htm Back
109
Deliberative workshops are similar to focus groups but are held
over a longer period of time and with a larger group of people,
allowing participants to develop their opinions through discussion.
This method reveals whether and how views change, and what arguments
and information have most impact. Back
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