Select Committee on Treasury Written Evidence


Supplementary memorandum by the Financial Inclusion Task Force

FOLLOW UP TO EVIDENCE SESSION ON 9 MAY 2006

  I am writing regarding the points on which you requested clarification following our meeting on 9 May.[110] You asked for the following:

1.   A copy of the report on the Taskforce study visit to Chicago and Milwaukee. The report of my study visit enclosed (Q 475).[111]

2.   Proportion of financial excluded people who are owner-occupiers (Q 527).[112]

  The Family Resources Survey, published by the DWP, includes data on household tenure and bank account holding.[113] For the purposes of the goal to halve the unbanked, the Treasury has defined financial exclusion as the absence of a bank account. Those who only hold a Post Office Card Account are therefore classified as "unbanked". As you are aware, however, the FRS data for 2004-05 has been collected in such a way that it does not allow the number of financially excluded households to be identified as it is not possible to distinguish between those with a basic bank account and those with a POCA.

  For the purposes of responding to your request, I am therefore including the 2004-05 data on home ownership amongst those who have no account of any kind and amongst those who hold a basic bank account or POCA.

HOUSEHOLDS BY UNBANKED STATUS AND HOUSING TENURE


Rented
from
council
Rented
from
Housing
Association
Rented
privately
unfurnished
Rented
privately
furnished
Owned
outright
Owned
with
mortgage
Total
No account No of hholds 300,000200,000100,000 100,000300,000100,000 1,100,000
of any kind% of no account of any kind 281410 53013
POCA or basic No of hholds 200,000100,000100,000 --- 500,000
bank account% of POCA or bba 402812 588



  For explanations of the data please see footnote below.[114]

  This data demonstrates that home ownership is not significant amongst holders of Post Office Card Accounts or basic bank accounts. However, it shows some home ownership, in particular outright ownership, amongst those with no account of any kind. Further analysis of this group suggests that, of the outright home owners with no bank account of any kind, 38% have a household income of less than £10,000 a year, 27% between £10,000 and £20,000 and 35% over £20,000. Of those with no bank account of any kind who own with a mortgage, 73% have an annual household income of over £20,000.[115]

  The Taskforce will explore what further information can be collected about this group from the FRS and other sources to identify the characteristics of these households. In particular, it will wish to know the extent to which such households have a need to borrow and, if they do, whether they make use of their homes as security to minimise the cost of borrowing.

3.   Views on the Taskforce's remit and whether it should be changed (Q 531)[116]

Taskforce remit

  The Terms of Reference of the Taskforce, as defined by the Treasury, are focused on the three priority areas identified by the Government in "Promoting financial inclusion".[117] These are: access to banking, access to affordable credit and access to money advice.

  The primary challenge for those excluded from mainstream financial services is access to banking. A bank account not only allows significant savings to be made but also acts as a key to accessing other products such as insurance, savings vehicles and affordable sources of credit. The Taskforce understands that it is for this reason that the Treasury has focused on the unbanked as the hardcore of the financially excluded, and on access to affordable credit since this is an essential tool for many in managing peaks and troughs in expenditure to provide some financial stability.

  Access to savings and insurance are the next steps on the ladder towards true financial inclusion. The Task force recognises the value of helping people to accumulate small levels of savings as part of tackling financial exclusion, in particular as a key tool to avoiding over-indebtedness. Indeed, credit unions have consistently shown that encouraging people who were previously using expensive forms of credit to save small amounts is a very helpful step in changing behaviour. The Taskforce is aware that the Government has initiatives underway in respect of savings, for example the Child Trust Fund and Savings Gateway. The Taskforce also recognises that insurance products can potentially help those on low incomes plan for the future and protect against the costs of unexpected events. I consider savings and insurance to be essential elements in any strategy to build financial capability.

  If the Treasury were to ask the Taskforce to consider issues in addition to those covered by the terms of reference, I believe (subject to consulting Taskforce colleagues over the details of any specific request) that the Taskforce would be willing to do so. However, we would wish to be sure that this did not prevent the Taskforce from continuing with the considerable amount of further work needed to address the core areas of financial exclusion identified in the current terms of reference.

  I hope this letter provides you with the additional information you need. Should you require anything further, please do not hesitate to contact me.

May 2006






110   Ev 84-94 Back

111   Not printed. Back

112   Ev 93 Back

113   Full data set can be found at http://www.dwp.gov.uk/asd/frs/2004_05/pdfonly/frs_4_05_report.pdf Back

114   Figures for the number of households are rounded to the nearest 100,000. Estimates are based on sample counts that have been adjusted for non-response using multi-purpose grossing factors that align the FRS to Government Office Region populations by age and sex. Estimates are subject to sampling error and remaining response bias. Data are not provided for certain cells in the table because the sample sizes are too small to support reliable estimates of the statistics in question. The FRS interviews around 25,000 households. Key: - = negligible. Back

115   It is likely that the apparent anomaly that some have a mortgage but no bank account of any kind is accounted for by mortgages taken out some years ago, as it would be extremely difficult to enter into a new mortgage today without an account of any kind. Back

116   Ev 93 Back

117   Promoting Financial Inclusion: HM Treasury, December 2004. Back


 
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