Memorandum submitted by HM Treasury
INTRODUCTION
1. The broad nature of the problems associated
with exclusion from mainstream financial services is such that
it has implications for a range of government policy. HM Treasury
has overall responsibility for policy towards savings, banking,
access to credit and financial education and advice including
for the financially excluded. The Committee has received evidence
from the Department for Work and Pensions (DWP) and the Financial
Services Authority (FSA), amongst others, covering their specific
interests.
BACKGROUND
2. Lacking access to a range of financial
services can have a significant impact on individuals both in
the short and longer term, including imposing additional costs
on those who can least afford them. Costs associated with exclusion
include:
— higher charges for basic financial
transactions such as cashing a cheque or paying a utility bill;
— lack of access to products and services,
for example contract mobile telephones;
— lack of security in holding or storing
money; and
— lack of opportunity to build up a
stock of savings or assets to fall back on in times of hardship
or to supplement retirement income.
3. Apart from these financial costs, the
broader implications of financial exclusion can include:
— acting as a barrier to employment
as a bank account for the receipt of wages is a basic requirement
for most employers;
— exacerbating the harm caused by child
poverty as a result of paying more for financial services and
the impact of debt on family life;[162]
and
— contributing to social exclusion
as individuals and neighbourhoods become disengaged from mainstream
society.
4. In recognition of this, steps have been
taken by HM Treasury and others over recent years to address the
causes and consequences of this exclusion. Whilst the Government
recognises that exclusion from financial services can occur across
the income scale for a range of reasons, the focus here is on
those most vulnerable to the consequences of exclusion, at the
bottom end of the income scale.
5. The Government's strategy for tackling
exclusion from the range of financial services has four objectives:
— to remove unnecessary barriers to
accessing mainstream financial services products;
— to facilitate appropriate and innovative
solutions where mainstream provision fails to meet the needs of
excluded groups;
— to address lack of demand for appropriate
financial services products for reasons of financial capability
or perception; and
— to provide more help for those who
need it most.
6. In this context, the Government has put
in place a series of measures to tackle financial exclusion, including:
— piloting the Saving Gateway to explore
how Government matching can help to promote saving amongst those
who do not normally save;
— providing additional Child Trust
Fund provides payments to children in lower income families to
ensure that at age 18 every child regardless of background will
have access to a financial asset; and
— promoting access to banking, affordable
credit and free face-to-face money advice through measures set
out in "Promoting financial inclusion".[163]
7. "Promoting financial inclusion"
announced the intention to establish a Financial Inclusion Taskforce,
under the chairmanship of Brian Pomeroy to oversee progress and
report to HM Treasury on what more needs to be done. It also announced
a Financial Inclusion Fund of £120 million over three years
to support initiatives to tackle financial exclusion, the distribution
of the Fund will have regard to areas of high financial exclusion.
8. These measures are designed to increase
the availability of financial services products and provide incentives
to encourage their uptake. The Government recognises that whilst
availability of products is an essential element of the solution,
ensuring consumers have the confidence and capability to access
them is also essential to success.
9. Government announcements over recent
years have reinvigorated activity in this policy area amongst
the banks, other financial services providers, consumer bodies
and others.
ACCESS TO
BANKING SERVICES
10. Lack of access to banking services imposes
higher costs on individuals who can least afford it. Since the
publication of PAT14 in 1999 the Government has been working with
the banks to improve access to bank accounts. This work led to
the establishment of the basic bank account, which was specifically
designed with the needs of the financially excluded in mind.
11. Between April 2003 and March 2005 the
DWP completed the move to electronic payment of benefits. Recipients
were asked to nominate an existing bank account to receive payments.
Those without existing bank accounts were encouraged to open a
basic bank account or Post Office Card Account. The Post Office
Card Account (POCA) provides a useful stepping-stone into banking
for individuals who have not managed their money electronically
before. The banks have made access to all basic bank accounts
possible over the Post Office counter. The DWP has provided more
detail on this to the Committee in its memorandum.
12. Despite progress in tackling exclusion
from banking services, a clear challenge remains. In December
2004, the banks and the Government agreed to work towards the
goal to halve the number of adults in households with no account
of any kind and to have made significant progress in that direction
within two years. This goal was set with reference to the best
information available at that time, namely the Family Resources
Survey data from 2002-03 indicating 1.9 million households, containing
around 2.8 million adults, lacked access to an account of any
kind. The Financial Inclusion Taskforce has been asked to report
to the Government and the banks on progress towards this goal.
13. The Government considers that, although
account holding is a useful measure of success in tackling financial
exclusion, the way individuals use their accounts is also important.
In recognition of this, the Financial Inclusion Taskforce has
also been asked to monitor the services and facilities available
to basic bank account holders, including access to accounts, and
to report to the banks and HM Treasury on findings. The Taskforce
has commissioned survey work to explore how the financially excluded
access their cash and transmit money, including the extent to
which fee charging ATMs are used by the financially excluded.
As reported to the Committee in the response to the Committee's
enquiry into fee charging ATMs in June 2005, the Government agrees
with the Committee that vulnerable and low-income consumers should
not be subject to disproportionate costs as a result of ATM charges
and would be concerned if they were. The Government does not believe
that this is the case on the basis of existing evidence, but the
research commissioned by the Taskforce should enable firmer conclusions
to be drawn.
14. In addition to access to cash through
ATMs, HM Treasury is aware of recent moves by some of the banks
to restrict over-the-counter access to basic bank accounts. The
Government would be concerned if changes to the terms and conditions
of basic bank accounts were such that the benefits of holding
an account were eroded. The Financial Inclusion Taskforce has
included more detail on the arrangements it has in place to monitor
these issues of access in its memorandum to the Committee.
15. Whilst the banks hold the key to facilitating
the supply of banking services, there is also a challenge to be
addressed in ensuring those currently operating without a bank
account are aware of the benefits of account holding and have
access to the information and assistance needed to open one if
appropriate. HM Treasury fully supports the Financial Inclusion
Taskforce in its identification of the importance of work to increase
demand for bank accounts and looks forward to the Taskforce's
recommendations in this area.
ACCESS TO
AFFORDABLE CREDIT
16. In addition to the costs of operating
without a bank account outlined above, households without access
to banking find it difficult to access mainstream sources of credit.
People on low incomes typically want credit arrangements that
offer low value cash loans over short periods, straightforward
application processes, affordable weekly repayments, and a flexible
approach to repayments and rescheduling[164].
The need for credit amongst low-income households also differs
from those on higher incomes. Research[165]
suggests the main reasons for credit need are:
— to buy essentials such as household
appliances, furniture or clothing;
— to meet the costs of smaller discretionary
items such as Christmas gifts or to finance family events.
17. Lack of access to mainstream sources
of credit means many low income households rely on the alternative
credit market where typical products have Annual Percentage Rates
of over 100%, many times the APRs of standard mainstream personal
loans, overdrafts and credit cards.
18. "Promoting Financial Inclusion"
contained a series of measures designed to increase access to
affordable forms of credit for households currently excluded from
mainstream sources. These measures predominantly focus on the
provision of credit through third sector lenders such as credit
unions and community development finance institutions.
19. The focus on third sector credit provision
recognises that third sector lenders are uniquely placed to address
the needs of excluded communities. Third sector lenders:
— are often geographically targeted
in nature and so can provide affordable credit in areas of high
financial exclusion;
— are often small in size and so can
target those encountering exclusion and can develop more innovative
and suitable methods of loan delivery;
— often help clients obtain money advice
in the course of providing a loan, and connect people to more
mainstream financial opportunities; and
— offer rates of interest well below
those in the alternative credit market (typically between 12 and
30%).
20. However, the coverage of these types
of organisation is at present limited and a number of barriers
to further growth remain. The measures announced in December 2004
are designed to increase the coverage, capacity and sustainability
of third sector lenders.
Growth Fund for third sector lenders
21. £36 million of the Financial Inclusion
Fund has been allocated to a Growth Fund[166]
for third sector lenders. The objective of the Fund is to increase
the availability of affordable credit from third sector sources
by providing both capital for on-lending to low income individuals
in areas of high financial exclusion, and revenue support to cover
the administrative costs relating to the additional lending. The
fund is being administered by the DWP which has provided details
of the fund in its memorandum to the Committee. It is anticipated
that the first contracts will be awarded in June 2006 and that
final payments from the fund will be made by March 2008. The Financial
Inclusion Taskforce has been asked to monitor the increase in
provision of affordable credit to evaluate the impact of the Growth
Fund.
Mapping of credit unions and CDFIs
22. The Government has developed a series
of maps showing the location of credit unions and CDFIs against
Indices of Multiple Deprivation and against population density.
These maps will be used, in conjunction with other sources of
evidence, to identify gaps in the coverage of affordable sources
of credit and to inform future policy development. The maps were
published alongside the 2005 Pre-Budget Report.[167]
Credit Union Interest Rate Cap
23. The Government announced, in the 2005
Pre-Budget Report, that following consultation,[168]
it intended to increase the maximum rate of interest that credit
unions can charge on loans from 1% a month to 2% a month. This
move will provide credit unions with the flexibility to better
serve low-income groups. It is intended that the change will be
implemented by April 2006.
Capacity and Skills of Third Sector Staff
24. In recognition of the key role played
by the volunteers and staff of third sector lenders in the provision
of affordable credit, the Financial Inclusion Taskforce has been
asked to consider ways in which the capacity and skills of volunteers
and staff can be enhanced. This work is likely to include the
role of formal training as well as what role the banking sector
may be able to play.
Community investment tax relief (CITR)
25. In June 2005, the Government published
a consultation document seeking views on the case for, and practicalities
of, extending a community investment tax relief scheme to the
personal lending activities of CDFIs.[169]
The consultation closed in September. As announced in the 2005
Pre-Budget Report, the consultation indicated support for an extension,
and also highlighted a range of issues that need addressing. Further
work is now being undertaken to assess the case for, and practicalities
of, this extension.
The Affordable Credit Scheme
26. The objective of the affordable credit
scheme is to reduce the cost of credit to the financially excluded
by reducing the risks associated with lending to this group. As
announced in Budget 2005, the Government is working towards providing
private and third sector lenders with the opportunity to be able
to apply for repayment to be made by deduction from benefit, where
normal repayment arrangements have broken down and provided they
meet approved responsible lending criteria. For repayment to be
triggered, lenders will also have to demonstrate that they have
tried other reasonable means to collect repayments. Repayment
terms will be subject to constraints to avoid hardship to the
benefit customer meaning the total amount of deduction allowable
will not increase from its current level as a result of this scheme,
deductions for affordable loans will be last in the priority order
for third party deductions.
27. The scheme will be administered by the
DWP which has covered the details in its memorandum to the Committee.
The costs of setting up and implementing the scheme over the period
from 2005-06 to 2007-08 will be met from an allocation of £10
million from the Financial Inclusion Fund. The Financial Inclusion
Taskforce has been asked to monitor this scheme and to make recommendations
to HM Treasury and the DWP following evaluation.
Other sources of credit
28. In addition to measures to enhance the
ability of the third sector to provide credit to the financially
excluded, mainstream sources of credit should also be considered
as part of the range of options open to people. The Financial
Inclusion Taskforce has been asked to make recommendations to
HM Treasury on areas not covered by the measures outlined in Promoting
financial inclusion. In this context, the Taskforce is exploring
the role of the mainstream banks in providing affordable credit
to the financially excluded and the Government looks forward to
its recommendations in this area.
29. Social Fund loans provide support for
the vulnerable in smoothing expenditure. The loans can provide
an important source of affordable credit for people who might
otherwise need to turn to high cost lenders. Unlike credit from
other sources such as third sector lenders or mainstream providers,
Social Fund loans do not incur any interest and eligibility is
restricted to individuals in receipt of income-related benefits.
The loans have an important role to play but do not in themselves
encourage borrowers to move towards more mainstream products.
The DWP is responsible for the Social Fund and has covered its
role in more detail in its memorandum. HM Treasury is committed
to supporting the Department for Work and Pensions in administering
Social Fund loans as effectively and efficiently as possible.
30. In addition to ensuring there are options
available to the financially excluded who wish to borrow, it is
also essential to ensure that the credit arrangements on offer
are appropriate.
31. The Consumer Credit Bill, currently
before Parliament, aims to:
— enhance consumer rights and introduce
more effective dispute resolution;
— improve the regulation of consumer
credit businesses; and
— make regulation more appropriate
for different types of consumer credit transaction.
Amongst other things, the Bill introduces a
new unfair credit relationships test that provides consumers with
broad rights to challenge unfair conduct.
32. Home credit companies offer products
that are typically used by low-income households. The Competition
Commission is currently conducting an inquiry into the home credit
industry, following referral of the National Consumer Council's
(NCC) super complaint by the Office of Fair Trading (OFT). The
Competition Commission will publish provisional findings in March/April
2006, and the Government will then consider what further action
may be necessary.
INCENTIVES AND
BARRIERS TO
SAVING FOR
PEOPLE ON
BELOW AVERAGE
INCOMES
33. Lacking access to mainstream financial
services over the long term has three key implications for an
individual's ability to save for the future:
— income is diverted to covering the
costs associated with exclusion such as the costs of credit or
basic financial transactions meaning less income is available
both to cover immediate spending pressures, but also to save;
— access to a bank account can be a
pre-requisite to access to savings products because many require
deposits to be made from another financial services product; and
— individuals lacking access to formal
savings products are likely to benefit less from saving than those
who do.
34. Saving and asset ownership have a critical
role to play in providing people with financial security and independence:
— a buffer of savings to fall back
on can help people manage during hard times without having to
resort to expensive credit;
— saving and asset ownership opens
up opportunities to people which can change the way they think
about and plan for the future; and
— saving allows people to manage their
finances both day-to-day, over the medium term and in preparation
for retirement.
35. Decisions on saving are influenced by
many factors. Economic theory and some empirical evidence[170]
suggest that the consumer's decision to save, borrow, or spend
all of their current income is influenced by cost, individual
needs, circumstances, attitudes and confidence in those who advise
and sell saving products. Targeted support by the Government through
state benefits and Pension Credit can also be important in influencing
the decision on whether and how much to save.
36. The Government is committed to ensure
the state benefit system encourages lower income households to
save appropriately. Eligibility for Income Support, Jobseeker's
Allowance, Housing Benefit and Council Tax Benefit is partly conditional
on a household's savings. As announced in Budget 2004, from April
2006 the thresholds above which savings begin to reduce eligibility
for these benefits will be raised from £3,000 to £6,000.
In addition Budget 2005 announced that the upper capital thresholds
(above which benefits are withdrawn) for Income Support and Jobseeker's
Allowance will from April 2006 be raised from £8,000 to £16,000.
37. Savings Credit and Pension Credit arrangements
are also designed to encourage households to save appropriately.
Savings Credit rewards single pensioners over 65 years old with
up to £16.44 per week and pensioner couples over 65 years
old with up to £21.51 per week. For those on the Savings
Credit, withdrawal is at 40%, ending the absolute penalty on savings.
38. At the same time, the Government's 2003
Pension Credit reforms increased the level of state support for
the poorest pensioners and those with modest savings. Under the
reforms marginal deduction rates (MDRs) of 100% have been removed
for 1.3 million pensioner households. With Pension Credit those
who provide additional income for their retirement are better
off than those who do not.
39. The Government encourages short, medium
and long term saving by individuals through a range of support
including the Child Trust Fund, Saving Gateway pilot and tax advantaged
Individual Saving Accounts (ISAs). The Child Trust Fund provides
£250 to all children with an additional £250 to children
in low-income families. The Government is currently consulting
on a further £250 universal payment with £500 for children
in lower income families at age seven.
40. Saving decisions for those on low incomes
are driven by different priorities than those further up the income
scale, for example saving small amounts to cover the costs of
school uniforms or Christmas presents may take priority over long
term saving for retirement. In recognition of this the Government
has sought to develop measures to promote saving targeted at low-income
individuals.
Saving Gateway
41. The Saving Gateway is a Government research
pilot exploring how Government matching and the provision of financial
information can help promote saving among those who do not usually
save. Every time a participant saves the Government matches their
contribution at a certain ratio up to a set monthly limit. Matching,
as an alternative to tax relief, provides a more understandable,
transparent and effective framework of support for savers, and
it provides greater incentives for those on low incomes who often
cannot benefit from tax relief. Evidence gathered through the
pilots will be used to evaluate how best to target saving incentives
and the future role matching could play in Government support
for savings, both for those on low incomes and more generally.
The Saving Gateway is currently in its second pilot stage. The
Saving Gateway fits within the Government's overall saving strategy
by providing simple and clear incentives for people to save and
building in the provision of financial education, as well as targeting
additional help towards lower-income households who need it most.
42. The details of the Saving Gateway pilots
can be found at annex 1. The evaluation of the first pilot confirmed
that matching can double the amount of money saved by low-income
groups and encourage genuinely new savers and new saving. Involvement
in the pilot also led individuals to become more self reliant
and financially aware.
43. The second Saving Gateway pilot announced
at Pre-Budget Report 2004 is a much larger, £15 million pilot.
The second pilot is testing a variety of incentive structures
including alternative match rates (£1: £1, £1:
£2 and £1: £5), monthly saving limits (£25,
£50 and £125) and kick-starting accounts with an opening
endowment of £50. A variety of community financial education
support is also available for participants to help them develop
their money management skills.
44. MORI and the Institute for Fiscal Studies
are conducting a full quantitative and qualitative evaluation
of the second pilot on behalf of HM Treasury. As reported in Pre-Budget
Report 2005 preliminary indications suggest that participants
are very positive about the scheme and are saving into their accounts
in all pilot areas, with many obtaining the full match each month.
The interim evaluation report expected in Spring 2006 will provide
detail on the first six months of the pilot and the final evaluation
is expected in Spring 2007 once all the accounts are closed.
Stakeholder products
45. The Stakeholder initiative is a means
of encouraging the development of simple, low-cost and easy to
understand savings and pensions products. It is the Government's
response to one of the principal recommendations of the Sandler
review of medium and long-term retail savings in the UK.
46. HM Treasury consulted on the product
specifications' for the Sandler Product Range, and decided in
July 2003 that the "Stakeholder Suite would include:
— a medium term investment product;
— a modified Stakeholder Pension; and
47. The product specifications include charge
caps and risk controls. The products became available on 6 April
2005.
48. The Basic Advice regime was introduced
by the FSA on 6 April 2005. It is one method by which stakeholder
savings and investment products can be sold to retail consumers.
The FSA regulates the basic advice process for stakeholder products.
49. The Basic Advice regime is intended
to make available a simpler, quicker and lower-cost form of advice
to consumers than is available through Full Advice. It provides
firms with the opportunity to make available a new option to consumers
who may not want, or cannot obtain full financial planning advice,
and do not wish to buy without help. Consequently, it does not
feature, for example, financial planning advice or advice on switching
between investment products.
50. The principal characteristics of Basic
Advice are that:
— it is restricted to the stakeholder
range of products, except the stakeholder smoothed investment
product;
— it is tightly scripted: staff need
not hold financial qualifications;
— product suitability is limited to
establishing the customer's position on broad issues such as risk,
savings objectives, significant financial priorities and obvious
counter-indications;
— only information provided during
the process need be considered in the product suitability assessment;
and
— interviews may take as little as
30 minutes.
51. The FSA has confirmed that 10 firms
have applied for authority to offer Basic Advice—mostly
insurance companies and intermediaries. While more firms are considering
how to add Basic Advice to their existing systems, some say it
is expensive and difficult to integrate, and that it may not be
suitable for worksite sales. No retail banks have taken it up.
Several firms are experimenting with using it as a telephone-sales
rather than a face-to-face process. The industry has a long lead
time for making systems changes. We understand that Basic Advice
may take several years to become embedded.
Financial education and access to financial advice
52. The Government recognises that in addition
to ensuring products are available, effective engagement with
financial services requires financial capability. Financial education
in school will ensure that young people have the knowledge and
skills they need to avoid financial exclusion in the future. Building
the capability of today's adults is also essential in ensuring
individuals are able to make the most appropriate decisions for
their own circumstances.
Financial education and capability
53. In the 2005 PBR the Government announced
that from 2008 financial capability will be embedded more explicitly
in the national curriculum, when it is included in the new functional
mathematics component of GCSE maths.
54. The Government also intends to harness
the opportunity afforded by the Child Trust Fund (CTF) to provide
families with financial information and education. Parents receive
a Government information pack, which includes a list of account
providers to help them choose the sort of account they want and
there is also a dedicated CTF website.
55. From 2007 onwards, children with a CTF
account will begin starting at school. There are opportunities
for teaching and learning about topics related to the CTF such
as saving and investing, risk and return, financial decision-making,
the role of the financial services industry and how the economy
functions in the school curriculum across the UK. CTF financial
education will build on what is already being done across the
curriculum. CTF will reinforce and support the delivery of financial
education in schools by ensuring that every young person has access
to a financial asset, increasing the relevance of financial education
for all and helping young people understand the advantages of
saving.
56. The Government is also encouraging a
range of options that will help adults gain the necessary skills
to manage their financial affairs, including the provision of
financial education to adults through the Skills for Life strategy.
It is also encouraging local authorities to provide more financial
education to parents through Sure Start Children's Centres, which
will reach some of the most vulnerable families in England. The
Government will also ensure that applicants for Social Fund Budgeting
loans, who are often lone parents, are made aware of opportunities
for financial education.
57. In 2003 the Financial Services Authority
(FSA), working in partnership with the Government, the financial
services industry and other stakeholders set up the National Strategy
for Financial Capability. As part of the strategy, the FSA is
working with the Resolution Foundation on models for the provision
of generic advice. The FSA has provided the detail in its memorandum
to the Committee. The Economic Secretary to the Treasury is a
member of the Steering Group that oversees the Strategy's implementation.
58. The UK is also taking part in the OECD's
Financial Education Project, which is researching what national
governments can do to help consumers deal with increasingly complex
financial decisions. The OECD has also recognised the importance
of financial education initiatives in providing a solution to
those who are financially excluded, the unbanked or underserved.
Face-to-face money advice
59. The Government has recognised that building
financial capability empowers individuals to make well-informed
decisions about their financial affairs. However, there will inevitably
be some whose circumstances lead them into over-indebtedness.
Evidence suggests that those at the lower end of the income distribution
are more likely to be in arrears, suggesting that individuals
facing the costs and challenges of financial exclusion also have
a greater likelihood of becoming over-indebted[171].
60. The supply of free face-to-face money
advice for these individuals falls far short of demand. In December
2004 the Money Advice Trust estimated a shortage in the provision
of money advice of at least 250,000 places a year, through both
telephone and face-to-face channels.[172]
Promoting Financial Inclusion identified free face-to-face
provision as being the most effective means of providing advice
to financially excluded individuals.
61. In order to support a significant increase
in supply of free face-to-face money advice, £45 million
of the Financial Inclusion Fund has been allocated to the Department
for Trade and Industry to fund free face-to-face debt advice in
areas of high financial exclusion and to social groups vulnerable
to financial exclusion. The £45 million will be administered
by DTI through a funding competition. Bids were invited in September
2005 and the deadline for final bids was 20 January. DTI plan
to announce grant awards from April 2006.
62. In addition, £6 million of the
Financial Inclusion Fund has been allocated to the Department
of Constitutional Affairs, to be administered by the Legal Services
Commission, to pilot models of money advice outreach aimed at
those who do not normally present themselves to advisers. The
LSC have run a competition to fund outreach pilots and are currently
in contract negotiations with successful bidders. The pilots will
come into service from February 2006. The Financial Inclusion
Taskforce has a specific remit to monitor the progress of the
DTI and LSC schemes, and to consider the outcomes of the project
evaluations.
CONCLUSION
63. The Government has put in place a series
of measures to tackle the problem of financial exclusion, by removing
barriers to access, facilitating provision of appropriate products,
stimulating demand and ensuring more help is available to those
who need it most. Looked at together these measures address exclusion
across the piece, from access to banking to avoid higher transaction
costs, access to affordable credit to manage unexpected shocks
in expenditure and access to savings to smooth expenditure and
if possible, to provide independence in the future.
64. Some of the measures covered in this
memorandum are exploratory in nature and it will be essential
to learn from the experience of measures currently in place, in
particular the Saving Gateway pilots, the growth fund for third
sector lenders and the face to face debt advice project, in developing
the way forward.
9 February 2006
Annex 1
THE SAVING
GATEWAY: FURTHER
DETAIL ON
THE PILOTS
The final independent evaluation report of the
first Saving Gateway pilot produced by Bristol University was
published alongside Budget 2005. The report showed some very positive
findings on saving characteristics of low-income participants.
Account holders saved a total of around £475,000 with half
of participants (52%) achieving the maximum amount of £375,
and 70% managing to save over £300.
The final evaluation confirmed matching in particular
can double saving among low-income groups (average individual
net saving increased from £150 to £300 over 18 months)
and encourage genuinely new savers and new saving. Before the
pilot, 56% had no money saved in a savings account and 25% did
not have a current account at all. 75% said they aimed to save
the maximum, and 91% of participants said they would find the
money from their regular income. Importantly participants did
not divert income that was always going to be saved; only 5% transferred
or substituted money from existing savings and only ONE person
said they would take out a loan. Saving in the first pilot was
regular. One-third of participants paid money in regularly by
standing order or direct debit, a further third regularly by cash
or cheque. Two-thirds of participants intended after the pilot
to save some or all of the money in their accounts with nearly
half of all participants intending to keep at least some of the
money saved for a "rainy day".
Saving Gateway also had behavioural impact.
Most of the people who felt more "in control" or "financially
secure" after the Saving Gateway had not been regular savers
before opening their account.
It's made me feel more self-reliant . . . It
has opened my eyes to the fact that I've got to try to help myself
save a little bit.[173]
One-third of all participants said that they
were more likely to plan for their retirement as a result of participating
in the Saving Gateway.
It's given me encouragement to save for my future
because I never used to. Now I know I've got that little bit extra
each month that I'm putting away that I know that I'm going to
alright when I get older.
The second Saving Gateway pilot announced at
Pre-Budget Report 2004 is a much larger, £15 million pilot.
Account opening began in March 2005 and by summer 2005 all 22,000
accounts were opened. Accounts will again operate for 18 months
and Halifax is providing the banking facilities in six areas—Cambridgeshire,
Cumbria and North Lancashire, East London, East Yorkshire, Manchester
and South Yorkshire.
The second pilot is testing a variety of different
incentive structures. As with the first pilot funds only become
available at the end of the 18-month account. Participants receive
regular statements of their accounts through the 18-months from
Halifax detailing the match levels they are entitled to based
on their contributions.
The six areas are testing the following incentives:
| Match Rate*
| Monthly savings limit | Maximum
Match
| Maximum Savings |
|
Manchester | £1 : £1
| £25 | £400 | £400
|
| South Yorkshire | £1 : £2
| £25 | £200 | £400
|
| East Yorkshire** | £1 : £2
| £25 | £250 | £400
|
| Cumbria | £1 : £2
| £50 | £400 | £800
|
| East London | £1 : £5
| £50 | £160 | £800
|
| Cambridgeshire | £1 : £5
| £125 | £400 |
£2,000 |
(* Match Rates are £ Government Match : £ Participant's
saving)
(** £50 initial endowment)
Note: All pilots allow savings in 16 out of 18 months.
Participants were invited to take part in the second pilot
according to the following eligibility criteria. People of working
age (between 16 and 65 years old) and receiving a main out of
work qualifying benefit (Income Support, Jobseeker's Allowance,
Incapacity Benefit or Severe Disablement Allowance);or with individual
earnings below £25,000.[174]
All participants from the first pilot were invited into the second
pilot.
Working with DfES, the second pilot is also using the support
of a range of community financial education bodies providing free
financial literacy courses and material.
March 2006
162
Child Poverty Review, HM Treasury, July 2004 Back
163
Promoting financial inclusion, HM Treasury, December 2004. Back
164
Affordable credit: the way forward, Joseph Rowntree Foundation,
February 2005. Back
165
Life on a low income: An overview of research on budgeting,
credit and debt among the `financially excluded', Elaine Kempson,
1996 in How People on low incomes manage their finances, Economic
and Social Research Council, 2002. Back
166
More information on the Growth Fund is available at www.dwp.gov.uk/advisers/growthfund Back
167
The maps can be accessed at http://www.hm-treasury.gov.uk/documents/financial_services/financial_inclusion/financial_credit_union.cfm Back
168
The consultation document can be found at http://www.hm-treasury.gov.uk/budget/budget_05/other_documents/bud_bud05_odcredit.cfm Back
169
http://www.hm-treasury.gov.uk/consultations_and_legislation/community_investment_tax_relief/consult_community_investment_index.cfm Back
170
Results from the first Saving Gateway pilot. Back
171
Tackling Over-indebtedness-Action Plan 2004, DTI and DWP,
July 2004. Back
172
Promoting financial inclusion. Back
173
Incentives to save: Encouraging saving among low-income households.
Final report on the Saving Gateway pilot project, University of
Bristol, March 2005. Back
174
and household earnings below £50,000. Back
| 
