Memorandum submitted by the National Housing
Federation
1. EXECUTIVE
SUMMARY AND
RECOMMENDATIONS
1.1 We welcome the focus and timing of the
Committee's Inquiry. Addressing poverty and exclusion is central
to housing associations' mission. Providing a home is a critical
part of the work our members do but is not in itself enough.
1.2. The National Housing Federation represents
1,400 independent, not-for-profit housing associations in England.
Our members are social businesses providing 2 million affordable
homes for around 4 million people.
1.3. The Committee can propose recommendations
which would immediately reduce financial exclusion. We propose
that the Committee recommend:
1.3.1. A Universal Service Obligation on
the banking industry, to enshrine in principle that basic banking
services are available at an affordable price to all citizens.
Similar to the obligations on the telecommunications industry,
the Banking Code should be revised to reflect core services provided
by Basic Bank Accounts.
1.3.2. A cap on interest rate levels. Interest
charged by home credit lenders averaged over 177% APR in 2004[186].
Interest rate ceilings are currently in force in the majority
of European countries and in many U.S. states, Canada and a number
of states in Australia. We believe a ceiling of 40% is reasonable
but believe it is critical that an agency such as the Office of
Fair Trading has the power to recommend the level of the ceiling.
This was the approach taken in South Africa following their recent
review of Consumer Credit legislation.
1.3.3. A requirement for home credit lenders
to register repayment records to enable low income households
to build up a credit history and access more mainstream affordable
credit.
1.3.4. HM Treasury should consider a charitable
subsidy, as well as the proposed tax relief, for housing associations
to become core funders of more Community Development Finance Institutions
(the majority of housing associations are charities so the tax
relief is less relevant); and for HM Treasury to consider how
regulation can be streamlined for associations investing in Community
Development Finance Institutions, to avoid disincentivising associations
which are already heavily regulated by the Housing Corporation
and the Audit Commission.
1.3.5. The Department for Work and Pensions
conducts a review of housing benefit proposals regarding direct
payments. Our evidence considers the impact on households who
have no banking history or live in areas where banks are not willing
to provide this service. Financial inclusion policies and housing
benefit reforms are co-located functions: if rent arrears resulting
from direct payments begin, people are likely to turn to borrowing
and the cycle begins.
1.3.6 A review of the steep gradients at
which housing benefit is withdrawn in relation to earnings. We
recommend this is tapered more moderately.
1.3.7 A review the complex range of regional
and local agencies tasked with financial inclusion policies.
2. HOUSING ASSOCIATIONS—WHY
FINANCIAL INCLUSION
IS A
CRITICAL CHALLENGE
FOR THE
SECTOR
2.1. Financial inclusion is a critical challenge
for our sector. Our core customer group is facing the brunt of
financial exclusion. Around 60% of financially excluded households
are housing association or council tenants[187].
Unable to access banking services, tenants are turning to lenders
who charge crippling interest rates. A survey in Liverpool of
home credit companies uncovered APR rates as high as 309%[188].
2.2. Many of our members have run "traditional"
forms of financial support for many years. These include providing:
cheap, safe white goods; free furniture; expert advice on welfare
benefit claims; rent deposit schemes; reduced household insurance
and money advice to young people living in supported housing schemes.
More recently, members have funded and supported a number of the
Community Development Finance Institutions.
2.3. Housing associations provide a range
of services, spanning activities such as supported housing for
children leaving care and sheltered schemes for elderly and frail
residents, to large-scale multi-million pound regeneration projects.
Regeneration cannot be successful through physical refurbishment
alone, and associations have a growing role investing in the neighbourhood's
economic and social infrastructure. As social businesses, associations
recycle their surpluses to invest in wider community objectives
beyond their traditional housing function.
2.4. Unfortunately, housing associations'
investment in their neighbourhoods, is undermined when local branch
bank closures leave tenants and residents turning to doorstep
lenders. Last year, 40% of the branch closures by one high street
bank were in deprived wards. Half of these were the last bank
in the community[189].
Where local people face mounting debt, it takes a constant stream
of funding to sustain and improve neighbourhood conditions. Creating
a thriving enterprise culture becomes near to impossible. In these
circumstances how do deprived neighbourhoods become settled and
genuinely sustainable? How do children from these areas break
out of the poverty in which they grow up? Once there is limited
money to spend, the neighbourhood becomes reliant on regeneration
funds to prop it up.
2.5. We believe housing associations are
ideally placed in the community to use their capacity to assist
Government in addressing financial inclusion, and the Federation
and its members will be working to develop suitable services and
products. Furthermore, Government's aims for financial inclusion
mirror our sector's iN business for neighbourhoods programme.
2.6. Our iN business for neighbourhoods
programme recognises that a concentration of social housing combined
with high levels of unemployment can lead to financial exclusion.
In 1981, 46% of housing association households were in full or
part time employment, with 54% either unemployed, retired or otherwise
economically inactive[190].
By 2003 this had increased to 60% of housing association households
with no one in employment[191].
3. ACCESS TO
BANKING SERVICES
3.1. Feedback from our members illustrates
that the Basic Bank Account (BBA) currently on offer can be difficult
to access. The Places for People Group manages 52,000 homes. In
2003 they promoted the Woolwich Open Plan to their tenants but
it proved a complicated account to open. Take-up was not high[192].
The Halifax recently piloted a new approach for their BBA customers.
It aims to prevent BBA holders accessing over-the-counter banking
in order to reduce queue waiting times. Instead, they are forced
to use internet banking services, to which they are unlikely to
have access, or to use cash machines, many of which have charges
attached[193].
New Charter Housing Association in Manchester reports similar
difficulties. They have struggled to engage banks and building
societies in the Tameside area of Manchester to promote banking
services to their tenants, many of whom live on very low incomes.
(See case studies, section 6).
3.2. To gain an insight into the level of
income, debt and savings accumulated by tenants it is worth analysing
their relationship with existing banking services. In March 2002,
London and Quadrant Housing Association surveyed 500 tenants.
The results showed:
57% were "just managing" or "not
managing" on their income
40% pay for fuel with a key meter (at a higher
cost than quarterly billing)
62% had weekly household incomes under £200
(this compares to an average of 30% across the UK)
24% don't have a current account, 42% don't have
a debit/cheque guarantee card
3.3. The largest home collection credit
company in the UK employs 11,600 collectors. They advertise a
"simple, convenient, transparent and flexible service".
Using this service means paying interest with an APR of 177%[194].
But, set against the challenges that tenants and residents are
finding with the BBA, it becomes clear why low income households
turn towards home credit companies.
3.4. In 2004, Provident Financial, one of
the largest UK doorstep lenders, made before tax profits of £221
million[195].
To put an end to unjustifiably high interest rates we recommend
that Government instigate a capped ceiling at a reasonable level
of 40%. We also recommend that Government gives power to an agency,
such as the Office of Fair Trading, to recommend and review any
cap.
3.5. Furthermore, we recommend that Government
requires home credit lenders to register repayment records. This
will enable households to build up a credit history, thereby allowing
easier access to mainstream credit in the future.
3.6. It is our belief that the banking industry
should have an obligation to offer affordable banking services
that are available to all citizens, not simply those above a certain
income level. Therefore, we believe there is an urgent requirement
for a Universal Service Obligation to be implemented across the
banking industry, which will set requirements such as the need
to provide a basic bank account that is accessible by all of society.
This would be similar to the obligations on the telecommunications
industry to provide basic fixed line telephone services.
4. ACCESS TO
AFFORDABLE CREDIT
4.1. Our response to this area focuses on
Community Development Finance Institutions (CDFIs) and considers
the potential for our members to expand their role in the funding
and support of CDFIs.
4.2. There are concerns the recent consultation
from HM Treasury (Extending a Community Tax Relief Scheme, June
2005) did not propose the right incentives to offset the level
of risk faced by investors. Without appropriate incentives and
a joined up approach from the ODPM, HM Treasury, the Audit Commission
and the Housing Corporation, it is becoming increasingly difficult
for associations to invest in new financial inclusion activities.
This is because both the sector's lenders and regulators deem
these activities `risky' or non-core housing activity. Some of
the questions posed by our members include:
— How will associations carry "bad
debt"?
— Will this affect their inspection
results?
— Will new regulation guidelines acknowledge
the inevitable write-off some of these activities will require?
4.3. HM Treasury proposed a 5% tax relief
on both income and corporation tax to incentivise investors in
CDFI vehicles. Whilst the Federation welcomes tax relief, we believe
that a relief of at least 10% is more realistic. Additional security
could be provided through the means of a "capped" upper
level for which the debt above and beyond would not be the responsibility
of the individual CDFI.
4.4. Around 70% of housing associations
are charities, paying either limited or no corporation tax. Therefore
the Treasury's current tax relief proposal offers no financial
incentive to the vast majority nor would it offset the expense
and risk of investing in personal lending. One option would be
to implement a subsidy system in place of the proposed tax relief
to ensure that all investors—charities and non-charities—would
benefit.
4.5. We were disappointed to learn that
the match funding proposal in the recent CDFI consultation was
included only by way of an example. This is a missed opportunity.
Match funding, used in conjunction with the tax relief/charity
subsidy, could be an invaluable tool in counter-balancing investors
concerns regarding the expense and bad debt risk of investing
in a CDFI. It is estimated that 25% of all loans by such bodies
are considered to be "high-risk" at any one time, whilst
arrears running at 10%, as a minimum, are the norm. For such an
investment to be feasible default guarantees and match funding
are essential if there is to be any hope of wide-spread scheme
success. Match funding would benefit the development phase of
setting up CDFIs. Feedback from our members indicates it is the
lack of pump-priming which slows down the implementation stage.
4.6. Housing associations that create CDFI's
should not be regulated by the Financial Services Authority (FSA).
The vast majority of housing associations are already heavily
regulated and inspected by both the Housing Corporation and the
Audit Commission. Further regulation by additional bodies could
act as a disincentive. In addition, we have been advised that
the Trustee Investments Act may restrict Charitable or Industrial
and Provident Societies from investing in projects such as CDFI's,
by precluding investments in "risky" activities such
as personal credit.
4.7. To ensure an efficient and effective
service delivery mechanism, HM Treasury must streamline regulation
requirements to ensure that housing associations, who are already
regulated by the Housing Corporation and the Audit Commission,
are not over-burdened by additional and unwarranted regulation.
5. BENEFITS TO
FINANCIAL INCLUSION
AND THE
EXTENT TO
WHICH FINANCIAL
INCLUSION MEASURES
CAN CONTRIBUTE
TO COMBATING
POVERTY AND
REDUCING BARRIERS
TO EMPLOYMENT
5.1. The Committee wants to focus in particular
on financial policies but it is hard to separate out financial
exclusion from other ministerial policy areas. The reality for
individuals and households facing debt and poverty is that not
having access to a bank account, living on weekly benefit payments
and facing possible rent arrears all go hand in hand. The prospect
of moving out of financial exclusion and poverty worsen if you
live in a neighbourhood where it is the norm—households
on low incomes continue to be clustered and concentrated together
because current housing and planning policies are unable to prevent
it. A broader approach to Government policy and guidance, including
wider financial and income related areas, would unlock some of
the simple problems faced by individual households struggling
to live on low incomes.
5.2. Issues such as rent arrears, housing
benefit and direct payments are potential risks to implementing
successful financial inclusion policies. Rents are essential income
streams for housing associations, enabling them to carry out maintenance,
housing management and regeneration services. But around 500,000
social housing tenants (25%) are behind with their rent at any
one time[196].
Bethnal Green and Victoria Park Housing Association in East London
reports that "9 times out of 10 we find tenants with serious
arrears have multiple debts and nowhere to turn. Many of them
end up borrowing money from loan sharks"[197].
5.3. We endorse the reforms to the tax and
credit system but some critical problems remain that are likely
to prevent financial inclusion policies from working properly.
Simplification of the housing benefit scheme is welcomed but the
very steep gradients at which benefit is withdrawn in relation
to increased earnings needs to be reviewed, and more moderate
tapers introduced. It is precisely when people find a new job
and the benefit is withdrawn that they borrow money to tide themselves
over and avoid rent arrears arising.
5.4. We are concerned about the impact of
the new housing benefit `direct payments' scheme. The reforms
will mean housing benefit is paid directly to tenants and will
require people to have a bank account and money management and
basic numeracy skills. Housing associations are reporting that
while high street banks' head offices are supportive, the message
is often not reaching local branches. A pilot of 1,400 households
was undertaken by London and Quadrant Housing Association in 2002-03
to review the impact of the direct payment system over a 16 month
period[198].
The study found :
— Rent arrears increased to 6% in pilot
areas. In non-pilot areas arrears were at 3%.
— Fewer residents in the pilot areas
were able to maintain their rent accounts in credit and the amount
owed by each resident increased. In these circumstances court
action and debt recovery/and or eviction increased.
5.5. Concern grows when we consider the
capacity of local authorities to administer the allowance. The
latest quarterly statistics indicate that there is still some
way to go before achieving the Government's 2005-6 target of reducing
overall processing times. For authorities in the worst performing
25% it took between 42 days and 101 days to process new claims
in the last quarter of 2004-05[199].
The Government's target is for 90% of new claims to be paid within
7 days of being processed. Late payments by the local authority
will mean individual tenants incur overdraft charges (often higher
than standard current accounts) and could find themselves in rent
arrears.
5.6. Tenants already have the choice to
opt for direct payment of housing benefit through existing legislation.
The new policy actually restricts that choice, since most tenants
will have no option to have housing benefit paid directly to their
landlord. We recommend that the Committee asks the Department
for Work and Pensions to ensure the choice for tenants to have
housing benefit paid either to them or to their landlord remains
and to review the impact of the introduction of direct payments.
Most residents surveyed in London and Quadrant's pilot study preferred
direct landlord payments partly because tenant direct payments
led to their going into arrears.
IMPLEMENTATION OF
FINANCIAL INCLUSION
POLICIES
5.7. We recommend that the Committee reviews
the complex range of regional and local agencies tasked with financial
inclusion policies. It is important to set up a structure that
does not fall between mainstream regional economic strategies
and the root problems at the neighbourhood level, and to ensure
the effectiveness, economy and simplicity in delivering financial
inclusion policies.
5.8. A model is evolving between locally-based
credit unions and the larger, more market focused CDFI's. This
model demonstrates that financial services can respond to low
income customers and is less hindered by regional and local authority
boundaries. The growth of the South Coast Money Line CDFI is a
specific example of good practice on this and has resulted in
a successful partnership with a credit union. The Sandwell Advice
and Moneylink service in the West Midlands has a similar model.
Set up by three housing associations, the local authority and
the New Deal for Communities project, it operates from a shop
front shared with the local credit union. We also support the
Local Area Agreement model as one which could streamline delivery
alongside the allocation of the new Local Economic Growth Initiative.
6. CASE STUDIES
6.1. The following examples illustrate a
small proportion of the innovative work currently undertaken by
housing associations, which are helping to address the financial
exclusion experienced by both tenants and people living in the
surrounding neighbourhoods.
Information `One Stop Shop'—Manchester
6.2. Money Information Network Tameside—MiNT
was formed by New Charter Housing Trust in Tameside in response
to tenants facing financial difficulties and mounting debt, who
were simply unable to get access to the right organisations to
help them escape the vicious circle they found themselves in.
6.3. MiNT is a partnership involving 13
organisations, ranging from housing associations, a local authority,
education establishments and advice agencies. MiNT offers a wide
range of advice and assistance to the whole community, as well
as targeting particular areas that might be facing difficulties
such as losing a key local employer, and receives no funding other
than that provided by member organisations.
6.4. MiNT offers a range of services aimed
at tackling financial exclusion through:
— providing options and tools to help
access assistance,
— developing the knowledge and understanding
within the community,
— offering access to products in the
market place,
— providing people with the skills
and training to make informed choices.
6.5. The process is simple. To highlight
the services available, MiNT:
— organise promotional events,
— work with housing associations so
tenants are aware of the service
— work through local authorities, so
MiNT promotional leaflets go out with all benefit notices, ensuring
those who may need advice know where to get it,
— have a website and are currently
producing a hard back directory of all advice agencies and services
linked through MiNT.
6.6. Once members of the local community
contact MiNT, they are provided with:
— opportunities to access educational
services to improve education and financial awareness.
— face to face advice with staff who
can offer debt advice and highlight the options available.
New Charter Housing Association has expressed
extreme disappointment that whilst many local banking establishments
have been invited to attend their events, as well as being invited
to partnership groups to discuss solutions to tackle financial
exclusion, only one bank has so far responded. Furthermore this
has resulted in no additional interest.
6.7 The partnership has written to the British
Bankers Association, regarding the lack of interest from the banking
establishment, who expressed its concern. However this has still
not resulted in the local banking and lending sector coming forward
to work with an existing successful partnership.
6.8 New Charter is currently in the process
of recruiting a Welfare Benefit Advisor to offer personal advice
and act as a bridge between tenants and agencies.
6.9 In addition to this, MiNT have bid for
match funding to employ a Financial Inclusion Manager. This post
will work across the partnership, increase the awareness of the
scheme and offer sign-posting and face to face advice to customers.
Literacy and numeracy in remote rural areas—Cumbria
6.11 During early 2002, staff at Impact
Housing Association in Cumbria became aware of the very low levels
of literacy and numeracy amongst some of their tenants. National
averages for "poor" literacy and numeracy are 24%. On
Salterbeck Estate in Allerdale, poor literacy was running at 36%
and numeracy at 42%. Similarly, in Distington in Copeland, "poor"
literacy was 31.5% and numeracy 36.2%. The area also suffers from
a low progression of young people into higher education. Less
than 1% of Cumbrians go on to University, compared to a national
average of 2.3%. Part of this is due to the remoteness of the
area; part the absence of an integrated higher education facility
within the county.
6.12 Working in partnership with the Learning
and Skills Council, Impact have delivered community based basic
skills training. They are working with 150 learners over a 15
month period, with 80% working towards a qualification and of
these, 20% moving into longer-term further education or employment.
Savings and Loan Scheme—Cambridge
6.13 Cambridge Housing Society offer two
distinct types of services, one providing low interest loans to
tenants, New Horizons Savings and Loan Scheme and the other, a
literacy and numeracy education project provided in the tenant's
home.
6.14 Their New Horizons Savings and Loan
Scheme provides mainstream financial services to customers through
a partnership with Cambridge Building Society. Rather than setting
up a Credit Union, they have adapted the financial underwriting
principles that Homeless International developed through work
with homeless groups in India and South America. In 1997 this
became the first partnership of its kind in the UK and demonstrated
a model which has since been replicated. Currently, the scheme
provides several different loan products to cater for different
groups of customers—for instance, people who have just moved
into their homes or who require instant credit in an emergency,
or are preparing to purchase major capital items either for their
homes or for work.
6.15 Delivering services through the Building
Society also has the advantage of getting people in through the
door of a high street lender. Once someone has a savings account,
they also qualify for loyalty discounts on future mortgages.
6.16 Being able to access bank accounts
in the same manner as anyone else in the community, and with loans
with an interest that is not punitive (only 0.95% above the base
rate), this scheme ensures that tenants are not financially excluded
from the types of banking services the majority of people expect
as a right.
Improving literacy and numeracy skills at home
6.17 The second part to Cambridge Housing
Society's financial inclusion work is a partnership with the local
sixth form college. It enables customers to undertake literacy
and numeracy tuition in their own homes on a one-to-one basis.
The provision is very different from what the college usually
provides either in the classroom or in a community setting. Evidence
suggested that many of their tenants would find it difficult to
attend standard classroom learning—because they couldn't
get there, classes were held at inappropriate times, childcare
issues, or they simply did not have the confidence to go into
that type of setting given previous poor experiences. By enabling
people to learn in their own homes Cambridge Housing Society support
tenants to learn at their own pace in a place where they feel
comfortable, at a time to suit them and where they do not have
to publicly admit a skills deficit.
6.18 This training has enabled tenants to
take control of their own financial circumstances, hopefully resulting
in a more financially secure future for them.
6.19 The scheme now has a supply of 60 laptop
computers—1 for every 28 households—which tenants
are able to borrow to pursue learndirect courses, a European Computer
Driving License qualification or simply to learn how to e-mail
friends or relatives abroad or to help their children with their
homework. People not only get the equipment for a period of time
but also receive one-to-one support and tuition in their own homes.
Given that many financial services have moved over to internet
access, tenants have the potential to navigate and explore new
products on line.
6.20 The scheme's proven success resulted
in two awards in 2004: the Best Outreach Worker at the national
Learning and Skills Council awards and the iNbiz National Housing
Federation Overall Winner Award.
"Detached" from the knowledge economy—elderly
tenants in Cambridgeshire
6.21 As many services move over to the internet,
those without computers or access to internet cafes will become
detached from services that have now become everyday use for many
people. Hereward Housing in East Cambridgeshire has introduced
"community access points" where residents and tenants
can use the internet, email and scanners. There are 30 access
points across a number of rural districts. Already 1600 learners
have used the service. Hereward have made sure their sheltered
schemes are included. In Somerset Court, Cheveley there are 58
sheltered bungalows which now have their own access point. At
Sheriff's Court in Burrough Green there are 16 bungalows formerly
with only a weekly visiting post office. Now there is an access
point, many services can be accessed on line.
January 2006
186 National Consumer Council; "Home Credit"
report, 2004 Back
187
HM Treasury: Extending a Community Development Tax Relief
Consultation, June 2005. Back
188
HM Treasury: Extending a Community Development Tax Relief
Consultation, June 2005. Back
189
Campaign for communities banking services, 2005. Back
190
"Making the Links", National Housing Federation/
Joseph Rowntree Foundation 2000-2001. Back
191
"Regional futures and neighbourhood realities",
National Housing Federation 2003. Back
192
Places for People Group : "A national approach to promoting
financial inclusion". Back
193
The Daily Mail: Sean Poulter, Consumer Affairs Correspondent. Back
194
Places for People Group: "A national approach to promoting
financial inclusion". Back
195
Provident Financial website : link to Annual Report, 2004 : http://www.providentfinancial.com/reports/2004AnnualReport/home/index.asp Back
196
Housing Corporation "Community Access to Money : Housing
associations leading on financial inclusion" December
2005. Back
197
Housing Corporation, page 24 "Community Access to Money:
Housing associations leading on financial inclusion",
December 2005. Back
198
London and Quadrant Housing Association : "Where's the
Benefit? ", January 2004. Back
199
National Performance Standards on Housing Benefit Administration,
2004. Back
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