Select Committee on Treasury First Report


Areas for action

Financial exclusion can impose significant costs on individuals, families and society as a whole. Tackling financial exclusion requires action across a range of areas. We have laid out many elements of the comprehensive programme of action that is needed in our preceding two Reports in financial inclusion. In this Report we identify three key areas for action.

Financial capability

The National Strategy for Financial Capability led by the FSA has been successful in improving coordination of programmes aimed at improving financial capability and developing an overall baseline to measure progress. However, the FSA has made little progress in identifying and drawing in extra funding for financial capability work or developing a wider funding strategy. We are concerned that the FSA's strategy is failing to reach financially excluded people, and greater effort needs to be made to engage such individuals in the strategy. The FSA also needs to concentrate its activity on delivering financial capability alongside action promoting financial inclusion, such as helping people open bank accounts or providing debt advice. Action undertaken to promote financial capability must take place alongside efforts by the financial services industry to make their marketing and communication material clearer and more accessible. It is essential that the Department for Education and Skills ensure that those responsible for the school curriculum see financial education as a core issue.

The role of the Financial Services Authority

The FSA, as the statutory regulator for the financial services sector, has an important role to play in promoting financial inclusion. We recommend that the FSA make a commitment to take account of the need to promote financial inclusion in all its activities and report annually on how this commitment has influenced its work. We recommend that the FSA take account of the benefits of financial inclusion or the costs of financial exclusion in its cost benefit analyses of proposed regulation and that FSA's Treating Customers Fairly initiative encourages firms to think about the needs of financially excluded consumers when designing and marketing financial services products.

The Government's overall strategy for promoting financial inclusion

We welcome the establishment of the Financial Inclusion Taskforce. It has made significant progress in its first year and brought a welcome focus to financial inclusion issues. We believe its remit should be expanded to include the subjects of savings and insurance. The Financial Inclusion Fund of £120 million over three years represents a significant Government investment. However, it is disappointing that the impact of this money has been reduced by its dispersal across several Government departments, with different timescales for the bidding process which did not support the joined-up provision of services aimed at promoting financial inclusion. We welcome the action taken by the devolved administrations to promote financial inclusion and call for the United Kingdom Government to ensure that lessons learned in one administration can be applied elsewhere. We recommend that the Government develop a long-term strategy for promoting financial inclusion and that the Treasury take the lead in developing this strategy. We call for this strategy to be published alongside the Comprehensive Spending Review, and note that the Comprehensive Spending Review needs to provide sustained and predictable funding for work aimed at promoting financial inclusion.

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Prepared 28 November 2006