Select Committee on Treasury First Report

1  Introduction

Background

1. Government policy has an important role to play in promoting financial inclusion, which can be defined as the ability of individuals to access appropriate financial products and services. The Government needs to take on a leadership role and focus the attention of the financial services industry and community-based financial institutions on this issue. Promoting financial inclusion requires action by a range of Government departments, including those involved in tackling poverty, protecting consumers and promoting employment and economic growth. Promoting financial inclusion needs to be a key part of the Government's overall agenda to promote social inclusion.

2. In the 2004 Spending Review, the Government announced the establishment of a Financial Inclusion Fund to support initiatives to tackle financial exclusion and the creation of a Financial Inclusion Taskforce to monitor progress. The Spending Review also committed the Government to seek progress in three key areas by:

• working with the banks to identify a target for reducing the number of people without a bank account;
• working in partnership with the private and voluntary and community sectors to develop models which made more affordable loans available; and
• increasing the capacity to provide free face-to-face money advice for vulnerable consumers facing debt problems.[1]

3. In December of the same year, at the time of the 2004 Pre-Budget Report, the Government fleshed out some of the commitments in the 2004 Spending Review. The Treasury published an analysis of the extent of financial exclusion. It announced that the Financial Inclusion Fund would be allocated £120 million over three years.[2]

4. The FSA, as the statutory regulator for the financial services industry, has an important role to play in promoting financial inclusion. While regulation can play an important role in protecting the most vulnerable consumers, excessive regulation can prevent the development of cost effective financial products for people on low incomes. Conversely, the application by the FSA of a risk-based and appropriate regulatory regime for credit unions and other third sector providers can encourage their development and improve consumer confidence in them. Since 2003, the FSA has been leading and coordinating the National Strategy for Financial Capability. While increasing the supply of affordable financial products will go some way to promoting financial inclusion, a more informed and capable consumer is also required.

Our inquiry into financial inclusion

5. This Report is the last of three Reports arising from our broad inquiry into financial inclusion. The first Report gave more detailed information about the conduct of our inquiry, including evidence received and visits undertaken, and all of the published evidence is also included with that Report.[3] That Report examined access to affordable credit, savings, insurance and financial advice. The second Report covered access to banking services, including progress in reducing the number of the "unbanked", issues relating to the opening and operation of basic bank accounts and the Post Office Card Account.[4] In this concluding Report we examine the role of the Government and the FSA in promoting financial inclusion and improving financial capability.

Structure of this Report

6. The next chapter of this Report examines financial capability, including the progress with the national strategy for financial capability and the extent to which that strategy covers the needs of the financially excluded. We then examine the overall role of the FSA in promoting financial inclusion. Then, we look at the action the Government has taken to promote financial inclusion, including establishing a Financial Inclusion Taskforce, the provision of a £120 million Financial Inclusion Fund and the role of local government and the devolved administrations. In conclusion, we consider the Government's overall strategy and the provision of resources for promoting financial inclusion in the forthcoming Comprehensive Spending Review.

---

1   2004 Spending Review: New Public Spending Plans 2005-2008: Stability, security and opportunity for all: Investing for Britain's long-term future, HM Treasury, Cm 6237, July 2004, paras 5.24-5.28 Back

2   Promoting financial inclusion, HM Treasury, December 2004 Back

3   Treasury Committee, Twelfth Report of Session 2005-06, Financial inclusion: credit, savings, advice and insurance, HC 848-I and II. All references in this Report to oral evidence (in the form Q or Qq followed by a number) or to written evidence (in the form Ev followed by a page reference) are to evidence published with that Report unless otherwise stated. Back

4   Treasury Committee, Thirteenth Report of Session 2005-06, "Banking the unbanked": banking services, the Post Office Card Account, and financial inclusion, HC 1717 Back

---

Prepared 28 November 2006