Select Committee on Treasury First Report

4  The role of the Government

Financial Inclusion Taskforce

63. The Financial Inclusion Taskforce was established by the Treasury to advise Government and others on progress towards tackling financial exclusion and was launched in February 2005. The Taskforce's terms of reference, defined by HM Treasury, cover three priority areas identified by the Government. These are: access to banking, affordable credit and free face-to-face money advice.[102]

64. The terms of reference of the Taskforce are to

  • report to HM Treasury and the banking industry on progress towards the shared goal of halving the number of adults in households without a bank account, and of having made significant progress in that direction within two years;
  • monitor provision of banking services to the financially excluded, including access, and report to the banks and HM Treasury on findings;
  • consider ways in which the capacity and skills of volunteers and staff within third sector lenders can be enhanced;
  • monitor the increase in provision of affordable credit by third sector institutions. This information could then be used by HM Treasury and the DWP to inform the distribution of financial support to third sector lenders and evaluate outcomes;
  • monitor the scheme whereby, under certain circumstances, loan repayments could be made by deduction from benefits and make recommendations to HM Treasury and the DWP following the outcome of the evaluation of the scheme;
  • identify areas of best practice, and gaps, in the provision of free face-to-face money advice. This information could then be used by HM Treasury and the DTI to inform the distribution of financial support for face-to-face money advice and evaluate outcomes;
  • monitor the progress of the debt outreach pilots, and consider the outcomes of the evaluation of the scheme;
  • make recommendations to HM Treasury on tackling financial exclusion in areas not covered by PBR proposals.

65. The Taskforce is chaired by Brian Pomeroy, a former senior partner of Deloitte Consulting. The Taskforce met six times in its first year. Mr Pomeroy told us that, in its first year, the Taskforce had concentrated on a number of areas, including establishing frameworks for monitoring progress and engaging with the Government on the design of the Financial Inclusion Fund; worked with intermediaries to increase the demand for financial products amongst the financially excluded; commissioned workshops talking directly to financially excluded people about the type of financial products they want; and filling gaps in its knowledge by commissioning research.[103] The Taskforce had a budget of £3 million over three years, but had only spent around £500,000 in its first full year of operation.[104]

66. Witnesses were generally positive about the Taskforce, with Action 4 employment (A4e) noting that it had brought welcome focus to the issue.[105] The NCC noted that, while the first level priorities of access to banking, credit and advice were appropriate, it was important that "its second level priorities, including insurance, savings and other asset accumulation are not forgotten".[106] We asked Mr Pomeroy whether the Taskforce's remit should be extended to include insurance and savings. He told us that, if the Treasury were to ask the Taskforce to consider these areas, the Taskforce would be willing to do so, but "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".[107]

67. In our previous Report into credit, savings advice and insurance, we concluded that:

Saving is not accorded the same priority in the Government's strategy for promoting financial inclusion as credit, advice and banking. The evidence we have received suggests that savings, and the problems of making saving worthwhile and beneficial for those on lower incomes, are integral to any effective strategy on financial inclusion.[108]

68. We welcome the establishment of the Financial Inclusion Taskforce and its progress during the first 18 months of work. It has brought a much needed focus to the issue of financial inclusion and ensured wide consultation with those throughout the financial services industry and voluntary sectors who have a role to play in promoting financial inclusion. The Taskforce has made much progress in its work programme under the chairmanship of Brian Pomeroy. We believe its remit should be expanded to include access to savings and insurance. The Treasury should ensure that additional resources are provided to the Taskforce so that the expansion of its remit does not limit the ability of the Taskforce to complete its substantial programme of current work.

69. The Taskforce has twelve members drawn from financial services, the voluntary sector and academia. However, we note the absence of two significant groups, the Post Office and a representative from a housing association. While we recognise the need to keep the Financial Inclusion Taskforce at a workable size, the Taskforce needs to engage with other partners that can help promote financial inclusion, such as the Post Office and housing associations.

Financial Inclusion Fund

70. The Financial Inclusion Fund of £120 million over three years (2005-06, 2006-07 and 2007-08) was announced in the 2004 Pre-Budget Report in December 2004.[109] The Fund is supporting initiatives to tackle financial exclusion:

  • £45 million will be used to support an increase in provision of face-to-face money advice and will be administered by the Department of Trade and Industry.
  • £6 million will be used by the Legal Services Commission to pilot mechanisms of money advice outreach aimed at those who do not normally present themselves to debt advisers.
  • £10 million will be available to provide the necessary support to administer the scheme whereby, under certain circumstances, lenders can apply for repayment to be made by deduction from benefit where normal repayment arrangements have broken down, and the administration of the growth fund for third sector lenders.
  • £36 million will be made available for a growth fund to support the coverage, capacity and sustainability of third sector lenders. The growth fund will be administered by the Department for Work and Pensions .
  • £20 million will be made available for broader financial inclusion objectives, including stimulating demand for mainstream financial services. This will be administered by HM Treasury.
  • The Financial Inclusion Taskforce will have a budget of £3 million with which to pursue their objectives, including improving the knowledge base of financial exclusion issues.[110]

71. SAFE told us that, "whilst the Financial Inclusion Fund is very welcome it is short term; and different portions come on line at different times administered by different government departments which does not support holistic service provision or joined up thinking across different areas".[111] SAFE also told us that "the administration of the Financial Inclusion Fund does not appear to fit into a wider Government funding strategy or link to other funding streams (for instance, Phoenix Fund, DWP funding for access to banking and pre-retirement planning, Legal Service Commission or other funding for debt advice provision etc)."[112]

72. The proposition that the Financial Inclusion Fund did not support joined-up and coordinated solutions was also advanced by other witnesses. Mr Lyonette, Chief Executive of the Association of British Credit Unions, indicated that credit unions "have been working for the last year with Citizens' Advice, and it has been incredibly hard to connect anything happening through the growth fund of DWP and the money advice fund of DTI … the mechanisms of government can often just get in the way of trying to join things up."[113] Ms Morgan, Chief Executive of the Community Development Finance Association (CDFA), told us that "it would have been helpful to have had the fund in one place, because it is very hard to get the relationships you need across Government to be able to make the fund work as well as it could".[114]

73. The Scarman Trust noted the positive benefits that would come from joining up credit unions and CDFIs with advice services and financial education programmes, but commented that "as often as not, financial services offered to low-income communities are fragmented and poorly coordinated."[115] A4e believed that spreading out the resources from the Fund amongst a number of different Government departments "has led to some dilution of the Fund's impact, and has resulted in an under-utilised and uncoordinated landscape of provision".[116]

74. We welcome the establishment of the £120 million Financial Inclusion Fund as a substantial Government investment. However, evidence we received suggested that, because the Fund's resources have been administered by several different Government departments, with different portions coming on stream at different times, it has been difficult to join-up provision of affordable credit and money advice services. Given the substantial evidence of the benefits that could be achieved from a joined-up approach to promoting financial inclusion, this is unfortunate. In the future, we believe the Government should ensure that Government money invested in promoting financial inclusion is administered by one department or that the bidding process clearly supports joined-up provision.

75. Concern was also expressed by a number of witnesses that resources from the Financial Inclusion Fund could be provided to those geographical areas that already have sufficient capacity in affordable credit and debt advice, rather than attempting to fill gaps in existing provision.[117] In addition to supporting existing projects, the Financial Inclusion Fund and future Government investment in promoting financial inclusion should ensure that, in the allocation of funding, appropriate priority is given to localities that currently lack access to affordable credit and debt advice. The allocation should be informed by mapping existing provision of affordable credit and access to money advice, combined with analysis we recommend below aimed at identifying which areas of the country contain concentrated pockets of financial exclusion.

The local dimension

76. The Treasury has previously suggested that financially excluded groups are concentrated in certain geographical areas of the country. They found that "68 per cent" of the financially excluded "live in the ten per cent most financially excluded postcode districts" and that "25 per cent live in the three per cent of postcodes with the highest concentrations of financial exclusion. These postcodes are concentrated in areas including parts of East and South-East London, Middlesbrough, Manchester, Bradford, Birmingham, Glasgow and Liverpool."[118] The Treasury indicated that policy proposals should be focused in these areas, at least initially.[119]

77. The previous Treasury Committee recommended that the Treasury "share the list of postcodes where there is concentrated financial exclusion with the Post Office and other organisations that can help tackle the disadvantage that people living in those areas face".[120] The Treasury initially refused to disclose the information, stating that "The terms of the contract with the company that provided the postcode analysis of areas of concentrated financial exclusion means that the Government is unable to share the raw data with any third party".[121] In December 2005, the then Economic Secretary to the Treasury, Ivan Lewis MP, wrote to us indicating that he would share this information with the Committee, on condition that it was not passed on to any third party. He also indicated that the maps and postcodes were based on data which is now out of date, because UK postcodes have changed since the data was supplied and Financial Acorn (the database used to categorise the postcodes into groups based on affluence) had since been re-structured to include more accurate data sets.[122]

78. We recommend that the Treasury conducts analysis to determine which areas of the country and which cities contain concentrated pockets of financial exclusion. The Government should then use this information to target resources at these areas and share this information with the Post Office, advice agencies and other bodies which can help tackle the disadvantage faced by people living in these communities.

79. In order to promote financial inclusion in local areas, constructive engagement between community leaders, local government and the financial services industry can help to develop a business case for a financial services company to expand into their area. Mr Pomeroy noted that "whether or not a market is profitable may depend on the time scale over which you view it … We could well see that there might be some communities in this country (let us say working class communities with a high proportion of newly arrived immigrants) which might not be profitable today but, if you took a five or ten year look, as people become more upwardly mobile, become more economically successful, may well be profitable."[123] We heard evidence of local communities taking the initiative to approach banks with propositions to provide service to their areas. The Wester-Hailes community banking agreement was a partnership between the Wester-Hailes Representative Council in Edinburgh and the Bank of Scotland. The Scarman Trust told us that, as part of this scheme, local community groups "were able to construct a business case for the banks which made the community credible and relevant in the banks eyes … Collating, analysing and presenting local data that enhanced the market potential of the local area was the first step for the community in developing its collective bargaining power with the bank."[124] The Chartered Institute of Housing also listed similar initiatives between registered social landlords and financial services companies to provide services to tenants.[125] We recommend that the Government and local authorities identify sources of seed funding to enable local communities to prepare business cases and support pilot schemes to bring in the support of mainstream financial institutions and to develop innovative models of delivery of financial services products.

80. Local authorities have an important role to play in promoting financial inclusion through their day-to-day contact with financially excluded individuals, as funders and providers of money advice, and through local initiatives. The Neighbourhood Renewal Unit within the Department for Communities and Local Government (DCLG) administers a number of the Government's cross-sector regeneration programmes. These include the New Deal for Communities and the Local Enterprise Growth Initiative. In addition, the DCLG operates the Beacon Scheme which recognises excellence in local government and supports the dissemination of best practice. The application brochure for Round 8 of the Beacon Scheme included the theme "Promoting Financial Inclusion and Tackling Over-indebtedness".[126] We recommend that the Department for Communities and Local Government ensure that financial inclusion is appropriately prioritised within the programmes administered by the Neighbourhood Renewal Unit. We welcome the recognition of promoting financial inclusion as an important role for local authorities and its inclusion in the Beacon Scheme.

The devolved administrations

81. There is some evidence that financial exclusion may be a greater problem in Scotland, Wales and Northern Ireland than in England taken as a whole. For example, in the UK, 8% of households lack access to a bank account. This compares to a figure of 11% in Scotland, 14% in Wales and 13% in Northern Ireland.[127] The Scottish Executive has developed a Financial Inclusion Action Plan as part of its Closing the Opportunity Gap approach to tackling poverty. The Scottish Executive has set a target that by 2008 it will increase the availability of appropriate financial services and money advice in disadvantaged communities.[128] The Welsh Assembly Government submitted a memorandum laying out a number of steps they were taking to promote financial inclusion.[129] These included, improving the standard and extent of financial literacy education in schools, supporting credit unions in the Welsh coalfields, and investigating co-working with utility companies to reduce the burden of bill payment on financially excluded groups.[130]

82. In September 2006, our Chairman visited Northern Ireland. He met local politicians, representatives from Credit Unions, Citizens Advice Bureaux and the General Consumer Council.[131] The General Consumer Council for Northern Ireland (GCCNI) noted that 17% of Northern Ireland consumers did not have a current account, which in part reflects "the poor deal offered to consumers by the big four banks in Northern Ireland and the lack of competition in the personal current account market"—an issue currently being investigated by the Competition Commission.[132] The GCCNI noted that the FSA's baseline survey indicated that Northern Ireland seems to be "lagging behind the UK in terms of financial capability. Northern Ireland consumers were lower than the rest of the UK on planning ahead, choosing financial products and staying informed about financial matters."[133] The GCCNI told us that "consumers [in Northern Ireland] are unaware of the information and assistance that can be accessed through the FSA's web-site and consumer helpline because of the FSA's low profile in Northern Ireland".[134] Citizens Advice (Northern Ireland) told us about a range of projects they were involved in to improve financial capability. They welcomed the "additional funding for money advice provided by the Department of Enterprise, Trade and Investment (DETI) in Northern Ireland which will provide 12 money advice workers across Northern Ireland" and "will enable Citizens Advice Bureaux to help many more people over the next three years".[135]

83. We welcome the action taken in devolved administrations aimed at promoting financial inclusion. Given the evidence that financial inclusion represents a significant challenge in Scotland, Wales and Northern Ireland we expect that the devolved administrations will continue to attach priority to financial inclusion in their spending allocations, develop appropriate longer term strategies and set specific outcome based targets for areas in the sphere of their responsibilities. We recommend that the United Kingdom Government ensure that arrangements to share experiences and best practice for policies aimed at promoting financial inclusion are in place between the devolved administrations and the United Kingdom Government.

The Government's overall approach

84. The broad nature of promoting financial inclusion is such that it will require a multi-faceted approach through the policies of a range of Government departments, including, HM Treasury, DWP, DTI, DFES, DCLG and the Home Office. SAFE told us that their "one key concern about Government's role is that whilst there are a number of different Government initiatives to promote financial inclusion and/or capability it is not clear how these initiatives link together or are coordinated. There does not appear to be any national strategy for ensuring financial inclusion is achieved."[136] The NCC welcomed the fact that "the Government has taken on a leadership role by making financial inclusion a policy priority. It has been instrumental in stimulating debate and focusing the policy work of relevant stakeholders on this issue … If longer term financial inclusion is to be achieved this level of leadership and commitment needs to continue. The Government also needs to lead by example by taking a consumer-focused, joined-up and consistent approach to financial inclusion".[137] Citizens Advice noted that while "the availability of funds is extremely welcome" there was a "need to maintain momentum and have a longer (at least medium term) strategy which all engaged partners can work to". They believed that amongst other factors the Government's strategy needed expanding to encompass "reform of the Social Fund—its approach, design and delivery; a full range of financial services such as insurance, mortgage borrowing, savings and pensions…action to improve the financial capability of consumers experiencing financial exclusion; and action to identify and promote the business case for financial inclusion to UK plc, i.e the Government and the private sector, including potentially increased need for incentives for firms and the voluntary and local government sector to join in and deliver together."[138]

85. The Economic Secretary to the Treasury told us that "the Treasury has the lead in Whitehall on financial inclusion and therefore it is my responsibility to make sure that the Government is effectively working together with the FSA and the wider community to implement [the strategy] for financial inclusion [set out in Treasury documents]".[139] Clive Maxwell, Director, Financial Services, HM Treasury, told us that, while "individual departments" were responsible for spending the money allocated to them for improving financial inclusion, the Treasury was "in charge of the overall [financial inclusion] strategy" and "of making sure that the different elements of that strategy add up to something that works."[140] The Economic Secretary to the Treasury believed that "there is a far more integrated, joined-up approach to the delivery of the financial inclusion agenda across government departments as well as with the wider sector than was the case two years ago. Personally I think we can make it even better."[141] It is not yet readily apparent how the financial inclusion agenda will be coordinated with the responsibilities of the Cabinet Office for combating broader social exclusion, the new Social Exclusion Taskforce or the role of Cabinet Office Minister Hilary Armstrong MP, who has been given responsibility for tackling social exclusion across Government.[142]

86. In this and our previous Reports on financial inclusion we have made a number of recommendations aimed at Government policy. These include:

  • Expansion of enforcement action against illegal lenders;
  • A new Credit Unions Act to institute a long term framework to support the development of credit unions;
  • Expansion and reform of Community Investment Tax Relief;
  • Wide-scale reform of the Social Fund's lending activities;
  • Using existing relationships between financially excluded people and Government agencies to improve access to financial services, such as by helping people to prove their identity so they can open a bank account or referring rejected applicants from the Social Fund to other sources of affordable credit;
  • Reform of the third party deduction scheme;
  • An approach to the future of the Post Office Card Account that maximises the ability of the Post Office network to promote financial inclusion;
  • Expansion of the Saving Gateway scheme;
  • The DFES attaching a higher priority to financial education in schools.

87. We welcome the action taken by the Government to promote financial inclusion and the progress that has been made on access to banking services, affordable credit and money advice. Longer term strategic planning and the involvement of all Government departments is vital in promoting financial inclusion. We recommend that, in consultation with key stakeholders and the Financial Inclusion Taskforce, the Government develop a long-term strategy for promoting financial inclusion. This should be published alongside the Comprehensive Spending Review. We recommend the Treasury take the lead in developing this strategy, although it is clear that, in order to be successful, policies aimed at improving financial inclusion will need to be implemented by all Government departments.

The Comprehensive Spending Review

88. The Government has indicated that it will be conducting a second Comprehensive Spending Review in 2007, which will set departmental spending plans and priorities for the years 2008-09, 2009-10 and 2010-11. This will include a set of zero-based reviews of departments' baseline expenditure to assess its effectiveness in delivering the Government's long-term objectives. The 2006 Budget announced that the Government planned to initiate a national debate on the future priorities for public spending and public services to inform the Comprehensive Spending Review.[143] It has yet to become clear exactly what form this national debate will take, but amongst other factors, the Government believes that it is critical that its priorities for public spending and the reform of public services are informed by "consultation with front line professionals and the third sector".[144]

89. The NCC believed that "sustained funding for financial inclusion work is essential to ensure that policies designed to address this issue are successful".[145] Citizens Advice noted that "The existing fund is time-limited and this creates problems about securing value for money and building capacity only to lose it. The impending Spending Round will be critical to whether the investment being made here can continue and be shown to have made a substantial difference to people, over time."[146]

90. In our previous Report into access to credit, savings advice and insurance we welcomed the additional £45 million of funding up to 2007-08 allocated as part of the Financial Inclusion Fund which will allow the recruitment of over 450 debt advisers and provide help for over 100,000 people. However, we noted that "the short-term nature of the funding offered so far places those debt advisers at risk of redundancy almost as soon as they have developed their expertise."

91. The Economic Secretary to the Treasury told us that a priority for him as the Treasury Minister responsible for financial inclusion "will be to make sure that between now and the end of the spending review [the Treasury] come up with a credible strategy, with support within Government and across the broader sector, which can take forward these initiatives, learning from where we have got to in the work of the Taskforce, to the period beyond 2008. I want to make sure that financial inclusion plays an important part in the spending review."[147]

92. Sustained and predictable funding for work aimed at promoting financial inclusion is essential. For example, if long-term funding is not forthcoming then the increase in the availability of debt advice as a result of the money from the Financial Inclusion Fund will not be sustained. It would be a wasted opportunity if the debt advisers with valuable expertise recruited as part of this initiative were made redundant. We welcome the Economic Secretary to the Treasury's intention that financial inclusion should play an important part in the forthcoming Comprehensive Spending Review. We recommend that the Government initiate a wide-ranging debate about the key priorities for the Spending Review in terms of funding for financial inclusion programmes. This should involve full consultation with front-line professionals in the third sector and with the Financial Inclusion Taskforce

102   Ev 298 Back

103   Q 461 Back

104   Qq 464-467 Back

105   Ev 169, 405, 250  Back

106   Ev 405  Back

107   Ev 304  Back

108   HC 848-I, para 118 Back

109   HM Treasury, 2004 Pre-Budget Report, December 2004, para 5.46 Back

110 Back

111   Ev 468  Back

112   Ibid Back

113   Q 285 Back

114   Q 311 Back

115   Ev 461  Back

116   Ev 169  Back

117   Ev 257, 428 Back

118   HM Treasury, Promoting Financial Inclusion, p 4 Back

119   Ibid Back

120   Treasury Committee, Fifth Report of Session 2004-05, Cash machine charges, HC191 Back

121   Treasury Committee, First Special Report of Session 2005-06, recommendation 35 Back

122   Letter from Economic Secretary, 14 December 2005, Not printed Back

123   Q 487 Back

124   Ev 462-463 Back

125   Ev 231 Back

126   DCLG, The Beacon Scheme: Excellence in Local Government, Application Brochure 2006, Round 8, p 7 Back

127   HM Treasury, Promoting financial inclusion, November 2004; Scottish Executive, Financial inclusion action plan, November 2005; Wales Consumer Council, Figuring out finance: An overview of financial exclusion in Wales, November 2005; Northern Ireland, submission from the GCCNI, not printed  Back

128   Scottish Executive, Financial Inclusion Action Plan, November 2005 Back

129   Ev 498 Back

130   Ibid Back

131   Rt Hon John McFall MP, press release, Treasury Committee chairman visits Northern Ireland, 12 September 2006 Back

132   General Consumer Council for Northern Ireland, p 7: not printed Back

133   Ibid, p 11 Back

134   Ibid, p 14 Back

135   Citizens Advice, Northern Ireland, para 6.3, Not printed Back

136   Ev 468  Back

137   Ev 403  Back

138   Ev 250-251  Back

139   Q 974 Back

140   Q 1041 Back

141   Q 1039 Back

142   Cabinet Office, press release, Tackling deep-seated social exclusion: Hilary Armstrong announces next steps and new arrangements in government, 13 June 2006 Back

143   HM Treasury, Budget 2006, box 6.1, p 131 Back

144   Ibid Back

145   Ev 406 Back

146   Ev 250 Back

147   Q 997 Back

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Prepared 28 November 2006