Select Committee on Treasury First Report

Conclusions and recommendations

Financial capability


1.  We welcome the limited steps the FSA has taken to improve financial capability amongst the financially excluded, such as some of the projects funded by the Financial Capability Innovation Fund. However, we are concerned that the FSA's National Strategy for Financial Capability does not adequately address the needs of the financially excluded. We recommend that the FSA set and achieve targets to reach such individuals as part of its strategy. Reaching the financially excluded will require much more active engagement rather than just distributing leaflets or putting information on a web-site. We further recommend that the action undertaken by the FSA be coordinated with work by the Financial Inclusion Taskforce aimed at stimulating demand for financial services amongst previously excluded individuals. (Paragraph 13)

2.  The FSA's National Strategy for Financial Capability has been successful in bringing together the various Government, industry, consumer, voluntary and charitable organisations to discuss issues and improve coordination. We believe that the FSA is the right body to coordinate the national strategy for financial capability. We welcome the development of a baseline of overall financial capability and a pledge by the FSA to monitor overall progress in addition to the inputs and outcomes of individual projects. 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 recommend that the FSA accord a much higher priority to these areas. (Paragraph 20)

3.  Improving financial capability will be a long-term project and we welcome the Government's announcement of a 10 year strategy for financial capability. This must establish a lead Department and improve coordination between the various Government departments involved and consider how much additional Government investment is required. (Paragraph 22)


4.  The evidence we have received indicates that financial education linked to a specific event such as opening a bank account, obtaining credit or programmes of debt advice can be effective in promoting financial inclusion and deliver better value for money than the provision of generic information in a classroom setting. We recommend that the financial services industry explore the business case for providing education initiatives. We consider that it would be helpful if HBOS were to evaluate the success of their education programme by comparing the profitability and ability to manage their account of customers receiving this training against a sub-set of customers not participating in the programme. (Paragraph 25)


5.  It is of vital importance that long-term work aimed at promoting financial capability takes place alongside efforts by the financial services industry to make their marketing and communication material clearer for consumers. The fact that over 40% of people with an equity ISA are not aware that its value fluctuates with stock market performance indicates that the current information disclosure regime is failing to get across key information to consumers. Consumers buying investment products are currently provided with 11 separate documents, in addition to the marketing material from the company selling the product. The current documentation, such as the 'Key features' document, is confusing for consumers. We recommend that the FSA attaches a greater priority to its work to simplify the disclosure regime and ensure that financial services companies provide consumers with simple and clear information. We further recommend that, the concept of Summary Boxes, giving clear and succinct information, should be expanded to more financial services products. (Paragraph 29)


6.  Providing financial education in schools is an essential part of the FSA's National Strategy for Financial Capability. We welcome the change to address financial capability more explicitly in the 14-19 curriculum in England by including it in the new functional mathematics element of GCSE mathematics, although we are concerned that the content of this element will not be sufficiently focused on financial education. In over 70% of schools, personal finance education is only provided in the form of occasional lessons happening once or twice a term or less. It should be a priority for the Department for Education and Skills to ensure that the Qualifications and Curriculum Authority and those responsible for delivering the school curriculum see financial education as a core issue. Improving financial education in schools needs to be a major objective of the Government's ten-year strategy for improving financial capability. (Paragraph 36)

The role of the FSA

7.  The FSA, as the statutory regulator for financial services, has an important role to play in promoting financial inclusion. It has been successful in some areas, notably in producing a proportionate regime for the regulation of credit unions and other third sector lenders. In other areas, such as in ensuring that the financially excluded are adequately prioritised within the National Strategy for Financial Capability, there is a need for much further progress. While we do not recommend any changes to the FSA's statutory duties under the Financial Services and Markets Act, 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. The FSA should also commission research into the markets it regulates to determine the extent of any problems of financial exclusion and where it could best focus its resources. The Government should commission the FSA to monitor the extent of financial exclusion. (Paragraph 47)


8.  We recommend that, when conducting cost-benefit analyses, the FSA examine and report on whether regulation could affect financial inclusion by reducing access amongst low-income groups. The FSA's work on a framework for assessing the benefits of financial regulation should attempt to measure any benefits of greater financial inclusion that stem from FSA regulation. It is important that the FSA avoids creating burdensome and uneconomic regulatory regimes that might force providers out of the market. However, as acknowledged by Mr Tiner, the FSA will also need to be aware that by lightening the regulatory touch for the more vulnerable it may be reducing the protection afforded by regulation to those consumers who need it most. (Paragraph 53)

9.  We welcome the fact that the FSA takes into account the vulnerability of consumers when deciding on priority sectors for investigation. (Paragraph 54)

10.  We recommend that the FSA ensure that the Treating Customers Fairly initiative encourages firms to think about the need to improve access of financially excluded consumers to financial services products. The Treating Customers Fairly initiative should also encourage the financial services industry to develop products which meet the needs of the financially excluded. (Paragraph 56)


11.  As part of the Government's agenda to promote savings it is vital that people are given confidence that their money will be protected. We note that the Farepak scheme was not regulated by the FSA and is outside the scope of the Financial Services Compensation Scheme. We recommend that as a matter of urgency the Government, in conjunction with the OFT and FSA, consider whether appropriate safeguards are in place to protect those who have entrusted their money to others. This should include examination of whether an expansion of the FSA's regulatory responsibilities is necessary, or whether the appropriate degree of regulation could be accomplished through other mechanisms. The Farepak case has highlighted a serious lack of consumer protection which could have much wider implications for savings products of this kind. Given the level of public concern, we want the Government to address this issue with urgency and we want to see evidence of substantial progress by the end of January 2007. (Paragraph 62)

The role of the Government


12.  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. (Paragraph 68)

13.  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. (Paragraph 69)


14.  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. (Paragraph 74)

15.  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. (Paragraph 75)


16.  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. (Paragraph 78)

17.  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. (Paragraph 79)

18.  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. (Paragraph 80)


19.  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. (Paragraph 83)


20.  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. (Paragraph 87)


21.  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 (Paragraph 92)

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Prepared 28 November 2006