Westminster Hall
Thursday 15 November 2007
[John Bercow in the Chair]
Financial Inclusion
[Relevant Documents: The First and Thirteenth Reports from the Treasury Committee, Session 2006-07, HC 53 and HC 504, and the Twelfth and Thirteenth Reports from the Committee, Session 2005-06, HC 848 and HC 1717 on financial inclusion; the Government and other responses, Fourth Special Report, Session 2006-07, HC 437; the Sixth Report from the Work and Pensions Committee, Session 2006-07, on the Social Fund, HC464; and the Government response, Second Special Report, Session 2006-07, HC 941.]
Motion made, and Question proposed, That the sitting be now adjourned.—[Steve McCabe.]
2.30 pm
Mr. George Mudie (Leeds, East) (Lab): If I am out of breath, it is because five minutes ago I thought that I would show my speech to one of the officials—and discovered I had no speech. So, it is possible to get to the other side of the House and back in four minutes, despite being unfit.
I am grateful for having caught your eye, Mr. Bercow, and for the opportunity to open this debate on financial exclusion—or inclusion. I have been asked to speak in the absence of the Chairman of the Select Committee on the Treasury, my right hon. Friend the Member for West Dunbartonshire (John McFall), who has had to return to Scotland for an urgent and unexpected engagement. The whole Committee will agree that he has shown a very strong personal commitment to financial inclusion issues, and he very much regrets his unavoidable absence from today’s debate. We are sad that he is not here.
I am glad to see other prominent members of the Committee present, and I look forward to their catching your eye, Mr. Bercow. I also welcome the new Economic Secretary to the Treasury. Her two predecessors, the Under-Secretary of State for Health, my hon. Friend the Member for Bury, South (Mr. Lewis), and the Secretary of State for Children, Schools and Families, showed a commitment to financial inclusion issues and a readiness to respond constructively to many proposals from the Committee. We hope that she follows in their footsteps in such a promising manner.
The subject of this debate has been identified as a priority since the early years of the Government. In 1999, the Treasury published a report estimating that 1.5 million households, and 2 million people living in low-income households, did not use any financial services. It described the adults as mostly unemployed, on benefits and living in social housing. In approaching the problem, the Committee was clear that
“Financial exclusion blights the lives of many millions of people...increases the costs they bear for basic services...makes them vulnerable to illegal or high-costing lending”
and “reinforces social exclusion.”
Today, against that background, we shall debate four reports that the Committee produced on those issues and a report by the Select Committee on Work and Pensions that is noted as relevant. I do not intend to summarise those reports; instead, I intend to touch on four main themes arising from that body of work. They relate to savings, affordable credit, banking services, and a financial capability and financial inclusion strategy.
On savings, one of the main conclusions of our financial inclusion work was that the Government’s strategy paid insufficient attention to promoting safe savings among the financially excluded. We also felt that the UK savings industry largely did not serve those lower down the income scale at all well. Saving is worth while, even—and perhaps especially—for those on low incomes. The Committee was of the opinion that even a small cushion of savings could make a great deal of difference to the personal finances of those on lower incomes. With that in mind, we were particularly attracted to the savings gateway scheme, which the Government first piloted in 2002. To the disappointment of some, including myself, the Government chose to follow that up with a wider pilot scheme in 2005, instead of running it nationally.
The first scheme was aimed at people on lower incomes, and with the Government matching them pound for pound, it was very successful. Before the scheme started, 52 per cent. of the participants had no savings in a current account, and 25 per cent. did not even have a current account, let alone one with savings. The second pilot appears, however, to have given further useful information, especially on the matter and level of match funding, so my criticism was unjustified. I am nevertheless still anxious for the Government to spread the scheme nationally.
We have emphasised the potential of a national savings gateway scheme to encourage and broaden savings among lower income households. A Government decision was initially trailed as being due in the pre-Budget—
Mr. Andrew Love (Edmonton) (Lab/Co-op): Will my hon. Friend give way?
Mr. Mudie: If I may finish that sentence, I shall give way with pleasure. It is a long sentence, though.
A Government decision was initially trailed as being due in the pre-Budget report, but it has been postponed until next year’s Budget.
Mr. Love: I thank my hon. Friend for giving way because I want to touch on this point before he leaves the subject. He knows that one recommendation by the Committee was that the savings gateway should focus on lower income groups. Research shows that when the Government widen the income groups that the gateway covers—up to £25,000, for example—a tremendous amount of dead weight is created. Does my hon. Friend agree that it is important for the Government to understand that recommendation and to focus on people on lower incomes?
Mr. Mudie:
My hon. Friend makes a very valid point, which is borne out by examination of the two pilot schemes, and he describes just what happened when the Government extended the scheme. The figures that I have given for the scheme aimed at lower
earners demonstrate that it was well taken up and well appreciated. The number of people who went to the maximum with the scheme was very encouraging.
It is worth noting that the Institute for Public Policy Research think-tank costed a national basic scheme aimed at the lower paid at £249 million. That compares with the £2.1 billion of tax relief on personal equity plans and individual savings accounts that goes to anyone, regardless of income, who buys such products, and with the £5.3 billion of tax relief that was given to pensions in 2005-06. I still do not understand why the scheme has not been introduced as quickly as it should have been. It clearly works and it will be targeted at the desired individuals and groups. I look forward to something happening in the next Budget.
Julia Goldsworthy (Falmouth and Camborne) (LD): Is not the child trust fund another initiative that is worth comparing with the savings gateway? The fund is not targeted at low incomes, but it is intended to promote a savings culture. Unfortunately, two in 10 people who walk into a bank do not even get as far as opening an account. Perhaps the Government should consider the split of resources in that area, too.
Mr. Mudie: I note with some sorrow the Liberal Democrat view on the child trust fund. I think that it is a very good initiative, although there is an argument for limiting it to certain income groups. In effect, the Government have done things the other way: giving more to lower income groups. In terms of those groups, I appreciate the initiative. It is a good idea for a young child with parents who would not normally have an opportunity to save.
The Committee also dealt with the matter of Farepak, which caused much unhappiness and disappointment to many lower-income and other families. The Committee examined the security of Christmas hamper savings products, and we were disappointed by the delay in finalising the detail and design of trust accounts, which are the agreed method of protecting savers’ money and would have avoided the disappointment of Farepak. Our conclusion was that, provided that the operation of trust accounts proved satisfactory, regulation of the market by the Financial Services Authority would not be proportionate.
Christmas is seen as special by many families, and some who would not save for wider purposes choose to save for Christmas. However, those who decide to opt for such savings schemes need to be aware of all the options. The Committee was underwhelmed by the evidence that we heard from the Office of Fair Trading; speaking personally, it was not the first time that I had been underwhelmed by evidence from that august body. We were collectively underwhelmed by its “Save Xmas” campaign to promote awareness of options. It seemed muddled about the use of national advertising—that is par for the course—and about whether the target was Christmas this year or next. We asked the Treasury to review the conduct of that campaign, and I hope that the Minister will assure us that she is satisfied that all is now well on track.
Finally on this theme, we called for the Government to formulate a more ambitious target for increasing savings among lower-income households. We thought
that Government plans required a target against which progress could be measured. That is a new one, is it not—someone asking for another target? We thought that we needed such a target and, equally importantly, that the promotion of entry into savings, as opposed to their availability, had not been addressed. Our report spelled out seven aims that we recommended that the Government consider in consultation with the financial inclusion taskforce. It would be good to be given an update on the progress of discussions on the strategy that the Government and the taskforce are putting together.
The second main theme that I wish to highlight is the importance of access to affordable credit. We identified the key role that the third sector, particularly credit unions, can play in broadening community access to affordable credit. In the case of credit unions, such a role must go hand in hand with the promotion of them as saving institutions. The Government have accepted that a step change in the role of credit unions requires changes to the legislative framework, and they published a consultation document on such changes in June. We urged the Government to publish draft legislation this year. Will the Minister make clear their legislative intentions, particularly on the timing of such legislation? She could make many more friends in the credit union sector and in the House by indicating a commitment to legislate in this Session to replace the outdated Credit Unions Act 1979.
Until the third sector’s role is significantly expanded, the social fund will continue to play a vital role as a provider of affordable loans to those on benefits. The Select Committee on Work and Pensions characterised the social fund as being
“in limbo, pending wider Government work on financial inclusion.”
Ministerial responsibility for the fund may reside with the Department for Work and Pensions, but the Treasury is responsible for co-ordinating financial inclusion and for public spending. The Minister might well be in a position to tell us at least when the way forward will be clearer.
Access to banking services is a cornerstone of full financial inclusion. In December 2004, the banking industry and the Government committed to the shared objective of halving the number of adults in households without bank accounts and making significant progress in that direction within two years. The Treasury Committee’s work highlighted the fact that the performance of high street banks in providing access to basic bank accounts has been variable and showed the importance of progress on the operation of basic bank accounts. The concentration should be not simply on whether such accounts are open; equally important is whether they are used and how.
There are some interesting figures on access in the family resources survey. The 2005-06 data showed that 2 million adults, in 1.3 million households, were without access to a basic bank account, compared with 1.9 million households in 2002-03. So, to be fair, the Government are making progress, but it reminds me of the progress towards the target of halving child poverty by 2010-11. We are making substantial progress on that, but we have set a target of halving it in that time scale and I am not certain that we will do so. Given the figures, neither am I certain that we shall reach the
target of halving the number of households without a basic bank account. The Minister must have the figures. If she is willing to give them, I might be proved wrong—and not for the first time in this august hall.
The Government promised a detailed action plan following the announcement of the 2007 comprehensive spending review—from memory, that took place earlier this month. Will the Minister tell us when the plan will be unveiled? I am also mindful of the assurance from one of her predecessors that if the voluntary method failed, legislation would not be off the table. I and the Committee look forward to hearing how the action plan is progressing and when we will be put in the picture.
Although fully operational accounts remain the ideal for all, the Post Office card account and its successor will continue to play a crucial role for many people in receipt of benefits. Indeed, that is crucial for the economics of the post office network. It is clear that the Government did not handle the early stages of the change well. In essence, they pulled the carpet from under the Post Office and then held out the prospect of a new carpet in due course. We are still waiting. The Trade and Industry Committee highlighted concerns about the limited functionality of the successor to the Post Office card account. On the basis of the steps forward that are said to have been taken with the implementation of money laundering regulations, it remains unclear why the Government appear to have ruled out the possibility of making cash deposits into such accounts. Will the Minister explain why that is the case and whether she shares her predecessor’s confidence that the successor regime to the Post Office card account will strengthen the post office network?
Many of us in the House—here I am not speaking for the Chairman or the Committee—are bemused by the Government on the one hand saying how important post offices are and how they must be protected and, on the other hand, taking so much important business from them. The successor to the card account is the most crucial matter of all; it has been put out to tender, and God knows what will happen to the Post Office if it loses the business. The Committee would welcome answers to the questions that I have posed on its behalf.
Before I come to my final theme, it is appropriate to mention one success story that reflects not only the diligence of the Committee—its members are particularly diligent, when they have their microphones off—but the passion and determination of our sadly absent Chairman. That is the matter of access to non-charging cash machines.
Following a series of proposals made in the Committee and a debate in this Chamber, a working party was set up, chaired by my right hon. Friend the Member for West Dunbartonshire. Thanks to his energetic and forceful chairmanship—those are not mere words, as he has put his heart and soul into the chairmanship, made the issue personal and pursued the banks and operating companies with a vengeance—the banks and other operators have agreed to place 600 non-charging machines in targeted lower-income areas. As of June, 471 of those machines had either been installed, or were being installed at identified sites. That is an excellent example of something practical that
helps to combat financial exclusion. In future, anyone who uses one of those free machines should realise that they are using a McFall.
Mr. Love: I am sure that the Chairman will be heartened by my hon. Friend’s comments, and I endorse everything that my hon. Friend has said. In my constituency, we have been allocated six such machines. In a community in which the average takeout from a cash machine is £15 to £20, not being charged to take out money makes an enormous difference to people’s finances.
Mr. Mudie: One benefit of the Committee’s hearings and robust examination of witnesses was that people who did not realise that they were being charged when they used machines became aware of that insidious practice. Thanks to the Committee, people are now told whether a machine is free before they use it. That is an enormous step forward.
Julia Goldsworthy: The expansion of the number of cash machines that do not charge is very welcome. The money that is withdrawn from those machines has an immediate impact when it is spent in a local community. However, in many communities, particularly in rural areas, the post office is the closest place at which people can access their money. Does the hon. Gentleman agree that the ability to withdraw money from some bank accounts free of charge at post offices is welcome, and that other banks should be encouraged to let their account holders do the same?
Mr. Mudie: I strongly support any move to ensure that the closure of post offices that serve communities well should be a last resort. I know that there are financial cases where only a dozen people use a post office, for example, but I have heard of a second wave of proposals in my constituency to close popular and well-used post offices. That would be a grave mistake.
The Chairman and the Committee have done a great job of forcing banks to put the free machines in—I am not sure whether I have made this point clear, so I shall use specific wording—specifically chosen locations.
I shall conclude with some remarks on the financial capability and financial inclusion strategy. Financial inclusion is not just about income. People’s capacity to use financial services depends on their education and awareness, but the FSA’s baseline studies show that financial capability is worryingly low. That problem needs to be tackled through the school curriculum and adult learning, as well as public awareness campaigns. I am certain that the appointment of the previous Economic Secretary as the Secretary of State for Children, Schools and Families will help to ensure that the Qualifications and Curriculum Authority, in particular, is properly seized of the importance of this issue.
I pay tribute to the Government on this issue, which is another that has been pushed by the Chairman and backed by the Committee. Both the issue and relevant long-term beneficial effects have been drawn to the Treasury’s attention and, to be fair to the Treasury and the Chancellor, the money that has been invested as a result is doing good work and is very much appreciated. I see from the pre-Budget report that that is to continue, so thanks and congratulations are in order.
Financial education is just one area of financial inclusion in which action by a range of Departments is required. The Government have promised much in this area. They have established a ministerial working group and indicated that an action plan will be published before the end of this year, but are they delivering? How often has the ministerial working group met and what has it achieved? Will the Minister confirm that the action plan is on track for publication this year? Her reply on this matter and others that I have raised will help to indicate whether financial inclusion is at the heart of her work, as it has been at the heart of the Treasury Committee’s work.
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