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I have been looking at a Select Committee reportnot a Treasury Committee report, but one that was brought to my attention by the Joseph Rowntree Foundation. Through the personal finance research centre, the foundation invited a community select committee to look at financial inclusion. One finding was that committee members preferred to deal with local organisations, partly because of easier access. The hon. Member for Ludlow mentioned ease of access to post offices. As someone who represents a rural
constituency, I know that many people find it a lot easier to access a post office than a bank. However, they also prefer to deal with local organisations because they mistrust the involvement of financial service providers and the Government.
All these issues must be tackled, but it is very important to help people along the journey by ensuring that their environment is familiar. A lot of work remains for the Government through considering how services are provided from the point of view of the customer, rather than the state.
Let me give an example involving some of my constituents, because it illustrates how the push for people to use bank accounts can have very negative effects. An elderly couple have seen me on a number of occasions about all kinds of different issues. They visited my surgery on this occasion because they had a problem with their rent. Their housing benefit was being paid directly to their landlord, and some kind of mistake had occurred whereby there was an overpayment, which was trying to be recovered.
One would think that setting up a system in which housing benefit was paid directly to their bank would actually assist them, but they did not have a bank account and they were worried about how to get one, since they did not have passports and so on. I wrote to the local council to ask whether it would be possible for the housing benefit to be paid to their Post Office card account, and the response said:
We will be unable to make Housing Benefit payments direct to Post Office Card Cash Accounts as this facility is specifically for HM Revenues and Customs and Department of Works and Pensions only. As Mr. and Mrs. Adams are existing benefit recipients we will be able to continue to make future payments direct to their landlord.
For recipients of housing benefit, it does not really matter whether they receive the benefit through HMRC, through a tax credit, through the Department for Work and Pensions or through their local council, and nor should it make any difference. We should simplify the system so that we can tell people that all their benefits, including housing benefit, will be paid into a Post Office card account, and then look towards moving them on to a bank account. That would be much more sensible because it would mean offering people something familiar, rather than giving them no other option than to set up a bank account themselves. The issue is all about ease of access to services and about easing people along the way, and the post office network and Post Office card accounts are an important aspect of that. Will the Minister therefore be clearer about the criteria for the new Post Office card account tender process, and will she say whether there will be greater functionality that will provide support to such groups of people?
Each of the preceding speakers has touched on the key issue of financial education and advice. Like my hon. Friend the Member for South-East Cornwall (Mr. Breed), I very much support the work of the Personal Finance Education Group in trying to support teachers in incorporating financial education in the curriculum. I also congratulate the Institute of Financial Services on its work in providing courses. It provides further education courses in my constituency, and I have been amazed to talk to 16 and 17-year-olds
who have learned about the meaning of APR. They did so not as part of an academic exercise during a maths lesson, but at the point when they were actually thinking of taking out their first credit card. Young peoples financial education should be relevant, not cornered off into a maths lesson in which they might not want to engage.
There has been talk of the child trust fund. My partys concerns about that hark back to issues that have been mentioned in the debate, such as the extent to which resources are being well targeted at particular schemes. The intention behind the fund is laudable: to encourage a savings culture and to encourage parents to save for their children. However, the swathes of research on the fund that I obtained under a Freedom of Information Act request to the Treasury show the gap between the groups of people who take full advantage of the scheme and those who do not take out a fund, but let the Government invest the money for them and do not make any additional contributions. The latter group are the people on the lowest incomes.
We will not know for some time what young people will choose to do with the fund money when they can access it at 18. A key point will be whether they treat it as savings to be protected and grown, or part of their income. We need to recognise that attitudes have changed. My grandparents were mortified at the thought that my parents were going to take out a mortgage to buy a house, but one of the first things that I did when I went to university was to look at the size of the overdraft that I should secure and how I could take out my student loans, which I am still paying back. People now start their adult lives with debt if they go to university, which is why it is so important to start financial education earlier.
We should make sure that there are good networks that provide independent, generic advice. The Government should look at existing, trusted networks such as the citizens advice bureaux. They should also examine their legislative programme as a whole to ensure that people will have good access to advice on financial issues such as pensions. We shall have a pensions Bill in the next year, which will introduce personal accounts, but it will not be worth while for some people to invest in a pension if they have debts that need paying off on which they are incurring a high rate of interest.
A whole range of issues goes beyond the principles of whether to have a bank account or to use direct debits and an understanding of how those things work. People will be engaging with Government Departments on those long-term issues. Significant investment will be needed. The question has been raised of how much reliance can be put on voluntary contributions, and I would appreciate the Ministers further comments on that.
To conclude on the financially excluded, there has been a lot of talk and press coverage about the growing personal debt mountain, but a lot of the people about whom we are talking do not fall into that category. They work in a cash economy and budget really well. We must recognise the qualities of many of those people, who may have very low incomes and no access to a bank account, but who might in fact be a lot better at managing their resources than those on higher incomes. Wider education issues relate to more than just the financially excluded.
We must ensure that we are not just providing such people with a hurdle to jump, but offering a pathway of support to financial inclusion. We need to recognise the value of the structures and organisations that are already in place and trusted locally, such as the CAB, credit unions and post offices. Also, the Government must get their own house in order to ensure that they are not undermining confidence in, or adding to worries that people might have about, the banking system, through their interaction with individuals and their finances. Above all, however, that needs to be backed up with financial education and high-quality, locally available, generic advice.
Mr. Mark Hoban (Fareham) (Con): I congratulate the hon. Member for Leeds, East (Mr. Mudie) on the way in which he opened the debate in the absence of the right hon. Member for West Dunbartonshire (John McFall). This is the first time, in the almost two years in which I have performed this role, that there has been a debate in the House on financial inclusion. I am grateful, therefore, to have this opportunity to discuss the report prepared by the Treasury Committee. It is a long-overdue debate about the way in which the Government are responding to the challenges of financial exclusion, and the way in which other partners are working together on this subject. The number of reports being debated indicates the scale of the challenge that we face. That came out in a number of this afternoons contributions dealing with the different aspects of financial exclusion that we need to tackle.
Before making more substantive remarks, I shall comment on some of the speeches made this afternoon. In his opening remarks, the hon. Member for Leeds, East mentioned the importance of those even on low incomes saving small amounts of money. When I visited the Portsmouth Savers Credit Union, of which I am a member, and spoke to its manager, I was struck by the number of people who had their benefits paid into their account, but at the end of the week left a little bit in there as a reserve, so that when there was an unexpected expense, rather than having to borrow money from a credit union, or from the home credit market, they had some money of their own to draw upon. That is a practical way in which to use instruments that are available already to help build up those reserves.
My hon. Friend the Member for Sevenoaks (Mr. Fallon) rightly highlighted the cultural change in the approach to savings and credit. That point was made by the hon. Member for South-East Cornwall (Mr. Breed) and is hugely important. It is complacent of the Government to say that the former savings ratio was a response to the economic conditions of the time. I think that the problem is deeper than that. A survey produced in September by the International Longevity Centre showed that, over the course of the last 10 years, the amounts of money being saved by young people have declined. A cultural change is happening partly because, as the hon. Member for Falmouth and Camborne (Julia Goldsworthy) said, people begin their adult lives already encumbered with debt from taking out student loans and expect to buy a house, so credit is no longer socially unacceptable. Taking out more credit is seen as a reasonable step, but that has long-term consequences.
That underpins the need for better financial education, which the hon. Member for South-East Cornwall mentioned in the context of the Personal Finance Education Group and the IFS School of Finance. The latter provides qualifications in personal finance to GCSE, AS and A2-levels. Some of the evaluations done of that work so far indicate that it gives young people the capability to manage and control their own finances in a way that impresses those who see the courses in action, and has a knock-on affect upon the families of the children concerned.
I agree with much of what the hon. Member for Edmonton (Mr. Love) said. He commented on the generic financial model that Otto Thoresen is developing and the targeting of that. From my constituency experience and meetings on financial exclusion, indebtedness and credit problems, I get the message that it is not just those on lower incomes who need generic financial advice. People on moderate incomes need it as well. Often now people do not trust banks and find that local independent financial advisers, to whom they might have turned in the past, do not want to see people on moderate incomes because they do not believe that the money that those people could save would be sufficient to pay their fees. It is important, therefore, that a broader section of society is served by that model, if we are not to extend financial exclusion across a range of income scales wider than has traditionally been the case.
My hon. Friend the Member for Ludlow (Mr. Dunne) spoke for many people on his concerns about the Post Office. It is difficult to see how we can use the Post Office as a tool to deal with financial exclusion when we are seeing the degradation of the network and, in my own constituency, proposals to close four post offices, which will have an impact on the ability of people to access financial services through those outlets.
I think that there is a wide-ranging political consensus on the importance of tackling financial exclusion. My right hon. Friend the Member for Chingford and Woodford Green (Mr. Duncan Smith) produced a powerful report over the summer, entitled Breakthrough Britain, which identified poverty as being driven, in part, by financial exclusion and debt. I think that that shows the depth of the consensus across the House.
This is a shared endeavour. Tackling financial exclusion is a social responsibility. We have talked so far about the role that the Government have played in tackling it, but we should recognise also that businesses, the voluntary sector and individuals have a responsibility as well. It is only by working together, in partnership, that we will resolve these issues fully. I sensed from Labour Members on the Select Committee an enormous reach towards using a legislative big stick. I am not sure about the message that that would send to the financial services industry, which has contributed significant sums of money already to tackling financial exclusion. I think that we would work better in partnership on a voluntary basis than by resorting to legislation as a means of dealing with these issues.
One challenge that we might face over the next few years is that banks, as they respond to pressures in the marketplace and calls for responsible lending, will start to turn away customers, reject current card application
forms and say no to personal loans. Those people will still want credit and will look for alternative sources, some of which might be more expensive than those currently available through banks. We need to accept that there will be greater reliance not just on credit unions, but on the home credit market.
For credit unions and community development financial institutions to become viable, which they must do if they are to expand their role into more communities, we need to recognise that they too will have to say no to some potential borrowers. It will be in their long-term viability interests to turn down bad credit risks. If they give to lots of high credit risks, they will inhibit their future opportunities to help others who are financially excluded. We need, therefore, to recognise the important role of home credit providers in this arena. They are often on the end of quite sharp criticism over the high rates that they charge, but we need to recognise that they offer a flexible service and collect on a weekly basis from peoples homes, and that they are prepared to lend small sums of money, in a way in which many mainstream members are unable to do. The Joseph Rowntree Foundation is working to see whether there is a third sector home credit solution out there, how it works in practice and whether it is viable. If such a solution develops, it will provide a challenge to the home credit market.
It is right for the Competition Commission in its report to require home credit companies to share data with credit reference agencies. That will give those companies customers the opportunity to move away from home credit to more mainstream lenders and to demonstrate, through their credit histories, a track record of making payments regularly on time, which will open the doors for them to the forms of credit that we take for granted.
For alternative lenders to prosper, we need to consider the liberalisation of the legislation on credit unions, and I welcome the Governments consulting on this matter. However, that is not the only step that needs to be taken. We need to ensure that, where money is coming from the growth fund to fund the development of credit unions, it is used in a way that builds sustainability into their business model. We need more credit unions to merge and to consider extending the common bond, in the same way that Portsmouth Savers Credit Union has done to cover not just Portsmouth, but my borough of Fareham and other neighbouring areas. That will give them the strength to develop in future.
My hon. Friend the Member for Sevenoaks mentioned an important issue in respect of liberalisation, which is whether credit unions are enabled to accept deposits from institutions or organisations. A lot of charities, voluntary groups and church bodies would want to put money with credit unions, in recognition of the fact that not only can they earn interest on those deposits, but they will be able to lend that money to others in the community who need support.
Much of the community backed network in other countries is funded on that basis, with faith-based and charitable organisations providing
much of the basic capital of the community banks, enabling them to do the work that they are doing.
It is also important to mention the third sector not only in respect of lending, but in terms of the advice that it provides through, for example, the Money Advice Trust and the Consumer Credit Counselling Service, which performs an excellent role in providing support to those in debt.
Hon. Members have commented on the positive role played by the citizens advice bureaux. I know, from my experience in Fareham, about the work that the local CAB does to help people work through their debt problems. I also share the concerns about the funding of the citizens advice bureaux. I am president of the Friends of Fareham Citizens Advice Bureau, which has been set up to help raise money to help Fareham Citizens Advice Bureau develop its services to reach a wider range of people, put some investment into the organisation and, perhaps, to provide some outreach work.
There is an important role for the third sector. I hope that, in the development of financial exclusion initiatives, we continue to cherish it and do not seek to freeze it out. I am grateful that, in his interim report, Otto Thoresen recognised the importance of the third sector in meeting generic financial advice needs.
My final point is about prioritisation and ensuring that organisations are clearly aware of the importance that the Government place on various initiatives. This point has been made to me by the British Bankers Association, which worked with financial institutions to look at the support that can be given to financial inclusion, and worked closely on this matter with the various taskforces set up by the Government, and with the Government themselves.
It is worth bearing in mind what private sector organisations provide. HSBC is funding the What money means campaign to give financial education in primary schools; the Royal Bank of Scotland launched its MoneySense website and will be doing a roadshow in conjunction with Tesco; and Prudential is providing curriculum material for secondary schools as well as support for citizens advice bureaux. So a lot of private sector organisations are stepping up to the plate and being supportive of initiatives. They are also contributing through a levy for the financial capability work that the Financial Services Authority is doing. The Government expect them to fund part of the generic financial advice model. The list regarding the role that the private sector is playing could go on for far longer than we have this afternoon.
We need to be focused about what we are asking the private sector to do, because there is a huge range of initiatives. I have chaired two meetings over the past year on financial exclusion and financial education. We are awash with initiatives and we need some sense of prioritisation and direction. When a new initiative, such as the generic financial advice proposals, is advanced we need to understand where it fits in the Governments programme and what priority should be
accorded to its funding by banks and financial institutions. It is important to give the private sector a clear steer on what and how much it is expected to do.
This has been a useful debate in that it is keeping financial inclusion on the agenda. I hope that the Treasury Committee members who are present will push their Chairman to look again, in a years time, at where these initiatives are heading. There is so much happening that someone needs to have an overview and oversight of it and how effective initiatives are, otherwise we are in danger of having a torrent of ideas, but no proper evaluation.
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