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Ms Katy Clark (North Ayrshire and Arran) (Lab):
Does my hon. Friend agree that, to enable post offices to remain viable and to continue to operate, there is a
need for them to provide as many services as possible and for them to be given a level playing field to compete with other providers?
Kitty Ussher: I agree very much with my hon. Friend’s point, which is why the provision of other financial services through the Post Office is so important: it will raise the footfall through the existing post offices to make sure that the individual business men and women—the sub-postmasters and sub-postmistresses—who are trying to keep their businesses viable have a greater chance to do so. I support every individual sub-postmaster and sub-postmistress who wishes to diversify their business, either by means of the stock of products available through Post Office Counters Ltd, or by diversifying into another business to keep the shop open. My hon. Friend makes a good point.
As I said, we have made progress in helping low-income families to access the financial services that they need—bank accounts, affordable credit and money advice—but that needs to continue. In the comprehensive spending review, we announced that our financial inclusion fund for the next spending period will increase to £130 million over the next three years. Just last week, we published our financial inclusion action plan, setting out how that money will be used to take forward our three goals for financial inclusion.
The first goal is that everyone should be able to manage their money effectively and securely. That means continuing with our shared target on basic bank accounts, which I mentioned, but also making sure that those accounts are accessible—including by increasing the supply of free ATMs. It is now exactly a year since the working group on ATMs, led by my right hon. Friend the Member for West Dunbartonshire (John McFall), published its report. More than 540 new free ATM sites have been identified, with more than 330 machines already issuing cash free of charge to people in low-income areas, including the constituencies of many hon. Members present this afternoon.
The second goal is making sure that people who find themselves in financial difficulty can get the support that they need. We will use about £75 million of our financial inclusion fund to allow DBERR to continue to provide the free face-to-face advice that already helps so many people.
The third goal is that everyone should be able to plan for the future, and affordable credit and appropriate savings accounts should be available to help them. I am sure that hon. Members will agree with me about the importance of affordable credit in helping vulnerable people to avoid the need for expensive—or even, in some cases, illegal—borrowing and the spiral of debt to which that can lead. I am therefore pleased to say that £38 million of the fund will be used by the Department for Work and Pensions to double the third sector’s capacity to lend to the financially excluded. I am particularly pleased with, and would like to thank, the banks that have committed to taking action to support third sector affordable credit.
James Brokenshire (Hornchurch) (Con):
The Minister talked about affordable credit. The Government introduced the Consumer Credit Act 2006, which sought to clarify
the situation regarding extortionate credit bargains, which came about under previous laws, and to try to promote the concept of more responsible lending. Will she give an assessment of the Act’s impact on those issues? What impact has it had in allowing us to strike the balance between making sure that loans are made available to people on low incomes, and ensuring that they are not exploited, either legally or illegally?
Kitty Ussher: I am grateful to the hon. Gentleman for that point. He correctly identifies the effect that the Act, which received Royal Assent last year, will have. It is being implemented progressively. One of its most important aspects is the way in which it will increase the transparency of terms for consumers, strengthen consumer rights by enabling consumers to challenge unfair lending agreements and to seek redress, and make it possible for disputes to be resolved more easily. Of course, it also gives people the right to use the financial ombudsman service in consumer credit disputes. That and a number of other measures will make a huge difference.
Much of the lending that will take place through the mechanism that I just described—through the Department for Work and Pension’s growth fund for credit unions and others—will of course strengthen the credit union sector. That will make a huge difference in many of our constituencies. Credit unions have a huge part to play in tackling financial exclusion, so we are currently reviewing the legislation for credit unions and co-operatives, with the aim of helping them to compete with companies and to provide their services to a wider range of people. We will publish our detailed proposals shortly.
We want to make sure that people have access not only to affordable credit, but to appropriate savings options. That brings us on to Farepak—one of the issues that make the debate topical, as we are approaching Christmas. I am sure that all hon. Members share our wish to prevent last year’s disaster from happening again. As I said previously, to help achieve that, £2 million of the financial inclusion fund will be used to continue the Office of Fair Trading’s “Save Xmas” campaign, which helps people to understand their Christmas saving options.
Of course, we have to think about savings more widely, and particularly about encouraging people on lower incomes to save. Since 1997, individual savings accounts have been successful in developing and extending the savings habit, and the child trust fund will ensure that in future all young people have a financial asset at 18, regardless of their parents’ background. In the past few years, through the saving gateway pilots, we have been exploring the idea of matching—whereby every pound saved is matched by a Government contribution—to incentivise those on lower incomes to save. The pilots have shown that matching works as a simple and easily understood incentive to save, and that it can help to promote financial inclusion by promoting regular saving in a regulated environment, and by bringing some people into contact with financial institutions for the first time. We are now conducting feasibility work on whether the saving gateway could be rolled out nationally, and we intend to make announcements on that next year.
In conclusion, we are focusing, and will continue to focus, on increasing low-income families’ access to the financial services that they need—to bank accounts, money advice, affordable credit and savings accounts. I should like to take this opportunity to thank all those who are involved in those efforts, whether in the third sector, the banks, local government, this House, voluntary organisations or elsewhere. All hon. Members present will agree that those are important issues, and that we need to tackle financial exclusion. Once again, it is a pleasure to discuss today the ways we plan to do that.
1.24 pm
Mr. Mark Hoban (Fareham) (Con): Families in Britain face a real challenge today. The global credit squeeze does not just affect international banks and businesses; it ripples its way through to families across the country. Increases in the rates at which banks lend to each other will push up the cost of mortgages. Lenders are turning down applications for credit cards and are reviewing credit limits. People who would have been granted credit a few months ago will now face rejection. More people will be turning to alternative lenders, as mainstream lenders turn them away. The cost will be higher charges, if they can borrow at all. As this week’s Save the Children report highlighted, the annual percentage rate on home credit can be as high as 183 per cent.
Many low-income families have an income that is too low to secure low-cost credit, or too volatile to service loans regularly—characteristics that often make them unattractive to mainstream lenders who provide better support, although the home credit market can deal with them. Such families tend to turn to credit through need, rather than because they want to. The Save the Children report suggested that 57 per cent. of families on low income had no savings at all. That rose to 72 per cent. for lone parents.
Clearly, we need to face the challenge of making financial services products available to people on low incomes. That challenge is a social responsibility. It is partly the responsibility of Government, and partly the responsibility of business, the voluntary sector and individuals.
James Brokenshire: Does my hon. Friend agree that there is a cultural issue, too? Research carried out by Royal Mail suggested that people were more likely to play the Lotto than save. Changing all that requires significant focus. That is against a backdrop of £1.3 trillion of personal debt in the economy, which has created problems across the board that have not been thought about properly.
Mr. Hoban:
My hon. Friend makes an important point. In the pre-Budget report published in October, we can see that the savings ratio for this year is falling to 3.5 per cent. When the Minister and I discussed the issue last month in Westminster Hall, she seemed quite relaxed about it, but I think that the issue is important, because it means that a lot of families on low incomes do not have the money to withstand financial shocks, such as losing a job or not having overtime in a particular week, and are therefore dependent on access
to credit to smooth their income and expenditure. We need to work much harder than the Government are to recreate a savings culture, so that people plan more carefully for their future and can take control of their lives, rather than having to depend on credit.
It is interesting to note that when I went to see the Portsmouth Savers Credit Union, of which I am a member, its representatives told me that a number of people get their benefit paid into their credit union account, and leave something behind at the end of the week or the month, so that they have a reserve left for a rainy day, or to deal with a problem. That shows that people of all incomes have the desire to build up a nest-egg—to have a pot of savings that they can use when things are hard.
Ms Katy Clark: The hon. Gentleman will be aware of what happened last year with Farepak. One of the issues highlighted following its collapse was the fact that Christmas savings clubs, and the wider pre-payment sector, are not regulated. Will he support calls for the regulation of the pre-payment industry?
Mr. Hoban: We need to be careful about proposing regulation for those sectors, because it could mean that many schemes that offer an appropriate method of saving are closed down, or that the cost of operating such schemes would increase. That issue is an important part of the debate; I was about to come on to it, but I will touch on it now in the context of Farepak. A lot of people were surprised about why Farepak was so popular, but as we know from the Financial Services Authority’s financial capability review and some of the research that has been done on patterns of saving and spending among people on low incomes, such people take a jam-jar approach. They want to put money aside, locked away, for a specific purpose. It is important that we think about that carefully and do not close off those options to people on low incomes. That approach to saving and budgeting is probably one of the reasons why, in the FSA’s financial capability review, people on low incomes were seen as being better at budgeting and managing their money than people on higher incomes.
Anne Snelgrove: It would be wrong of us to assume that all the people who saved with Farepak were low-income families. The people who lost the most money were low-income families because they saved their £10 or £5 a week in cash, whereas others paid out through debit and credit cards and therefore got their money back through the related insurance schemes. Another issue is that 85 per cent. of the people who lost money with Farepak were female savers. In low-income families, the women do the saving, and they save in that traditional way. We need to focus our attention on how different sexes save, particularly at low-income levels.
Mr. Hoban:
The hon. Lady makes an important point. When we think about how to tackle issues associated with saving and access to financial products, we need to think about the behavioural characteristics of individuals. Instead of projecting on to them our own views and our own approach to managing money, we should ask them what they need and what they
want. That is an important factor, which I have begun to appreciate in the two years that I have been in my present role.
We must listen much more carefully to those on low or moderate incomes to understand how they save and how they manage their money so that, in terms of improving access to financial services products, we offer them something that they need and want, rather than something that we think they need or should have. We need to be careful of that in this debate.
Mr. Weir: One of the reasons that schemes like Farepak were so successful is that people on low incomes could save small sums on a weekly basis. One of the problems with many financial products is that people are not encouraged to save small sums on a weekly basis. Credit unions are so successful because they allow people to do that.
Mr. Hoban: Indeed. That goes back to the importance of designing institutions and products that match the behaviour and the needs of the people whom they are trying to serve. Credit unions are so attractive because they are willing to accept small amounts of money on a regular basis, whether those are deposits or repayments on loans. In these matters, we should go with the grain of people’s behaviour, rather than trying to project how we think they should behave.
Credit unions offer an important way of bridging the gap between mainstream lenders and the saver home credit market. The Minister is right to highlight the importance of strengthening credit unions to make them more viable and considering ways of reforming the common bond to increase their membership. From time to time we see evidence that credit unions are not sufficiently viable or sustainable.
The recent collapse of Streetcred with about 3,000 members is a reminder to us that we must work hard to build up the sustainability and capability of the credit union network. That involves organisations like the Association of British Credit Unions working with their members, as well as organisations like Barclays working in partnership with them. Barclays has worked well, using its PEARLS scheme, to change the culture in credit unions.
Dr. Alan Whitehead (Southampton, Test) (Lab): Does the hon. Gentleman accept that until credit unions are able to pay interest on savings that their members place in their accounts, they may be limited in the extent to which they can perform the sort of service for savers that we all think is so important? Would he support the idea that credit unions should be able to pay interest on savings put into their accounts?
Mr. Hoban: I think they do already.
Kitty Ussher indicated dissent.
Mr. Hoban: Apparently they do not. The small sum that I have with Portsmouth Savers Credit Union is clearly not earning any interest. [Interruption.] The hon. Member for Portsmouth, North (Sarah McCarthy-Fry), who is my neighbour, believes that her credit union, which I believe is the same as mine, pays interest.
There is a wider point that I want to make about sustainability—the products that credit unions can offer. One of the issues that is being consulted on, or should be, is the ability of organisations to make deposits with credit unions. I imagine that many church groups, voluntary groups and social enterprises might wish to make deposits with credit unions to help them grow, develop and lend money to other people.
Ms Katy Clark: Does the hon. Gentleman agree that one of the features of the financial sector that affects those on low incomes is that often, interest is not available when individuals save, whether through a Christmas savings club such as Farepak, or through credit unions, but when people on low incomes borrow, they are often charged exorbitant rates of interest?
Mr. Hoban: Yes. I touched on the Save the Children report published earlier this week, which referred to the interest that is charged on the home credit market. We should pause for a moment and remember that credit unions are not universal yet. There is more work to be done to increase their coverage and to increase the number of people whom they serve. If people are turned away from mainstream lenders, they may turn to loan sharks and illegal lending. The alternative is the home credit market.
When I first looked at home credit, I was taken aback by the high rates of interest charged, but I recognise the service that such companies offer. They are willing to lend small amounts, to collect from people’s homes, to collect payments weekly and to suspend payments when a family is suffering a financial problem. Those services are expensive and that is reflected in the interest cost. When people are critical of home credit, we need to think carefully about the alternative to replace them.
It is important to expand the home credit market and to increase data sharing. When the Competition Commission investigated home credit companies, one of the remedies that it proposed was to increase data sharing with credit reference agencies so that people could build up a positive record that would enable them to borrow from mainstream lenders. That will help people migrate from home credit to other forms of lending.
In the document that she produced last week, the Minister referred to the loan shark project initiated by the Department for Business, Enterprise and Regulatory Reform. That was mentioned in four or five different places in a 27-page document, which was impressive repetition. Can she tell me how many people are involved in the pilot teams across the country? I think there is one team per region. Loan sharks are a big issue to tackle, and particularly with the pressure that people will be under in accessing cheap credit, we need to know how much resource is being put into that project. I will happily give way if the Minister wishes, or she may wish to respond when she winds up the debate.
Having accessed credit from the home credit market or elsewhere, people may face difficulties in repaying the debt. It is important that we recognise the social responsibility to help people in those circumstances.
I have touched on the third sector in the context of credit unions. We know that the Money Advice Trust, which is funded in part by the banks, Citizens Advice
and the Consumer Credit Counselling Service all help to provide valuable support to people who are struggling with managing their credit. As we potentially move towards a more difficult time for householders over the next few months, it is important that these services are signposted more clearly by lenders so that they are involved in preventive work, instead of people turning to them in a crisis. That will help to solve long-term problems that we have.
The Minister referred to the Thoresen review of generic financial advice. The debate is primarily about families on low incomes, but generic financial advice is also needed by people on moderate incomes and is part of the support mechanism behind personal accounts to provide the right advice. We need to make sure that a range of services is available to people, regardless of their incomes.
Many such initiatives are being supported not only by the Government, but by the private sector. The retail banks helped fund the Post Office card account, which has been helpful for financial inclusion. They also supported the basic bank account and progress towards free cash machines. However, the Government are asking for an awful lot of funding from the private sector; the Thoresen review will also be partly funded by the private sector. We need a clear sense of priorities from the Government about how things are going to work. If we are to get support from business and the third sector, we need to ensure that they clearly understand the Government’s priorities and that the Government send clear signals about what is important and how the priorities should be responded to.
No one can foretell what will happen in the next few months and how people’s credit situations will change. However, I suspect that we will come back to the subject before long.
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