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I strongly applaud the action on loan sharks who charge very high rates of interest. It is proving very positive in dealing with them. Among other things, a team is coming to my city of Southampton, and I think that it will have a very substantial effect on that area of the market. I applaud the initiatives on financial inclusion, the moves to support cashpoints in low-income areas, and basic bank accounts, and the action on loan sharks throughout the country. We need to continue such initiatives, on the basis of looking positively at how organisations that can make a difference to the availability of credit to low-income families can work best. We have already heard about the strong role that credit unions can and should play in that move forward.
I welcome the £42 million from the growth fund of the Department for Work and Pensions, which has mainly been applied for loans through credit unions. Those loans are important, but it will also be important to change the way in which credit unions work, so that they are a better vehicle for saving and for loans. I have already mentioned in an intervention that credit unions are hampered in structuring savings for people on low incomes simply because they cannot give interest on the savings that people bank with them. They can give a dividend over a period, but that is not the same as interest on savings.
Perhaps in addition to credit unions being rebadged as community banks, being able to provide interest on savings could make an important difference to how they work. A loan from a credit union of £250 over 26 weeks, for example, repayable at just over £10 a week, would end up about £135 cheaper than the same loan given out by even a reputable doorstep lender. The difference that credit unions can make in such circumstances is enormous, but they must have corporate arrangements that allow them to move forward as we take further action against financial exclusion.
It is right that corporate bodies should be permitted to become members of credit unions, and they should be able to invest in them. It is right that the common bond at the heart of credit unions should be redefined on a more flexible basis. Legislation should be introduced to achieve that. I appreciate the consultation that went out in June this year, and I hope at least that a draft Bill to make such changes to credit unions will be introduced early on, and that in the next legislative cycle, legislation will be introduced to enable them to play the role that I believe they can play strongly throughout the country in assisting financial inclusion.
I would also like to commend the role that housing associations and social landlords are beginning to play to provide a framework, perhaps alongside credit unions, to ensure that secure community saving and lending can be undertaken. Housing associations and social landlords can provide that framework, perhaps not as the lender or deposit agents themselves, but by, for example, supplying the circumstances in which community banks can flourish, and by providing a framework for insuring home contents and other activities undertaken by tenants.
There is a raft of possibilities that, if taken in the context of changes to credit unions and the activity that the Government have undertaken on financial
inclusion, could begin to change the landscape enormously for those who remain outside the credit economy. I commend what the Government have done so far, but I believe that there are further steps that can be taken, and I hope that they will be considered soon.
Although I welcome many aspects of the action plan, it underestimates one element of financial inclusion. When we use the term financial inclusion, it is tempting to focus on those who cannot access mainstream banking and insurance products, but I would prefer a definition that placed equal weight on financial education. It is a little lazy to say that access to mainstream products is the be-all and end-all of financial inclusion. If people do not understand the products to which they have access, they cannot meaningfully be said to be included. For me, financial inclusion is achieved only with understanding. Only when peoples personal finances are flexible, comprehensible and, above all, sustainable, can they be said to be financially included. The Governments favourite fiction, especially now that times are tough, is to pretend that life began in 1997 with a new red dawnand I do not mean the right hon. Member for Bristol, South (Dawn Primarolo). However, before that date, the Prime Minister and First Lord of the Treasury was proclaiming his prophetic vision to the country:
We will not build the new Jerusalem on a mountain of debt
I see the Economic Secretary smiling. She is well aware of my fondness for the vexed question of off-balance sheet public sector debt; at least it vexes her when I raise it with such persistence. However, in the realm of very large numbers that is evoked by the spectre of off-balance sheet liabilities, an even larger number lurks: that for unsecured consumer debt. Unsecured consumer credit is the ticking time bomb that is genuinely worthy of a topical debate. The explosionand now the impending implosionof unsecured consumer credit threatens some pretty serious subsidence to the economy, if not to the new Jerusalem itself.
The Governments proposals place, to my mind, more emphasis on access to services than on access to advice, but they must be complementary. The Governments first financial inclusion strategy correctly identified the three key pillars of access: to banking, affordable credit and free face-to-face financial advice. However, the provision of services or credit to those people who have no experience of them is surely tempting fate.
As the Government implement their welfare strategy of individualised budgets for care and payment of benefits directly to bank accounts, the most vulnerable people in our society will continue to pay the price of exclusion and of change. One example of that is well known to all hon. Members and has already been mentioned today, but I will repeat it. The loss of the
Post Office card account without a viable replacement has hit many of our constituents hard and exacerbated financial exclusion.
Today is a sad day for many of my constituents in Braintree, as Post Office Ltd has confirmed the impending closure of three branches in White Notley, Rocking Church street and Panfield lane. The closures have gone ahead despite all the hard work of parish and district councillors and the residents who relied on post office services to save the branches. So we might be forgiven for thinking that, in some areas, despite the Governments plans for investment in financial inclusion, things on the ground are slipping backwards.
When I was a member of the Treasury Committee last year, it published a series of reports on the subject, which recognised that promoting financial inclusion is crucial to the fight against poverty. While social exclusion reaches far beyond financial exclusion, it is clear that the latter helps entrench the former. That is not an especially new idea, and, to give credit where it is due, the issue has been on the Governments agenda since 2004. However, the timing of the current action plans publication in December 2007 is significant. Only now, after the credit crunch has started to bite, do the Government genuinely emphasise the importance of the issue. Suddenly, it is a topical issue and I hope that we are not too late. For many hard-working families who have got themselves into unsustainable levels of debt, or who have been forced to use non-mainstream sources of credit, the new year may not be a happy one.
Although I wanted to focus on three issues, I appreciate that time is short, so I shall focus on only one: the cost of credit. The Competition Commissions investigation into the cost of home credit found that customers were being overcharged by some £100 million a year. The statistics on home credit companies and doorstep lenders can be truly frightening. Annual percentage rates can range from 140 per cent. to 400 per cent. and illegal lenders can offer APRs in excess of 1,000 per cent.
I welcome the announcement that the Department for Business, Enterprise and Regulatory Reform has projects in all parts of the UK devoted to tackling illegal lending and that it will maintain them until 2011. However, I should be grateful if the Economic Secretary commented on the working of the Consumer Credit Act 2006, which introduced the unfair credit relationships test. It allows consumers to challenge the terms of credit agreements in court. I am also interested in whether the wide licensing and injunctive powers granted to the Office of Fair Trading to address bad practices by lenders under section 38 have been effective in practice. Why is the Department for Business, Enterprise and Regulatory Reform conducting a further review of consumer protection, to report in spring 2008, given that the 2006 Act is not yet fully in force?
I am pleased that the Government aim to double the capacity of third sector lending and have provided £38 million from the financial inclusion fund. However, will the Economic Secretary confirm that the £38 million is new money? When the Select Committee examined this issue, I believe that £36 million had already been committed. If so, an extra £2 million does not seem that significant.
To conclude, I want to revert to the availability of financial education, without which access to credit and savings products will founder. I welcome the commitment
of £76 million for providing free face-to-face financial advice to financially excluded people. However, that targeted investment should be the cherry on the top of an integrated strategy, which puts financial literacy at the heart of schools and colleges and ensures that the iPod generation will become the ISA, not the IVAindividual voluntary arrangementgeneration.
Mr. David Anderson (Blaydon) (Lab): The debate is about low-income families and their access to financial services. I want to focus on the impact of companies that force people to look for financial services when they may not need to do that, and especially on a recent report by Energywatch about the impact of prepayment meters.
I have a lot of experience of dealing with low-income families. I was a trade union representative for local government workers, school meals workers, cleanerswomen who made around £80 for a 20-hour week. They did not want a bank accountthey had never had oneand were frightened of the impact of having one. That is borne out by a National Consumer Council report of a couple of years ago, which clearly stated:
Low income consumers with bank accounts have higher levels of borrowing than those without access to bank accounts.
Some people also distrust direct debit accounts because they read the horror stories of people being hit with bills that bear no relation to their consumption and the problems of trying to rectify that. While they try to rectify that, they get into a bigger hole.
From information that Energywatch has provided, it is clear that at least one in 11 energy consumers do not have access to a bank account. That means that they have to resort to other methods, including the use of prepayment meters. Energywatch reported last week that prepayment meters cost people £195 more for the same amount of energy than direct debit. The worst case on which Energywatch reported was that of npower, to which some people pay £304 a yearat least a third more than those paying by direct debit for exactly the same amount of energy. That is disgraceful. The average is £195.
Last week, a pensioner on a prepayment meter will have received a heating allowance of £200. They can immediately throw £195 away, because they will get only £5-worth of energy out of that £200. It is clear that there is a detrimental impact on people who have prepayment meters. They are subsidising people like me, others in this Chamber and lots of other people around the country who are on direct debit and who can switch their bank accounts and energy accounts, thereby saving even more moneyat least £150 a year on average, as shown in a report published today. Lack of access to such services leaves people worse off.
People with prepayment meters are alsothat ugly wordself-disconnecting. In the past, if people did not pay their electricity, gas or water bill, a guy would come along and cut them off, and there was a huge outcry. That does not happen now; people do it themselves. So they are not only in poverty but not keeping warm and not keeping fed, and therefore in danger of becoming ill.
Approaches have been made to the Energy Retail Associationthe trade association of energy supplierswhich has said that it would not want an equalisation of rates between prepayment meters and direct debits. [ Interruption. ] Sorry, I am off message. I understand the Energy Retail Associations point of view, but that is clearly not fair on the people who are being made to suffer. The regulator, Ofcom, suggests that the cost to the companies of prepayment meters is £85, which means that on average they are raking in £110 from poor people, for what we do not know. Surely that cannot be fair.
To illustrate how big the issue really is, Energywatch estimates that at least £300 million a year is spent by prepayment customers for which they do not get power, and that the figure could be as much as £500 million. Last year alone, more than 366,000 prepayment meters were installed in houses for people who were in debt. They did not want prepayment meters, but they were told that the only way they could continue to access energy was by having a prepayment meter. Again, that impacts on their ability to make ends meet and it is another reason why they will suffer from financial exclusion.
It is clear that we need to do something other than just talk about the issue. What could be done? Companies could show some real corporate social responsibility and say that it is unfair that the poor are subsidising the rich. Instead of the consumer taking the hammerblow, they could let the shareholder pick up some of the £300 million or £500 million. They could also do what used to be done when they were nationalisedthey could spread the cost of the service charge equally across every consumer, so that the one in 11 who have a prepayment meter no longer subsidise the other 10 and share the cost. If that does not work or if the companies do not agree, perhaps we in the House need to sit down and legislate, and make it so that people who are in poverty no longer subsidise people who do not need it.
That is not the only situation where such issues arise. On behalf of one of my constituents I have previously raised in the House the situation whereby British Telecom charges people who will not go on to direct debit. As a result of that complaint, Ofcom has instituted a review of telephone charges, which has shown that some companies do not charge anything for non-direct debit payments, whereas others charge as much as £25 a quarter. That is absolutely disgraceful. Again, people who do not have access to bank accounts are being made to subsidise people who are well-off.
Last week in business questions I raised the issue of Energywatch. The Leader of the House said that she thought that it was a good subject on which to have a topical debate. The hon. Member for Blaby (Mr. Robathan) said that he did not agree, but I am glad that the hon. Member for Braintree (Mr. Newmark) agrees that it is a good topic to debate. The truth is that when we in the House do not think that it is topical to talk about alleviating poverty, we should all give up and go home.
Mr. Tobias Ellwood (Bournemouth, East) (Con): It is a pleasure to participate in this important topical debate. The priority of any Government is the stewardship of the economy. A test of the social responsibility of any Government is how they support the most vulnerable, the socially isolated and the excluded.
It is worth paying tribute to some of the initiatives that the Government have introduced since they came to power in 1997. They started off with the social exclusion unit, which was a drive to increase the use of bank accounts. As we heard from the Economic Secretary, there was also the Governments child poverty review in 2004, which was followed by the Treasurys strategy paper, Promoting financial inclusion. In 2006, the Treasury Committee published three reports, which my hon. Friend the Member for Braintree (Mr. Newmark) covered in some detail. There was also the 2007 paper, Financial inclusion, in which the Economic Secretary spelled out where money would go from 2008 to 2011. I make particular reference to the £76 million allocated for face-to-face advice for people on low incomes, which is so important in allowing people to understand what they should do with their money and what decisions they should make for the future. The question is whether that is enough. Could more be done? The fact that 35 per cent. of those receiving income support are also financially excluded shows that a lot more can indeed be done.
One thing that will link all right hon. and hon. Members present is the fact that every time we hold a surgery we are confronted by horrendous cases of financial destitution and other financial problems in which we are asked to get involved. One big example, I am afraid, is the tax credits system. In her short winding-up speech, perhaps the Economic Secretary can comment on what is being done about those who are hugely overpaid or hugely underpaid in every constituency throughout the country, which does not help the financial management of those vulnerable people.
One recent change that we face is due to IT. There has been a drive to save money through the use of computers and the increased push towards bank accounts. Unfortunately, one could argue that the pace of change has been too fast for a generation that has not harnessed IT in the same way that the younger generation in particular has. There is too much reliance on bank accounts, in the sense that people are no longer considered as humans but as numbers. Unless there is a support mechanism to look after those who do not have access to IT or who cannot understand it, one chunk of society will always be left out.
That is reflected in the fact that financial services are now treated as a mass market. People have become lost and are no longer treated as individuals, but as numbers. Access is therefore far from equal. Around 1.5 million households in Britain lack any financial service products at all. A further 4.4 million households are on the margins of financial services, usually with nothing more than a bank account; and yet the financial advice that one receives when signing up for a bank account is very limited indeed. One has to pay for that extra advice if one wants any more detail about how to use ones money wisely.
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