1The importance of financial inclusion
5.Financial inclusion has been an issue of fundamental importance to the Treasury Committee for many years. Previous Treasury Committees prior to this Parliament have carried out various inquiries and published many reports. In 2006, the Committee published a report on “Financial inclusion: credit, savings, advice and insurance”,1 in 2007, a report on “Financial Inclusion: Saving for all”,2 in 2009, a report on “Mortgage arrears and access to mortgage finance”,3 and in 2010, the Committee held an inquiry into maintaining cheques as a means of payment.4 In this Parliament, in addition to this inquiry, the Committee held inquiries into “Household finances” and “The Access to Cash Review”.
6.In its 2017 report, the House of Lords Select Committee Inquiry on Financial Exclusion summarised why financial inclusion is important:
For most people, access to financial services is an important part of everyday life. At the most basic level, a bank account is used for paying bills and receiving income; access to a bank account is also usually a pre-requisite for gaining employment and receiving social security benefits. Access to savings and affordable credit is an important factor in allowing people to meet unexpected expenses, while conscientious provision for retirement relies upon pension products. These services are a recognised feature of day-to-day life for most people.
A sizeable minority, however, lack access to these products. This presents a significant barrier to engagement in modern society, and can also lead to individuals incurring significant additional costs due to reliance on suboptimal forms of financial access. Those who are financially excluded in this way typically experience other forms of social exclusion, or have other vulnerabilities related to old age, disability, deprivation or a lack of digital skills, meaning that the effects of financial exclusion are compounded or reinforced. Free markets do not always serve the financial needs of these customers effectively.5
7.The Committee heard numerous examples of reasons why access to financial services is important to everyday life. Sian Williams, Director of the Financial Health Exchange at Toynbee Hall, explained that access to money was fundamental in order to take part in society:
Financial services are an essential. We are in an environment where you have to be able to transact to survive. That is the truth of a capitalist market economy. I do not get my food and housing for free, so you have to let me transact to make this economy work. […] Financial services have to be an essential—it is a utility—otherwise, the market does not work.
8.She went on to explain in more detail the various way in which financial services were needed. Regarding transactions she said:
We are in a world where we increasingly need to be able to transact quickly, safely and electronically, with a suite of products that are no-frills, minimal cost to provide and minimal risk to the provider. […] In terms of transactions, it is crucial that I can receive my income wherever I get it from and pay my essential bills; that is really important.
9.Regarding the importance of savings, she told the Committee:
It is about access to a savings product that, when I have a small amount of money that I can put to one side, I can easily put to one side in a safe and secure place that I trust, and I can also access. Emergency savings are crucial. We know that people on low incomes are putting money to one side, but they are tending to put it under the bed or down the back of the sofa so it has no protection. If there is a house fire, a theft, all of that is then subject to risk.
10.Regarding the importance of insurance, she told the Committee:
If you need your child to have access to a laptop to be able to do their maths homework and all of their other homework, but that laptop is very vulnerable, you want to be able to cover that. Rather than paying for individual item cover, we would much rather see households have a single policy that just covers everything but at a low cost. Many households do not need high cover.
11.The FCA published its Financial Lives Survey which set out some of the levels of financial exclusion within the UK:
- Three per cent of UK adults (1.3 million) have no current account and no alternative e-money account.
- 3.1 million adults have high-cost loans.
- Nearly six in ten (57 per cent) UK adults have no cash savings or savings of less than £5,000.
- Seven in ten (71 per cent) UK adults have no investments at all.
- 31 per cent of adults have no private pension provision.
- The State Pension is the main source of income in retirement for 44 per cent of the population.
- 5.3 million adults in the UK never use the internet, of those 3.7 million (or 70 per cent) live in rural areas.
- 48 per cent of UK adults living in rural areas are 75 or over, have health issues that affect their day-to-day activities a lot, and/or do not use the internet at least most days.
- Only 40 per cent of UK adults are confident in the UK financial services industry, and only 31 per cent feel that financial firms are honest and transparent.
- Only 16 per cent of UK adults rate themselves as highly knowledgeable about financial matters.6
12.Katie Evans, Head of Research and Policy, Money and Mental Health Policy Institute told the Committee how people have become excluded, with specific reference to those with mental health problems:
[They] affect things like our short-term memory, which makes keeping track of a budget much more difficult, our ability to process information, so shopping around and getting a good deal is harder, and our motivation. If you are feeling like you can’t get up in the morning, get washed, feed yourself and go to work, you are not going to be wondering whether your bank account is the best deal for you. That means we see lots of people who either are using expensive products or who have been defaulted into expensive products: credit cards that started off with a teaser rate, using overdrafts, often without realising they are in an unarranged overdraft, and ending up using credit that is more expensive than a payday loan.7
13.Sian Williams, Director of the Financial Health Exchange, Toynbee Hall, told the Committee that many people can become excluded from financial services because they do not have the right forms of identity:
Government, regulators and firms—have decided that they need to know about me in order to be able to give me the product that I am asking for. That is around ID and address verification, making sure that I am not fraudulent or money laundering, for example. That is very hard for some people.8
14.Jane Vass, Director Policy and Research, Age UK, explained how elderly people can become excluded from financial services:
The most basic financial service is how you pay for stuff as the world is changing around you and all these new systems are coming in. Bank branches retain their huge importance for older people. What do you do if you can no longer get to the bank branch? Then we see people needing to get cash, so getting a little bit of cash to pay somebody—a carer—who does some shopping for you. If you cannot get out to the ATM or the supermarket for cashback, how can you do that? That is where people start to become reliant on other people. The systems and processes simply have not been designed with that sort of thing in mind. Then there is outright exclusion from some areas of the market. In the past there have been lots of complaints about travel insurance. Lots of people who come to us are dealing with change, like a gentleman who said he was trying to open a savings account for his mother. She had gone into residential care. He had sold her house, wanted to put the money into a savings account, but even though he had a power of attorney they wanted her to be there to open the account. Of course, she could not do that. She did not have any ID, she did not have any verification and they would not do a home visit. Then, once he had got it opened, they limited what he could actually do as the attorney on the account.9
15.The Committee also heard evidence about what the consequences of being excluded from financial services can be for consumers. Eleanor Southwood, Chair of Royal National Institute of Blind People (RNIB) told the Committee consumers can lose their independence, they become more at risk from financial abuse, and can lose confidence very quickly:
People experience enormous frustration. But it is also about financial literacy. It is about financial independence. It is about not being more vulnerable to any kind of financial abuse, because you are entirely on top of and aware of your own financial arrangements and situations.10 […]
It comes back to the fundamental issues about confidence, the loss of confidence, the loss of confidence in yourself to understand the information. Sometimes, it may not actually be a literacy issue, but that is how it shows itself, because it is somebody who may not want to admit they can no longer read their bank statements and pretends that they can. There is a group of connected issues, but it is really important to separate the ability to read something with the confidence about interpreting that information. That is very often something that decreases, particularly in older people.
Specifically relating to her own experience with being blind, she told the Committee:
The other day I got into a taxi and had to pay on my card. It was a touchscreen. I just had to give the driver my PIN.
16.Numerous witnesses told the Committee that when consumers were excluded from mainstream financial services, they were only left with turning to payday lenders,11 rent-to-own firms, doorstep lenders,12 and in the case of exclusion from mainstream insurance, more expensive specialist travel insurance providers.13
17.Access to financial services and financial inclusion are issues of fundamental importance to the Treasury Committee, UK consumers, but also the functioning of the economy. Financial inclusion matters to everybody, not just the disadvantaged or vulnerable.
18.Being able to be in control of your own finances helps to keep people independent, confident, and in control of their own lives. It is highly likely that people who are in control of their own finances, are much more able to protect themselves from financial abuse and fraud. This is all the more important in a society where the pace of change is increasing all the time as new technology emerges.
19.Throughout the Committee’s inquiry we have heard numerous examples of ways in which consumers have been excluded from financial services through no fault of their own, and in many cases, simply because some people with particular needs or characteristics are treated as an afterthought by financial services providers.
20.We recommend that maintaining financial inclusion be of the utmost priority for financial services providers, the Government, and financial regulators, in order to maintain a society that does not leave large parts of society behind.
1 Treasury Committee, ‘Financial inclusion: credit, savings, advice and insurance’, Twelfth Report of the Session 2005–06, HC848-I, HC848-II
2 Treasury Committee, ‘Financial inclusion follow-up: saving for all and shorter term saving products’, Thirteenth Report, Session 2006–07, HC504
3 Treasury Committee, Mortgage arrears and access to mortgage finance, Fifteenth Report Session 2008–09, HC767
4 Treasury Committee website, accessed 25 April 2019
5 House of Lords Select Committee on Financial Exclusion, Report of Session 2016–17, Tackling financial exclusion: A country that works for everyone?, HL Paper 132
Published: 13 May 2019