Banking on change

My motive in securing a debate on Financial Inclusion is a simple one. I have spent six months representing my party on a nonpartisan commission set up to look at the issue of financial inclusion. By which, I mean the ability of citizens to access the financial products and services that help them to function effectively in society, for example banks accounts, home insurance and savings; products and services that many of us take for granted. After all, we live in a country that has one of the most sophisticated financial systems in the world. And yet our work raised a very real concern; that financial inclusion is an issue that needs to be given a higher priority.

The Commission took evidence from around the country and it gave us cause for real concern. The scale of exclusion is big. Almost two million people don’t have a bank account. Two million people took out high cost loans in 2012, because they could not access credit elsewhere. Fifty per cent of households in lower income brackets do not have home insurance. However, the concern is not just exclusion: it is also about vulnerability. According to evidence we received, almost nine million people are over indebted; 13 million people do not have enough savings to support them for a month if they experienced a 25 per cent cut in income. Five million people (31 per cent of the population) report one or more signs of financial distress.

We are nowhere near being the financially inclusive country which we could and should be. Furthermore, there are big disruptive factors emerging which present real challenges. Universal Credit, for example, will require people on low incomes to manage money in a very different way. Pension reform contains a very big opportunity to increase savings through auto enrolment but we need to be sure that people have access to the right advice on using their new freedoms. Interest rates have been very low for a long time: the inevitable rise will create serious challenges not least for the 600,000 households who spend more than 50 per cent of their income on debt repayment. Technology creates all sorts of exciting new opportunities for new products and services but can also exacerbate exclusion. If not managed properly, we will see more financial exclusion, which can lead to overwhelming debt and entrenched poverty.

What can be done?  Our report, which came out on 11th March, identifies some key challenges and recommendations. They point us to three priorities in the short term. The first is the need for stronger leadership, because everything flows from there. The second is a proper response to clear market failures; banking services are still not meeting the needs of low income consumers and the third is to build financial capability and skills through education.