Lord Holmes: Financial exclusion is the ‘other’ financial crisis

We had a financial crisis in 07/08, I guess you were aware, not least for all the appalling cereal-related not-even puns on ‘credit crunch.’

Well, there exists another financial crisis, one which has been around for a sight longer than the late naughties: the systemic issue of the un and under banked, both individuals and SMEs.

Data tells us there are around two million in the UK outside the banking system, with no access to credit, savings or any financial services. This matters, not least because access is vital if people are to be enabled to participate fully in society. There is a real kicker here also, not only are these two million shut out of banking, but as a result they are forced to pay more for services, even those as fundamental as heat and power - the rightly called ‘poverty premium.’

What can we do? A report by the Financial Inclusion Commission made 22 recommendations, chief amongst them:

• Designate a senior minister as the government lead on financial inclusion;

• Establish a Ministerial champion for financial inclusion in each interested Department and in all devolved administrations;

• Establish an independent, expert group to report to the Minister on emerging issues and on progress toward financial inclusion;

• Place a statutory duty on the Financial Conduct Authority to promote financial inclusion as one of its core objectives;

• Establish an independent, industry-funded think tank to work with consumer groups, tackle regulatory challenges and facilitate innovation in the interests of financially excluded consumers; and,

• Provide financial skills training from primary school through to retirement.

There is also a significant digital dimension which must be considered; the rapid take-up of internet banking and banking apps is just the beginning.

Businesses such as Pockit, Ratesetter, Pariti, Edaid also demonstrate the potential for innovation leading to inclusion in this area. It should be noted though that technology offers a real opportunity but it will be the human application which will determine whether this leads to inclusion or, as is just as possible, further exacerbates existing structures and forms of exclusion.

Finally, there is a frustration for so many SMEs who have had their growth hopes stunted for want of finance for decades. The solution here is complete commitment to the mandatory referral requirements on mainstream finance providers set out in last year’s regulations, and an effective campaign to alert SMEs to alternative sources of funding.

For these reasons I am leading a short debate today in the Lords, asking the Government to further prioritise financial inclusion across Whitehall, to seize all the benefits of FinTech and enable SMEs to realize their full potential.

This is about social inclusion, this is about connected communities, this is about enabling business to thrive. It makes social, it makes economic, it makes political sense, and it is achievable.

The Lord Holmes of Richmond MBE is a Conservative peer

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