5 July 2001
SPEECH BY ECONOMIC SECRETARY TO THE TREASURY, RUTH KELLY MP, AT THE FINANCE FOR THE LOCAL COMMUNITY CONFERENCE - "Tackling financial exclusion as a part of the social exclusion agenda"
Financial Exclusion does not feature in as many headlines as tackling unemployment, crime, health, education, or the other more visible forms of social exclusion. But financial exclusion cuts across all those issues.
There is a large body of research linking financial exclusion to other forms of social exclusion. Lack of access to even basic financial services can undercut peoples? efforts to overcome other forms of exclusion: People who operate in the cash society can end up paying more for common goods and services, and find it all too easy to fall back into dependence when faced by a short-term need for additional money, even if they have managed to improve the quality of their lives in other areas. They can find it difficult to secure reasonably priced credit, or to take jobs where wages are paid directly into a bank account. People, and sometimes whole communities, can be genuinely disadvantaged by a lack of access to financial services, which is why tackling financial exclusion is a key part of our strategy for ending social exclusion.
The challenge we face is significant: almost 10 per cent of adults do not have any kind of bank or building society account; 27 per cent of employees do not have an occupational or private pension; well over 30 per cent of households have no savings or investment products; and up to a quarter still have no home contents insurance.
The Government's approach reflects the importance of financial access issues and the complexity of the neighbourhood renewal agenda. The Prime Minister set up the Social Exclusion Unit to develop integrated and sustainable approaches to the problems faced by people in the most deprived neighbourhoods, and to help them achieve lower long-term worklessness, and reduce crime, while improving health and educational attainment.
18 Policy Action Teams were established by the social exclusion unit, to take forward an intensive programme of policy development, and to bring together people living and working in deprived areas. Policy Action Team 14 focused on access to financial services, and on three areas in particular:
- the scope for development of credit unions;
- the role of banks, post offices and other organisations in the delivery of financial services to communities in disadvantaged areas; and
- how to widen the availability of insurance services.
PAT 14 reported in 1999, making 44 recommendations that covered Credit Unions, Insurance, Banking, Regulation, and Financial Education. The recommendations reflected the complexity of the issues involved, and called upon various central government departments, local government, the banking and insurance industry and many other organisations to work together to deliver greater financial inclusion.
PAT 14 provided a focus and a catalyst to promote measures intended to remove the barriers to access to financial services for the most vulnerable in society. Since then, steady and continuing progress has been made, with much of this coming from the financial services sector. In January 2001 the Social Exclusion Unit published a report that audited progress against the recommendations , and I am pleased to say that there have been improvements in all the key sectors. We still have some way to go in our fight to eliminate financial exclusion, but we are beginning to see a real difference. Today I would like to highlight some of the developments we have seen since PAT 14 first reported.
There are several reasons why people do not already have, or cannot open, a bank account: they may have a poor credit history or a low or a variable income, making either them, or the banks unwilling to risk an overdraft. There are also many people who have never held a bank account, and who are put off by what they see as the complexities and risks of opening one, including the charges they might incur.
For whatever reason, these people do not have access to what the rest of us take for granted as a convenient and secure way to manage money. They find it difficult to save, and in some cases they can end up paying more for essential services like gas and electricity.
But it is possible for banks and building societies to offer services that are available to these people, and I am very pleased with the progress that has been made in this area. All the high street banks now offer basic bank accounts, which are easy to understand, and free to open and run. Importantly, these accounts do not offer an overdraft facility, so while they provide 24-hour access to money, they do not expose people to the risk of an unauthorised overdraft, and should not, therefore require the banks to check the creditworthiness of applicants, or require regular deposits.
Basic bank accounts are one of the key foundations of extending access to financial services, so we need to ensure all the potential barriers to opening them are minimised. To increase peoples? confidence in these accounts, we are planning to introduce a set of benchmark standards for a basic bank account, the terms of which we put out to consultation during the spring We are currently considering how to take forward this work with a view to introducing a CAT standard by the end of this year.
We need to consider alternative ways of making these facilities accessible. So we have been working with the banking industry and the Post Office to develop Universal Banking Services. The Post Office already has an extensive network, and many of the most vulnerable in society already use it to access financial services. That is why the availability of basic bank accounts through the post office is a key component of Universal Banking Services.
Universal Banking Services will also offer a simple electronic money transmission payment mechanism at post offices, for those people for whom even a basic bank account is not yet appropriate. Ten banks and one building society have signed up to making their basic bank accounts available through the post office, and to contribute top the costs of the post office card account., we hope that by working with the British Bankers Association, they will help us secure the commitment of others in the industry.
We will continue to look at alternative delivery networks which can contribute to reducing financial exclusion ; for example, PayPoint agencies, partnerships between supermarkets and banks, cashback facilities at shops, and the facilities offered by credit unions.
And credit unions have a wider role to play: they are also a source of simple, transparent and low-cost savings opportunities for people who do use mainstream financial services. And some credit unions are offering an even wider range of services.
There is plenty of scope for credit unions to develop their role in the UK, and the Government is keen to see them succeed. That is why we have maintained close contact with ABCUL who are leading on the work to establish a Central Services Organisation, which would provide credit unions with central expertise, relieve them of back office processing burdens and the opportunity to benefit from economies of scale.
We also used the Financial Services and Markets Act to bring credit unions within the FSA? s rule-making powers, giving credit union members similar protection to that enjoyed by depositors at banks and building societies. And we are allowing credit unions to offer longer loan repayment periods and increased the amounts junior members can save. These measures will help credit unions work more flexibly, but I am keen for Government to do more to help develop the services they offer, and we plan to consult on a range of measures to relax some of the other restrictions on credit unions operational powers.
Most people are aware of the security insurance offers, but many groups find it difficult to insure their property. In high-crime areas, higher risks translate into higher premiums for those people least able to afford them, and the indirect costs of insurance - fitting locks and other forms of security - can further increase the price. People on low or unpredictable levels of income also find it difficult to make the long-term financial commitment that an insurance policy represents, and therefore miss the security and peace of mind insurance gives, and can face the need to borrow at unsustainable levels.
Insurance with rent schemes are an innovative and effective way of overcoming these difficulties. In these schemes the local authority (or social housing landlord) facilitates property insurance cover for tenants through group policies, and deals with the collection of premiums. From the insurers' point of view this removes the need for many separate financial transactions, while tenants are able to deal with an accessible organisation with which they already have an ongoing financial relationship.
Insurance with Rent Schemes have enormous potential for helping people in deprived neighbourhoods. There are some successful examples of these schemes already, and we want to see them taken up much more widely, working towards a situation where nobody is denied insurance because of where they live. Last November the Association of British Insurers established a working group to look at these schemes and how further take-up might be encouraged. They will soon be releasing a best practice guide aimed at local authorities but also highlighting some of the benefits and issues for tenants and insurers and some of the key ingredients for a successful scheme.
And in March, the Housing Corporation, in partnership with the National Housing Federation and the Association of British Insurers, published ?Insurance for all: A good practice guide?; I hope both of these studies will lead to more of these valuable schemes.
When we established the FSA, in addition to its regulation and enforcement roles, we gave it a specific objective to promote public understanding of the financial system,
The FSA is working to improve general financial literacy and improve the advice available to consumers. It will be improving comparability by publishing comparative data of costs and charges in savings, insurance and pension products. These will reflect a range of indicators, such as flexibility, as well as price, to help consumers to decide on the product that most fully meets their requirements. the intention is to help consumers identify products that offer best value not simply the ones that may be cheapest.
And to build greater awareness in the long-term, the FSA is working closely with schools and young adults. Last year the FSA held its first education conference, with presentations on the link between personal finances and numeracy, and the launch of ?Money Counts?, the FSA's educational tool to support teachers' numeracy work with schoolchildren. This was distributed to all schools free of charge last year, and will be followed by the FSA? s guidance on financial literacy. The FSA has also been working with the Personal Finance Research Centre to produce a basic banking leaflet. This is designed to encourage those without a bank account to consider taking out the new introductory accounts.
Last year also saw the publication of DfES's guidance, ?Financial Capability through Personal Finance Education?. We are seeing significant progress in building awareness of finance. Although there is a long way to go, we are ensuring that when today's children first enter the market for financial products, they will be better informed than previous generations.
As well as educating children we need to keep aware of potential barriers to accessing financial services specific to particular deprived groups. Two reports published this year have highlighted differential levels of access from certain ethnic minority groups and women in general. The FSA and other organisations involved in financial education need to keep these groups targeted effectively when developing their educational publications and programmes.
We want to make the future of consumer financial services one of clarity, suitability, and choice, for everybody. That means better informed and more knowledgeable customers; better designed, clearer, simpler and more suitable products, sold by providers and advisers who are looking after their customers interests. It means targeting services on those who face problems gaining access to mainstream financial services. And it means making mainstream financial services easier and more accessible.
We are beginning to see real moves towards financial inclusion, but we still have some distance to travel, and it will need the same effort and cooperation between the Industry, the Voluntary sector, and the Government, that we have seen so far. It is important that we continue to focus on the goals set by the policy action team, and that we make sure our efforts have a real impact on access for the most vulnerable people in our society.
I would like to thank you for putting so much work into ending disadvantage. I hope this conference gives us an opportunity to build on what has been achieved so far, and I look forward to further success in the future.