6 December 2005
ABCUL Conference
Opening Comments
1. It’s my pleasure to be here at today’s conference. I often point out at these kind of events that my mission as a Treasury minister is to listen, to learn and to lead.
2. And on today’s issue – promoting financial inclusion through quality credit unions – I know I’m on safe ground. ABCUL is, after all, well placed to focus on this, representing around three-quarters of UK credit union membership – and the principal trade association too.
3. So let me thank your efforts to engage with us already on a range of issues, but particularly financial inclusion. And let me note the much appreciated efforts of your Chief Executive.
4. As a member of the Financial Inclusion Taskforce, Mark Lyonette has provided a clear and invaluable voice from this industry.
Importance of Financial Inclusion
5. But let me get straight to the point. As a government, we are fully committed to tackling financial exclusion. It’s an issue that demands the attention and action of us all – and of the Treasury in particular.
6. It is incumbent on us as public servants to help those most in need – and as good citizens, to fight social injustice wherever possible.
7. Our goals in the Treasury are straightforward. To strengthen innovation. To open up skills to all. To ensure fairness through a flexible and responsive welfare state. And to promote sustainable development, including through effective multilateral action.
8. Fundamentally, we also seek to match the UK’s economic success with improved social justice. It’s not a simple trade off between one or the other.
9. And I think it’s fair to say we’ve made good progress already – particularly on fighting financial exclusion. This started with the 1999 Policy Action Team Report, which made some tough recommendations on basic banking, on credit unions and on insurance with rent. But we’ve acted on many of those.
10. And we’ll continue to deal with the social scar of exclusion – this conference should be clear that our appetite to act remains undiminished.
11. Why? Because financial exclusion hasn’t disappeared – even now it presents us with real challenges – so neither has our interest in it.
12. How can it when there were 2.8 million adults in households without access to a bank account of any kind in 2003 – and over two thirds were in the lowest three income deciles.
13. That is unacceptable for Britain, and it is unacceptable for this government. After all, households that operate solely on a cash budget are unable to make savings via direct debits – even on the basics like utility bills.
14. They’re more vulnerable to both loss and theft, and far more likely to use the alternative credit market – and therefore pay interest many times that of a standard personal loan.
Action on Financial Inclusion
15. That’s why at last year’s Pre-Budget Report, we set out the next steps to tackle this, and to improve financial inclusion.
16. Access to money advice that’s free and face-to-face. Access to banking. And access to credit that’s affordable. An ABC of action – in three priority areas. Advice. Banking. Credit.
17. We have a framework for delivery too – including a Financial Inclusion Fund of £120m over three years and the Financial Inclusion Taskforce that Mark sits on.
18. So, to promote access to banking, we’ve teamed up with the banks and have a shared goal of halving the number of adults in households without bank accounts – and, crucially, achieving significant progress towards that goal within two years.
19. To improve access to face-to-face money advice, £45 million, administered by the Department of Trade and Industry, is now in place.
20. And a further £6million is there for the Department of Constitutional Affairs to pilot different models of money advice outreach aimed at people who don’t normally use debt advisors.
Credit Unions
21. Now, many people on low incomes simply can’t access affordable sources of credit that meet their needs. We’ve identified this, and took action with the ABC approach I mentioned before.
22. They often rely on expensive legal alternatives – from doorstep lenders to pawnbrokers charging pretty outrageous interest rates of 150% or more.
23. But worse still, some communities are still vulnerable to illegal loan sharks, charging extortionate rates packaged with a pretty nasty cocktail of intimidation and violence.
24. This is not good – and it’s not what we want. So let me take this opportunity to recognise the value of third sector lenders – like credit unions – who have a huge role to play expanding the provision of affordable credit, and opening up opportunities for people.
25. Let’s be clear on this – they can’t solve everything, but they can do much to help out. They’re excellent at targeting people who’re financially excluded from financial services.
26. They’re good at helping clients obtain money advice in the course of providing a loan. And they’re great at connecting people with more mainstream opportunities.
27. Everyone here knows this from you daily experience – but I wanted you to hear it from me today as well. Your work is invaluable.
28. And that’s why we’ve established a Growth Fund of £36 million, designed to enhance the coverage, capacity and sustainability of such lenders as credit unions.
29. The fund provides both capital for delivering personal lending services for people on low incomes in areas of high financial exclusion – as well as the revenue to ensure participating institutions are properly resourced.
30. And taking this further, in yesterday’s Pre-Budget Report, Gordon confirmed that we’ll incorporate access to banking in the training for mentors of looked-after children.
31. He also announced that we’ll enable credit unions to become providers of the cash ISA component.
32. And crucially – to maximise the potential of credit unions to reach those in the greatest need of affordable forms of credit – we also set out an increase in the maximum rate credit unions can charge on loans from 1% a month to 2% a month.
33. This follows a period of consultation in which the majority of the credit union sector expressed support for the change – as well as evidence that it should facilitate a considerable expansion in lending to those most in need.
Closing Remarks
34. Let me finish now by calling on credit unions to use the emerging flexibility widely – and to expand your role in tackling financial exclusion by providing affordable loans to those in the greatest need.
35. This is the right time to act. Our government has shown a continued commitment in tackling financial exclusion – not least by upping provision of affordable credit for those who can’t access mainstream services.
36. And we’ve cleared a path for third sector lenders to help even more, underpinned by support from the £36 million Growth Fund. We’ve also raised that credit union interest rate cap.
37. So I say to you all – seize this moment. Continue to work with us to reach those most in need of affordable credit, to help those most in need of your skills, experience and support.
38. Thank you.