31 January 2005
Speech by the Financial Secretary to the Treasury, Stephen Timms at the Personal Finance Handbook Launch, Toynbee Hall
I am delighted to be here this morning, and would like to thank Ben for inviting me to be here. Toynbee Hall is a remarkable institution, steeped in social history and in combating poverty. From the days of Samuel and Henrietta Barnett, through to the present day, it is a fine and remarkable record.
So it is a particular pleasure to celebrate this launch of the Personal Finance Handbook here. The Child Poverty Action Group, working with SAFE here at Toynbee Hall, are continuing an illustrious record in adding a new volume to its definitive series of handbooks. I used the CPAG handbooks in the mid-1980s when I worked on a computerised version of the benefit system based on artificial intelligence. To be honest we didn’t get very far. Unlike our computerised efforts, though, this handbook is a practical work, giving good, clear advice that’s easily understood, and its going to be widely consulted – not least in the Treasury.
Too many people just do not have the tools or support to understand and interact easily with personal finance – and as a result they are caught in a world of financial exclusion. Policy on its own can’t necessarily change that.
But groups like you, working with government and others, can co-operate to create a network of support, to simplify the help available, to make it accessible and improve peoples lives. And so to help translate our good political intentions into social reality.
Exclusion & Children’s Poverty
Its 40 years since CPAG was set up to campaign against child poverty. Eradicating it has had a prominent place among the big goals which this Government has set itself and set before the British people. The group has not shrunk from pressing us to do more and go faster – and rightly – but I think there is now growing confidence that the measures we have taken are delivering the changes that we need.
We have thankfully succeeded in arresting and reversing a long-term trend of rising child poverty. We are on track to meet our target to reduce the number of children in relative low-income households by a quarter, between 1998/99 and 2004/05. By 2002/03 there were around half a million fewer children in relative low-income households than was the case in 1998/99. We have turned the tanker around and hundreds of thousands of children are better off as a result.
It shows we can successfully address complex exclusion issues. I heard a Conservative politician last week saying poverty inevitably gets worse whatever the Government. It simply isn’t true and we mustn’t allow those who say nothing can be done to remain unchallenged. In the mid to late 1990s, we suffered higher child poverty than nearly all other industrialised nations. Over two decades, the proportion of children in relative low-income households had more than doubled. That was the consequence of policy choices. We have made different choices, and the very welcome consequences are now becoming clear. Our goal is to halve child poverty by 2010 and to eradicate it by 2020.
We have set out our strategy for achieving it. First we are focusing on delivering high quality public services in all neighbourhoods, with targeted support for those with specific needs. Second, we are helping ensure decent social outcomes for families, with work for those who can and support for those who cannot.
Third, we have emphasised support for parents, so that they in turn can provide support for their children. And fourth, we are harnessing the energy and expertise of the voluntary, the faith and the community sectors – promoting innovation and good practice. The potential of those sectors is clearer nowhere more than here in East London. We need to be bolder still in making the most of their potential. That is why the Chancellor this morning, at a conference on volunteering at the Treasury, has been calling for a strengthening of the voluntary sector with in particular new opportunities for young people to volunteer.
The modern policy frameworks are a world removed from the Victorian social context, but our mission and our values would be easily recognised by the Barnetts and the Arnold Toynbee's of that era.
The Child and Working Tax Credits were launched back in April 2003 to bring the aim of eradicating child poverty and making work pay one step closer. From April, the child element of the Child Tax Credit will be £1,690 a year. This is an increase of £245 since its introduction in 2003 and £65 above the current rate. It will boost the incomes of almost 4 million families with over 7 million children.
Alongside the Pre-Budget Report in December we published our 10 Year Strategy for Childcare, which shows our vision to ensure every child gets the best start in life. Our aim is to give parents more choice about how to balance work and family life.
And our tax and benefit reforms since 1997 have meant that families with children will be in real terms, on average £1,300 better off this year. The least well off fifth of families will be, on average, £3,000 better off this year. A single-earner family on half average male earnings with two children will be £3,700 better off. A single-earner family on average male earnings with two young children will be £255 a year better off. We have decisively shifted the balance in favour of the least well off in a way that many people could not be done, and we are determined to maintain that shift over the years ahead.
Financial Exclusion
The specific challenge of financial exclusion is particularly difficult, and the numbers remain shocking. In 2002/03 almost 2 million households, containing almost 3 million adults, were without a bank account of any kind. Two thirds of them were in the lowest three income deciles. As the Handbook spells out, having no bank account makes life much harder than it needs to be.
Households that operate solely on cash lose out on savings that others can make through direct debits to pay utility bills. They pay more for other things – for example, the only phone service available to them is pre-pay mobile – which costs more. They are more vulnerable to loss or theft. They may well be unable to get a job because they don’t have an account for wages to be paid into. Worse still, they are far more likely to use the alternative credit market, which means paying interest far beyond that on a standard overdraft.
For many this can lead to spiralling debt. And for those who do get into debt – for people who struggle to make payments – the supply of free face-to-face money advice falls far short of demand. It is a vicious circle that we need to break.
We are committed to tackling financial exclusion – to promoting real inclusion within our system – and committed for the long haul. The Policy Action Team Report made recommendations back in 1999 on basic banking, credit unions and insurance with rent – and many of these are now in place. But there is more to be done.
So last month we set out the next steps in tackling financial exclusion. We have established a framework to ensure delivery – with a Financial Inclusion Fund of £120 million over three years, and a Financial Inclusion Taskforce, chaired by Brian Pomeroy, to oversee progress.
Building Financial Capability
It is in all of our interests to develop better informed, better educated and more confident citizens. The Handbook we are launching today is a welcome tool to help. People need to be able to take greater responsibility for their financial affairs – to play a more active role in choosing financial services that make sense for them.
It isn’t easy though. We’re not talking about a simple change in the law, or a new service. It is about the skills, capabilities and culture of how people interact with finances – their ability to understand the often complex and detailed arrangements and services on offer.
Basic financial capability is an indispensable passport to full participation in society. It makes it possible for people to exercise informed choices – to manage their finances better. It also leads to more competition in financial services by increasing consumer pressure in these markets, in turn encouraging innovation, better quality and improved value for money.
We want to improve consumer education. Later today I shall be attending the steering group of the FSA-led financial capability strategy, which is aiming to empower individuals to make real and appropriate choices when planning their finances and buying financial services products.
We are committed to improving financial education and raising people's awareness of their options not only at key life stages such as the birth of a child, but throughout their lives. And we have focused on three priority areas. It’s A – B – C – Advice, Banking, Credit.
Priority Areas
First, access to free, face-to-face money advice – a key service that the Handbook is well placed to support. To increase the provision of free face-to-face money advice, we will work with potential providers to increase the capacity of the sector, especially in pockets of particularly severe financial exclusion. We will also pilot models of money advice outreach to test how best to help the very hardest to reach groups.
Second, access to banking. To ensure more people have access to banking facilities, the banks and the Government have agreed to work together towards the goal of halving the number of adults in households without a bank account – and of having made significant progress in that direction within two years. The chapter in the handbook on everyday money will be very helpful for counsellors and advisors in achieving it.
Third, access to affordable credit. To improve access to affordable credit, we are seeking to introduce a scheme whereby – in certain circumstances – private and third sector lenders can apply for repayment to be made by deduction from benefit. The aim is to reduce some of the increased costs and risks of lending to vulnerable groups, and so improving provision to them – and we are seeking responses from private sector and third sector lenders by the end of this month.
Subject to state aids clearance, we will also set up a growth fund for third sector lenders, for credit unions and community development finance intermediaries, from within the Financial Inclusion Fund – helping to boost the sector’s coverage, capacity and sustainability in providing affordable credit for the financially excluded.
Each of these areas is important. Tackled together, there is the potential to lift many people out of the economic isolation they are in.
Child Trust Fund
Let me mention one other important step we have taken. Earlier this month, we launched the Child Trust Fund which will build on financial education by providing a savings and investment account for children to engage with. The Government will make a contribution to the fund for every child, with a larger contribution for children from families on low incomes. It will help build the confidence of children and their families as they use the account and deal with financial institutions.
It is a groundbreaking initiative which will strengthen the saving habit of future generations. It will ensure that at age 18, for the first time, every child will have access to a financial asset. The first vouchers are being sent now to around 2 million parents of children born since 1st September 2002 – and a major advertising campaign is under way.
We are also working on a larger pilot of our saving gateway proposals, where we are matching the savings contributions made by people on lower incomes – giving them an added incentive to save in the way that people paying income tax already have. I know that my officials have been talking recently with SAFE, among a number of partner organisations who will be helping us in the next phase as in the earlier one.
Closing Words
Before I hand over to Callum, let me just finish by saying that we recognise there is a great deal still to be done to improve financial capability and to assist people who lack confidence in dealing with financial matters. To include more people and households in our financial system, and to reduce dramatically exclusion and poverty.
I am very keen that we work together to go further still. In government, from the Treasury to the FSA. Through organisations and initiatives, like Toynbee Hall, SAFE and the Child Poverty Action Group. And in the private sector, with banks, financial institutions and advisors playing their part too.
So that is another reason for me to welcome the launch of this Handbook, and wish you every success with its use to help include so many people who are currently outside the mainstream of modern financial provision – who don’t need to be, but rather who can and should be fully included in our economy and in our society.
Thank you.