21 October 2008

Financial Inclusion Taskforce conference

1. Thank you. You’re probably getting to that sleepy time in the afternoon, so I thought I would just say a few general things. I know you have had Kitty Ussher here earlier who did so much work in the Treasury on Financial Inclusion- and also Ian Pearson who is now taking on the baton and very keen to take this work further.

2. Obviously thanks are due to Chris Pond and the FSA for their support. And of course particular thanks go to Brian Pomeroy and everyone in the Financial Inclusion Taskforce for all of the work that is being done there- not just talking about financial inclusion in theory, but making it a reality in every corner of the country. We know how much difference it makes to so many people’s lives.

3. I want to say something about why this work has become so much more important as the result of the economic events that we are seeing now. We’ve clearly got very big global pressures hitting us. Events started in the US subprime mortgage market with dodgy lending, frankly, to people who couldn’t afford to pay and who probably face all sorts of their own financial exclusion problems in the US. But because of the ways in which the banks have been lending to each other, around the world and back again, with over-complex products and the bundling of assets, we’ve ended up with what started in the US, infecting financial institutions worldwide.

4. Banks didn’t understand the risks that they were exposed to. Neither did regulators, nor the credit rating agencies, nor anyone else. The impact of that- the huge credit squeeze that we’re seeing in every economy- is coupled with the big increase in oil prices that we saw earlier this year. Oil prices are now coming down, but it’s still taking some time for that to pass through to domestic utility bills. We’re still seeing people facing an increase in the cost of living.

5. I think it’s at times like this- when you have these sorts of economic pressures- that the issues around financial inclusion matter even more than ever. We know that the people that are hardest hit by economic slowdowns, the people that are hardest hit by credit problems, are not the city bankers. In the end it is those on lowest incomes, those who are most vulnerable, those who are at risk of losing their jobs, those who have least money in the bank, that are hardest hit. When times get tough, those are the people who we have even greater obligation to provide help to.

6. You will have seen the work that Gordon Brown and Alistair Darling are doing, right across the world, on tackling some of the causes of the global credit crunch. They’re working to support the banking system because, ultimately, if banks stop lending to each other, then they don’t lend to anyone else. They don’t lend to small businesses, which puts jobs at risk. They don’t lend to first-time buyers, which puts the housing market at risk. It’s absolutely right that we should take this substantial action to support the banking system because, ultimately, it will support everyone else as well.

7. We’re also taking action to support the economy more broadly. We’ve got about £4 billion of tax cuts this year, including increases in tax allowances, freezing fuel duty below the level of inflation, and increasing credits to tackle child poverty. Even at a time when we’ve got big fiscal pressure, we’re still taking these important steps. We’re taking these measures, and increasing borrowing to do it.

8. We’re looking at the areas where people will feel the pinch most- at people’s energy bills, for example, working with the energy companies to increase the number of people on social tariffs. Most people have no idea what a social tariff is. There will be people right across the country that could be benefiting from reduced prices. What more can we do to make sure they know about it?

9. We tried, in my constituency office, to get someone on to a social tariff and it proved quite a challenge. It involved an awful lot of calls to a lot of different organisations. It took us quite a while to discover that there is actually a single contact number that can provide all the necessary information. We didn’t know that- and I’m the Chief Secretary to the Treasury and I’m supposed to know what’s going on. That means there are an awful lot of other people who don’t know what kind of help is available on things like energy bills. Then there is the action we need to take on pre-payment metres and the frankly outrageous way in which the most vulnerable people pay higher prices.

10. We’ve already got things like the winter fuel allowance going up, but we’re going to need to do more to make sure that the people that are most vulnerable get help with their bills and get the information they need to find that help. They may already be entitled to things like free insulation and so on.

11. We’re also looking at how to help people stay in their homes if they’re facing mortgage arrears or repossessions. We’ve been working with local councils, with housing associations, on mortgage rescue packages. And we’ve been saying that banks need to do more. A lot of banks are doing excellent work- looking at things like mortgage repayment holidays- and different ways of tiding people through tough times. But let’s make sure that happens in all cases so that repossessions really are the last resort, and not the first resort of lenders.

12. There’s also work to be done around buy-to-let repossessions. What happens to the tenants under those circumstances? What extra support might they need? We’re thinking about all the extra support that people might need in their own homes as a result of the current economic circumstances.

13. Particularly we’re looking at the ways in which people might become more vulnerable to exploitation because of the slowdown. Last week we had the report from the OFT about Sale and Rent Back schemes. The report showed horrifying cases where people who were feeling worried about losing their home ended up selling it to a company thinking that they had security of tenure, then ending up only having six months at best before the rent rocketed up. Those are the sorts of situations where we need to be looking to do more.

14. We should never underestimate how much difference it can make simply knowing where to turn for advice and help. I know that this is the work that so many of you do all the time- your organisations, right across the country, empowering people to make their own decisions about money, and helping those that face difficulties.

15. At the Labour Party Conference I met an impressive young woman talking about the difficulties she’d had as a sixteen year-old when she’d been bombarded by information about different credit cards. She had no idea how to manage her money and got in to all sorts of financial difficulty. It was actually the YWCA that helped her get back on her feet, and now she is in education and doing incredibly well. Having someone to turn to is so important.

16. In the end this is about all of us. This is not simply about what the Government can do, or what a regulator can do, or an advice agency. It’s about all types of institutions: banks, building societies, credit unions, local councils, housing associations and every organisation that has contact with people. It might be about Sure Start and health visitors talking to young mums who are worried about money. It could be about schools and colleges- teenagers are at a potentially vulnerable point in their lives. It might be about landlords and employers offering advice. It’s important that we have a wide range of partnerships to reach right out into the community.

17. The tougher times ahead will be a challenge. We must think in different ways. We must address the immediate problems, but ensure we’re not distracted from the long-term issues that were there three years ago and will still be there in three years or six years’ time if we don’t maintain focus on them.

18. My final point that I leave you with is about going to Normanton Common First School, a primary school in my constituency. Nationwide had been working with the school on their new programme of financial education. They had this great computer programme that the kids were all playing with. They all knew what an APR was, and they were only ten years old. It was great- they were having a whale of a time playing with the computer. One of the teachers said to me: “well, we never learnt about money in school. Money was used in arithmetic lessons, but we never learnt about financial planning or budgeting.” We need to build those things early on into schools. Those ten year olds were cheerily confident about everything.

19. We have to deal with both the short term and the longer-term issues. Huge thanks to all of you for all of the work that you have already done in building this programme. This is going to be the most testing time for our work. Not much of this work was in place last time we had a serious economic slowdown. We saw the consequences of that in the early ‘80s and the early ‘90s. People weren’t just hit for those difficult years, but also for many years afterwards. We can’t make those mistakes again. There’s a huge obligation on us to make sure that people get the support they need through the tougher times, but also that help those that are financially excluded in the long-term. We must build their futures, empower them, and give them opportunities.

Thank you.