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Newsroom & speeches
04 March 2010
Thank you for the invitation to speak here today.
As the central distributors of capital in the economy, financial services play a vital function, providing the goods and services that people need.
However, despite the increasingly essential need for these products, the market has, in some instances, failed to provide appropriate solutions for consumers.
Many people continue to lack access to the financial services that are so important to their everyday lives, and many people also lack the knowledge, skills and confidence to make good financial choices, to engage effectively with financial services providers and to manage their financial affairs well.
These failures not only affect the individual, but also the economy. And, when the economy operates beneath its potential, the costs are borne by individuals, their communities, and society as a whole.
This is why today I would like to talk to about our work on financial inclusion and capability and to set out why we should be working together to correct the failures of the past and give people greater opportunities in their lives.
First, I would briefly like to explain our Government’s work on financial inclusion since 1997, and why we think it’s important.
In its simplest terms, financial inclusion is about ensuring that everyone has the opportunity to access the financial services and products that are vital in the modern economy.
But access to these services and products is also crucial in the broader context - in addressing social disenfranchisement and allowing people the opportunity to participate fully in society.
And it is those who are most vulnerable that are most likely to be affected by financial exclusion – those on the lowest incomes and those experiencing multiple forms of disadvantage.
Here, the responsibility must be on both the Government and society to offer these people the opportunities that the majority of us take for granted.
This is why we have pushed forward our financial inclusion agenda.
And the impact of the recession on poorer households has only served as a further reminder of the importance of this work.
Without the resources to be able to plan for the future and cope with financial pressure, to be able to protect against short-term variations in income and expenditure and to deal effectively with serious financial difficulty and financial distress, people can find themselves faced with difficulties that other, more fortunate, individuals would find far easier to manage.
This is why the Government believes that everyone should be able to access products and services that suit their needs, no matter what their circumstances or life stage.
And we hope to announce a future framework for improving financial inclusion to ensure that our work to help the most vulnerable households to access appropriate banking, credit, saving and insurance services continues to build on our successes so far.
Widening access in all these area is crucial.
There are still around 900,000 adults without access to any kind of bank account in the UK, and 1.75 million who do not have access to a transactional account.
And it is of the utmost important that everyone has access to one.
They allow individuals to hold and manage their money securely, to receive employment income or benefits and to access cheaper deals for utilities and other services through direct payments.
And our shared goal with the banking industry has delivered real results, since 2004, halving the number of adults with no access.
However, further progress is going to be harder, and research done by the Financial Inclusion Task Force shows that many of those who are still excluded believe that banking is not for them.
We have to work together to reach these people.
Access to credit is also important, as many people – particularly those living on low incomes – need access to credit to help them manage short-term changes in income and expenditure.
Without access to regulated sources of affordable credit, people may be forced to rely on informal or illegal sources, raising the risks of over-indebtedness and exploitation.
Our support for credit unions and CDFIs help to move people away from the more dubious end of the market.
Our Financial Inclusion Growth Fund is on target to meet the goal of making 150,000 affordable loans per year, worth £60 million, to low-income households by 2011.
This is a remarkable feat of capacity building, however, third sector lenders still have a long way to go to achieve the scale required to offer an alternative to the high cost credit market.
Access to savings is crucial in providing people with independence throughout their lives, security if things go wrong, and comfort in retirement.
And this is why we have been very active in promoting saving and asset ownership for all – from childhood, through working life and into retirement.
Our primary vehicle for tax-advantaged saving outside pensions is Individual Savings Accounts, and over 19 million people in the country now hold one.
However, we are also focussing on savings incentives that appeal to poorer households. The Saving Gateway will be introduced nationally this year and will give around 8 million working age people on lower incomes the chance to earn 50p from the Government for each pound they save.
Also announced this year are increases to the annual payments of £100 or £200 into disabled children’s Child Trust Funds, recognising that they are likely to have greater financial needs as they enter into adulthood.
And the Child Trust Fund is now the key means to support the next generation of savers – over 4.8 million children have one, with savings of around £2bn.
Last year the Prime Minister announced a much larger role for the Post Office in providing financial services, to increase the accessibility of reliable financial products for consumers and small businesses.
Our national consultation, launched in November last year, set out ideas to support the development of new banking products and services, which meet the needs of hard working families, including those who prefer to use their local Post Office for banking.
The consultation closed recently, and a summary of the responses along with some further thinking from Government is due shortly.
We have already announced that Saving Gateway accounts will be available through the Post Office, and we think that there may also be scope for greater collaboration between Post Offices and credit unions, allowing them to deliver services such as affordable credit through Post Office branches.
Furthermore, we hope that the Post Office will be able to take forward some of the new ideas for banking or budgeting services that could make financial management and bill payment easier for large numbers of poorer households.
We also believe that partnership working with local stakeholders, such as local authorities and social landlords, will be essential to the future of financial inclusion.
The Financial Inclusion Champions have been working hard over the last two years to deliver effective partnership working between local organisations and to demonstrate the tangible economic benefits to local communities of delivering greater financial inclusion.
But, crucially, we need to make sure that individuals are able to understand their financial needs, are able to choose appropriate financial products and engage effectively with the financial services industry.
Financial products have become increasingly complex, and I believe a good illustration of this is the difference between consumer technologies and consumer finance.
Whereas technologies such as computers, cameras and dishwashers all make life easier for the consumer, financial innovations can have the opposite effect. The Economist notes that products can be like: “wires and circuit boards dumped in front of consumers, who are then asked by a loan officer where he should start soldering. And at the end of it all, consumers aren't sure what they're getting and what they're paying for it.”
Helping people deal with the financial challenges they face day to day and supporting them in planning for their future leads to improved financial capability.
And financial capability is a long-term agenda through which we need to take action now to support future generations, as well as today’s generation.
Our long-term aspirations for financial capability as we set out in 2007 are threefold:
Turning to adults first, the 2008 Thoresen Review set out a model for achieving our aim through a national Money Guidance service.
With the FSA, we are piloting the Money Guidance service in the North West and North East through a £12m pathfinder. Individuals can access the service via the Moneymadeclear website and helpline, and have a face-to-face money guidance session in their local community, delivered through our partners in the North West and North East.
And the pathfinder is going very well – by the end of this month it is on track to reach its target to help over 500,000 people with money issues.
On account of this success, we announced at Pre Budget Report that we will roll out the service nationally this spring and, together with the FSA, we have pledged £20m to support national rollout.
But, of course, we also want to ensure that every child will have the opportunity to learn personal finance skills in school, so that they are equipped and motivated to deal with the financial choices and challenges of adult life.
The My Money programme - delivered by pfeg and funded from a £11.5 million package of support pledged by Government in 2007 – was launched last summer.
It is the first programme to provide a joined-up approach to financial education from when a child first starts school, through to the transition to working life or further and higher education, helping children aged 4-19 learn about money and how to manage it.
We have also taken action to embed financial education into the school curriculum.
This is to ensure that every child has the opportunity at school to gain the knowledge, skills and confidence that will help them deal with money issues when they get older.
And I’m really proud of the progress we have made.
In September 2008, financial capability was introduced into the secondary curriculum in England as a strand of Personal, Social, Health and Economic (PSHE) education.
Last October, the Government announced its intention to make PSHE – including financial capability – a statutory subject in England.
As a result of that, we have introduced provisions in the Children, Schools and Families Bill to make financial education, as part of PSHE, a statutory subject in the curriculum in England.
This will be a key factor in ensuring that every child has the opportunity to learn vital money skills.
Financial education is also an important element of many other subjects too, such as Citizenship, Enterprise and, of course, Maths right up to GCSE. From September 2010, functional skills, including financial capability, will be assessed as part of Maths GCSE.
These steps take us closer to achieving our vision of better-informed, confident consumers able to manage their financial affairs well.
To build on these achievements and to give the financial capability agenda the profile, leadership and capacity it needs to achieve these long-term goals, the Government has introduced provisions in the Financial Services Bill to establish a new consumer financial education body.
This represents an exciting new phase in our work and I look forward to future successes.
The Government also believes that everyone should be able to find the support needed to get back on their feet when their circumstances change, or if their financial affairs have spiralled out of control.
This can happen all too easily, and it is right that people have access to the appropriate advice.
Of course, since the start of the recession, demand for advice to deal with debt has been even stronger than usual.
So, we set up a package of measures to help people affected by the recession, including additional funding for the Citizens Advice Bureaux and the National Debtline.
Citizens Advice has quickly and efficiently translated that money into new volunteers and additional hours and, as a consequence, over 150,000 people have already been helped who would otherwise have struggled to get advice when they needed it.
But we have also had action in train before the recession. One of the main investments we have made is the £130m since April 2006 in a face-to-face debt advice project aimed at the most vulnerable households.
The funding pays for 500 specialist debt advisors around the country, who have so far helped nearly a quarter of a million people.
The Government also provides substantial debt advice funding through the Legal Services Commission.
And its continuing financial support for the Money Advice Trust’s free-phone National Debtline is also helping people get trustworthy, free advice when they need it.
People need to able to have this advice when they get into difficulties and not be left to shoulder the burden without help from specialists.
And we will continue to support the advice sector in meeting demand for debt crisis advice as well as, in the long run, helping people to avoid getting into financial difficulty in the first place, by offering them help and support through the Money Guidance service.
To conclude, I’d like to say I’m proud of the progress that this Government has made towards ensuring that people have the access and capability to use the financial services that are becoming increasingly important in the modern economy.
But we will not relinquish our drive. The global financial and economic crisis has powerfully reinforced the need to push on with this work.
And, alongside industry and other key partners, we will all have obligations and we must work together.
Many organisations here today have helped us so far, and I hope that we can rely on everyone in this room to join with us and help to bring vital services into some of our poorest households.
Thank you.
