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12 April 2000

Speech by Economic Secretary to the Treasury, Melanie Johnson MP, to the NPI conference on - "Tackling financial exclusion"


Thank you for inviting me here this morning. While Barclays last week certainly reminded us all the importance of careful timing of announcements, the timing of this conference could not have been better!!

In the Budget three weeks ago now, this Government took the next steps towards our ambition for a Britain of opportunity and security not just for a few but for all, with prosperity reaching the people and places the economy has too long forgotten.

We want to do more to help people start a bank account and start saving, more to help people invest in their pension, more to help people get on to the first rung of the financial security ladder and make provision for their future.

Tackling financial exclusion is a cornerstone of this strategy.

The banking industry is facing changing and rising expectations from both existing and potential customers, including the financially excluded.

I welcome the signs that parts of the industry are both starting to recognise the validity of many of the claims and concerns about their performance - or at least public perceptions of it - and are beginning to address them.

Public opinion can have a very powerful effect, as we saw with the issue of double bank charges and cashpoint machines.

But as was all too clear from the headlines last week on bank closures, there is a lot to do to recapture the old confidence and trust in financial services, and in banking in particular.

And now that we all increasingly rely on banks, so they increasingly have a responsibility to ensure that everyone has access to their services.

All banks must work in a concerted effort to meet this challenge. Those who are seen as less than fully committed to doing so are being noticed. And just as there is a - perfectly legitimate - commercial interest and benefit in serving new customers among the currently excluded, so there is a potential detriment for those who are perceived to ignore their interests.

Wider social exclusion context

Of course, financial exclusion is only one aspect of social exclusion. Over the past three years, we have set out on a radical agenda of action to tackle poverty and social exclusion at its roots. We are confronting the waste of long-term unemployment. Cutting crime. Increasing employment. Improving health and housing.

 And we've made a strong start:

But, more - much more - still needs to be done. That's why today, we are taking the next step on the road to a Britain of opportunity and security in every area of the country, with the publication of the framework National Strategy for Neighbourhood Renewal. This report draws together the best and most important ideas from the 18 individual social exclusion Policy Action Team reports - including the recommendations and initiatives that came out of the PAT14 report on financial exclusion - and invites feedback from people such as yourselves who have front line involvement with deprived neighbourhoods - in public agencies, businesses, the voluntary and community sectors and residents themselves.

The consultation period until the end of June will provide an extended opportunity for you to comment, before the final shape of the National Strategy is decided and set out later this year.

In financial exclusion, already we are seeing some progress. But today the banking industry is at a critical crossroads: public perception is very poor and could get worse. Banks must seize the day and move quickly and earnestly to convince the public that the words 'social' and 'responsibility' are found in their vocabulary - preferably together!

We see three key areas where radical reform is needed:

Banking Services

First, banking and financial services.

The PAT14 report found that there are still far too many people in this country who are excluded from financial services. About 1.5 million low income households use no financial services at all - that's over 2 million adults, mostly not in employment, mostly living on benefits, mostly in social housing tenants.

Don Cruickshank, in his report on competition in banking, revealed that a basic affordable bank account for everyone would be profitable for the banks, and that using banking facilities - and not the cash economy - just to pay gas and electricity bills could save families 50 pounds a year.

We must ensure that those in greatest need have the access to financial services the rest of us enjoy, and benefit from.

That is why banks, building societies and other providers need to continue to develop and promote basic accounts, with the core facilities of:

The essential feature of the account is that the user cannot get an unauthorised overdraft, by replacing the traditional chequebook with an on-line debit card facility. So users do not have to worry about incurring charges, and the banks do not have to turn people down because of concerns about their creditworthiness.

Already a number of banks (all four Scottish Clearing Banks, Abbey National, Halifax, Woolwich) have basic account facilities on offer and - perhaps even more crucially - are looking to develop inclusive marketing which reaches and encourages take up by low-income groups.

Today, I put a challenge to all the other major banks to have basic accounts up and running by October. In a modern economy where opportunity is open to all, it's not good enough if banks can't respond effectively and meet this simple challenge.

The Post Office

As PAT 14 recognised, the Post Office has an important role to play in the provision of access to financial services.

The role of post offices is particularly significant in rural, as well as deprived urban neighbourhoods.

Often they are the main or only retail outlet and can be the lynch-pin in sustaining local communities providing both retail services and access to cash for those living there.

The plans for post office computerisation, which the Government announced last year, together with the post office's capacity to form partnerships with banks, could make a big difference. The Coop Bank, Alliance & Leicester and Lloyds TSB all already have arrangements for their customers to do a limited range of banking transactions at post offices. And last Thursday Barclays announced a deal with the Post Office to allow customers in most of the areas where they are closing branches to cash cheques, pay in and withdraw money.

We are providing substantial financial assistance towards the cost of automating the Post Office Counters network - nearly £500 million.

This will enable the Post Office to extend its arrangements with banks and building societies, so that customers of those organisations will be able to access their accounts at post offices, reflecting the scope which now exists for the Post Office to develop new roles.

Offering banking facilities through post offices should also improve the take-up of such facilities by those among the socially excluded who have traditionally used their local post office to collect benefits, pensions and make other financial transactions.

In all this, we have high expectations of the banking sector.

Everyone will have to try a lot harder to provide appropriate delivery channels for those on low incomes or in remote or deprived areas. There is a shared interest for Government, service providers and - most importantly, of course - for disadvantaged communities, in generating more accessible channels of access and delivery, making sure people know what these are and where to find them.

Local authorities can also have a very useful catalytic role to play, for example, by arranging for ATMs on public premises, with visits by mobile bank vehicles or by arranging premises for part time use by a variety of service providers.

That's why the Government welcomed the PAT14 recommendation that DETR, the Local Government Association and the industry organisations start work on appropriate guidance to local authorities on the promotion of delivery channels for banking services, drawing on existing good practice, and aiming to get guidance out by the end of this year.

Before very long I want to see no barriers at all to financial services for those who need them, and wish to use them effectively.

Financial Education and money advice

The second area where we want to see tangible results on the ground soon is in financial education and money advice.

The report of PAT 14 found that the financial exclusion many critics talk of - the outright refusal of bank accounts or insurance policies - is a relatively small part of the problem, although one which I expect all banks to take action which meets the money laundering requirements, but does not demand unreasonable and excluding forms of identity documentation.

The bigger part of the problem is self-exclusion: where potential customers do not seek to use financial services products. Where people believe, rightly or wrongly, that they would be refused if they applied, where the products they need are not available - at least not in ways which are practical and attractive to them.

They may think the products too expensive, too inflexible, too complex or - in some cases - likely to tempt inexperienced customers out of their depth and into the red. Often they simply do not trust institutions to treat them fairly.

All that must change - and it must change soon. Financial education is vital in improving consumer confidence in saving and investment which is key in a country where security and opportunity is in the hands of the many and not only the few.

The Government is determined to play its part. There are a number of measures in the current Financial Services and Markets Bill which will not only improve consumer protection and confidence in the industry, but - for the first time - seek to improve levels of financial understanding and literacy so that the unsophisticated potential customer can become an empowered and valuable consumer.

The Financial Services Authority is currently working on a programme to deliver better understanding of the most basic facts: what banks and building societies are, what they offer, what a mortgage or a pension is, how these services work and the questions that customers should ask to get the right product for them on the right - the best - terms. There is a good deal to do to get people familiar even with these basic concepts, and we want to engage all parts of the industry in this programme, to the benefit of us all.

Also, as a result of PAT 14, the industry associations have agreed to issue fresh guidance to banks and building societies on identification requirements; and they have produced an information pamphlet for the public, explaining what is involved.

And the Department for Education and Employment has set up an inquiry, under the former chief executive of Nat West, Derek Wanless into the promotion of better access to financial education for adults, to report in the summer.

We are also encouraging wider access to debt counselling and refinancing. The Department for Education and Employment together with the Employment Service are identifying debt-ridden job seekers and fixing them up with professional money advice. And the industry itself is also putting more resource into the Money Advice Trust, which finances debt counselling for self-selected advice seekers.

Credit Unions

The third area for action is for an enhanced role for credit unions, and I am delighted to see representatives from a number of credit unions up and down the country with us here today.

Credit unions are important to people without access to mainstream financial services, because they provide savings facilities for small amounts of money and loans at an affordable rate of interest. They also allow those without a credit history to gain one. But there is considerable scope for growth. At present only a fraction of one percent of the population belongs to a credit union.

 A key part of our strategy is to provide opportunities for the credit union movement to develop and grow into a recognised, more widely available channels for access and delivery.

So that organisers can take proper care of their members interests, a new Central Services Organisation will help to spread administrative and management best practice and achieve common standards of competence and reliability.

The working group led by the Association of British Credit Unions is working towards the production of a draft business plan for the Central Services Organisation shortly. The idea for the CSO came out of the taskforce led by Fred Goodwin to look at ways in which banks can help credit unions to grow. Once the draft business plan is published, we look forward to the banks responding to this challenge and working with credit unions to put the idea into practice.


So, to conclude, we have made a start and acted in some areas. And we are going to continue to work hard at tackling financial exclusion.

We must all do more to develop people's skills and self-esteem and help them use mainstream services from which they feel excluded. And we must all work to provide alternative and appropriate delivery channels.

PAT14 recommended that the Treasury should monitor progress and report annually. I can announce today that the Treasury will be publishing its first progress report in the summer which will look ahead towards the Pre-Budget Report with next steps and targets for the key players. But we need to see results even before then.

Government cannot overcome financial exclusion alone. Our strategy to tackle financial exclusion is only possible through joint working with a whole range of interests, including the banks themselves, councils, local authorities and other local service providers.

I hope I can rely on your support in taking this critical agenda forward. Together, I really believe we can deliver security and opportunity for all in every region, every town, and every community in Britain.

Thank you.

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