On April 11, the house of Lords debated on the status of the banking system in the UK and the topic of financial inclusion. Led by Lord Holmes of Richmond, the debate focused on the economic and social benefits of financial inclusion, and the means to improve the usage of the banking system, which still sees two million people excluded and unbanked.
The short debate brought the issue of the ‘poverty premium’ to the forefront – or in Lord Tunnicliffe’s words, “an ongoing example of how the rich get richer and the poor get poorer”. This sentiment expresses the reality that being poor is expensive, and at the root of the problem is the issue of financial inclusion. Those with no access to credit, savings or financial services due to a lack of a basic bank account are unable to participate fully in society, and are forced to pay more for services. The Financial Inclusion Commission in 2015 found that the poverty premium is around £1,300 a year and that an estimated 2 million people took out high-cost loans in 2012 because they were unable to access any other form of credit. The result is significant indebtedness among people who do not have adequate banking facilities.
Lord Holmes addressed the House and asked what steps they are intending to take to address the issue of the unbanked and underbanked in the United Kingdom, and what needs to be done for the financially excluded to benefit from all that digital and FinTech offer. The Lords noted that the government is committed to improving access to banking services, which is why it legally requires the nine biggest banks in the UK to offer basic bank accounts from September 2016, although the banks already do offer fee-free basic bank accounts. Basic bank accounts help people who are unbanked or who may be ineligible for a standard current account to access basic banking services. The Government committed in the Budget this year to publish basic bank account market share data for the first time this autumn, which will show how the banks are meeting their commitments. This will enable government departments to look at how this is progressing and what more they can do. The Lords agreed that FinTech and the digital sector should support inclusion and noted that the government is introducing a package of measures to further support UK FinTech.
The House also debated on the role of credit unions in financial inclusion, which are seen by many as a vital part of bringing people into financial services and the government’s support for their continuous work. The Lords noted that while many people will still not go near a bank, they go to local community credit unions if in need of credit. Lord Ashton noted that the government is improving access to credit, most notably by supporting the credit union sector, having invested £38 million through the credit union expansion project. It was also noted that half a billion pounds has been provided to help Armed Forces personnel access credit union services, and the maximum interest rate credit unions can charge has been increased to improve sustainability. Although Lord Ashton could not answer how many basic bank account users will be eligible for universal credit and how many people who are entitled to universal credit still do not have an account, he stressed that “the policy commands support around the House for the view that whether or not you are on universal credit, everyone should have access to the banking system. That is exactly what this has achieved”.
Read the transcript from the full debate here.