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The Economic Secretary to the Treasury (Andrea Leadsom)
I agree with everything that my hon. Friend the Member for Ruislip, Northwood and Pinner (Mr Hurd) said. I am grateful to him for securing the debate on this important subject. He referred to the Financial Inclusion Commission’s report, which is an important piece of work that I am extremely interested in.
I hope to be able to give my hon. Friend an overview of the many things the Government have done that show that we have been absolutely committed to trying to improve the plight of the financially vulnerable. We see financial inclusion in two parts. First, it has to enable people. Secondly, it has to empower them. Enabling means making sure that people have the tools to manage and save their money, using services such as bank accounts. Empowering means equipping people with the skills and knowledge to make the right financial decisions. The Government have taken significant steps in pursuing that agenda.
First, on basic bank accounts, as my hon. Friend pointed out, independent research published last year showed that about 1.9 million adults in the UK were without a bank account. Of course, there are also many who have bank accounts but cannot use them because fees have been so racked up that they cannot afford to pay. Therefore, in December the Government secured a landmark deal with the major banks, which will end fees for failed payments as well as ensure access to banking facilities for all. We held extensive negotiations with the banking industry to bring basic bank accounts up to scratch.
The result is that the nine major high street banks and building societies have agreed to offer a better deal for customers. Truly fee-free accounts will be available to anyone who does not already have a bank account or who cannot use their existing account owing to financial difficulties.
Once someone has a bank account and can begin to manage their finances, other issues automatically become important. Such issues include physical access to banking: a branch or free-to-use ATM near work or home. In terms of the Post Office and rural access to banking, while we appreciate that all banks must balance customer interests with market competition and other commercial factors, alongside the Secretary of State for Business, Innovation and Skills, I have chaired a series of round tables with senior representatives from UK banks and building societies at which we challenged industry to explore how we could improve customers’ access to banking services. We have looked at how to increase awareness of the services provided through the Post Office’s extensive network, which will ensure that essential banking facilities are available in as many communities as possible.
Customers can withdraw money, deposit cash and cheques and check balances at all 11,700 post office branches in the UK. The Government have committed almost £2 billion to protect and modernise the post office network. I recently met senior people from the Post Office to discuss how they could improve things further, with longer opening hours and better security in post offices for those wanting to deposit cash. It is vital in relation to access to finance that the post office network should become part of the solution.
We have also made crucial progress on ATM provision. The number of free-to-use ATMs is at an all-time high, with 97% of withdrawals being made free of charge. However, it is often the most disadvantaged communities that cannot get access to free-to-use ATMs, so the Government are working closely with the LINK network’s financial inclusion programme to subsidise free-to-use cashpoints in more than 1,400 remote and deprived areas across the UK. Importantly, members of the public can nominate their own area. My round tables with bankers have opened up positive discussions and looked at what greater functionality ATMs could provide over and above cash withdrawals and balance inquiry services.
Of course, however, we realise that bank accounts are only one of several ways of furthering financial inclusion, and that credit unions also play a key role in providing financial services to more than 1 million customers across Britain. We would like that to double or treble, so we have taken significant action to ensure that credit unions go from strength to strength. Last summer, I issued a call for evidence on credit unions, asking for views about their future and what more the Government could do to support the development of the movement. We have committed to using the responses to the call for evidence when considering legislative amendments for the next Parliament. On 1 April last year, we raised the interest rate cap on British credit unions from 2% to 3% per month, to enable credit unions to become more sustainable over the long term. As my hon. Friend said, we have committed £38 million to the credit union expansion project, with the clear aim of helping credit unions to modernise, be sustainable and expand to meet demand.
Similarly, community development finance institutions provide finance to under-served markets and are another important tool in reaching out to the financially excluded. In 2012 the Government created a £60 million fund for CDFIs to lend to businesses from deprived areas and disadvantaged groups, and in February they commissioned a report exploring how the CDFI sector can operate more sustainably. That will provide more evidence about the sector and, building on that, we hope that CDFIs will be able to help even more viable smaller businesses and consumers to gain access to the finance they desperately need.
As has been mentioned, the Government have also taken steps to tackle those who prey on the financially excluded and make the problem worse. I know that in some circumstances short-term loans provide a needed service to people who need money quickly; but customers must be protected from poor or even predatory practice in those markets, which is why we have fundamentally reformed the regulation of consumer credit to deliver a market that helps with customers’ needs. Last year, we transferred responsibility for regulating consumer credit from the Office of Fair Trading to the Financial Conduct Authority. The FCA has introduced tough new rules in both the payday and debt management sectors to improve consumer protection, and has far greater powers than the OFT did to punish breaches of those rules.
The hon. Member for Chippenham (Duncan Hames) and my hon. Friend the Member for Ruislip, Northwood and Pinner asked about whether greater consideration should be given to individuals’ debt repayments. I can inform them that the FCA requires those collecting consumer credit debts to leave a subsistence balance in a consumer’s bank account to enable them to continue to pay for essentials, including food, energy and rent. I consider that essential and have recently written to the FCA on that very point. In addition, we have passed legislation that places a duty on the FCA to cap the total cost of payday loans. That came into force on 2 January.
My hon. Friend is right to talk of the massive contribution that financial innovation can make, particularly for those who are financially vulnerable. Ideas such as mobile payments, which mean that instead of hanging on for ages with a customer service unit, waiting for an answer, people can simply ping cash using a mobile number, are important for all of us, but particularly for the financially vulnerable. Being able to make remittances at the press of a button is incredibly valuable for people with family overseas; and many other innovations in the FinTech sphere will help financially vulnerable people. The present Government have done more than any other to support financial innovation. I am sure that my hon. Friend will want to hear what more we are doing, at the Budget tomorrow; he will be delighted.
The second part of financial inclusion is empowering consumers so that they have a better understanding of financial services and what is available to them, so I want to talk about financial education—how we help people to make the best of financial tools and ensure that future generations will be financially literate. By establishing the Money Advice Service in 2011 we have ensured that consumers have access to free money advice. There is always somewhere for vulnerable consumers to turn. We have also committed to supporting new pensions freedoms through free and impartial guidance from Pension Wise, to help people make informed and confident decisions about how they use their pension savings in retirement.
Not only can education initiatives help to solve a problem now; they can help to prevent future problems. In September 2014, we made financial literacy a compulsory part of the national curriculum. As part of the citizenship course for 11 to 16-year-olds, pupils will learn about the importance of budgeting, sound management of money, and credit and debt, as well as understanding different financial services and products. For younger children, the Government are working with the Archbishop of Canterbury’s credit union taskforce, to fund a project called LifeSavers, which will go into primary schools and teach young people good financial habits. It will also introduce them to credit unions, which, as hon. Members will know, have a clear steer to help with saving as well as borrowing.
I am sure that my hon. Friend will appreciate that financial inclusion is a complex issue. I absolutely assure him that I will ensure that the Government put the consumer at the heart of financial policy and that we are looking to create a financial sector that is truly inclusive for the next generation. I am personally committed to that agenda, and assure my hon. Friend and the hon. Member for Chippenham that, given the opportunity, we will put financial inclusion at the heart of the next Government’s agenda. Once again, I thank my hon. Friend for raising these important issues in what has been an excellent debate.