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Financial Inclusion

Volume 823: debated on Monday 11 July 2022


Asked by

To ask Her Majesty’s Government what steps they are taking to improve financial inclusion in the United Kingdom.

The Government want to ensure that people, regardless of their background or income, have access to useful, affordable financial products and services. To tackle financial exclusion, the Government convene the Financial Inclusion Policy Forum, which brings together Ministers, regulators, industry and the third sector to provide leadership and promote collaboration. Since 2019, the Government have allocated £100 million of dormant assets funding to support Fair4All Finance’s work to improve access to affordable credit.

My Lords, does my noble friend agree that financial inclusion brings not just economic benefits to the individual but economic, social and psychological benefits to all of us? To that end, does she agree that it is high time that we revisit the question of a “have regard to” financial inclusion duty for the FCA?

My Lords, I absolutely agree with the sentiments expressed by my noble friend about the importance of financial inclusion. The Government recognise that there has been strong interest in the proposal for the FCA to be given a separate “have regard to” financial inclusion duty. However, at present the Government’s position remains that the FCA’s existing objectives and regulatory principles are already well aligned with the objectives of financial inclusion. We do not believe that a separate “have regard to” financial inclusion duty would necessarily lead to a different approach or tangible improvements over the current arrangements with regard to the aim that we all want to see: greater financial inclusion and less exclusion.

My Lords, the Government say that they are in favour of this, but they are watching as banks close in many communities. Many poor areas have no bank, at a time when those banks have seen soaring profits. When are the Government going to act to do something about this, to make sure that people have access to banking services?

My Lords, there are existing obligations, which are enforced by the Payment Systems Regulator, but noble Lords will also know that the Government are committed to legislating to protect access to cash. Those measures will be included in the forthcoming financial services Bill.

My Lords, does tangible improvement include wider social ownership of assets—wider ownership of popular capitalism? At the moment, capitalism is not very popular at all. So maybe there should be some reinforcements to spread the benefits of capital, beyond those who benefit anyway because they have capital in the first place?

I agree with the sentiments expressed by my noble friend. Access to capital is something that should be offered to the widest range of people so that they can benefit from it.

My Lords, the biggest barriers to financial inclusion are poverty and regressive taxation which robs people of disposable income. Some 14.5 million people already live in poverty. The poorest 10% of households pay 47.6% of their income in direct and indirect taxes, compared with 33.5% by the richest 10%. Can the Minister explain how and why the Government have created this shameful position of exclusion?

I say to the noble Lord that the £37 billion of financial support offered to people this year to support them with the high costs of living has been targeted at those on the lowest incomes and those least able to pay. So the Government have taken progressive measures to help protect people against rising costs of living.

Does the Minister agree that if you fail 35% of our children at school, then you are going to have a lot of financial exclusion?

My Lords, I agree that school is a very important place to start for people’s life chances, and also their financial understanding. I am pleased to say that under this Government, the achievement gap for children at school between those in the poorest households and those in the wealthiest households has narrowed. That is something that we need to continue to make progress on.

My Lords, pursuing the point on poverty that we have just heard about, is the Minister aware that the poverty premium—the extra costs that people in poverty or on low incomes pay for essential products or services—costs the average low-income household some £430 a year? That is the equivalent to some 10 weeks’ grocery bills. Could the Minister explain why she does not think that giving the Financial Conduct Authority specific powers to tackle financial inclusion, including the poverty premium, is a good idea? I just do not understand it.

My Lords, I am aware of the poverty premium: it can exist in different ways in different sectors. There is already work under way to tackle that poverty premium; for example, the other week in Questions I spoke about work in the insurance sector to ensure that those with pre-existing conditions or those who are older can access products. We are continuing to work through the Financial Inclusion Policy Forum to make sure that things such as the poverty premium are tackled.

My Lords, according to evidence from the National Centre for Financial Education, financial habits are formed at around the age of seven. It also says that only 20% of primary schoolchildren are receiving financial education, despite personal, social, health and economic education being a compulsory subject—it is probably too wide for many teachers to cover everything that is required. What is the Treasury doing to work with the Department for Education to ensure that every child gets decent financial education from primary school upwards?

Financial education is taught in schools through a number of different avenues, including the maths curriculum, citizenship education and PSHE. The Government are well aware of the importance of this topic and continue to work with the Department for Education to make sure that schools and teachers have the resources to ensure that children can learn about it.

My Lords, following on from the question asked by the noble Baroness, Lady Tyler, about the poverty premium, which sees those who can least afford it being forced to pay more for essential goods and services, what are the Government doing to work with energy providers to prevent them charging more for electricity that is accessed via a pre-payment meter?

My Lords, pre-payment meter customers are covered by the price cap, so they receive protection from that, but they pay a higher rate, which Ofgem believes is necessary to reflect higher operational costs and risks. However, a robust set of rules is in place to protect pre-payment meter customers, ensuring that, if suppliers identify that they are in a vulnerable situation, including where they are self-connecting or self-rationing their supply, they must be offered additional support credit. In doing so, suppliers must also consider people’s ability to pay back that credit. So a robust set of support is available to people in that situation.

My Lords, although the Government have done well in reducing the taper rate, is it not still the case that people in work on universal credit are paying an effective marginal tax rate of 55%, which is 10% more than the highest-paid people in the country? So, while we are talking about tax cuts, as we appear to be doing in the Conservative Party at the moment, would it not be a good idea to reduce the effective marginal tax rate of those who are poorest in order to encourage people back into work and to encourage those who are in work to value their contribution to society?

I agree with my noble friend’s sentiments. As he pointed out, a cut to the taper rate of universal credit is essentially a tax cut for those on the lowest wages, and it makes sure that the incentives are aligned for them to take on more work and bring home more money. So I totally agree with him, but I cannot speculate on any future policies in that direction.

My Lords, I congratulate the noble Lord, Lord Holmes of Richmond, on his tenacity on this subject, which has made this fact stand out to me: 22% of adults have less than £100 in savings. They are not just unlucky; they are victims of the policies of firms, ranging from car parks to banks, to reduce costs and hence make more profit. We need a comprehensive and holistic approach, and the Government are going some way down that road, but the Financial Inclusion Commission wrote to Mr John Glen, setting out a comprehensive way forward, including the concept of a “have regard” duty on the FCA. Is that letter being responded to, and how does it fit in with the Government’s general approach?

My Lords, I am sure that that letter will be responded to, although I take this opportunity to pay tribute to the work of my honourable friend John Glen, to whom the letter was addressed, as Economic Secretary to the Treasury. He has done a huge amount in post to promote financial inclusion, and I reassure noble Lords that that work will continue. For example, the FCA has consulted on its new consumer duty. The noble Lord referenced those who do not have access to savings. Of course, the Government have the Help to Save programme to ensure that those who are on lower incomes get more support to save so that they have a financial buffer for when times are tough.