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HM Treasury News Release
190/99
16 November 1999
INITIATIVES TO TACKLE FINANCIAL EXCLUSION
Six initiatives to help people in disadvantaged communities excluded
from key financial services were announced by Economic Secretary Melanie
Johnson as the initial response to proposals in a Treasury Policy
Action Team (PAT) 14 report published today.
These are:
*an improved regulatory framework for credit unions
*a new central service organisation to support and enhance the role
of credit unions
*support for more widespread introduction of insurance with rent schemes
for home contents insurance
*exploring the possibilities for widening the role of the Social Fund
to help those in low-paid employment
*better access to counselling and refinancing for those in debt
*greater disclosure by banks of their provision of services to the
socially excluded.
Welcoming the report, commissioned as part of the initiative to tackle
social exclusion in poor neighbourhoods announced by the Prime Minister
last year, Miss Johnson said:
"Financial exclusion limits the ability of many of the poorest in
society to have the benefits of the ever increasing range of financial
services, eg bank and building society accounts, access to affordable
credit and insurance, that the rest of us take for granted.
"Two million adults in the UK do not use financial services. It means
that they pay more for meeting household bills, do not have home contents
insurance or save effectively. We need to spread these benefits as
widely as possible, and to look for new ways to do so.
"The Government will announce its full response to the report next
year as part of its national strategy for neighbourhood renewal, but
we are already looking forward to making progress in three areas.
"Credit Unions offer people access to cheap small loans, but their
impact in Britain so far is much less than in other countries. We
will encourage their growth through a new central services organisation
which can support new and existing credit unions, and changes to their
regulatory arrangements.
"Home insurance is also a problem. We will look at ways of improving
access to insurance services, particularly through insurance with
rent schemes, to help more people get, effective and affordable insurance
services. We will work with the industry and public sector agencies
to develop challenging targets to improve access to insurance services.
"We want to improve access to affordable credit. One possible development
could be the use of the DSS Social Fund to help those in low-paid
employment keep out of the hands of high-cost moneylenders. We shall
also promote wider access to debt counselling and refinancing for
those who already have debt problems."
The general theme of the report is that the way forward in tackling
financial exclusion is the development of new ways to access and deliver
financial services.
Among the other alternatives identified are: exploring ways in which
the network of post offices could contribute to additional delivery
channels; greater use of Pay Point bill payment and Money Advice Centres;
greater involvement for housing associations and local authorities;
and best use of available and developing technologies by all agencies,
including banks and building societies, to ensure easier and more
open access.
The report also calls for better designed financial services for
those unfamiliar or uncomfortable with existing services, including
basic bank accounts - which allow people to pay their essential bills
more cheaply without risk of an overdraft, and more attractive household
and savings insurance products tailored specifically to their needs.
Miss Johnson added :
"The report recognises that there is no single or simple solution.
The way forward lies in developing new and alternative means to deliver
and provide access to financial services as well as ensuring that
those existing services can reach the whole community. It also means
ensuring that communities themselves can contribute to progress in
helping their members share the access to and use of financial services
that the rest of us see as essential and take for granted.
"It recognises that banks, building societies, credit unions, and
local agencies are already working in partnership with Government
to achieve practical changes - ways to develop existing and alternative
services, seeing commercial as well as social benefit in doing so.
"The PAT 14 report is against compulsion. It emphasises instead removal
of unnecessary barriers, development of the right products, opening
up of new delivery channels and consumer education, and the provision
of better information about banking services.
"The Government continues to have high expectations of banks and other
financial service providers, including a greater degree of disclosure
of services provided to those in deprived neighbourhoods. We will
work with the banks on developments in response to this report. We
do not want to have to legislate, as some have urged, to compel banks
to serve all sections of the community; but if voluntary action is
unproductive and monitoring shows insufficient progress, it may be
necessary to consider other options."
NOTES TO EDITORS
PAT 14 suggests the following indicative timetable, emphasising that
this is dependent on developments in the financial services industry
and public attitudes towards the products on offer :
By the end of 2000
*Increase in number of banks offering basic accounts
*Further decline in proportion of households where no-one has a bank
account
*Substantial decline in refusal of bank accounts because of non-standard
identity documentation
*DETR, Housing Corporation and LGA work with insurance industry to
promote insurance with rent schemes
*Passage of Credit Union deregulation measures
*Development of FSA Credit Union supervisory framework
By the end of 2003
*Post Office offering computerised access to bank accounts
*Continued increase in access to bank services by alternative delivery
channels
*First wave of benefit recipients getting payments by automatic credit
transfer
*Credit unions Central Services Organisation up and running
*Substantial increase in coverage of insurance with rent schemes
€ Enhanced Social Fund in operation
By the end of 2005
*All benefits paid by automatic credit transfer
*Low-income household usage of banking and insurance at similar levels
to other social groups
*Substantial increase in credit union membership among low-income
groups
2. PAT 14 is one of eighteen teams set up under the initiative
to tackle social exclusion launched by the Prime Minister on September
1998. It followed publication of the Social Exclusion Unit report
on Poor Neighbourhoods. PAT 14 was asked to report on the scope for
widening access to financial services in those areas, specifically
:
*the scope for development of credit unions, building on planned
legislative change;
*increasing the availability of insurance services to deprived communities;
*the role of retail banks, Post Offices and other organisations in
providing access to and delivery of financial services in deprived
neighbourhoods.
The goal was defined as developing a strategy to increase access
to financial services for people living in poor neighbourhoods.
The Treasury was also asked to set up a separate policy action team
(PAT 3) to look issues affecting access to finance and financial services
for small businesses, including the self-employed, in disadvantaged
communities. Its report was published on 2 November (HMT press release
180/99).
'Credit Unions of the Future', the report of a taskforce headed
by Fred Goodwin, Deputy Group Chief Executive of the Royal Bank of
Scotland, is also published today (HMT press release 191/99).
5. The credit union taskforce was established by the Treasury in July
1998, with a remit to
*explore ways in which banks and building societies can work more
closely with credit unions to increase their effectiveness;
*look at ways to widen the range of services that are provided to
credit union members; and
*encourage the continued expansion of the movement.
Its findings were available to PAT 14 in reaching its conclusions.
The reports of PAT3, PAT14 and the Credit Union Taskforce are available
on the Treasury website at
www.hm-treasury.gov.uk.
Non-media printed copies of all reports are available from the Treasury
public enquiry unit on 0171 270 4558.
Media printed copies of the PAT14 and credit union taskforces reports
are available from and media enquiries should be addressed to Charles
Keseru at the Treasury press office on 0171 270 5188. Media
enquiries about PAT3 should be addressed to Malcolm Graves on 0171
270 5192.
If you have access to the Internet, you can find this news release
and other Treasury information at www.hm-treasury.gov.uk.
Copies of speeches, all PAT reports and other material on social exclusion
issues is posted on the Social Exclusion Unit website at www.cabinet-
office.gov.uk/seu/index.htm.
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