Below is the text of the speech made by Ivan Lewis, the then Economic Secretary to the Treasury, at the BSA Financial Services Conference on 15 September 2005.
1. Let me first thank the Building Societies Association for inviting me to say a few words this morning.
2. As the trade association for our country’s building societies your voice is always worth hearing – and I am honoured to speak with you all today.
3. It’s certainly a pleasure to be able to stand before you, and say with confidence that the macroeconomic framework we delivered has allowed unprecedented and stable economic growth – with low unemployment and sustained low inflation.
4. We have before us today an environment that benefits long-term planning – that promotes social justice in general, and reduces the need for short-term precautionary saving in particular.
5. And with household sector net wealth up by around 50% in real terms since 1997 – now worth over £6 trillion – this is an approach that has clearly worked well.
Importance of the Sector
6. And if we take the financial services industry on its own – if we take building societies alone – the UK clearly stands out, both in terms of quality and with the diversity of products on offer.
7. With 63 building societies and total assets of around £250 billion, you are a major part of our financial services industry.
8. Not only that, but around 15 million adults have building society saving accounts – and over two and a half million adults are currently buying their own homes with the help of building society loans.
9. So as mutual institutions, you occupy a niche that is clearly important to Britain’s modern, economic well being.
10. And perhaps you’d expect me – a Labour minister – to also appreciate a one member, one vote system – regardless of how much money each person has invested or borrowed or the number of accounts they may have. You’d be right.
Asset Based Welfare
11. But let me say – it’s partly because of your position in the industry – and the nature of your work – that I want to spell out a few of the things we’re doing at the moment. Specifically, I want to talk about Asset Based Welfare – and the direction of travel in the months and years to come.
12. Asset based welfare is vital to Britain’s long term success – to our continued realisation of social justice and economic progress in the 21st century. We are a wealthy country, and we are in many ways very fortunate. But there are significant elements in our society – too many people – who still do not benefit.
13. That’s why addressing the needs of those people – dealing with financial exclusion, increasing financial capacity, giving kids a real financial future – is important. And it’s why we emphasise asset based welfare as one solution.
14. The aim of an asset based approach is to extend the benefits of holding assets. That means, for example, owning a house or having a stock of savings for those who currently do not hold such assets.
15. And the so-called “asset effect” says that there are benefits for individuals in holding an asset which go beyond its basic monetary value.
16. These benefits are both psychological and attitudinal, and it is this philosophy that led to the introduction of the Child Trust Fund and Saving Gateway pilot savings scheme that I’ll come onto later.
17. So let me start by being blunt on these issues – let me start with financial inclusion.
18. We are absolutely committed to tackling financial exclusion – and we’ve made some good progress since the 1999 Policy Action Team Report.
19. Many of those recommendations on basic banking, credit unions and insurance with rent are now in place.
20. But financial exclusion is a scar on our body financial. It is a an issue that can never be ignored or pushed down the collective list of priorities.
21. Why? Well, in 2002/03 there were 2.8 million adults in households without a bank account of any kind.
22. What’s worse – what really paints the picture – is that over two thirds of these people were in the lowest income deciles.
23. I know you’re some of the best placed people in the industry to appreciate this. You know that households which operate solely on a cash budget are unable to make savings via direct debits on utility bills.
24. They’re more vulnerable to loss or theft and they are far more likely to use the alternative credit market – and pay interest many times that of a standard personal loan.
25. And I know you realise that can be the start of a spiralling debt cycle. That for those who do get into debt or who struggle to make payments, the supply of free face-to-face money advice can still fall far short of demand.
Financial Action Now
26. That’s why we’ve taken action. We set out some months back the next steps in tackling financial exclusion in three priority areas – access to banking, access to affordable credit and access to free face-to-face money advice.
27. And we’ve established a framework for delivery – including a Financial Inclusion Fund of £120 million over three years and a Financial Inclusion Taskforce, chaired by Brian Pomeroy to oversee progress.
28. What’s good is that both industry and government share the aim of reducing financial exclusion.
29. We’ve agreed to work together towards the goal of halving the number of adults in households without a bank account, and of having made significant progress in that direction within two years.
30. And to improve access to credit, we’re working towards a scheme where – in certain circumstances – private and third sector lenders can apply for repayment to be made by deduction from benefit, particularly where normal repayments arrangements have broken down.
31. £10 million of the Financial Inclusion Fund has been allocated this year for the development of this scheme. A Growth Fund will also be set up from within the Financial Inclusion Fund to promote the coverage and capacity of third sector lenders in providing affordable loans.
32. But we also want to see a significant increase in the capacity of free face-to-face money advice. The DTI are administering £45 million of the Financial Inclusion Fund to support that end.
33. So a further £6 million will be used to pilot methods of debt advice outreach for those who do not present themselves to debt advisers.
34. But in many ways, this is a two-step. On the one hand, exclusion remains a major challenge – and this is the first big task.
35. On the other hand, we must be relentless in our pursuit of better capability – ensuring that our people have the skills and understanding of finance to properly deal with financial products. That is our second big task – and one that we have to tackle at the same time.
36. I doubt anyone in this room would not want better informed, better educated, more confident citizens. People able to take greater responsibility for their financial affairs and play a more active role in the market for financial services.
37. That’s why this second step – building up financial capability – is about providing consumers with the education, information and generic advice needed to make their financial decisions with confidence.
38. Many consumers are still far from confident in the decisions they make about their financial circumstances and future – something picked up on with the Sandler Review.
39. So those efforts to improve levels of financial capability are a key element of our wider commitment to tackle the cause and effect of social exclusion – and to do so while promoting the holding of assets and savings.
Saving & Assets
40. Doing that – ensuring people have assets and savings – is key to success. Its important for the building societies and banks, but it’s also important for us as a society.
41. After all, assets and savings provide both opportunity and independence throughout life. They give flexibility to adjust to unforeseen events and financial security in retirement.
42. So gaining access to even modest savings can help provide both security and insulation from adverse shocks.
43. And to reflect this, our strategy is both universal and progressive. We want to make asset ownership accessible to all – and we have acted to achieve that by targeting support for those who need it most.
44. For example, by giving over £2 billion in tax relief every year, through changes to benefit rules, better regulation, financial education and direct public spending.
Child Trust Fund
45. Key to making this work is engaging the younger generations – our kids now, and in the future. That’s why products like the Child Trust Fund are so important.
46. As a groundbreaking initiative designed to strengthen the saving habit of future generations – it will ensure that at age 18, and for the first time in our history, every child will have access to a financial asset.
47. And as of the 20th August, just over 889,000 accounts had been opened.
48. What’s more, there are now over 110 official providers and distributors, many more than announced at the launch in January.
49. This includes a wide range of institutions from across the financial services industry – from friendly societies to some of the largest institutions across the UK. And the list grows.
50. We’re even now consulting on making a further payment into Child Trust Fund accounts at secondary school age – so I hope you all see how seriously we continue to take asset based welfare.
51. So this Fund is a vital element in our savings strategy, which aims to ensure a range of savings products is available to suit people at all stages of their lives.
52. What’s more, it will build on real financial education with a savings and investment account for children to engage with. It will help boost their confidence as they use the account and deal with financial providers.
53. More widely, though, one of the recent findings that certainly made us sit up and take notice was from the 2002 Sandler Review.
54. Amongst other things, Ron Sandler highlighted that:
“the industry suffered from complexity and opacity, from problems of access for those on low to medium incomes, and from the inability of consumers to drive the market effectively.”
55. And that’s why initiatives like stakeholder pensions are so crucial. With sales of just over 2.5 million stakeholder pensions since their launch, they have become an established and accepted product – and an easily understood one at that.
56. Stakeholder is clearly a core component of our wider assets and savings strategy, offering people four simple, low cost, risk-controlled savings and investment products.
57. And what’s more, they’ve had a visible impact on promoting asset based welfare – especially as stakeholders are now being bought by moderate earners, with two-thirds now held by people earning less than £20,000 a year.
58. I even announced on Monday at the launch of the Stakeholder awareness campaign that indications are over half of all Child Trust Fund accounts opened so far are Stakeholder accounts.
59. And I certainly know that building societies lead the field with provision of cash Child Trust Fund accounts – and as with all providers, that you also offer Stakeholder accounts.
60. So I hope you’ll agree that this is very encouraging news for achieving the best returns for our nation’s children – and for the future of the stakeholder range itself.
61. So let there be no doubt – asset based welfare is here and it’s here to stay. As long as there are exclusion and capability issues to address, this government will continue to examine ways to improve support.
62. From the Child Trust Fund through to better face to face help. From the savings gateways – which I haven’t gone into today, but which are another key plank – through to stakeholder products.
63. This is how a decent society can achieve maximum impact on the challenges of 21st century living.
64. It is how an effective government and a responsive industry can work together to ensure sustainable economic success and social justice is achieved and future generations are better off than those of today and yesterday.
65. Thank you all.