HISTORIC PRESS RELEASE : Initiatives to tackle financial exclusion [November 1999]

The press release issued by HM Treasury on 16 November 1999.

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.”