The Financial Secretary to the Treasury (Mr Mark Hoban)
I congratulate the right hon. Member for Greenwich and Woolwich (Mr Raynsford) on securing a debate on this issue, and on the powerful way in which he raised the concerns of his constituents. The hon. Member for Lewisham East (Heidi Alexander) and the right hon. Member for Lewisham, Deptford (Joan Ruddock) echoed those concerns about the closure of the branches by the Nationwide building society. I recognise their concerns about the impact of the closures on south-east London. I raised similar concerns when I met Graham Beale, the chief executive of Nationwide, yesterday.
As I am sure right hon. and hon. Members will know, decisions on the opening and closing of branches and agencies are taken by the management team of each bank or building society on a commercial basis, and the Government do not intervene in those decisions. All banking service providers will need to balance customer interests, market competition and other commercial factors when considering their strategy. So, while the closures that we are discussing are a commercial decision for Nationwide, I would like to respond to right hon. and hon. Members’ concerns by setting out the Government’s commitments to improving customers’ experiences of dealing with financial services institutions more widely.
I also want to tackle the issue of access to financial services, especially among the most vulnerable groups in society. When I looked at the measures of financial exclusion in south-east London, I found that this was clearly a big issue for residents in all three constituencies. I shall set out how the Government are responding to support the financial mutuals and I will end with a few comments about increasing competition in the banking sector.
The coalition is committed to improving access to basic financial services, especially for those vulnerable to exclusion. The Government believe that banks and building societies should serve the economy and we are committed to improving access to banking and the transparency of financial products to consumers. We are therefore working actively to ensure that all consumers can access an appropriate mix of financial services.
We should bear in mind that bank or building society branches are not the only channels for accessing financial services; nor are they necessarily favoured by consumers on low incomes. For many people, the barriers will be significantly greater than simply having no local bank or building society branch to visit. Simply saying, as the right hon. Member for Greenwich and Woolwich did, that we should introduce a community reinvestment Act, as the US did, is not the solution given the differences in financial services between the UK and the US.
It is important to acknowledge the real progress that has been made on tackling financial exclusion in recent years. The most recent figures show that since 2002-03 the number of adults living in households without a transactional bank account has decreased from 3.5 million to just over 1.5 million in 2008-09. The unbanked now represent just 3% of the population. Banks have improved the provision of basic bank accounts for those who need them.
There remain a group of people who are unbanked. A recent review by the Financial Inclusion Taskforce found that the remaining unbanked are generally the poorest and most deprived people, and it recommended a number of minor changes to existing basic bank accounts to make them more accessible and easier for poorer households to use. It also highlighted the scale of the challenge of extending bank accounts to those who currently do not have them. As more people open bank accounts, we see the unbanked becoming concentrated in hard-to-reach, more deprived groups. We must think carefully about how to work closely with those groups to get people to open bank accounts and access the benefits that they bring.
We should not assume that simply because someone does not have a bank account, they have not previously held one. Six out of 10 unbanked people have previously held a bank account, but no longer hold one because it did not work for them: they might have been charged too much or perhaps it did not give them right amount of control over their finances. So we believe it is important to find solutions that go with the grain of how people run their lives. Many unbanked consumers express a preference for managing their finances in cash. They want direct control over their spending and can often feel that having a bank account takes that away from them.
We see an important role for the Post Office in promoting access to financial services. The Post Office has more branches than all of the retail banks put together, and an important part of the future sustainability of the Post Office will be the continued growth of revenue from financial services. The Government are also ambitious for all UK current accounts to be accessible through the post office network, making post offices the convenient place for people to access their cash.
The Government are working with banks, building societies, e-money service providers, bill payment organisations, retailers and post offices to pursue new ways to improve the opportunities for low-income households to make the most of their money. We should recognise that the model of banking is changing and that people are increasingly turning to prepayment cards or e-money as a way of controlling their finances or paying bills online. I believe we should encourage the development of safe and convenient new financial services, using those channels.
Let me now deal with mutuals. They are clearly seen by many people as more accessible to those who cannot, or do not want to, readily access banks. The coalition believes that a strong mutual sector should have the capability greatly to enrich British society. It is in the Government’s interest to do whatever they can to help the mutual sector prosper and grow, and it is in everyone’s interest to achieve that in a sustainable way.
Over the last few months, I have had the opportunity to start a meaningful dialogue with the mutual sector about its ambitions, what services it can offer and how it can overcome hurdles that have been holding it back. We recognise that one of the strengths of mutuals is that they do not have to pay dividends to their shareholders, but they do have an obligation to their members. They have to strike a balance between meeting their wider obligations to the communities in which they are based—the people they serve—and providing returns to their members through higher interest rates on savings or lower costs of borrowing. It is their ability to compete that ensures that they remain viable in the long term. Such considerations are at the heart of every decision made by building societies.
Clearly, there is an appetite for change in the way in which financial services operate, and mutuals stand well placed to respond. To achieve that, the Government are implementing a number of legislative reforms to help to create a more equal playing field in financial services, thus promoting diversity of ownership and a better challenge to the banks. The legislative reform order for industrial and provident societies and credit unions will be relaid before Parliament shortly, and will introduce many basic yet far-reaching reforms that will enable credit unions to modernise and grow and fill some of the gap that banks and building societies have chosen not to fill or been unable to fill. After the LRO comes into force, we will also take forward the implementation of the Co-operative and Community Benefit Societies and Credit Unions Act 2010, which will bring the industrial and provident societies’ name into the 21st century as co-operatives, and modernise the powers available to update the legislation in future.
We are also keen to ensure that we do as much as possible to reduce the costs faced by mutuals, so that they can spend more of their income on meeting the needs of members. We will lay an order shortly to give mutual societies the option to use electronic communications to engage with their members, rather than sending statutory information by hard copy, enabling them to reduce costs and invest more in their businesses.
Credit unions in particular have made great progress in recent years in bringing affordable financial services to people who would not otherwise be able to access them. We are providing additional support to such institutions, outside the regulatory and legislative process. Building on the financial inclusion growth fund, the Department for Work and Pensions will continue to support credit unions for four years through a new modernisation and expansion fund worth up to £73 million. The new fund will seek to extend access to basic, appropriate financial services to many more people on lower incomes, through modernising delivery and customer support systems so that credit unions can become financially sustainable. We also see real opportunities for the post office network in building closer links with credit unions. In future, the Government want to see credit unions—in partnership with the post office—providing more services, more efficiently, to more people, and through the Department for Work and Pensions we are looking at the most feasible ways to make that happen.
On competition, through supporting the development and sustainability of financial mutuals, whether building societies or credit unions, the Government seek to address concerns that there is too little competition in the retail banking sector. Furthermore, the Government have established the Independent Commission on Banking, to make recommendations on both structural and non-structural measures to change the current banking system, and promote stability and competition, to the benefit of both businesses and consumers. That will include looking at the issue of consumer choice and considering measures to reduce market concentration. The commission will publish its interim report next month and a final report in September. The Government look forward to receiving its recommendations and will then decide on the best course of action.
I thank the right hon. Members for Greenwich and Woolwich and for Lewisham, Deptford, and the hon. Member for Lewisham East, for raising this important issue. I recognise the importance of access to financial services in south-east London. Clearly, more work needs to be done to encourage access and ensure the right provision of services to people in their constituencies. I hope they can see that the Government are committed to ensuring that everyone, not just in their constituencies but across the country, can access financial services so that they can play a full role in society.
Question put and agreed to.