The Minister of State, Department for Work and Pensions (Steve Webb)
The fact that this is a well-attended debate notwithstanding the fact that Parliament’s focus has been on other matters today reflects the importance of the issue, and I congratulate the hon. Member for Bridgend (Mrs Moon) on raising it. I pay tribute to the work of the all-party group on credit unions. I see that its chair and vice-chair are here, and, I sense, some of its other members. We as a Department very much support and welcome the work of that group. My noble Friend Lord Freud is closely engaged with it, and he will continue to be so.
The hon. Lady paid tribute to Bridgend Lifesavers, her local credit union. I am happy to add my tribute to the work that it and many other small, medium-sized and large credit unions do in providing affordable credit at a time when there are, as she said, many sources of unaffordable and exploitative credit. I think that we are united across the House in wanting the credit union movement to prosper. That is why the Government have identified a further £38 million for the credit union expansion programme to which she referred and to which I will return in more detail. She asked that the goose that laid the golden egg should not reach a scrambled end, so we will take a gander at the evidence.
The hon. Lady made the important point that the difference between the United Kingdom and other countries is that we have massive potential for expansion of credit unions. As she said, 2% of the adult population of this country are in credit unions, while that figure is 40% in America and 70% in Ireland. I am pleased to say that credit union membership has just broken through the 1 million barrier. That is a significant milestone, and we praise everyone who has been involved in reaching it. The question is how we move on to the next million.
There is a balance to be struck between cherishing the historical traditions and roots of the community credit union, and recognising that the small community credit union will not survive indefinitely without ongoing state subsidy, unless we do something about revenues, costs and awareness, which the hon. Lady also raised. The working group that we set up, which was expertly chaired, identified a number of things that had to happen.
We are asking groups of credit unions to work together as part of this process not so that they lose their individual identity, which is crucial, but so that they benefit from scale in the things that they all have to do, such as their back-office functions, publicity, branding, the automation of decision-making or working on their websites. Notwithstanding the individual characteristics of each credit union, much that credit unions do is common to all of them.
Through the expansion project, we are not trying to help an individual credit union in a local place to expand; we want the entire movement to expand. That is why we want to support significant projects that will be of benefit across the sector. There is no reason why Bridgend Lifesavers or any other credit union should not be part of that, but they have to see themselves as part of a bigger project. We are trying to generate a step change in the scale, efficiency and activity of credit unions.
The hon. Lady is right that there is no shortage of demand, but a big shortage of awareness. She asked about publicity campaigns. I can confirm that we anticipate supporting national marketing campaigns for credit unions. We see a value in branding and marketing via the collaborative process that I have talked about.
The hon. Lady asked about the link with post offices. One of the challenges is that if we want post offices across the country to provide access to credit unions, it will only be viable if there is a common brand. While there will still be Bridgend Lifesavers, there might be a common credit union brand so that there can be standardised stationery in post offices and standardised training for people behind the counters. The Bridgend post office will not deal only with the local credit union. That is how we see the link with post offices working, but we are not at that stage yet. Part of the point of the expansion project is to create the scale and branding that would enable the post office link-up to be more effective than it currently is.
We see great potential for expansion in the credit union movement. To give just one example, when universal credit comes in and payments not just of regular benefit, but of housing benefit, are made direct to claimants, budgeting skills will be critical so that people can manage their money and ensure that it gets through to the landlords. Credit unions in a local area will be well placed to assist people with things such as jam jar accounts to ensure that although the individual sees the money and becomes familiar with it, just as they would with a wage, it gets through to the landlord. I am aware of credit unions that are generating a business from that by saying to social landlords that they will run such accounts when the money is paid direct to the claimant to ensure that the landlords get their money, obviously with the consent of the account holder. Social landlords are willing to pay for that service because it is valuable in guaranteeing their rent. That we are moving the entire working-age housing benefit system over to the universal credit platform offers huge potential for the expansion of credit unions, which I am sure the movement will harness.
The hon. Lady asked specific questions about the feasibility study. The proposition was that, as I have said, £38 million would be required between 2012 and 2015. We are looking for tight project management and discipline to maximise the chances of success. In a sense, it is a payment-by-results model. In the past, when the Department has funded growth funds, they have helped and the money that has gone in has been lent, but there has not been a step change in the infrastructure. That is what we are trying to achieve. We want to keep the values and ethos of the credit unions, but are also keen to see professionalism and efficiency, because the point of all of this is to achieve value for money for the lower-income saver.
The hon. Lady raised the issue of interest rates, which we have considered. It is a sensitive issue. We have the rather strange situation at the moment in which credit unions are the only financial institutions that are regulated for interest rates. That seems anomalous in a sense, considering the interest rates that the same client group routinely pays—we have heard about Wonga week. We therefore believe that there could be a modest change, perhaps from 2% to 3%. It would be a permissive change—if credit unions did not want to make it or did not feel they needed to, they would not have to—but we believe it would be a move in the right direction.
That change is a sensitive and difficult issue and will take a bit of time to make, not least because two separate Departments hold the reins of the legislation. If credit unions are ready for the challenge of modernisation and expansion, we will support them. The Treasury will start the process of the rate cap consultation this autumn, which will lead to the Treasury and the Department for Business, Innovation and Skills making any regulatory change next summer. The credit unions will then need time to prepare for and implement the change, so provisionally we are looking at the following April. That is quite a long time away, and if the process can be speeded up we will certainly be willing to consider it, but we need proper consultation because it is a sensitive issue. However, the hon. Lady said that her credit union supported raising the cap, and we are sympathetic to that and want to make progress as rapidly as we can.
For projects to qualify, we will want them to include automated decision making, which is much more efficient, integrated and centralised services and the provision of new financial products. I mentioned jam jar accounts, but there are many more. We will want partnerships to be developed to expand projects such as payroll deductions. As my hon. Friend the Member for Wells (Tessa Munt) said, credit unions are not just about low-income households, and it will help if we can get a spectrum of people using credit unions and make them more mainstream, I imagine with a bit of cross-subsidy. We also want projects to improve marketing, and in due course there will be the potential for working with post offices. Cumulatively, those approaches will lead to a major uplift in membership and create the delivery capacity required to deal with demand.
As the hon. Member for Bridgend said, the credit union expansion project report was recently published. We have already engaged with the credit union sector this month to inform it of the project’s requirements. Early next month we will advertise the procurement process for the exercise, and we anticipate that it will move fast, with proposals being received perhaps the following month. We want to get on with it. Ideally, we want to have contracts in place by January. Although the interest rate change is perhaps happening a bit slower than she would wish, it is a priority of the Government to get the money through, get the contracts in place and get things moving. We want that to happen by the turn of the year or not long thereafter.
The hon. Lady mentioned some research that she had seen on the scale of the demand for credit unions. The credit union expansion project commissioned its own research, and we were struck by the fact that of the 4,500 people surveyed, three in five said they would use credit union services if such were available. As she and the chair of the all-party credit unions group, my hon. Friend the Member for East Hampshire (Damian Hinds), will know, credit union use is still patchy. There are still places where nobody is aware of a local credit union, and one of the challenges of the project is to improve geographical coverage so that even if someone does not have a local credit union they can access one through, for example, a local post office. We want people to be aware of the credit union brand through national advertising, because credit unions will not get their next 1 million users in good order without breaking out geographically.
On the good that credit unions can do, the evidence that we have shows that 1.4 million people do not currently have a transactional bank account. I was impressed when I met a representative of my local credit union in Bristol. I must admit that before I spoke to her, I was not aware of the range of services that it offered. She described how online access and other things that we take for granted in our regular banking are now becoming far more normal in credit union accounts. We have to get away from the image of credit unions as the poor man’s banks and recognise that low-cost lending by an organisation and people who are familiar is attractive to people, particularly given the current reputation of some of the banks. We need to build on that trust and confidence and expand awareness, and that is what the current project is about.
It is very striking—this is also from our research—that up to 7 million people are using sources of high-cost credit. Even with a higher interest rate of 3% a month rather than 2%, people would save hundreds of pounds by borrowing from credit unions compared with borrowing from Home Credit, and far more compared with borrowing from other institutions.
It was crucial for our research to involve credit unions as well potential consumers. We were encouraged that four in five of those we consulted
“recognised the need for fundamental change in their organisation and that they wanted to offer a wider range of modern financial services to…consumers.”
This is a decision point for the movement. In the past, we have subsidised some credit unions and felt that they did not modernise and move forward when they had that public subsidy. When the public subsidy was withdrawn, a number of them closed or had to merge to avoid closure. We do not want that to happen. Therefore, we are both standing alongside the credit union movement and inviting it to take up the challenge.
The Government believe credit unions have a bright future. I am sure hon. Members on both sides of the House will work together to ensure that it happens.
Question put and agreed to.