Credit Unions and the Cost of Living

Tuesday 18th July 2023 Westminster Hall

16:00

[Dr Rupa Huq (in the Chair)]

I call Hannah Bardell to move the motion. I shall then call the Minister to respond. As this is a 30-minute debate, there is no opportunity for a winding-up speech.

[Hannah Bardell (Livingston) (SNP)]

I beg to move,

That this House has considered credit unions and the cost of living.

It is a pleasure to move the motion, Dr Huq. I am grateful to the Backbench Business Committee for granting this short debate and to the Minister for responding. I am sure that other colleagues will want to make an intervention along the way in this debate on the importance of credit unions during a cost of living crisis.

First off, I declare an interest as someone who saves and borrows with credit unions, including my own in West Lothian—the great West Lothian Credit Union. I start by paying a passionate tribute to West Lothian Credit Union, its chair, Nancy MacGillivray, and her team, who work and fight tirelessly to develop their services and support our local community through that local credit union. I also thank my own team for the work they have done to prepare for today and the work they do every day for our Livingston constituents throughout this cost of living crisis. I am sure all of us here in the House are very conscious of the pressures on our constituents and the work that our teams are doing for us—in particular Marcus, Yvonne and Adam, who have had a close hand in today’s preparations.

Similarly, I pay tribute to my constituency colleague Angela Constance, the Member of the Scottish Parliament for Almond Valley, and her team, who have worked closely and fought for our local credit union over many years. My hon. Friend the Member for Glasgow South West (Chris Stephens) was not able to stay for this debate, but he wanted me to mention the work that Pollok Credit Union does in his constituency and the fact that so much great work is being done by credit unions with affordable food larders and community supermarkets—particularly a programme in his Glasgow South West constituency.

The role that credit unions play in supporting hard-working families across Scotland and the rest of the United Kingdom during this unprecedented cost of living crisis is indisputable. Unlike the high street banks, credit unions are run and owned by their members and distinctly operate under a co-operative principle. While credit unions are a relatively new form of banking in historic terms—they were first established in the UK in the 1960s—their founding principles of mutual co-operation and collective benefit were born of the friendly society movement of the 18th century.

Credit unions even predate the creation of the welfare state. My own grandparents were active members in the co-operative movement in West Lothian and beyond, and its importance in our communities is a long-held tradition. As we become increasingly globalised and vested interests creep further and further into our lives, the role of credit unions and co-operatives is increasingly important and potentially under threat.

The formation of the first credit unions in the UK was inspired by those in Ireland. The first recorded credit union in the UK was formed in 1960, in Derry, Northern Ireland; that union now has over 30,000 members. In Scotland and in other parts of the UK, several credit unions were established by immigrants who came to the UK with very little, but simply wished to tackle the inequalities and the financial hardship of others—what a worthy cause. Over the last 50 years, credit unions have grown to provide loans and savings to more than 1.2 million people across England, Scotland, and Wales. I am incredibly proud of West Lothian Credit Union and in awe of the work that it does in supporting my community. I have seen that first hand, and once again pay tribute. It offers a range of services, from banking to funeral plans. Its services are available to all those who live or work across West Lothian.

As colleagues will know, credit unions are regulated by both the Financial Conduct Authority and the Prudential Regulation Authority. The objectives of all credit unions are simply this: to promote thrift among their members by the accumulation of their savings; to create sources of credit for the benefit of their members at a fair and reasonable rate of interest; the use and control of members’ savings for their mutual benefit; and the training and education of members in the wise use of money and the management of financial affairs.

Those objectives may sound simple, but many of the high street lenders and other financial service providers would do very well if they simply applied the same ethical standards. Not only would they be better viewed by the public, but they would be able to act in the public interest—rather than for private profit, as we so often see. Credit unions work with many employers to set up payroll saving schemes for their employees. Many credit unions operate school credit unions, encouraging a savings habit among young students, as well as giving them life skills in operating a cash collection. My own credit union has done fantastic work in my constituency.

These are fantastic initiatives that help foster better relationships between individuals and their employers. They also help create greater educational awareness about the importance of money for young people. Despite those successes, more employers could be encouraged to participate in payroll schemes for their employees. Similarly, operating school credit unions can be a costly process for which limited funding is available, and I hope the Minister can give some thoughts on that. There is a clear need to provide better support to our children and for financial education to be done not just by banks. It is one of many ways we should be doing more to ensure that every child has the best opportunity in life.

We are already seeing change for credit unions. For instance, the community banking platform Engage has partnered with 10 credit unions to deliver its faster payment service to nearly 100,000 customers. That is a great example of how technology can help, and I note with interest the article shared by Electronic Payments International. Sofia Dogan, CEO of Kingdom Community Bank, based in Glenrothes, highlighted that the cost for its service was less than 50% of the cost that its bank was preparing to charge and that payments could now be sent to members’ accounts in minutes. The Bank of England’s latest report in April shows that the number of adult members of credit unions in the UK has risen to an all-time high of 1.98 million. The starkest increase was in loans to borrowers, which has jumped by a staggering 18.9% to £785 million last year in England alone.

[Amy Callaghan (East Dunbartonshire) (SNP)]

It is worth reflecting on the point my hon. Friend just made. The number of people borrowing with credit unions has increased, and one part of that is that we are seeing such high interest rates from high-street banks and those more typical lenders. Credit unions certainly play a far more vital role during this Tory-induced cost of living crisis.

[Hannah Bardell]

My hon. Friend makes an excellent point—perhaps she has foreseen what I am about to say. It is an important point to highlight because although it is welcome that more people are using credit unions, the root cause is increasingly concerning. The cost of living crisis has placed a huge economic squeeze on hard-working families.

A report from Responsible Finance found that 41% of people borrowed to pay for essential bills and expenses, while 20% borrowed to pay for appliances and white goods. Analysis from Freedom Finance found that credit unions are lending record sums to UK borrowers following the surge in borrowing costs. Again, it is great news that people are getting their money through responsible borrowing from credit unions, but it is concerning that they are having to borrow such high levels just to get by.

Total loans exceeded £2 billion for the first time by the end of 2022—an annual increase of £251 million, or 15% over the course of 2022. Time and again, evidence shows that increases in the cost of living disproportionately impact the poorest in our society. Those individuals are often helped by credit unions, but some fall victim to unscrupulous lending practices, such as high-interest payday loans, simply to meet basic needs. The Freedom Finance credit monitor has revealed that the average household quoted on credit cards rose to its highest level last year since 1998, reaching 22.8% at the end of December. We can all reflect that if things worsen and interest rates go higher, more and more people will be tipped over the edge.

[Stephanie Peacock (Barnsley East) (Lab)]

I congratulate the hon. Member on securing the debate and making such a powerful speech. On that point, the Barnsley Chronicle stated that a report from the local council last week showed that one in five residents in Barnsley have debts that overtake their incomes. Obviously, people are really struggling with the cost of living. Food has gone up by 19%, and we have seen similar increases in gas and electric.

Given that situation—not just the rising cost of living, but the sheer rising level of debt—credit unions obviously play a huge role, but they are not always known about. I pay tribute to a fantastic credit union in my constituency in Wombwell, but residents do not always know they can access that affordable credit. Would the hon. Member join me in encouraging people to raise awareness of the issue?

[Hannah Bardell]

I agree with everything that the hon. Member says. Part of the reason for today’s debate is to raise awareness of credit unions, as well as to recognise the challenges that we and many of our constituents face. An estimated 20 million consumers in the UK are underserved and unable to access credit from high street banks. That is compounded by the number of bank branches that are closing. Everybody across the House has been outraged by the behaviour of some banks, the closing of local branches and the cutting off of so many of our vulnerable and rural communities.

The Scottish Government are committed to ensuring that credit unions continue to be able to carry out their vital role in supporting communities across Scotland. In 2020, the Scottish Government established the credit union resilience loan fund and the third sector resilience fund, which provided grants and loans totalling more than £20 million, made available to be shared with over 100 credit unions across the country. The Scottish Government also actively ran a “People, Not Profit” campaign in 2018, encouraging people to consider joining a credit union—those are examples of what we can do with the limited powers we currently have in Scotland.

In stark contrast, the UK Government have been slow to respond to the cost of living crisis, and many households are desperately struggling. Many low-income households still do not meet the affordability criteria for many lenders. I was struck by the comments of one of my colleagues in Prime Minister’s Questions the other day, when she spoke powerfully about her experience, when her income dropped, of not being able to access funding. That shows the scale of what people face. Respectfully, credit unions will never be able to plug the gap, and the UK Government need to take urgent action to address the cost of living crisis. There is an increasing need for these services, and the Government must recognise that the increased demand for credit unions has also been driven by the closure of banks and post offices, especially in rural areas.

The UK Government urgently need to support credit unions further and look at ways in which they can better support them. In particular, the UK Government should consider funding specific outcomes—for example, promoting financial education classes for schoolchildren more compared with what is already available and supporting individual credit union projects where they have a clear community focus. The Government should continue to fund and expand initiatives that increase access to affordable credit, such as the no-interest loan scheme being led by Fair4All Finance—not an easy one to say—empowering local communities to develop and deliver affordable and responsible finance.

My constituency team and I have seen the tragedy of financial ruin time and again, from our casework to the constituency advice surgeries we hold. I know that much work has been done by many people in this place and, indeed, the Government on irresponsible lending, but it is incumbent on us to ensure that credit unions can not only survive, but thrive. I hope that the Minister will say a few words about how his Government will do that.

Earlier this year, when he was responding in the Chamber about his position, the Minister said:

“There are exactly 650 constituencies; would it not be wonderful if every one of them had a thriving credit union?”—[Official Report, 24 February 2023; Vol. 728, c. 426.]

I completely agree. I hope that Members present and all across this place continue to work towards achieving that goal by providing credit unions with the support they need to better empower our local communities and to help address the many inequalities that our constituents face.

Once again, I pay tribute to Nancy MacGillivray and her team at West Lothian Credit Union for all they do to support our Livingston and West Lothian communities, and I look forward to continuing to support them and the work that they do.

16:13

[The Economic Secretary to the Treasury (Andrew Griffith)]

It is a pleasure to serve under your chairmanship, Dr Huq. I congratulate the hon. Member for Livingston (Hannah Bardell) on a thorough and thoughtful contribution to this subject. She said that one of her objectives was to raise awareness, and she should feel that she has fully achieved that. I also congratulate the West Lothian Credit Union, which I understand will be celebrating a quarter of a century since its establishment this year. All my colleagues in the Treasury and I send our congratulations to that very important institution, which does great work.

As the Economic Secretary, I am committed to supporting the credit union sector. From helping people to set aside savings—the hon. Member talked about the work done with employers as well as in schools to help to promote the savings habit—to probably its most vital role of offering credit at affordable rates, the Government really value the unique role played by credit unions for all their members, and particularly the financial inclusion agenda. The reach of credit unions is significant. There are 385 of them—not quite enough for one for every constituency, but would that not be lovely? I share the hon. Lady’s goal of having more credit unions, seeing those we have being even more successful and wanting to grow the number of users. There are 83 in Scotland, which, in this respect, is punching above its weight. Together, credit unions represent more than 2 million members and have assets of more than £4.5 billion.

The hon. Lady is right that recent cost of living challenges have proven that the trust placed in the credit union sector by their members, the Government and regulators is well deserved. That trust will be vital as people across the country continue to face cost of living pressures and must stretch every pound as far as possible. People’s money needs to work hard for them.

We know that there are global challenges, and we are not alone in facing challenging levels of inflation: in May, core inflation was higher in more than half of the countries in the EU than in the UK. Inflation erodes living standards for households, and particularly for the most vulnerable in society. That is why it is right that the Government continue to make it one of our priorities—this is one of the Prime Minister’s priorities—to halve inflation by the end of the year, and we will not hesitate to do what it takes to achieve that. Access to affordable, inclusive credit, such as that provided by credit unions, can make a real difference.

[Hannah Bardell]

Does the Minister agree that when the chips were down during the financial crisis of 2008, the Government had no choice but to step in and save the banks, but that it is now time for the banks to step up and help people who need to borrow and those who need help?

[Andrew Griffith]

The hon. Lady is right that people need help. Across the House, we all support that. The Chancellor has made it very clear, with the mortgage compact and in the conversations that he and I have had with all of the banking sector, that now is the time to ensure that people have fair products and that, wherever the banks are able to do so, they pass on the benefits of that.

That is one reason why it is important that we have genuine diversity and competition in the sector. Credit unions play such an important role, alongside co-operatives, mutuals and other forms of financial institution, because they are often rooted in place, people or the community. The Government are firmly on the side of credit unions, and I will try to support them. We are taking action to help them wherever there are legislative levers, although they are not the only answer. We amended the Credit Unions Act 1979 through the Financial Services and Markets Act 2023 to allow credit unions across the United Kingdom to offer a wider range of products and services. That allows them to grow, diversify, build their resilience and offer more products to their customers.

We set out Vision 2025, in consultation with stakeholders, to deliver on the sector’s priorities. That includes such things as offering hire purchase agreements, conditional sale agreements and distributing insurance services. The hon. Member for Livingston said that the West Lothian Credit Union offers funeral plans. Many people want to access that sector to give them some peace of mind, so I was genuinely interested to hear that. I will ensure that we seek the right legislative framework for that.

The 2023 Act also makes amendments to support best practice in corporate governance, including a legal requirement for credit unions to submit annual accounts to the Financial Conduct Authority. It gives credit unions permission to temporarily lend to or borrow from each other. That is about designing more financial resilience for a sector that we are on the side of and want to see grow.

The hon. Lady mentioned a number of initiatives. We are providing Fair4All Finance—that little tongue twister—which is an independent not-for-profit organisation, with significant amounts of money from the dormant assets funds. We are piloting no-interest loan schemes—another product that will be delivered hand in hand with credit unions. Credit unions, with their roots in the community and communities of interest, are a very good way of delivering that, and I will continue to work with them. There is about £145 million, in aggregate, from the dormant assets scheme.

The hon. Lady also talked about financial literacy, and a key priority as we go forward is what we can do about the real challenges of that. Wherever possible, it makes sense to work upstream and try to tackle problem debt before people get into it, because it can be a terrible place to be trapped. We are doing a lot of work on that.

Finally, as well as providing credit, credit unions are obliged to focus on financial inclusion. They have a role of advocacy in helping their members to take steps to accumulate savings. Even a small amount of savings can provide the resilience for exactly what the hon. Lady talked about: unexpected bills, white goods that fail, or perhaps the cost of a child’s uniform and a school trip falling in the same month. Even a small amount of savings can help to build financial resilience, and the Government are very supportive of that. We have the Help to Save scheme to try to help those in work and on universal credit to build a savings habit, and obviously the ISA programme is a strong part of that. Again, credit unions distribute cash ISAs as a very simple product that does not get anybody into difficulties with their tax.

I thank and congratulate the hon. Lady and those who contributed to the debate, including the hon. Member for Barnsley East (Stephanie Peacock). Across the House, we can always challenge ourselves to do more on this issue.

[Stephanie Peacock]

The Community First Credit Union in my constituency raised some issues with me about the operation of the eligible loan deduction scheme by the Department for Work and Pensions and some of the work that the Government do with credit unions. I wonder whether I could write to the Minister, because he might be able to look into some of those issues for me.

[Andrew Griffith]

I would be happy to do so. I support anything that removes a point of friction and allows credit unions to do their important work. Regardless of whether it is me or one of my colleagues in the DWP, we will certainly take that forward and do what we can to support the hon. Member.

We value the work of credit unions. In seeking this debate, the hon. Member for Livingston has built a good level of awareness, and there is consensus that we can and should do more. That is the Government’s policy, and we are very keen to engage with the sector. Maybe one day there will be an opportunity to meet or have a call with the wonderful West Lothian Credit Union, and I am certainly happy to do so. The hon. Lady has done a magnificent job of putting the credit union on the Treasury’s radar, and I will be interested in following its continued success over the years.

Question put and agreed to.

16:22

Sitting suspended.