Credit Unions

Baroness McDonagh Excerpts

Thursday 13th December 2012 Lords Chamber

[Baroness McDonagh]

My Lords, I thank my noble friend Lord Kennedy for bringing about this debate. I also thank him for all the support and advocacy that he gives to the credit union movement. I declare an interest as a member of the Merton & Sutton Credit Union. This debate is so timely. In the last year alone we have seen the average family’s indebtedness increase by 50% in unsecured loans—credit cards, overdrafts and so on. We have seen people retiring £5,000 more in debt. Yet we are spending millions of pounds on financial capability and debt advice, which in itself does nothing if people have nowhere to go. We know that those on low incomes pay the most for everything: for fuel, food, energy bills and housing, and they have the least access to financial services. If they go to a cash withdrawal machine near where they live, they have to pay a fee—often £1.50 for getting out £10.

We also know that those living on the breadline in our country are most likely to be in employment, working very hard and are most likely to have children. Let us think of the individual who may not have access to credit or whose credit may be maxed out. Think of them needing their car for their work. What happens if that car needs fixing? If today they go to a payday company like Wonga and borrow £300, within four weeks they have to pay back that £300, plus £50 interest. We know that this is not possible and they cannot afford to pay £350 within four weeks, so what happens is that they borrow more and get further into debt, often leading to unemployment—a thing they had tried to avoid. However there are alternatives in credit unions. If that same person were a member of a credit union and went today to borrow that same £300, they would be entitled to pay it back over six months and would be charged £20 interest.

The Minister does not need a long litany of stats and facts from me. He will understand all too well these problems and know that every day people have to grapple with indebtedness and everything that it brings: the misery, stress, ill-health, unemployment, poor outcomes for children, homelessness and the overall cost to our society. Instead, I will make some practical suggestions of the sorts of things we might do. First is to encourage employers to bring credit unions into their organisations and organise check-off, so that people can make small regular payments. My second suggestion is to understand the nature of government as one of the biggest employers in this country. Credit unions and check-off should be made known and available to all civil servants. Half of civil servants work in administrative grades. Women earn on average £17,000 a year and men £17,500. They would really benefit from check-off and access to a credit union. The Civil Service also has the beauty of grades where people earn more money and are able to save.

Furthermore, will the Minister support the initiative by my noble friend Lord Kennedy in persuading the authorities at the Houses of Parliament to set up a credit union here at Westminster—which is due to happen soon—and to encourage staff here to save with this credit union by check-off? Will he also extend that facility to Members of this House and of the other place? The noble Lord, Lord Cormack, extended praise to Christian Socialists and to Disraeli for understanding these problems and issues. I would broaden this praise out to all parties, by reminding ourselves of the lesson that Beveridge taught us: that a service for the poor will always be a poor service. It is really important that we ourselves join and understand credit unions. With that experience we can take this knowledge into all the organisations that we work in. We all have an individual as well as a broader responsibility for them.

Lastly, it is fantastic that the Government have made money available for credit unions to bid for, but as a preference I ask them to support all sustainable bids, which brings about greater access to the credit unions, whether it be through the post office system or the internet. I am not for a moment suggesting that any of these recommendations are a panacea or a magic wand. If you are on a low income, raising a family and working hard, it is really tough in today’s environment, but these things will make credit easier to access at reasonable amounts of interest. I thank the Minister for thinking about these suggestions and I would like to thank my noble friend Lord Kennedy again for bringing about this debate.