Tackling Financial Exclusion (Financial Exclusion Report)

Lord Northbrook Excerpts

Monday 18th December 2017 Lords Chamber

[Lord Northbrook (Con)]

My Lords, I add my thanks to the noble Baroness, Lady Tyler of Enfield, for her excellent and skilful chairing of our committee. I also thank our clerk, Matthew Smith, and committee assistant, James Thomas, together with our policy analysts, Cathryn Auplish and Nathan Lechler, for their sterling assistance. As the committee’s report covers such a wide area, it is sensible in the time available to restrict my detailed comments to two chapters of the report that, having worked in the City, I found particularly interesting; namely those on access to financial services and financial exclusion, credit and borrowing.

Before that, I want to highlight a few successes where, following our report, the Government have taken action. The first, recommendation 1, has seen the appointment of a Minister for Pensions and Financial Inclusion, Guy Opperman, based in the DWP. Recommendation 2 has been also partly implemented,

“that the Government should set out a clear strategy for improving financial inclusion in the UK”.

I welcome the fact that the Government have committed to setting up a new financial inclusion policy forum. This will be chaired by the new Minister for Financial Inclusion and the Economic Secretary to the Treasury and include other Ministers and representatives of financial service regulators. It will meet twice a year.

Recommendation 8 has also been implemented. This recommended that,

“the Government and regulators should work together to develop an approach to promote further innovations in the provision of online and mobile banking services to older people”.

In response, the Government referred to the institution of the FCA’s weekend events, bringing financial services firms and technology firms together to work on and find innovative solutions to these problems.

Recommendation 9 has also been implemented. This recommended that,

“the Government should work with the financial services industry and the FCA to develop and introduce a wider range of ‘control options’ for those customers who may experience mental health problems”.

This has been moved forward by the FCA, which held a weekend seminar in March, in tandem with the Money and Mental Health Policy Institute, to address ways in which fintech could create tools to help people with fluctuating mental health conditions.

A major recommendation, number 19, has been implemented. As other noble Lords have said, we criticised the seven-day waiting period at the start of a universal credit claim. In the November Budget I was glad to see the Chancellor commit to removing the seven-day waiting period. However, I am disappointed that the Government have not implemented recommendation 20, which asked for,

“greater flexibility in the frequency of Universal Credit payments in England and Wales so that … payments can be made twice-monthly, as will be possible in Scotland and Northern Ireland”.

I was first made conscious of the problems with universal credit implementation, having being unaware of them when the legislation went through this House, when our committee visited Toynbee Hall in the East End of London. We met claimants who made all too clear their distress and suffering caused by the delays in payment, and it was a very moving experience.

Overall, like other noble Lords, I feel disappointed about how few of our recommendations have been accepted by the Government, particularly with regard to financial education at primary school stage, bank account charges and the Post Office, the last two of which I shall come on to.

In the rest of my speech, I will focus first on access to financial services, covered in chapter 6 of our report. A major theme of the evidence we received was that many people are financially excluded because they are unable to access the standard banking system. An alarming figure stands out that there are 1.5 million unbanked adults in the UK. A very helpful solution to this could be the basic bank account. Noble Lords may not be aware that banks are obliged to offer this to customers. It is a simplified form of current account, providing direct debit facilities, a debit card, access to cash machines and over-the-counter banking. It is impossible to go overdrawn on a basic bank account and therefore impossible to receive overdraft charges. Hence—surprise, surprise—banks do not publicise them well as they do not make as much money out of them as normal current accounts.

Opening a basic bank account can prove surprisingly difficult. Citizens Advice York highlighted,

“a number of examples which suggested that branch staff were sometimes misinterpreting rules and eligibility criteria for the accounts”.

I can back this up with an example from Hampshire, where I live, where two Hungarian employees wanted to open bank accounts. Despite the fact that they both had national insurance numbers and a P60 each for their wages with their address on it, they were turned down by my bank, Barclays, in Petersfield because they did not have a utility bill in their name for the house where they live. This was not surprising as they are living with us. Another excuse Barclays used was that they had not been living here for three years and did not have a credit history in the UK. Of course, credit history is irrelevant with a basic bank account as overdrafts are not allowed. Finally, Barclays said that because one of the couple could not speak English—the other is quite fluent—she would not be able to fill in the customer satisfaction survey. At that point they gave up with Barclays, went down the road, and finally got a basic bank account with Santander, but even that took two and a half hours to set up.

All of this does not quite square with Barclays’ evidence to the committee. It said:

“The basic bank account is a key component of financial inclusion … Ensuring that all banking participants are party to that … is important; otherwise you have people going into the branch of a bank that they think would be great for them and they are told, ‘Sorry, you’re not someone we want to bank. Can you go down the road and be supported by someone else?’ That is not a good outcome”.


As can be seen from the example I gave, identification remains a key problem. In the banks’ defence, the tension between the need to prevent money laundering and the needs of the financially excluded was highlighted repeatedly by bank witnesses. More creativity needs to be allowed with regard to identification. In paragraph 214 of our report, we say:

“The Committee welcomes and encourages the use of Universal Credit letters as identity verification for bank accounts. We are encouraged by the announcement from the Economic Secretary to the Treasury that banks are to accept these as standard procedure”.


Therefore, I fully support the committee’s recommendation 12 of an annual report, which,

“should contain updates on the rollout of electronic identification for bank accounts—particularly in regard to the success of bringing previously unbanked people into the banking system. The annual report should also provide an update on the level of acceptance by banks of Universal Credit and other non-standard but legally sufficient identity documentation”.

Another very important section of this chapter sets out a greater role for the Post Office. Our recommendation, which I believe is important, was that,

“the Government work proactively with the Post Office and banks to fund and launch an extensive public information campaign on the banking services that are available through Post Office branches. The Government—as sole shareholder in Post Office Ltd—should also ensure that the Post Office provides adequate training for staff at branches within retail outlets, so that they can carry out banking services for customers with confidence and competence”.

In the chapter on financial exclusion, credit and borrowing, four parts of the sector were considered by our inquiry: unarranged current account overdrafts; high-cost short-term credit, which includes payday loans and short-term high street loans; home credit, which involves providing relatively small short-term loans to consumers on lower-than-average incomes; and, finally, rent to own, where a company sells consumer goods and provides the credit products that enable people to buy them.

First, on unarranged overdrafts, we recommended that,

“regulations to limit and manage the negative impact of unarranged overdraft charges should be introduced. The potential for such regulations should be assessed as part of the ongoing FCA review into high-cost credit”.

The Government’s response—to refer the matter to the FCA—is only partially satisfactory. Action needs to be taken now. A bank charge of £30 a time for going into overdraft is far too high, as for someone on the minimum wage it takes four hours to earn back the money.

The next two parts, we broadly concluded, have been more successfully controlled through recent FCA regulation. It is the final part, the rent-to-buy sector, where further controls are necessary. As other noble Lords have said, the store chain BrightHouse is one of the major culprits in this regard. According to a Guardian article of August 2017, it was charging customers up to £1,560 for a washing machine when exactly the same model could be bought elsewhere for £599. BrightHouse is the dominant player in the sector, together with PerfectHome and the online retailer, Buy As You View. Our recommendation 16 states:

“We recommend that the Government provide all necessary assistance, includinglegislation where needed, to further combat financial exclusion caused or exacerbated by high-cost credit … Regulations should be put in place in other parts of the high-cost credit sector, particularly the rent-to-own sector”.


I am sure this recommendation helped encourage the FCA when in October this year it ordered BrightHouse to repay nearly £15 million to 249,000 customers, stating that it had not behaved as a responsible lender. This is after Buy As You View went into liquidation in September, after repaying nearly £1 million to 59,000 customers who had been unfairly treated. Recent results from PerfectHome show the company making a major loss. Clearly, the sector is not having things its own way so much any more, but regulation is still needed.

Overall, I am pleased that the Government have accepted some of our recommendations—but not enough. Their response to our report, considering it came out in March, has been far too slow. We need to keep pressure up on the FCA in particular to provide further active responses to our report.