Baroness Tyler of Enfield
Main Page: Baroness Tyler of Enfield (Liberal Democrat - Life peer)Financial Exclusion (Liaison Committee Report)
Baroness Tyler of Enfield Excerpts
Baroness Tyler of Enfield
That the Grand Committee takes note of the Report from the Liaison Committee Tackling Financial Exclusion: A country that works for everyone?: Follow-up report (10th Report, Session 2019–21, HL Paper 267).
Baroness Tyler of Enfield (LD)
My Lords, I am delighted to open this very timely debate on the Liaison Committee’s follow-up report on financial exclusion. Perhaps I should explain the use of the word “timely”. I am referring not to the fact that it is now over a year since the publication of that report and 11 months since the Government’s response, but rather to the extreme salience of financial inclusion and exclusion, given the unprecedented cost of living crisis which is affecting so many people so acutely. First, I declare my interests in the register, particular as a member of the Financial Inclusion Commission and as president of the Money Advice Trust.
Turning briefly to the history of the report, I reflect that it has had a long gestation period. The original Select Committee, which I had the honour to chair, reported in March 2017, with 22 wide-ranging recommendations calling on the Government, the Financial Conduct Authority and the banks to give much greater priority to tackling financial exclusion and ensuring that vulnerable customers were getting a fairer deal. When we debated the report alongside the Government’s response, in December 2017, I well recall expressing my disappointment with what I felt was a somewhat lacklustre and dispiriting response, particularly the rather dismal tally of recommendations that had been accepted. As we debate today the Liaison Committee’s follow-up report, published in June last year, and the Government’s response, I have to confess to a rather similar feeling.
I thank all the members of the original Select Committee and am absolutely delighted that the noble Lords, Lord Shinkwin and Lord Holmes, with all their commitment and expertise in this area, are both speaking today. I thank the Liaison Committee for conducting a follow-up inquiry. I think these follow-up inquiries are an excellent innovation, helping to ensure transparency and hold the Government to account on their response to Select Committee reports. Finally, I thank the excellent committee staff who assisted both the original Select Committee and with the follow-up report. I must particularly thank Lucy Molloy for her outstanding support.
The follow-up report contained 19 recommendations, covering such critical issues as access to cash, digital inclusion, basic bank accounts, bank branch and ATM closures, the role of the Post Office, control options, affordable credit, the Help to Save scheme, financial education, government leadership and the need for proactive regulation, and more besides. This demonstrates how multifaceted any serious attempt to tackle financial inclusion needs to be and why a strategic and co-ordinated approach among all the key players is vital. I will be able to focus on only a small number of these issues today, but before doing so I wish to reflect on the current state of financial inclusion in the UK.
I begin by acknowledging that there have been some positive steps, most particularly the inclusion in the Queen’s Speech of legislation to safeguard access to cash—albeit two years after it was first announced in the 2020 Budget. I strongly welcome this as a means of ensuring that the 5.4 million adults in the UK who rely on cash are financially included. Three years ago, the Access to Cash Review warned that Britain was
“sleepwalking into a cashless society.”
This has been exacerbated by Covid. As recent research from the RSA has shown, some 10 million people would struggle to cope in a cashless society and 48% of the population would find it problematic if there was no cash available.
I also recognise and welcome the steps the Government are taking, including the recent consultation, to bring “buy now, pay later” products within the scope of FCA regulation—a good example of the need for more proactive regulation. However, there was no specific mention of it in the Queen’s Speech and I would be grateful if the Minister could say exactly when the “buy now, pay later” regulation is expected to come into force.
With so many bank branches and ATMs closing, it is vital that other facilities—such as enhanced Post Office services or new shared banking services or hubs, based on the existing pilots—come on stream. The recent levelling up White Paper mentions bank closures in both rural and urban areas but contains no specific policy measures to address them, hence my disappointment that our recommendation that the Government formally review the powers available to the FCA to mitigate the negative effect of the closure of bank branches and free ATMs was rejected.
More government action is urgently needed to ensure that the rapid expansion of alternatives for people wishing to use face-to-face services, including community banking hubs and Post Office services, are available within a reasonable distance, taking account of public transport and accessibility needs. Indeed, I still have the words to the committee of the money advice expert Martin Lewis ringing in my ears:
“To answer your question whether it is socially responsible for banks to be closing branches in the middle of this, I never attribute social responsibility to banks; that it is something that banks need to do. They are there to make money for their shareholders. Surely, it is for regulators and politicians to make sure that, if we need them to keep the bank branches open, they do so.”
While we must protect access to cash, we also need effective action to support cash users who can do so to make the move to digital payments; this needs focused and co-ordinated work on digital inclusion, and I ask the Minister to set out what the Government are doing in that area.
Since our follow-up report in 2021, which reflected the massive impact that the pandemic had had on people’s financial resilience, the soaring costs of living, with prices now rising by 9% a year, have placed yet more pressure on the most financially vulnerable. Indeed, when we made our recommendations last year, the evidence suggested that 27 million adults in the UK—more than half the adult population—were financially vulnerable. It is clear that this has become more dire for millions of people across the country, with many now unable to afford basic food and heating.
Research from the Money Advice Trust shows that some people are already having to go without in order to try to get by financially. Specifically, the research shows that, in the past three months, 12% of UK adults —equivalent to 6.2 million people—had gone without heating, electricity or water due to the rising cost of living, 8% had gone without food, and 25% had used credit to pay for food or bills because they had no other way to pay for them. Given that some price rises have only just come in, and with the strong likelihood of worse to come, particularly with energy prices rising again in October, there is great concern that more people will fall into debt, particularly on household bills, or end up going without essentials.
Equally worrying is the poverty premium, which means that poor people still pay more for essential goods and services compared to those on higher incomes. The poverty premium costs the average low-income household £490 a year, meaning that low-income and vulnerable consumers still struggle to afford, have to pay extra for or are unable to access appropriate products and services such as utilities, insurance and credit.
The energy poverty premium is particularly acute. Research commissioned by Fair By Design found that being on the best energy prepayment meter tariff could still be £131 more expensive than the best online-only fixed tariff. This must end. For households living below or around the poverty line, it has been estimated that the elimination of the poverty premium could potentially release an extra £4 billion per year into the local communities and economies that need it the most. So I ask the Minister to explain what immediate action the Government are taking to help to alleviate the poverty premium.
I want to focus on the case set out clearly in chapter 3 of the report for more proactive leadership and regulation by the Government and the FCA. I am particularly disappointed that our recommendation for a statutory duty for financial inclusion for the FCA was not given more consideration. The financial services Bill that was announced in the Queen’s Speech is a once-in-a-generation opportunity to redesign financial services regulation to ensure that the regulator and the industry better serve the needs of customers. I strongly believe that this can be achieved only by giving the FCA a “must have regard” duty to financial inclusion, to ensure that it is both prioritised and enforced within the financial services sector.
I recognise that there are different views and different ideological approaches here, but I still have the words of so many of the eminent witnesses to the follow-up inquiry ringing in my ears. With the exception of Ministers, they were adamant that clear FCA objectives and a duty of care to customers were required to bridge the gap between the commercial interests of the financial services providers and the societal needs to achieve financial inclusion. As Natalie Ceeney, who chaired the Access to Cash Review, told the committee:
“the fundamental issue [is that] there are market segments that commercial models will never address. They are never going to be commercially viable to support the most vulnerable and the poorest.”
The sometimes glaring gap between social policy and regulatory policy—with the Government and the FCA pointing the finger at the other as being responsible for action—lies at the heart of many of our recommendations.
The new consumer duty, currently being consulted on by the FCA, as well as its consumer vulnerability guidance, will not address this as it deals with the experience of consumers who currently do have access to financial products and services, rather than the accessibility of those products for those currently totally excluded. The only way to ensure that low-income or vulnerable consumers can access essential products and services is to give the FCA a clear remit on financial inclusion.
Many of our witnesses lamented the lack of an overall financial inclusion strategy. While the deliberations of the Financial Inclusion Policy Forum clearly continue to be helpful, and the national financial well-being strategy produced by the Money and Pensions Service is welcome, our expert witnesses felt that they were no substitute for a strategy that could galvanise financial inclusion efforts at a national level, bring together the various strands of work across all sectors and monitor implementation. I agree.
I still strongly maintain that if such a strategy were presented to Parliament annually as a Command document, as we originally recommended, it would allow for proper scrutiny and parliamentary debate. Of course, the Government now produce an annual financial inclusion report, including, for the first time, forward plans and activities. I looked at the most recent report, published on 21 December 2021, and saw that the forward plans section comprised four whole paragraphs covering just over one side of paper. That is not a strategy.
To conclude, despite my disappointment at the lack of progress in key areas since we reported, I firmly believe that this is an issue whose time has come. I look forward to hearing the expert contributions of other noble Lords and the Government’s response. I beg to move.
Baroness Tyler of Enfield (LD)
My Lords, this has been an absolutely excellent debate. I thank all noble Lords who have contributed and the Minister for his response. I know that time is extremely tight so I will really say only two things.
First, I very much agree with the noble Lord, Lord Shinkwin, that the recommendations made in the original 2017 report, and reiterated in the Liaison Committee report, are even more important today than they were then given the context in which we are operating. Many noble Lords have given excellent ideas and suggestions, which I really hope will be pursued. I agreed with most things that most of them said—not quite all, but I do not have time to go into that. I totally take the point that the problem for many people at the moment is simply not having enough money, a point acknowledged in the Select Committee report.
Secondly, like other noble Lords, I very much hope that we see very soon from the Government a package of support, particularly on increases to benefit and state pensions to help people who are struggling so much at the moment. Perhaps the Minister could convey my request to the two designated Ministers for Financial Inclusion, John Glen and Guy Opperman, to consider meeting me and other former members of the Select Committee so that we can see what more can be done in this area.