Small Businesses: Access to Banking

Lord Bishop of St Albans Excerpts

Thursday 1st May 2025 Grand Committee

[The Lord Bishop of St Albans]

My Lords, I thank the noble Lord, Lord Sharkey, not only for securing this debate but for an interesting and informative introduction setting out a number of important matters. I declare my interests: until two weeks ago, I was president of the Rural Coalition, which is relevant to this speech; I am also a vice-president of the Local Government Association.

I will focus my remarks specifically on the challenges for small businesses in rural areas. They hold significant potential for economic growth and are critical for our economy, but they face distinct challenges around access to banking and financial services compared to urban areas. There are over 500,000 businesses registered in rural areas, and the rural economy employs around 3.8 million people, so it is important that this economy and the small businesses that make up part of it have access to the services that they need to thrive and to contribute to the Government’s growth mission.

Some Members of your Lordships’ Committee may recall that I have, in the past, referred to the Rural Coalition’s report entitled Reigniting Rural Futures. It highlights the underperformance of the rural economy. Although the rural economy already contributes over £315 billion a year to England, with the proper investment and policy framework it could be contributing an additional tax revenue for the Exchequer of at least £19 billion. I do not know whether the Minister is aware of this report—if not, I would be glad to give him a copy or a link to it—but I would be very interested to see whether he and his officials have made any assessment of it, as I believe it is a really important contribution to this debate.

The pandemic accelerated the movement away from cash. With the banking industry keen to reduce operating costs, the way that many start-up businesses and small charities use banking services no longer fits with the business drivers of today’s banking industry. The transition to online banking is happening very fast and, in some cases, too fast for small charities and businesses in rural areas, with little thought or support to aid that transition.

Many are now operating in areas where local bank branches have disappeared. The withdrawal of banks and large financial services from rural communities is worrying but also damaging for the rural economy. Post offices play an important role in offering these services where local bank branches have closed. Recent research from Citizens Advice showed that those in rural areas are more dependent on post offices for essential banking services than those who live and operate in urban areas are, yet many local post offices have also been closing in rural communities.

The closure of bank branches and the transition to online banking hit small rural businesses particularly hard. On the one hand, this is because of the digital divide, where a lack of reliable and fast broadband inhibits easy access to online services; on the other hand, it is because, for many small business owners, access to face-to-face, in-person financial advice is crucial to giving them the confidence they need to start or expand their businesses. Many business owners are forced to travel longer distances to deposit cash and to carry out their banking, leading to reduced opening hours. For people who run small businesses in rural areas, having to drive five, 10 or, in some cases, 20 miles to another town as there is no other branch represents a hugely disproportionate burden.

I welcome His Majesty’s Government’s commitment to rolling out 350 banking hubs by the end of this Parliament. They are a great solution to some of these problems. However, 350 hubs are not nearly enough to replace the services that have already been lost. Also, the rollout is extremely slow, with it taking around 12 months to open a new hub. On top of that, the criteria by which Link qualifies an area as needing a hub are relatively strict, meaning that many small rural areas do not qualify despite their desperate need for access to banking services.

Of course, for some of those small villages and towns that do not qualify for a banking hub, post offices can—and, in some cases, do—offer a viable solution as a place where SMEs can carry out their basic banking. Can the Minister provide an assurance that this will be taken into account in the Government’s upcoming Green Paper on Post Office reform? Will they continue to mandate geographical access to post offices, including those in rural areas where they are often an absolute lifeline for businesses and communities?

Finally, I want to touch on the rural England prosperity fund. I welcome His Majesty’s Government’s announcement of £33 million for 2025-26, as well as the additional £5 million that will go towards the rural community assets fund. Yet, from 2023 to 2025, the rural England prosperity fund was £110 million. So it is no use pretending that this is not, in fact, a substantial cut in annual funding. We urgently need targeted investment, services and support for entrepreneurs and businesses in rural areas so that the rural economy can play its part in this country’s growth mission. There is a great deal of untapped potential here, but we need to remove the additional barriers and challenges that our rural SMEs are facing. I urge His Majesty’s Government once more to ensure that our rural communities are not neglected and left behind.