Lord Sikka
Main Page: Lord Sikka (Labour - Life peer)Financial Exclusion (Liaison Committee Report)
Lord Sikka Excerpts
Lord Sikka (Lab)
My Lords, I thank the Liaison Committee and all its members for the excellent report. It is a pleasure to follow the noble Lord, Lord Balfe, in this debate. I should just tell him that I applied for a credit card not so long ago. I put down that I am a retired pensioner and put in only my state pension amount. Very soon, a sign appeared saying that I was not eligible for a credit card, which was just a reminder to say, “You’re too old, you’re too poor, go away”. It is a form of financial exclusion encountered by many people every day.
A major cause of financial exclusion and any social exclusion is poverty, which is increasing but the Government are doing little to tackle it. Trickle-down economics does not work: the rich keep getting richer while normal people struggle to make ends meet. The Government’s tax policies are regressive, employment laws are not enforced—as clearly shown by the P&O Ferries case—workers’ share of GDP continues to decline, pensions are inadequate, benefits lag behind inflation and redistribution is not a government priority. Is it any surprise that we have financial exclusion, which is really the tip of an exclusionary iceberg?
Financial services have increasingly moved from brick and mortar buildings and humans to cyberspace. According to Ofcom, some 1.5 million people do not have access to the internet. Broadband is expensive and paying £30 to £40 a month is beyond the reach of many, especially now that they are facing a cost of living crisis. Even if people manage to buy a computer, the rate of obsolescence is increasing as operating systems rapidly change. It is hard to see how many of the poor can continue to replace their computers every four or five years.
Might the Government consider adopting the Labour policy of giving free broadband to everybody? I remember during Covid going to a supermarket and seeing some young schoolchildren outside, huddled around a tablet. I asked them what they were doing; they did not have broadband at home and this was the only way they could catch a signal. It was bitingly cold, but there they were. Maybe the Government should provide free iPads to the needy as well as free broadband, which is essential.
I will confine the rest of my comments to banks, which are a vital part of our social infrastructure. The branch network plays a major role in the provision of savings, borrowings, financial services and finance for businesses, SMEs and local entrepreneurs. However, the bank branch network has been shrinking at an accelerating rate. Many villages and districts no longer have a bank branch, and post offices are closing too. People are left without financial services. The closure of local branches is a major reason why some traders—as they told me for a research project I did—demand payment by credit or debit card. They do not want to hang on to cash overnight as it is simply not secure; in the absence of a bank branch, they do not want any cash, which means a lot of poor people cannot afford to buy their goods and services.
Why are we witnessing this disappearance of bank branches? There are many reasons, one of which is mergers and consolidations. Lloyds TSB, HBOS and Halifax combined to form Lloyds Banking Group; inevitably, many branches vanished as they were not going to compete against each other. Santander acquired Abbey National, Alliance & Leicester and Bradford & Bingley; once again, lots of branches had to close.
The merger and takeover policy has been informed primarily by the need to compete at the global level, rather than ending financial exclusion. The social consequences of those mergers do not appear to be considered at all. Banking executives have sought to increase the size of banks to justify their mega pay packets. Maintaining an effective and efficient branch network is not part of any of their performance-related pay algorithm—it does not come into it at all. The bank websites continue to tell us that they are socially responsible, but that does not come into it either. A programme of bank branch closures has been pursued to cut costs and increase profits, rather than do what is good for the community. SMEs are left without good financial and banking advice; bank managers, because there are no bank branches, have absolutely no idea what is happening in the local community—where they could invest better, or what kind of diamonds or winners they can pick.
Under FiSMA, the FCA is required to
“promote effective competition in the interests of consumers”.
The FCA website says that one of its duties is to
“make markets work well—for individuals, for business, large and small, and for the economy as a whole.”
It is hard to see how any of these duties are met by unrestrained bank branch closures. Branch closures result in exclusion. Many citizens, especially the elderly and low-income groups, do not have access to a good broadband connection or a computer. Some people are told to go to libraries—so I went to look at the libraries, where many of the computers appeared to be steam-powered, incredibly slow and utterly unsafe. Nobody should really be accessing their financial services and banking from the library computers—and about 20% of libraries have vanished since 2010. We had a banking crash, and what did the Government do? Did they punish the bankers? No, they shut libraries everywhere. I do not know what the link is, but that was their solution. So again we have a problem.
Those who have mobile phones may not have access to strong wi-fi signals. Trekking to another town is not an easy option for the elderly, infirm, women with small children and local entrepreneurs. People have said that they could not afford to go to another town, or that they are a one-man operation and it basically means that they have to shut down their business for an afternoon; they are really stuck. Branch closures are actually transferring costs from banks to people, in the form of transport, time, pollution, road congestion, search and cyber risks, and many more. It is not a costless thing for banks to do; all they are doing is to shuffle costs.
ATMs can dispense cash, but they are dependent on the vagaries of the banks’ IT systems. How many times have we read that those systems have failed? They also need to be replenished, and they always offer a very limited amount of cash. Again, that hinders many who are less well off. Even worse, I visited for this research project many poorer areas, and what did I find? Every ATM was charging a fee for withdrawal of cash, which is punishing people for poverty.
SME lending growth is restricted on average by 63% in areas where a bank branch closes, and where the last bank in town is closed the reduction in lending to banks was about 104%—a massive reduction. If people go to a bank branch in another town, they will do their shopping there and spend their money there, which means that their local town goes into a spiral of decline, because people are simply not shopping there at all.
I suggest that we need to put responsibilities on banks to do certain things. At the moment, banks rely on voluntary codes for closures. That is simply not acceptable. Stakeholders are consulted after a decision to close a branch has been made, but not before. I asked the bank to show me the financial calculations explaining why the local branch was being shut, and they said, “Oh, we can’t show you that.” If they had shown me, I could have unpicked the financial numbers quite easily and made an alternative case, but they were not willing to show me. People have hardly any notice, and basically human interest is not really taken into account. Banks should consult local customers first and show their financial numbers, explaining why a branch is being closed, and there should be an ombudsman to adjudicate on disputes. If a bank wants to shut down a branch, it should not be able just to get away with it.
We need a simple test: a bank must show that after the closure of a branch the local financial infrastructure is no worse off. If it is, the bank cannot close the branch; it can move it into a post office or a supermarket but it cannot simply walk away. Banks should have to pick up the costs. That fact is shown in the US Community Reinvestment Act 1977, which ought to be examined, as we can learn something from it.
Banks will not like that suggestion but I shall tell the Committee what we are doing for the banks, and I am asking for very little in return. We bail them out; we shower them with billions in quantitative easing; the public or the state acts as their lender of last resort; the Government provide the Financial Services Compensation Scheme; the Government send millions of customers to banks by ensuring that pensions and social security are paid through the banking system; and banks get their raw material, which is cash, almost free, while charging 40% interest on overdrafts. All I am saying is that banks need to give something back to the community. They should not be able to destroy local economies by simply closing local branches and walking away.
Viscount Younger of Leckie (Con)
My Lords, I too thank the noble Baroness, Lady Tyler, for initiating this important debate, as well as other noble Lords for their helpful and thoughtful contributions. There is much to cover; I will do my best. Tackling financial exclusion to ensure that everyone in all corners of the UK, regardless of their background or income, has access to fair and affordable financial products and services remains a key priority for the Government—more so in the context of the cost of living challenge, to which I will turn soon, which is already impacting the most vulnerable.
The Liaison Committee’s initial report on financial exclusion, and its follow-up report to which the Government responded a year ago, made some important suggestions. To reassure the noble Lord, Lord Bilimoria, we really are taking those suggestions seriously. Some progress has already been made; I listened carefully to the remarks by the noble Baroness, Lady Tyler, and I think she acknowledged that, but I say at the outset that much more needs to be done. I very much relish the opportunity to discuss these issues again today. I wish to address the themes raised, and I will start by focusing right away on banking and cash.
In the space of just a few years, technology has transformed the way that we access and make use of financial services. Until only a few years ago, I went into my local bank branch for any financial transaction; now I happily conduct pretty well everything online and have found it relatively straightforward. New opportunities and flexibility are of course welcome but, importantly, we also have an obligation to make sure that no one is excluded, which is of course the subject of today’s debate.
While eight out of 10 consumers use contactless payments and seven out of 10 use online banking, which are significant figures, the Government understand that physical cash—old-fashioned notes and coins that may still be kept under people’s mattresses—as well as access to a physical bank branch are still an important part of millions of people’s lives. The noble Baroness, Lady Tyler, eloquently gave her own statistics in this respect and it was alluded to strongly by my noble friend Lord Holmes.
I take note of my noble friend Lord Balfe’s point about educating people, especially the elderly, to become more digitally aware. He is right but he should recognise, as I think we all do, that there are some who simply will not pick up the bat. That is why, for example, the Government have made legislative changes to support the widespread offering of cashback without a purchase by shops and other businesses, and why we will be legislating to protect access to cash in the upcoming financial services and markets Bill as soon as parliamentary time allows.
My noble friend Lord Holmes and the noble Baroness, Lady Kramer, asked about helping those who wish only to use cash, which is a fair point. The Government’s plan for legislation will ensure that people can continue to take out or pay in cash in order to support the use of cash in daily life and its continued acceptance by business. Following the Government’s commitment to legislate, firms are working together through the Access to Cash Action Group to develop new initiatives to provide shared services.
As mentioned by the noble Lord, Lord Sikka, the Government understand people’s concern when their bank takes the commercial decision to close a local bank branch, and I have seen this locally where I live. Firms themselves are best placed to make the commercial decision required to operate their businesses for their customers but we believe that the impact of branch closures should also be understood, considered and, where possible, mitigated so that all customers, wherever they live, continue to have access to face-to-face banking services.
This matter was a strong theme in this debate. It was raised by the noble Lords, Lord Tunnicliffe and Lord Sikka, and the noble Baroness, Lady Tyler, herself. Let me expand on this and take account of the comments by Martin Lewis which were alluded to. In September 2020, the FCA published guidance for regulated firms setting out its expectations for banks, building societies and credit unions when they are considering closing branches or ATMs. It requires them to notify customers and the FCA of upcoming branch closures and to consider the provision of alternatives for customers. Alternative options for access can be via telephone banking, digital means such as mobile online banking, and the Post Office. The Post Office banking framework allows 99% of personal banking customers and 95% of business banking customers to deposit cheques, check their balance and withdraw and deposit cash at 11,500 Post Office branches in the UK.
The noble Lord, Lord Sikka, expanded on this theme and asked about banks consulting customers when closing. Although I have alluded to that, I shall add to what I said because in September 2020, the FCA published guidance for regulated firms setting out its expectations for banks, building societies and credit unions when they are considering closing branches or ATMs.
Noble Lords should also be aware of the introduction of shared bank hubs, an important industry initiative which was launched last year. This was alluded to by the noble Baroness, Lady Kramer. I took note of her scepticism about this initiative but also very much took note of her ideas, particularly those that have come from the US. I will certainly take them back. We believe that these hubs provide cash and basic banking services, including counter services run by the Post Office, as well as a dedicated space where community bankers from major banks can meet their customers, and that this is a viable alternative solution to offering bank services. That will help to answer questions asked by the noble Lord, Lord Sikka, and the noble Lord, Lord Bilimoria, who made the point that it is important to have an individual—a person—with whom you can have a face-to-face meeting, and I agree with him.
Eight additional bank hubs have been announced following independent assessments by LINK of the access-to-cash needs of local communities after the closure of a core cash service, in areas such as Brixham in Devon, Carnoustie, which I happen to know is near Dundee, Knaresborough and Syston. The industry has committed that from summer 2022 communities can also request a review. The Government very much look forward to seeing the results and their impact on communities.
The noble Baroness, Lady Kramer, asked about whether there is a condition for high street banks to provide services for the unbanked or to invest in an organisation. The Government believe that it is vital that everyone is able to open a bank account if they wish to do so. That is why the nine largest personal current account providers in the UK are legally required to offer fee-free basic bank accounts to customers who are unbanked, so that people can manage their money on a day-to-day basis effectively, securely and confidently.
Linked to this is the important issue of digital inclusion, which was raised by the noble Baroness, Lady Tyler. Banking hubs are potentially vital for those who might be vulnerable, digitally excluded with no access to a computer or the internet or, indeed, simply do not wish to access financial services digitally. We have to recognise that. The Government recognise that digital inclusion needs to be promoted alongside financial inclusion, and we are committed to ensuring that everyone has access to the digital infrastructure and skills necessary to participate fully in society, including in rural areas where staying connected can, as we know, be more challenging.
The noble Lord, Lord Sikka, asked about access to broadband; I think this was also raised by the noble Lord, Lord Bilimoria. To help those in financial difficulty to stay connected, social tariffs are available which offer low-cost landline and broadband services. The Government and Ofcom also agreed a set of commitments with the UK’s major broadband and mobile operators to support vulnerable customers.
A question was raised by the noble Lord, Lord Bilimoria, about broadband, and I want to expand on this a bit further. In 2021, the Government launched Project Gigabit, which committed a landmark £5 billion to support the rollout of gigabit connectivity in the hardest to reach areas. I am pleased to say that more than 67% of UK premises can now access—
Lord Sikka (Lab)
My Lords, I am grateful to the Minister. On that £5 billion, it seems that it is given to Openreach and others, and they keep the resulting assets as well as the income stream. What do we get, as members of the public, in return? It seems it is a win-win situation for the providers. They should be providing public access through their normal service, but they do not want to do that. They seem to be winning on every count and the public are left with empty pockets.
Viscount Younger of Leckie (Con)
That is a very specific question from the noble Lord. I will write to him about those services, particularly how the £5 billion is used, which is a very fair question. What I can say, which the noble Lord, Lord Bilimoria, will not like, is that it is not 100% coverage, but we have, I have to say, made a great leap forward since 2019, when coverage was a mere 8%. From his particular position at the CBI, he will acknowledge that—I hope that he will.
Of course, all these issues are relevant to help people manage their personal finances, particularly when things turn tight. That was another theme that I expected to be raised today, as indeed it was, particularly by the noble Lord, Lord Tunnicliffe, with his question about an emergency Budget, and by the noble Baroness, Lady Tyler, on affordability matters. Let me just say a little bit about that. The Government really appreciate that families up and down the country are facing an unprecedented cost of living challenge, with the rising price of food, fuel and goods hitting people’s pockets. I listened very carefully to the speech from my noble friend Lord Shinkwin on how the disabled in our society are particularly negatively affected. Of course he is right, and he will know about that.
The next few months will be difficult, and we know that people are concerned. These are partly, indeed mainly, global trends driven by global challenges, and Russia’s invasion of Ukraine has deepened a severe shock in energy prices. While the Government cannot eradicate these global pressures, we are helping where we can and are providing more than £22 billion of support to families this financial year. We are providing direct support for energy bills, with a £9 billion energy package announced in February. This will provide 80% of households with at least £200, with the vast majority receiving £350. We are also making sure that work pays. We have increased the national insurance threshold to £12,570 from July, saving the typical employee £330 a year. We are supporting the most vulnerable in society with the cost of essentials such as food, clothing and utilities by providing an additional £500 million for the household support fund.
The noble Baroness, Lady Tyler, asked what the Government are doing to alleviate the poverty premium, and I hope that I can give her an answer to that. On universal credit, we are increasing work allowances and reducing the taper rate, which means that the lowest-earning 1.7 million people in society receive an extra £1,000 per year. An analysis shows that fiscal decisions made by the Government are progressive and place the highest burden on the highest earners.
Along the same theme, the noble Lord, Lord Sikka, raised a question about the Government’s tax policy. I think he stated that he thought it was regressive. I just come back to him on that to say that Treasury analysis published as part of the Spring Statement shows that fiscal decisions made since the 2019 spending round are progressive, placing the largest burden on the highest-income households as a proportion of income. The poorest 60% of households receive more in public spending than they pay in tax, and households in the lowest income decile will, on average, receive more than £4 for every £1 that they pay in tax.
My noble friend Lord Shinkwin raised a point about disability and fuel poverty. In answer to that, 2.2 million low-income households will receive a £140 rebate through the warm homes discount. The Government are increasing the WHD by one-third, with 3 million households now receiving £150. I hope that that provides small examples of what the Government are doing. As I say, we recognise that this is a challenging and uncertain time for people. Just as we stood by people throughout the pandemic, the Government stand ready to do more to support people across the UK with their costs of living. However, I am afraid that is all that I can say on that subject at the moment.
I turn to the important area of access to fair and affordable credit, which can be life-changing for people, helping them to meet a sudden expenditure or to take steps to build a better life. The Government recognise the important role that credit can play in helping people to manage their finances, but also crucially understand the need for it to be handled carefully so that it does not turn into unsustainable debt. We are committed to supporting initiatives that expand the provision of fair and affordable credit.
The noble Lord, Lord Tunnicliffe, asked about the assessment that the Government have made about people’s increased reliance on personal credit, which is a fair question. The Treasury regularly monitors changes in the consumer credit market, including the impact of economic developments, as part of its normal process of policy development.
The Government have allocated £100 million of dormant assets to Fair4All Finance, whose work has focused on supporting affordable credit. This includes £3.8 million funding for that initiative to pilot a no-interest loan scheme, which is specifically designed for consumers in vulnerable circumstances and is already, we believe, improving lives. The NILS pilot is novel and unlike anything that the Government have done previously in this space, so it is right that the pilot is allowed to be tested for optimal methods for delivering these loans. The pilot aims to test the benefits to consumers, society and the economy and to show whether a permanent, nationwide NILS can be delivered in a sustainable way. It will test several variables, including loan amounts, repayment periods and terms, eligibility and payment rates. My noble friend Lord Balfe is right that it needs to operate with care so that debt is managed prudently, a point that I made earlier. We are pleased that industry also recognises the value of expanding provision, with JP Morgan’s corporate social responsibility fund planning to contribute £1.2 million to expand this pilot.
I move on to buy now, pay later, expanding further on the theme of credit. I note some noble Lords’ concerns about this area, as raised by the noble Baroness, Lady Tyler. We recognise that it can give rise to consumer detriment, which is why the Government announced their intention to regulate these products and published the consultation last October. It closed on 6 January, and we are now reviewing responses and considering next steps, including timings. We will take this work forward as quickly as possible. I am afraid that that is the best that I can do to answer the question from my noble friend Lord Balfe.
Along the same theme, we are taking further measures to help people who are experiencing financial difficulties and will require additional support. That is why, among other things, the Government continue to provide record levels of funding for debt advice via the Money and Pensions Service, which noble Lords will recognise used to be the old MAS. We know that debt can feel overwhelming; often what people most need is the time and space to find a sustainable way out of it.
My noble friend Lord Holmes asked whether the Government agree that debt advice should be regulated. Yes, debt advice is a regulated financial activity, which means that most firms that provide debt advice must be authorised and regulated by the FCA. When a person gets debt advice, they can check that a firm is regulated on the FCA register. That is also why the Government launched the Breathing Space scheme, which gives those in problem debt legal protection against creditor action, enabling them to seek professional advice and rebuild their finances.
Given the clear connections between people’s mental and financial health—another theme that has been alluded to today—the scheme also ensures that those who are undergoing mental health crisis treatment can access even stronger protections. I am pleased that over 60,000 people have already taken advantage of Breathing Space in its first year, including almost 1,000 people who have entered a mental health “breathing space”.
However, that is just the first part of the scheme and we are now working on the second element: the statutory dept repayment plan. This will enable people struggling with problem debt to enter formal agreements with creditors so they are able to repay what they owe over a more manageable timeframe. On 13 May, the Government launched a public consultation on draft SDRP regulations with the aim of laying those by the end of the year. We intend for the scheme to start in 2024.
I hope I can cover everything. I have a little more to say, particularly on financial education, which was raised by my noble friend Lord Holmes, the noble Lord, Lord Bilimoria, and the noble Baroness, Lady Kramer. This is a very important area that is rather close to my heart; I personally firmly believe in it. It is important that people grow up to make sound decisions about how to run their financial lives, whether that is to secure a mortgage, take out credit, save up for a holiday or plan their retirement, an issue that was also raised. Financial education in England is covered within both the citizenship and the mathematics curricula. Primary schools, for their part, are strongly encouraged to teach citizenship, including financial education. I recognise, as the noble Lord, Lord Bilimoria, said, that it is not just the young who need educating; it is the less young too, particularly those who are looking to plan for retirement, as he mentioned.
I want to say something about saving. I recognise that this is a difficult subject because we know that many people are not able to save and are struggling simply with the business of managing the costs of living. So in fear of being frowned upon by the grandmother, I think it is, of my noble friend Lord Balfe, I draw noble Lords’ attention to the Government’s Help to Save scheme, which offers a 50% bonus on up to £50 of monthly savings for a maximum possible bonus of £1,200 over four years to help people to build a savings buffer for a rainy day. I just wanted to touch on that.
Finally, and importantly, the theme was raised of the FCA and the matter of “having regard to”. The Government take a comprehensive and strategic approach to tackling financial exclusion, including working closely with the regulator, industry and the third sector. This was touched on by the noble Lord, Lord Bilimoria. A key mechanism to foster that collaboration is the Financial Inclusion Policy Forum, co-chaired by Treasury and DWP Ministers, launched in 2018 to provide leadership and develop solutions, including some that I have already highlighted. I know that some noble Lords are slightly sceptical about that; I have read the report and the comments made by the Liaison Committee, and I have read our own response. I know that the noble Baroness, Lady Tyler, and my noble friend Lord Holmes have called upon the Government to formalise collaboration on financial inclusion further by asking the Financial Conduct Authority to have regard to financial inclusion in the context of the future regulatory framework review. I want to give some reassurance that I know senior officials and Ministers in the Treasury are considering these suggestions carefully and will respond as soon as possible.
To conclude, clearly there is more to be done but, as today’s debate has demonstrated, a good of deal of work is already in train to tackle financial exclusion and to help those who are vulnerable or who face financial difficulties. I thank everyone who has contributed today. It has been a very informative and useful debate, and I have certainly learned a lot myself.