Basic Bank Accounts (Scotland)

Mark Hoban Excerpts

Wednesday 19th January 2011 Westminster Hall

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

I congratulate the hon. Member for Edinburgh East (Sheila Gilmore) on securing this important debate tracking progress on basic bank accounts and on what more needs to be done to encourage financial inclusion.

I confirm the coalition Government’s commitment to improving levels of financial inclusion. I have been involved and interested in the issue for some time. We believe that banks should serve the economy and that they should be committed to improving access to banking and the transparency of financial products for consumers.

Tackling unnecessary exclusion from banking services can help to alleviate some of the problems faced by low-income families who are currently unable to access mainstream banking services. As the hon. Lady has said, the benefits include being able to receive payments through different channels, having a more secure place to keep money and reducing the cost of household bills.

That is why the Government are committed to improving access to basic banking services and to helping people to use those services responsibly. That can only be achieved through collaboration between a number of parties, including the Government and the financial services industry, as well as a range of local partners, such as the devolved Governments, local authorities, social landlords, advice agencies, credit unions and others.

It is important to acknowledge, as the hon. Lady did, the real progress towards financial inclusion in recent years, and to note that such progress is due to the openness and support of many in the financial services sector. In her speech, the hon. Lady highlighted the reduction in the unbanked over the course of the past few years. Since 2002-03, the number of adults living in households without a transactional bank account has decreased from 3.57 million to 1.54 million in 2008-09. That number continued to fall in the last year for which we have information, with 200,000 fewer adults living in households without access to a transactional bank account. However, we cannot afford to be complacent. There is still scope to bring more households into banking services and to encourage the banks to maintain strong standards of customer service for poorer households.

I want to say a little more about the project to which the hon. Lady has referred to improve access to basic bank accounts.

[Chris Evans]

Before the Minister moves on, what does he believe that banks can do to manage people who are currently running their basic bank accounts very well on to mainstream banking, so that they can have credit facilities? What action can move people on to mainstream banking?

[Mr Hoban]

That is an important point. Banks should see the opportunity to encourage and enable people to get greater access to mainstream services, moving them from a basic bank account to a more fully functioning current account.

I will touch on the issue later, but we need to go with the grain of how people want to live their lives. Many people are comfortable with access to a bank account without an overdraft facility, for example. A challenge for policy makers is that we think of things that we might like as a function, even though sections of the community might not want such functionality in their accounts. We need to think carefully about that, although we should be clear that moving to a fully functioning current account ought to be open to those with basic bank accounts. Banks need to look at credit histories and how people manage their accounts as part of that process.

At the request of the financial inclusion taskforce, eight of the major retail bank account providers have collaborated to provide management data on their basic bank accounts. That allows us to look at levels of take-up in different local authority areas and wards across the country. At local level, there are financial inclusion champions, such as the group in Scotland funded by the Department for Work and Pensions. They are looking at how best to work in deprived areas to raise awareness and encourage more people to open bank accounts. We can continue to make effective use of up-to-date regional data to help tackle the issue in areas of financial exclusion.

The hon. Lady referred to the financial inclusion taskforce report that was published in December. That is a timely piece of work that gives us the opportunity to take stock of where we are. It raises a number of issues referred to by the hon. Lady and her colleagues, and I encourage hon. Members to read the report on the Treasury website.

The taskforce found that the experience of banking services for poorer households has been mixed. Many households have made savings on services and retail purchases, but some have lost money through bank charges. The taskforce found that the remaining unbanked are generally the poorest and most deprived people, and it recommended a number of minor changes to existing basic bank accounts to make them more accessible and easier for poorer households to use. It also highlighted the scale of the challenge of extending bank accounts to those who currently do not have them.

The research found significant indicators of relative disadvantage among the unbanked: eight out of 10 of the unbanked are in receipt of income-related benefits; more than a third have major health conditions; and a quarter have numeracy or literacy problems. As more people open bank accounts, we see the unbanked becoming concentrated in hard-to-reach, more deprived groups. We must think carefully about how to work closely with those groups to get people to open bank accounts and access the benefits that they bring.

Interestingly, we should not assume that those who do not have a bank account have not previously held one. Six out of 10 unbanked people have previously held a bank account. The research does not give reasons why those people do not currently have a bank account, but some may have had issues with managing their account and decided not to keep it open, or the account may have been closed. We are not necessarily talking about people with no experience of bank accounts. Some people may have opted not to have an account for a particular reason.

Let me reiterate the point about going with the grain of how people run their lives. Many unbanked consumers express a preference for managing their finances in cash. Some low-income households employ a number of strategies to ensure that money is available for essential living expenses, which include not withdrawing all their benefit payments at once, leaving a small amount of money as a buffer, or perhaps putting cash towards a particular purpose. We are well aware of the number of people who join holiday clubs or Christmas clubs to try to keep money in a defined account that is kept for a specific purpose, and a lot of people on low incomes find that to be a more effective way of having control over their money. They want direct control over their spending and feel that a bank account takes that away from them. Unbanked people are more concentrated in particular groups, but not having a bank account could be a conscious decision as much as a matter of exclusion, and we must therefore have a more flexible approach.

In the long term, the taskforce believes that the introduction of new models and channels for the delivery of financial services may be necessary to address the difficulties that poorer households can experience with banking. It has called on the Government to engage further with banks, e-money service providers, bill payment organisations, retailers and post offices to pursue new ways to improve the opportunities for low-income households to make the most of their money. We are in danger of getting stuck by thinking about a model of banking based around bank accounts. Increasingly, people are turning to prepayment cards or e-money as a way of controlling their finances or paying bills online.

[Sheila Gilmore]

The Minister has correctly identified one concern of the financial inclusion taskforce—that of bank charges that are very high in relation to the sums of money that people are dealing with. Does the Minister have any proposals to address the banks on that issue, given that by definition, people cannot run up unnecessary debt on those accounts? Perhaps bank charges should be reduced for that customer group.

[Mr Hoban]

The coalition agreement commits us to tackling the issue of bank charges, and we are working closely with colleagues in the Department for Business, Innovation and Skills.

I want to respond to a couple of specific points. Hon. Members have discussed bankrupts not being able to open bank accounts, and the hon. Lady was right to say that Barclays and the Co-operative bank allow undischarged bankrupts to open accounts. A number of banks are currently reviewing their policies and, in response to a call by the Government in July for banks to reconsider the issue and recognise the problem, the Insolvency Service is working with the British Bankers Association to decide how to address the issue.

The guidelines in law on identification are high level, and banks and financial services institutions have a great deal of flexibility in deciding how to prove someone’s identity. It is not only about having a driving licence or a passport, because there are other ways of doing it. In one of my constituency cases, a letter from the local council addressed to the person who was seeking to open a bank account was deemed to be sufficient proof of identity. I encourage banks to make their staff more aware of the rules and flexibility, and we will continue to raise that matter with the banks and the BBA.

The hon. Member for Islwyn (Chris Evans) asked whether banks are open to people opening basic bank accounts. The work of the financial inclusion taskforce, which sent mystery shoppers into banks, demonstrated that 80% of bank managers are much more open to people opening basic bank accounts. That issue has been a problem in the past, and we must maintain pressure on the banks to ensure that they offer basic bank accounts and do not turn customers away. We must tackle the barriers to people opening bank accounts.

Community investment tax relief is an important way of providing support. That tax is due for review shortly, and we will work with a full range of stakeholders to consider the options available for reform.

[Ian Murray (Edinburgh South) (Lab)]

I am grateful to you for giving way, Mr Hood, and I apologise for missing the start of the debate.

[Ian Murray]

Thank you, Mr Hood. I will get used to the conventions of this place eventually. The Minister has responded to my hon. Friend the Member for Edinburgh East (Sheila Gilmore) on the subject of basic bank accounts. One point that I regularly heard from the BBA, the Royal Bank of Scotland and HBOS, as it was at the time, was that if the staff in local branches were not able to offer a full bank account to potential customers, they did not then offer a basic bank account. Will the Government consider issuing guidance on that through the BBA to ensure that people who do not meet the criteria for a full bank account are automatically offered a basic bank account?

[Mr Hoban]

I do not want to get bogged down in what banks should or should not do. Through its mystery shopping exercise, the taskforce looked at the offering of basic bank accounts, and it will publish a more detailed report this year that will help inform those processes. Obviously, the Banking Code Standards Board will also have an interest in how such accounts are offered.

The hon. Member for Edinburgh East also asked about support for credit unions and post offices working together. There has been much discussion about that in recent months, and there is already a lot of co-operation between post offices and credit unions. For example, credit union current account holders can access their accounts through the post office, and more thought is being applied to that area.

We take financial inclusion seriously, and we want to ensure that more people have access to a bank account and the benefits that that brings. It is important to ensure that bank accounts and financial services work with the grain of how people live their lives. We must look at new technological approaches and the barriers to opening bank accounts. Together, we will take forward the work of the financial inclusion taskforce in conjunction with our partners not only in government but in the financial services sector. If I have not replied to any of the hon. Lady’s points I will happily respond to them by letter.

[Sheila Gilmore]

It appears from the Minister’s words that the financial inclusion taskforce will be continuing.

[Mr Hoban]

The previous Government committed the financial inclusion taskforce to a five-year life. The problem is ensuring that inclusion becomes a mainstream financial services issue and is not seen as something on the margins. That is why I will work closely with the financial services sector and other interested parties to see how we can best take forward the work of the financial inclusion taskforce. It is not an issue for those on the margins; it is an issue that should be taken seriously from bank boards to bank branches.