Credit Unions and the Cost of Living

Stephanie Peacock Excerpts

Tuesday 18th July 2023 Westminster Hall

[Hannah Bardell]

My hon. Friend makes an excellent point—perhaps she has foreseen what I am about to say. It is an important point to highlight because although it is welcome that more people are using credit unions, the root cause is increasingly concerning. The cost of living crisis has placed a huge economic squeeze on hard-working families.

A report from Responsible Finance found that 41% of people borrowed to pay for essential bills and expenses, while 20% borrowed to pay for appliances and white goods. Analysis from Freedom Finance found that credit unions are lending record sums to UK borrowers following the surge in borrowing costs. Again, it is great news that people are getting their money through responsible borrowing from credit unions, but it is concerning that they are having to borrow such high levels just to get by.

Total loans exceeded £2 billion for the first time by the end of 2022—an annual increase of £251 million, or 15% over the course of 2022. Time and again, evidence shows that increases in the cost of living disproportionately impact the poorest in our society. Those individuals are often helped by credit unions, but some fall victim to unscrupulous lending practices, such as high-interest payday loans, simply to meet basic needs. The Freedom Finance credit monitor has revealed that the average household quoted on credit cards rose to its highest level last year since 1998, reaching 22.8% at the end of December. We can all reflect that if things worsen and interest rates go higher, more and more people will be tipped over the edge.

[Stephanie Peacock (Barnsley East) (Lab)]

I congratulate the hon. Member on securing the debate and making such a powerful speech. On that point, the Barnsley Chronicle stated that a report from the local council last week showed that one in five residents in Barnsley have debts that overtake their incomes. Obviously, people are really struggling with the cost of living. Food has gone up by 19%, and we have seen similar increases in gas and electric.

Given that situation—not just the rising cost of living, but the sheer rising level of debt—credit unions obviously play a huge role, but they are not always known about. I pay tribute to a fantastic credit union in my constituency in Wombwell, but residents do not always know they can access that affordable credit. Would the hon. Member join me in encouraging people to raise awareness of the issue?

[Hannah Bardell]

I agree with everything that the hon. Member says. Part of the reason for today’s debate is to raise awareness of credit unions, as well as to recognise the challenges that we and many of our constituents face. An estimated 20 million consumers in the UK are underserved and unable to access credit from high street banks. That is compounded by the number of bank branches that are closing. Everybody across the House has been outraged by the behaviour of some banks, the closing of local branches and the cutting off of so many of our vulnerable and rural communities.

The Scottish Government are committed to ensuring that credit unions continue to be able to carry out their vital role in supporting communities across Scotland. In 2020, the Scottish Government established the credit union resilience loan fund and the third sector resilience fund, which provided grants and loans totalling more than £20 million, made available to be shared with over 100 credit unions across the country. The Scottish Government also actively ran a “People, Not Profit” campaign in 2018, encouraging people to consider joining a credit union—those are examples of what we can do with the limited powers we currently have in Scotland.

In stark contrast, the UK Government have been slow to respond to the cost of living crisis, and many households are desperately struggling. Many low-income households still do not meet the affordability criteria for many lenders. I was struck by the comments of one of my colleagues in Prime Minister’s Questions the other day, when she spoke powerfully about her experience, when her income dropped, of not being able to access funding. That shows the scale of what people face. Respectfully, credit unions will never be able to plug the gap, and the UK Government need to take urgent action to address the cost of living crisis. There is an increasing need for these services, and the Government must recognise that the increased demand for credit unions has also been driven by the closure of banks and post offices, especially in rural areas.

The UK Government urgently need to support credit unions further and look at ways in which they can better support them. In particular, the UK Government should consider funding specific outcomes—for example, promoting financial education classes for schoolchildren more compared with what is already available and supporting individual credit union projects where they have a clear community focus. The Government should continue to fund and expand initiatives that increase access to affordable credit, such as the no-interest loan scheme being led by Fair4All Finance—not an easy one to say—empowering local communities to develop and deliver affordable and responsible finance.

My constituency team and I have seen the tragedy of financial ruin time and again, from our casework to the constituency advice surgeries we hold. I know that much work has been done by many people in this place and, indeed, the Government on irresponsible lending, but it is incumbent on us to ensure that credit unions can not only survive, but thrive. I hope that the Minister will say a few words about how his Government will do that.

Earlier this year, when he was responding in the Chamber about his position, the Minister said:

“There are exactly 650 constituencies; would it not be wonderful if every one of them had a thriving credit union?”—[Official Report, 24 February 2023; Vol. 728, c. 426.]

I completely agree. I hope that Members present and all across this place continue to work towards achieving that goal by providing credit unions with the support they need to better empower our local communities and to help address the many inequalities that our constituents face.

Once again, I pay tribute to Nancy MacGillivray and her team at West Lothian Credit Union for all they do to support our Livingston and West Lothian communities, and I look forward to continuing to support them and the work that they do.

--- Later in debate ---

[Andrew Griffith]

The hon. Lady is right that people need help. Across the House, we all support that. The Chancellor has made it very clear, with the mortgage compact and in the conversations that he and I have had with all of the banking sector, that now is the time to ensure that people have fair products and that, wherever the banks are able to do so, they pass on the benefits of that.

That is one reason why it is important that we have genuine diversity and competition in the sector. Credit unions play such an important role, alongside co-operatives, mutuals and other forms of financial institution, because they are often rooted in place, people or the community. The Government are firmly on the side of credit unions, and I will try to support them. We are taking action to help them wherever there are legislative levers, although they are not the only answer. We amended the Credit Unions Act 1979 through the Financial Services and Markets Act 2023 to allow credit unions across the United Kingdom to offer a wider range of products and services. That allows them to grow, diversify, build their resilience and offer more products to their customers.

We set out Vision 2025, in consultation with stakeholders, to deliver on the sector’s priorities. That includes such things as offering hire purchase agreements, conditional sale agreements and distributing insurance services. The hon. Member for Livingston said that the West Lothian Credit Union offers funeral plans. Many people want to access that sector to give them some peace of mind, so I was genuinely interested to hear that. I will ensure that we seek the right legislative framework for that.

The 2023 Act also makes amendments to support best practice in corporate governance, including a legal requirement for credit unions to submit annual accounts to the Financial Conduct Authority. It gives credit unions permission to temporarily lend to or borrow from each other. That is about designing more financial resilience for a sector that we are on the side of and want to see grow.

The hon. Lady mentioned a number of initiatives. We are providing Fair4All Finance—that little tongue twister—which is an independent not-for-profit organisation, with significant amounts of money from the dormant assets funds. We are piloting no-interest loan schemes—another product that will be delivered hand in hand with credit unions. Credit unions, with their roots in the community and communities of interest, are a very good way of delivering that, and I will continue to work with them. There is about £145 million, in aggregate, from the dormant assets scheme.

The hon. Lady also talked about financial literacy, and a key priority as we go forward is what we can do about the real challenges of that. Wherever possible, it makes sense to work upstream and try to tackle problem debt before people get into it, because it can be a terrible place to be trapped. We are doing a lot of work on that.

Finally, as well as providing credit, credit unions are obliged to focus on financial inclusion. They have a role of advocacy in helping their members to take steps to accumulate savings. Even a small amount of savings can provide the resilience for exactly what the hon. Lady talked about: unexpected bills, white goods that fail, or perhaps the cost of a child’s uniform and a school trip falling in the same month. Even a small amount of savings can help to build financial resilience, and the Government are very supportive of that. We have the Help to Save scheme to try to help those in work and on universal credit to build a savings habit, and obviously the ISA programme is a strong part of that. Again, credit unions distribute cash ISAs as a very simple product that does not get anybody into difficulties with their tax.

I thank and congratulate the hon. Lady and those who contributed to the debate, including the hon. Member for Barnsley East (Stephanie Peacock). Across the House, we can always challenge ourselves to do more on this issue.

[Stephanie Peacock]

The Community First Credit Union in my constituency raised some issues with me about the operation of the eligible loan deduction scheme by the Department for Work and Pensions and some of the work that the Government do with credit unions. I wonder whether I could write to the Minister, because he might be able to look into some of those issues for me.

[Andrew Griffith]

I would be happy to do so. I support anything that removes a point of friction and allows credit unions to do their important work. Regardless of whether it is me or one of my colleagues in the DWP, we will certainly take that forward and do what we can to support the hon. Member.

We value the work of credit unions. In seeking this debate, the hon. Member for Livingston has built a good level of awareness, and there is consensus that we can and should do more. That is the Government’s policy, and we are very keen to engage with the sector. Maybe one day there will be an opportunity to meet or have a call with the wonderful West Lothian Credit Union, and I am certainly happy to do so. The hon. Lady has done a magnificent job of putting the credit union on the Treasury’s radar, and I will be interested in following its continued success over the years.

Question put and agreed to.