Nick Hurd is MP for Ruislip Northwood and Pinner, and is a former Minister for Civil Society.
If you are reading this, the chances are that you have a bank account. Your home is likely to be insured and you may have some savings set aside. We have one of the most advanced financial systems in the world and most people have access to it. That matters because our ability to access appropriate financial services is key to our effective functioning in society. For that reason, it should also matter that so many of our fellow citizens are excluded.
I have spent the last six months representing the Conservative Party on the Financial Inclusion Commission. We took evidence from around the country and it gave us cause for real concern. The scale of exclusion is big. Almost two million people don’t have a bank account. Two million people took out high cost loans in 2012, because they could not access credit elsewhere. Fifty per cent of households in lower income brackets do not have home insurance. However, the concern is not just exclusion: it is also about vulnerability. According to evidence we received, almost nine million people are over indebted; 13 million people do not have enough savings to support them for a month if they experienced a 25 per cent cut in income. Five million people (31 per cent of the population) report one or more signs of financial distress.
The Conservative Party has quite rightly put the financial health and security of the nation at the front and centre of the General Election debate. Political parties are understandably focused on the state of the public finances. But the Financial Inclusion Commission’s work has highlighted the vulnerability of private finances and the lack of resilience in the system. Our argument is that this ought to be a major political concern and given a higher priority by all parties.
Some will argue that this is not new and the long term issue is a fundamental one of cultural shift from thrift to consumption. Others will talk up the mitigating effects of a recovering economy, with vigorous job creation, rising real incomes and falling prices. Both main parties can point to some very significant achievements in power. For example, this Government has won deserved praise for putting financial education on the national curriculum in England for secondary school students, regulating high-cost, short-term credit, auto-enrolment for workplace pensions, and, most recently, the Treasury’s welcome agreement with high street banks to provide fee-free basic bank accounts.
However, the evidence challenges any complacency. We are nowhere near being the financially inclusive country which we could and should be. Furthermore, there are big disruptive factors emerging which present real challenges. Universal Credit, for example, will require people on low incomes to manage money in a very different way. Pension reform contains a very big opportunity to increase savings through auto enrolment but we need to be sure that people have access to the right advice on using their new freedoms. Interest rates have been very low for a long time: the inevitable rise will create serious challenges not least for the 600,000 households who spend more than 50 per cent of their income on debt repayment. Technology creates all sorts of exciting new opportunities for new products and services but can also exacerbate exclusion. If not managed properly, we will see more financial exclusion, which can lead to overwhelming debt and entrenched poverty.
What can be done? Our report, which came out on 11th March, identifies some key challenges and recommendations. They point us to three priorities in the short term.
The first is the need for stronger leadership, because everything flows from there. There is a lot of activity across government; private sector and civil society but it is not joined up. We need a national strategy with much clearer leadership and coordination of public and private players.
The second is a proper response to clear market failures. Banking services are still not meeting the needs of low income consumers. There is a credit gap for people on low incomes. Debt solutions have not evolved to reflect changes in need, and debt advice is fragmented. We want people to save but savings products are not suitable or compelling for people wanting to save small amounts. Regulators can put more pressure on the mainstream banks to respond, but the banks are not trusted and therefore we need to encourage the innovators and disruptive agents that are emerging. In this context, we also have to help alternative providers such as credit unions and community finance networks to find scale and sustainability.
The third priority is to build financial capability and skills through education – an issue championed by ConHome in their own manifesto.
This was a non-partisan commission and we want cross party consensus on the importance of the issue. However ,this should be prime Conservative territory. We are in favour of financial responsibility and security. We want people to have equal opportunity and that should include access to essential financial services. We want to help people create a future of greater possibility for themselves and their families. We have to do more to nail the myth that we are the party of the rich. For all these reasons, I hope that the next Conservative Government gives financial inclusion the priority it deserves.