My Lords, the Government wish to see greater diversity in financial services, and credit unions have an important role to play. The recent credit union legislative reform order has opened up membership to different groups such as housing association tenants and employees of national companies working in credit union areas. A feasibility study has looked at how the Government could support credit unions. The study reported to Ministers in December and an announcement will be made in due course.
Although progress is moving in the right direction, I think it is extremely sluggish. If I asked a question about nurses, I would expect a Health Minister to reply; if I asked about teachers, I would expect an Education Minister to reply. I ask a question about credit unions and three departments could reply in this House. I contend that that is not joined-up government. My question for the Minister is: who is the driver?
My Lords, I am the driver. I commissioned a report on credit unions last year. The DWP is the paymaster for the credit union movement. We have spent £113 million in the past six years. We are determined to go on funding this really important element of financial inclusion and to create an industry that will be viable in the long term and will support the poorest in our society.
My Lords, what limit is there on individual credit union loans? Will the Minister say what figure the credit unions are restricted to? I am very keen that self-employed trades men and women who want to start off with a small quantity of tools and equipment are able to go to a credit union in their locality rather than a bank, because banks at the moment are not very helpful to self-employed people.
My Lords, there are various restrictions on credit unions at the moment. I am not aware of an absolute limit on loans. Clearly, the unions need a financially viable business structure. They do not have one at the moment. A typical loan from a credit union is about £500. It costs the union more than £75 to make the loan and it earns less than £63, so getting a new mix of business is vital.
My Lords, does the Minister agree that the next big step required to increase the volume of credit union activity is to make credit union accounts accessible via post office counters? Will he assure the House that this option is under active consideration as part of the wider review that he described?
The proportion is disappointingly small; it is 2 per cent. That compares with a figure of 44 per cent in the United States and 75 per cent in Ireland. It is a very small industry here. Our ambition is to double its size in the next five to seven years. Nevertheless, we need to look at various other financial instruments, particularly as we introduce universal credit.
My Lords, I am sure that the House is delighted that the report that the Minister asked for is coming. Should not part of the report state that local authorities should be encouraged to help with the start-up costs of credit unions, in particular with the very high council taxes that are levied on premises? I speak with experience of a very successful credit union in St Albans of which I am a member. Start-up costs are very difficult and local authorities could play a good part in helping to create these unions.
Yes, my Lords, credit unions are local organisations. It is very important that social units in the locality help them. Just as important as local authorities are social housing groups. There are already 20 such groups working with credit unions, which is very important.
Does the Minister agree that the situation is acute because needy people must be kept out of the clutches of loan sharks? I appreciate that successive Governments have shown great good will in this matter. Will he study the situation in the Republic of Ireland, where, as he said, some 50 per cent of personal credit is represented by credit unions? In New Zealand and Canada the figure is between 20 and 22 per cent. Will he take those systems very much into account and do something that involves a substantial injection of public money into this investment?
My Lords, we have made clear that we are prepared to support this industry, but we are determined to support it in such a way that it becomes viable in the long term. We are attacking illegal loans, which are coming down a bit. There are various supports for poorer people, such as payday loans, rent-to-buy and home credit. It is a very complicated picture, but we are determined to push this new factor as hard as we can.
My Lords, my noble friend said that the aim is to double from 2 per cent to 4 per cent in between five and seven years. Can we not do better than that? Can we not have a more ambitious aim?
My Lords, it is very difficult to grow an industry from an organisational base that is not yet viable. We need to make sure that individual institutions are able to handle the growth that we want them to take on. That is not just about money; that is about trying to make the right changes to management and organisation. It is not an easy thing to do.