Financial Services and Markets Bill – in a Public Bill Committee at 2:26 pm on 19th October 2022.
We will now hear oral evidence from Natalie Ceeney, chair of the Cash Action Group, and Martin Coppack, director of Fair by Design. We have until 3.10 pm for this panel. Could the witnesses please introduce themselves for the record?
I am Natalie Ceeney. I authored the independent access to cash review four years ago. I now chair the Cash Action Group, which is leading the industry’s work to provide a voluntary solution, prior to legislation, for providing access to cash.
I am Martin Coppack. I am the director of Fair by Design at the Barrow Cadbury Trust. We exist to eliminate the poverty premium—that is, the extra costs that poorer people pay for essential services. I am also a commissioner on the Financial Inclusion Commission. Previously, I was a regulator, responsible for setting up the FCA’s approach to consumer vulnerability and its engagement with third sector organisations.
Q Thank you for the work that you do. For the benefit of the Committee, I want to open the conversation by rehearsing some of the interventions. We all represent constituents, and obviously this is a concern on both sides of the House. What are the mechanical options for a diligent Member of Parliament, for example, if they are concerned about access to cash in a particular location? Will you talk us through that?
We very much modelled the voluntary scheme that we set up as if the Bill, as currently drafted, were implemented. The model starts with a community need base. The premise is that all banks will have a responsibility to serve their business and retail customers, and if they are not doing it through their own branches, they have to do it through another means.
The mechanism we set up is that anyone—any MP, any member of the public—can request that their community’s needs are reviewed. That is done independently by LINK. The form is very simple, free to fill out and on LINK’s website. LINK is already getting applications. Equally, every time a branch or an ATM is closed, LINK will review the needs of that community. If those needs are not being met, it will consider a new solution. Since
Q That is very clear. So there is a solution out there in the marketplace. What are the benefits of this industry-led initiative versus the legislative approach? Where do you think there are gaps, if there are any?
To be honest, we need both. There is a real competitive challenge for any bank that wants to go beyond what is necessary, because if it does that, it could be accused by its shareholders of wasting their money, unless all its competitors do the same. To be fair, it is the threat of legislation that has made everyone say, “Why don’t we work together?”. We do need this legislation for the industry scheme to continue in a viable way, but I am pleased that the industry has stepped up in advance of legislation.
We have worked hard not just with banks, but with consumer and small business groups, so the scheme we have designed truly has the input of everybody. We have run pilots for the last two years in communities to test that our models work, with really high satisfaction rates. We need both, but I think the scheme we have designed means that when the legislation is passed, we are ready to go; there will not be a gap.
Thank you. I think you may get an invitation to some parts of the country.
Q Thank you for coming to give evidence. My first question, to Natalie Ceeney, is about the overlap between people who need access to cash and the people who require face-to-face banking services. I want to ask about the overlap between those pools of people, and whether you think the Bill protects banking services. I have a different question for Martin Coppack, but I will come to you later.
That is a very good question, and I am conscious that every time this issue is debated in Parliament or, frankly, every time I meet a community, the debate goes very quickly from cash to banking. It all merges. The reason is we are talking about the same population. If somebody needs face-to-face support with their money, which might be about getting money out, paying money in, a standing order or the fact that a payment they expected has not arrived, it is the same demographic group. We have recognised that in the voluntary scheme. When we set up a banking hub, it does not just have a counter where you deposit cash and get cash. There is also a private space where the banks provide a community banker to do basic banking services. As far as the legislation is concerned, the voluntary scheme we set up will cover that need on a voluntary basis.
There is one challenge that you might want to include in the legislation. I am going to stay neutral because of my members. The consumer groups and small business associations would say it should be included and the banks would say it should not, but if you do want to go there, defining what you mean by face-to-face banking services and particularly essential services is really important. I do not think anyone would expect you to offer wealth management or buy-to-let mortgage advice on every high street, but helping someone when they are stuck because a payment has not arrived or they have got locked out of their account feels different. Keeping that definition tight is important.
There is also a question about whether the FCA has the powers that it needs already. Those are the factors I would consider.
Q Thank you. My next question is for Fair by Design. It is about the additional costs that people on lower incomes face and the so-called poverty premium. Do you think the legislation in the Bill addresses the poverty premium, or could it be strengthened?
Absolutely not. I have worked in this sector for 20 years and we have the biggest opportunity right now to make a systemic change to how people who are excluded are addressed by both the regulator and the Government, and we need to take it. Recently I provided evidence to the Treasury Committee, which supported our call for a “must have regard to financial inclusion” for the FCA—importantly, alongside a requirement to publish once a year the state of financial inclusion, what it can do, what it cannot do, and who else can act. That is so important. If I could just give a little more context about why that is so important, I would appreciate it.
Thinking about where we are now, Governments of all different colours over the years have asked people to take responsibility for their own financial affairs—be a good citizen and look to the market, whether that is saving for a rainy day, saving for retirement, or protection products for insurance—but what happens if the market does not want you? What if the market says, “You are a higher risk and more costly to serve, so we are either going to make our products more expensive for you or we will just exclude you.”? I think everybody can recognise that situation.
With competition-driven markets, we can all agree that firms will naturally design products that are profitable. That is okay if it is not an essential service, but if it involves basic financial products and services that everybody needs, some intervention needs to happen. Over the last 20 years or so, we have been asking amoral markets to make moral decisions about who gets what product at what price and who gets excluded. The biggest issues in the financial exclusion area that are not touched by the FCA’s consumer duty coming out or by its consumer vulnerability guidance are those that lurk around income when people cannot afford a product.
I will give one example to bring this to life. It is on insurance—we have talked about this before, Craig. Increasingly, insurers are becoming ever so good at finding individualised risk per person. Technology is great for that. As a rule of thumb, the mark-up works really well if you are healthy and wealthy. If you are not wealthy and healthy, you are a higher risk, and increasingly you are asked to pay more for your insurance product. We know, for example, that people in poverty pay about £300 more a year for their insurance because of their postcode, and they pay another £150 a year on top if they cannot pay up front and have to pay monthly. Those issues go across insurance. I and many of my colleagues in different organisations spend all our time going to the Treasury and saying, “This is an issue.” The Treasury says, “We have not got the data. Go to the FCA.” We go to the FCA and it says, “The pricing of risk is social policy. It is not for us. Go back to the Treasury.”
Then you go to the Competition and Markets Authority, then the Equality and Human Rights Commission. Everybody points back to the FCA as the only body, often by law, that can get access to this information, but it refuses to because it is not a priority and not within its scope. So we are simply saying there should be a “must have regard to financial inclusion” with a requirement to publish—not to do social policy, but to allow the consumer market organisations to have a conversation about these issues that have been going on for decades. As an ex-teacher, I have a handout, which explains it in one slide.
Many thanks for all your work in this area. I am interested in your thoughts on the increasing number of businesses refusing to accept cash. If that becomes commonplace and we become a virtually cashless society, will that not pose a risk for SMEs, if payment transaction costs rise, for exampleQ ?
That is a really important question. When we look at some other countries, that has been the real crisis point. In Sweden, for example, the crisis point hit when shops stopped taking cash. If you are dependent on cash, there is no point having it if you cannot spend it.
I have spoken to literally hundreds of small businesses. The main reason that they do not take cash is not hygiene or anything like it; it is the ability to bank cash. If you go back three or four years, a small retailer used to shut up for 10 minutes at lunch time, pop over the road, deposit their cash in the bank and pop back. What they might now have to do, with the local bank 20 miles away and open between 10 and 3, is to shut up for an hour in the peak of the day, drive, park, queue and drive back. No wonder many shops say, “You know what? It is only 20% of my customers. I will go cashless.”
That is why in this legislation, deposit facilities are just as important as cash access. It is an area where the industry is behind. You can have deposit-taking ATMs—they are just as well tested as ATMs that issue cash. We do not yet have any mechanism in the UK for third parties to use them. It is something that I am working with the industry to solve, but this legislation is utterly critical. If small businesses can deposit cash easily, most will keep taking it.
Q To both our witnesses, do you agree that there is a societal duty for the Government to ensure that the most vulnerable people in our society have free access to cash?
Yes, I do. The one thing I would say as you consider the drafting is that the Bill covers small businesses as well as consumers. Small businesses, typically, via their contracts, pay for their cash access. As you draft amendments, limiting that to retail consumers is going to be important. I do not think that there is any appetite for banks to want to charge for cash access, so I do not think that you would get any opposition to putting that in the legislation or empowering the FCA to take it through to regulation.
There is absolutely a need for this. Bearing in mind today’s audience, I did a bit of research and looked at the poverty premium at a constituency level for different MPs. It might surprise you to know that a typical parliamentary constituency loses £4.5 million a year in terms of the poverty premium. That is money that could be going into your constituents’ pockets. We have linked that to research that shows that the poorer you are, the more likely you are to spend that locally. The reason I am talking about this point right now, as well as it costing £2.8 billion across Great Britain, is that the poverty premium very much exists for people trying to access cash.
If you lived in, let us say, the Conservative constituency of Vale of Clwyd, people are paying about £40,000 to access their own money. If, for example, you were in Kingston upon Hull West and Hessle, you would be paying around £70,000 to access your own money. Say you lived in the SNP constituency of West Dunbartonshire —I cannot say it; I should have practised that before I came—people are paying £64,700 in that constituency to get access to their own money. I hope that is a good representation of why we need to tackle it.
Q Martin, as you alluded to, you gave some powerful evidence to our all-party parliamentary group last year on the poverty premium, which I think was off the back of a report from the FCA that said there were about 27 million people with characteristics of vulnerability. I think most of those were around buying insurance. In the last 12 months, has any progress been made? One of the areas we have talked about as much as cash machines is, when looking at things like insurance, the digital disadvantage that is a problem. There seems to be an ever-growing push to push people online. You are a former teacher, but I am a former insurance broker, and I think that the benefits of advice, in particular to vulnerable customers, should not be understated. What are you seeing now?
Unfortunately, not a lot of progress has been made. We have had numerous conversations with the Treasury, signposting to the FCA. Some days we have the conversation about how we do not have enough data, which we cannot get hold of—firms have their own data on insurance, how it is distributed and how the calculations are made—so, unfortunately, nothing can be taken forward.
We have now done a second piece of work. We did one with the Institute and Faculty of Actuaries, which agreed that there is a real positive premium issue. We are doing a second report with the Social Market Foundation, calling again for the FCA to collect the data and for the Treasury to understand how far prices are a market problem, so regulation can tackle it, or how far it is a social policy problem, so social policy makers can tackle it. However, we cannot get further than that. I have probably been having this conversation for the past 10 years. In our world, as an ex-regulator, if it does not get measured, it will not get done.
Q I have one quick follow-up. With that in mind, is the FCA the right one to have a remit for financial inclusion? If not, who should?
Importantly, when asking the FCA to do social policy, it would not allow it. What it is about is closing that complete spiral. Seventy-odd organisations have signed our call, and some firms. We are trying to close that loop so that we can have conversations about the most difficult things affecting the poorest of your constituents. That is all we are trying to do, and what I would urge you to support.
Q Thank you both for your work in this area. Martin, you might have heard Sheldon from the FCA earlier trying to reassure us all that we do not need to have regard to financial inclusion, and that it is all fine and there is nothing to see here. Will you elaborate? If the FCA had a “have regard” to financial inclusion, what difference would it make to the lives of people facing financial exclusion? Can you provide any examples of the interventions that the FCA could make if it had that “have regard”? What difference would it make? The FCA is saying, “It’s all fine, and we do something anyway”, and it pointed to the consumer markets—that was its answer.
Gosh, there was a bit there. Remind me if I do not get everything. First, the FCA will talk about the consumer duty and its vulnerability guidance. Neither of those touches anything to do with income. Vulnerability touches lots of things, like losing a partner or disabilities, which is great, but looking at income does not touch any of it. I have had numerous conversations with the FCA, and it is not supportive of this, but it recognises the issue, although it has not come up with an alternative.
On examples of how this would have worked well in the past—actually, I have a current one. How long has Natalie been trying to get some action here, on access to cash, before the infrastructure absolutely wilts away? It is a race against time. I was in the FCA 10 years ago, or whatever, and I saw all the letters going between Departments and the FCA to say, “Let’s not touch that. It is not in our remit.” That is a live one right now.
Past examples: the loyalty premium insurance everyone knew was an issue. It took Citizens Advice getting all its resources together to do a super-complaint to get any further on the loyalty premium in insurance. Access to basic bank accounts—Sian Williams at Toynbee Hall was going at this for years before we got any further. Those are the types of intervention that would be allowed.
On the difference at the ground level, I could go through a few more parliamentary constituencies. For example, tackling the insurance poverty premium would make a huge difference of £500 million to your constituents, James; it would make a difference of one million three hundred for your constituents, Emma. I could go on.
One other quick thing is that, when we talk to people in the community, they do not have a clue why the market is why it is. People like me can say, “Cost to serve—it’s a rational way the market is working.” But if you ring up and say, “I want car insurance,” they say, “We don’t serve you—it’s your postcode.” I have had people say, “If I cross the road in Glasgow, my life expectancy goes down by this much. The same applies in terms of my insurance going up.” People say they are lying on their insurance forms by putting different postcodes on, because they need their car because they are disabled. This is how consumers react to a system that does not work for them.
Q You mentioned before the letter and the number of people supporting the “have regard” to financial inclusion. I wonder whether it is worth sharing with colleagues who the people who support the “have regard” to financial inclusion are, and whether they elaborate on the reasons why they have supported that. Even though you are a wonderful spokesman, it is not just you supporting it, is it?
No. We have Martin Lewis on board, for example. That might surprise some people. We have Andy Briggs, chief executive of Phoenix Group. We have Lord Holmes of Richmond, from the House of Lords. We have the Legal & General Group chief executive. That is as well as other organisations that you might expect, such as Citizens Advice. There are about 70. This is not a niche area. People see it and see the need for it. It is not just Fair by Design.
Q I think both of you will agree with what I am about to ask you. Would you agree that those most in favour of a cashless society are those with the most money in their bank?
Q If you look at other countries that are far more digitally enabled than the UK and Northern Ireland, notably Estonia—let me declare a non-pecuniary interest as the chair of that all-party parliamentary group—the vast majority of Estonians, who do have more or less a cashless society, believe that a cashless society or access to cash, should I say, needs to be supported with the infrastructure that you mentioned earlier, Natalie.
I think that is absolutely true. One thing I would say, perhaps to connect to the points that Martin has made, is, “Wouldn’t it be nice if everybody could participate in a digital society?” There is a risk that we talk about protecting cash for its own end. The reason why we are talking about protecting cash is that the most vulnerable need it, because it works better for them than digital.
We also, in parallel, need to work to a society where everyone is included in a digital economy. If you are dependent on cash, you shop locally; you cannot shop online. That means that you pay more for your goods and services. You cannot do direct debits. You probably have a prepayment meter. Actually, your costs of living, if you live on cash, are much higher. But the people who use cash are not stupid. They are not doing it because they have not worked that out; they are doing it because they have not got a choice, so I think that in parallel—this is not covered by this Bill, but it should be something that we collectively work on post the Bill—we need to work on how we include everyone in a digital society.
That is broader than financial services. In Britain, 4.5 million people do not have any kind of smartphone; 1.5 million people do not have any broadband or mobile connectivity; and 1.3 million people do not have a bank account. There are some bigger societal issues to tackle, but we have to really make sure that this is an inclusion debate.
I think this will be the last question, asked by Stephen Hammond.
MartinQ , you have mentioned that you were a regulator, and I think I heard you say a moment ago, “If it doesn’t get measured, it doesn’t get done.” Therefore I am keen to ask you about and understand—you have obviously looked at the Bill in its totality—the need for metrics on net zero, competitiveness and proportionality. Do you think there is enough in the Bill and that is testing and stretching enough? And do you think that there is enough transparency in relation to the regulators to show that they have met those metrics?
Martin, I want to ask you very quickly about all the data that you have been listing in the evidence. I take this evidence session very seriously. I think that it would be really helpful if you could share the constituency data, but also, importantly, the workings. Can you just confirm that the way in which you are working out the poverty premium is not based on a best-case counterfactualQ ?
Q Well, it is based on either a best-case counterfactual or average consumers’ costs. Which is it?
We have a whole list. We deal with Bristol University. We do a range. We work out an average. And then we have figures that go much higher. If it is one in 10 of people who are in poverty, we would have a higher one. We have a whole range that we can present to you.
Q But is the data that you have been rattling off today to all of us specifically on the best-case counterfactual or on an average cost per consumer?
Q Okay. Maybe write to me with your workings and we will go from there. If you rattle off data in an evidence session such as this, it is important for you to know how that data was calculated.
How they have worked it out is on the website.
That still does not answer my question. If you are going to come to a Committee such as this, please provide your data.
Order. I am afraid that brings us to the end of our allotted time for this panel. On behalf of the Committee, I thank our witnesses.