It is a pleasure to take part in this debate with you in the Chair, Mr Walker. I thank Nicky Morgan for securing the debate and for the important work she undertakes as Chair of the Treasury Committee. I am particularly pleased that the Committee emphasised the importance of access to financial services and financial inclusion. As we have shown in this relatively short debate, it is an issue that potentially touches us all, because we can all become vulnerable, and access and inclusion are crucial elements of a functioning economy.
“We are in an environment where you have to be able to transact to survive.”
The statistics provide a very worrying picture, because many people are struggling. The Financial Conduct Authority estimates that 3% of UK adults cannot transact in that way because they have no current account and no alternative e-money account. That is a significant minority, and it includes some of the most vulnerable people. That indicates that much stronger action is needed.
I will focus my remarks on vulnerability, poverty, the availability of credit—particularly low-cost credit—post office banking, bank branch closures and the policy process in this area, particularly as it applies to basic bank accounts. The report quite rightly considers the relationship between financial exclusion and different types of vulnerability. Obviously, a consultation is going on at the moment on whether current definitions of vulnerability are appropriate. There is a very welcome focus on mental illness in the report.
I was struck by the right hon. Lady’s remarks and the case study she mentioned. Actually, we were promised that we would have so-called jam-jarring available within financial services by now. It is not standard, and nor is it standard in relation to how people are paid their social security. Often people request that kind of approach so that they can manage their money properly. They are doing the right thing in acknowledging that they might have issues, but they are not being aided by the technology. As Marion Fellows said, it is often the most technologically literate who have the greatest resources and can make use of technological innovations. That needs to be accelerated, but we also need to acknowledge that although technology can empower, it can discriminate as well.
I have had discussions with people involved with the Money and Mental Health Policy Institute, who have pointed out that although it is possible to use people’s financial transactions to pinpoint and identify vulnerability, such information could be used to ration services and access, as well as to facilitate them. If it is used, for example, to take people to a pop-up chat with an adviser, who can say, “Are you sure this is what you want to be doing? Can I help you?”, that is fine, but if it makes it harder for people with mental illness to access services that we benefit from, that is inappropriate.
The report rightly focuses on access for vulnerable groups, such as elderly and disabled people, and on a number of risks that technology can embed, which result in people being unable to access the most basic financial services. In many cases, that is getting worse because of issues such as the use of touch-screen technology, which was mentioned earlier, and the speed at which high street banks are closing. I will come back to that point later.
The report contains useful recommendations about vulnerable people’s access to financial services. I support the recommendation that the Financial Conduct Authority should consult on how power of attorney works in relation to financial services. If that is done properly with appropriate safeguards, it could improve the situation for many carers and those they care for. The discussion in the report about that is very helpful.
The discussion in the report about the Equality Act 2010 is very useful. The Labour party is committed to strengthening the Act and other anti-discrimination law. There is clear evidence, which is repeated in the report, that it is not being complied with in a number of areas, and that is simply unacceptable. The exchange between Jim Shannon, who is no longer in his place, and the right hon. Member for Loughborough was very instructive in that regard. I am sure that every Member in this Chamber has a whole bag of cases involving people with various vulnerabilities who have not been treated in the way that we would expect. That has to end, because it is discrimination.
The report touches on issues relating to low-income households at various points. The discussion of the loyalty penalty was very interesting. Citizens Advice’s work shows that the average consumer pays up to £1,000 per year more because of the loyalty penalty. That is clearly totally unacceptable. The Competition and Markets Authority noted that people on low incomes are much more at risk of paying the loyalty penalty. For people in the bottom 10% of income, it could account for up to 8% of their spending.
The CMA’s recommendation about transparency is welcome. There should be more accountability. Regulators should publish the size of the loyalty penalty in key markets and for different firms annually, but as the report states, just informing the public about the loyalty penalty for each firm is not enough. It is clear that regulators currently have little ability to protect customer interests in that respect, so we need to focus on that much more strongly. The time is right to reform the regulatory system in that respect and for many other areas of financial services. The Labour party commissioned a review by Prem Sikka, the academic, to look into some ideas for reform, and it has now been published.
The points that the hon. Member for Motherwell and Wishaw made about access to cash were very relevant. Even with the current standards, we all know from our constituencies and elsewhere that there are pockets where access to cash is not available. It tends to be in areas where people have low spending power and are incredibly reliant on cash that there is not the provision that we expect.
The report did not examine the relationship between poverty and financial exclusion, as the 2017 report by the Financial Exclusion Committee in the other place did. I completely understand that the Treasury Committee had a slightly different focus. It would be useful to look at that issue in more detail, because in the Financial Exclusion Committee report, Gingerbread reported that single parents and low-income households often find that they are disproportionately excluded from financial services. Lower-income people often pay much more for financial services, compared with those with greater incomes. The Child Poverty Action Group said that that is the case, despite the fact that most low-income households manage their limited resources well. We are often told that the answer for people with few resources is to manage their money better. Well, many of them are extremely good at doing that already, and I was very pleased that the right hon. Member for Loughborough confirmed that. The Lords report also looked at the so-called poverty premium and how it exacerbates the effects of financial exclusion. It is important that we bear that in mind and continue to look at it.
Problems in accessing lower-cost credit primarily affect low-income households, and it is good that the report looked at that in detail. It praised the Government for their proposed pilot of a no-interest loan scheme in the 2018 Budget, but that arguably does not go far enough in tackling consumer debt. We still do not have a clear timetable for when that measure will be implemented. The Labour party and I believe that it is essential to go further. For example, we should cap the total amount that a person can pay in bank overdraft fees and interest payments on credit card debt. People who get caught by overdraft fees often use other forms of credit to pay it off because it is such an expensive debt and is extremely bad for them.
It is unfortunate that the Government have not really grasped the issues relating to debt enforcement. That is becoming more of an issue in many parts of the country, particularly given changes to the withdrawal of funds for council tax relief. Individuals are now being pursued for small amounts of money in many parts of the country. This report and the Justice Committee’s recent report show that we need much stronger action against poor practice in the debt enforcement industry. We should implement many of the measures recommended in the Treasury Committee report and, for example, introduce tougher regulations on debt enforcement firms, such as changes to terminology in payment letters. We must ensure that the language is understandable to people with varying literacy levels, and that information about how to seek help with debt is given equal prominence to demands for payment.
The report also examines the issue of those who are unable to access affordable credit because they lack a credit history. We believe that the Government’s approach so far has been inadequate. Obviously, there has been the pilot, and they have tried to get the private sector to take this forward. We need to have more of a discussion about how to ensure that people can build up a credit history. I hope the Treasury Committee will continue to do that, but the discussion in the report was useful.
Let me move on to the post bank and bank branch closures. The Labour party is looking at research that we commissioned on how the post bank approach can be revitalised and how we can ensure that it provides good quality services that are good for both the Post Office and local communities. We think it could be possible to do that on the basis of the research that we commissioned. There could be 3,600 additional post bank branches, compared with what we have currently. That would help communities that are currently struggling with access to banking facilities, and in many cases would also help high streets. We think that using and building on the existing infrastructure is probably the most sensible way forward. This is not about tweaking; it must be more fundamental. We cannot just load more activities on to already pressed postmasters. The comments of Colin Clark were useful in that regard. This is not just about the post office network; we need other reforms elsewhere in the financial ecosystem, and we must also focus on the behaviour of the big banks. I concur with many of the comments of the hon. Member for Motherwell and Wishaw in that regard.
I want to talk a bit about the policy process in this area—in particular, the perils of not having a strong focus on implementation, and the initial legislation. The basic bank account legislation initially arose out of the EU payment accounts directive. Research conducted by Citizens Advice shows that, in practice, basic accounts are often still not very visible to consumers who might want to use them. Banks’ processes for determining what kind of account to give people rely too much on credit checks, and applying for a basic account is still too difficult for many people. The Committee recommended that the FCA should mandate banks to relax the restrictions on basic bank accounts and make them available to all—that is very sensible—and that it should require financial services to report how many basic current account openings they have rejected. That would be very helpful.
One particular problem that I have come across is that many of the most vulnerable and most excluded customers are informed that they cannot have a basic bank account because there has previously been some indication of fraud related to their financial activity, but no evidence of that has to be provided. In many cases, that fraud could be due to manipulation by others—for example, if people have been subject to domestic violence—or it could be because people had been addicted to substances and previously led chaotic lifestyles that are now behind them. Christians Against Poverty is concerned about that; it needs to be looked into and I hope the Government will do so.
We need a much stronger focus on the issue of access to financial services. We have mainly talked about access to basic banking—the Committee has a lot on its plate, so I do not want to suggest that it should deal with even more—but the savings infrastructure is another area in which there have been some worrying developments. Some 57% of UK adults do not have savings beyond £5,000. Help to Save was an interesting idea but it has not yet had the traction that many of us would have hoped. We still urge the Government to try to incorporate the credit union sector more closely with that initiative, and I hope that in future, the Government will view credit unions much more as part of the solution to many of the problems than they have in the past.