Session 2005-06, 15 November 2006
Tackling credit and savings is 'crucial' to progress on
financial inclusion, says TSC chairman John McFall
Poor people who get access to credit pay the highest charges for it, according to Treasury Select Committee chairman, the Rt Hon John McFall MP.
And early action is needed to tackle high-cost credit and illegal lending if the Government is to make serious progress in combating financial exclusion.
Mr McFall was speaking following the publication of a committee report which analyses the challenges of financial inclusion.
He added that the recent Farepak collapse has highlighted the fact that the Government also needs to look at savings. "This is crucial," said the chairman.
The new report identifies priority areas for action in relation to credit, savings and financial advice which meets the needs of low-income consumers and is not linked to a sales process.
Mr McFall said: "The committee concluded that poor people end up paying proportionally more for their money. This is something that has been highlighted throughout our inquiry. "Many of the financial services that most people take for granted are either not available to many of the most vulnerable in our society, or are only available at a premium. The burden of debt blights the lives of far too many people in our society."
The committee report identifies five key areas for priority Government action on credit markets to tackle financial exclusion. They comprise:
A clampdown on illegal money lending;
Increased competition in the home credit market;
Better data-sharing among and for lenders;
New legislation to allow credit unions to diversify, raise capital and reduce their costs.
Making the Government's own Social Fund a more effective lender.
Mr McFall said: "In the last Parliament, in our work on credit cards, we highlighted the importance of data-sharing. I am disappointed that the Government has not taken a clearer lead in this area.
"Our report highlights the importance of involvement in data sharing by housing associations and local authorities. It is now time for the Government to knock heads together and ensure that real progress is made."
He added: "Credit unions have a crucial role to play in promoting financial inclusion, but some are prevented from expanding into areas such as insurance and mortgages and the provision of Child Trust Funds. An early Government commitment to a new Credit Unions Act would help assure those in the third sector that there is public sector support for them to play a greater role in future."
On the "crucial" question of savings, Mr McFall said: "At present, savings are not given sufficient priority in the Government's financial inclusion strategy."
"Even small levels of savings are crucial to those on low incomes, as the recent case of Farepak has highlighted."
"Previous work by the Treasury Committee has highlighted that the savings industry is not doing enough to cater for those on below average incomes."
"The first pilot phase for the Saving Gateway was most encouraging, and the Government needs to take early action to create a nationwide scheme for Government matching of savings by those on low incomes."
"Similarly, the market has not yet developed cost-effective generic financial advice available to all. Too often, financial advice is linked to the commission-driven model and the sales process."
"There is a compelling need to develop a system for providing financial advice to those who need it mostthose with little money, little or no savings and limited experience of financial products."
"In time, such people can become full players in the financial services markets and profitable customers, and it is in the interests of the financial services industry as well as the Government that such generic financial advice is available."
"Progress on this issue under the FSA's leadership has not been as rapid as the issue warrants, and we call for the Treasury to assume lead responsibility for brokering an agreement on a national financial advice network."