SUBMISSION: London Assembly Economy Committee Inquiry on Access to Financial Services

October 6, 2017

The Financial Inclusion Commission is an independent, nonpartisan body of experts and parliamentarians who want to see an improvement in the financial health of the nation. The Commission offers leadership, co-ordination and accountability, and acts to raise awareness and advocate for change. It is supported by MasterCard but is wholly independent. A full list of Commissioners can be found in Appendix A.

For more information visit our website www.financialinclusioncommission.org

We welcome the work of the London Assembly Economy Committee in conducting an investigation into the Mayor’s role in promoting and supporting financial inclusion in London in directing further parliamentary and political attention to an issue of great importance to the livelihoods of citizens, and the future economic stability and prosperity of the UK.

Our primary focus is to encourage leadership and coordination across the country. In addition, our 2015 report Financial Inclusion: Improving the Financial Health of the Nation, made 22 recommendations for stakeholders across industry and sector.

1. What is the extent of financial exclusion in London, how does it manifest itself and what do we see as its main causes?

  • The Commission defines financial inclusion as the availability and uptake of essential financial services, at affordable costs, to every section of society. Financial inclusion ensures everyone in society has enough skills and motivation to use these services, and to benefit meaningfully from them. Financial capability, i.e. the awareness and skills necessary to participate in the financial system, is a key element which underpins inclusion. The Greek Temple model we have developed (below) highlights how the Commission views the various constituent parts in achieving a financially inclusive society.
  • According to the Trust for London’s London Poverty Profile 2015, London has 2.25 million people living on low incomes. This is greater than the populations of Manchester, Liverpool, Sheffield and Leeds combined.
  • Financial exclusion can have an especially detrimental impact on people with low incomes and/or those struggling with debt due to lower levels of financial resilience - leaving people susceptible to greater harm when experiencing a change in circumstances.
  • The number of Londoners living in poverty who are in a working family has increased by 70% over the last decade. The new ‘national living wage’ will have limited impact in the capital. Already the proposed 2020 rate is below the current London Living Wage.
  • The Money Advice Service has found that population density in London creates complexities, and there is often great diversity in the levels and types of debt within a small geographic area. This underlines the difficulties posed by the issue of financial exclusion, and the need for a nuanced approach.
  • MAS has called for the Mayor of London to promote affordable credit options and the uptake of debt advice which could prevent, or reduce, the harm caused by problem debt.
  • Analysis by Social Market Foundation estimates that about two per cent of Londoners are without a bank account. This is slightly lower than the average for the UK, but still represents a significant number of Londoners.  The main reason given for not having an account is that people have insufficient money or are on benefit.

2. What kinds of support are currently available to those financially excluded?

The following are categories of stakeholders who are active in financial inclusion:

  • Regulators (FCA, Payment Systems Regulator)
  • Local authorities (e.g. Tower Hamlets has a financial inclusion strategy)
  • Debt charities (Toynbee Hall, StepChange, Money Advice Trust)
  • Advice groups (Money Advice Service, Money Charity, Citizens Advice)
  • Private sector firms (banks, insurers, alternative finance providers)
  • Charities (Christians Against Poverty)
  • Church and religious organisations (Church of England, Taskforce)
  • Trade associations (UK Finance, Consumer Credit Trade Association, Consumer Finance Association)
  • Credit Unions and community finance organisations (Fair Finance)
  • Academia and Think Tanks (Open University, Bristol University, CSFI, Social Market Foundation)

3. What role should Government, the charitable sector and business play in promoting financial inclusion?

Provide political leadership

  • We welcome the appointment of a Minister for Financial Inclusion and Pensions in DWP and the incorporation of financial inclusion in the remit of the Economic Secretary to the Treasury. However, Whitehall, the devolved administrations, local authorities, voluntary organisations and industry are still working in different ways to address financial exclusion. 
  • There is an opportunity for the Mayor to provide leadership, by speaking about the importance of financial inclusion in the Capital. This will be particularly impactful given London’s position as a global financial centre.
  • Recommendation: The Mayor should organise a summit on financial inclusion, setting out the importance of the issue to Londoners as well as the need for wider political leadership on the issue.

 Appointment a Deputy Mayor for financial and social inclusion

  • The appointment of a Deputy Mayor tends to signal the importance of a key policy area. The creation of a Deputy Mayor with policy responsibility for financial and social inclusion would therefore give significant profile to the issue.
  • The Deputy Mayor would have a mandate to speak and engage on financial inclusion - and related issues - moving it up the political agenda in London and nationally.
  • Recommendation: The Mayor should appoint a Deputy Mayor with responsibility for driving financial inclusion (as part of the wider package of responsibilities, including tackling social exclusion and poverty).

How could the Mayor work with the charitable sector and business to support and promote financial inclusion?

Housing 

  • The Commission’s 2015 report found that local authorities and housing associations, with the support of the advice sector, are trialling approaches to support financial capability and tackle indebtedness. Several major local authorities have adopted their own local financial inclusion strategies.
  • This is against a backdrop of changes to the benefits system, which will see Housing support paid to the recipient, rather than Housing Benefit paid direct to the landlord.
  • 92% of tenants would prefer direct rent payments to the landlord to continue under Universal Credit, according to the National Housing Federation.
  • Recommendation: The Mayor could support the Financial Inclusion Commission’s call for the building of financial skills and points of engagement. For example, some local authorities have used signs of financial difficulty, such as falling into arrears or applying for a Discretionary Housing Payment, as an opportunity to engage people in budgeting support. The Mayor could champion these efforts and promote them across London.

Planning powers

  • A full review of the London Plan (‘the Mayor’s Spatial Development Strategy’) is taking place. The course of the next London Plan is yet to be decided.
  • In the present London Plan, section 3.2 covers ‘improving health and addressing health inequalities’. It states that the Mayor will promote a ‘healthy place for all’ including ‘promoting a strong and diverse economy, providing opportunities for all’. Financial inclusion could be woven into promoting stronger, healthier communities.
  • Recommendation: The next iteration of the London Plan could support the development of strong and financially healthy communities by encouraging retail space for alternative finance providers (e.g. credit unions) in place of high cost credit providers (e.g. Rent-to-Own and payday lender shops).

Economic Development Strategy

  • Given the importance of the Mayor’s economic development strategy, a section on promoting financial inclusion in the document would add significant weight to the issue.
  • The need to address financial inclusion could feature in one of the objectives (for example, using a variant of the current objective 4 in the 2010 strategy ‘to give all Londoners the opportunity to take part in London’s economic success, access sustainable employment and progress their careers’).
  • Recommendation: Update the strategy with a reference to financial inclusion. This will provide a formal marker of the Mayor’s commitment to this important issue.