There can be little doubt of the importance of financial inclusion at this time. There are now millions more people facing economic hardship as a result of the Covid-19 pandemic. Yet, the environment was already difficult enough for many before the effects of the virus took hold.
The UK entered the crisis with half its population financially vulnerable – 12m categorised as ‘financially struggling’ (generally on low incomes), and 13m as ‘financially squeezed’ (better off but pretty highly leveraged). The crisis has laid bare the existing weaknesses, vulnerabilities and structural inequalities that cause detriment, providing an opportunity to re-assess how financial exclusion has been addressed in the UK.
Whilst we welcome the Government’s package of measures announced by the Chancellor in July 2020, we believe that this investment in jobs and training needs to be underpinned by a strong welfare safety net that provides support when people need it. We need to go further in tackling the four million households who are facing £6bn of new debt since lockdown and have low financial resilience to cope with income shocks.
The virus has shown how important it is for people to have protection from income shocks which are the biggest reason people get into debt. According to StepChange debt charity, before the current crisis 14 million people in Britain had experienced at least one income shock within a twelve-month period. Without an adequate safety net, people can end up in a spiral of problem debt. But not everyone can afford to protect themselves privately, and the evidence suggests that the more you need insurance the costlier it is, with some people actively locked out of getting it altogether.
Furthermore, all too often people who should have access to affordable credit, no-interest loans or grants are instead pushed into using high cost credit. This makes a bad situation worse. More must be done to support the provision of affordable credit to those who need it most and there is a need to scale the affordable credit sector to meet demand. Long term affordable credit must also be more accessible for small businesses as part of a wider effort to work towards greater financial resilience among this significant part of the economy.
We must also make repaying debt much more manageable; addressing this will be fundamental to ensuring families and households are financially resilient to future shocks. There is a need for cross-sector and cross-regulator co-ordination so that people with multiple types of debt are treated fairly and equitably by all their creditors including local and central government, utility firms and lenders.
The access issues created by bank branch closures, fee-charging ATMs and the shift of financial services online have been exacerbated by Covid-19 and continue to disproportionately impact people who are least able to deal with them. This problem is not just a concern for rural areas but affects a variety of individuals as digital and financial exclusion intersects. Internet connection is essential to carry out business in the new environment providing the key to accessing cash, banking and financial services including pensions, funding through Local Authority schemes, business advice, transport and skills. A lack of access to any of, or a combination of any of these could result in financial exclusion.
Whilst the steps taken in the Chancellor’s summer statement are welcome, there are crucial gaps which must be addressed to ensure those with no financial resilience, especially those saddled with increased debt over this lockdown period, are not left behind. It is crucial that the Autumn statement tackle these gaps and provide measures for those most impacted by the pandemic through debt.
You can find our full response to the Chancellor’s Summer Statement here.