Progress on the financial inclusion
agenda
2. Although we make more specific comments about
aspects of the Government's financial inclusion strategy document
published in March 2007 later, we welcome its publication and
the establishment of the Ministerial working group on financial
inclusion. We look forward to examining the Government's financial
inclusion action plan and further proposals of that working group
in due course. (Paragraph 7)
The ministerial working group, including members
from HM Treasury, DWP, BERR, CLG, Cabinet Office and MoJ, has
been presented with new evidence and emerging developments to
inform the development of its action plan for financial inclusion.
The ministerial working group has now finalised the
Government's action plan for financial inclusion for the Comprehensive
Spending Review (CSR) period, 2008-11, and this is published on
the Treasury's website today. Copies will be placed in the House
shortly.
3. We welcome the Government's commitment to continued
funding to enable maintenance of the current level of intensity
of action to promote financial inclusion up to 2010-11. We expect
to examine the final allocation of resources to the Financial
Inclusion Fund following the announcement of the final outcome
of the 2007 Comprehensive Spending Review. (Paragraph 8)
In the CSR in October 2007, Government announced
that the Financial Inclusion Fund for 2008-11 will total £130
million, an 8.3% increase delivered in a tight spending round.
The Government's action plan, published today, sets
out in detail how Government will deploy the £130 million
Financial Inclusion Fund, as well as additional contributions
from other departments, as detailed in the action plan, to achieve
its financial inclusion objectives in the three-year spending
period from April 2008 to March 2011.
4. We welcome the commitment to continued funding
of face-to-face money advice up to 2010-11 and look forward to
learning more about the Government's evaluation of projects so
far. (Paragraph 9)
Today's action plan announces that the Government
will continue to support BERRs money advice initiative in 2008-11,
with funding from the Financial Inclusion Fund of £74 million.
BERR has provided a further £2m from its own CSR budget,
meaning total funding for the initiative will be £76 million.
Independent initial evaluation of the project was
conducted in the first half of 2007 and published, on 17 September,
on the BERR website at http://www.berr.gov.uk/consumers/consumer-finance/over-indebtedness/debt-advice/.
This Stage 1 evaluation was generally complimentary about the
project. The full list of recommendations and their follow up
actions by BERR and the Project Managers is also listed at the
above link. Stage 2 evaluation will take place in the first half
of 2008.
5. We welcome the Government's commitment to a
continuing and expanded role for the Financial Inclusion Taskforce.
(Paragraph 10)
Financial inclusion: the way forward announced
Government's extension of the Financial Inclusion Taskforce until
March 2011, so that the Taskforce can continue its excellent work
in monitoring and evaluating progress, and advising the Government
on developments in financial inclusion.
Today's action plan confirms that the Taskforce will
have responsibility for monitoring progress on saving and insurance
issues, in the context of financial inclusion. The Taskforce's
exact remit in these areas will be agreed in its new terms of
reference in due course.
Decisions on the future composition and terms of
reference of the Taskforce in the next spending period will be
taken in due course.
6. We look forward to the publication by the Financial
Inclusion Taskforce of further information on the opening and
operation of basic bank accounts. We also look forward to a statement
by the Government later this year about further action agreed
between the banks and the Government to ensure that the number
of people who are "unbanked" is further reduced. We
expect to continue to monitor developments in this area, possibly
in the context of our forthcoming inquiry into Competition in
Retail Banking. (Paragraph 15)
In September 2007, the Financial Inclusion Taskforce
provided its detailed report on progress towards the shared goal.
This report shows that 800,000 adults living in 500,000 households
had been brought into banking by September 2005, representing
60 per cent of the progress required to achieve the shared goal.
The Taskforce has reported that this progress had
been concentrated within a number of groups most vulnerable to
financial exclusion and its consequences, including those living
on low incomes, benefit recipients, households living in socially
rented accommodation, and women and lone parents.
Progress with reducing exclusion from banking was
even greater from the perspective of access to a transactional
account (current or basic bank account): 1.6 million people in
1.1 million households had gained access to a transactional bank
account by September 2005. This measure is significant because
it is such transactional accounts that offer customers the full
benefit of a bank account.
The Financial Inclusion Taskforce will deliver a
final evaluation on whether the shared goal has been achieved,
once Family Resources Survey 2006-07 is available in 2008.
The action plan announces that the Taskforce will
also continue to gather further evidence on bank account usage.
In the light of this evidence the Government will, in 2008, initiate
discussions with the banks on whether a new shared goal for banking
is needed. The Government looks forward to continuing to work
with the banks and the Financial Inclusion Taskforce, in line
with its commitment to maintaining a voluntary and partnership-led
approach to promoting banking inclusion.
7. We welcome the progress so far achieved towards
the target of providing over 600 new non-charging cash machines
and look forward to examining further progress in due course.
(Paragraph 17)
On 19 June 2007, the previous Economic Secretary
to the Treasury, Ed Balls MP, and John McFall MP issued a joint
update on the progress made to place 600 non-charging ATMs in
low-income areas across the UK, on which LINK has been co-ordinating
efforts with banks, building societies and independent ATM operators.
It was announced that of the target 600 new free cash machines,
127 free cash machines were already installed and sites for a
large proportion of the remainder had been identified.
8. In view of the steps that have been taken to
enhance the flexibility of identity requirements relating to money
laundering regulations, we are disappointed that the Government
has apparently discounted the option of making even limited cash
deposits into the successor to the Post Office Card Account. We
recommend that the Government re-examine this possibility in conjunction
with the FSA as a matter of urgency. We note the Minister's confidence
that the process of tendering for a successor to the Post Office
Card Account will strengthen the Post Office network, and we will
monitor the progress of the tendering process and the migration
to the successor product to see that this confidence does not
prove to be misplaced. (Paragraph 20)
The identification and verification arrangements
for the existing Post Office Card Account already involved utilising
considerable flexibility when compared to the normal approach
taken under the money laundering provisions. The Government's
view remains that for those customers who want to make cash deposits
into an easy to open and operate account, a suitable product already
exists in the form of basic bank accounts—many of these
can be accessed at Post Office branches and they operate in a
very similar way to the Post Office Card Account.
9. We welcome the Government's plans for the nationwide
extension of projects to tackle illegal lending. We recommend
that the Government set out, in its response to this Report, any
evidence of the effectiveness of the projects so far in reducing
levels of illegal lending, and that it report progress regularly
thereafter. (Paragraph 22)
The pilot teams were formally evaluated in 2006.
This evaluation found that the teams have helped identify almost
250 illegal lenders and have benefited nearly 2,000 victims, saving
them an estimated £3.3 million in payments. Investigations
have resulted in the recovery of almost £2 million of assets.
Proceedings have been instituted against about 60 individuals.
Court cases have resulted in prison sentences totalling
more than 15 years as well as 230 hours community service. The
longest prison sentence to date is 6 years 9 months for a loan
shark also charged with kidnapping, assault, wounding, and blackmail
and counterfeiting.
The rollout will step up enforcement action against
illegal lenders and also help victims to access affordable credit
and other sources of support.
In order to help victims and high risk borrowers
make the transition to other forms of affordable credit, teams
are building links with providers of money and debt advice, in
particular with Credit Unions receiving Growth Fund funding, to
help victims and high risk borrowers make the transition to other
forms of affordable credit. Project objectives now specify that
teams must monitor the outcomes of such referrals in order to
assess the project's success in helping victims to make a transition
away from illegal lending.
In terms of reporting on progress going forward,
all contractual agreements with illegal money lending teams specified
that they provide BERR with monthly reports to show progress against
success measures. BERR is committed to reporting progress across
the whole project regularly and will next do so in its Departmental
Report for 2007-08.
Today's action plan announces that BERR will continue
to fund an illegal money lending team in every region in Great
Britain until March 2011.
10. In view of the urgency which we attached to
progress on data-sharing within the credit industry as a method
of increasing access to affordable credit, we regret the lack
of reported progress on this matter by the credit industry and
the Government. We recommend that the Government, in its response
to this Report, provide a full account of actions taken in this
area and proposed further actions. (Paragraph 23)
The credit industry has made progress towards greater
data-sharing. At present it is believed that there is coverage
of up to 58% of consumer credit agreements on Credit Reference
Agencies (CRAs) databases (approximately 350 million accounts)
and CRAs report that lenders are signing up 30 to 40 new portfolios
a year.
Retail banks and credit card providers have fulfilled
their commitment to share data on all loans, subject to logistics
and feasibility. They have also worked to shape a non-mandatory
agreement for the sharing of positive data on current accounts,
recognising the unique nature of the current account relationship
and the particularities of overdraft facilities compared to other
credit products.
Following review of the sector by the Competition
Commission, the home credit industry is also moving towards establishing
a data-sharing system which takes account of the nature of typical
home credit loans—usually low value and with repayments
on a weekly, rather than monthly, basis. This measure in particular
is expected to improve access to credit for low-income borrowers.
The industry and the Office of Fair Trading are working together
to establish this system and are making significant progress towards
meeting the commitment that all major home credit providers will
have contracts in place with at least two credit reference agencies
on or before 13 March 2008.
Government has also continued to make progress in
this area. The Child Maintenance and Other Payments Bill contains
a clause which will enable the sharing of child support liabilities
data with credit reference agencies, providing a means for those
who regularly meet their child support responsibilities to enhance
their credit history as a result.
BERR is continuing to work with stakeholders to examine
ways to enable lenders to share data on 40 million historic credit
accounts where this is currently prevented by confidentiality
rules. This is a complex issue which brings into question matters
of personal privacy and human rights considerations. A response
to BERR's consultation on this issue will be published in February
2008.
11. We welcome the Government's commitment to
an objective of achieving a step-change in the coverage of third
sector lenders and its actions so far in pursuit of that objective,
including its promotion of a dialogue involving senior representatives
from the banking sector and its further financial support for
capacity-building among third sector lenders. We expect to continue
to monitor progress in relation to this new objective, including
through examination of the contribution of banks to support for
third sector lenders. (Paragraph 24)
Financial inclusion: the way forward announced
that the Government had asked senior representatives from the
banking sector to work with the Financial Inclusion Taskforce
to consider how to achieve a nationwide increase in the coverage
and capacity of third sector lenders.
The Financial Inclusion Taskforce's working group
on third sector credit, including senior members from the banking
industry, has considered how this progress might be achieved,
and has reported its recommendations to the Government. The working
group has recommended, in the medium term, that a doubling of
the capacity of the third sector is required in order to provide
affordable credit to 150,000 financially excluded customers a
year, and extend coverage into 25 priority underserved areas.
To achieve significant progress towards these targets,
the action plan announces that the Government will continue to
support the DWP's Growth Fund initiative, with £38 million
of funding from the Financial Inclusion Fund.
Furthermore, building on their successful work in
partnership with Government to increase take up of basic bank
accounts and their support for other financial inclusion initiatives
including easier access to free ATMs in low income areas,
the Government has received a commitment from
the banks to support third sector affordable credit, including
action to develop new provision in 25 of the high priority areas
identified by the working group. The Growth Fund team in DWP will
work with banks to identify areas most suitable for action, and
to ensure that action is coordinated and targeted strategically.
Action by the banks could include:
- secondment or placement of
staff with relevant experience and skills;
- provision of legal and other professional services;
- investment in IT systems and equipment;
- providing back-office premises;
- increasing lending and risk-assessment capabilities;
- providing access to banking platforms; or
- direct financial support to meet start-up and
other revenue costs.
The Financial Inclusion Taskforce will continue to
monitor the Growth Fund, and will also evaluate progress being
made towards the goal to extend provision to 25 high priority
areas. The Taskforce will report annually on performance of the
Growth Fund, and on the activities being undertaken by banks towards
extending coverage more widely.
12. We recommend that the Government initiate
a dialogue with the credit industry to examine whether arrangements
for the repayment for debt, including the Common Financial Statement,
could be adapted to provide increased provision for and encouragement
of saving at a suitable level by those in debt. (Paragraph 25)
The money advice and financial services sectors maintain
an ongoing dialogue, facilitated by Government. These discussions
have led to welcome agreements between the Money Advice Trust
and the British Bankers Association to develop tools such as the
Common Financial Statement (CFS), which enables an assessment
of how much a debtor can afford to repay to creditors without
incurring further financial hardship. The issue of saving has
already been discussed in the context of the CFS and it is the
intention to develop this further in coming months.
13. The Government's response to our conclusions
and recommendations relating to the Social Fund suggests a lack
of commitment to improving the Social Fund. We wish to see a renewed
commitment from the Government to the reform and future funding
of the Social Fund as part of the 2007 Comprehensive Spending
Review, bearing in mind that there will be a considerable time
lag before measures to achieve a step-change in the coverage of
third sector lenders make a significant impact on the capacity
of that sector. (Paragraph 27)
The Government sees the Social Fund as the backstop
of the tax benefit system, and is committed to continued improvements.
Substantial improvements have already been made in the operation
of the Social Fund; and an additional £210m over 3 years
has recently gone into the Social Fund and is increasing access,
including by increasing the total debt limit from £1000 to
£1500, reducing the highest repayment rate from 15% to 12%,
abolishing the double-debt rule, and an increase in the average
loan to £451 in 2006-07, up from £423 in 2005-06.
The Government's financial inclusion ministerial
working group has been considering aspects of the Social Fund,
particularly around involving the third sector. However, the Social
Fund is only one of a range of policy levers which impact on poverty
and financial inclusion, and as such should be seen in the context
of wider policy.
Today's action plan announces that DWP will conduct
a financial and practical feasibility study into whether the private
and third sectors can be brought into partnership with the Government
in delivering a reformed Social Fund budgeting loans scheme.
14. We look forward to the publication of the
Government's financial capability action plan by the end of 2007
and we will continue to monitor the activities of the FSA and
the Government to enhance financial capability. (Paragraph
29)
The Government welcomes the Committee's recommendation
and continued interest in this area. As set out in the Pre-Budget
Report, the financial capability action plan will be published
in Spring 2008.
The action plan will set out further measures to
help build financial capability, including progress on personal
finance education. Changes to the secondary school curriculum,
to be introduced in September 2008, will give financial capability
a more secure position through Personal, Social, Health and Economic
(PSHE) education. This will now include an 'Economic Wellbeing
and Financial Capability' strand. The Government has already announced
that it will further support personal finance education in Schools
with an £11.5 million package of comprehensive support and
resources. The action plan will include further details.
15. We welcome the Government's commitment in
principle to the development of a national generic financial advice
service and the establishment of the Thoresen review to examine
its feasibility. We note the emerging themes of that review and
look forward to examining its outcome. (Paragraph 32)
The Government welcomes the Thoresen interim report,
published in October. It set out the Review's direction of travel
and key principles, which provide the foundation for the blueprint
of a national approach to Generic Financial Advice. The Government
looks forward to the Thoresen Review's final report in the new
year and will include its response in the financial capability
action plan, due to be published in the spring.
16. We welcome the Government's decision to treat
insurance as a priority area within its financial inclusion strategy
and the initial investigation of the nature of the problem of
exclusion from insurance which is underway. We recommend that
the Government and the Financial Inclusion Taskforce report on
the outcome of their initial investigation in response to this
Report. (Paragraph 33)
Today's action plan announces that, in line with
recommendations made by the Financial Inclusion Taskforce's working
group on insurance, the Government will focus its policy response
for insurance on home contents cover for those living in rented
accommodation.
The action plan will focus on objectives in the following
areas:
- ongoing work by the insurance
industry to ensure that appropriate, and where necessary, tailored
home contents insurance products are available to both social
and private tenants;
- promotion and support for the supply of insurance
schemes by social landlords; and
- promotion of awareness of and demand for appropriate
insurance products, by both the industry and the Government, working
through appropriate intermediaries.
The action plan announces that these objectives will
be pursued through an initiative, to be integrated with Government's
work on promotion of demand, including an ongoing "now let's
talk money" campaign. To achieve this, the DWP will establish
a "financial inclusion champions" initiative, with funding
from the Financial Inclusion Fund of £12 million. This will
provide dedicated members of staff—with experience in working
on financial inclusion—to work with local authorities, social
landlords and other potential financial inclusion intermediary
organisations to:
- provide expertise and best-practice
coordination within local authority areas on insurance schemes
to make it easier for housing associations and other social landlords
(including councils and arms-length management organisations),
to establish insurance schemes for their tenants;
- providing a point of contact for the ABI campaign
promoting appropriate insurance products to low income consumers;
- provide the local intermediary outreach and co-ordination
needed to develop the local stakeholder networks on which the
"now let's talk money" campaign relies; and
- in line with recommendations from the Financial
Inclusion Taskforce, to provide a more strategic link between
"now let's talk money" and the local government sector.
The continuing "now let's talk money" campaign
will be delivered through the new champions initiative. The campaign's
scope will be widened to include home contents insurance and the
campaign will work closely with the ABI campaign. The effectiveness
and outcomes of the campaign will be monitored and evaluated on
a regular basis by the Financial Inclusion Taskforce.
The Financial Inclusion Taskforce will also have
responsibility for continuing to work with the insurance industry
to ensure that appropriate low-cost home contents insurance products
are available for people living on low incomes in privatelyrented
accommodation.
Saving and financial inclusion
17. Evidence received during the current inquiry
has reinforced our view that saving should be accorded a high
priority in the Government's financial inclusion strategy. We
welcome the Government's acceptance of our earlier recommendation
on this matter, and look forward to the formal extension of the
remit of the Financial Inclusion Taskforce to cover savings issues,
which we wish to see promulgated before the end of 2007.
(Paragraph 54)
The Financial Inclusion Taskforce's remit will be
widened to include issues relating to saving and financial inclusion,
including monitoring the OFT's "Save Xmas" campaign,
and efforts to promote access to and take-up of saving opportunities
- particularly in credit unions—through the new champions
initiative and the "now let's talk money" campaign.
18. The current inquiry has provided some signposts
for ways in which savings issues could be taken forward in the
context of financial inclusion. The statement in the Government's
latest strategy document that "saving accounts should be
available to all who need them" is not ambitious. That part
of the goal concentrates on a formal saving product. It does not
include any specific target or means by which progress against
that part of the goal can be measured. It does not deal with the
issue of the promotion of entry into saving, as opposed to availability.
We recommend that the Government's strategy on saving and financial
inclusion be formulated in consultation with the Financial Inclusion
Taskforce and with the following aims:
- to acquire further information
about the extent of personal saving of varying kinds, having particular
regard to saving patterns among individuals and households with
lower incomes and to the extent and variety of informal saving;
- to ensure that public policy is concerned
with the motivations for saving and with ways of promoting saving
for particular purposes, as well as with the promotion and regulation
of particular savings products;
- to ensure that public policy on saving pays
greater regard to informal means of saving as well as formal saving
products;
- to ensure that public policy on savings pays
greater attention to the saving needs of lower income individuals
and households and to shorter term as well as longer term products;
- to ensure that the objectives of National
Savings and Investments give proper weight to the encouragement
of savings;
- to establish a measure of personal saving
within the economy and at particular income levels that reflects
people's own understanding of what constitutes saving and that
captures the extent of informal saving; and
- to set a target for increased savings among
lower income households and individuals and enable progress against
that target to be measured. (Paragraph 55)
The Government agrees that promotion of entry into
saving is important. Today's action plan announces that the Government
will continue to promote access to and take-up of saving opportunities—particularly
in credit unions—through demand-side initiatives, including
OFT's "Save Xmas" campaign and the champions initiative
and "now let's talk money" campaign. Responsibility
for monitoring progress in this area will be given to the Financial
Inclusion Taskforce.
The Government recognises the importance of savings
in providing people with security if things go wrong, and comfort
in retirement. Since 1997 the Government has aimed to promote
saving and asset ownership for all across the lifecycle—from
childhood, through working life and into retirement. This strategy
has focused on:
- Improving the environment for
saving through a stable macroeconomy, a sound regulatory framework
and employment opportunity for all;
- Providing adequate incentives
for saving through the tax and benefit system—including
by developing a range of savings opportunities suitable for each
life stage; and
- Empowering individuals with the capability to
make the right saving choices.
The Government's approach has aimed to provide support
to all, with greatest support to those who need it most. Going
forward, the Government will seek to equip people with the capability
to make saving decisions, promote access to savings opportunities
and build on the incentives to save that have been developed,
to make them even more effective.
The Government has already announced that it will
boost capability with further support for personal finance education
in schools via an £11.5 million package of comprehensive
support and resources. The financial capability action plan to
be published in Spring 2008 will include further details.
The Child Trust Fund, ISAs and the pensions tax regime
all offer opportunities and incentives for tax-advantaged saving
throughout the lifecycle. The Child Trust Fund will ensure that
in future all young people have a financial asset upon starting
their adult lives. Over 3 million Child Trust Fund accounts have
been opened since 2002 In addition, Individual Savings Accounts
(ISAs) have proved successful in promoting saving more widely
among the population, One in three adults, over 17 million people,
now have an ISA. This is far higher than the number of people
that held PEPs and TESSAs, and includes a much higher proportion
of people on low incomes and aged under 25. From April 2008, a
package of reforms will come into effect which will make ISAs
even more attractive by allowing people to save more, and being
more flexible and simple to use.
As the Committee are aware the Government has sought
to test the effectiveness of targeted support to lower income
individuals through the Saving Gateway. Further detail on this
scheme is provided in the Governments response to recommendations
23-27. Also, the introduction of auto-enrolment, mandatory employer
contributions and a new low cost scheme of personal accounts from
2012 is specifically targeted to encourage pension saving amongst
low to moderate earners currently most at risk of undersaving
for retirement.
The Government notes the Committee's recommendations
to set targets for personal saving and for increased saving among
lower-income individuals against which progress can be measured.
The Government has not, to date, set targets or indicators against
which to measure personal saving. As each individual's circumstances
vary, in particular in terms of different stages in their lifestyle,
the 'right' level of saving for each individual is very difficult
to assess. For example, saving will not necessarily be appropriate
for every individual at every point in his or her life. There
are also difficulties around fully quantifying an individual's
level of saving and savings, both formal and informal. Government
therefore aims to provide people with the capability to take a
sensible view of their financial position based on their own circumstances
and preferences. The Government seeks to support this by providing
both good opportunities to save and the right incentives to save
including, in terms of the Saving Gateway, incentives to promote
entry to formal saving.
Christmas saving schemes
19. The collapse of Farepak caused distress for
many families. Although we have not examined the particular circumstances
of that collapse, we have heard evidence suggesting that the "hamper"
market does not operate with a flawed business model, and the
"hamper" product has distinct positive features enabling
it to compete within the broader Christmas saving market. The
establishment of trust accounts by the Park Group and the prospect
of the adoption of such accounts across the "hamper"
market go a considerable way towards allaying concerns about consumer
protection within the market. To reinforce confidence in that
market, we want the Christmas Prepayments Association to agree
a code of practice that meets all criteria within the Office of
Fair Trading's Consumer Codes Approval Scheme and is thus approved
by the Office of Fair Trading. Provided that the operation of
trust accounts within that market proves to be satisfactory, it
seems likely that regulation by the Financial Services Authority
of the hamper market will not prove to be proportionate or appropriate.
An extension of FSA regulation and the additional costs associated
with such regulation would create a risk that consumers might
choose other, cheaper informal saving products with lower levels
of consumer protection. (Paragraph 86)
The OFT has carried out a preliminary assessment
of the CPA's code of practice against the criteria in its Consumer
Codes Approval Scheme. The Association have amended the code with
a view to a formal application which will commence the process
for gaining approval under the Scheme. The Government agrees with
the Committee that the adoption of such accounts across the market
should go a considerable way towards allaying concerns about consumer
protection. However, we will be giving further consideration to
the possible role of statutory regulation, taking account of OFT's
advice to Ministers in December 2006, once the outcome of the
investigation into what happened in Farepak is available.
20. The collapse of Farepak has highlighted the
lack of attention that public policy had paid to a range of informal
savings and prepayment vehicles with inadequate consumer protection.
Notwithstanding our specific conclusions about regulation of the
"hamper" market, we remain concerned about the limitations
of consumer protection for prepayments generally. We recommend
that the Government and the Office of Fair Trading, as a matter
of urgency, consider:
- what further steps can be
taken to extend the coverage of consumer protection for prepayments
through codes compatible with the Consumer Codes Approval Scheme;
- what further measures can be taken to schemes
for the protection of prepayments that are affordable to the businesses
concerned;
- how far implementation of the Unfair Commercial
Practices Directive will permit more effective enforcement action
against inappropriate prepayment requirements; and
- what further measures can be taken to promote
consumer awareness of the risks associated with prepayments. We
further recommend that the Government report on progress in each
of these areas in its response to this Report. (Paragraph 90)
- The OFT actively promotes the
Consumer Codes Approval Scheme (CCAS) and it continues to grow.
A consumer and business awareness campaign will be run in March
2008. The scheme is, however, a voluntary one which essentially
enables groups of businesses to demonstrate publicly that they
already offer consumer service and protection above the legal
minimum. Pre-payment protection is one of the requirements of
the CCAS that traders and their representatives find most difficult
to meet. There are no ready-made solutions within the scheme itself
as to how payments can be protected and businesses need to examine
the available options. We expect the coverage of CCAS to continue
growing but we do not expect it to be a forceful mechanism for
spreading pre-payment protection to sectors where traders resist
it.
- CCAS encourages protection schemes already for
the sectors it is working with, and Trustmark encourages the sale
of warranties for building, home repairs and maintenance. Any
further voluntary schemes which are developed are unlikely to
spread protection of prepayments across the whole economy, mainly
because underwriting pre-payments that are substantial and a routine
part of the business model is likely to be expensive.
- OFT will consider this possibility but the Unfair
Commercial Practices Directive (UCPD) seeks only to prohibit traders'
practices that influence, in an unfair way, the decision-making
of consumers in relation to their transactions with traders, for
example by misleading consumers or by placing them under undue
pressure. That is, it prohibits trader's practices that inhibit
consumers' ability to make free and fullyinformed decisions
about the transactions with traders that they choose to enter
into. The UCPD does not, beyond that, address the appropriateness
of a trader's business model, or of the contract terms used by
a trader. Ordinary prepayments are, thus, unlikely to be
within its scope. The UCPD could however be used to ensure that
businesses and trade associations do not mislead consumers about
the extent to which their prepayments are protected.
- OFT will see what can be learned from the 'Save
Xmas' campaign about how well consumers understand the risks associated
with prepayments. An evaluation report will be published and OFT
will then consider the issue more widely within its consumer education
work.
21. The original purpose envisaged for a consumer
awareness campaign by the Pomeroy was to respond to the needs
and concerns of consumers affected by the collapse of Farepak
relating to Christmas 2007. It is not immediately evident that
the campaign begun by the Office of Fair Trading in June 2007
will be effective in responding to this intention. We are concerned
by the inconsistencies in the evidence from the Office of Fair
Trading about the best time for a national advertising campaign
directed towards saving decisions for Christmas 2008. We recommend
that, before committing to expenditure for a national advertising
campaign, the Treasury review the conduct of the campaign by the
Office of Fair Trading and ensure that the Treasury is satisfied
that the appropriate timing has been determined to inform consumers
in making saving decisions for Christmas 2008. We expect the Treasury
to report on the outcome of that review in its response to this
Report. (Paragraph 96)
The OFT's £1 million campaign, 'Save Xmas',
has targeted people who have used Christmas hamper schemes to
'save' for Christmas with information on the options available
for saving towards a specific objective (such as Christmas).
'Save Xmas' has reached over 58,000 people directly
through its communication work, and targeted many thousands more
through front-line workers in intermediary organisations. Around
70 per cent of attendees at campaign events reported being unsure
about their options for Christmas saving before attending the
events; over 90% of attendees reported knowing more about their
options, and where to go for more information, after these events.
In addition, almost half of respondents (47%) indicated that they
may make changes following the event (including opening credit
union accounts and using supermarket schemes).
The Government has noted that evidence from the 'Save
Xmas' campaign suggests that credit union Christmas saving accounts
have been popular and have brought many people into contact with
a credit union for the first time.
The grass roots consumer activity will continue to
the end of 2007 and through early 2008, and this will be backed
up with advertising activity planned for January 2008. The Government
is satisfied that the timings of these activities are appropriate
to inform savings decisions for Christmas 2008.
The Government will provide £2 million funding
to the OFT for 'Save Xmas' to continue to operate.
22. We welcome the inclusion of informal saving
within the range of matters to be considered by the Thoresen review
of generic financial advice. We look forward to reviewing the
proposals of that review on how such advice can give due weight
to informal saving options, bearing in mind the risks to the consumer
that continue to be associated with some informal saving options.
(Paragraph 97)
It is not for Government to prescribe the scope of
Generic Financial Advice at this stage. The final report of the
Thoresen Review is expected in the new year; Government will respond
in the spring. In response to the Pomeroy Review recommendation,
the Thoresen Review interim report noted that generic advice could
look at different options for savings, including alternative saving
schemes: "the Review would not expect questions prompted
by saving, in particular saving into alternative savings accounts,
to raise fundamentally different issues than questions about other
types of savings vehicles. Advice protocols will cover the pros
and cons of different savings accounts and the risks associated
with each."
The Saving Gateway
23. Any national Saving Gateway ought to be closely
targeted on those individuals and households with the lowest incomes
and which are currently least likely to have savings in order
to maximise the prospects that the Gateway will attract new saving
and ensure value for money. Subject to considerations relating
to the ease of identifying eligibility, we would expect to see
a national Saving Gateway using eligibility criteria broadly similar
to those of the first pilot project. (Paragraph
102)
The Government agrees with the Committee's analysis
that any national Saving Gateway scheme should be targeted at
those individuals with the lowest incomes. In the first pilot
the scheme was available to those on incomes under around £15,000.
In the second pilot the eligibility was extended further up the
income scale. The analysis of the second pilot, however, showed
that those on higher incomes were more likely to transfer assets
to their Saving Gateway account from existing regulated schemes.
The pilots suggest that to achieve more targeted support the income
limit used in the first pilot seems about the right level.
24. The pilot projects for the Saving Gateway
have proved conclusively that the principle of matching, whereby
the Government makes a contribution to an individual's account
for every pound that individual saves up to a fixed limit, is
essential to the success of any national Saving Gateway. We accept
that, on grounds of affordability as well as other grounds, a
national Saving Gateway could be based on a level of matching
lower than pound-for-pound, and that a lower level of matching
might be effective in encouraging saving among low-income individuals
and households. However, we note that certain forms of saving
by the highest income groups obtain subsidy through tax relief
at an effective rate of 40%, and we consider that the level of
subsidy in percentage terms for those on the lowest incomes ought
to be higher. On grounds of simplicity, this argues for a rate
of matching of 50 pence for every pound invested by the individual,
although we also see merit in the proposal that a pound-for-pound
match rate might be set for saving in the initial two months of
an account to encourage participation. (Paragraph 106)
As the Committee note the Saving Gateway pilots have
demonstrated that matching provides a simple and easily understandable
incentive to save. The first pilot provided matching of £1
for every £1 saved. The second pilot tested the effectiveness
of different match rates—20p, 50p and £1 per every
£1 saved. The evaluation of the second pilot concluded that
matching did not have to be as high as £1 for £1 in
order to incentivise individuals to save. The Government is carefully
considering the outcome of the pilots in considering the appropriate
level of matching. Providing a simple and easily understandable
match rate will be a priority in parallel with overall affordability
and achieving value for money.
25. The evidence which we have received during
this inquiry reinforces the impression that low-income households
are most likely to be able to save for short periods, and may
be deterred by products with a longer maturity period. We recommend
that any national Saving Gateway account be designed to operate
for no more than 18 months. We see no reason why those who continue
to be eligible should not be able to open a further account following
maturity of an initial account for as long as the Saving Gateway
operates. (Paragraph 107)
We note the Committee's recommendation on the duration
of the Saving Gateway accounts. In both pilots accounts ran for
a duration of 18 months. Some individuals needed to access their
savings prior to the end of the 18-month accounts. Other account
holders said they would have liked the accounts to run for a longer
duration and were able to save beyond the 18-month account duration.
The government is carefully considering the evidence
and what an appropriate account duration for a national Saving
Gateway scheme might be. An account duration beyond 18 months,
possibly of 2 years could, for example, have the advantage of
further encouraging the saving habit. An account duration of 2
years would also make the scheme more like other mainstream, annualized
saving accounts. There was some evidence in the pilots that individuals
may find an annualized account easier to operate than one which
ran for an 18-month period. The Government is also considering
the number of Saving Gateway accounts an individual would be offered
over the course of their lifetime.
26. We are not convinced that the Saving Gateway
product is suitable for development in a competitive market. We
would not wish to see potential customers confused by a multiplicity
of offerings. However, we recommend that, in designing what should
be a single, unified product for a national Saving Gateway, the
Government have regard to the desirability of ensuring that the
product can be promoted by, and accessible through, as broad a
range of financial institutions as possible. (Paragraph 109)
In considering the provision of any national Saving
Gateway the Government will seek to ensure that a national scheme
would be provided by those financial institutions which are accessible
to those on low incomes. The second pilot, in particular, underlined
the importance of ease of access as it demonstrated that people
who lived closer to a Halifax branch were more likely to open
an account.
The Government will work closely with potential providers
in assessing the feasibility of a national rollout and how any
national scheme should be delivered. There will also be a valuable
role for third sector organisations, like housing associations
and citizens advice bureaux, in communicating an individual's
entitlement to a Saving Gateway account.
27. The introduction of a national Saving Gateway
would be the most important single step towards achieving the
aim of increasing the level of saving among low-income individuals
and households. Although a national scheme would involve a substantial
public expenditure commitment, this seems likely to amount to
little more than one tenth of the annual subsidy for Individual
Savings Accounts and Personal Equity Plans and little more than
one twentieth of the annual subsidy for employee pension savings,
both of which categories of subsidy are less likely to be utilised
by those low-income households for whom shorter term saving is
most important and beneficial. We recommend that the Government
launch the Saving Gateway on a national basis at the earliest
practical opportunity. (Paragraph 112)
The Government welcomes the Committee's strong support
for the Saving Gateway. As the Committee's report sets out, the
Saving Gateway has been piloted twice since 2001 and the pilot
evaluations have now been published. The pilots showed the success
of matching as an incentive to save and the important part the
scheme can play in tackling financial exclusion. The Government
also recognises that for those on low incomes who pay little or
no tax, tax relief on saving offers less of an incentive to save.
Combined with the Child Trust Fund and ISAs the scheme would fit
well with our commitment to progressive universalism: support
for all with greater support for those who need is most. The Pre-Budget
Report announced that "the Government is taking forward feasibility
work into the system requirements to enable the roll out of the
Saving Gateway". Further announcements on the roll out of
the scheme will be made in the Budget.
Savings and credit unions
28. We welcome the Government's commitment to
consult on changes to the current, outdated legislative framework
within which credit unions operate and the Government's subsequent
publication of a consultation document. We note that a Bill relating
to credit unions and co-operatives does not appear in the draft
legislative programme for Session 2007-08. We recommend that the
Government commit itself to publishing a draft Bill on that subject
in the first half of 2007 in order to facilitate pre-legislative
scrutiny and to enhance the prospects for the inclusion of such
a Bill in the legislative programme for Session 2008-09. (Paragraph
116)
The Government is exploring all legislative options
(including a Bill) for updating the credit union legislation and
will respond with proposals in the consultation document to be
published in December. Any legislative provisions are however
subject to the usual constraints of Parliamentary time.
29. In order to provide further impetus and strategic
direction to the preparation of new legislation relating to credit
unions, we recommend that the Government match its objective to
achieve a step-change in the coverage of third sector lenders
with an objective of achieving a step-change in coverage of third
sector saving institutions. We further recommend that it set a
specific target by which progress in relation to that objective
can be measured. That target might be to raise the savings held
by credit union members of around £428 million in September
2006 to over £1 billion by the end of 2010. (Paragraph 117)
The Government recognises the important role credit
unions play in encouraging a savings culture among its members.
The Financial Inclusion Taskforce has established
a working group with senior banking representatives to consider
how to achieve a nationwide increase in the coverage and capacity
of third sector lenders, including consideration of the importance
of mobilising savings in achieving sustainable business models.
The Taskforce working group has reported to Government
its recommendations for how to achieve a nationwide increase in
the coverage and capacity of third sector lenders. The working
group's recommendations have been published today on the Financial
Inclusion Taskforce website, with a full report to follow shortly.
30. We recommend that the new legislation include
a much more flexible definition of the "common bond"
for membership of credit unions. (Paragraph 118)
The Government agrees with the Committee's recommendations
and has already taken the first steps towards addressing this
issue. The Economic Secretary on 25 October announced that the
Treasury would work with the FSA to review the legislation so
as to enable tenants and employees of housing associations to
be included within the "common bond" of existing credit
unions. The Government will as part of the wider legislative review
also consider other ways of further liberalising the "common
bond" whilst safeguarding members' rights.
31. We recommend that the new legislation permit
organisations and corporate bodies to become members of credit
unions. (Paragraph 119)
We note the Committee's recommendation and confirm
that this is an issue under consideration as part of the Government's
wider review of the credit union and cooperatives legislation.
32. We recommend that the new legislation permit
credit unions to pay interest on savings. (Paragraph 120)
The Government agrees in principle and is currently
reviewing the wider implications. This issue will be addressed
in the next stage of the consultation.
33. We welcome the inclusion of a possible name
change from "credit unions" to "community banks"
within the Government's consultation on legislation. We look forward
to learning about the responses to that consultation. We recommend
that, in parallel with legislative consultation, the Government
explore with credit unions and others ways in which the modern
role of credit unions, including their functions as saving institutions
and providers of current accounts, could be more effectively promoted
in the branding and promotion of credit unions, possibly by use
of the term "credit and savings unions". (Paragraph
121)
The Government consultation sought the sector's views
on a possible name change for credit unions and will share its
findings when the summary of consultation responses is published.
The Government is already in discussions with interested
stakeholders including credit unions, cooperatives, Office of
the Third Sector and FSA on how credit unions could be more effectively
promoted, enabling them play to a more effective role in serving
their local communities and in the delivery of Government policies
such as financial inclusion and capability.
1 HM Treasury. 'Financial Inclusion: the way forward',
March 2007 Back
