In recent years, it seems fair to say that we have seen financial inclusion issues slowly move up the agenda. This has led to some important initiatives – such as the No-Interest Loan Scheme pilot. The setting up of Fair4All Finance has created a vehicle to support the growth of a stronger affordable credit sector. And the Government’s Help to Save Scheme – while, under-promoted – is an excellent scheme to help people on Universal Credit build up a financial safety net.
But whilst these examples suggest some modest progress on financial inclusion, which the 10th Financial Inclusion Monitor Report goes into in more detail, we’ve still got a long way to go. So, what more can be done? And what roles do the regulator and government have to play? With household budgets continuing to struggle with sustained high prices, and the impact of rising interest rates yet to be fully felt, it feels more important than ever to move the dial forward on financial inclusion.
As a debt advice charity, running National Debtline and Business Debtline, we see how financial exclusion and problem debt are a cause and a consequence of each other. Without access to products and services, like insurance, savings or affordable credit, financial shocks and life events can quickly spiral into problem debt. Once you’ve been in debt, it becomes much harder to access the products and services you need at an affordable price, creating a vicious cycle that is hard to escape.
Economic Secretary to the Treasury, Andrew Griffith
MP, listening to calls at National Debtline
For our clients, an unexpected bill or expenditure, a loss of job or income shock are often a cause of financial difficulty. In recent years, we have also seen an increase in the proportion of clients whose incomes are simply too low to cover essential costs. Last year, four in ten of our National Debtline callers were in this situation. The size of this deficit, the average amount they are short of as a total over the year, has also increased by eight percent from -£3,692 in 2021 to -£4,711 in 2022.
The challenge people face is often made worse by the fact they have to pay more for products and services others take for granted, if they can access them at all. It is a double whammy. This poverty premium, which the work of Fair By Design has so sharply brought into focus, is an important element of the financial inclusion discussion.
These aren’t easy issues to grapple with. Tackling financial exclusion involves engaging with issues around risk, cross-subsidy and fairness. It raises questions about where the boundaries are between regulatory and social policy; what it’s fair to ask the market to do versus what government and/or regulators should take responsibility for.
None of those are easy questions. And in some ways, this may hamper progress – it gets put in the “too hard” box, or it falls between the gaps between regulators and government.
That’s one of the reasons why we support the Financial Inclusion Commission and Fair By Design’s call to give the FCA a statutory “must have regard to financial inclusion” objective. This would create a statutory requirement on the FCA to address financial inclusion issues across all of its work, wherever it is appropriate.
We think this would build upon positive progress in recent years, by expanding and future-proofing a focus on financial inclusion, particularly on outstanding areas yet to be tackled – such as the poverty premium.
Crucially, this is not about the regulator having to undertake social policy, which rightly remains the responsibility of government. Instead, it is about the FCA acting on these issues when they are in its remit and monitoring and reporting on financial inclusion more widely, to ensure that those who are best placed to act are doing so. This will sometimes be the FCA, the government, or a mixture of institutions working together.
Whether the FCA ends up having a dedicated objective or not, we need a joined-up approach to tackle financial exclusion, because this is a challenge that isn’t going away.
As new technologies and innovation come into the financial market, and with the market increasingly being asked to provide essential services, it’s more important than ever that we monitor which groups are being excluded and take action to address this. Sometimes that will need regulatory policy, sometimes it will need government action and often it might need a combination of both.