The Rt Hon John Glen is a former Chief Secretary to the Treasury and MP for Salisbury and South Wiltshire.
The UK’s financial services sector is rightly regarded as a jewel in the crown of our economy.
It is a driving force behind economic growth, contributing some £208bn of output to our GDP. The sector plays an enormously important role in helping individuals manage their finances, build financial resilience, and enabling them to prosper.
However, as we celebrate the strength of our financial services industry, we need to acknowledge that there are areas where the UK lags behind its counterparts.
In my time as Economic Secretary and City Minister, I was pleased to oversee the development of several initiatives to support people in vulnerable positions. These include the Breathing Space scheme, which gives respite to those in problem debt, and the No Interest Loan Scheme pilot, which has granted more than 14,000 people access to a zero-interest line of credit when they needed it most.
But we must not stop until everyone can access the products and services they need.
More than 20 million people across the country are in financially vulnerable circumstances perpetuated by financial exclusion. In my own constituency of Salisbury nearly a third (29 per cent) of adults struggle to access the financial products and services that many of us take for granted. This includes those burdened by problem debt, unable to access essential insurance or appropriate credit and with no savings to fall back on. Clearly the industry is not working for all parts of society.
This summer’s ‘Leeds Reforms’ marked another chapter in the ongoing effort to bolster the competitiveness of the City.
This latest package contained a string of welcome measures, many of which build on groundwork laid in the previous administration. But the public is entitled to expect something in return. For this, we need banks and insurers to step up and provide the products and services that people need. We must ensure that people can get access to credit and not be priced out of insurance products.
There is a high level of interest in the Government’s National Financial Inclusion Strategy. There is an opportunity which I hope will not be wasted to deliver systemic change and tackle the persistent issue of financial exclusion through bold initiatives
If the government hopes to make significant progress, then it must ensure that the UK’s world-beating financial services sector works for everyone. UK banks and other large lenders must step up and play a more active role in serving those who are currently excluded.
For example, a small, responsibly lent sum of money can make all the difference to people in financially vulnerable circumstances. It can help cover an unexpected expense, smooth over fluctuating incomes, or simply prevent life’s challenges from pushing someone into financial crisis.
But in the UK demand for this type of credit outstrips supply, with research estimating that there is a £2bn gap in unmet credit need that could be addressed in a way that is both commercially viable and fully compliant with regulations.
A similar scheme to the ‘small dollar loan’ programme – offered since 2020 by several of the larger banks in the US – could go a long way to ameliorating the impact of debt on those who don’t have a rainy-day savings buffer. These sub $1000 loans have proven very popular with consumers and trends indicate that giving people access to this product at their own bank is displacing the punitive payday lenders.
At the same time, we must look at how we can encourage and facilitate more people to build that modest buffer. The pensions auto-enrolment scheme is a good indicator for behaviour; applying the same principle to savings – allowing employees to establish a pot directly from their pay cheques – could prove transformational for personal and national financial resilience.
We need to work across sectors and parties to make financial inclusion a reality and encourage the industry to respond positively. Financial exclusion is not simply a moral issue – it’s a drag on our economy, a barrier to opportunity.
A recent report by WPI Economics shows just how steep that cost really is. Improvements in financial inclusion could deliver an additional £6.4 billion in GDP every year, and upwards of £25.6 billion over the remainder of this Parliament.
That’s real growth, productivity and jobs unlocked.
