Financial Inclusion Strategy

The publication of the Financial Inclusion Strategy is welcome. It identifies many of the areas in which people experience financial exclusion. Informed witnesses broadly supported those areas of focus. Unlike HM Treasury’s 2004 publication, however, the Strategy does not yet bring together the evidence needed to show who is excluded, where exclusion is concentrated, which products and services people are excluded from, and why. Without that, the government cannot know whether its interventions are the right ones and whether they are targeted at the people who need them most. (Conclusion, Paragraph 16)

HM Treasury should, within six months, publish a fuller quantitative analysis of the scale, causes and distribution of financial exclusion in the UK. Drawing on existing sources, including the FCA’s Financial Lives Survey, this should identify who is excluded, where exclusion is concentrated geographically, which products and services people are excluded from, and why. It should also set out how HM Treasury will use those data sources to measure progress over time, and where further data is needed. (Recommendation, Paragraph 17)

We welcome the government’s commitment to review progress against the Strategy at the two-year mark. However, a two-year review without published baselines and milestones will not inform Parliament to judge whether the Strategy is on track. Reporting that working groups have met, pilots have started and stakeholders have been consulted does not show whether financial exclusion has reduced. Without baselines, targets, named owners, firm-level data and regular reporting, the two-year review risks describing activity rather than showing whether the Strategy is working. (Conclusion, Paragraph 24) 16

The Economic Secretary told us that she was responsible for delivery of the Strategy and would be happy to discuss its progress with the Treasury Committee. Although we would welcome such updates, they cannot substitute for a published implementation and accountability framework. (Conclusion, Paragraph 25)

HM Treasury must publish within six months an implementation and accountability framework for the Financial Inclusion Strategy. Before publication, HM Treasury must agree with the Treasury Committee the core information to be included. The framework should include baselines, measurable targets, interim milestones, named delivery owners, funding and resource assumptions for each commitment, and annual reporting to Parliament. It should distinguish clearly between administrative activity, frontline delivery and outcome measures showing whether exclusion has reduced. (Recommendation, Paragraph 26)

HM Treasury and the FCA should also develop proportionate firm-level financial inclusion metrics. These should focus on the largest providers and on markets where exclusion causes the greatest consumer harm, such as contents insurance, affordable credit and access to basic banking services. They should be designed to identify whether progress is being delivered consistently across firms and sectors. (Recommendation, Paragraph 27) Voluntary action, pilots and the route to scale

Voluntary action and pilots can help test solutions, but they cannot be the main driver of a national financial inclusion strategy unless there are clear routes to scale and clear consequences if voluntary action fails. This is especially important where firms are reluctant to serve consumers who may be higher cost, higher risk or less profitable. The inclusion of a reserve power on access to banking services in the Financial Services and Markets Bill suggests that the government also recognises these limits. (Conclusion, Paragraph 34)

The government may be right to begin with partnerships pilots and working groups, but it should be clear from the outset what would count as insufficient progress and what further action it would then take. It should not wait until the two-year review to decide what happens next if pilots succeed or if voluntary action is insufficient. (Conclusion, Paragraph 35)

Where delivery depends on voluntary industry action, HM Treasury should set out clear triggers for further intervention. It should also explain what evidence or level of consumer harm would be needed before existing reserve powers, including those on access to banking services, would be used. Given 17 that the Financial Services and Markets Bill is currently before Parliament, and the length of time it could take to pass any future legislation, HM Treasury should consider now whether the Bill should include further targeted powers to intervene if voluntary action fails to secure reasonable access to essential financial services. (Recommendation, Paragraph 36)

HM Treasury should publish a pilot-to-scale plan for the Financial Inclusion Strategy in the next six months. For each pilot, working group or exploratory programme, this should set out success criteria, evaluation methods, funding routes, decision points and the action government will take if the intervention works, if it does not work, or if voluntary industry participation is insufficient. (Recommendation, Paragraph 37)

The government rightly included consumer and lived-experience voices in the development of the Strategy. However, the process did not sufficiently guard against industry voices carrying greater influence, particularly in sub-committees and implementation discussions. Evidence that the main Committee met only briefly before publication, and that detailed work took place outside it, raises questions about whether consumer representatives had sufficient opportunity to shape the Strategy. We welcome increases in the number of consumer representatives on the Financial Inclusion Committee, but numbers alone do not answer the concerns raised by witnesses, particularly where detailed work took place in sub-committees or outside the main Committee. Consumer, civil society and lived- experience voices must have a clear and continuing role in shaping delivery. (Conclusion, Paragraph 45)

HM Treasury should strengthen the governance of the Financial Inclusion Committee, its sub-committees and any implementation groups. For sub- committees and implementation groups, HM Treasury should publish membership, terms of reference and meeting frequency. It should ensure that consumer, civil society and representatives with lived experience of financial exclusion have sufficient weight and voice in the process, including by recording where they disagree with industry-led proposals and explaining how those disagreements have been considered. (Recommendation, Paragraph 46) 18