Treasury has published the Government’s Financial Inclusion Strategy. Its publication is recognition that financial exclusion remains a persistent and systemic issue across the UK and we hugely value the hard work of the Committee members and team that have delivered the Strategy. We see this as a stepping stone, not the final say, on how to address the structural drivers of the poverty premium and financial exclusion because…

We would like to support the ensuing work on inclusive design so that it is seen as a way to prevent financial exclusion, not just respond to it. 

1. A Strategy of consolidation, not transformation 

There are some new announcements in the Strategy, such as exploring an extension to the credit brokering exemption for Registered Social Landlords to capture other organisations who play a role in supporting consumers with their finances. There is also the commitment of dormant assets to a small sum loan pilot. Both of which we welcome.  

The Strategy demonstrates that there are numerous brilliant initiatives already under way across the sector to improve financial inclusion, all of which are to be celebrated and applauded. This overview and the coordination of these initiatives is important, but it is our view that the Strategy lacks the ambition and urgency required to tackle the root causes of entrenched financial exclusion and the poverty premium. 

One area where this is particularly disappointing is motor insurance, given car insurance is the costliest poverty premium faced by low-income consumers. While the Strategy acknowledges rising premiums and the disproportionate impact on vulnerable groups, it fails to propose any direct interventions to improve affordability. It references the existing Motor Insurance Taskforce and the Financial Conduct Authority’s (FCA) Premium Finance Market Study, but these efforts remain narrowly focused. We are concerned that the Taskforce’s remit centres on market dynamics and claims costs, rather than tackling the core issue of consumer affordability and inclusion. Meanwhile, the FCA has stated it already possesses the regulatory tools needed to address excessive charges in premium finance, which it labelled a poverty premium over a year ago. Yet we have not seen meaningful action to reduce costs for those most affected. 

2. Over-reliance on industry and voluntary action 

Many of the Strategy’s key interventions are industry-led or dependent on voluntary codes of practice. While collaboration with industry is vital, voluntary action alone cannot guarantee consistent, equitable outcomes.  

One example of this is the commitment to establish an industry-led Inclusive Design Working Group. We welcome this commitment and the recognition that inclusive design is essential to improving access to financial services. We held a cross-sector workshop in the lead up to the Strategy to develop an approach for embedding inclusive design principles throughout this Strategy. To achieve this, it is important that this Working Group includes policymakers and regulators, so that it can deliver meaningful, systemic change. The focus on inclusive design at the product level, led by firms and facilitated by industry bodies is important, but on its own it is insufficient.  

We would like to support the ensuing work on inclusive design so that it is seen as a way to prevent financial exclusion, not just respond to it. To achieve this the approach to inclusive design must be: 

  • Proactive: anticipating diverse needs from the outset rather than seeking to bring in ‘fixes’ for those currently underserved and excluded from financial services. 
  • Systemic: applied from the outset during policy formation and regulatory design, all the way through to actions by individual firms, and the overall evaluation of the Strategy. 
  • Participatory: involving excluded groups in the design process, not just to understand their lives, but to shape solutions in a way that shares power. 

Without this, systemic barriers will persist, and the needs of excluded groups will continue to be overlooked in the design of financial systems and governance.  

Another example is that the Strategy only offers encouragement to mainstream banks to provide responsible credit to underserved groups. We agree that they have an important role to play as they have greater reach than community finance providers and are often the first port of call for consumers who are seeking credit. Some mainstream banks are already supporting underserved groups directly and via community finance organisations, but these initiatives are voluntary and piecemeal.  We want to see a consistent approach as there are over 16 million people with around £2 billion of unmet, but commercially viable, need for credit. Therefore, we are disappointed to see no mention of a Fair Banking Act, even as a potential backstop, if the Strategy does not lead to a step change in the provision of affordable credit. 

3. Weak Accountability and Measurement 

The Strategy commits to a review in two years but lacks clear targets, metrics, or accountability mechanisms. We value the Strategy’s focus on outcomes as this creates flexibility for the many organisations involved in delivering the Strategy to meet the needs of different consumers and markets. But without any clear metrics or targets, the level of ambition and timeframe is unclear, weakening accountability. In addition, we urge the Government to add people living in poverty and on low incomes to the group of people the Strategy is expected to have a positive impact on, given that being on a low income is a key determinant of whether someone experiences financial exclusion. 

The Strategy is an important stepping stone, and provides a sense of the direction of travel, but it hasn’t built the bridge needed to cross the deepest divides in financial exclusion. 

Overall, this means that the Financial Inclusion Strategy is a missed opportunity to deliver meaningful change for low-income consumers. We urge the Government to see this as a first step, not the final say, and to go further to achieve a real step change in financial exclusion and eliminate the poverty premium.  

We will continue to campaign so the 20 million people who are financially excluded in the UK don’t pay more for essentials. We will continue to produce insight and convene, working constructively with governments, regulators and industry to ensure that financial services work for everyone.  

Rebecca Deegan, Director, Fair By Design.