Hannah Bardell (Livingston) (SNP) I beg to move, That this House
has considered credit unions and the cost of living. It is a
pleasure to move the motion, Dr Huq. I am grateful to the Backbench
Business Committee for granting this short debate and to the
Minister for responding. I am sure that other colleagues will want
to make an intervention along the way in this debate on the
importance of credit unions during a cost of living crisis. First
off, I declare an...Request free trial
(Livingston) (SNP)
I beg to move,
That this House has considered credit unions and the cost of
living.
It is a pleasure to move the motion, Dr Huq. I am grateful to the
Backbench Business Committee for granting this short debate and
to the Minister for responding. I am sure that other colleagues
will want to make an intervention along the way in this debate on
the importance of credit unions during a cost of living
crisis.
First off, I declare an interest as someone who saves and borrows
with credit unions, including my own in West Lothian—the great
West Lothian Credit Union. I start by paying a passionate tribute
to West Lothian Credit Union, its chair, Nancy MacGillivray, and
her team, who work and fight tirelessly to develop their services
and support our local community through that local credit union.
I also thank my own team for the work they have done to prepare
for today and the work they do every day for our Livingston
constituents throughout this cost of living crisis. I am sure all
of us here in the House are very conscious of the pressures on
our constituents and the work that our teams are doing for us—in
particular Marcus, Yvonne and Adam, who have had a close hand in
today’s preparations.
Similarly, I pay tribute to my constituency colleague , the Member of the
Scottish Parliament for Almond Valley, and her team, who have
worked closely and fought for our local credit union over many
years. My hon. Friend the Member for Glasgow South West () was not able to stay for
this debate, but he wanted me to mention the work that Pollok
Credit Union does in his constituency and the fact that so much
great work is being done by credit unions with affordable food
larders and community supermarkets—particularly a programme in
his Glasgow South West constituency.
The role that credit unions play in supporting hard-working
families across Scotland and the rest of the United Kingdom
during this unprecedented cost of living crisis is indisputable.
Unlike the high street banks, credit unions are run and owned by
their members and distinctly operate under a co-operative
principle. While credit unions are a relatively new form of
banking in historic terms—they were first established in the UK
in the 1960s—their founding principles of mutual co-operation and
collective benefit were born of the friendly society movement of
the 18th century.
Credit unions even predate the creation of the welfare state. My
own grandparents were active members in the co-operative movement
in West Lothian and beyond, and its importance in our communities
is a long-held tradition. As we become increasingly globalised
and vested interests creep further and further into our lives,
the role of credit unions and co-operatives is increasingly
important and potentially under threat.
The formation of the first credit unions in the UK was inspired
by those in Ireland. The first recorded credit union in the UK
was formed in 1960, in Derry, Northern Ireland; that union now
has over 30,000 members. In Scotland and in other parts of the
UK, several credit unions were established by immigrants who came
to the UK with very little, but simply wished to tackle the
inequalities and the financial hardship of others—what a worthy
cause. Over the last 50 years, credit unions have grown to
provide loans and savings to more than 1.2 million people across
England, Scotland, and Wales. I am incredibly proud of West
Lothian Credit Union and in awe of the work that it does in
supporting my community. I have seen that first hand, and once
again pay tribute. It offers a range of services, from banking to
funeral plans. Its services are available to all those who live
or work across West Lothian.
As colleagues will know, credit unions are regulated by both the
Financial Conduct Authority and the Prudential Regulation
Authority. The objectives of all credit unions are simply this:
to promote thrift among their members by the accumulation of
their savings; to create sources of credit for the benefit of
their members at a fair and reasonable rate of interest; the use
and control of members’ savings for their mutual benefit; and the
training and education of members in the wise use of money and
the management of financial affairs.
Those objectives may sound simple, but many of the high street
lenders and other financial service providers would do very well
if they simply applied the same ethical standards. Not only would
they be better viewed by the public, but they would be able to
act in the public interest—rather than for private profit, as we
so often see. Credit unions work with many employers to set up
payroll saving schemes for their employees. Many credit unions
operate school credit unions, encouraging a savings habit among
young students, as well as giving them life skills in operating a
cash collection. My own credit union has done fantastic work in
my constituency.
These are fantastic initiatives that help foster better
relationships between individuals and their employers. They also
help create greater educational awareness about the importance of
money for young people. Despite those successes, more employers
could be encouraged to participate in payroll schemes for their
employees. Similarly, operating school credit unions can be a
costly process for which limited funding is available, and I hope
the Minister can give some thoughts on that. There is a clear
need to provide better support to our children and for financial
education to be done not just by banks. It is one of many ways we
should be doing more to ensure that every child has the best
opportunity in life.
We are already seeing change for credit unions. For instance, the
community banking platform Engage has partnered with 10 credit
unions to deliver its faster payment service to nearly 100,000
customers. That is a great example of how technology can help,
and I note with interest the article shared by Electronic
Payments International. Sofia Dogan, CEO of Kingdom Community
Bank, based in Glenrothes, highlighted that the cost for its
service was less than 50% of the cost that its bank was preparing
to charge and that payments could now be sent to members’
accounts in minutes. The Bank of England’s latest report in April
shows that the number of adult members of credit unions in the UK
has risen to an all-time high of 1.98 million. The starkest
increase was in loans to borrowers, which has jumped by a
staggering 18.9% to £785 million last year in England alone.
(East Dunbartonshire)
(SNP)
It is worth reflecting on the point my hon. Friend just made. The
number of people borrowing with credit unions has increased, and
one part of that is that we are seeing such high interest rates
from high-street banks and those more typical lenders. Credit
unions certainly play a far more vital role during this
Tory-induced cost of living crisis.
My hon. Friend makes an excellent point—perhaps she has foreseen
what I am about to say. It is an important point to highlight
because although it is welcome that more people are using credit
unions, the root cause is increasingly concerning. The cost of
living crisis has placed a huge economic squeeze on hard-working
families.
A report from Responsible Finance found that 41% of people
borrowed to pay for essential bills and expenses, while 20%
borrowed to pay for appliances and white goods. Analysis from
Freedom Finance found that credit unions are lending record sums
to UK borrowers following the surge in borrowing costs. Again, it
is great news that people are getting their money through
responsible borrowing from credit unions, but it is concerning
that they are having to borrow such high levels just to get
by.
Total loans exceeded £2 billion for the first time by the end of
2022—an annual increase of £251 million, or 15% over the course
of 2022. Time and again, evidence shows that increases in the
cost of living disproportionately impact the poorest in our
society. Those individuals are often helped by credit unions, but
some fall victim to unscrupulous lending practices, such as
high-interest payday loans, simply to meet basic needs. The
Freedom Finance credit monitor has revealed that the average
household quoted on credit cards rose to its highest level last
year since 1998, reaching 22.8% at the end of December. We can
all reflect that if things worsen and interest rates go higher,
more and more people will be tipped over the edge.
(Barnsley East) (Lab)
I congratulate the hon. Member on securing the debate and making
such a powerful speech. On that point, the Barnsley Chronicle
stated that a report from the local council last week showed that
one in five residents in Barnsley have debts that overtake their
incomes. Obviously, people are really struggling with the cost of
living. Food has gone up by 19%, and we have seen similar
increases in gas and electric.
Given that situation—not just the rising cost of living, but the
sheer rising level of debt—credit unions obviously play a huge
role, but they are not always known about. I pay tribute to a
fantastic credit union in my constituency in Wombwell, but
residents do not always know they can access that affordable
credit. Would the hon. Member join me in encouraging people to
raise awareness of the issue?
I agree with everything that the hon. Member says. Part of the
reason for today’s debate is to raise awareness of credit unions,
as well as to recognise the challenges that we and many of our
constituents face. An estimated 20 million consumers in the UK
are underserved and unable to access credit from high street
banks. That is compounded by the number of bank branches that are
closing. Everybody across the House has been outraged by the
behaviour of some banks, the closing of local branches and the
cutting off of so many of our vulnerable and rural
communities.
The Scottish Government are committed to ensuring that credit
unions continue to be able to carry out their vital role in
supporting communities across Scotland. In 2020, the Scottish
Government established the credit union resilience loan fund and
the third sector resilience fund, which provided grants and loans
totalling more than £20 million, made available to be shared with
over 100 credit unions across the country. The Scottish
Government also actively ran a “People, Not Profit” campaign in
2018, encouraging people to consider joining a credit union—those
are examples of what we can do with the limited powers we
currently have in Scotland.
In stark contrast, the UK Government have been slow to respond to
the cost of living crisis, and many households are desperately
struggling. Many low-income households still do not meet the
affordability criteria for many lenders. I was struck by the
comments of one of my colleagues in Prime Minister’s Questions
the other day, when she spoke powerfully about her experience,
when her income dropped, of not being able to access funding.
That shows the scale of what people face. Respectfully, credit
unions will never be able to plug the gap, and the UK Government
need to take urgent action to address the cost of living crisis.
There is an increasing need for these services, and the
Government must recognise that the increased demand for credit
unions has also been driven by the closure of banks and post
offices, especially in rural areas.
The UK Government urgently need to support credit unions further
and look at ways in which they can better support them. In
particular, the UK Government should consider funding specific
outcomes—for example, promoting financial education classes for
schoolchildren more compared with what is already available and
supporting individual credit union projects where they have a
clear community focus. The Government should continue to fund and
expand initiatives that increase access to affordable credit,
such as the no-interest loan scheme being led by Fair4All
Finance—not an easy one to say—empowering local communities to
develop and deliver affordable and responsible finance.
My constituency team and I have seen the tragedy of financial
ruin time and again, from our casework to the constituency advice
surgeries we hold. I know that much work has been done by many
people in this place and, indeed, the Government on irresponsible
lending, but it is incumbent on us to ensure that credit unions
can not only survive, but thrive. I hope that the Minister will
say a few words about how his Government will do that.
Earlier this year, when he was responding in the Chamber about
his position, the Minister said:
“There are exactly 650 constituencies; would it not be wonderful
if every one of them had a thriving credit union?”—[Official
Report, 24 February 2023; Vol. 728, c. 426.]
I completely agree. I hope that Members present and all across
this place continue to work towards achieving that goal by
providing credit unions with the support they need to better
empower our local communities and to help address the many
inequalities that our constituents face.
Once again, I pay tribute to Nancy MacGillivray and her team at
West Lothian Credit Union for all they do to support our
Livingston and West Lothian communities, and I look forward to
continuing to support them and the work that they do.
4.13pm
The Economic Secretary to the Treasury ()
It is a pleasure to serve under your chairmanship, Dr Huq. I
congratulate the hon. Member for Livingston () on a thorough and
thoughtful contribution to this subject. She said that one of her
objectives was to raise awareness, and she should feel that she
has fully achieved that. I also congratulate the West Lothian
Credit Union, which I understand will be celebrating a quarter of
a century since its establishment this year. All my colleagues in
the Treasury and I send our congratulations to that very
important institution, which does great work.
As the Economic Secretary, I am committed to supporting the
credit union sector. From helping people to set aside savings—the
hon. Member talked about the work done with employers as well as
in schools to help to promote the savings habit—to probably its
most vital role of offering credit at affordable rates, the
Government really value the unique role played by credit unions
for all their members, and particularly the financial inclusion
agenda. The reach of credit unions is significant. There are 385
of them—not quite enough for one for every constituency, but
would that not be lovely? I share the hon. Lady’s goal of having
more credit unions, seeing those we have being even more
successful and wanting to grow the number of users. There are 83
in Scotland, which, in this respect, is punching above its
weight. Together, credit unions represent more than 2 million
members and have assets of more than £4.5 billion.
The hon. Lady is right that recent cost of living challenges have
proven that the trust placed in the credit union sector by their
members, the Government and regulators is well deserved. That
trust will be vital as people across the country continue to face
cost of living pressures and must stretch every pound as far as
possible. People’s money needs to work hard for them.
We know that there are global challenges, and we are not alone in
facing challenging levels of inflation: in May, core inflation
was higher in more than half of the countries in the EU than in
the UK. Inflation erodes living standards for households, and
particularly for the most vulnerable in society. That is why it
is right that the Government continue to make it one of our
priorities—this is one of the Prime Minister’s priorities—to
halve inflation by the end of the year, and we will not hesitate
to do what it takes to achieve that. Access to affordable,
inclusive credit, such as that provided by credit unions, can
make a real difference.
Does the Minister agree that when the chips were down during the
financial crisis of 2008, the Government had no choice but to
step in and save the banks, but that it is now time for the banks
to step up and help people who need to borrow and those who need
help?
The hon. Lady is right that people need help. Across the House,
we all support that. The Chancellor has made it very clear, with
the mortgage compact and in the conversations that he and I have
had with all of the banking sector, that now is the time to
ensure that people have fair products and that, wherever the
banks are able to do so, they pass on the benefits of that.
That is one reason why it is important that we have genuine
diversity and competition in the sector. Credit unions play such
an important role, alongside co-operatives, mutuals and other
forms of financial institution, because they are often rooted in
place, people or the community. The Government are firmly on the
side of credit unions, and I will try to support them. We are
taking action to help them wherever there are legislative levers,
although they are not the only answer. We amended the Credit
Unions Act 1979 through the Financial Services and Markets Act
2023 to allow credit unions across the United Kingdom to offer a
wider range of products and services. That allows them to grow,
diversify, build their resilience and offer more products to
their customers.
We set out Vision 2025, in consultation with stakeholders, to
deliver on the sector’s priorities. That includes such things as
offering hire purchase agreements, conditional sale agreements
and distributing insurance services. The hon. Member for
Livingston said that the West Lothian Credit Union offers funeral
plans. Many people want to access that sector to give them some
peace of mind, so I was genuinely interested to hear that. I will
ensure that we seek the right legislative framework for that.
The 2023 Act also makes amendments to support best practice in
corporate governance, including a legal requirement for credit
unions to submit annual accounts to the Financial Conduct
Authority. It gives credit unions permission to temporarily lend
to or borrow from each other. That is about designing more
financial resilience for a sector that we are on the side of and
want to see grow.
The hon. Lady mentioned a number of initiatives. We are providing
Fair4All Finance—that little tongue twister—which is an
independent not-for-profit organisation, with significant amounts
of money from the dormant assets funds. We are piloting
no-interest loan schemes—another product that will be delivered
hand in hand with credit unions. Credit unions, with their roots
in the community and communities of interest, are a very good way
of delivering that, and I will continue to work with them. There
is about £145 million, in aggregate, from the dormant assets
scheme.
The hon. Lady also talked about financial literacy, and a key
priority as we go forward is what we can do about the real
challenges of that. Wherever possible, it makes sense to work
upstream and try to tackle problem debt before people get into
it, because it can be a terrible place to be trapped. We are
doing a lot of work on that.
Finally, as well as providing credit, credit unions are obliged
to focus on financial inclusion. They have a role of advocacy in
helping their members to take steps to accumulate savings. Even a
small amount of savings can provide the resilience for exactly
what the hon. Lady talked about: unexpected bills, white goods
that fail, or perhaps the cost of a child’s uniform and a school
trip falling in the same month. Even a small amount of savings
can help to build financial resilience, and the Government are
very supportive of that. We have the Help to Save scheme to try
to help those in work and on universal credit to build a savings
habit, and obviously the ISA programme is a strong part of that.
Again, credit unions distribute cash ISAs as a very simple
product that does not get anybody into difficulties with their
tax.
I thank and congratulate the hon. Lady and those who contributed
to the debate, including the hon. Member for Barnsley East
(). Across the House, we
can always challenge ourselves to do more on this issue.
The Community First Credit Union in my constituency raised some
issues with me about the operation of the eligible loan deduction
scheme by the Department for Work and Pensions and some of the
work that the Government do with credit unions. I wonder whether
I could write to the Minister, because he might be able to look
into some of those issues for me.
I would be happy to do so. I support anything that removes a
point of friction and allows credit unions to do their important
work. Regardless of whether it is me or one of my colleagues in
the DWP, we will certainly take that forward and do what we can
to support the hon. Member.
We value the work of credit unions. In seeking this debate, the
hon. Member for Livingston has built a good level of awareness,
and there is consensus that we can and should do more. That is
the Government’s policy, and we are very keen to engage with the
sector. Maybe one day there will be an opportunity to meet or
have a call with the wonderful West Lothian Credit Union, and I
am certainly happy to do so. The hon. Lady has done a magnificent
job of putting the credit union on the Treasury’s radar, and I
will be interested in following its continued success over the
years.
Question put and agreed to.
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