The Statement of Intent below sets out our plans designing a new £55m programme to increase the use of fair, affordable and appropriate financial products and services that boost savings, increase protection against shocks, smooth incomes and increase access to fair, affordable and appropriate credit.
The statement of intent is also available as a PDF document
In January the government announced its intent to use £55m in funding from dormant bank and building society accounts to improve financial inclusion – financial products and services that work better for those on low incomes. This statement sets out the process, centred on the users of these products and services, which will shape how that money is used and the outcomes it aims to achieve.
Why financial inclusion?
We all experience ups and downs in our life, but some of us face crippling financial hardship which makes the difficult times so much harder to bear. When you struggle financially it becomes increasingly challenging to support your family, to maintain your mental health and wellbeing, and it stops you from reaching your full potential. Many people slide into problem debt and struggle to get by.
Making good use of appropriate financial products and services – savings, borrowing and insurance - can help build the financial resilience needed to withstand the down times and dramatically improve lives.
How we build that resilience and manage our finances depends as much on our knowledge and capacity to make the most of the money we have, as on our ability to access appropriate advice, products and services. We have to address financial capability and financial inclusion together if we are to make a difference.
This means the use of funds from dormant bank and building society accounts must complement the work of the Money Advice Service - and subsequently the Single Financial Guidance Body that is currently being established by the Government to improve levels of financial capability in the UK.
We know from consumers that took part in the Financial Conduct Authority's recent Financial Lives Survey in 2017 that access to such products can be limited, particularly when needed during certain life stages and for certain groups of people.
- High cost credit and rent to own. 6% of all UK adults used high cost credit (where the APR is equal to or above 100%) in the previous 12 months. This includes payday loans, home collected loans, hire purchase and other similar products. Use of high cost loans is highest among 25 - 44 year olds (9% of the population) and younger single parents are three times as likely to be using high‑cost credit than the UK average. Access to affordable credit is crucial to help people manage their finances and deal with unexpected events.
- Savings buffer. 13% of UK adults have no cash savings, 24% have less than £1,000 as a savings buffer and 19% hold between £1,000 and £5,000. Younger adults are most likely to have few or no savings, with 57% of 18-24 year olds holding less than £1,000. This severely restricts their capacity to manage transitions, such as moving to rented accommodation for the first time, or external shocks, such as ill-health or redundancy.
- Adequate insurance. While 48% of 25 - 34 year olds rent their homes, only 19% have home contents insurance. Some of them are paying more for individual insurance contracts to cover phones, white goods, furniture, perhaps through rent-to-own contracts, rather than covering all of their contents for less, in one insurance policy.
The Financial Inclusion programme
Over the past several months, we have been able to successfully determine the focus of the programme. This has been achieved with the help of the joint project team from BLF and DCMS and with close involvement from HM Treasury, the Department for Work and Pensions, the Financial Conduct Authority and the Money Advice Service,
A smaller group of experts were also appointed by BLF and DCMS who advised the project team and helped steer them in the appropriate direction for solutions within financial inclusion.
If you want further general information on Dormant Accounts Scheme, please visit www.gov.uk/government/publications/the-dormant-accounts-scheme
End User Research
The programme has been developed through a user centred design process and through active involvement of stakeholders, both service providers and consumers. The voice of low income individuals and their experiences of accessing financial services and products has at the forefront of our research.
A collaborative series of interviews, focus group discussions, roundtables workshops and surveys have helped us explore the barriers faced by end users, the gaps in the market and how to maximise the impact of £55m funding to tackle access to fair, appropriate and affordable financial products and services.
In our engagement with the stakeholders, we had:
- Arranged four roundtables on funding financial inclusion, credit provision, savings products and insurance products
- Received feedback from 124 respondents to our three surveys
- Arranged 40 one-on-one meetings or calls with housing associations, funders and investors, researchers, and banks
- Engaged with 98 individuals/organisations in total, through the roundtable events and other meetings.
Subsequently, we have produced a research report, consisting further in-depth information on the process of research, our findings and thereby justifying the specific design of the delivery phase that we are going to adopt.
Often, financial inclusion research reports are written from a statistical or quantitative perspective. The intention with our report is that it is led by the stories of people who have and continue to experience barriers to accessing fair, appropriate and affordable financial products and services. This has enabled us to put them at the heart of our research and listen to their suggestions for how things could be improved.
Stand by for the report, it will be published in September.
On the 9th of August 2018, the Government announced that it will fund the establishment of a new Financial Inclusion organisation responsible for deploying £55 million of funding from dormant accounts. It will primarily address the problem of access to affordable credit and alternatives. The new organisation will aim to bring in co-funding from a range of investors, including the private sector working on the issue of financial inclusion.
For the entire Civil Society Strategy, visit www.gov.uk/government/publications/civil-society-strategy-building-a-future-that-works-for-everyone