Gareth Thomas

I welcome the Bill and commend both the Chancellor and, in particular, my hon. Friend the Economic Secretary for their commitment to modernising financial services. Like the hon. Member for Aberdeen North (Kirsty Blackman) and other Government Members, I welcome in particular the proposed changes to credit union rules as well as recently announced measures to increase funding for community development finance institutions through the British Business Bank. But I want to focus my remarks specifically on what more the Bill could do to ensure that our financial system works for everyone, particularly by improving access to affordable credit for people and businesses in every region. The Prime Minister has rightly said that ours must be a “cost of living Government” putting money back into people’s pockets and giving families breathing space. That must surely include tackling the extra costs that people face simply because they are on a low income. Research published this summer by Fair By Design found that 95% of low-income households pay a poverty premium, of an average of £380 a year extra, for essentials such as energy, insurance, food and, crucially, credit. That research suggests that some 98% of households in poverty in my constituency pay a poverty premium that includes £178 a year on credit. That is not by any definition a small amount for a family already struggling to make ends meet. A household with savings can, for example, replace a broken fridge outright, but almost 40% of UK adults have less than £1,000 in savings and one in four people in financially vulnerable circumstances have no savings at all. A household without savings in that situation might have to borrow at eye-watering rates, paying far more for exactly the same appliance. The people with the least paying the highest price during a cost of living crisis is particularly unjust, and sometimes the consequences are far more serious than higher interest payments. The Centre for Social Justice estimated earlier this year that close to 2 million people in England are borrowing from illegal money lenders. These loan sharks can trap people in escalating debts, using intimidation, threats and sometimes violence to extract repayments. The number of people using them has risen and sadly will continue to rise unless people have safe, affordable alternatives. Credit unions and community development finance institutions already provide those alternatives, but they need support to be able to scale up and meet demand. Public funding, while important and welcome, cannot do the job alone. Some 850,000 SMEs already view access to finance as a major obstacle to growth, fewer than half of SME loan applications to traditional banks are successful, and in surveys, 40% of SMEs cite the high cost of the loans on offer as a problem for their business. Women business leaders, businesses led by disabled people, ethnic minority business leaders and businesses in the poorest areas of our country all face higher barriers to accessing the finance they need to unlock their expansion plans. Concern has grown that a number of high-cost lenders are exploiting this situation, targeting small businesses with slick, online marketing offering very rapid access to cash. As with the payday lending scandal of a decade ago, these lenders do not have to display or explain the total cost of borrowing or accurate representative rates. The often quite aggressive use of personal guarantees, loan stacking and the behaviour of some brokers are also significant concerns. Court judgments, ombudsman complaints and wider efforts to refinance these loans all underline the need for tighter regulation of the rules on high-cost credit and for bolder measures to improve access to affordable credit. Research for the Treasury and the Department for Business, Innovation, Science and Trade published in January this year by the National Institute of Economic and Social Research underlined how much our increasingly centralised banking services had driven up the cost of lending for businesses, compared with other European countries with much larger regional and mutual banking sectors. The OECD’s most recent analysis of SMEs’ and entrepreneurs’ financing suggests that the UK had higher average SME interest rates in 2024 compared with the US, France and Germany. I am therefore pleased that Ministers are backing with enthusiasm the CDFI taskforce that I initiated in government, and I welcome the progress on the Government’s financial inclusion strategy, but lasting change surely means looking beyond voluntary measures to ensure that people in the most vulnerable parts of the market are not excluded from essential financial services, including credit—a point members of the Treasury Committee made in their recent report. The Bill is the opportunity to bridge this gap and enact that change. There is no consistent, transparent framework for assessing how well major banks serve the people and places excluded from affordable credit. There is no systematic way to compare their contribution or assess how they encourage partnerships with credit unions and CDFIs that can make a real difference. We should surely require the Financial Conduct Authority to assess and publish banks’ performance in meeting affordable credit needs, including their support for responsible community lenders. Assessments should be transparent, comparable and, of course, proportionate, with action expected where performance falls short. A similar thing is about to happen with pension schemes. This is not about forcing banks to lend to people who cannot afford to repay. It is about ensuring that those who can repay are not excluded and that banks fulfil their part of the social contract. Banks have had huge success in the last decade—a decade when, according to Which?, almost 7,000 bank branches have closed, shutting down opportunities for basic advice, making access to financial services more difficult and leaving small businesses on our high streets facing yet another challenge.