DWP and Financial Inclusion
An Update
Lindsay Watt
Topics Covered
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Scale of the problem
What happens next
Vision for the future
What are DWP doing?
The Scale of the problem – 10 big numbers
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£1,280 – the poverty premium paid by low-income families each year
24 – the percentage of UK households now classed as fuel poor
£8,064 – the average household debt in the UK
6.2 million – households CCCS classify as financially vulnerable
124 – the percentage debt to income ratio of CCCS clients receiving benefits
9,072 - new debt problems are dealt with by the CAB every day
1 - person is declared insolvent or bankrupt every 60 sec’s per working day.
6 million - people with no savings
1.5 million - working age people without access to a bank account
4.1 million – Pay Day Loans made each year valued at £1.2 billion
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Department for Work and Pensions
The Cost of Credit
Organisation
• Credit union
• CDFI
• Home Credit
Total Cost of Credit per £100 borrowed
£13 - £14 per £100
£20 - £35 per £100
upwards from £82 per £100
• The average low income consumer borrows between £300 and £600
any one time
• Typical APR for Credit Union 26.8%, for CDFI 36%, for Home Credit
272%
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Department for Work and Pensions
The Poverty Premium and Fuel Poverty
• The poorest families in the UK pay higher prices than better-off families for
basic necessities like gas, electricity, credit and access to banking.
• The costs that poor families bear for obtaining cash and credit, and for
purchasing goods and services can amount to a ‘poverty premium’ of around
£1,280 pa – or 9% of the disposable income of the average family.
• 6.3 million, almost a quarter of all households in the UK are classed as fuel
poor (uSwitch)
• The lowest income decile pays £11 per week for fuel (15.4% of income)
compared to the highest income decile which pays £25 per week (but only
2% of income)
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Department for Work and Pensions
What happens next?
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Department for Work and Pensions
The Vision
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The new Money Advice Service targets free face-to-face money and debt
advice in the most deprived areas of the UK.
Credit unions/CDFIs move to sustainable business models and deliver lowcost financial products across the UK in partnership with the Post Office.
Local authorities integrate financial inclusion within their broader poverty
reduction strategies and maintain current funding levels.
UK banks improve access to basic bank accounts and other services
Utility companies subsidise the cost of a new budgeting account and widen
access to social tariffs.
Outcome:
Previously financially excluded individuals have access to, and use
low-cost financial products and services. This reduces their cost of
living, and levels of indebtedness in low-income households fall.
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Department for Work and Pensions
What is DWP doing?
• Building on the Growth Fund, DWP support for credit unions is planned
to continue for four years through the Credit Union Expansion Project
• The Growth Fund invested in the capacity of credit unions and CDFIs to
tackle financial exclusion and increase local access to financial services
and products.
• This enabled the provision of £175 million of affordable, low-cost loans
between 2006 and 2011 and helped increase the numbers of credit union
members from 554K to over 900k today.
• We now want to help credit unions/CDFIs expand and modernise their
service through our £73M project so they are no longer reliant on grant
funding.
• Credit unions/CDFIs will need to work with a broad range of partners to
create access to a common range of financial services for a million more
people on lower incomes.
• A Feasibility Study will report to Ministers in October on the best ways to
secure sustainable expansion and modernisation.
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Department for Work and Pensions
Emerging Findings from the DWP feasibility study
From 90 credit unions and CDFIs interviews:
• 89 demonstrated real appetite for growth
• All offer basic loans and savings products (CDFI’s offer savings accounts through
partnership with their bank). Almost a third offer pre-paid cards and 10% offer the
Credit Union Current Account.
• Over 40% raised sustainability and the end of DWP and other funding as key
challenges.
• 58% were in favour of achieving sustainability through cost savings and developing
more efficient processes, and a further 10% specifically raised centralised debt
management and credit scoring as key to their future viability.
From 4,624 consumer interviews:
• 60% had heard of credit unions/CDFIs but only 26% knew what they do.
• Low interest is by far the most important factor for people when deciding on a loan.
• Similarly, the interest rate or dividend remains the most important factor when people
decide on a savings product.
• Financially excluded consumers are most likely to want a bill payment service as part
of their financial/bank account.
• Only 14% had heard of jam-jar or budgeting accounts
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Department for Work and Pensions
The Future?
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Department for Work and Pensions