EPIC BRIEFING No.16
WELFARE REFORM
AND FINANCIAL
EXCLUSION IN
SCOTLAND
Summary
Welfare Reform and Financial Exclusion in Scotland
This briefing paper looks at the state of financial
exclusion in Scotland and how Welfare Reform will
affect those most excluded from mainstream financial
products1. The poorest fifth of Scotland’s population are
disproportionately more likely to be without a basic bank
account or similar financial product. This group is also
far more likely to be in receipt of income, housing and
disability support and to be unemployed than those in
the top 80% of incomes.
There are systemic reasons why Welfare Reform, and the
introduction of Universal Credit specifically, are likely to
affect those who are financially excluded especially hard,
besides the overlap in the profile of claimants and those
without access to financial products. Firstly, Universal
Credit will only be paid into a bank account. Secondly,
in a break with the way benefits are currently paid, it
will only be paid monthly and in arrears. Thirdly, it will
merge a range of benefits into one complex monthly
entitlement calculation. Fourth, housing benefit will no
longer be paid to landlords but instead will go directly to
claimants. Finally it will only be possible to apply for and
manage Universal Credit online.
These measures have been designed by the UK
Coalition Government to foster personal responsibility
for financial management and aiding the transition to
paid work by mirroring the way monthly salaries are paid.
However this attempt to change the financial behaviour
of the most excluded people fails to recognise the
underlying drivers behind the way they currently manage
the resources they have.
Research conducted by the Joseph Rowntree
Foundation2 found that resistance among the financially
excluded to direct debit and a reliance on cash related
to the need to control scarce resources effectively.
“Ring fencing” of money for specific purposes becomes
increasingly difficult when it all flows through one
account; a relatively minor unexpected expense when
faced with such tight margins can quickly come to eat
into other budgets and date-triggered payment such
as direct debit can incur steep charges if there isn’t the
money in the account on that day. In part this concern
with control reflects that currently housing and other
benefits payments are far from predictable; they may be
stopped or misdirected for a large number of reasons.
There is also considerable overlap between financial and
digital exclusion.
This paper argues that while financial exclusion has
affected generations of people in Scotland, the
coming reforms to the benefits system make this an
acute problem with a narrow window of opportunity
to address. This paper goes on to argue that
innovative procurement and partnership working from
Government, social landlords and financial services
providers has been shown to work on an area level in the
past and could provide a strategy for leveraging greater
access to appropriate financial products for the most
marginalised.
There are three key areas for action on financial
exclusion in Scotland, with short, medium and long term
challenges;
• Addressing the crisis in access to basic banking
facilities made acute by Welfare Reform
• Mainstreaming financial inclusion and embedding
financial inclusion in procurement and policy making
• Understanding the scale of Scotland’s financial
exclusion problem and the drivers behind it
Definition of terms in this briefing paper
Financial Exclusion
The financial inclusion network, Transact, defines
‘financial exclusion’ as: a state where individuals cannot
access the financial products and services that they
need. This is the definition used by the Scottish Poverty
Information Unit in a 2010 Scottish Government briefing
paper, ‘Tackling Financial Exclusion and Debt’3
People experiencing financial exclusion typically exhibit
one or more of the following characteristics:
• A lack of key financial products such as a bank
account, insurance, savings products and pensions
and the financial services that come with them
• A reliance on alternative forms of credit such as
doorstep lenders and pawnbrokers
Basic Bank Account
Basic bank accounts offer a simple facility to deposit and
pay out money in a mainstream high street bank without
an overdraft facility or in-credit interest, although many
offer a debit card that can be used in shops or cash
machines. Most will also allow direct debits to be set up.
This distinguishes them from Post Office Card Accounts
and building society accounts which offer deposit
facilities and cash cards but not direct debit facilities.
Welfare Reform: An overview
The Welfare Reform Act 2012 contained a raft of changes
to the UK’s benefits and tax credits system, aimed at
overhauling the benefit system to ‘promote work and
personal responsibility’.4
One of the key changes to the Act was the introduction
of a new “Universal Credit” to replace a range of
1. Scotland: Without a Bank Account, The Poverty Site, http://www.poverty.org.uk/s73/index.shtml?2 last accessed 16/01/13
2. Kept Out or Opted Out?: Understanding and Combatting ‘Financial Exclusion’, Kempson, E. and Whyley, C. Joseph Rowntree Foundation, 1999.
3. Gillespie, M. , Dobbie, L. Scottish Poverty Information Unit (2010) ‘Briefing Paper 9. Tackling Financial Exclusion and Debt: Money advice at the
crossroads’, Scottish Government
4. DWP www.dwp.gov.uk/policy/welfare-reform
EPIC BRIEFING No.16
benefits that are currently generally paid separately
on a fortnightly basis with a single, “streamlined”
monthly payment. The benefits being replaced are;
income-based Jobseekers’ Allowance; income-related
Employment and Support Allowance; Income Support;
Child Tax Credits; Working Tax Credits and; Housing
Benefit.
Universal Credit will take the form of a single, monthly
payment direct to a single household bank account, paid
in arrears. Only one claimant per household will be able
to receive payments, rather than the current system of
each adult making a different claim for separate needs.
Some people will be able to remain on fortnightly
payments and have their housing costs paid directly
to their landlords if they are deemed ‘vulnerable’, and
certain households will be able to receive split payments.
However, the UK Government has not yet given a
comprehensive definition of ‘vulnerability’. Most people
will not be able to opt to maintain their current benefit
arrangements.
This monthly payment is intended to mirror the way most
salaries are paid and ease transitions between receiving
benefits and tax credits and entering work. A new IT
system has been commissioned to allow “real-time”
calculations of claimant’s earnings and what they are
entitled to claim on a monthly basis.5
The new scheme will be rolled out gradually. Four
“pathfinder” areas in the North West of England will
pilot the new payments from April 2013, before the full
roll-out begins in October 2013. At first, one district
per region will apply Universal Credit to new claimants,
building to all new claimants being enrolled on Universal
Credit by April 2014. The aim is to close Job Seekers’
Allowance to new claimants by February 2014, tax credits
by the beginning of April 2014 and income support and
income-related employment and support allowance by
the end of April 2014. Existing claimants will be migrated
over a four-year period, ending in 2017.6
Other changes that will apply to new claimants of
Universal Credit:
•
Universal Credit must be applied for online. The
DWP have said that those without access to the
internet will get face-to-face help with completing
their claim form 7
•
There will be a benefits cap, initially set at £500 per
week per couple and lone parents and £350 for lone
adults of working age. This will not apply to
war widows or those in receipt of Disability Living
Allowance.
Alongside these changes to benefits and tax credits, new
rules about under-occupation of social housing will apply
to adults of working age. These changes have become
known as the “bedroom tax” but are in fact deductions
that can be made to the total amount someone may
claim for Housing Benefit or the housing element of
Universal Credit. A 14% reduction will be applied to
claimants under-occupying one bedroom and a 25%
reduction will be applied to claimants under-occupying
two or more bedrooms.
Financial Exclusion in Scotland
Scotland has slightly lower rates of financial exclusion
among the poorest fifth of the population than the rest
of the UK. Nevertheless, one in twenty such households
had no access to a bank account, building society
account or other account in 20098, in line with UK-wide
statistics. This figure saw a steady decline over a decade;
in 1999 35% of households in Scotland lacked access to
private banking services of any kind9. However, data for
this indicator has arguably been distorted by the recent
inclusion of two new types of account: the post office
card account and basic bank accounts. These products
have limited functionality; both do not offer overdraft
facilities, some basic bank accounts will not provide debit
cards and post office card accounts cannot be used
for direct debit payments. While there are no readily
available figures available at a Scottish level, across
the UK the proportion of households with no access to
private banking facilities rises to 11% if those with access
to post office card accounts only are included; including
those with only a basic bank account raises the figure
to 15%10. This indicates that the picture in Scotland is
likely to be very similar, with as many as one in seven
households potentially lacking access to direct debit
payment, debit cards or even basic banking facilities.
Clearly this poses significant challenges to participating
in everyday life.
• Universal Credit will only be able to be back dated
for a few specific reasons and then only for one
month
5. Wright, O., 2013 Government brings in trouble shooter to get its Universal Credit benefits programme on track before launch The
Independent, [online] (Last updated 18 February 2013) Available at http://www.independent.co.uk/news/uk/politics/government-brings-introubleshooter-to-get-its-universal-credit-benefits-programme-on-track-before-launch-8500355.html
6. Universal Credit Briefing Note 15, ‘Managing the build up of claims to Universal Credit’, DWP, November 2011
7. Regulation 9 draft Claims and Payments regs; ‘Universal Credit – frequently asked questions’, DWP, July 2012, via www.dwp.gov.uk/policy/
welfare-reform/universal-credit; ‘Freud names local authority pilot long-list for Universal Credit’, DWP press release, 20 July 2012
8. Scotland: Without a Bank Account, The Poverty Site, http://www.poverty.org.uk/s73/index.shtml?2 last accessed 16/01/13
9. Ibid.
10. UK: Without a Bank Account, The Poverty Site, http://www.poverty.org.uk/73/index.shtml, last accessed 16/01/2013
www.povertyalliance.org
People who lack access to suitable basic financial
products, or who have very limited access to them,
are disproportionately to be found among those who
are otherwise marginalised in some way. In 2000 the
Financial Services Authority noted; ‘Those most likely to
be on the margins of financial services include people
who are unemployed, unable to work through sickness
or disability, single pensioners and lone parents11’.
Ethnic minorities, especially Bangladeshi and Pakistani
households, were also disproportionately affected.
Financial exclusion is above all tied to low household
income12; all these financially excluded groups are more
likely to be found in the poorest households in Scotland
and live in areas that are otherwise marginalised13.
Among those who had had access to financial products
in the past but now no longer did, it was reported that
they began to disengage following a drop in income,
perhaps as a result of unemployment or retirement. A
pattern of withdrawal from mainstream finance emerged;
as money became tighter, households withdrew
incrementally from financial products to limit the
complexity of household expenditure and keep control.
First they ran down savings and insurance policies were
cashed in; they closed credit accounts and avoided
hire purchase agreements; finally they closed current
accounts and collected benefits, in cash, to keep tighter
control of expenditure19. Thus they became increasingly
unable to participate in normal financial activity.
While lack of access to suitable financial products
disproportionately affects certain groups of people,
it is also important to recognise the diversity of the
processes behind financial exclusion. Research by the
Joseph Rowntree Foundation in 1999 found that while
the majority of financially excluded households had
never really used financial services, a large minority
had used them but now no longer did14. Focus
groups conducted with different groups of financially
excluded people revealed distinct patterns to their
lack of engagement with mainstream financial services.
Among elderly low-income households, the primary
wage earner was likely to have always been paid in cash
and so have operated a cash budget to keep control,
remaining suspicious of both credit and financial services
in general15. Financially excluded young people without
secure employment and young single mothers were
both likely to come from backgrounds on the margins
of financial services, to live in neighbourhoods that are
unattractive to providers and to have not needed a bank
account to receive benefits. There was a critical lack of
awareness of what financial products were available to
them16.
While economic and social marginalisation are closely
associated with financial exclusion, it has no single root
cause and consequently financial exclusion has several
potential consequences, each requiring appropriate
intervention.
The fourth group identified were slightly older
households on the margins of employment. Here
households were actively refused current accounts
and credit due to their economic circumstances. They
were the largest group of financially excluded people
in the study, representing one in four of those with no
financial products17. Finally, ethnic minority households,
particularly those from certain Asian communities, were
found to be disengaged from financial services largely
because of cultural factors; they preferred to rely on
networks of family and friends for financial security;
they had a poor understanding of how banking in the
UK worked; there was a lack of suitable Islamic financial
products18.
The impact of Financial Exclusion
Because there are several dimensions to financial
exclusion, the potential impact for households and
individuals can be profound and wide ranging. Lack
of access to suitable insurance, pension and savings
products can have profound affects long term as people
struggle to build financial resilience and make long term
plans20. However, this paper focuses on the more acute,
day-to-day aspects of financial exclusion that people
experiencing poverty face. Lacking basic banking and
credit facilities can make what others take for granted
impossible and even contribute to indebtedness and
reinforce the cycle of poverty.
Managing benefits and budgets
Research by Consumer Focus (2011) illustrates the
way that control becomes of primary concern to lowincome households and forces difficult choices to be
made when more affluent households might shoulder
minor indebtedness. ‘For people on low incomes, the
consequences of unplanned expenditure as a result of
emergencies or due to increases in prices can cause
severe hardship… Unlike more affluent consumers,
they cannot afford to take the risk of the fees and
penalty charges for missed payments that come with
more mainstream products21’. In other words, it is a
mistake to think that a low-income household’s budget
shortfall functions like a more affluent household’s
monthly shortfall. There will never be room to create
11. In or out? Financial Exclusion and Financial Services Authority, 2000, p.21
12. Ibid
13. Scottish Household Survey 2010/11, Scottish Government
14. Kept Out or Opted Out?:Understanding and Combatting ‘Financial Exclusion’, Kempson, E. and Whyley, C. Joseph Rowntree Foundation,
1999. p. 14
15. Ibid, p. 16
16. Ibid, p. 15
17. Ibid, p. 16
18. Ibid, p. 16
19. Ibid, p. 17-18
20. In or Out? Financial Exclusion: A Literature and Research Review, FSA, 2000
21. Burton, M., Consumer Focus (2011), Making Ends Meet: The costs and implications of money management for low-income consumers. p.4
EPIC BRIEFING No.16
slack in next month’s budget to contain the impact of an
unforeseen outlay and low income households would
prefer to limit their access to credit and maximise the
micromanagement of their expenditure week-by-week
because of this22. In this context, moving from fortnightly
to monthly payments could be seen as actually
undermining responsible financial behaviour among the
lowest-income households.
While it is true that some of the products that lowincome households choose because they fit this overall
approach to financial management are expensive (e.g.
prepayment meters for utilities, home collected credit),
they are sound financial choices in the short term when
the consequence of mainstream debt is so stark for
these consumers. The longer term ramifications of such
products are more malignant.
The cost of credit
Most people make use of credit services of some
description, often to cover unexpected and essential
expenditure. Low income households in receipt of
benefits are particularly vulnerable to these peaks and
troughs in expenditure thanks to moving in and out of
low-paid work; this is a major source of indebtedness23.
Eight in ten home credit (e.g. payday loans, catalogue
credit) users said that they would find it impossible
to save £500 for a special purpose and seven in ten
believed they would not be able to borrow from a
mainstream lender.24
In fact nine million people in the UK do not have access
to credit from banks25. They can be excluded for a variety
of reasons, including a poor credit history or recent
bankruptcy. This lack of access to credit from mainstream
sources leaves those in need of credit with a range of
choices; sub-prime lenders and private home credit
lenders; third sector lenders such as credit unions; the
Department for Work and Pensions’ Social Fund and
more informal arrangements such as borrowing from
friends. Private sub-prime lenders’ credit is usually far
from affordable, when looked at over the lifetime of the
loan. The difference between the cost repaying a £300
instant loan from a typical credit union (charging 26.6%
APR) and a typical home credit lender (charging 272.2%
APR) over 52 and 50 weeks respectively is roughly £20926,
or an additional 69% of the original loan value.
Among those who have been excluded from even the
use of these options, illegal lenders and loan sharks
offer the only alternative. A 2006 study estimated that
6% of households in the most deprived areas of the UK
have made use of loan sharks, compared with 0.44%
of the total adult population27. Non-payment of these
deliberately vague and punitive loans may result in
violence, intimidation or users being drawn into illegal
activities such as prostitution.
Credit Unions offer an alternative to private lenders, and
for those households with the ability to save a little on
a regular basis they can offer attractive interest rates on
loans. Many will also provide unsecured personal smallscale loans of less than £500, which most mainstream
high street lenders will not, and since credit checks are
not part of the application process it is unusual to be
rejected a loan. However in Scotland the evidence base
for credit unions significantly affecting financial exclusion
is small. Scotland has the highest levels of credit union
membership in the UK, but a 2005 study found that
credit union members in Scotland were not those most
likely to be financially excluded, with no evidence that
people joined them because they would be unlikely
to get credit elsewhere28. Credit unions by their nature
tend to be locally-based and locally-focussed; coverage
can be patchy, as can advertising and marketing
approaches. Many credit unions in Scotland have payroll
arrangements with employers; most require a direct
debit to be set up to allow you to become a member.
These are potential barriers to participation for the
most economically marginalised. While credit unions
offer some otherwise financially excluded households
a realistic alternative source of credit, they are not
universally appropriate or accessible.
Poverty premium
The lack of access to mainstream banking services
faced by the most economically marginalised in society
contributes in a significant way to the “poverty premium”
faced by Scotland’s poorest households.
A 2007 report by Save the Children estimated that ‘the
costs that poor families bear in acquiring cash and credit,
and in purchasing goods and services, amount to a
“poverty premium” of around £1000 [ a year]’29. By 2010
this figure had risen to approximately £1280 per year30.
This extra expense can be attributed to an interrelated
set of factors, including; lack of digital take up (where
most of the best deals are available and the cheapest
payment options operate); inability or reluctance to use
direct debit to pay regular bills; use of expensive credit
options to purchase goods and services; increasing use
of pre-payment mobile phones among low-income
individuals (which have significantly higher call costs than
monthly payment mobiles or fixed landlines). Many of
these drivers behind the poverty premium can be linked
to lack of access to basic banking facilities and affordable
credit among the poorest households.
22. Ibid, p.4
23. Ibid, p. 25
24. Ibid, p. 25
25. New Economics Foundation (2009) Doorstep robbery: Why the UK needs a fair lending law, p. 2
26. Burton, M. Consumer Focus (2011), Making Ends Meet: The costs and implications of money management for low-income consumers. p26
27. Policis and the Personal Finance Research Centre Illegal Lending in the UK, Department of Trade and Industry, 2006, p.
28. Hayton K, Gray L and Stirling K (2005) Scottish Credit Unions: meeting member demands and needs, Scottish Executive
29. ‘The Poverty Premium: How poor households pay more for goods and services’, Briefing Paper, Save the Children, 2007
30. Save the Children (2011), The UK Poverty Rip-Off: The poverty premium 2010
www.povertyalliance.org
According to official statistics only 26% of people on
the lowest incomes have access to the internet at
home31. Scepticism about acquiring broadband access
is compounded by the knowledge that without a
current account consumers will not be able to achieve
the cost savings that the internet can offer32. Asides
from the greater difficulty of access to the best deals
and to goods and services comparison sites, lowincome households are unable to make use of some
of the cheapest ways of paying for these goods and
services, for example through cheaper online energy
tariffs or online methods of paying for items. Research
undertaken on behalf of the Post Office estimated that
the average saving to a household by using broadband
in the home was around £70 a month33.
As has already been discussed, many of the poorest
households have no access to direct debit facilities,
which combined with online payment plans can give
consumers access to the best deals on goods and
services. But even among those who can set up such
arrangements there is a lack of enthusiasm about them.
Reluctance to make use of direct debit and resistance
to direct payment of rent to tenants under Universal
Credit can be seen to stem from the same concern; in
precarious financial circumstances people are wary of
allowing flows of cash through accounts which cannot
be ring-fenced from one another34. The potential for
these payments to be eroded by other essential but
unpredictable expenses or by bank penalties is high.
This anxiety about loss of financial control affects take
up of monthly payment plans across goods and services,
such as monthly mobile phone or fixed landline tariffs
and energy bills. However consumers face paying a
premium for the services themselves and as a result
may also end up paying more VAT per unit than other
customers.
Welfare Reform: hitting the financially excluded
hardest?
The UK Government currently acknowledges the need
to address the difficulty people on low incomes have in
accessing banking services if Universal Credit is to be
feasible. However it has not stated how it will guarantee
to address this issue by the launch of the new scheme
in October 201335. Despite this, the UK Government’s
equalities impact assessment of Universal Credit took
into account digital exclusion but not financial exclusion
as a dimension of poverty.36
Aside from the concerns about the impact of this shift
in the way benefits payments are made could have
on particular vulnerable groups, it could also have
potentially devastating consequences for the very
poorest households. The National Housing Federation
(NHF) calculates that across the UK 15% of local authority
tenants and 13% of housing association tenants do not
currently have access to a bank account, and would not
be able to pay their rent to their landlords via direct
debit when direct landlord payments are brought to an
end in October 2013. According to research conducted
on the NHF’s behalf in 2012, 35% of social housing
tenants and 50% of those with a history of missed rental
payments believe they would struggle to keep up their
rent payments if they received their rent direct.37
The Wester Hailes Community Banking Agreement (CBA) was created in 2001 to address the collapse of a local
credit union at the end of the 90’s, and to meet the needs of the comparatively high number of residents in West
Edinburgh who were financially excluded and without basic banking facilities at the time. Instigated by the Wester
Hailes Community Representative Council, it was a voluntary agreement that effectively pooled the bargaining
power of community organisations and services within the Wester Hailes area to secure provision of financial
inclusion projects from a “preferred provider” bank. The Bank of Scotland was the only mainstream provider to
show serious interest, and they became the partner bank for the scheme.
The CBA was based on the principle that even though Wester Hailes’ residents are disproportionately likely to
be unattractive customers to banks for a variety of reasons, including low incomes, Wester Hailes itself is still a
community with considerable assets in the shape of its voluntary organisations and the services they provide.
These could be used to leverage greater investment from mainstream financial services providers by promising to
use a particular bank for deposits and borrowing over a period of time.
The financial inclusion projects Bank of Scotland agreed to invest in included making it easier to access the Bank’s
Easycash basic bank account by the distribution of leaflets, starting a mobile banking unit that toured the area and
putting on awareness raising events in the area. They identified and trained a specially selected member of staff in
the local branch to handle enquiries about basic bank accounts. The Bank of Scotland was also involved in setting
up a savings and loans scheme through the local housing association, Prospect.
The aim of Universal Credit seems to be to engineer
behaviour change among those in receipt of benefits;
the Westminster Coalition Government states that the
aim of Welfare Reform is to foster a sense of personal
responsibility and smooth the transition back to work by
packaging benefits in a monthly lump sum much like a
salary. However, Universal Credit is considered unlikely to
align the very poorest in society’s financial behaviour with
those of us who are better off for structural reasons:
•
Obliging claimants to receive benefits into a
bank account does not necessarily mean that there
will be a rise in direct debit rental payments. This is
because of the unpredictability of benefit payments;
currently a certain amount of housing benefit
payments come in late for a variety of reasons,
including fraud investigations, monthly tax
assessments and administrative errors. With so
many different benefits all now tied up in one
package, benefits payments will become even more
unreliable and tenants are unlikely to risk
committing themselves to date-triggered direct debit
rent payments.
•
Universal Credit will be “digital by default”, but
this ignores the very practical reasons why people
do not have access to the internet on a platform
that realistically allows them to bank and manage
their benefits online. The application process for
Universal Credit currently takes 90 minutes to
complete; there is no way of saving progress on
filling the application and returning later. Most
libraries and other free-to-use internet hubs only
allow users an hour slot at a time.
Case Study: the Wester Hailes Community Banking Agreement
Apart from the immediate challenge of compulsory
direct payments into a bank account, given the increased
likelihood that people on low incomes and reliant on
benefits operate cash budgets as a way of maintaining
control of their finances the switch to Universal Credit
could potentially be critical for some households. Access
to basic banking facilities and simple debit cards such
as SOLO has been shown to ‘help [people] budget
more effectively’ in an evaluation of the Wester Hailes
Community Banking Agreement38 (see case study).
However, through lack of awareness or a genuine lack
of suitable products many of those most affected by the
change to Universal Credit will not have access to even
these banking facilities.
31. Burton, M., Consumer Focus (2011), Making Ends Meet: The costs and implications of money management for low-income consumers. p. 28
32. Ibid, p. 30
33. SWQ Consulting (2010), Broadband in the home: An analysis of the financial costs and benefits, Final report to the Post Office, p.1
34. Policis () Optimising welfare reform outcomes for social tenants. p. 5
35. Universal Credit FAQs, Department of Work and Pensions, 2012. p. 4
36. Welfare Reform Bill Universal Credit Equality Impact Assessment, Department for Work and Pensions, 2011.
37. http://www.housing.org.uk/policy/welfare_reform/universal_credit/direct_payments_to_tenants.aspx
38. Review of the Westerhailes Banking Agreement, SQW Limited for Communities Scotland, 2003. p. 14
EPIC BRIEFING No.16
Both sides of the partnership had concrete positive outcomes from the agreement. The Bank of Scotland was the
preferred provider for a number of years for a large number of organisations, including housing associations, with
considerable deposits, borrowings and capital and revenue assets. There is evidence that the CBA actually helped
attract custom and persuaded long-term customers to stay with the Bank39. Wester Hailes residents themselves
benefitted by an increased ability to access appropriate financial products. During the period March 2001 to
February 2003, 1707 Easycash accounts were opened in West Edinburgh. Of these, 985 accounts were opened by
Wester Hailes residents, 57% of the total40. This disproportionate uptake of basic banking facilities has had longlasting consequences. A recent survey of local residents conducted by Prospect Housing Association indicated
that 13% of respondents had no bank account41. While this is still a far higher rate of financial exclusion than in the
general population, this figure is down from 17% of respondents to a similar survey undertaken in 1999 during the
inception of the CBA.42
Key Challenges and Recommendations
Financial exclusion in Scotland deserves to have a far
higher profile among policy makers than it currently
does. The introduction of Universal Credit and other
changes associated with the Welfare Reform Act 2012
have made some of the challenges associated with
financial exclusion matters of great urgency. Others are
perhaps more medium- to long-term challenges which
are nevertheless crucial to address.
1 Addressing the financial products access crisis in
Scotland
While lack of access to basic banking and financial
services has been seriously affecting the wellbeing
of Scotland’s poorest households for generations,
the changes involved in the switch over to Universal
Credit in October 2013 mean that this problem
should be viewed as a crisis by Scottish polic
makers.
•
Credit Unions have an important part to
play in responding to the Welfare Reform financial
crisis, but for a variety of reasons they cannot
provide a comprehensive solution. In the run up
to the introduction of Universal Credit, the Scottish
Government and DWP must be pro-active in raising
awareness of the availability of suitable basic
banking facilities – what to ask, who to ask, what
the solutions to common stumbling blocks are (e.g.
no proof of ID).
•
Banks must provide awareness training for their
staff around providing suitable products for those
on low incomes or with a history of financial
difficulties in a non-judgemental manner
•
New credit-triggered products and jam-jar accounts
are urgently needed to address the behavioural
reasons why some prefer to remain without a
bank account. The Welfare Reform Bill actually
represents a national or local business opportunity
for entrepreneurial service providers.
39. SQW (2003). Review of the Wester Hailes Community Banking Agreement. Edinburgh, Communities Scotland. p 21
40. Ibid. p 12
41. Prospect Housing Association (forthcoming). ‘Welfare Benefit Changes Research’. Edinburgh, Prospect Housing Association
42. SQW (2003). Review of the Wester Hailes Community Banking Agreement. Edinburgh, Communities Scotland. p 7
www.povertyalliance.org
•
Social landlords and Housing Associations are in
a unique position to provide access to products
that could mitigate their tenants’ financial
vulnerability in the wake of Welfare Reform.
Working with local and national government and
voluntary organisations they should use their
collective bargaining power to ensure appropriate
products are available to their tenants.
•
Social landlords should also consider becoming
“trusted partners” with a range of banks. This status
allows them to vet applicants’ identification
documents and vouch for them, removing the
administrative burden that banks are reluctant
to shoulder for basic bank accounts. Since these
documents are often the same as the ones used
for accessing benefits or other housing-related
administration this should not generally generate
too much extra work for social landlords’ staff.
2 Mainstreaming Financial Inclusion
•
Mainstream financial services providers are
complacent about their role in financial inclusion;
concerted action by Government, consumers and
the voluntary sector will be needed to address
this. A recent Consumer Focus report on financial
exclusion concluded: ‘Despite recognising that
many low-income consumers were good money
managers that wanted to avoid debt, mainstream
providers still identified other providers, such as
credit unions and the Post Office, as more
appropriate to serve low-income consumers…
Even in terms of playing a supporting role to
social lending, the banks’ efforts have been found
wanting.’43
•
Harnessing the collective bargaining power of
local organisations can produce tangible results;
even Scotland’s poorest neighbourhoods actually
have considerable assets and money present
when local services work together. Community
Banking Agreements such as the Wester Hailes
CBA can provide a strong incentive to banks and
financial services providers to do more to help the
most excluded access appropriate products.
•
This approach can be embedded at a national
level; specific amendments to the Community
Empowerment and Procurement Bills currently
making their way through parliament could
mandate a “social clause” for public services or
local authorities procuring financial services.
•
Digital inclusion is now key to financial inclusion
and vice versa; the evidence shows that these two
types of exclusion increasingly overlap and
reinforce one another. Money and resources
should be directed towards providing access to
the internet via computer in deprived areas and
also towards building confidence and skills. In the
short-term addressing digital inclusion will help
claimants access the financial support they are
entitled to. In the medium- to long-term it will also
help reduce the “poverty premium” paid on
goods and services and allow people to control
their money more effectively.
3 Understanding the scale of the problem
The inaccessibility (and sometimes scarcity) of upto-date Scotland-specific data, is a very real barrier
to understanding not just who is most vulnerable
to financial exclusion but also what the processes
are behind that exclusion. Many of the studies cited
in this briefing are over a decade old; more recent
Scottish Government briefings on this and related
issues refer to the same literature and much of it has
taken the whole of the UK as its level of analysis. This
is not just a problem for policy makers; practitioners
and service providers also lack access to intelligence
that could help them target those most likely to be
affected by financial exclusion.
• Free-to-access, multi-level data and analysis
about patterns of financial exclusion in
Scotland
• Fund up-to-date research on the scale of
financial exclusion in Scotland and the drivers
behind financial exclusion
•
Capture and aggregate data relevant to
financial exclusion held by organisations and
services such as social landlords or voluntary
groups.
This briefing paper has been researched by Rosie
Anderson and staff and volunteers with the EPIC
project. The briefing paper emerges from issues raised
by community members active in the EPIC project and
through the Poverty Premiums Short Life Working Group
that was establishing by the Tackling Poverty Stakeholder
Forum.
43. Making Ends Meet: The costs and implications of money management for low-income consumers, Barton, M., Consumer Focus, 2011
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