PARLIAMENTARY DEBATE
Financial Inclusion: Rural Areas - 11 December 2024 (Commons/Westminster Hall)
Debate Detail
That this House has considered financial inclusion in rural areas.
It is a pleasure to serve under your chairship, Mr Pritchard. I am grateful to the Chairman of Ways and Means for granting this debate.
Financial inclusion is the ability of people to access, understand and use financial services to manage their money and reduce poverty. I hope the Minister will agree that we need better financial inclusion across the UK. I have been heartened to hear the new Government talk about financial inclusion, but more rural areas face a whole host of issues that make the challenges around financial inclusion even greater, and that is what I will focus on today.
My constituency of Frome and East Somerset is a predominantly rural area, with a number of market towns such as Frome, Midsomer Norton and Radstock, and 150 villages and hamlets. Frome has recently been allocated a banking hub, after our last bank branch announced that it would close. Thankfully, Midsomer Norton still has two bank branches open, but they serve surrounding areas as far as the city of Bath, meaning that residents in the surrounding villages still have to travel miles to reach their nearest bank.
Access to cash and face-to-face banking is vital for about 5 million customers across the UK who may be vulnerable because of low income or age, and in rural areas many people are dependent on cash for their livelihoods. When bank branches close, which is already more likely in rural areas, residents are increasingly vulnerable because the alternatives are more physically spread out, and after losing free-to-use cashpoints, rural residents have to travel three times as far to get cash as those in urban areas.
In Frome and East Somerset, an average of £630,000 is withdrawn in cash each month, showing how vital access is for people in these areas. The two main groups most affected by lack of access to cash are the deprived and the elderly. For people on low incomes, cash can act as an effective method to budget efficiently. Many elderly people feel excluded by the increasing reliance on digital services. With BT set to swap from analogue to digital landlines for millions of customers across the UK, there are concerns that that will lead to more isolation for elderly people who rely on landlines for their access to the outside world, and in many rural areas they may not have good broadband or mobile signal either.
Since the Financial Conduct Authority changed its regulations, Link has been able to do some valuable work to provide cash access to local areas. However, I urge the Government to look at how to make the regulations for Link more flexible to allow it to work on a case-by-case basis, as the current criteria do not take into account certain geographical and other barriers that affect rural areas. We know that 93% of people live within 1 mile of an ATM, which on paper sounds good, but it does not take into account issues that might come up in rural areas. For example, if someone lives in a village or hamlet, that 1-mile walk might have no safe walking routes and no bus connection. That is why we want to see the legislation expanded to include specific geographical, physical and societal barriers, so that they are taken into consideration.
With the closure of bank branches, banking hubs are becoming a lifeline for many towns, reinvigorating high streets and increasing football—footfall, even. They probably increase football as well. Frome residents are excited to have their banking hub open soon.
Prosper Frome, an organisation in my constituency that focuses on improving financial accessibility, had been advocating for a banking hub for over a year before it was announced by Link and Cash Access UK in September. That was a great relief to residents, who were about to see their final bank close, but Jean and Sam at Prosper Frome believe that the scope for banking hubs is too narrow, and have been lobbying hard to get a banking hub included as part of a much wider community project, enabling the hub to be multi-purpose. Making banking hubs more diverse widens their appeal and can make banking and financial inclusion the anchor of the kinds of community third spaces that many towns currently lack.
Shutting branches and opening banking hubs is currently financially efficient for banks, but there is a real risk that those banking hubs could close after a few years once the banks stop saving money and see the hubs as a drain on their profits instead of a benefit. We need reassurance about the long-term provision of banking hubs and a requirement on banks to keep funding them on an ongoing basis.
To turn away from banking hubs, I would like to raise the role of the post office, which is a vital service in many rural areas. In the village of Rode in my constituency, the post office sits within the local shop and café, doing vital work in not only posting parcels but supporting the local community. We have pop-up post offices in communities such as Freshford and Mells. For the elderly, the post office is a vital support in providing information on how to deal with bills and understand their pension credits, as well as generally giving them someone to talk to. Post office branches provide basic banking services, and in small towns where a banking hub is not viable, post offices are often the only remaining financial institution for customers and small and medium-sized enterprises.
I have been pleased to hear the hon. Lady speak about the need for banking hubs to be decided on slightly more loose criteria. Does she agree that for rural areas in particular, where central towns can be the linchpin of local economies, we should look at how we underpin their economic growth when we consider where we can bring in banking hubs?
In my constituency, cash deposits are valued at £2.1 million each month, which shows how reliant small businesses and charities are on having access to banking facilities that allow them to withdraw and deposit money.
I would also like to talk about digital inclusion. In a world that is increasingly moving online, many elderly and vulnerable people are being left behind. Older people are not necessarily comfortable using online or even phone banking. They are being forced on to those services, which reduces their financial inclusion and puts them at greater risk of financial fraud. Rural communities can find themselves doubly excluded as more banking services move online, with a lack of access to cash facilities locally and poor digital connectivity.
To return to poor digital connectivity, just this week I had an email from a couple in their 70s who run a small artisan business in Pilton. They are getting speeds of only around 1.5 to 3 megabits if they use a normal router, but when they asked to be connected to the nearby Glastonbury exchange they were told it would cost them £290,000, including VAT. I have heard about similar issues from farmers in my constituency who cannot get broadband past the boundary of their farm, which can be several miles from the actual property.
Financial and digital inclusion are critically linked. For those on low incomes, access to online banking can be costly, requiring a computer or mobile phone data. For people in rural areas, it is tricky to manage finances online with limited access to broadband.
I am going to make some progress now. I urge the Government to think carefully about how they move forward with legislation on digital services for banking, especially in rural areas.
Finally, although this is not necessarily a rural issue, I would like to make the Minister aware of a specific issue relating to the identity requirements for a bank account. I visited my local food bank in Frome on Monday, and people told me that although the Government have a website designed to help those without an address to get the ID they need to open a bank account, there is a critical flaw in the process. The last stage of the website requires the applicant to get a professional, such as an accountant or lawyer, who is personally known to them to sign off on their application. Clearly, that is not possible for many of those who apply. Please will the Minister look at that? It is currently preventing many people from accessing the ID they need to get a bank account.
I am pleased that the Government’s plans talk about financial inclusion, but the Lib Dems want to go further and see a dedicated national financial inclusion strategy. That would require the Financial Conduct Authority to have regard to financial inclusion, such as by protecting access to cash, especially in remote areas, by supporting banking hubs, by expanding access to bank accounts and by supporting vulnerable customers. As technology and innovation evolve, it is critical that we bring everyone along on the journey. That is very much the case when it comes to finances. Rural areas deserve the same levels of financial access as everyone else, and I urge the Government to bear that in mind in their decision making.
Ensuring that individuals have access to the appropriate financial services and products that they need, when they need them, is a key priority for the Government. It is an essential part of improving household financial wellbeing and ensuring that everyone is able to participate in the economy and benefit from the Government’s inclusive growth agenda. I recognise that tackling financial inclusion issues is particularly important for residents living in rural areas who face specific geographical challenges in accessing financial services. In today’s debate, we have had good examples of the particular challenges that people face.
I know that many rural constituencies are concerned about the availability of cash, especially when they rely on it to pay for essential goods and services. We recognise how important that is for many vulnerable people. Arguments have been made by some—not by the Government—that people are using digital more and more, so there is less need for cash. However, we recognise that for some people it is the only way of paying bills and accessing funds. It is important that we continue to have it, because many rely on it for essential goods and services.
Although it is positive that data from the Financial Conduct Authority shows that over 98% of people in rural areas are within three miles of free-to-use withdrawal facilities, I understand the importance of ensuring that cash remains available for those who need it. The Financial Conduct Authority introduced its regulatory rules to protect access to cash on 18 September. In fact, under a previous Government I was on a Bill Committee debating that very issue, so I am pleased that we mandated access to cash.
The rules require the UK’s largest banks and building societies to assess the impact of the closure of a relevant cash access facility and put into place a new service if necessary. That ensures appropriate access to cash for those who need or choose to use it.
Lots of people asked about banking hubs. I should probably declare that I am getting a banking hub in my own constituency soon, which is very exciting. How do people get a banking hub in their constituency? I completely agree about face-to-face banking services. It is not just about accessing cash; it has a wider role to play. If someone is accessing banking facilities, it can be a way to spot financial crime and financial coercion as well, so it is important to have that.
The locations are independently determined by Link, the largest provider of the ATM network. When a cash service such as a bank branch closes, or Link receives a request directly from a community, Link assesses a community’s access to cash needs. A couple of people mentioned how they were not successful in their appeal for a banking hub. If people have already made a community request to Link and it has decided that no banking hub is needed, they can ask Link to review the decision within 28 days of the original assessment, stressing their concerns and evidence. I urge people to take advantage of that appeal process.
Alongside access to cash, I know that constituents are concerned about challenges in accessing in-person banking. As has been highlighted in this debate, that is particularly an issue for individuals living in rural areas, where in-person services are less easily accessed than in urban areas.
My hon. Friend the Economic Secretary to the Treasury is working closely with the industry to roll out 350 banking hubs across the UK, which will provide individuals who need face-to-face support with critical banking services. As I say, I am personally hugely supportive of the banking hubs.
We are taking further steps to ensure that individuals can access the financial services and products that they need. Last week—I was very excited about this—the Government announced a financial inclusion strategy to further tackle the problems of financial inclusion. The strategy will be supported by a committee that the Economic Secretary convened for the first time last week. The committee brings together consumer groups and the financial sector to consider a range of barriers to inclusion for excluded groups, focusing on key policy areas such as access to banking, insurance and affordable credit, another huge problem for vulnerable people.
It is clear that there are significant challenges that need addressing. A quarter of adults have less than £100 in savings. Over a million adults are unbanked. There is a reported £2 billion of unmet need for credit, and over 8 million people are struggling with financial debt. Under the financial inclusion strategy, the committee will be working with consumer groups and industry to develop a strategy, considering a range of barriers.
To tackle the long-term issues effectively, we need to listen to the voice of experts. That is why we have convened this group, which will be tasked with drawing on relevant expertise across the sector and on lived experience. We will also be listening to people on the ground, because this will require a joined-up approach across Government, the financial services sector and frontline organisations. We will be engaging widely on this agenda to ensure that the strategy considers a wide range of frontline perspectives.
The strategy will be published next year, following extensive work by the Financial Inclusion Committee to consider the barriers to access and solutions to address them. It is important that we take the time to get this right and seek input from those who are most affected by the issue of financial exclusion. That is why the Government have made clear our commitment to going further in tackling it. While that work is in its early stages, I know that the Economic Secretary recognises its importance to our constituents and will keep the House updated as it progresses.
I thank the hon. Member for Frome and East Somerset again. It has been a pleasure to participate in her first Westminster Hall debate, and I thank all hon. Members for participating. There is a lot of support in this room for banking services, and a recognition of the importance of face-to-face services and access to cash. It is crucial for everybody in our society to have access to the financial services they need, regardless of where they live.
Question put and agreed to.
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