UK Car Lending

Speech by Economic Secretary John Glen, to the Association of British Credit Unions Limited

Hello everyone and thank you for having me again.

This is now the fourth opportunity I have to address you.

I had hoped to make a grander entrance to mark the occasion, but was told that the pyrotechnics and AC/DC soundtrack are for fifth visits only.

Anyway, I’m grateful to have the chance to speak to you physically this year. Not least because of the special contribution you make.

Especially because of the unique role the credit union and mutual sector plays in providing the services your members, communities and country need…providing an ethical home for savings and affordable loans to those who might otherwise having to resort to cost lenders.

Whether through Pennine Community Credit Union’s efforts to provide affordable savings accounts and loans to communities in East Lancashire and Cumbria… or through Just Credit Union’s new education grant to helping young people continue their education… the good work of the sector runs through all the arteries of our society.

This is why, in my role as Economic Secretary, I have always defended and will always defend the mutual sector, and credit unions in particular.

The pandemic

And after all, there are so many things to defend.

Time and time again, the sector has lived its core values… putting people before profit and meeting the challenges of our times.

Your hundreds of thousands of members have relied on you throughout the Covid-19 pandemic… including as a lifeline so people can afford to borrow when they need it most.

The government is deeply grateful to you for these efforts.

And I am pleased that Her Majesty has also recognized leadership in the sector through the honors system – may I take this opportunity to congratulate those who have been recognized recently including Christopher Bell from Capital Credit Union, Joanne Swaine from Leeds Credit Union and Karen Bennett of Enterprise and Past President of the ABCUL, to name a few, for their service to the credit union industry.

Throughout the pandemic, like today, the government has stood with you and by your side…side by side…to strengthen credit unions so that you, in turn, can support your members and your communities.

We set up Fair4All Finance, which distributed a £5m Covid-19 resilience fund to support credit unions and community development finance institutions in England.

In May 2020, the government also announced that additional funds through the Dormant Assets Scheme would immediately flow to Fair4All Finance – including an expanded Affordable Credit Augmentation Scheme.

This support, bolstered by measures from devolved administrations, has enabled social lenders to continue administering loans to vulnerable clients to effectively serve their communities throughout the pandemic…and ensured the continued growth of the sector, even in the most difficult times.

Our prize-linked savings pilot project, PrizeSaver, has also helped increase industry buy-in and awareness – helping members increase their financial resilience by building their savings, while promoting the strengths of the mutual model and attracting new members to credit unions across the country.

I have been encouraged by the success of this pilot project – and would like to thank the sector for its positive engagement. It’s a pattern I’ve seen from start to finish and the impact it has had is clear.

I’m really happy that 16 credit unions have continued to operate PrizeSaver independently since last year. This is good news, and a strong sign of success. And I hope and believe that PrizeSaver will continue to get better and better.

Cost of life

The pandemic has proven that the trust placed in the sector by your members is well deserved.

That confidence will be vital as people across the country face unprecedented pressures on the cost of living, which means every pound must go further.

We know these are global challenges, but, as with the pandemic, we also know that government and credit unions can take steps to help ease the burden.

It is for this reason that the Government is providing support worth over £22billion in 2022-23 to help support those facing these pressures.

As the Chancellor announced in this year’s spring statement, this includes providing millions of households with up to £350 to meet rising energy bills and help people maintain a most of what they earn.

The government also cut the Universal Credit sliding scale, froze alcohol duty and further increased the National Living Wage to £9.50 an hour from April 2022.

We have gone even further – announcing an increase in the annual National Insurance threshold and lower benefit limit to £12,570, a reduction in fuel tax and an additional £500million to help cover the cost of basic necessities through the Household Support Fund.

For you, it’s essential that credit unions continue to play their important role in providing consumers with access to affordable credit – to help manage expenses and build financial resilience.

And in this you will have the full support of the government.

We will continue to strengthen affordable credit initiatives, which will both expand the supply of affordable credit and increase usage.

We are providing Fair4All Finance with £3.8 million in funding to pilot an Interest Free Loan Scheme (NILS) – which has been designed for vulnerable consumers who would benefit most from affordable credit to cope with unforeseen costs.

The first stage of the pilot is now underway with proof of concept loans administered by South Manchester Credit Union.

This is a fundamental and worthwhile new initiative to provide a gateway product to people who currently exceed the lending capacity of some credit unions.

The challenge now will be to bring this proof-of-concept pilot to a larger pilot so that we can now validate it.

Just this morning, I met recipients for whom these loans are having a real impact – covering the costs of new appliances to keep families going, funerals of loved ones and debt consolidation. I expect the pilot to reach full-scale rollout to a number of pilot sites across the UK in early 2023.

Financial inclusion

We must also ensure that the door to affordable credit and financial resilience is open to all.

Ensuring an inclusive financial system has been one of my top priorities since I started in this role. It is a task we approach with renewed vigor in the face of unprecedented cost of living pressures.

That’s why, since 2019, the government has chaired the Financial Inclusion Policy Forum, bringing together the financial services industry, consumer groups, the regulator and the third sector…and why we also publish a report report on the government’s work on financial inclusion, which details a wide range of initiatives over the past year, as well as ongoing work to support financial inclusion.

The government is committed to encouraging people at all income levels and at all stages of life to save. ISAs are a key part of this support, allowing individuals to save without paying tax on the interest. This includes, but is not limited to, the Cash ISA offered by many credit unions. This support, coupled with other savings measures, means that around 95% of people with savings income pay no tax on this income.

Amendments to the Credit Unions Act

The government will continue to support credit unions in your mission to provide access to affordable credit and build financial resilience…just as we have done during the pandemic…to ensure the sector can offer its members now and in the future.

A big part of that, of course, is that we in government listen and respond to the sector.

The “Vision 2025” consultation clearly defined stakeholders’ interest in offering services beyond what they can currently offer…enabling credit unions to diversify their income and support financial inclusion by offering new opportunities for the sector to grow and expand its reach.

We’ve heard you loud and clear and last year at this conference I spoke about our commitment to amending the Credit Unions Act to allow credit unions in Britain to offer a wider range of products and Services.

Today, we are delivering on that commitment. I am happy to report that we are preparing on the basis that these changes will be part of the next Financial Services and Markets Bill.

This legislation will include a new complementary purpose, the adoption of which will be voluntary…allowing credit unions to provide hire purchase, conditional sale and insurance distribution services to their members.

We know you will have members, especially key workers or those working shifts, for whom having access to a reliable car can be essential. And these changes will mean that you will be able to offer products such as car financing to your members, if they wish to choose them, for the first time.

As you’d expect, there will be processes to navigate, including ensuring compliance and seeking necessary clearances from regulators. But I believe this change will truly help your members and see your credit union grow.

The Bill also makes minor changes to support better corporate governance, including a legal requirement for credit unions to submit annual accounts to the FCA, and express permission for credit unions to lend and temporarily borrow from other credit unions, even when there is no membership. link. This should not change your current mode of operation, but rather bring legal certainty to these activities.

I am delighted to deliver on this Budget 2020 commitment…the government truly appreciates their commitment to the sector and I will continue to listen to them to ensure that we continue to support credit unions, so that you, in turn, can support your members.

Conclusion

Ladies and gentlemen, allow me to conclude by thanking you again for all the good work you have done…and continue to do for your members, your communities and the country.

The past few years have demonstrated the essential role played by credit unions…a role that the government and I will continue to defend at every opportunity.

Thank you so much.