Agenda Item No: 1 2 Making the Most of Your Money – A scrutiny review of financial inclusion and wellbeing in Northamptonshire. Councillor Phil Larratt Chairman of the Customers & Communities Scrutiny Committee. In a recent study it was established that in 2010 almost 2.5 million people in the UK were unemployed. Approximately 6 million people were unemployed, „economically inactive‟ but wanting work, or employed part – time and unable to find full time work. In 2008/09 13 million people were in poverty, 5.8 million in „deep poverty‟ with a household income a third below the poverty line, the highest proportion on record. Although the number of children in poverty in workless families fell in 2008/09 to 1.6 million the number in working families in poverty rose to 2.1m the highest on record. The number of 16 year olds who did not gain 5 GCSEs at any level and 19 year olds without a level 2 qualification fell in 2009. Unemployment in 2010 amongst 16-24 year olds at 20 percent was the highest in 18 years and 3 times that of adults. Jobseeker‟s Allowance claimants peaked at 1.6 million in 2009 and 1 in 8 of the economically active people claimed at least once in 2 years. Some of the implications for these groups include health and mental health issues, a lack of access to essential services and increased costs for the services they do obtain and debt management. It is against this background that the working group started the scrutiny review of financial inclusion and wellbeing to establish if vulnerable people in the community were being forced into using illegal money lenders. By its nature this is a difficult area to gather information on, however by broadening the scope of the review to include a number of related elements the working group have been able to establish a picture of where affordable credit is an issue and therefore the potential for people to use legal and illegal door step lenders is higher. I would like to thank the members of the working group Councillors David Hugheston - Roberts, Stan Heggs, Graham Lawman, Stephen Legg and Dennis Meredith for participating in this review and the commitment they made in delivering the final report. Special thanks are also given to David Hedger Head of Trading Standards, Matt Earnshaw as part of the East/South Midlands Financial Inclusion Champions Team, Karl Walkinshaw from the Consumer Finance Education Body and Breda Carter, Democratic Services. I would also like to express my appreciation to all those who gave their time to meet with the working group and contribute to the scrutiny review. 3 4 Contents Page 1. Background 7 2. Methodology 10 3. Credit Unions 11 4. Community Finance Development 13 Institutions (CDFIs) 5. Advocacy Services 16 6. Financial Education & Capability 20 7. Personal Finance Education Group and Schools 20 8. Housing Associations & Housing Offices 23 9. Embedding Financial Inclusion in Service Delivery 25 10. Best Practice 28 11. Summary of Recommendations 32 5 6 1. Background 1.1 As part of the Customers & Communities Scrutiny Committee work programme 2009/10 councilors identified loan shark and illegal money lending as a concern within their divisions. Meetings took place with the Head of Trading Standards and the information from these indicated that there was little or no intelligence to establish how serious the problem was in the county. Dialogue with the Regional Illegal Money Lending Team, set up to primarily address hotspots in Derby, Leicester and Nottingham, indicated that there was only very limited intelligence regarding such activity in Northamptonshire. However loan sharking by its very nature goes on under the radar and with more communities and households being affected by the current economic climate and needing to make ends meet it is reasonable to believe that loan sharking has increased. It was also recognized that there were other forms of door step lenders that although legal charged their customers very high interest repayment rates which could only add to the burden of their loan. 1.2 In the course of carrying out the scrutiny review the working group have been support with data and information provided by the Financial Inclusion Team from the East and South Midlands who had been tasked by the Government to raise the profile of issues related to financial inclusion and capability and work with organizations, bodies and local authorities to integrate financial inclusion and education into their service delivery. Whilst working with the Financial Inclusion Champion for the area it was highlighted that support was available to the council and other organizations to embed this agenda from the Consumer Finance Education Body (CFEB). CFEB are sponsored by the financial sector and deliver a range of support and information which cuts across many sections of the community. Further information on the approach to this is detailed later in the report. 1.3 Data provided by Experian, as part of a Government funded study, identified financially excluded „hot spot‟ areas of Northamptonshire using a combination of factors which included: Lower super output areas (areas that indicate clusters of deprivation) and areas where over 50 percent of the population over 18 had an income of less than £15000 a year Less than 40 percent of this group had basic bank accounts or of those that did have a basic bank account over 20 percent had returned standing orders or direct debits in the last 12 months or both. This information highlighted 2 themes: Areas that had less than 40 percent of the adult population with bank accounts were likely to be without access to the most fundamental of banking services. In areas with over 20 percent of the adult population with basic bank accounts have returned standing order or direct debits, effectively costing them to have a bank account due to bank charges as no over draft facility is available. This data indicated that Corby, Wellingborough and Kettering are areas where financial exclusion is a particular issue with some areas in the south of the 7 county also being affected. 1.4 Data from the Financial Inclusion Champion Team East/South Midlands highlighted the following issues in the county: All districts have seen a significant rise in the rate of bankruptcies between 2000 and 2008. Corby has seen the biggest increase however Kettering has the highest rate. Corby has the highest unmet demand for affordable credit in the top 10 percent nationally followed by Kettering and Wellingborough. Northampton also had 5 wards in the top 10 percent nationally although not with the same level of need. An estimated 4981 households in Northamptonshire do not have access to a bank account base on an estimated 2 percent of the East Midlands Region. Savings – South Northamptonshire has the highest levels and Corby the lowest below the county and national average. Fuel poverty is consistent across the county although it is more of an issue in rural areas. Daventry and South Northamptonshire have the greatest levels of fuel poor households, Northampton the lowest. There are 3 million people borrowing at a rate of 164 percent Annual Percentage Rate (APR) or more. Social renters account for 70 percent. Estimated prevalence of illegal lending is 2.1 percent in communities within the most deprived nationally. Of those in social housing 81 percent have no savings and 35 percent of those on low incomes have no insurance of any kind. Residents in social housing were 133 percent more likely to experience burglary than owner occupiers. An estimated 5.6 percent of people in the 5 percent most deprived LSOA use loan sharks. An estimated 2 percent of households in the East Midlands region do not have access to a bank account. 1.5 So what is financial inclusion and why does it matter? Financial Inclusion is having access to financial services and products to participate in modern day life. These include affordable and responsible credit; access to appropriate bank accounts; face to face debt advice; basic home contents insurance and access to saving facilities. The links between financial inclusion and capability (knowing where to get advice and the best deal) and mental health, improved self esteem and improved confidence to name a few are becoming more evident 1.6 Financial Inclusion & Health 1.7 The NHS has a helpline for those feeling stressed because of job insecurity, redundancy, debt or financial problems (0300 123 2000). Health advisors will listen and offer practical advice, signpost to other resources and put them in touch with people who can help. Findings from the Royal College of Psychiatrists report on debt and mental 8 health found: Increased levels of debt increase the risk of mental health issues. Large economic recessions affect more people, some of which would not have experience of coping with hardship and so may be at more risk of mental health problems than those living within these circumstances already. Debt can have a negative impact on personal identity...creating uncertainty about what happens next and as well as engendering feelings of stigma and shame. People with debt and mental health problems often do not seek help for financial difficulties. Customers with debts often do not disclose mental health problems to creditors due to concerns about being believed, fears of the information being used against them, or feelings of embarrassment. 1.8 Financial Inclusion and Community Safety 1.9 National research by the Prison Inspectorate evidences that 50 percent of inmates were assessed as having inadequate or problematic financial circumstances on entry to custody. Many offenders face debt problems and this can affect them their families during sentence and after release.