Credit Unions and the Cost of Living

I call Hannah Bardell to move the motion. I shall then call the Minister to respond. As this is a 30-minute debate, there is no opportunity for a winding-up speech.

I beg to move,

That this House has considered credit unions and the cost of living.

It is a pleasure to move the motion, Dr Huq. I am grateful to the Backbench Business Committee for granting this short debate and to the Minister for responding. I am sure that other colleagues will want to make an intervention along the way in this debate on the importance of credit unions during a cost of living crisis.

First off, I declare an interest as someone who saves and borrows with credit unions, including my own in West Lothian—the great West Lothian Credit Union. I start by paying a passionate tribute to West Lothian Credit Union, its chair, Nancy MacGillivray, and her team, who work and fight tirelessly to develop their services and support our local community through that local credit union. I also thank my own team for the work they have done to prepare for today and the work they do every day for our Livingston constituents throughout this cost of living crisis. I am sure all of us here in the House are very conscious of the pressures on our constituents and the work that our teams are doing for us—in particular Marcus, Yvonne and Adam, who have had a close hand in today’s preparations.

Similarly, I pay tribute to my constituency colleague Angela Constance, the Member of the Scottish Parliament for Almond Valley, and her team, who have worked closely and fought for our local credit union over many years. My hon. Friend the Member for Glasgow South West (Chris Stephens) was not able to stay for this debate, but he wanted me to mention the work that Pollok Credit Union does in his constituency and the fact that so much great work is being done by credit unions with affordable food larders and community supermarkets—particularly a programme in his Glasgow South West constituency.

The role that credit unions play in supporting hard-working families across Scotland and the rest of the United Kingdom during this unprecedented cost of living crisis is indisputable. Unlike the high street banks, credit unions are run and owned by their members and distinctly operate under a co-operative principle. While credit unions are a relatively new form of banking in historic terms—they were first established in the UK in the 1960s—their founding principles of mutual co-operation and collective benefit were born of the friendly society movement of the 18th century.

Credit unions even predate the creation of the welfare state. My own grandparents were active members in the co-operative movement in West Lothian and beyond, and its importance in our communities is a long-held tradition. As we become increasingly globalised and vested interests creep further and further into our lives, the role of credit unions and co-operatives is increasingly important and potentially under threat.

It is worth reflecting on the point my hon. Friend just made. The number of people borrowing with credit unions has increased, and one part of that is that we are seeing such high interest rates from high-street banks and those more typical lenders. Credit unions certainly play a far more vital role during this Tory-induced cost of living crisis.

My hon. Friend makes an excellent point—perhaps she has foreseen what I am about to say. It is an important point to highlight because although it is welcome that more people are using credit unions, the root cause is increasingly concerning. The cost of living crisis has placed a huge economic squeeze on hard-working families.

A report from Responsible Finance found that 41% of people borrowed to pay for essential bills and expenses, while 20% borrowed to pay for appliances and white goods. Analysis from Freedom Finance found that credit unions are lending record sums to UK borrowers following the surge in borrowing costs. Again, it is great news that people are getting their money through responsible borrowing from credit unions, but it is concerning that they are having to borrow such high levels just to get by.

Total loans exceeded £2 billion for the first time by the end of 2022—an annual increase of £251 million, or 15% over the course of 2022. Time and again, evidence shows that increases in the cost of living disproportionately impact the poorest in our society. Those individuals are often helped by credit unions, but some fall victim to unscrupulous lending practices, such as high-interest payday loans, simply to meet basic needs. The Freedom Finance credit monitor has revealed that the average household quoted on credit cards rose to its highest level last year since 1998, reaching 22.8% at the end of December. We can all reflect that if things worsen and interest rates go higher, more and more people will be tipped over the edge.

I congratulate the hon. Member on securing the debate and making such a powerful speech. On that point, the Barnsley Chronicle stated that a report from the local council last week showed that one in five residents in Barnsley have debts that overtake their incomes. Obviously, people are really struggling with the cost of living. Food has gone up by 19%, and we have seen similar increases in gas and electric.

Given that situation—not just the rising cost of living, but the sheer rising level of debt—credit unions obviously play a huge role, but they are not always known about. I pay tribute to a fantastic credit union in my constituency in Wombwell, but residents do not always know they can access that affordable credit. Would the hon. Member join me in encouraging people to raise awareness of the issue?

I agree with everything that the hon. Member says. Part of the reason for today’s debate is to raise awareness of credit unions, as well as to recognise the challenges that we and many of our constituents face. An estimated 20 million consumers in the UK are underserved and unable to access credit from high street banks. That is compounded by the number of bank branches that are closing. Everybody across the House has been outraged by the behaviour of some banks, the closing of local branches and the cutting off of so many of our vulnerable and rural communities.

The Scottish Government are committed to ensuring that credit unions continue to be able to carry out their vital role in supporting communities across Scotland. In 2020, the Scottish Government established the credit union resilience loan fund and the third sector resilience fund, which provided grants and loans totalling more than £20 million, made available to be shared with over 100 credit unions across the country. The Scottish Government also actively ran a “People, Not Profit” campaign in 2018, encouraging people to consider joining a credit union—those are examples of what we can do with the limited powers we currently have in Scotland.

In stark contrast, the UK Government have been slow to respond to the cost of living crisis, and many households are desperately struggling. Many low-income households still do not meet the affordability criteria for many lenders. I was struck by the comments of one of my colleagues in Prime Minister’s Questions the other day, when she spoke powerfully about her experience, when her income dropped, of not being able to access funding. That shows the scale of what people face. Respectfully, credit unions will never be able to plug the gap, and the UK Government need to take urgent action to address the cost of living crisis. There is an increasing need for these services, and the Government must recognise that the increased demand for credit unions has also been driven by the closure of banks and post offices, especially in rural areas.

The UK Government urgently need to support credit unions further and look at ways in which they can better support them. In particular, the UK Government should consider funding specific outcomes—for example, promoting financial education classes for schoolchildren more compared with what is already available and supporting individual credit union projects where they have a clear community focus. The Government should continue to fund and expand initiatives that increase access to affordable credit, such as the no-interest loan scheme being led by Fair4All Finance—not an easy one to say—empowering local communities to develop and deliver affordable and responsible finance.

It is a pleasure to serve under your chairmanship, Dr Huq. I congratulate the hon. Member for Livingston (Hannah Bardell) on a thorough and thoughtful contribution to this subject. She said that one of her objectives was to raise awareness, and she should feel that she has fully achieved that. I also congratulate the West Lothian Credit Union, which I understand will be celebrating a quarter of a century since its establishment this year. All my colleagues in the Treasury and I send our congratulations to that very important institution, which does great work.

As the Economic Secretary, I am committed to supporting the credit union sector. From helping people to set aside savings—the hon. Member talked about the work done with employers as well as in schools to help to promote the savings habit—to probably its most vital role of offering credit at affordable rates, the Government really value the unique role played by credit unions for all their members, and particularly the financial inclusion agenda. The reach of credit unions is significant. There are 385 of them—not quite enough for one for every constituency, but would that not be lovely? I share the hon. Lady’s goal of having more credit unions, seeing those we have being even more successful and wanting to grow the number of users. There are 83 in Scotland, which, in this respect, is punching above its weight. Together, credit unions represent more than 2 million members and have assets of more than £4.5 billion.

The hon. Lady is right that recent cost of living challenges have proven that the trust placed in the credit union sector by their members, the Government and regulators is well deserved. That trust will be vital as people across the country continue to face cost of living pressures and must stretch every pound as far as possible. People’s money needs to work hard for them.

We know that there are global challenges, and we are not alone in facing challenging levels of inflation: in May, core inflation was higher in more than half of the countries in the EU than in the UK. Inflation erodes living standards for households, and particularly for the most vulnerable in society. That is why it is right that the Government continue to make it one of our priorities—this is one of the Prime Minister’s priorities—to halve inflation by the end of the year, and we will not hesitate to do what it takes to achieve that. Access to affordable, inclusive credit, such as that provided by credit unions, can make a real difference.

Does the Minister agree that when the chips were down during the financial crisis of 2008, the Government had no choice but to step in and save the banks, but that it is now time for the banks to step up and help people who need to borrow and those who need help?

The hon. Lady is right that people need help. Across the House, we all support that. The Chancellor has made it very clear, with the mortgage compact and in the conversations that he and I have had with all of the banking sector, that now is the time to ensure that people have fair products and that, wherever the banks are able to do so, they pass on the benefits of that.

That is one reason why it is important that we have genuine diversity and competition in the sector. Credit unions play such an important role, alongside co-operatives, mutuals and other forms of financial institution, because they are often rooted in place, people or the community. The Government are firmly on the side of credit unions, and I will try to support them. We are taking action to help them wherever there are legislative levers, although they are not the only answer. We amended the Credit Unions Act 1979 through the Financial Services and Markets Act 2023 to allow credit unions across the United Kingdom to offer a wider range of products and services. That allows them to grow, diversify, build their resilience and offer more products to their customers.

We set out Vision 2025, in consultation with stakeholders, to deliver on the sector’s priorities. That includes such things as offering hire purchase agreements, conditional sale agreements and distributing insurance services. The hon. Member for Livingston said that the West Lothian Credit Union offers funeral plans. Many people want to access that sector to give them some peace of mind, so I was genuinely interested to hear that. I will ensure that we seek the right legislative framework for that.

The 2023 Act also makes amendments to support best practice in corporate governance, including a legal requirement for credit unions to submit annual accounts to the Financial Conduct Authority. It gives credit unions permission to temporarily lend to or borrow from each other. That is about designing more financial resilience for a sector that we are on the side of and want to see grow.

The Community First Credit Union in my constituency raised some issues with me about the operation of the eligible loan deduction scheme by the Department for Work and Pensions and some of the work that the Government do with credit unions. I wonder whether I could write to the Minister, because he might be able to look into some of those issues for me.

I would be happy to do so. I support anything that removes a point of friction and allows credit unions to do their important work. Regardless of whether it is me or one of my colleagues in the DWP, we will certainly take that forward and do what we can to support the hon. Member.

We value the work of credit unions. In seeking this debate, the hon. Member for Livingston has built a good level of awareness, and there is consensus that we can and should do more. That is the Government’s policy, and we are very keen to engage with the sector. Maybe one day there will be an opportunity to meet or have a call with the wonderful West Lothian Credit Union, and I am certainly happy to do so. The hon. Lady has done a magnificent job of putting the credit union on the Treasury’s radar, and I will be interested in following its continued success over the years.