Poor deserve more credit

THE extraordinary ballot box revolts of the past year provided insight into the great divisions in Western society – resentment of the elites and privileged by ordinary hard-working people, the failure of globalisation to deliver wealth to all and the struggles of those ‘just about managing’ with mortgages and uncontrolled rents.

There is another strata of society whose treatment by the financial system is shameful. The poorest are only allowed access to it on the harshest terms. The sub-prime mortgage borrowers at the core of the 2007-09 financial crisis were attractive to rapacious lenders and investment bankers precisely because they were weak and paid over the odds for loans.

The victims of pioneering payday lender Wonga were the citizens least able to obtain credit from high street banks, and the users of rip-off furniture and white goods renters would find it impossible to get credit from John Lewis.

At this Christmas season of rampant spending, where success is measured by buoyant consumer sales and record numbers of clickand-collect purchases, it is worth thinking about the pain and punishment of the financially dispossessed.

A report from the City think-tank the Centre for the Study of Financial Innovation describes the problem of financial exclusion to be ‘intractable’. raw data suggests that despite various initiatives, the numbers of people with nowhere to go for mainstream financial services is disgracefully high.

This is even more shaming in that the City is such a powerful force for our national wellbeing, producing a record surplus on the trade in services of £63.4bn in 2015.

The CSFI report, reaching The Poor: The Intractable Nature Of Financial Exclusion In The UK, compiled with a big input from former Bank of England deputy governor Sir Hector Sants, found that 1m people in the UK still don’t have bank accounts. And these are not people who have voluntarily opted to store their surplus cash under the mattress.

Some 50pc of households at the bottom half of the income curve have no home contents insurance. I was made starkly aware of the perils of this after a colleague told me that the uninsured housing association home of a family member had burnt down as a result of teenage carelessness, leaving them homeless, scattered and without possessions for the holidays.

In spite of the supposed availability of credit cards for the less well-off, as well as credit unions, an alarming 2.5m people still use unregulated doorstep loans policed by hooligans with baseball bats – a cut below the more respectable, high-charging regulated lenders, such as FTSE 100 firm Provident Financial.

AT the post-recession peak in 2012, before new interest rate and charging ceilings were put in place, 2m people were dependent on payday loans. Finally, more than 400,000 people use the extremely expensive rent-to-own sector. For example, a fridge-freezer that costs £644 to buy at John Lewis will set you back £1,716 over five years from the renter BrightHouse.

The fundamental unfairness of all of this is an upside-down economics in which the least well-off in a prosperous society are treated the most treacherously.

So what to do? The financially excluded are not a homogeneous group. Some are out in the cold because they live in remote areas with poor access to technology. Others are young people just out of college, loaded with student debt and credit card balances, and unable to establish a credible credit record.

Lack of access is among the reasons why closing the last post office in the village or the last bank in town can be so disruptive. Oddly enough, payday lenders accessed through mobile devices could be helpful now that their usurious charges have been capped.

There is also some evidence that in the case of credit unions, which were set up by the church to help victims of crisis, consumer protection means that loans are not accessed as simply they might be.

In the same way that Uber disrupts the taxi market, so ethical financial sites such as FairforYou, Neyber, Uberima and Squirrel could be useful. But they lack brand awareness and need more reliable sources of capital. If banks really want to show they are responsible, for a relatively modest cost they could put some financial muscle behind such initiatives.

Imagine how much further the £1.9bn Lloyds has just paid to buy more power in the credit card market would go if it had been spent on making the black horse more friendly to the socially excluded.

Listening to some of the commentary, it would be easy to imagine that Britain is a terrible place with swathes of the population drowning in poverty and debt. The truth is that the country is becoming ever richer, the prices of most essentials from food to mortgages are historically low and it is doing fine compared with many of our neighbours.

As people sit in front of the blazing Christmas hearth or the twinkling Chanukkah lights this season they should disregard self and spare a moment for those least well-served by our profit, bonus and dividend-obsessed society. Happy Holidays!