Research Project

Councils and Community Banking
30 March, 2010

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Polling published by NLGN show strong support from local government leaders for new measures to tackle financial exclusion.

With figures showing[1] that more than a third of low earners are finding it difficult to access credit during the recession, NLGN argues that the Government should build on its commitment this week to provide a basic bank account for all by supporting councils to provide accessible and affordable credit.

NLGN argues that there is significant interest within local government for greater powers and unveils new polling evidence showing that:

  • Over 70% of council leaders want to consider how they could further help their residents access affordable credit and banking facilities;
  • Over 62% of council leaders said that they would opt for an LAA target in their top 35 priorities if ‘tackling financial exclusion’ had been available in the indicator set;
  • Over 80% of council leaders said that they would be keen to support new banking facilities for their residents.

The report also recommends that:

  • CLG and Treasury should commission a series of pathfinder ‘pilot projects’ in partnership with local councils to explore the scope for direct local authority banking services;
  • Mainstream banks should be obliged to provide easier access to banking and credit for hard-pressed communities through a UK version of the American ‘Community Reinvestment Act’;
  • The Treasury should create a ‘community banking capitalisation fund’ available for local authorities to draw down resources and in turn help provide financial support to local Credit Unions and CDFIs;
  • The Treasury, FSA and Bank of England should launch a joint taskforce with the Local Government Association to consider enhancing the involvement of local authorities in improving credit conditions and combating recession;
  • The forthcoming ‘Post Office Banking Consultation’ paper should acknowledge the work already undertaken by third sector and local authority partners in the roll out of community banking services, and ensure that any strategy supplements rather than duplicates this work.

Author of the report, NLGN Director Chris Leslie argues that:

“While the UK economy may be beginning to recover from the very worst effects of the credit crunch, the problems that it has left in its wake may be with us for some time to come. Financial exclusion is not an issue that will be resolved simply by returning the economy to growth, and a great deal of effort is needed to ensure that a new generation of victims do not emerge. Central government has invested an enormous amount of money simply to avoid a full-scale depression, and questions remain over what effect the inevitable drawing down of assistance will have. On a broader level, the events of the past two years have also shown us just how dangerous it can be to allow a select few institutions to dominate lending markets.”

“Local authorities, who deal with the problems caused by the downturn on the front line everyday, are uniquely placed to offer interventions which increase the supply of credit to those who need it most. There are a number of options open to them which ought to be explored. But to fully realise these, central government will have to buy-in to the process as well, eschewing a ‘top-down’ model of economic support and taking proactive steps to encourage positive local action by councils.”

Publication Date: 30 March 2010
Authored by: Chris Leslie and John Davies