Legislative Push for Easier Access to Affordable Financing by UK Banks
Key figures within the Labour Party are pressing the government to pass a new law requiring UK banks to broaden their provision of affordable financing to small enterprises and low-income areas.
Gareth Thomas, a former minister, has introduced a bill under the 10-minute rule—a form of private member’s bill—that mirrors the Community Reinvestment Act (CRA) in the United States.
Thomas articulated the urgency of the proposal, stating, “With the ongoing cost of living crisis, it’s critical to enhance the availability of low-cost loans to assist millions of individuals with low to middle incomes manage financial crises that can arise at any time. Additionally, this initiative aims to support skilled entrepreneurs by easing their access to necessary funding to launch and grow their businesses.”
The bill has garnered support from several notable Labour figures, including select committee chairs Meg Hillier, Liam Byrne, and Sarah Owen, as well as former shadow chancellors Anneliese Dodds and John McDonnell.
Last year, the Treasury outlined its strategy to combat financial exclusion, which included measures to help expand credit unions.
Despite this, advocates have voiced dissatisfaction with the strategy, claiming it lacks specific obligations for the financial sector—a sector that Chancellor Rachel Reeves has lauded as a pivotal asset to the economy.
The CRA, established in the 1970s in the US, mandates that banks report their lending activities to regulators, focusing specifically on services provided to poorer communities. These banks are then evaluated and expected to outline plans for improvement.
Thomas’s proposal, a goal long championed by the Co-operative party, which includes 41 Labour MPs, aims to set up similar reporting standards in the UK. Banks would be required to track and disclose their efforts in reducing financial exclusion and enhancing the availability of financing to small and medium-sized enterprises. Furthermore, regulatory bodies would develop a rating system based on these performances.
The legislation would also compel banks to support credit unions and community development finance institutions (CDFIs), which offer localized, personal banking services to underrepresented communities.
In the US, many banks meet their CRA obligations by partnering with CDFIs.
Meg Hillier, who chairs the Treasury select committee, commented, “It’s encouraging to see Gareth bringing attention to this important issue. Oftentimes, efforts to improve financial inclusion are seen as mere formalities rather than a fundamental responsibility of a progressive society.”
“Our committee has initiated an investigation into the Treasury’s financial inclusion plans to determine if the government possesses the necessary strategy and resources to effectively address the real challenges people encounter. If this isn’t executed properly, the consequences affect everyone,” Hillier added.
Michelle Ovens, founder of the Small Business Britain campaign group, stated, “Numerous small businesses and individuals still encounter obstacles in accessing equitable and reasonably priced banking services. This bill represents a significant move towards mitigating financial exclusion by fostering greater transparency and accountability within the banking sector.”
Although the bill is unlikely to advance, many Labour backbenchers are eager to propose alternative economic strategies in response to the widespread dissatisfaction with the current party leadership’s policies.
Thomas served as a junior minister in the Department for Business and Trade until a reshuffle in September following Angela Rayner’s resignation. Recently, Reeves announced a series of policy reversals, including additional support for pubs impacted by rising business rates and modifications to inheritance tax thresholds on farmland after significant backlash.
A Treasury source emphasized that existing legislation and regulations, including the consumer duty overseen by the Financial Conduct Authority, already impose certain responsibilities on banks regarding financial inclusion. The source suggested that Thomas’s bill might be redundant.
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