Scottish Government

Chapter Three Access to Financial Services

Introduction

3.1 It has been claimed that the number of people with a bank account has risen sharply over the past 30 years as the importance of basic transactional banking services in managing personal finances had come to be regarded as essential (Kempson et al, 2004). This had however resulted in considerable cost and inconvenience to those who, for a variety of reasons, did not have access to such services.

3.2 The purpose of this Chapter is to look at access to financial services across Scotland, before considering the variables which might restrict access and therefore result in financial exclusion. The Chapter considers:-

• The prevalence of financial accounts from a range of providers;
• Convenience and frequency of use of financial services; and
• Use of the internet in accessing financial services.

Access to Financial Accounts

3.3 Extracting data from the SHS on those with bank of building society accounts is complicated by the fact that the questions asked have become more detailed over time ⁴. Accepting this, analysis of the data between 1999 and 2006 shows a small but steady increase in account holding.

3.4 Table 3.1 presents comparative information on the types of financial accounts held by households. Key findings are:-

• 88.5% of households held a bank account in 2005/06, up from 86% (including building society accounts) in 1999/2000;
• The prevalence of building society accounts appears to have decreased between 2003 and 2006. However, this is probably a reflection of the trend for societies to de-mutualise and offer a full range of banking facilities;
• A relatively small proportion of respondents made use of credit union accounts;
• Approximately 9% of households in 2005/06 had a Post Office Card Account; and
• The proportion of respondents who did not have an account with any of the service providers mentioned decreased from 6% in 2003/04 to 2% in 2005/06.

TABLE 3.1 Percentage of respondents with an account
(Household information)

Source: Scottish Household Survey Data
Note:
1. In earlier years data concerning possession of bank and building society accounts was combined.
2. It is not clear why it is only possible to access half the sample for 2001/02

3.5 In addition, and broadly in keeping with the characteristics of the financially excluded mentioned earlier (see Paragraphs 2.16 to 2.19), analysis of the 2005/06 SHS household data indicated that, in terms of household access to bank accounts: ⁶

• A greater proportion of households where the highest income earner was male possessed a bank account: 90% compared to 86% where the highest income earner was female;
• A significantly smaller proportion of respondents from households headed by a single person had access to a bank account compared to households where the highest income earner was married or co-habiting. Further examination revealed that, at 83%, access to bank accounts was lowest amongst those households in which the highest income householder was widowed, divorced or separated;
• This finding was reinforced when considering household type, when single pensioners and single parent families emerged as the least likely to have access to a bank account (also 83%). At 94%, inclusion was highest among small families;
• The vast majority of those who owned their own home (92%), or were in the process of buying with the help of a mortgage (94%), had access to a bank account. This proportion fell amongst those who rented and was lowest among those renting their property from a LA (77%), housing association (76%) or who held some other form of tenure 72%; and
• The likelihood of having a bank account decreased slightly with age, from a high of 92% among those aged 25-34 to 84% among respondents aged 75 and above (Figure 3.1). This is generally in line with the national picture as observed in the Family Resources Survey 2004/05.

FIGURE 3.1 Prevalence of Bank Account by Age of Highest Income Householder 2005/06
(Household Information)

Number of respondents: 27,068
Source: Scottish Household Survey Data

3.7 Additional factors which appeared to have a strong influence on the prevalence of bank accounts in Scotland were:-

• Economic status; and
• Disability and long term illness;

3.8 In terms of access to bank accounts Table 3.2 shows that:-

• Respondents from households in which the highest income householder was permanently sick or disabled or unemployed and seeking work were less likely than other groups to have access to a bank account; and
• Those who were employed on a full time basis or were self employed were most likely to have access to a bank account.

This is an interesting finding given that the groups least likely to possess a bank account are more likely to be in receipt of state benefits which are increasingly paid directly into bank accounts. It is, however, possible that the Post Office Card Account is used as a substitute by the aforementioned groups, a theory that will be explored subsequently.

TABLE 3.2 Access to Bank Accounts by Economic Status of Highest Income Householder 2005/06¹
(Household Information)

Number of respondents: 27,069
Source: Scottish Household Survey Data
Note:-
1. Responses of those in government work/ training have been discounted due to the small sample.

3.9 Figure 3.2 illustrates the effect, on account holding, of disability and ill-health among survey respondents (householder or partner of the householder ⁷). It can be seen that 90% of those who were neither disabled nor had a long standing illness had a bank account. This fell to 81% for those with a long standing illness and 80% for those who had a disability. Those who had both a disability and a long standing illness were even less likely to have an account.

FIGURE 3.2 Prevalence of Bank Account by Illness or Disability of Respondent 2005/06
(Household Information)

Number of respondents: 23,956
Source: Scottish Household Survey Date

3.10 Given the importance of health to the policy agenda the relationships between illness and financial exclusion were examined. Ideally the relationships between such illnesses as cancer would have been examined. However, the SHS does not ask specifically about this. Questions were, however, asked about mental health.

3.11 However, the sample size and the structure of the SHS, in which some questions are asked of the household and not of the individual, are not ideal for examining these relationships. It is possible to carry out limited analysis of the characteristics of the survey respondent (generally the householder or their partner), mental ill-health and holding a bank account amongst households. This revealed that the prevalence of bank accounts among households where the respondent answering on behalf of the household has experienced mental health problems, was below average at 69

3.12 The extent of financial service access exclusion is not evenly distributed throughout the country. Kempson and Whyley (1999) reported that non-participation in the mainstream financial services market tended to be higher in Scotland than in Great Britain as a whole, whilst non-participation was lowest in the South East of England. This assertion was based on evidence from the 1995/6 Family Resources Survey which revealed that 13% of the Scottish households questioned made no use of financial products or services. The UK comparator was 7%.

3.13 These findings are supported, to an extent, by data from the 2004/05 Family Resources Survey (Table 3.3). However, this survey also revealed a substantial decline in the proportion of Scottish households which did not have access to any form of account, bringing Scotland in line with the UK average. From the Table it can be seen that:-

• The proportion of households with access to stated financial products was, in most cases, lower in Scotland than in England or Wales;
• The prevalence of basic bank accounts was higher in Scotland than in England or Wales indicating a positive impact in addressing financial exclusion among low income groups; and
• At 4%, the proportion of Scottish households without an account of any kind was in line with the UK average.

TABLE 3.3 Use of financial products by Country

Number of respondents: 28,041
Source: Family Resources Survey 2004/05 Data

3.14 In addition to variations at a national level, Kempson and Whyley (1999) reported that high levels of financial exclusion were often found in concentrated geographical areas, and in certain types of neighbourhood.

3.15 In terms of access to bank accounts at local authority level, the 2005/06 SHS data shows Perth and Kinross to be the most inclusive local authority, achieving 98% inclusion. This followed by Stirling and Orkney which each had inclusion rates of 95%. Conversely, local authority areas with the lowest take up of bank accounts were found to be North Lanarkshire and Glasgow City with 82.5% and 81.5% respectively.

3.16 When access was analysed using the Executive's 6-fold rural:urban classification, the prevalence of bank accounts was highest among those living in remote rural areas (94%) and lowest among those in large urban areas (86%). This finding is in contrast to established theories of financial exclusion (Paragraph 2.20) and is of interest given the distance that may be involved in reaching a local branch. This may reflect a trend towards mobile, telephone and internet banking, a dimension which will be examined in more detail subsequently. It is also possible that this bias may become less pronounced should the most deprived areas of cities such as Glasgow be removed from the analysis.

3.17 It is also the case that the proportion of respondents with access to a bank account was significantly lower in the 15% most deprived data zones (as determined by the SIMD, 2004) than in the rest of Scotland: 78% compared to 91%. This conclusion is supported further when the prevalence of a bank account is considered in relation to the SIMD deciles. This revealed a steady increase in account holding from 76% in the most deprived decile to 94% in the least deprived.

3.18 The evidence presented from the SHS highlights the groups most likely to suffer from banking exclusion namely:-

• Older people;
• The unemployed;
• Those who do not own their own home;
• Those from households headed by a single person, including single parents, single people who have never been married, widowers and divorcees; and
• Those with a disability or long standing illness.

This confirms the findings of the research highlighted in Chapter 2 (Paragraphs 2.16 to 2.19).

3.19 However, for many of these groups it is likely that a low income is the overriding factor determining the extent to which they are financially included. Figure 3.4 considers the association between household income and holding a bank account. It can be seen that households with an annual income of less that £10,000 were less likely to have access to a bank account than those having a higher annual income.

FIGURE 3.4 Prevalence of Bank Accounts among Income Bands 2005/06 ¹
(Household information)

Number of respondents: 26,036
Source: Scottish Household Survey Data
Note:-
1. It would be useful to examine change over time. However, inconsistencies in questions (Paragraph 3.3) mean this is not possible.

3.20 The relationship between income and having a bank account is confirmed when other data sets are considered. For example, whilst direct comparisons with the Family Resources Survey 2004/05 are not possible ⁸, a steady increase in the proportion of households with a current account, across the UK, is observed as total weekly income increases (76% among households earning between £100 and £200 per week increasing to 98% among those earning £1,000 or over). The one exception to this pattern occurs among the group earning less than £100 per week, where the prevalence of current accounts is 83% (the same as those earning £200-£300 per week). This anomaly is also observed in the SHS. It is not immediately obvious why this should be the case, although it might have something to do with benefits increasingly being paid into bank accounts.

Underbanking

3.21 Whilst the earlier data provides basic information concerning access to financial services, and the characteristics of users, exploring the extent to which these services are used is more difficult.

3.22 Research undertaken by Kempson and Whyley (2000) revealed that "underbanking", relating to low usage or functionality of an account, may be as significant an issue as complete exclusion from banking services. In the UK it was found that as many people only had access to very limited banking services (such as a simple savings account with no cash machine card or bill payment facilities) as lacked an account of any kind. Furthermore as many people had an account that they hardly used as lacked one altogether ⁹. Concern surrounding underbanking is mirrored in other developed economies.

3.23 With the exception of access to a bank overdraft and credit cards (examined in the next Chapter), data on the depth of use of common banking services is not available from the SHS. However, for many of those with access to a bank account there are a number of potential barriers which may prevent services being fully utilised or may increase costs for some sections of society. Such barriers may include:-

• Physical access restrictions;
• Refusal by service providers;
• Lack of comprehensive knowledge of available services; and
• Fear or experience of charges.

3.24 Lack of comprehensive knowledge of available services will be examined subsequently when considering access to financial services. Unfortunately, it is not possible to examine the impact of bank charging on the take up of bank accounts through the data collected by the SHS.

Convenience and Use of Automated Teller Machines ( ATMs) and Banking Services

3.25 The issue of fee-charging ATMs is currently high on the political agenda. Evidence on the distribution and impact of fee charging cash machines in the UK suggested that 84% of adults now use cash machines to withdraw their money and that this proportion continues to rise (Citizens Advice, 2006). This is demonstrated by the Royal Bank of Scotland's Annual Report (2005) which indicated that ATM cash withdrawals increased by 13% in 2005.

3.26 In 1999 the vast majority of ATMs in the UK were free. Whilst the absolute number of free ATM's continues to rise, the proportion of free machines in relation to fee charging ones has decreased in recent years (Figure 3.5). The report of the UKATM Working Group (2006) revealed that, as of the end of June 2006 approximately 43% of ATM's (25,500) in the UK charged a fee. It is anticipated that this number will continue to rise in the short term before the market reaches saturation point. It should however be noted that 96% of cash withdrawals in the UK continue to be made without charge ¹⁰.

FIGURE 3.5 ATM Numbers

Source: LINK Statistics available online at www.link.co.uk

3.27 Whilst cash withdrawals have increased significantly in recent years, this has happened in parallel with the closure of many local bank branches. Citizens Advice (2006) state that 6,000 local branches have closed in the UK since 1990 and that the effects have been especially severe in rural areas, with around 1,000 rural communities left "bankless". The absence of a free cash machine, compounded by poor public transport provision in many areas, may leave residents with little choice but to use a fee- charging machine to access their money. The financial implications of this situation may be particularly severe among low income households, the elderly and the disabled who may lack access to private transport.

3.28 Research on the impact of fee charging cash machines was undertaken by Citizens Advice using an online survey (Citizens Advice, 2006). While the research results provide some interesting qualitative findings, wider interpretation needs to be undertaken with caution owing to the potential for self selection bias inherent in surveys. The results indicated:-

• Fee-charging "hotspots", such as hospitals and university campuses, were emerging;
• Residents in some areas felt they had no choice but to use fee charging cash machines. This was particularly the case in rural communities or deprived urban areas where bank branches had closed; and
• The impact of fee charging cash machines was most acute for those in receipt of state benefits whose income was now paid directly into bank accounts.

3.29 The average charge placed on a cash withdrawal from a fee charging machine is around £1.50. However, Citizens Advice found charges ranging from 90p to £3.00 (Ibid). Given that the average withdrawal from a fee charging machine is £20 or less, these charges could, potentially, account for a significant proportion of weekly income for low income households.

3.30 The 2005/06 SHS included questions concerning use of banking services and ATMs, among the adult population, along with their views on how convenient it was for them to use these services during standard working hours. The results are shown in Figures 3.5 and 3.6. It can be seen that:-

• ATMs were used far more intensively than general banking services, being used by around 63% of respondents at least once a week, compared to a third who made use of other banking services;
• The vast majority of users considered the services to be "Very" or "Fairly convenient" to access; and
• Banking services were more likely than ATMs to be used infrequently, with 18% of respondents stating that they used ATMs 2 or 3 times a year or less, as against 26% of those who made such infrequent use of general banking services.

3.31 When perceptions of the convenience of ATM machines were compared with the economic status of respondents, those who were permanently sick or unable to work owing to a short term illness or injury were most likely to state that it is "Very Inconvenient" for them to access the services.

3.32 A similar pattern is observed when frequency of use was considered. Analysis of the 2005/06 SHS revealed that, amongst those classified as permanently retired, permanently sick or disabled, 37% and 43%, respectively, stated that they used banking services once a week or more. This is compared to 80% amongst those who were employed on a full time basis and 78% of part time employees.

FIGURE 3.5 Frequency of use of Banking Services and ATM machines 2005/06
(Adult Population)

Number of respondents: 24,813
Source: Scottish Household Survey Data

FIGURE 3.6 Perceived convenience of Banking Services and ATM machines 2005/06
(Adult Population)

Number of respondents: 24,815
Source: Scottish Household Survey Data

3.33 Whilst it is possible to demonstrate below average usage of services among the aforementioned groups, it is not possible to infer conclusive explanations for this from the data available in the SHS. Low usage may be attributable to:-

• Poor transport provision;
• Lack of awareness of services;
• Lack of need to use the services when compared to those in work;
• Caution surrounding use of technology (especially among older respondents); or
• Greater use of credit among those in work compared to those who are not working.

3.34 The ATM Working Group sought to establish the extent to which there were gaps in access to free of charge cash machines in low income areas across the UK. This was done by comparing data showing the distribution of cash machines, provided by LINK, with the Index of Multiple Deprivation. The working group focused on areas in the bottom quartile of the Indices for England, Northern Ireland, Scotland and Wales respectively.

3.35 The analysis showed that the majority of low income areas were reasonably well served with free cash machines. One explanation for this may be the relative proximity of many deprived areas to town centres. However, it was also found that 1,701 areas (approximately 16% of those studied) located within the most deprived quartile did not have a free cash machine within the area or within a 1 kilometre radius of the centre of the area. It was estimated that around 4% of the UK population were resident in such localities ( ATM Working Group, 2006).

3.36 When convenience of banks and banking services, as reported by the 200506 SHS, was considered, the differences between respondents of differing economic status who believed that services were "Very Convenient" to access are less pronounced.

3.37 However, when use of banking services was examined in relation to the economic status of respondents, a number of groups appeared to make little use of banks or banking services (using services 2 or 3 times a year or less). These groups included those who were:-

• Unemployed and seeking work (33%); and
• The permanently sick or disabled (38%).

Across all economic groups the proportion of respondents who made use of banking services 2 or 3 times a year or less was around 26%. However, the size of this figure may lend credence to the view that underbanking is a general issue across Scotland and not just for certain economic groups.

Use of the Internet

3.38 In recent years the role of the internet in the management of personal finances has increased significantly. As a result it is now possible to make savings in both time and money by accessing services over the internet. Those who lack physical access to such technology, or lack the capacity to make use of online services, are therefore at greater risk of financial exclusion.

3.39 In 2005/06 the SHS reported that approximately 50% of households had access to the internet from a personal computer in their home, a substantial increase from the 43% figure in 2003/04 (Table 3.7).

TABLE 3.7 Whether Household can Access Internet from Home
(Household information)

Source: Scottish Household Survey Data

3.40 Detailed analysis of the 2005/06 data showed that:-

• Access to the internet from a home computer was highest among those households where the highest income householder was aged 35-44 (71%), declining to 32% amongst those aged 60-74;
• At 10%, access was lowest for those aged 75+;
• Home internet access was also below average for the 16-24 age groups (39%). This may indicate access restrictions owing to the cost of the service;
• A greater proportion of households where the highest income earner was male indicated that they had access to the internet from home: 56% as compared to 40%;
• Home internet access was significantly higher among households where the Highest Income Householder was in employment, education or training 69% as compared to 24% ¹²;
• There was a significant relationship between housing tenure and home internet access with 74% of those who were in the process of buying their property having internet access from home (Table 3.8); and
• Bank accounts were found to be more prevalent among those households who could access the internet from home, 94% as compared to 83%.

TABLE 3.8 Home internet access by housing tenure
(Household Information)

Number of respondents: 27,078
Source: Scottish Household Survey Data

3.41 Internet access from a personal computer in the home in 2005/06 was found to be highest in East Renfrewshire (63%) and Aberdeenshire (62%). Access appeared to be most restricted in Dundee City where only 38% of respondents could access the internet from home. Access was also low in Glasgow City (40%) and East Ayrshire (41%). As one might expect, a significant relationship was found between home internet access and overall levels of deprivation, with the prevalence of home internet access being significantly lower in the 15% most deprived data zones (31%), than in the rest of the country (53%).

3.42 Access to the internet from a home computer was above average in accessible rural areas and remote rural areas at approximately 58%. The lowest level of access was found among respondents from large urban areas where around 46% of respondents had internet access from home. This result may reflect higher levels of public access in urban areas or may be a result of an income differential. Interpretation should however be made with caution as the result was not statistically valid.

3.43 From 2001 questions concerning use of the internet were asked of respondents included in the sample of random adults. When use of the internet for personal banking, financial or investment activities was examined, the SHS revealed a steady increase in the proportion of respondents who stated that they used the internet for this purpose between 2001/02 and 2005/06 (Table 3.9).

TABLE 3.9 Use of the Internet for Banking, Financial or Investment Activities¹³
(Adult Population)

Source: Scottish Household Survey Data
Note: The question was only asked of those adults from household previously coded as having access to the internet from home.

3.44 However, the survey also highlighted a steady decrease in the proportion of respondents who stated that they would use the internet for this purpose in future (Table 3.10). This may suggest that:-

• Online transactions may not be as popular or convenient as service providers believe;
• Whilst those who embrace technology may already have made the switch to online services, there may be a hard core of people who it will be difficult to convince; or
• Increasing fears about the security of internet transactions are reducing confidence in online services.

TABLE 3.10 Future Use of the Internet for Banking, Financial or Investment Activities
(Adult Population)

Source: Scottish Household Survey Data
Note:-
1. The question was only asked of those adults from households previously coded as having access to the internet from home.

The Role of the Post Office

3.45 With over 14,000 branches across the UK, the Post Office is larger than all of the UK's banks and building societies combined. The Post Office also has branches in locations where banks and building society branches have long since ceased to operate. However, in recent years the number of branches has been declining. For example, in 2002 the closure of 3,000 branches, mainly in urban areas, was announced. More recently (December 2006) closure of 2,500 to 3,000 rural branches was announced.

3.46 Despite these closures the Post Office network is still extensive. As a result the 2006 report of the Treasury Select Committee concerning banking services and financial inclusion considered the role of the Post Office in addressing financial inclusion to be important. The main reason for this was that, under universal banking arrangements, people with basic bank accounts and some current accounts were able to access their cash without charge over the post office counter. This position was supported by consumer organisations such as Citizens Advice. However, at present 60% of current account holders cannot use the Post Office network to access their cash. In particular, 3 major banking groups, HSBC, HBOS and RBS, do not offer any Post Office access to their current accounts. The reasons for this are claimed to be the costs of such an arrangement and the fact that the Post Office was viewed as a competitor in the financial services market.

3.47 In addition, when the issue of cash machines in Post Office branches was examined by the Treasury Committee, it was found that, of the 2,493 cash machines within Post Office branches, around 74% were fee charging (The Treasury Select Committee, 2006). It should, however, be noted that the Post Office has since reviewed its policy and has committed to withdrawing from contractual agreements with existing providers, at the end of the contract period, and introducing free to use Post Office Ltd ATM's in branches.

3.48 The 2005/06 SHS shows that around 9% of the Scottish population make use of a Post Office Card Account ( POCA) ¹⁴. Among this group:-

• Around 7% of households in which the Highest Income Householder ( HIH) was male made use of the POCA, this is compared to approximately 11% of households where the highest income earner was female;
• POCAs were more prevalent among households headed by a single person and amongst those who rented their home from a local authority landlord (19%) or housing association (21%). This is compared to 4% among those who were buying their home with the help of a mortgage and 5% among those who rented from a private landlord;
• 16% of households where one person suffered from an illness or disability made use of the POCA. This increased to 18% among those where 2 household members had a long term illness or disability. This is compared with 5% among households in which no one had a long term illness or disability. It has been shown earlier that those with a disability or long standing illness were less likely to have a conventional bank account (Paragraph 3.8, Figure 3.2). It may therefore be that they use the POCA in preference; and
• 27% of respondents from households in which the HIH was permanently sick or disabled made use of a POCA as did 21% of those where the HIH was unemployed and seeking work and 19% of those unable to work owing to short term injury or illness. This was compared to 3% of households where the HIH was employed full time or self employed and 5% of those who were employed on a part time basis.

3.49 The 2005/06 SHS showed that POCAs were most prevalent in West Dunbartonshire and North Ayrshire where around 17% and 15% of respondents respectively had an account. They were least common in Shetland and Moray, where around 3.5% of respondents stated that they had one. This might indicate a correlation between having such an account and deprivation/poverty, although to some extent this is self evident given that the account can only be used to receive benefits, state pensions and tax credit payments.

3.50 A contrasting pattern to that which emerged when examining the use of bank accounts is apparent when the prevalence of POCAs is analysed by location. Account cards were most common in large urban areas (10%). Again this may simply be showing where benefit receipt is highest.

3.51 A further finding related to geographical location concerns the use of POCAs in rural areas. 2005/06 data revealed that use was less common in small remote towns (7.5%) than in remote rural areas (8.2%). This may be a reflection of Post Office closures in small towns in recent years.

3.52 Over twice the proportion of households in the most deprived 15% of Scottish data zones had POCAs, 18% compared to 7% in the rest of the country. Again given that POCAs are likely to be associated with low income, reflecting their eligibility conditions, this is not unexpected. Further investigation which considers the prevalence of the POCAs amongst respondents with differing annual incomes revealed that they were more common among low income groups, with respondents earning between £6001 and £10,000 being most likely to hold such an account. Interestingly, account holding was lower amongst those earning £0-£6000 per annum. This may be highlighting issues of exclusion amongst the lowest income earners for whom products such as the POCA may be of most benefit (Figure 3.11) yet are not widely used.

FIGURE 3.11 Use of POCA by net annual income 2005/06
(Household Information)

Number of respondents: 26,037
Source: Scottish Household Survey Data

3.53 The SHS has collected information on the perceived convenience of the Post Office since 1999. As Table 3.12 shows the proportion of respondents who believed it was "Very convenient" to make use of the Post Office during normal opening hours has declined in recent years, from a high of 52% in 2001/02 to 46% in 2005/06. This is most likely a reflection on Post Office closures or other institutional changes such as reduced opening times (Paragraph 3.44).

TABLE 3.12 How convenient do you find it to make use of a Post Office
(Column percentages) (Adult Population)

Source: Scottish Household Survey Data

3.54 Information concerning the use of the Post Office among the adult population was collected for the first time by the SHS in 2005/06. From the survey data it appears that just over a third of respondents (34%) make use of a Post Office once a week or more, whilst 27% make use of services less than 3 times a year. When use was compared to economic status it was apparent that those who were not in employment, education of training made greater use of the Post Office than those who were, with 46% stating that they use the Post Office once a week or more. This is compared to 25% of those who were in employment, education of training.

3.55 Recent moves may further reduce the role of the Post Office in promoting financial inclusion. In January 2006 the announcement was made to the UK Parliament that the Department of Work and Pensions would not be renewing its contract with the Post Office to provide the POCA when it expires in 2010-11. This move has been justified on the grounds of cost and limited functionality of the Account. However, apparently discussions are currently underway about the launch of a new service after 2010, although details are not, as yet, available.

3.56 However, the November 2006 report of the House of Commons Treasury Committee criticised the government for its handling of the situation (The House of Commons, 2006a). The report revealed that around 30% of POCA holders in the UK do not have access to a bank account. Indeed this figure may be even higher in Scotland as SHS data suggests that in 2005/06 around 42% of those who held a POCA did not have a bank account. The Treasury Committee stated that the government must improve consultation with those affected and recognise that successful migration from POCAs to basic bank accounts needs to address the barriers to opening such accounts.

3.57 In addition on the 15 ^th December 2006, it was announced by the Trade and Industry Secretary that, in an attempt to reduce financial loses, 2,500 small and rural Post Offices, out of the nation's 14,263, would close by mid-2008. It is thought that around 600 of these will be in Scotland. The move has been justified by government on the grounds that internet banking, cash points and direct debits are altering personal habits thereby rendering the Post Office network, as it currently stands, unviable. However, for those lacking access to such services and technologies, the closures may reinforce financial and social exclusion.

Credit Unions

3.58 The FSA reports that there are currently around 571 credit unions across the UK, approximately 22% (127) of which are in Scotland. In 2004 the total value of loans made to Scottish credit union members was around £108 million. Credit unions have 4 statutory objectives as laid down by the Credit Unions Act 1979. These are:-

• The promotion of thrift among the members of the society by the accumulation of their savings;
• The creation of sources of credit for the benefit of the members of the society at a fair and reasonable rate of interest;
• The use and control of the members' savings for their mutual benefit; and
• The training and education of the members in the wise use of money and in the management of their financial affairs.

3.59 The Treasury reports that credit unions have been growing strongly in recent years, with membership having doubled since 2002. Statistics published by the FSA state that, at 30 June 2005, there were 509,248 adult credit union members across the UK¹⁵. Data provided for Scotland shows that in 2004 adult credit union members totalled 182, 051, whilst there were 23, 878 juvenile members.

3.60 The 2005/06 SHS reports that around 3% of respondents hold an account with a credit union. This represents a 1% increase on 2003/04 figures and no doubt reflects the various policy initiatives that have been implemented to facilitate membership growth by the Executive.

3.61 The characteristics of credit union members were examined by extracting data from the 2005/06 SHS on those households which held an account with a credit union. Results revealed that, in the majority of households which possessed a credit union account, the HIH was aged between 35 and 59, with relatively few members being at the extremes of the age spectrum (Figure 3.13).

3.62 Other characteristics included:-

• In the majority of households (69%) the HIH was employed on a full time basis;
• 71% of households which had an account with a credit union did not contain any members who suffer from a long term illness or disability;
• 99% of respondents with a union account considered themselves to be of white ethnic origin; and
• There was no statistical relationship between the gender of the HIH and credit union membership.

FIGURE 3.13 Age Profile of Credit Union Members 2005/06
(Household Information)

Number of respondents: 775
Source: Scottish Household Survey Data

3.63 Analysis of the 2005/06 SHS revealed that access to financial services and products was relatively high amongst households which had a credit union account. For example: - .

• 92.5% of credit union members, or their partners, had a bank account. The Scottish comparator was 88.4%;
• 71% of those with an account owned their home or were buying it with the help of a mortgage. The comparable Scottish figure was 65%;
• A higher proportion of credit union members had access to credit cards such as Access or Visa, than in Scotland as a whole (63% compared to 52%);
• The prevalence of home contents insurance was higher among those households which held an account with a credit union (88% compared to 86%);
• 61% of those with a Credit Union account had accumulated savings or investments as compared to 51% across Scotland as a whole. The value of those savings and investments is illustrated in Table 3.13. It can be seen that, generally, union members tend to have savings of under £10,000 when compared to the Scottish picture (59% as against 41%) This may reflect the fact that most credit union members were making use of other financial products and services;
• 5% of CU members made use of shopping vouchers from companies like Provident or Shopacheck. This was found to be above the national average of 2%; and
• Similarly, credit union members made above average use of loans from finance companies such as Provident with 7% stating that they had such a loan. This compared to 3% across the whole sample.

TABLE 3.13 Value of savings and investments 2005/06
(Household Information)

Source: Scottish Household Survey Data

3.64 Table 3.14 looks at the incomes of credit union members. It can be seen that credit union accounts were more common amongst those earning an average or above average income than among low income groups. For example:-

• Only 10% of union members had incomes of under £10,000, compared to the Scottish figure of 25%; and
• 41% had incomes of over £25,000 compared to 29% of the Scottish population.

This finding may account for the above average access to products and services among respondents having a credit union account. This finding may contradict traditional perceptions of credit union members and might raise questions about the role of unions, in their current form, to alleviate financial exclusion amongst high risk groups.

TABLE 3.14 Household Income of those with Credit Union Account 2005/06 ( HIH plus Partner)
(Household Information)

Source: Scottish Household Survey Data

3.65 Further analysis of the 2005/06 SHS revealed that in 15 of the 32 local authorities, respondents in possession of credit union accounts made up less than 1% of the total. Indeed in 3 authority areas no respondents stated that they had an account with a credit union ¹⁶. Credit union accounts were most prevalent in West Dunbartonshire South Lanarkshire and Glasgow City where 11% and 7% of respondents, respectively, stated that they had one.

3.66 Perhaps unsurprisingly, credit union accounts were more common in urban areas than in rural locations. In 2005/06, 4% of those resident in large urban areas held an account with a union compared to only 0.6% in remote rural areas and 0.5% in small remote towns (Table 3.15).

TABLE 3.15 Prevalence of CU accounts by location 2005/06
(Household Information)

Number of respondents: 775
Source: Scottish Household Survey Data

3.67 When the 15% most deprived data zones were considered, findings were similar to those highlighted in relation to POCAs, with possession of a credit union account being proportionately more common amongst those in deprived areas than in the rest of the country, 6% compared to 2%. To some extent this finding contradicts the earlier findings about the relative prosperity of union members (Table 3.14). Why this should be the case is explored in the next Paragraph.

3.68 The findings as to the characteristics of credit union members mirror those of earlier work that found most members not to be financially excluded (Hayton et al, 2005). However, some members clearly do exhibit some of the characteristics that one would associate with exclusion. For example, there is greater use of such sources of credit as Provident (Paragraph 3.62) and more members in deprived areas. The reason for this apparent anomaly may be the characteristics of the credit union movement in Scotland. This tends to be polarised between the large employee based, or former employee based, unions, such as Capital, Glasgow's Credit Union and Scotwest. As members had to be employees, or former employees, they were by definition in paid employment. As such they were less likely to be financially excluded. At the other extreme are the many, often small, community based unions whose membership is often drawn from deprived areas. It may be that it is the members of these unions that make use of such sources of credit as Provident. Unfortunately the SHS does not allow these differences to be explored.

Conclusions

3.69 What emerges from this Chapter is that access to financial services in Scotland has generally improved in recent years. For example, if access to a bank account is seen as a measure of financial inclusion then Scotland has become more financially inclusive. However, it is apparent that there is a relationship between financial exclusion and poverty and deprivation. This is apparent both spatially and in terms of the socio economic characteristics of those who are excluded. For example exclusion tends to be concentrated in the worst 15% data zones and amongst those who are unemployed and sick and disabled.

3.70 However, recent policy initiatives, in particular the POCA, seem to have been instrumental in giving those who are most likely to be financially excluded access to basic banking facilities. Given this, the ending of the Post Office's contract to provide POCA may have a significant effect on financial inclusion in the United Kingdom, an issue which is recognised in the report of the Treasury Select Committee (2006).

3.71 The other main policy implication of the analysis relates to the characteristics of credit union members. These appear to be polarised. At the one extreme are those who are financially included, in that, in addition to access to credit union facilities, they make use of many other financial services. At the other extreme are those members who make use of those services that tend to be associated with financial exclusion, such as Provident. This polarisation reflects the characteristics of credit unions in Scotland, there being a number of large employee, or former employee, based unions and then a large number of smaller community based ones, many of which have bonds covering areas of deprivation. The policy implications of this are that any initiatives that are to use credit unions to overcome financial exclusion need to be carefully targeted.

3.72 The final thing to emerge from the analysis is that there seems to be a correlation between financial inclusion and geography. In particular it seems that the more remote the area then the greater the extent of financial inclusion as measured by such things as having a bank account. The extent to which this reflects necessity, or the relative affluence of these areas, is unclear.