Credit Unions

09:30:00

I beg to move, That this House has considered the role and future of credit unions. It is a pleasure to serve under your chairship, Mr Twigg. At the outset of this debate, I wish to place formally on the record that I am a long-standing member of the NHS credit union, an organisation I first joined as it was my workplace credit union. It provided me the opportunity to save directly from my salary before I ever had the chance to spend it. When I received a pay rise, I would increase my contributions. I remain a proud member today, now paying in by direct debit. IPSA, the Independent Parliamentary Standards Authority, has not got quite as far as doing payroll deduction for credit unions. The NHS credit union is now one of the largest in Scotland, but it did not start that way. It began at the Southern General hospital in Glasgow, founded by Robert Rae, a Unison branch secretary and hospital porter, to help some of the lowest-paid NHS staff—the cleaners, porters and clerical workers—to access fair, affordable finance and build financial resilience through saving. The credit union has grown remarkably since then, with more than 24,000 members, including staff and their families across NHS Scotland and parts of the north of England. Its common bond extends down to Sheffield. It now employs 18 staff and is an inspiring example of how credit unions grow not only in scale, but in purpose, deepening their role in communities and the economy.

Will my hon. Friend join me in congratulating many of the credit unions in my constituency, where the Southern General also sits, and indeed where I trained for many years? In addition to the NHS credit union, we have the Penilee credit union, the Levern credit union, the Greater Govan credit union and of course the Pollok credit union run by local legend Jim Garrity and his wife, who have given out £70 million of loans in that time. Does my hon. Friend further agree about the imbalance between England and Scotland? In England, dormant assets from the Bank of England can be used as capital to fund credit unions, but that is not the case in Scotland. Is that an anomaly she wishes to see changed?

My hon. Friend is reading ahead in my speech about some of the things that the Government could do to extend and support the sector. Before joining the NHS credit union, I was a regular visitor to my local community credit union—staffed entirely by volunteers—until I moved house and moved out of the common bond. For nearly 30 years, until it sadly folded in 2017, it was a source of savings and small loans for a community that was mostly cash based. It inhabited the premises that the Royal Bank of Scotland vacated when it closed the branch. Often, small community credit unions remain in places where commercial banks have pulled out. That closure reflects a wider challenge: some credit unions have scaled up and professionalised; others have struggled, in particular those volunteer-led credit unions serving working class and rural communities. In that unique community-based role, credit unions can offer a vital partnership to support underserved or excluded communities, whether they are excluded by poverty or by geography. All too often, we have heard Members raise the swathes of local bank branch closures in their constituencies. Mine has been particularly affected, as commercial lending evolves and the local footprint of lenders diminishes. Credit unions have to be on both sides of that bridge: at the forefront of innovation but still able to provide traditional, accessible services in the community. It is vital that we have an alternative to expensive credit, and credit unions have a strong role to play. When a household is financially vulnerable, one fault in their car or one failed fridge or freezer can be the difference between staying afloat and facing a downward spiral of increasingly costly credit. The resilience of having £1,000 in savings is the firewall that stops that spiral. We have often discussed the positive impact of no-interest loans. Credit unions can play a vital part in the design and delivery of a no-interest loan offer, providing an alternative to financially vulnerable households who cannot rely on commercial lending. Pilots by Fair4All Finance show notable success when it comes to meeting emergency costs for white goods, such as a broken-down fridge, cooker or other essential household appliance. Over 70% of customers in the pilot were in the rented sector, either social housing or renting privately. As the UK Government’s own materials acknowledge, credit unions offer basic savings and loan services, but increasingly they do much more. Large credit unions such as the Glasgow credit union, which grew out of the Glasgow city council credit union, offer mortgages. They offer financial inclusion, especially for people who may not feel served or welcome in the commercial banking sector. They are not for profit, member-owned and designed to be run with communities, not over them. Despite all its strengths, the credit union sector faces significant headwinds. I will start with regulation. In recent conversations with the NHS credit union, a number of serious concerns were raised that are shared across the sector. Most notably, the Financial Ombudsman Service has begun applying the commercial lending standards known as the CONC—consumer credit sourcebook—rules to credit unions, despite the fact that they are exempt from those by law. The use of “good industry practice” by the ombudsman without transparency or a legislative basis has left credit unions exposed to a growing number of frivolous or opportunistic claims, often driven by predatory claims management companies. When credit unions have challenged that with the Financial Conduct Authority, they have been referred back to the ombudsman, creating a regulatory echo chamber that shuts down scrutiny and ignores the fact that the CONC was never intended for mutuals. A superficial search of decisions of the ombudsman using “credit union” as a search term shows that it is the same credit union names that come up. For each case where a decision is listed, there are many more going through the process, with many cases being reopened, and it is an overwhelming burden for these small organisations to process them. This matters, because it introduces risk and cost into organisations that exist to serve, not to profit. It creates uncertainty, stifles growth and undermines the Government’s ambition to support the co-operative and mutual sector. I urge the Minister to engage with those concerns and ensure regulatory clarity that supports, rather than stifles, credit unions. Regulation is not the only challenge. Despite some growth, credit union penetration in Great Britain remains low. Just 4% of adults hold a credit union savings account, compared with 25% in Northern Ireland and 73% in the Republic of Ireland. While membership is rising, the number of credit unions continues to fall. To thrive, credit unions need to modernise. Many want to expand their digital offer, working with fintech providers to offer budgeting apps and even current accounts, but innovation costs money. Small unions—especially those still run by volunteers—lack the capacity to upgrade systems or train staff. I welcome the Financial Services and Markets Act 2023, which gave unions more freedom to offer services such as hire purchase and insurance distribution, but more must follow. I support the proposals to allow investment in credit union service organisations, which could help unions to share IT, compliance and admin systems.

I congratulate the hon. Lady on securing this debate; many of us have been involved with credit unions for a number of years. She has spoken about the diversification of credit unions. Last night, the Chancellor said she is trying to encourage more people into market-based savings products. Does the hon. Lady agree that credit unions could embrace that concept, provided that they have the capacity and willingness to do it? That would allow everyone involved with credit unions to benefit over the longer term.

The Chancellor’s speech last night was very timely. Credit unions are particularly well placed to benefit thoroughly from that if they have support, and I hope the Minister will expand on that. We need to update the law in Northern Ireland so that the strength of the credit union movement there is able to match progress that has been made in GB. The perception that credit unions are the poor man’s bank is a harmful stereotype that limits the sector’s growth. Credit unions are for everyone and should be seen as an act not only of charity but of good sense. They are member-owned, community-rooted and democratic. This is finance as it should be. Credit unions are more than just lenders; they are educators, community builders and the agents of financial justice. But they are at risk from burdensome regulation, under-investment and a lack of understanding at the highest level of Government.

I congratulate the hon. Lady on securing this important debate. She has mentioned financial burdens a couple of times. The average credit union has fewer than seven employees, and is run nearly entirely by volunteers. Smaller credit unions are under the same dual regulatory burden as larger ones, and have to report to both the FCA and the Prudential Regulation Authority. Does she think that there should be proportionality, and that lighter regulation for smaller credit unions would give them the capacity to innovate?

I thank the hon. Gentleman for his helpful intervention. We need a joined-up approach to our support for the sector’s unique role. We must particularly support small credit unions with few staff members who are predominantly volunteers, because when it gets too much, volunteers may move away and services may close. We need regulatory reform, but we also need practical backing so that credit unions can modernise, merge where appropriate and scale sustainably. I repeat my call to the Minister: please investigate the regulatory ambiguity that credit unions face, and particularly the application of the CONC by the Financial Ombudsman Service. I ask him to please consider measures to strengthen, not weaken, one of the most community-focused financial tools that we have. Let us not allow credit unions to wither on the vine. Let us invest in their future and, by doing so, in a more inclusive, more resilient economy for all.

Order. I remind Members to bob if they wish to speak.

09:43:00

It is a real pleasure to serve under your chairship, Mr Twigg. I commend and thank my Gaelic cousin, the hon. Member for Cumbernauld and Kirkintilloch (Katrina Murray), for setting the scene so very well. It is also good to see the Minister in his place. He is certainly becoming a regular in Westminster Hall—he is here almost as much as me.

Not quite!

That was meant as a compliment, by the way. I look forward to the Minister’s contribution. The shadow Minister, the hon. Member for Wyre Forest (Mark Garnier), brings a wealth of knowledge to the debate from his previous employment. I know that the debate will be greatly enhanced by the contributions of all. I have long been an advocate of credit unions, and I have been thinking about how long I have been involved with them. The credit union in Greyabbey was run by the Orange lodge, which was the instigator. It made its hall available and managed the credit union under the auspices of credit unions elsewhere as the governing body. I became involved to support credit unions and to start an account for my three boys. Only last week, I realised that moneys in that account had been gathering for some time and had been sitting in the transfer, because the account was transferred from Greyabbey to Newtownards credit union. My three boys have a bonus coming, which I will let them know about one of these days. I hope they will not spend it on wasteful living, but whatever they do, they do. The credit union instilled in my boys and in me from an early age the value of saving and of ensuring that the saver can afford to pay back loans. That is the great thing about the credit union; we can put money in and borrow money out, but it is controlled in a way that means someone can live and borrow at a rate they can repay. That is a lesson that I learned from my mum and dad—of course, as we all learn from our mums and dads—and that has stayed with me these many years. It is said that every pound is a prisoner to a Scots woman or man, but I think it is equally a prisoner to some of us in Northern Ireland; we are no different. As the hon. Member for Cumbernauld and Kirkintilloch said, there has been substantial growth of credit unions in Northern Ireland, particularly in membership and assets. Membership has doubled in the past decade, with 34% of the population now saving with a credit union, which is a massive figure.

It was good to hear the hon. Member for Cumbernauld and Kirkintilloch (Katrina Murray) mention Northern Ireland. I, too, am a member of the credit union, and I have a savings account for my little boy as well. Does my hon. Friend agree that in Northern Ireland, where so many people bank with the credit union, the numbers could grow if the credit union were able to do more? The legislation in Northern Ireland is quite antiquated, and we are only able to bank with loans and savings. Does he agree that we should learn from what happens in GB and address it from there?

My hon. Friend is absolutely right. The 34% growth of the credit union in Northern Ireland indicates its success. She is correct that there is certainly more it could do. Total assets have passed £1.9 billion, having increased by 1.6% in the third quarter of 2022. Lending is also strong, with the loan book increasing by 8.3% year on year. Membership of credit unions in Northern Irelands stands at 571,000. To put that in context, Northern Ireland’s population is 1.96 million. That is a success story. It is lovely to tell everyone about what we are doing in Northern Ireland, and the hon. Member for Cumbernauld and Kirkintilloch was generous in her comments and acknowledged the good stuff we do. The figures represent a 30% increase over the past 10 years. With the rise in membership comes the need to ensure that the institution is financially safe and sound, which is always important. I am thankful for the credit unions in my constituency; I can think of three straight away. The one in Kircubbin, which took over the premises of the Northern bank, or Danske bank, is an offshoot of the credit union in Portaferry, which I have supported the whole way through. There is also an active credit union in Newtownards that provides a wonderful service to get people on the road to financial stability. That is what credit unions do: they help people to save and ensure that they borrow and spend their money wisely. There are over 2,200 credit unions providing ethical financial services to more than 1.5 million people, holding £2.71 billion in assets, £2.33 billion in savings and £1.83 billion in lending. Their differences mean that they can lend responsibly with good rates to those who are classified as excluded communities, with 31% of the community development credit union pathfinder members being “cash-strapped families”, and 21% falling into the “hard-up” or “challenging circumstances” categories. Credit unions are often the only fair option for such individuals and it is really good to have them on board. Some 56% of credit unions offer payroll savings, and “save as you borrow” schemes turn 67% of previous non-savers into regular savers. Prize-linked savings also incentivise saving behaviour. I understand that in this day and age it is always that wee bit harder to save money. My mum and dad instilled in me a saving culture at an early age, and I remember saving from a very early age. Not everybody can buy their house today, as they perhaps would have whenever I was younger and houses were much cheaper. Credit unions like Serve and Protect offer dividends of 3.5% to 4.5%, returning £3 million to members, while for every £1 invested, the Clockwise credit union generates £11 to £19 in social value. Credit unions reduce financial leakage and build community wealth. I am sold on credit unions. I think they are great and I hope my speech has illustrated that. I think everybody else will say the same thing. I will conclude, as I am conscious that others want to speak and that time will be limited. I am a strong advocate for credit unions simply because they work. Let us support and encourage them. As my hon. Friend the Member for Upper Bann (Carla Lockhart) said, let us try to do more so that we can bring them along. I encourage reasonable regulation that allows the freedom to spend locally and not to be drawn into more centralised investment—if someone borrows from a credit union, they are more likely to spend their money in the local area of their credit union, and more likely to borrow or buy from the area where they live—and I know that the Government, and the Minister in particular, would like to advocate for and support that. I wish my local credit unions every success as they continue to help people to learn financial principles and responsibilities while sowing deeply into the local economy. That can only be a good thing, so it is a pleasure to speak today about credit unions. I could wax lyrical until about 10.28 am, but you would not let me, Mr Twigg—others will do that for their own constituencies.

09:52:00

It is a pleasure to serve under your chairship, Mr Twigg. I thank my hon. Friend the Member for Cumbernauld and Kirkintilloch (Katrina Murray) for securing this important debate about credit unions, as they play a crucial role in providing affordable financial services and promoting economic inclusion, particularly among those underserved by the traditional banks. As co-operative, member-owned institutions, credit unions focus on servicing their members’ needs rather than maximising profits. In my constituency, we are fortunate to benefit from the Wolverhampton City credit union, which serves over 10,000 members, manages more than £4.1 million in savings and has issued over £3.7 million in loans. It provides vital support for working people, pensioners, young savers and those on all incomes, by offering accessible credit and encouraging responsible saving. This helps families to avoid the traps of high-cost lenders and builds financial security across Wolverhampton North East. What truly sets Wolverhampton City credit union apart is its commitment to practical, member-focused initiatives. For example, its school uniform savings scheme is a simple but powerful way to help families to prepare for the financial pressure of each school year by encouraging parents to save small amounts regularly. The scheme ensures that they are not forced into debt when faced with the up-front cost of uniforms. That is just one of many community-driven initiatives that the credit union runs; others include budgeting advice, payroll savings partnerships with local employers, and junior saving clubs, all aimed at fostering long-term financial wellbeing. Despite the great work of credit unions, including Wolverhampton City credit union and others across the country, the sector in the United Kingdom has not reached the scale seen in other countries such as the United States, Canada and Ireland, where credit unions are more mainstream and serve a much larger proportion of the population. For example, the US Navy Federal credit union alone serves over 14 million members, showing what is possible when credit unions are given the room to grow. One structural barrier to growth is the common bond requirement, which restricts the potential membership base of credit unions. While the principle of shared connection, whether geographical or associational, is sensible, the current rules limit geographical common bonds to areas with up to 3 million potential members, making it impossible to operate a credit union that covers all of London or the midlands, for example. I therefore welcome the Government’s current consultation on reforming the common bond rules, which could allow credit unions in Great Britain to serve wider geographies and expand sustainably. That reform, alongside investment in digital infrastructure and proportionate regulation, will certainly benefit credit unions so that they can fulfil their potential. Credit unions tackle financial exclusion, supporting working people and strengthening communities, so I call for practical reforms and tangible support.

09:55:00

It is a pleasure to serve under your chairship, Mr Twigg. I commend my hon. Friend the Member for Cumbernauld and Kirkintilloch (Katrina Murray) for securing the debate and for her speech highlighting the importance of credit unions, both now and in the future. As financial co-operative organisations, credit unions are a force for good in many communities and workplaces. They exist to support their members, not to maximise profit. They encourage savings and provide financial education and affordable loans, all the while circulating the money within their membership communities, which are bound together through a common bond, often based on a workplace or location. More than ever, it is vital for that type of organisation to be available in communities that are currently struggling with the cost of living crisis and are vulnerable to predatory credit and debt organisations. It is the place of responsible Government to support these organisations and their efforts to promote financial inclusion, wellbeing and stability. As already mentioned, there is variety and diversity in credit unions. There are large credit unions, such as Scotwest credit union in my constituency, which is one of the largest in the UK. It has over 36,000 members and, as of September 2024, a loan book of £68.9 million. It describes its mission as being focused on broadening financial inclusion, supporting members’ financial wellbeing and security, and strengthening local communities, all while promoting environmental sustainability through responsible lending and consumption. There are also local, community-based credit unions, such as Ruchill credit union, which was set up in my constituency, and workplace and employment-based credit unions, such as the Transport credit union in my constituency. The diverse range of credit unions offers responsible lending while promoting co-operative values. That is why, as my hon. Friend the Member for Cumbernauld and Kirkintilloch mentioned, it is concerning to hear reports that the Financial Ombudsman Service, which is responsible for resolving disputes between financial institutions and their consumers, is using commercial lending rules to make legally binding judgments on credit unions. The sector has raised concerns that credit unions are now being held to the Financial Conduct Authority’s consumer credit sourcebook rules, even though they do not legally apply to credit unions. As our credit unions are already under pressure and often based in low-income communities, that weakens the legal certainty and operational viability of the sector at a time when it is more necessary than ever.

I congratulate my close friend, my hon. Friend the Member for Cumbernauld and Kirkintilloch (Katrina Murray), on securing this important debate. My hon. Friend the Member for Glasgow North (Martin Rhodes) made a powerful point about what happens in communities when credit unions go bust because they face huge regulatory burdens. My town, Redditch, has lost three credit unions over the last decade, meaning that because people cannot access financial support from the mainstream banks, they fall prey to speculative and very high-interest financial products from companies that should know better. Credit unions protect some of the most vulnerable people in our society.

I agree that although we need robust regulation, we need to ensure that it is supportive of credit unions, particularly at a time when many communities need them more than ever and the challenge of organisations that seek to exploit vulnerable communities is very much at the fore. Credit unions as institutions act as important protections against pernicious credit and debt systems such as buy now, pay later schemes. Since 2020, the market for buy now, pay later has more than quadrupled. There are reports of many in the UK getting into unsustainable debt because of balancing multiple buy now, pay later services to pay for essential groceries and other supplies. Unlike the work of credit unions, buy now, pay later schemes can use the cost of living crisis to market aggressively, targeting vulnerable consumers. They are often debt traps for the worst off in society. While I support the Government’s planned new rules, which will ensure that buy now, pay later users will gain stronger rights and clearer protections, we must also do more to promote positive alternatives such as credit unions. These not-for-profit organisations exist to support their members, not to extract profit. They are local financial institutions that provide responsible lending and financial health advice, and they are safely regulated. In a world with loan sharks preying on the vulnerable, and tech companies creating debt prisons through unregulated consumer debt, we must support credit unions. If we do not, not just individuals but our economy and society will be worse off without them.

Order. If Members can keep their speeches to five or six minutes—we are doing okay—then everyone will get a chance to speak before the wind-ups.

10:01:00

It is a privilege to serve under your chairmanship, Mr Twigg. I thank my hon. Friend the Member for Cumbernauld and Kirkintilloch (Katrina Murray) for securing this important debate. I am delighted to join colleagues to speak about the essential and valuable role that credit unions play for many of my constituents in Glasgow North East. Across Britain, non-profit credit unions provide financial services to their members, but they are much more than just financial institutions; they are community pillars. Historically associated with increasing access to banking facilities and supporting those who are excluded from other financial institutions, credit unions continue to adopt a community-first approach to the services they provide. Multiple credit unions are accessed by my constituents, including New Easterhouse, Ruchill and Carntyne credit unions. All those unions have shown time and again how valuable they are. They provide affordable loans and savings options to families and individuals who might otherwise face challenges in accessing mainstream banking. They help individuals gain confidence in managing their money, building savings and accessing credit, often on much fairer terms than banks. However, this is not just about money; credit unions are about dignity, empowerment and opportunity. One thing they are known for is loans. For many, they are a safe, ethical and affordable alternative to high-interest payday lenders and loan sharks. I know from stories that constituents have shared with me how those types of loans prey on poorer members of society and trap vulnerable people in a cycle of debt. Credit unions, on the other hand, operate on a simple but powerful principle: they are owned by and exist for their members. In the case of loans, that results in annual percentage rates being capped at fairer rates compared with the alternative. More generally, it means that every pound saved or borrowed stays within the community, helping people manage their money and improve their lives. It is unsurprising that the number of credit union members has grown in the last decade. With that said, the sector is still much smaller than in countries such as Ireland, the USA and Canada. That presents an exciting opportunity for it to grow. It is by listening to voices in the sector that we can understand what can and should be done to support growth efforts. I am supportive of the Association of British Credit Unions’ call to expand the common bond requirement so that more people can be served by a credit union. I am also interested to hear the Minister’s thoughts on the potential benefits of legislating for auto-enrolment payroll savings, which could be a great source of empowerment for people. Credit unions are a force for good in our society. We should work with them to unlock financial opportunities for our constituents. Ultimately, supporting credit unions is about supporting people. I hope that together we can ensure that the credit unions in Glasgow North East and across the UK continue to be a beacon of hope and fairness for all our communities.

10:05:00

It is a pleasure to serve under your chairmanship, Mr Twigg. I congratulate my hon. Friend the Member for Cumbernauld and Kirkintilloch (Katrina Murray) on securing this important debate. At a time when we are all looking for practical ways to support our communities, a simple but powerful action stands out to me in relation to credit unions: for public bodies to support credit unions not just by promoting them, but by banking with them. When I was leader of Stirling council, I saw at first hand how prudent financial management rightly led councils to place the bulk of their reserves with established banks and large institutions. That approach is, of course, sound and responsible, but allocating even a very small proportion of those funds—small by council standards—to a credit union could have a disproportionately positive impact on the credit union and the community it serves. Credit unions are community-based, member-owned financial institutions that offer affordable loans, promote savings and provide an ethical alternative to high-cost lenders. I have seen their real-world impact in my constituency, where they help families to avoid exploitative borrowing, build resilience and stay afloat during hard times. However, many credit unions operate at the margins of the financial system and struggle to scale. Local authority deposits, even modest ones, would help with the stability and capital that credit unions need to grow, and would send a powerful signal to the public that credit unions are valued, supported and used by institutions. Depositing local authority funds in a credit union could also deliver modest returns while maintaining strong safeguards for public funds, because deposits are protected under the Financial Services Compensation Scheme. It would be a secure, responsible option that also delivered social value. Every pound placed in a credit union is a pound that can be recycled into low-interest loans for local people and small businesses. The money does not disappear into a distant financial centre; it stays local and supports the very communities that we are elected to serve. This approach would align with many local authorities’ wider goals: it would help to tackle poverty, support inclusive economic development and contribute to building community wealth. It would also align with wider goals across the public sector, including in the UK Government. I urge the Minister to consider what more central Government can do to overcome the barriers to this practice in the public sector and by local authorities, including through updated guidance, best practice examples and formal recognition of the social value that local authority deposits in credit unions can generate. We need to look at the barriers to public bodies placing money in credit unions without changing the broader scope of member ownership. Even very modest deposits in credit unions—modest by departmental or council standards—can work harder and go further when invested locally. By supporting credit unions, we invest in people’s lives, in communities and in the resilience of our local economies.

10:08:00

It is a pleasure to serve under your chairship, Mr Twigg. I thank my hon. Friend the Member for Cumbernauld and Kirkintilloch (Katrina Murray) for securing this important debate. I declare an interest: I am excited to begin working with the Association of British Credit Unions Ltd on forming the new all-party parliamentary group on credit unions, which will meet for the first time in September. We have heard a lot today about why we need credit unions. Now more than ever, it is important that people have access to affordable loans and do not get trapped by payday loans, expensive hire purchase or even predatory loan sharks. Credit unions are a fantastic example of people working together to make finance more accessible. Many credit unions welcome volunteers. My very good friend Catriona Currie, along with Nancy, volunteered for the credit union in Stevenston, in my constituency, for many years—I think more than 20. Nancy was a founding member of the local credit union and was key in making sure that the service thrived and survived. Until covid, they provided a service every Saturday morning in Stevenston library. Catriona and Nancy knew most members who came in and made sure they had set up the account they needed, including Christmas savings, which many people relied on to get good toys and so on at Christmas time. They often helped with a range of other issues outwith the remit of the credit union. Savers knew and trusted the service provided in their community and very much relied on the credit union. The Association of British Credit Unions describes its vision of credit unions becoming “the primary source of affordable, high quality and ethical financial services for the people of Great Britain.” As we know, many people on low incomes are often excluded from accessing a range of bank accounts. Credit unions can ensure that people can access a degree of financial freedom, allowing them greater control of their finances and a say in how the union is run. It is vital that we encourage membership and ensure that people are aware of this excellent local service. The 1st Alliance community bank in Kilwinning, in my constituency, provides those excellent services to my constituents and the wider west of Scotland. It offers a range of much-needed facilities, including savings, low loan rates, standing orders and online services. I look forward to hearing from other Members and the Minister about what we can do to further support credit unions.

10:10:00

It is a pleasure to serve under your chairship, Mr Twigg. I thank my hon. Friend the Member for Cumbernauld and Kirkintilloch (Katrina Murray) for bringing this important matter to the attention of the House. In my constituency we are lucky to be served by organisations such as the North Coatbridge credit union and the Newmains credit union. These are not distant financial giants; they are member-owned, community-run mutuals that put people before profit. For decades, they have quietly gone about their work, offering people a safe place to save, fair and affordable loans, and practical help with budgeting. They make a world of difference to someone who might otherwise be driven into the arms of high-cost lenders or high-cost credit cards. Credit unions are run by people who know your name, who listen, and who guide you through difficult times, whether by helping with a loan for urgent car repairs or assisting a family with a funeral grant in their time of grief. More widely, credit unions circulate money locally. It is not siphoned off to faraway shareholders; it stays in the community, helping neighbours and strengthening the local economy. Credit unions are democratically run on a one member, one vote basis, so every decision is about what is best for the community, not what is best for a balance sheet. At a time when many face barriers to accessing mainstream banks, credit unions are a lifeline. They offer financial inclusion, ethical lending and real human support. We must not take credit unions for granted. They need our support. They need us to raise awareness of them so more people know they exist. They need partnerships with local employers to set up payroll deduction schemes, helping workers save effortlessly each month. And they need help modernising their digital services, because in this day and age we should be able to access these great community services from our phones as easily as we can from a high street bank. When credit unions succeed, they are not just about finances; they provide dignity, security and opportunity to people in Airdrie and Shotts and across North Lanarkshire. Let us celebrate them, talk about them and, most importantly, use them. Together, we will build a stronger, fairer community for all.

10:13:00

It is a pleasure to serve under your chairship, Mr Twigg. I thank the hon. Member for Cumbernauld and Kirkintilloch East (Katrina Murray) for securing this very important debate. I must give some credit to my friend, Councillor Beth Rowland, at Wokingham borough council for helping with some of the detail for this speech. Beth has worked in the credit union sector in Berkshire for over 20 years, and it is unlike any other job in finance. People like Beth do not go to work for credit unions to make big money—not for any company, and certainly not for themselves. Instead, it is about dedication to the local community, a desire to help people, and an uncompromising desire to be a force for good in the world for those who need a bit of extra support. That is what drives people like Beth who make a career out of working in this industry. That speaks to Liberal Democrat values instinctively. I thank Beth, not only for helping me with this speech but more importantly for her long record of public service. In my constituency of Wokingham, we are lucky to be able to call upon the services of Boom community bank. When I was leader of the local council, we began a relationship with Boom. It provides non-profit finance and banking services to more than 12,000 members, not only across Berkshire but across west Sussex, Surrey, parts of Oxfordshire, Hampshire, London and Buckinghamshire. It is not traditional high street banking. For many of its 12,000 members, Boom provides a lifeline service. Credit unions certainly provide loans if people need one and a place to store savings safely, but their real value does not come from offering those financial basics. It comes from the continuous support that is on offer. Members of credit unions are often in more vulnerable positions than the average high street banking customer. That could mean that they are simply more financially vulnerable and consequently unable to access more traditional forms of credit. However, it can also mean they are vulnerable in other ways. For example, they might, for whatever reason, struggle to navigate technical language and complex arrays of products, or need extra help to create the structure in their lives that allows them to put money away regularly for a rainy day. Access to a friendly face who is on their side, and not looking to make a profit from them but willing to talk about their needs and goals, is invaluable for such people. Frankly, it is the kind of community support that we are sadly losing in our society as it becomes more distant from us as individuals over time. The people I have described cannot afford to lose the service of a credit union. One case study on Boom’s website refers to a man who was experiencing a debt crisis, with some of his loans imposing an eye-watering 1,295% annual interest burden. I am not sure how we as a society are supposed to read that as anything other than a profound failure. How did we ever allow that kind of exploitation to happen? The man that Boom refers to as John, although that is not his real name of course, could not refinance his debt on the traditional market; he was simply too high-risk. However, the credit union sector was there to help. John’s monthly costs were more than halved and within three years he was debt-free. It is hard to imagine a version of John’s story that ends well without the support of a credit union and without its willingness to identify a person in genuine need, and to offer help, support and security. Traditional finance viewed John first as a target for high-profit, personally crushing credit and then as a risk—someone to be avoided, in case he could not swim in the choppy waters that it had stirred up for him. Instead, the credit union sector viewed him as a person. I do not know John, but I am certain that that was more valuable to him than just the money on offer. We know that membership of credit unions is rising, having increased by a third between 2014 and 2024. Over the same period, however, the number of credit unions feel by about the same proportion. That can partly be explained by smaller credit unions—in 2023, the average credit union employed only seven people—seeking to merge and become larger organisations, in order to streamline their operations, but it must be a cause for alarm whenever we see demand rise and supply fall at the same time. What are we doing wrong on a policy level, such that this vital industry is not growing, even though people clearly value it? I ask the Minister to ponder that question carefully. In bringing my remarks to a close, I make a plea to the Government: bring forward a fair banking Act, which is something we have been calling for for some time. Financial exclusion in the UK is worse than in most other comparable economies. High-cost lenders—or worse, loan sharks—prey on that to target some of the most vulnerable. In 2022, an estimated 1 million people turned to illegal lenders. When people need help, there is usually a credit union they can turn to, but too many people do not realise that. With better legislation, they need not be put in that position in the first place. A fair banking Act could improve the lives of millions and could also help ethical lenders such as credit unions to deliver vital support. Will the Minister say whether the Government might consider introducing such an Act?

10:20:00

It is always a great pleasure to serve under you, Mr Twigg, and I apologise for nearly knocking you over on my bicycle first thing this morning.

I forgive you.

Thank goodness I was called to speak after all. I congratulate the hon. Member for Cumbernauld and Kirkintilloch (Katrina Murray) on securing this debate. It has been fascinating to listen to all the great words used to describe credit unions. We have heard them described as lifeline services, community builders and financial educators that help to get people on to the road to financial stability, and as engines of economic inclusion. There is no doubt about it: credit unions are truly remarkable institutions. At their heart, they represent, in its simplest form, how and why the financial sector drives growth. They are the first rung on the ladder in the financial system. They take the savings entrusted by members, brought together by a common bond, pool those funds and turn them into everything from very simple loans, to pay for school uniforms, as we have heard, all the way up to mortgages. Those loans often go to individuals and families who would otherwise find the doors to mainstream financial institutions closed. Credit unions’ commitment to financial inclusion and community values are an example that many parts of the wider financial sector could definitely learn from. I am pleased to note that over the past decade, under the previous Government, credit unions have consolidated and grown. In Great Britain, the number of members rose by a third between 2014 and 2024. More than 2.3 million people are members, up from 1.5 million in 2014, so while the number of credit unions in operation has decreased, that reflects strategic mergers that have created larger, more resilient and more professional institutions. Their asset base has also expanded—it now totals nearly £5 billion in the UK—and their lending book stands at £1.83 billion as of the fourth quarter of 2024. The impact of credit unions stretches far beyond the balance sheet. Studies show that £1 invested into a credit union can translate to between £11 and £19 of value generated in the wider community, yet despite these strengths, it is clear that further growth is being held back. A major barrier to growth is a geographical common bond, as we have heard one or two Members mention. That prevents credit unions from serving large city regions such as London, the west midlands or Greater Manchester as a single entity. I welcome the Government’s publication of a call for evidence last year on common bond reform. However, the call for evidence is unclear about the Government’s position on expanding the geographical common bond, so I would definitely welcome the Minister’s views on raising the cap from 3 million to at least 10 million people, as called for by the Building Societies Association and others. That would not only unblock the growth of credit unions in major urban areas, but allow for strategic mergers and expansions, helping the sector to respond to local need at scale. From my own meetings with the credit union industry, I know that consolidation has improved professionalism, resilience and standards across the board. However, to truly unlock growth potential, we must enable greater investment into credit union service organisations. It is positive that the Prudential Regulation Authority recently clarified that credit unions can own these service organisations. However, further Government support, especially relaxing ownership and capital restrictions, could unleash digital transformation and help credit unions to modernise their services. I note and appreciate that the Minister has also asked the Financial Conduct Authority and the PRA to publish a report on the mutuals landscape by the end of this year. That is a welcome intervention, but can the Minister confirm whether it will deliver a root and branch review of credit union legislation, and in particular the Credit Union Act 1979? As we have heard, credit unions in the USA, Ireland and Canada have flourished under a very different legal framework, which I hope the Government will scrutinise and learn from. I also hope the review can look at central facilities. By pooling liquidity through a central facility, credit unions could manage risk more effectively and provide an even stronger backbone for local lenders. Similarly, do the Government have appetite to allow credit unions to access Bank of England reserve accounts and the sterling monetary framework, bringing them into line with other financial institutions of a similar size? I will draw my words to a close in a second, but first I gently remind the Minister that the Government were elected last year—quite wholeheartedly—on a pledge to double the size of the co-operative and mutual sector. It is the morning after the night before, when members of the Treasury team are no doubt nursing hangovers from a fantastic dinner last night at the Mansion House. It is notable that during the Chancellor’s Mansion House speech, which I think was very much welcomed by the City of London, the co-operative and mutual sector was not mentioned. I would be grateful if the Minister put that wrong right by addressing these points. All the evidence suggests that credit unions are a potential growth engine for communities. By introducing a modern legal framework, progressive common bond reform and investment into service organisations, we can help this sector to continue to flourish.

10:26:00

It is always a pleasure to serve under your chairmanship, Mr Twigg. I start obviously by congratulating my hon. Friend the Member for Cumbernauld and Kirkintilloch (Katrina Murray) on securing this important debate and speaking so powerfully about the role of credit unions. The interest in this topic, particularly on this side of the House and for some parts of the country, shows how important credit unions are in supporting individuals and communities. The same commitment and motivations underpin the Government’s strong support for credit unions and the mutuals sector more widely, as the Opposition spokesperson just mentioned. As a country, we have a rich history of mutuality. In 1775, Richard Ketley founded the world’s first ever building society in Birmingham, and that continues in the west midlands today, as we heard from my hon. Friend the Member for Wolverhampton North East (Mrs Brackenridge). The modern co-operative movement was also British-born, albeit slightly further north, in Rochdale. Today we are here to discuss credit unions, which are deeply embedded in our local communities. Everyone in this Chamber passes on our thanks to Beth, who the hon. Member for Wokingham (Clive Jones) talked about so powerfully in his remarks. Before I turn to the important points that colleagues have raised specifically about credit unions, let me say a few words about the Government’s strong support for the mutual sector, as the Opposition spokesperson has raised it. Mutuals have a footprint in high streets around the country and they provide jobs. They strengthen their communities, and they support people to build savings habits and access affordable credit and mortgages. Growth in the mutual sector means growth that touches all levels of society, aiding economic participation in the broadest possible sense, as my hon. Friend the Member for Glasgow North East (Maureen Burke) set out. That is why the Government have committed to doubling the size of the sector. I am glad that the Opposition spokesperson has been paying attention to all the Government’s commitments and the change that we were elected to bring. In south Wales, building society branches are expanding in some areas, even as banks are stepping back. We have already begun to make our commitment a reality, not least when it comes to credit unions, whose lending is growing, even though, as several hon. Members have mentioned, the number of credit unions has fallen in recent years. In her November Mansion House speech, the Chancellor announced new measures to support the growth of credit unions and mutuals. The shadow Minister would be keen to have the Chancellor give an even longer speech at every Mansion House, but she cannot reiterate all her greatest hits at every single one. We did not let people away till after 10 o’clock last night as it was, and there is such a thing as decent human behaviour. The measures included publishing a call for evidence on the potential to reform common bonds for credit unions in Great Britain, asking the Financial Conduct Authority and the Prudential Regulation Authority to produce a report on the mutuals landscape by the end of this year, which is now well under way, and welcoming the establishment of an industry-led mutual and co-operative business council, which has a live workstream specifically exploring the role of the credit union sector. The common bond is a unique feature of a credit union. It fosters trust and accountability among members. However, there has been a long-standing request from the sector that the Government review the common bond, and that was reiterated by my hon. Friend the Member for Wolverhampton North East this morning. That is why we put out the call for evidence. I thank everyone who fed into that process, including individual credit unions, trade associations and some Members here today. We are now engaging with the sector and the regulators on those responses and are considering next steps. The Government and the Economic Secretary to the Treasury will provide an update on that work in due course. More widely, all Members who have spoken today, including my hon. Friend the Member for Airdrie and Shotts (Kenneth Stevenson), recognise the role that credit unions play in achieving financial inclusion, more broadly considered. They provide access to financial services and products and allow people to participate in the economy. The hon. Member for Wokingham asked about the long-standing calls for a fair banking Act. I gently note that there was little progress on that in the five years in which the Liberal Democrats were part of the UK Government. That tends to get slightly forgotten. When I spend time here in Westminster Hall—as was pointed out earlier, I do spend a lot of time here—I am told about long-standing Liberal Democrat policy in a whole range of areas. The answer to the hon. Gentleman’s question is that our focus is on taking forward a financial inclusion strategy under the Economic Secretary to the Treasury. I know she will want to work with my hon. Friend the Member for North Ayrshire and Arran (Irene Campbell) in her new role—I congratulate her on it. That work is being supported by a committee of consumer groups and industry representatives, including Fair4All Finance, which has a key role in supporting the sector. That strategy will be published later this year and will seek to tackle a range of barriers facing individuals in accessing financial services, including banking and affordable credit. More importantly, it will consider what more the industry and the Government can do to address these issues. The financial inclusion committee has recommended that the financial inclusion strategy focus on helping people build an emergency savings buffer—a pot of money that could help them replace a household appliance or repair a car. One area we are exploring is payroll saving schemes, which several Members have called for, which are offered by employers to staff. In my day job of dealing with the pensions landscape, people are talking about learning from the experience of automatic enrolment, and a number of credit unions already deliver such schemes. We talked about the role of a particular credit union earlier. The Government are directly encouraging those on lower incomes to save via help to save, introduced under the previous Government. Although the scheme has been effective for those who use it, I think we would all say that take-up has been low. In April, eligibility was extended to all universal credit claimants in work, meaning that about 3 million people will be able to benefit from the scheme. More widely, we are continuing to monitor the availability of affordable credit as part of that financial inclusion strategy work. The Treasury engages regularly to understand the current barriers faced by the mutual sector and credit unions specifically, and to identify opportunities for growth. There have been several discussions about credit union service organisations. That is an important development. The PRA is consulting on how we can facilitate that, given its role in the growth of the sector. The hon. Member for Strangford (Jim Shannon) asked about growth. He is obviously well aware that the policy area is devolved to Northern Ireland, but he can see the legislation that is being progressed here. We are always happy to engage with our opposite numbers in the Northern Ireland Executive, and we do indeed do so. I join him in celebrating the growth in Northern Ireland. He might not like the progress on the legislative side, but on actual lending and members’ engagement, those of us in other parts of the United Kingdom have a lot to learn. My hon. Friend the Member for Glasgow North (Martin Rhodes) asked wider questions about bank finance regulation—not least about buy now, pay later. I hope he is happy that the legislation that has long been promised was introduced just a few weeks ago. A few Members who are taking part in this morning’s debate were present in that Committee. More widely, hon. Members rightly said that credit unions have a different regime from mainstream providers when it comes to regulation. I assure my hon. Friend the Member for Cumbernauld and Kirkintilloch that we are really clear about the differential requirements, including capital requirements and exemptions from consumer credit regulations. We maintain those different regimes for good reasons: we want a proportionate system for different parts of our financial sector. My hon. Friend has consistently raised concerns about the Financial Ombudsman Service’s approach to handling certain complaints against credit unions, and about the volume of complaints more generally. Although they are a very small part of the Financial Ombudsman Service’s work, I appreciate that is not how it feels for the credit unions wrestling with them. We have heard those complaints, and we recognise the risk of a chilling effect on credit union lending. That is why we have acted. In the March regulation action plan, the Government announced that the Economic Secretary would lead a review of the FOS to examine whether it is delivering on its role. Today’s debate is well timed. Yesterday the Chancellor launched a consultation on a significant package of policy proposals. That will run until October and I encourage all Members to engage with it. As the Chancellor set out at the Mansion House, the Financial Ombudsman Service will be returned to its original role as a simple, impartial dispute-resolution service, which quickly and effectively deals with complaints. Directly addressing the central point made by my hon. Friend the Member for Cumbernauld and Kirkintilloch, the Government propose to reform the legislative framework that the FOS operates in to stop it acting as a quasi-regulator. We will take steps to provide greater regulatory coherence with the FCA. Consumers and industry will benefit from a more consistent and predictable regulatory environment, and I encourage my hon. Friend and credit unions with recent exposure to and experience of the ombudsman to feed into the consultation over the summer. In conclusion, the Government recognise the important role that credit unions play in our economy: helping individuals, strengthening communities, and as a major player in any attempt to make our society and economy genuinely financially inclusive. I see that in Swansea, not least in the work of the Celtic credit union. We remain absolutely committed to supporting the growth of the credit union sector now and into the future. I thank all hon. Members who have spoken in today’s important debate.

10:35:00

I feel honoured to wind up the debate. I thank all colleagues who have contributed to a thoughtful and constructive debate. We heard that credit unions are not just financial institutions; they are community institutions. They offer dignity, access and inclusion where commercial lenders often do not and, as the hon. Members for Strangford (Jim Shannon) and for Upper Bann (Carla Lockhart) reminded us, credit unions step in when commercial-led banks step out. From local volunteer-run unions to large workplace models, such as the NHS credit union, their role in tackling financial exclusion, supporting resilience and anchoring community finance cannot be overstated. As we have discussed—I very much welcome the Minister’s comments—we might be in a place to remove the burden of over-regulation and inappropriate regulation arising from outdated perceptions. I thank the hon. Member for Wokingham (Clive Jones) and my hon. Friend the Member for Airdrie and Shotts (Kenneth Stevenson) for reminding us that credit unions will take the risk to lend to people, to their members, because they know them. They know the financial situation that those people are in. That does not necessarily meet an affordability question from a spreadsheet. The importance of the role of small, local organisations is that money will stay in the community. A risk that might have been seen as too big a risk by a wider organisation is not, because everything is done locally. On the devolved nature of Northern Ireland, I am sure that all the parties there are on the same page on credit unions. I hope that, now we realise that something has been missed and that we need to make that reform, we will be in a good place for it to happen. Let us ensure that the sector not only survives but thrives. We have all talked about the absolute benefit of mutuals and the credit union sector, and how we want to increase their numbers. I hope that the sector continues to serve those who need it the most. Question put and agreed to. Resolved, That this House has considered the role and future of credit unions.

10:38:00

Sitting suspended.