Brown remembers those the high street banks have long forgotten

The City’s view of chancellor Gordon Brown’s economic forecasts
may have dominated the headlines, but hidden within this pre-Budget
statement were moves to help the people whom Britain’s banks seem
to have forgotten.

A Treasury report attached to the mini-Budget asks what can be done
about the “unbanked” – the 8 per cent of British households without
a bank account.

Brown has set a target of halving the number of adults without a
bank account from two million to one million, and wants the banks
to have made “significant progress” on this within two years.

At government urging, some high street banks have been offering
basic bank accounts, which can be opened without the usual need for
credit checks because they minimise the risk of unauthorised
overdrafts. Brown says one million such accounts have opened since

However, in “mystery shopper” tests, nearly half the testers were
unable to open a basic bank account without difficulties. The
pre-budget report admits banks are concerned the accounts are not
profitable enough and may be used for money laundering.

Claire Whyley, the National Consumer Council’s deputy head of
policy, welcomes the pledge of a Treasury task force to address
financial exclusion.

“Banks have a patchy record on promoting basic no-frills bank
accounts to people on low incomes,” she says. “So giving the banks
a target – reviewable after two years – is a step in the right
direction. But the NCC would also like the banks to offer accounts
that are more useful and attractive to low-income consumers.”

A significant practical step towards extending access to credit in
Brown’s pre-Budget report is a change to the rules of the
controversial Social Fund. But the change is nowhere radical enough
for critics, who lament the fund’s shift away from grants for the
poor to loans.

The social fund loans scheme is to be boosted by £210m over
three years by abolishing the “double debt” rule. This bars
applicants from taking out further loans if they already owe the
fund more than half of the maximum sum they can borrow. Ministers
do not know how many people will be affected by this rule change,
but a recent reply to an MP’s question revealed that, in 2000-1,
more than one million applications were made for a further loan by
people who already had outstanding debts to the fund.

But critics maintain that the problem is that many low-paid people
have a traditional working-class aversion to debt.

Jonathan Stearn, director of the End Child Poverty campaign, says:
“One man we spoke to would not borrow any money at all because he
did not want to get into debt. His council would not give any help
with school uniforms. We are quite keen on the idea of child
development grants for cases like this.”

Further steps are also being considered to help the growth of
“third-sector” lenders, such as credit unions and community
development finance institutions. The government hopes to set up a
growth fund to promote the sector, which remains tiny in the UK,
but this is subject to European Union approval.

In addition, the government says it will consult on raising the 1
per cent cap on interest rates that credit unions can charge. It is
also considering allowing private and third-sector lenders to apply
for repayments to be made by a direct deduction from the borrower’s

Brown’s pre-Budget report also contains a clutch of welfare-to-work
measures. Pathways to Work pilot schemes to get people off of
incapacity benefit and into work are to be extended to cover
one-third of the country by next October.

Though the move is intended to cut Britain’s estimated £7.7bn
incapacity benefit bill, it has been described as “more carrot than
stick” by the TUC.

Employment advisers will be posted in GP surgeries to encourage
claimants to return to work, while those who do return to work will
receive £40 in benefits as a top-up to their wages.

Bert Massie, chair of the Disability Rights Commission, welcomes
the extension of the pilots: “More disabled people would return to
work if they were given the support to do so, and the success of
the pilot programme vindicates that opinion.”

However, while describing the extension as “commendable”, mental
health charity Mind emphasises that incapacity benefit is still an
“important safeguard” and that people with mental health problems
must feel they are being helped back into the workplace rather than

Similar welfare-to-work “carrots” are to be offered to an
additional 8,400 lone parents in the South-East. Six more pilots of
the In-Work credit scheme will give £40 benefit top-ups to
lone parents who swap income support for work.

However, those campaigning against child poverty note that few
measures in this mini-Budget aim to help lone parents who would
prefer to spend time with their children.

“Support for those out of work is 20 to 30 per cent below the
poverty line, while we also know that half of families in poverty
have at least one person working,” says Stearn.

There is also bitter disappointment at the small increase in the
state pension, despite an extra fuel allowance for the

Gordon Lishman, director general of Age Concern, believes the basic
pension should be raised to £105 a week. He says: “Unless
there are cuts to council tax bills in the spring, many older
people will feel that the chancellor is giving with one hand and
taking away with the other.”

Pre-Budget Report: Headline Announcements


  • An extra 1,000 Sure Start children’s centres offering education
    and health support to be built by 2010, taking the total pledged to
  • A £3-a-week rise in the working tax credit threshold.
  • A rise in the maximum eligible costs for the working tax credit
    to £175 a week for one child and £300 a week for two from
    April 2005.
  • An increase in free child care for three to four year olds from
    10 to 15 hours a week for 38 weeks a year.
  • An increase in maternity leave from six to nine months,
    transferable to fathers from April 2007.
  • Consideration of a further £250 (or £500 for
    low-income families) into child trust funds when children turn

Older People

  • An inflation-only rise in the basic state pension, expected to
    bring it up to £82.50 for single pensioners.
  • A rise in the maximum pension credit savings reward to
    £16.44 a week.
  • An extra £50 on the winter fuel allowance for


  • A £210m boost over three years to the social loans scheme
    through the abolition of the “double debt” rule.

Local authorities

  • An extra £1bn for councils next year, pegged to council
    tax rises of below 5 per cent.


  • The offer of extra training to all workers in England who lack
    skills or qualifications, coupled with support for employers to
    allow employees to take the necessary time off.
  • An extra £30m for the New Deal for Disabled People.
  • The expansion of Pathways to Work pilots for incapacity
    benefits claimants, to cover one-third of the country from October
  • Employment advisers posted in GP surgeries to encourage
    claimants to return to work.
  • A £40 benefit on top of wages for incapacity benefit
    claimants who return to work.
  • An extension to six more pilot areas in the South East of the
    In-Work credit scheme, giving a £40 bonus for lone parents
    returning to work.


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