Credit unions are a crucial way to provide affordable credit and banking services, writes Sarah McCarthy-Fry MP

Against the backdrop of the credit crunch, I think that we can all agree that we need to do more to ensure that our financial services industry meets the need of the whole of the UK economy.

My constituency, Portsmouth North, is a mixed community, with some areas of serious deprivation. Between 14 and 17% of residents are seriously in debt, and between 38 and 50% experience stress in paying household bills. Financial exclusion – the lack of access to mainstream financial services – often affects the most vulnerable residents, such as the unemployed, single parents and people with disabilities. Inadequate access to appropriate financial services has forced many residents in my constituency to resort to high-cost lenders such as loan sharks.

Those facing financial exclusion need funds to buy a child a pair of shoes, not a house. They do not earn enough to buy a property themselves, let alone to help a child purchase their own first house. The excluded are denied access to essential services, and providers of those services can incur enormous costs in pursuing and recovering relatively small debt. The consequences of debt go further than simply not being able to pay a bill. They can lead to desperate and chronic debt problems, resulting in people incurring further debt at exorbitant cost. This becomes a vicious circle, leading to further impoverishment.

As a co-operator, I have been a long-time supporter of credit unions. They are financial co-operatives, part of Britain’s long-established co-op movement. Since the Rochdale pioneers of the 19th century, people have been working together to share skills and resources and make their communities a better place. In the UK, it is primarily credit unions, above and beyond anything else, that offer affordable credit and banking services to thousands who would otherwise be unbanked.

I am proud of what our Government has done for the credit union movement. Over the last two years we have undertaken a review into the legislation that applies to credit unions, working with the movement to ensure that it has the right environment to grow. Much of this will be taken forward by the Treasury in a legislative reform order in October, and the rest is being dealt with through Malcolm Wicks MP’s Co-operatives and Community Benefit Societies and Credit Unions Bill, which is at its final stages in the Lords. We have also provided significant financial assistance to credit unions – with a further £18.5 million earmarked for social lenders in this year’s budget.

We are committed to continuing to assist credit unions to ensure that they are strong and sustainable. This will require it to help them expand their range of services to make certain that they can offer the maximum assistance to ordinary people in these testing economic times.

Tomorrow I am officially opening the Pollok Post Office, the first Post Office in Scotland to be run in partnership with a credit union. It is great to see a local Post Office and credit union prospering in partnership, and I believe that Pollok Credit Union are to be congratulated for taking on the running of the Post Office branch.

Sarah McCarthy-Fry is Labour & Co-operative Member of Parliament for Portsmouth North and Exchequer Secretary and Minister for Mutuals in the Treasury.

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