‘A fair banking act is essential to expand access to affordable credit’

Access to affordable finance can unlock the potential of businesses across the UK, helping them grow and thrive. It can also be a lifeline for individuals facing unexpected costs, and a crucial tool in tackling the cost-of-living crisis.

Yet for millions of people and hundreds of thousands of small businesses, affordable credit remains out of reach. Turned away by high-street banks, many are left with nowhere else to turn. This holds back enterprise, deepens inequality and pushes people into financial hardship. Tackling it should be a priority for a Labour government. This is why I am bringing a Bill to Parliament today to expand access to affordable credit through a Fair Banking Act.

Thousands of small and medium-sized businesses are currently locked out of the finance they need to grow. Entrepreneurs without long track records or significant assets often find the door to mainstream banking closed. Too many are left without advice, support or a fair chance to turn good ideas into thriving businesses. This is particularly true for businesses led by women, people of colour and disabled people and for those based in the most economically deprived parts of the UK.

READ MORE: Lucy Rigby: ‘Making financial services work for everyone’

The scale of the problem is stark. Over half of small firms say credit is unaffordable, and business finance in the UK costs more than in comparable countries. When I was in government, senior figures at a major bank told me that personalised financial advice was typically reserved for business clients with trading income of at least £10 million. That tells you a great deal about who the system is designed for – and who it leaves behind.

This exclusion goes far beyond business owners. More than 20 million adults in the UK are now classed as financially underserved, a 50 per cent increase since 2016. 

One in three adults face barriers to accessing mainstream credit. 12.5 million people have no savings to fall back on in a crisis, and almost two million have turned to illegal lenders in the past year alone.

When people cannot access fair, affordable credit they are pushed towards payday loans, loan sharks and extortionate interest rates. They pay a poverty premium too. Being financially underserved often means struggling to open or maintain a bank account; paying more to borrow; and finding it harder to cope with life’s inevitable shocks – whether that is a broken boiler or the cost of a funeral.

This is one of the hidden drivers of the cost of living crisis. A lack of fair banking creates insecurity, stress and hardship – not because people are reckless, but because the system has failed them.

The financially underserved are not some distant group. They are in every community. They are our neighbours, our friends and our families.

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Charlotte was in her twenties when her dad passed away, and she had to pay for his funeral. As a survivor of economic abuse, Charlotte had a poor credit rating, and as a result was forced to turn to payday loans to find the money, paying very high interest rates. Later, Charlotte gained support from her local credit union.  She describes being approved for a £500 loan at a reasonable rate as “the best thing in the world”, and for the first time, feeling she was treated with compassion and trust, building her confidence and changing the way she saw herself.

This government is already showing leadership in this area by publishing the Financial Inclusion Strategy. But we need to go further. If voluntary action by banks were sufficient, we would not be in this position today. We need reform that matches the scale and urgency of the problem. That is why a Fair Banking Act is essential.

As Charlotte says, “Life doesn’t stop while policies are piloted. Bills and emergencies don’t wait. Short-term fixes and small pilots offer hope for a moment, then disappear, leaving nothing changed. I didn’t choose to spend my life fighting banks or chasing affordable credit. It’s unfair to be told reform is ‘too difficult’ or that government is ‘too busy’. This is our life, twenty-four hours a day. If fair access to banking could be delivered without legislation, it would have happened by now. Voluntary action has failed. That’s why we need a Fair Banking Act – to make affordable credit something people can rely on, not just hope for.”

A Fair Banking Act would require the Financial Conduct Authority to assess how well banks of different sizes are serving individuals, small businesses and underserved communities. It would introduce a transparent, published ratings system showing which banks are stepping up and which are falling short. This isn’t about punishment. It’s about accountability, transparency and incentives to do better.

Crucially, banks would be able to improve their ratings by expanding their own affordable lending, and by partnering with credit unions and community development finance institutions (CDFIs) – responsible lenders who are often better placed to understand and respond to the specific needs and context of SMEs and people on low-incomes.

We know this approach works. In the United States, fair banking requirements have existed for decades. British banks operating there comply with them very successfully. They invest in left-behind communities, work closely with community-based lenders and proudly report on their support for women entrepreneurs and Black and minority ethnic led businesses. Many British banks are among the largest investors in American community finance institutions – yet do far less here at home.

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The question is simple: if our banks can do this in the US, why not in the UK?

A Fair Banking Act would be a common-sense, proportionate step with the power to help transform communities, unlock enterprise and make our financial system work for everyone. Labour should be proud to lead that change. I hope my colleagues will join me in supporting this proposed Bill.

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