‘A Fair Banking Act is essential to allowing every postcode to access growth’

Andy Burnham has set an ambitious challenge for this Labour government: to deliver good growth in every postcode. It is a vision that recognises economic success cannot simply be measured by GDP or stock market performance. Growth only matters if people and businesses in every community can contribute to it and share in it.

That is precisely what devolution should be about. Local leaders and businesses understand the opportunities in their communities better than anyone. But they can only unlock that potential if people and firms can access the finance they need. For too many people and small businesses, that access simply does not exist.

Affordable credit allows entrepreneurs to start businesses, invest and create jobs. It helps families cope with unexpected costs without falling into spiralling debt. It enables people to invest in education or training. Yet millions of people and thousands of viable small businesses remain locked out of mainstream finance, particularly in communities that have experienced decades of underinvestment.

If we are serious about spreading opportunity across the country, we cannot ignore the financial infrastructure that makes growth possible.

That is why Parliament should pass a Fair Banking Act.

READ MORE: ‘Five things the Labour Chancellor should do to deliver good growth in every postcode’

The proposed legislation would create a framework for assessing how banks serve small businesses and financially excluded communities. It would drive banks to improve access to affordable credit through their own products and services, or by partnering with trusted community lenders such as credit unions and Community Development Finance Institutions (CDFIs).

These organisations have deep roots in their communities. They understand local economies, know their customers and are often able to support borrowers who would be turned away by bigger banks. Yet despite their proven track record, they remain too small to meet the scale of demand. A Fair Banking Act could transform that, with estimates suggesting it could lead to a thirteen-fold increase in lending from the sector.

Andy Burnham has long recognised the value of these institutions. As Mayor of Greater Manchester, he described credit unions as “fantastic institutions, rooted in their communities”. In Greater Manchester, the SoundPound group of credit unions has helped people access discounted annual Bee Network travel by allowing them to spread the cost through affordable loans, generating substantial savings on bus fares.

These institutions can have a life-changing impact for the people they serve.

Victoria, from Manchester, found herself trapped by debt which spiralled after she took out a small payday loan. Her local credit union offered an affordable alternative and took the time to understand her circumstances. Today she owns her own home, has started a business and remains a member of the credit union that helped her rebuild. She says that “without the help of the credit union, I don’t think I would be where I am today”.

This also fits squarely with Labour’s commitment to grow the co-operative and mutual sector. As the UK’s first Labour and Co-operative Prime Minister, Andy Burnham has a unique opportunity to translate the values of mutuality and community ownership into practical reforms that strengthen local economies. Credit unions are among Britain’s most successful mutual institutions, but many are constrained by limited capital and investment. Encouraging stronger partnerships between mainstream banks and community finance would not only expand access to credit but strengthen the local institutions that help wealth circulate within communities.

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A Fair Banking Act would not represent an onerous regulatory burden. The FCA would compile the ratings framework, relying mostly on data that banks are already providing. Nor is this about punishing banks or directing individual lending decisions. It is simply about ensuring that the financial system works for all, and supports wider economic objectives.

Other countries have shown what is possible. In the United States, the Community Reinvestment Act, which has inspired the proposal for a Fair Banking Act here, has helped channel investment into underserved communities for decades. British banks successfully operate within that framework there. There is no reason why communities here should expect less.

Labour has rightly placed financial inclusion back on the political agenda. The Financial Inclusion Strategy is an important step forward, though, as a recently published report from the Treasury Select Committee has found, it lacks ambitious measures or targets to address the affordable credit gap. The recently launched Access to Banking Review, which has been welcomed by financial inclusion organisations and experts, presents an opportunity to think more ambitiously about what meaningful access really means. Access is not only about keeping bank branches open. It is also about ensuring people and businesses have fair access to the financial products and services that they need.

The arrival of John Healey as Chancellor provides an opportunity to put financial inclusion at the heart of Labour’s growth agenda. The Chancellor has been tasked with delivering economic growth and ensuring prosperity is felt across the country. That mission will be harder to achieve if millions of people and viable small businesses remain excluded from affordable credit and responsible financial services. 

A Fair Banking Act would be a practical way of supporting the government’s economic objectives. By unlocking investment in communities that are too often overlooked by mainstream finance, it would help ensure that growth is not concentrated in a handful of places but reaches every town, city and neighbourhood.

If we want good growth in every postcode, devolution of powers must go hand-in-hand with a financial system that works in every postcode too. A Fair Banking Act would help make that happen.

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