Accessing Credit, Addressing Poverty
August 1, 2017
By Peter Kelly, Director, the Poverty Alliance
There is one thing that most people agree when it comes to debates about poverty – at the heart of the problem is a simple lack of an adequate income. How best to address that problem is where any agreement starts to break down.
Affordable credit and tackling poverty is an area that illustrates the divisions and choices that exist both about policy options for addressing low incomes, and about our understanding of the nature of poverty. For some people, questions of affordable credit and poverty don’t even belong in the same room. They believe what needs to be done is give everyone adequate benefits, a decent job, secure housing and they’ll have no need to high cost forms of credit in the first place. The state should provide and where it can’t, it should ensure that the private sector does. We’ll come back to that approach below.
For others, it is all about individual behaviour change. If only people would manage their money, stop smoking, don’t go on holiday, generally just be ‘responsible’, then poverty would become a thing of the past. Again, for people holding views such as these, affordable credit really is not the answer to the problem of poverty, greater personal responsibility is.
Anyone involved in anti-poverty work knows that there are no simple or easy answers to addressing poverty, much as we would like there to be some. The solutions may well not lie with simply more government action, but when faced with yawning gap between money coming in and money going out, exhorting people to take more responsibility isn’t much of a answer. However, if we are looking to lasting solutions to poverty, we certainly need to ask more of the state.
For us, there is little doubt that greater effort is required to secure access to an adequate income, whether that income is acquired through work or the social security system. That’s why the Poverty Alliance has been campaigning for many years both for a real Living Wage and for a social security system that will deliver adequate benefits.
But even with a better social safety net and a decent minimum wage, access to credit will still be a necessity for many people living on low incomes. The unexpected large expenses, the breakdown of a relationship, working in a zero hours job, the death of a loved one: these are all things that mean that many people living on low incomes have to turn to short-term credit. At the moment, that means that they pay over the odds and often get further into financial difficulties. What we need to see in the future is an approach to credit that means changes in circumstance such as these do not result long-term poverty, as is too often the case at the moment.
That’s why last year’s report from the Carnegie UK Trust’s Affordable Credit Working Group was so important. It recognised that high interest credit was costing people on low incomes dearly but also highlighted the opportunities that exist in Scotland to do something about this. There is a strong and growing consensus on the need to address poverty in Scotland, a recognition of not only the social damage that widespread poverty entails, but the economic cost too. A range of developments over the last year, from the introduction of a Child Poverty Bill and a Social Security Bill in the Scottish Parliament, the launch of a new Fairer Scotland Action Plan and the creation of a new Poverty and Inequality Commission, all show a very welcome appetite to do things differently in Scotland.
Community Development Financial Institutions (CDFIs) can and should play an important part in providing alternatives to the high interest credit that is currently the only option for many people. The Carnegie UK Trust’s strong backing for CDFIs and support for tackling the poverty premium is critical at this time. As we enter a period of profound economic instability and predictions of rising poverty, there will be a need for innovative and practical responses. Providing genuinely affordable credit to those who need it most must increasingly become a key element of our approach to tackling poverty and inequality in Scotland.
Peter Kelly is Director of the Poverty Alliance and a member of the Affordable Credit Action Group, convened by the Carnegie UK Trust and Chaired by the Very Reverend John Chalmers.