According to Serving All – a recent report by Tomorrow’s Company ─ 60% of people living in poverty in the UK today are in work, 40% of the workforce live in a precarious financial situation and 30% live in a state of constant financial worry. In fact, nearly four million working people in the UK today are living in poverty.
Such facts made for a sobering opening at the recent Financial Inclusion Summit organised by the Financial Inclusion Alliance in the City of London’s Guildhall ─ where business leaders met to share a mutual desire to tackle working poverty.
Opening the event, Norman Pickavance, co-founder of the Financial Inclusion Alliance, attempted to redefine the way we look at poverty. He argued that the idea of a “poverty line,” which if you are above you are fine and if you are below you are not is an over-simplification. The line of poverty has now become so blurred that it should be referred to as “the poverty zone.”
Living in the poverty zone means people face the vulnerability of living with less than £500 worth of savings – which, when combined with a life-shock such as a bereavement or a breakdown in a relationship or even just the necessity of replacing a broken washing machine can instantly plunge someone into spiralling debt.
All of these factors have a profound effect on mental health and can result in a life of constant worry. “The reality is that a person’s whole life changes once they enter the orbit of poverty,” added Pickavance.
There to state the economic case for financial inclusion was CBI Chief Economist Rain Newton-Smith who called on industry to lead the change and be a part of the solution – rather than a part of the problem.
“Where once, a company’s competitive advantage might have derived from its physical assets – its mines, machines and mills. Today, it’s found in people,” she said.
Financial insecurity means that people are more likely to suffer from poor mental health and reduced performance at work. With debt and financial stress linked to everything from absenteeism to poor performance, lower productivity and higher staff turnover.
According to mental health charity Mind’s thriving at work review – poor mental health costs the UK almost £100bn a year.
“In the modern world of business, we are more aware than ever that employee wellbeing affects the bottom line,” Newton-Smith added.
Some businesses are already making a difference and at the CBI, Newton-Smith regularly hears from companies who have schemes to help their employees build financial resilience – through profit-sharing, offering employee ISAs, or share ownership plans.
Last year, for example, saw Julian Richer convert Richer Sounds into an employee ownership trust. BT, spending £50 million pounds a year on shares for its employees. Capita, committing to pay the Living Wage. And Weir Group, giving free shares in the business to their entire workforce.
Then there’s Salary Finance, which has a unique idea to help those people in work who might need one-off help for those life shocks. They offer loans that are directly linked to employee salaries to guarantee low-interest rates and allow people to manage their finances on their own terms – without having to resort to harmful pay-day loans.
The moral case for financial inclusion is a compelling one – people have a right to their dignity and financial exclusion denies them that right. But the business case also speaks for itself – with people living in the poverty zone producing five to six times lower quality work than their colleagues.
Those firms that are making the financial wellbeing a part of their overall purpose are the ones that are making a difference.
Another business leader looking to drive change is Hermes Investment Management CEO Saker Nusseibeh CBE, who described the statistics around working poverty as a “dysfunctionality of the economic system.” He attributed this to the fundamental misunderstanding of the free market – where, as contributors to the economy, workers and customers should be considered with the same respect as the shareholders.
On a practical level, Nusseibeh called on businesses to do three things: to look at their pension scheme to make sure that it sufficiently looks after those who are most vulnerable in the workforce; to ensure that all staff are paid the living wage, and thirdly to advocate – to go out and tell other businesses the good work being done. “And tell them not because it’s the right thing to do, but because it is the only sensible thing to do from a free-market perspective,” he added.
Closing the summit, Legal & General CEO Nigel Wilson heralded a “sea change in the world of business.” With some of the biggest global firms joining those already onboard as part of a movement that will lead to much greater inclusivity. Inclusivity that means inclusive growth and an end to financial exclusion.
The Financial Inclusion Alliance is made up of business, banking, financial services, civil society, charities and NGO’s and enabled by Tomorrow’s Company.