Department for Work and Pensions originally pledged to spend £73m on modernising credit unions, but the fund will be worth £51m
A fund to modernise credit unions will be worth £51m, 30 per cent less than was originally pledged, according to an announcement by the Department for Work and Pensions today.
Last year it provided £13m for them to modernise their IT systems and other infrastructure, and yesterday it said it would make a further £38m available.
The department had previously pledged to spend £73m overall. A DWP spokesman said that it believed its efficiency agenda could be achieved with less money.
The department also said it would consult on increasing the maximum monthly interest rate a credit union can charge from 2 per cent to 3 per cent. Credit unions provide savings and loans services in communities and are owned by their users.
The DWP announcement comes after the publication of a feasibility study by an internal departmental committee last month, the recommendations of which have been adopted.
The report says that credit unions are not working efficiently and are reliant on grants to continue, and that a "major programme of holistic change and modernisation" is needed to make credit unions sustainable.
Improvements recommended in the report include automating credit unions’ processes, creating a shared database for all credit unions to use, a national marketing campaign and closer links with registered social landlords and the Post Office.
It says these measures could make credit unions "something close to" sustainable within 10 years. This timescale could be reduced to as few as five years if credit unions were allowed to increase the maximum interest rate they could charge, it says.
Another report, Credit Where Credit’s Due, published by consumer champion agency Consumer Focus last month, says that credit union services should be provided through post offices. The report says that more than 40 per cent of consumers would trust credit unions more, would be more likely to open accounts and would find it more convenient if credit union services were available through post offices.
A third of consumers said they were interested in joining a credit union, but many did not because they did not know of one nearby, the report says.
The government is considering proposals to turn the Post Office into an employee and customer-owned mutual.