When Lucy Rigby, Economic Secretary to the Treasury, announced the UK government's Financial Inclusion Strategy, it generated considerable discussion in the credit union sector. The strategy articulates support for financial inclusion—in principle. But reading between the lines reveals gaps that credit unions must address if they're to achieve meaningful growth and member impact.
Three Critical Gaps
The strategy identifies legitimate priorities, but falls short in three areas where credit unions need explicit policy support.
1. Regulatory Support Must Go Beyond Common Bond Expansion
Expanding common bonds to reach more members is important, but it's not sufficient. Credit unions need regulatory flexibility to offer tax-efficient lending and savings mechanisms—such as salary sacrifice schemes—that make credit union products economically preferable to mainstream alternatives. Without this, broadening access alone won't drive adoption.
Green lending products are similarly underexplored in the strategy. Credit unions are positioned to mobilize capital for climate-positive outcomes—whether home insulation, renewable energy, or sustainable transport. Explicit regulatory encouragement and capital-efficient treatment for green lending would unlock this opportunity.
2. Capital Availability Is the Real Bottleneck
This is where data tells a compelling story. Analysis of 2024 accounts across 43 credit unions revealed £409,983,908 deposited with commercial banks—earning minimal returns. If credit unions deployed just half of these deposits as member lending, the sector would generate approximately £42 million in new annual income. By contrast, current net interest earnings across the sector stand at approximately £65 million.
This represents a fundamental misallocation of capital. Members' savings are locked in low-return bank deposits when they could be deployed to other members through lending. The solution is inter-union lending schemes and capital mobilization mechanisms that allow credit unions to efficiently share capital while managing risk.
Policymakers should actively support the development of these infrastructure mechanisms. Without them, credit unions cannot scale lending to meet growing demand.
3. Product Diversity Must Extend Beyond Low-Value Lending
There's a persistent narrative that credit unions should focus on small loans for the financially excluded. This is well-intentioned but limiting. Credit unions are highly capable lenders in higher-value categories—particularly car finance and mortgages—where delinquency rates are demonstrably low and member satisfaction is high.
The data supports this: credit unions' track record in secured lending shows strong performance. By maintaining balanced portfolios that include diverse products—not just subsistence lending—credit unions maximize member benefit, revenue stability, and long-term resilience.
Policy should actively encourage credit unions to develop these higher-value products, not constrain them through well-meaning but misguided focus on microlending alone.
A Path Forward
The Financial Inclusion Strategy creates a useful framework, but credit unions should not wait for policy to catch up. In parallel with advocacy for regulatory change, the sector should:
Develop inter-union capital infrastructure to mobilize the hundreds of millions currently held with commercial banks.
Invest in product innovation across car finance, mortgages, and green lending—demonstrating that credit unions can compete effectively in these categories.
Build advocacy coalitions that make the case to HM Treasury for tax-efficient mechanisms and regulatory flexibility specifically designed for credit union growth.
Measure and communicate impact through transparent reporting on member outcomes, financial inclusion metrics, and economic contribution.
The Opportunity
The Financial Inclusion Strategy correctly identifies credit unions as key to the UK's financial future. But words must become action. Policy support must be concrete: tax incentives, capital access mechanisms, and regulatory flexibility. In return, credit unions must demonstrate the ambition to grow, invest, and serve communities with the same professionalism and innovation expected of any financial institution.
The moment is now. Financial inclusion isn't a niche concern—it's central to social stability and economic resilience. Credit unions are positioned to deliver on this agenda. The question is whether policymakers will provide the tools required to make it reality.
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