We need a Fair Banking Act to tackle the cost of living with more affordable loans
High street banks (Alamy)
3 min read
Tackling the cost-of-living crisis and delivering sustained growth on high streets up and down the country requires our high street banks to do more.
For small and medium-sized businesses (SMEs), affordable credit is often the difference between stagnation and growth: hiring a new employee, investing in equipment, or expanding into new markets. For households, it can mean replacing a broken fridge, covering an emergency bill, or managing a short-term shock without spiraling into debt.
That's why Britain’s banks should offer more affordable loans to small businesses and those on low incomes. When affordable finance is not made available, the consequences ripple far beyond individual borrowers, holding back communities and the wider economy.
Too many people and businesses are locked out of mainstream finance. Millions turn to high-cost lenders or loan sharks after being turned down by high street banks – perhaps because of income level or credit score – and have nowhere else to turn. They then pay far more to borrow and struggle to recover from financial shocks. Businesses in economically deprived regions and firms led by women, disabled people or people of colour are disproportionately refused credit.
This is not just unfair. It is economically short-sighted. And none of this is inevitable. The UK has a strong tradition of community-based lenders such as credit unions and Community Development Finance Institutions (CDFIs). These organisations often have deep local knowledge and a strong track record of successfully supporting people and firms overlooked by mainstream banking. But they are too small and under-resourced to meet demand alone.
This is where politics comes in. Giving more backing to small businesses, levelling up regions, and making growth more inclusive will open up more opportunities to create jobs and wealth and crucially build stronger communities. Ensuring access to affordable credit is one of the most direct ways to turn those ambitions into reality – but it won’t happen without government intervention. While some high street banks are taking action, these efforts remain piecemeal. System-wide policy change is needed.
That’s why I will be standing up in parliament today to ask colleagues to support my Banks (Financial Exclusion & Access to Finance) Bill. The bill aligns with the campaign for a Fair Banking Act, which is backed by dozens of community lenders, debt advice charities and others. It would push mainstream banks to improve affordable credit provision and remove barriers to the growth of community lenders, significantly expanding access for SMEs and people on low incomes.
This is not about telling banks who to lend to but about creating the right incentives, transparency and accountability so the financial system works better for the whole economy.
Other countries show this can be done. In the United States, fair banking requirements – established by their Community Reinvestment Act – require large banks to demonstrate how they are serving local communities and SMEs, often in partnership with community lenders. British banks comply successfully there. The question is therefore not whether such an approach can work but why the UK should accept any less here.
In a tight fiscal environment, policies that unlock private investment and help people help themselves matter more than ever. Transforming access to credit through a Fair Banking Act would be a powerful step towards tackling the cost-of-living crisis, strengthening small businesses, and building an economy that works for everyone.
Gareth Thomas is Labour and Co-operative MP for Harrow West, and a former business and trade minister
