Improving access to affordable credit, encouraging savings and tackling the poverty premium in insurance could add £6.4 billion a year to the UK economy, according to a new report from Fair4All Finance and WPI Economics.
The report models the economic impact of addressing financial exclusion across three areas: poor financial wellbeing and productivity, low levels of personal savings, and inflated car insurance costs for low-income households.
It concludes that targeted action from government and industry could deliver substantial gains for both individuals and the wider economy.
The largest benefit – £5.9 billion annually – would come from boosting productivity through better financial wellbeing. A further £110 million could be gained through increased savings and investment, and £368 million from enabling more people to take up work by tackling unaffordable insurance costs.
Kate Pender, chief executive of Fair4All Finance, said financial vulnerability “drags down the economy” and stressed the need for urgent change.
“Some of those most in need in our society feel disenfranchised, distracted, overlooked and often extremely stressed by their financial situation,” she said.
“This naturally impacts their ability to work productively, or at all in the most extreme cases. Our financial services industry doesn’t want to leave people behind, but currently this is the case.”
The report estimates that 20 million people in the UK are currently in financially vulnerable circumstances. Among these, 8 million are affected by problem debt, 5.4 million lack financial resilience due to insufficient savings, and 16 million face barriers to accessing credit.
PRODUCTIVITY HIT
Analysis by WPI Economics found that poor financial wellbeing reduces workplace productivity in three key ways: presenteeism, absenteeism and economic inactivity. Lost output from these is estimated to cost the UK £10.3 billion annually, according to a 2023 CEBR report.
The Fair4All study calculates that improvements in this area alone could deliver a £5.9 billion annual uplift: £3.1 billion through reduced presenteeism, £890 million from reduced absenteeism and £2 billion by lowering unemployment linked to financial distress.
A separate strand of the report focuses on the potential economic benefits of improved savings. Around 8.7 million people in the UK have less than £100 in savings, weakening both personal financial resilience and the country’s capacity for long-term domestic investment.
The modelling suggests that introducing a national workplace savings scheme – building on the success of pension auto-enrolment – could increase emergency savings by £2.7 billion in its first year. This would generate an additional £180 million in long-term savings and enable £96 million more in annual domestic investment, equivalent to a £110 million rise in GDP.
The final scenario considers the impact of the so-called poverty premium in car insurance. Average premiums have risen 34% in three years to £589, with people in deprived areas often paying hundreds more. Research cited by the report shows that 2.6 million people are currently priced out of car insurance, limiting their ability to work.
Fair4All estimates that removing this premium could enable around 750,000 financially vulnerable individuals to access insurance, with many of these then entering employment, creating a further £368 million in annual economic output.
“Earlier this month the Chancellor Rachel Reeves set out the Government’s plan to grow the financial services sector and support consumers to invest,” said Pender.
“It’s important to make sure everyone is able to benefit from growth in the sector and this starts with making products and services more inclusive and accessible.”
Fair4All Finance said it is working with government on the forthcoming National Financial Inclusion Strategy and called for it to be ambitious in scope, ensuring financial services work better for all citizens.
