Improving financial inclusion could add £6.4bn to the economy

£6.4 billion per year could be added to the UK economy by improving financial inclusion, according to new economic modelling by WPI Economics, commissioned by Fair4All Finance, the not-for-profit financial inclusion organisation.

The study shows that £5.9 billion could be raised annually from increased productivity and employment due to improved financial wellbeing. A further £110 million could be added to the economy through increased investment resulting from higher personal savings, and £368 million from increased employment levels if affordable car insurance were available to more consumers.

With 20 million people living in financially vulnerable circumstances in the UK currently, these three scenarios only represent the tip of the iceberg in how greater financial inclusion can benefit the economy. Fair4All Finance is calling for concerted action from government and industry to deliver a more inclusive financial services sector.

The UK loses £10.3 billion a year from absenteeism and presenteeism due to financial concerns impacting individuals in the workforce, according to a 2023 CEBR report.

Additional studies show financial stress increases a worker’s cognitive load, reducing capacity, and diminishing productivity. It comes to the fore in three ways: presenteeism, where a worker’s focus and task completion abilities are impacted; full absenteeism, which also stretches the wider workforce who need to cover for those struggling; and economic inactivity, if the worker leaves employment due to the impact of problem debt or financial difficulties and related negative health impacts.

Problem debt impacts 8 million people, poor financial resilience through lack of savings impacts 5.4 million people, and a credit barrier impacts 16 million people, which is negatively impacting the productivity of the UK workforce.

Governmental and industry measures to improve access to affordable credit and schemes to encourage savings would benefit individuals and the wider economy. Fair4All Finance research into the impact of community finance in Merseyside (with Central Liverpool, Enterprise, Liverpool Community, Lodge Lane and District, and Riverside credit unions) showed the increased availability of affordable credit led to over two thirds of respondents claiming a significant positive impact on their financial situation and over 80% reporting a positive effect on mental and physical health6, and in turn their economic productivity.

Measures to address poor financial wellbeing would generate £3.1 billion from lessened presenteeism, £890 million from less absenteeism, and £2 billion from reduced unemployment – a total of £5.9 billion – for the UK economy.

8.7 million people in the UK have less than £100 in savings, and many have less than required, which weakens their financial resilience and ability to build a safety net for the future. With less funds invested via savings accounts, it also limits the UK’s financial institutions’ overall investment capacity, increasing reliance on overseas investment.

Short-term savings lead to long-term savings. WPI Economics analysis shows only 21% of those with under £1,000 in short-term savings have any long-term savings, compared to 43% of people with short-term £1,000-5,000 in savings, and 62% with over £5,000.

Opt-out workplace savings schemes, building on the success of pension auto-enrolment, would boost short-term emergency cash savings levels for more than 10 million people. A scaled workplace savings scheme could increase short-term savings by £2.7 billion in the first year alone. This would generate an additional £180 million in long-term savings and bolster the UK’s ability to inwardly invest by an additional £96 million per year, which WPI Economics estimates is equivalent to £110 million of additional economic output.

Car insurance premiums have risen by more than a third (34%) in just three years, from an average of £440 in Q4 2021, to £589 in Q1 2025, making it the largest insurance burden on a household.

The cost is compounded for low-income households, as less disposable income is coupled with higher costs – the ‘poverty premium’. Fair By Design research shows those living in deprived areas can be charged £314 more per year, which puts car ownership out of reach for many7.

25% of those prevented from driving due to insurance costs find it harder to look for work and 2.6 million are priced out of car insurance they’d need in order to commute to work8. F4AF estimates that around 750,000 financially vulnerable people would benefit, with a number of these going on to gain employment if the poverty premium was removed, marking a huge boost for labour market participation and the economy more broadly.

Kate Pender, CEO, Fair4All Finance, said “Financial vulnerability not only impacts people’s resilience, but it also drags down the economy. Some of those most in need in our society feel disenfranchised, distracted, overlooked and often extremely stressed by their financial situation. 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. However, as an industry and a society, we can make quick changes that can start to address this.

“This research and modelling explores three specific areas where targeted action by government and industry can improve millions of people’s lives and generate billions for the UK economy. Constructive action here could have an immediate impact, leading to a healthier, more productive and larger workforce as well as contributing to the Government’s overall growth ambitions.

“Earlier this month the Chancellor Rachel Reeves, set out the Government’s plan to grow the financial services sector and support consumers to invest. 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. This will help struggling households and lead to growth in the real economy.

“We are supporting the Government with the development of the upcoming National Financial Inclusion Strategy and look forward to seeing an ambitious strategy published later this year, which will make the financial services sector more inclusive and deliver better financial outcomes for everyone.”