Financial Guidance and Claims Bill [HL]
Thursday 22nd June 2017
(7 years, 5 months ago)
Lords ChamberRead Full debate Financial Guidance and Claims Act 2018 Read Hansard Text
Financial Guidance and Claims Bill [HL]
Wednesday 5th July 2017
(7 years, 4 months ago)
Lords ChamberRead Full debate Financial Guidance and Claims Act 2018 Read Hansard Text Read Debate Ministerial Extracts
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Buscombe) (Con)
My Lords, I take this opportunity to say thank you for the positive engagement and feedback your Lordships have already provided, particularly at the all-Peers session we held last week. It is my sincere hope that we can continue to engage in this way as the Bill progresses through this House.
The Bill is a relatively and deliberately small Bill, focusing specifically on two separate but important issues. The first part will create the framework for a single financial guidance body, ensuring that people have access to the information and guidance they need to make the important and effective financial decisions that we all have to make at some point in our lives. The second part will enable the transfer of claims management regulation from the Ministry of Justice to the Financial Conduct Authority, ensuring that there is a tougher regulatory framework in place and that people have access to high-quality claims handling services.
We believe that both measures will benefit members of the public and provide a sustainable legislative framework for public financial guidance and the regulation of claims management companies in the future. Both measures have received support from stakeholders in industry, from charities and from consumer groups. Since it was announced in Her Majesty’s gracious Speech that we would be bringing forward these measures, the response from stakeholders has been very positive. For example, Scottish Widows welcomed the Bill saying that it was,
“a major step in simplifying money management from the perspective of the public, where the full spectrum of support will soon be found in one place”.
Welcoming the claims management regulation measures, the ABI stated:
“Confirmation of tougher regulation of claims management companies cannot come soon enough for people who are plagued by unsolicited calls and texts. Disreputable firms are fuelling a compensation culture that contributes to higher insurance costs for many”.
I now turn to the clauses in the Bill and why we believe them to be important. Clauses 1 to 15 establish the new arm’s-length body that will replace the Money Advice Service, the Pensions Advisory Service, and DWP’s Pension Wise service. This builds on the Government’s commitment to ensure that people should be able to access good-quality, free-to-client, impartial financial guidance and debt advice.
The need to restructure and simplify the UK’s financial guidance landscape was confirmed in October 2015 when the Government launched the first of their three reviews into the provision of public financial guidance across the UK. The first two reviews established beyond doubt that there was the need for such a body, but we wanted to ensure that the right model was delivered, that it would work for those who needed to use it and that it had the full support of the financial services, pensions and charity sectors. In October 2016, in response to the feedback we received from stakeholders, we took the decision to create one single body and set out our proposals for a single body that could provide a more joined-up approach to financial guidance and debt advice. The consultation closed in February this year, and since it closed, the DWP and the Treasury have held discussions with interested parties to gain further insight.
The responses, from trade organisations, charities, and the financial services and pensions industries, were very positive and supportive of the Government’s proposals, and clearly expressed a wish to see the body focus on filling gaps in the current financial guidance provision. StepChange, one of the UK’s largest debt charities, commented:
“A single financial guidance body, backed by well-constructed legislation, can be a major plank in Government strategies on social justice and supporting families who are ‘just about managing’”.
The LV= insurance company strongly supported the proposals, saying, “We fully support the premise that people attach a greater value to ‘government backed’ and impartial guidance for many key financial decisions, particularly when making decisions about retirement income, and our own consumer research confirms this”.
Before I go on, I am very conscious of the concerns expressed by some of your Lordships about the difference between advice and guidance. It may help if I briefly outline where we see the distinction. Debt advice is a regulated activity. It is provided by an FCA-approved debt adviser who provides an assessment of an individual’s debt situation and makes a recommendation on a course of action. The Government currently fund free-to-client debt advice through the Money Advice Service. The key point here is that debt advice comes with a personal recommendation and action plan and is a regulated activity, so it is tailored to an individual’s needs. Financial guidance is the provision of more generic information about the various options open to an individual. No personal recommendation is provided, it is not regulated and it is not tied to selling a product as a result of the information provided. It is important that we understand that distinction as we go on to debate the Bill in more detail.
The measures in the Bill outline four functions for the new body. First, it will provide information and guidance on all matters relating to private pensions, covering both the basics as well as the more complicated issues. That will include matters such as pension schemes and how they work; general information about the state pension; transfers between a defined benefit scheme and a defined contribution scheme; and the options open to people as a result of the pension freedoms. Secondly, it will provide impartial guidance and information on money matters, including budgeting and saving, insurance, bank accounts, protection from fraud and scams, and planning for retirement.
Thirdly, a further function of the body will be to fund free-to-client debt advice for people in England with problem debt. Let me again be clear about what this means: the debt advice function that we are talking about here is targeted at people in crisis. It is essential that people in serious debt are able to access help that will provide them with a clear course of action. The Money Advice Service currently provides funding for advice of this sort, and it is vital that the new body continues that work.
Importantly, the fourth function of the Bill, its strategic function, requires the body to work closely with others in the financial industry, the devolved authorities and the public and voluntary sectors. This will enable the body to harness their knowhow, expertise and innovation, and to strengthen the co-ordination and development of a national strategy in three key areas, with the overarching aim of improving the ability of individuals to manage their finances. The strategy will aim to better identify the issues that people face and where there are gaps in provision. It will help to develop evidence-based solutions to these issues and ensure that the sector’s resources are used in a co-ordinated and effective way.
I shall touch briefly on the role of devolved authorities. In considering the functions of the new body, the Government have consulted with the devolved authorities on the delivery of debt advice and believe that decisions on the use of funds for debt advice are best made locally. The devolved authorities currently deliver a broad range of guidance services, including guidance on housing and welfare reform. By transferring responsibility for debt advice to them, the Bill will create opportunities to commission joined-up services that reflect the needs of members of the public in Scotland, Wales and Northern Ireland. That is why the Bill makes provision for the funding of debt advice to be delivered by each of the devolved authorities. It will of course be important for the new body and the devolved authorities to work together and to share learnings when commissioning debt advice. For that reason, the new body will be required to work closely with the devolved authorities in delivering its functions, and will collaborate with the devolved Administrations when developing a strategy to address financial capability, including the ability of members of the public to manage debt.
We want to ensure that everyone has the opportunity to take control of their finances, and being able to access the right guidance is an important first step. The noble Lord, Lord McKenzie, was right when he said during the debate on Her Majesty’s gracious Speech that,
“levels of financial capability in the UK are low and that many people face significant challenges when it comes to managing money, avoiding debt, building up savings in the short term and balancing this with”,—[Official Report, 29/6/17; cols. 640-41.]
saving money for their retirement. The first part of this Bill, and the creation of a single financial guidance body, will help people to move in the right direction and give them that opportunity. The clauses provide the legislative framework for the body that will allow it to respond to industry and policy changes and keep pace with technological advances.
One might ask: why now? The noble Lady, Baroness Drake, said at Second Reading of the Pension Schemes Act last November:
“I hope that it will not be long before the revised proposals for financial and pensions guidance are revealed”.—[Official Report, 1/11/16; col. 584.]
We have now consulted three times on how best to restructure the financial guidance landscape. We have listened and acted upon the views of the industry, charities, consumer groups and members of the public. There is a growing expectation of change, and continued delay will cause uncertainty for the three services involved and the 250 or so staff who work for them. We believe that now is the time to get things done.
I know that a number of your Lordships have raised questions about financial exclusion and the role of the new body. I put on record this Government’s appreciation for the excellent work that your Lordships’ Select Committee has done in preparing its report on this area. The new body will help to address some of the key issues that the committee raised in its report. It will continue to fund debt advice as well as fund and evaluate financial capability programmes, including financial education initiatives aimed at children. In this way, it will help people of all ages and backgrounds to manage their money well and make the most of financial services and products. However, the report made 22 recommendations, many of them outside of the scope of the body. The Government have been considering them very carefully and will publish a full response shortly.
I turn to the measures in Part 2. Clauses 16 and 17 will enable the transfer of claims management regulation from the Ministry of Justice to the FCA. This measure is intended to tackle a range of conduct issues within the market, ensuring a tougher regulatory framework and increased individual accountability.
We have put on record our commitment to clamping down further on some CMCs’ rogue behaviour by transferring regulatory responsibility to the FCA. We will all be aware of the type of complaints levelled at some claims management services companies. Many of your Lordships will have experienced them at first hand. They include poor value for money; misrepresentation of the service offered to consumers; reliance on nuisance tactics, such as unsolicited calls and texts; and the progression of inappropriate claims, either speculative or fraudulent.
Moreover, we know that 76% of the public are not confident that CMCs tell the truth to their customers. At the 2015 Budget, the Government commissioned an independent review to examine the CMC market and make recommendations to improve the regulatory regime. Following this review, undertaken by Carol Brady, we said in the March 2016 Budget that we would take action. The measures in the Bill honour that commitment.
Clause 16 amends the Financial Services and Markets Act 2000 to enable the FCA to regulate specified activities in relation to claims management services. It enables the transfer of CMC regulation by switching on FCA’s regulatory, supervisory and enforcement powers in respect of claims management services, so that the FCA can design and implement a robust regulatory regime.
Clause 17 ensures that the FCA has the necessary powers to restrict fees which CMCs charge in order to protect consumers from disproportionate fees. It also requires the FCA to make rules restricting charges for claims management services dealing with claims for financial services or products. This clause will help to ensure that the FCA has the necessary powers to restrict fees which CMCs charge, to protect consumers from disproportionate fees. Strengthening the regulation of CMCs in this way gained widespread support and is popular among consumer groups, insurers, lawyers and the financial services sector.
As I said at the start, the Bill is deliberately narrow in focus. Its purpose is to ensure that people—especially those who are struggling—are easily able to access free and impartial financial guidance to help them make more effective financial decisions. It will improve their confidence when dealing with financial service providers and is an important step towards improving their financial capability.
By transferring the regulatory responsibility for CMCs to the FCA, the Bill sends a clear message to CMCs, providing a stronger framework that ensures that individuals are accountable for the actions of their businesses, and it will provide the FCA with fee-capping powers to protect consumers from excessive fees.
We believe that this is a positive Bill and a fair Bill. It has the individual at its heart, and I look forward to the constructive engagement that we will have as it progresses through your Lordships’ House. I beg to move.
Lord McKenzie of Luton (Lab)
My Lords, I start by thanking the Minister for her introduction of this Bill and for the meetings that she and her colleagues have facilitated. We look forward to further engagement as we make progress.
As we have heard, this is a two-topic Bill, the first of which concerns the establishment of a new arm’s-length entity to replace three existing publicly funded consumer bodies, the Money Advice Service, TPAS and Pension Wise, which variously provide free-to-client and impartial information, guidance and advice. The SFGB will have responsibility for a strategic function also to support and co-ordinate the development of a national strategy. The Bill’s stated aim, which we can support, is to increase levels of financial capability, reduce levels of problem debt, and improve public understanding of occupational and personal pensions. We accept that having three existing organisations with overlapping remits but different brands, independent strategies and business plans, generates inefficiencies, although we should acknowledge the effectiveness of some of the work they currently do. In particular, we should recognise TPAS, which with a small budget and no marketing handles some 200,000 customer contacts each year. We can also see the challenges of fitting together three hitherto separate organisations.
The Bill also separately introduces a tougher and welcome regulation regime to tackle conduct issues in the claims management market, which we can also support. The Bill is a high-level framework Bill, with little detail of precisely what is to be delivered and how. It is understood that the Government consider that a mixed delivery model should apply to the SFGB, with some services delivered directly and others commissioned externally by specialist providers. Other than debt advice, there will be no support for regulated financial advice. I believe that the Minister made that point. There can be more than one tier of provider, with a third tier needing SFGB consent, and delivery partners will have to provide information for monitoring and enforcing standards. We have no problem with this, but what safeguards will be available to ensure that lower tier providers are not disadvantaged in this treatment, as happened sometimes under the Work Programme arrangements?
The Bill gives us no specifics on delivery channels, which will have to be designed by the new body, but the expectation is that these will include a customer-facing website, a telephone service and some face-to-face support—the components of the existing separate arrangements. How is it expected that arrangements will allow appropriate consumers who are not currently effectively reached to be catered for? Do we expect the SFGB to handle increased volumes?
The five areas that SFGB is expected to concentrate on are provision of debt advice, provision of information and guidance relating to occupational or personal pensions, accessing DC pots and retirement planning. I believe that the Minister suggested in her introduction that it would cover state pensions. We thought that that was not the case—but perhaps she could clarify that in her response. It is also to help consumers avoid financial fraud and scams, to give information on wider money matters and to co-ordinate and influence efforts to improve financial capability, along with co-ordinating non-governmental financial education programmes for children. The SFGB also has a strategic function to support and co-ordinate a national strategy but, especially given the appointment of a Minister for Financial Inclusion, this could be strengthened to a “develop and deliver” function, despite the SFGB perhaps having limited leverage in some areas.
We agree that these are important and relevant areas, but will test these against the existing remit of the separate bodies. It appears that a number of statutory functions of the MAS are not currently included, and we will need to know why. While we can support these areas of focus, we consider that there is scope to go wider and deeper if, as a country, we are to secure a step change in the financial capability of the nation.
Coincidentally, as has been referred to, with the introduction of this Bill, we have the benefit of the recent publication of the House of Lords Select Committee report, Tackling Financial Exclusion. I declare an interest as a member of that committee, which was ably chaired by the noble Baroness, Lady Tyler of Enfield. We will pursue a number of its recommendations in Committee, particularly on the importance of financial education, where we believe this Bill is too timid. There are also issues about the role of the FCA and whether its remit should be expanded to have a duty to promote financial inclusion. I know that my noble friend Lady Drake is on the case of consumer versus market issues on this matter.
More generally, as part of our work in Committee, we will seek to confirm that there is clarity on the boundaries between information, guidance and advice and that consumers are clear as to what is available and relevant to them. We also need to ensure that the SFGB can provide impartial information, notwithstanding that others may be operating in the same space. We welcome the focus on the provision of financial education for children and young people, although this appears to be restricted, as I have said, to non-governmental programmes. The Government should be bolder, as the Select Committee proposes.
The new body will have to cope with a changing economic environment. So far as debt is concerned, the latest data show that, against a backdrop of rising prices and stagnant wage growth, real incomes have fallen for three successive quarters and savings levels have crashed. Evidence provided to the Select Committee referred to fears expressed by debt agencies about the rise in queries covering rent arrears, energy and water bills, telephone bills and council tax. Consumer credit is on the rise again. Quite apart from the obvious question of what the Government are going to do about their austerity policies, which are driving much of this, how will they approach the capacity and resource issues of the new body? When will the Government recognise that their own policies on universal credit and council tax support are directly fuelling some of this debt? Can the Minister tell us what is happening to manifesto commitments on providing breathing spaces for debt?
The SFGB will also have to cope with an increasingly complex pensions sector. The growth of auto-enrolment brings more and more people within the scope of occupational pensions, with the 2017 review potentially—and hopefully—expanding its scope. The other major change has been the introduction of pension freedoms, giving much greater choice over when and how individuals access their entitlement. As the ABI points out, there is the prospect of a pensions dashboard being operational in 2019, with individuals being able to see all their pension pots, including the state pension, in one place online. Not having access to the dashboard as part of the guidance service would seem a missed opportunity. Have the Government given any thought to this? There is a strong argument also that retirement opportunities more generally should be within the remit of the SFGB. Of course, with pension flexibilities come financial fraud and pension scams, exacerbated by the precipitate manner in which the pension changes were introduced. A recent Citizens Advice report calculated that some 10.9 million consumers have received unsolicited contact about their pensions since 2015. These are alarming numbers and the SFGB will have a major task in promoting awareness of scams, not just those that are pension-related.
There is much more that we must explore in Committee, including the process for the setting of standards—on which we believe there should be consultation—the FCA review, reporting to the Secretary of State, and the arrangements for the various transfer schemes. Clause 12 of the Bill sets out arrangements for the disclosure of information between, variously, the SFGB, the Secretary of State, the devolved authorities and the FCA. We need reassurance that these are appropriate. As for the reach of the SFGB, noble Lords will be aware of the proposition that it should be extended to micro-businesses. Do the Government agree?
As for changes to claims management companies, we agree that the current arrangements regulating the industry, intended in 2007 as an interim measure, have not delivered a satisfactory situation despite a number of incremental reforms to the regulation powers in the interim. The current situation has been characterised by poor value for money, information imbalances, nuisance calls and texts and the progression of speculative and fraudulent claims. We accept the proposition that there is a public interest in having an effective claims management market operating in the interests of consumers, as this can provide access to justice for those who are unwilling or unable to themselves bring a claim for compensation. Further, as the Carol Brady review asserts, a well-functioning CMC market can act as a check and balance on the conduct and complaint-handling processes of individual businesses. We note that the Brady review rehearsed a number of options for taking regulatory responsibility, including bolstering the MoJ arrangements, but considered that a move to the FCA would represent a step change. This seems the right decision, especially as some 99% of turnover relates to financial services—PPI, packaged bank accounts or insurance.
We support the proposition that CMCs be subject to a rigorous reauthorisation process, and that there be a senior manager regime of personal accountability. How much of the detail of this will be available for our scrutiny before the Bill leaves this House?
The Bill enables the FCA to introduce a cap on charges, as we have heard. A consultation has already been carried out under the existing MoJ regulatory arrangements but we believe that no government response has yet been forthcoming. Can the Minister say when we might expect one, or is there to be a further consultation under the new arrangements?
In evaluating the Bill, especially the single financial guidance body, we need to determine whether what is on offer is essentially just a reordering of what we have at the moment, with some efficiencies built in, or a step change in our approach to enhancing financial capability. We should want it to be the latter and will seek to strengthen it to that effect where we can.
Lord Sharkey (LD)
My Lords, this Bill contains some welcome and timely provisions. It also contains some surprising gaps and some rather vague and ambiguous drafting.
We on these Benches support the idea of a single financial guidance body to replace the three existing bodies: the Money Advice Service, the Pensions Advisory Service and Pension Wise. There is a clear need to improve the provision of debt advice, improve the likelihood of informed choice in pension provision and usage and eradicate unsavoury practices and rip-off charges in the claims sector. There is a clear need simply to improve the take-up of government guidance services. Last week’s statistics from the FCA make shocking reading. For instance, of those over 55 planning to retire in the next two years, only 10% had used TPAS and only 7% had used Pension Wise. The new SFGB will have to do much better than that.
As the Minister has said, there is a clear need for complete clarity over what is guidance and what is advice, the difference between them and which is being offered in what circumstances. It is very easy to confuse the two and thereby accidentally to mislead. Even Secretaries of State get this wrong. The FT reports that yesterday, when David Gauke, a former regulatory lawyer, addressed the ABI conference, he twice confused guidance and advice and called the new SFGB an “advice body”. If the Secretary of State can make that confusion, how easy it is for lots of other people to make the same mistake.
Eight million people in the UK are overindebted, according to a Money Advice Service report of March this year. Fewer than one in five of these overindebted individuals currently seeks advice. When people do seek advice, they have typically waited a year to do that. By that time, they have on average six debts to deal with. Many of these people are amongst the most vulnerable. Over half the clients seen by MAS-funded debt advice projects had a diagnosed mental health condition.
Fortunately, debt advice, properly tailored and delivered, does seem to work—not always and not from every provider, but three to six months after getting advice, 65% of those with debts are currently repaying them or have already repaid them in full. This is a tribute to the effectiveness of MAS-funded providers, such as Citizens Advice, and to reputable—I emphasise that—debt management companies, of which there are some. But debt advice, and in particular that sometimes provided by debt management companies, has not always been robust or successful, and sometimes has involved commercial sharp practice. I know that the FCA has been rigorous in applying the authorisation process to debt management companies, that client account problems have been largely resolved and that companies have been deauthorised. But the problem of cold calling remains.
I have spoken about this frequently before in this Chamber. The FCA acknowledges that many of the 30 million cold calls selling fee-paying debt management services were misleading and damaging and affected the most financially disadvantaged in our society. We do not allow cold calling for mortgages; we should not allow cold calling for pensions, we should not allow cold calling for debt management companies or claims management companies, and we should not allow these companies to use contacts generated by third-party or arm’s-length cold calling. The Bill is silent on this. There are regrettable omissions, particularly in the case of the ban on pensions cold calling. Can the Minister explain why there are these omissions in the Bill? We will, in any event, try to put all this right as it makes progress.
Another regrettable omission from the Bill is the introduction of a pause or breathing space before debt recovery takes place—already mentioned by the noble Lord, Lord McKenzie. The idea has long been championed by StepChange and is strongly supported by other interested parties, such as R3, the insolvency practitioners. R3 has pointed out in its briefing to Peers that the moratorium or breathing space was proposed in both the Conservative and Labour 2017 manifestos. But it is not in this Bill and it should be. We will want to put that right, too.
The Bill is also silent or vague about the funding landscape for debt advice. It looks as though funding of free-to-consumer debt advice may be failing, just as demand can be expected to rise, given the overborrowed state of UK households and the decline in real incomes. Currently, 400,000 consumers are repaying £6 billion of debt via a debt management plan. Half do so via a free-to-consumer model and half through a fee-payment model. Quite why anyone with burdensome debt problems would choose to pay fees rather than use a free service is a very good question. The answer probably has to do with selling pressures and financial ignorance or naivety, and it raises urgent questions about the effectiveness, for example, of signposting.
But the free-to-consumer model is now itself under stress. Under this model, creditors—typically banks—pay for the debt advice to be delivered and administered. However, the nature of modern debt is changing. It has moved significantly away from banks towards store cards, rent arrears and utility and council bills, and these creditors do not in general pay for debt advice to their debtors. This reduces the scope of the free-to-consumer debt management plan option. We will want to look carefully at this at later stages.
There are other issues with the funding of debt advice. The Bill proposes delegation of funding decisions to Scotland, Wales and Northern Ireland. At the moment, funding and allocation of funding is based on measures of need. These measures are determined across the United Kingdom by research done centrally by the Money Advice Service. Will the SFGB continue to provide this service across the union, or will the devolved authorities devise and conduct their own research, perhaps on a quite different basis? The Bill—rather feebly, I think—says:
“In exercising its functions, the single financial guidance body must have regard to its objectives … to work closely with the devolved authorities as regards the provision of information, guidance and advice to members of the public in Scotland, Wales and Northern Ireland”.
The combination of the two phrases “have regard to” and “work closely with” does not sound much like a meaningful directive. In particular, can the Minister explain how the funding process will work under the new regime?
The current MAS business plan, which forms the present basis for funding requests, is already in the public domain. Can the Minister say whether applications to the FCA for funding and the FCA’s rationale for arriving at an amount, and for its allocation, will in future all be in the public domain? I would be grateful for the Minister’s thoughts on those matters.
The Bill sets out the strategic function of the SFGB as being,
“to support and co-ordinate the development of a national strategy to improve”,
among other things,
“the provision of financial education to children and young people”.
That is very important, as many Members of your Lordships’ House have pointed out over the years. Proper financial awareness and education is the best defence against the making of bad financial decisions. However, I am puzzled at the exclusion of older people from this objective. Surely financial education, like health education, should not end at school or college. Surely it should continue to cover the major financial decisions arising at every stage in life—mortgages and pensions, and now, increasingly, car purchase schemes.
I now turn briefly to pensions and CMCs. We welcome the provisions in the Bill but those on pensions guidance seem rather narrow. The Bill seems to focus on guidance to members of pension schemes or their survivors. Can the Minister confirm that guidance will also be available for those choosing a pension provider?
I have already mentioned that the Bill will need to include a ban on cold calling, by whatever digital means, and I have already mentioned the absence of any provision to ban cold calling from CMCs. That, too, needs to be addressed. However, apart from that, we welcome the transfer of regulation from the MoJ to the FCA and from the Legal Ombudsman to the FOS, and we particularly welcome the new power to cap charges.
Finally, some questions arise from Clauses 7 and 8. In Clause 7, “Monitoring and enforcement of standards”, the Bill says that the SFGB must monitor its own delivery and compliance with the standards. It does not say how, how often or how transparently this should be done, but I think it would help if it did. The Bill also says that as soon as possible after the FCA has completed its review,
“it must provide a report on the review to … the single financial guidance body, and … the Secretary of State”.
It does not say whether this report should be in the public domain. We think it should. The Bill also notes that this report may contain recommendations to the SFGB. It does not say what the SFGB must do with these recommendations. We would like to see, at the very least, a duty imposed upon the SFGB to make a substantive response within a specified time and for that response to be in the public domain.
As the Minister said, this is a comparatively short and certainly well-intentioned Bill. There is much in it to agree with, but there are also quite a few questions that we will need to discuss. We look forward to working with the Minister and her team in the two weeks before the first day in Committee and thereafter to discuss some of these questions. We look forward to being able to help in improving a promising Bill.
Baroness Greengross (CB)
My Lords, I welcome the Bill because, like many noble Lords, I am very concerned that many people approaching retirement age are doing so with insufficient assets or income to provide them with the sort of quality of life that they are expecting. Most people are ill informed, certainly about how long they might expect to live, and they are also underadvised. Even if they are aware of their situation, they do not know where to go to get advice and guidance, and, as the Minister said, they certainly do not know the difference between them.
The whole system has been made more complex by the new flexibilities. While this provides more opportunity for people to make a tailored financial plan, it also provides greater opportunity for financial mistakes, unless people have proper advice and guidance. This was amply demonstrated when, only last week, several reports on pension wealth warned that many Britons have given little thought to their retirement, how long it will last or how their needs will change.
The ONS wealth and assets survey found that two in three of the country’s 40 million adults—about 27 million people—have given no thought to the number of years they need to fund when they stop working. Only half feel confident they will have a big enough pension pot once they retire. The ONS found that most new savers are using auto-enrolment workplace pension schemes, but they are putting in the minimum of just 1% of their salary, which is matched by another 1% from their employer. Saving at this rate means that nearly three-quarters of young workers are set to retire with a £9,000 shortfall on their pension because they are not saving enough. This is a wake-up call. Millions of our fellow citizens are sleep-walking into a disappointing retirement by failing to give proper thought to their financial future.
A survey of staff by Scottish Widows argues that auto-enrolment may be,
“lulling people into a false sense of security”.
It showed that younger staff expect, on average, an annual income of just over £23,000 for a comfortable retirement. But based on the amounts they are saving, the insurer calculated they would actually get only £15,200. A 30 year-old contributing the 1% minimum to their workplace pension will get an annual pension of just £9,734. Even when the minimum auto-enrolment contributions rise to 8%, they will get only £14,047—almost £9,000 below their expectations.
A third report from the Prudential revealed that women are more at risk than men of living in poverty in old age, with the retirement income gender gap growing by £1,100 over the past year. On average, a woman retiring in 2017 will be £6,400 a year worse off than a man retiring this year—up from £5,300 in 2016. There is now compelling evidence that women will need to review their retirement provision at the earliest opportunity possible.
Another significant contributor to a satisfactory retirement is housing wealth. Recent research from CML further endorses the idea that it is vital to adopt a more joined-up approach to delivering advice to older borrowers. Households headed by individuals aged 55 or over form a significant part of the market, numbering approximately 11.8 million or 46% of all households, with the over-55s holding £6.4 trillion-worth of wealth and £2.5 trillion-worth of property wealth.
There is quite a lot there to look at in view of the fact that older people have to make complex, often interrelated decisions about a range of financial services products, from pensions, wealth management and mainstream mortgages, to equity release. More flexible ways to borrow and use housing equity throughout life will play an increasingly key role in how these decisions are made. With advice regimes segmented due to different regulatory conduct rules and permissions, different types of adviser and different product heritage, many observers have long been calling for a smoother experience for consumers.
The CML research shows that many consumers see a disconnect between their need and the services provided. There is a desire for clearer signposting to their options. Many indicators show that demand for borrowing in later life is growing, in particular as a form of financing retirement. However, this research reveals that consumers struggle to navigate the market and that lenders and advisers generally operate in silos which prevent consumers comparing across the whole market. So I fully endorse the Government’s belief that they are best placed to facilitate this signposting role as they develop their single financial guidance body under this Bill. A single body should be easy to understand. It should be much easier to find out where to go and easier for the Government and other people to advertise—no one really understands the difference between the existing bodies at the moment—so I welcome the Bill.
Lord Hunt of Wirral (Con)
In declaring my interests as set out in the register, I welcome the Bill. I particularly welcome the establishment of a single financial guidance body. I do not want to spend any time on Part 1 except to flag up five issues to which I will return in Committee—I understand the first day in Committee will be 19 July —first, signposting to the new body; secondly, the Cridland proposal of a mid-life MOT; thirdly, the pensions dashboard; fourthly, while I support one body, customer focus has to be clear, and that the service for debt, money and pensions will be separate for most customers; and, fifthly, funding.
I shall concentrate my remarks on Part 2. We have spoken in this House before about the need for proportionate and effective regulation, but claims management companies is one area where, I agree with the noble Lord, we could do with more regulation not less. There have been numerous calls for the transfer of CMC regulation to the Financial Conduct Authority, and in her excellent opening speech my noble friend mentioned that one of the principal options proposed in the review by Carol Brady of CMC regulation in 2016 was to this effect. In my opinion, the transfer cannot come soon enough.
I hope noble Lords will permit me the indulgence of a short history lesson. It was as long ago as 2004 that Sir David Arculus, in his report Better Routes to Redress, identified a need for claims management companies to be regulated. He was especially concerned about aggressive marketing techniques encouraging frivolous or even fictitious claims and misleading consumers about charging options.
I had the privilege when in opposition of working with the noble Baroness, Lady Ashton of Upholland, when the Compensation Bill, which introduced regulation by the Ministry of Justice, was considered in this House in 2006. The noble Baroness’s priority was to safeguard consumer interests, and that must surely remain our principal concern today. In Grand Committee on that Bill, I made the point—if one is allowed to quote oneself—in the following words:
“there should be no gaps in the regulatory cover, no loopholes in the provisions, no ‘wriggle’ room, no types of relevant activity left out, no types of relevant people missed”.—[Official Report, 20/1/06; col. GC 143.]
Then in 2010 my noble friend and colleague Lord Young of Graffham produced his report, Common Sense Common Safety. He concluded that the rise of CMCs had had a dramatic impact on the way we perceived the nature of compensation. In my noble friend’s view, regulations controlling CMCs did not go far enough. They allowed companies to advertise in a way that encouraged individuals to believe that they could easily claim compensation for the most minor of incidents and even be financially rewarded once a claim was accepted.
As Carol Brady found when she conducted her review in late 2015, what we undoubtedly still have, despite all these laudable efforts, is a problem. It is even possible that Members of this House might receive an unsolicited text message during this debate informing us that we can claim thousands of pounds in compensation, for an injury we have not suffered, in an accident we have not had. Kevin Roussell and his excellent team at the MoJ have done some sterling work over the past 10 years, but they have not had the necessary clout to stop the tiresome deluge of nuisance calls and text messages. The problem lies in the difficulty in identifying and catching the true culprits behind these companies. The one thing the FCA regime will cure is just that. The application of the senior managers’ regime will mean that the people who control these companies can themselves be brought to book. No longer will they be able to shut down one company and then open up another one overnight to escape fines for bad behaviour. The buck will stop with them.
I would like to ask my noble friend the Minister to consider three points. First, I go back to the comments I made in 2006 about closing every loophole. There is a pressing need to ensure that everyone attempting to provide services in the compensation system is regulated. It is too easy for these businesses to stick another finger into the pie, whether by offering a “free” replacement vehicle on credit or commissioning a medical report and taking a large chunk of the reporting doctor’s fee. The latest thing is to telephone people who have just returned from holiday asking whether they had a problem with their tummies. If so, they can claim damages against the hotel. These firms continue to treat claimants as a commodity, an entry ticket to maximising profit. Most of the add-on activities could be caught by a slightly extended definition in the secondary legislation of what constitutes “regulated activity”. Will my noble friend commit to examining whether the definition in any order made under new Section 419B could be extended to close these loopholes?
The second point considers the proposed power in Clause 17 to make rules restricting the charges that CMCs can levy. Such measures are long overdue. When I met Carol Brady and her review team in 2015, I made the point that you have to “follow the money”. These companies are all about profit rather than service, and it is of critical importance that controls be put in place to protect consumers. My request is that the Minister should look at extending such controls beyond the original MoJ suggestion of applying them to financial mis-selling claims alone, ensuring that charges are capped in every area where CMCs are active. Such charges are typically deducted from any compensation recovered or even levied up front. Although I am sure that the FCA will look closely at how such services are sold, the track record throughout this sector is not a healthy one.
My third point concerns Scotland. This part of the Bill and the regime it transfers currently applies only to England and Wales, yet research shows that Scottish residents receive even more nuisance calls than elsewhere in the UK. This problem is not new. In response to a Scottish Government consultation in 2009, 85% of respondents believed that it was necessary to introduce protection for Scottish consumers. The failure to include Scotland should be addressed. The remit of the FCA extends to Scotland, as does the rest of this Bill. Measures are currently before the Scottish Parliament to enable solicitors there to charge success fees—to take a proportion of their clients’ damages as part of their charges. At the same time, claims farmers in Scotland can operate without any regulation whatever. That has the horrible feeling about it of history repeating itself.
Tackling the effective regulation of CMCs may appear to be a Herculean labour. As with the Lernaean hydra, every time you chop off one head, two more grow in its place. My noble friend the Minister may not need to divert rivers, as Hercules did, and I still do not know why Augeas gave his son some 3,000 cattle, but at least he found an answer. I just hope that my noble friend will do well in cleaning out these Augean stables.
Baroness Drake (Lab)
My Lords, I draw attention to my interest as a board member of the Pensions Advisory Service. I certainly welcome the introduction of this Bill and I wish the new financial guidance body fair wind. Much of the Bill is high-level—understandable in part because the new board needs to build an organisation fit for purpose. The Secretary of State has the power to guide and direct the new body. I will reflect on considerations the Government should make in exercising that power and where clarity is needed on how the body will operate.
Research consistently identifies the low levels of financial capability, rising indebtedness, poor understanding of pensions and the growing need for independent and impartial support to help people make informed and better decisions. The problem is compounded by an asymmetry of understanding and conflicts of interests in the financial services market, which place the consumer at a disadvantage. People’s personal management of their finances is often very poor, leaving them vulnerable throughout their adult life. The Money Advice Service’s financial capability survey highlights that a lack of saving is a key risk to financial resilience. Some 17.3 million of the working-age population do not have £100 in savings. Nearly eight out of 10 with little or no savings could not spare the money to pay a bill of £300.
Recent ONS statistics reveal that the proportion of disposable income that goes into savings has fallen to a record low against a background of weak wage growth. The financial resilience of the UK public is getting ever weaker. An admirable Select Committee report confirmed the scale of the problem of financial exclusion, compounded by the poverty premium paid to access financial services and high-cost credit, which in turn fuels a household’s debt.
Addressing these challenges is a strategic driver for creating the new body, but I am less clear on the Government’s vision of what good outcomes look like. What level of demand for the new body’s services are they targeting? How scalable do they want the services to be across each of the three functions? To what extent will public policy use nudges to drive take-up of the services? Nudges could be applied when customers are more motivated to act, such as by a life event, receiving a brown envelope with a crown on it, or when they are most at risk. Will John Cridland’s proposal of a midlife financial MOT for those in their 50s be implemented and delivered by this body? It would be helpful if the Minister could comment on those matters.
There should be a requirement on the industry and relevant players to clearly signpost the services of the new body to the public. Signposting will improve public access and address the barriers put in place by some providers reluctant to see their customers access guidance for fear it increases the risk that they will not buy a product or service from them.
Efficiencies and economies of scale are necessary for a successful new body but the public need requires each of the three important functions to be fulfilled—pension guidance, debt advice and money guidance—and not traded off against each other on integration. Future-proofing the financial capability of future generations is very necessary, but the money and the mandate needed to fund effective and impartial information, guidance and debt advice in the here and now to those currently experiencing difficulties with debt, pensions or finances remain. To not address the real needs of many thousands of people here and now would add public failure to market failure.
The new body has a strategic function to co-ordinate the development of a national strategy. There is a need for a single cohesive strategy which embraces financial inclusion, financial decision-making and financial capability. Delivering that strategy cuts across government departments, devolved Administrations, local authorities, business and the voluntary sectors.
The new body cannot deliver something over which it has no control, and realistically how far can its authority reach in co-ordinating the input of others? The Government must provide the strong leadership and overall co-ordination of any public initiatives that might add to or detract from the national strategy. Policies on tax, welfare benefits, pensions, the minimum wage, education and market regulation can all be looked at through the lens of financial inclusion and capability, quality of personal decision-making and avoidance of debt.
The Treasury has the power to issue guidance and instructions to the new body. When can we expect to see from it a comprehensive strategy on tackling financial exclusion and financial capability into which the financial guidance body and its remit can be rooted?
An objective of the new body is provision of information, guidance and advice where it is lacking. What is meant by “lacking” is ripe for probing. As a public service, the new body will address market failures—where the providers will not, cannot or do not meet the individual’s need. A market failure manifests as a lack of trust, hence the need for an independent and impartial public service.
Whether something is lacking is not simply a question of whether another party is making provision; it requires an assessment of that provision—is it independent and impartial and not linked to selling a product or service? If it is not, there is a need for the new body to provide a service that is lacking.
Guidance delivered by a public service can go much further than guidance from a provider fettered by its product suite. A commercial comparison website that takes commission is very different from a factual comparison table that provides information based on customer needs. There will be instances, too, where it may be right for the new body to offer the same tool as the market. The pensions dashboard is a tool to allow savers to view all their long-term savings and small pots in one place. The Treasury intends the dashboard to be available to the public through industry providers. There is no proposal for people to have access to the dashboard independently of providers, who can use it as a sales tool. In Australia, through its tax office, and in Sweden, through a not-for-profit organisation, the public have access to one clean version of a dashboard not associated with any provider with a product suite. Our new body could provide governance for the UK dashboard, governance which even the CEO of the Pensions Regulator has stressed needs urgently to be looked at.
The public are increasingly vulnerable to scams, coerced into buying products and services that hurt them—from out-and-out fraud through to inappropriate, high-charging credit and risky investments. The new body must have an important role in helping customers and sharing insights into scams. Will the Government make it a criminal act to mimic the services of the new body, as they did with Pension Wise, so helping to protect the public?
The new body’s purpose is to meet the relevant needs of the public, putting their needs first. The FCA has an important role in improving the standards which the new body must meet in delivering on its three key functions. However, the FCA is not a consumer champion; its strategic remit is to ensure that the relevant markets function well. One can anticipate occasions when the role of the new body meeting the remit of the FCA creates a tension; for example, in the extent of the guidance that can be given by the body, when a provision is deemed lacking, or in detailed requirements on signposting.
Capping high-cost, short-term payday loans to protect vulnerable customers may not have been possible but for the introduction of a clause in the banking reform Act which specifically allowed the FCA to do that. This Bill should also make it clear that, in discharging its duty to approve standards set by the financial guidance body, the FCA will act in the best interests of consumers. Similar arguments apply to strengthening the FCA remit on financial inclusion.
Functioning markets do not serve and are not serving the poor. I look forward to Committee. I welcome the Bill. This is an important issue and I hope we have an opportunity to drill down into some of these matters.
Lord Kirkwood of Kirkhope (LD)
My Lords, it is always a pleasure to follow the noble Baroness, Lady Drake. She makes such wise and thoughtful speeches, and having her experience available to the House is a great advantage to us all. Her speech will repay careful study.
I welcome the new Minister to her Augean stables. She did very well in explaining the outline of the Bill. I think this will be quite difficult because the Long Title is quite constrained. I want to spend a moment looking at the politics, as I see it, of a subject that has an emerging salience. I welcome the Bill and concur with nearly everything said by both Opposition Front Benches—by my noble friend Lord Sharkey who has studied these things for a while and the noble Lord, Lord McKenzie, who has been around this subject for a long time. I look forward to contributing to the Committee stage, which will no doubt go on for about three months because the Government have no other business.
I am particularly pleased to spy a stranger in the shape and form of Mr Guy Opperman. Noble Lords may not have noticed that he has been here since the beginning of the debate. That is to his credit. If he has any sense he will pay attention to what goes on here. I would like to think that he will find quite a lot more content here than in the other place. He has a key, important job. It is a difficult one because he is doing pensions as well in his spare time.
The point I want to make more than any other is that over the period of this Parliament we want to be in a particular place with financial inclusion. The noble Baroness, Lady Drake, mentioned the vision necessary across all government departments. I was a member of the ad hoc Financial Exclusion Committee, and we look forward to the government response to the 22 recommendations we made. They were wide-ranging, taking us well beyond the Long Title of this Bill. At the heart of our report we said that what Mr Opperman really needs is a Cabinet committee to drive this agenda. He deserves that, having been here for more than an hour. It is the least we can do, and I support that.
We need somebody who gets up in the morning thinking about how various bits of government fit in, including the Treasury, to shape strategy. My fear is that if this Bill is all there is then Mr Opperman will have a quite difficult job using the tools in it alone to get the vision and success I hope he will enjoy. I must say that pensions Ministers used to be ten a penny before Sir Steve Webb came on stream, so Mr Opperman will have to watch his back. I wish him well and long service. I hope he does well as this is an important job. We will follow his progress with interest.
The Financial Inclusion Commission has been a fantastic eye-opener in terms of the significance and increasing salience of the subject. I have been here for 34 years. As my noble friend Lord Sharkey said in his excellent speech, the shape of debt has changed. In the old days people used to have bank overdrafts and so on. In my former constituency I would get regular briefings from Citizens Advice. It was pretty straightforward. People got immense assistance in getting themselves and their households out of difficulty from the informal Citizens Advice service that used to exist. It was done by volunteers, who all deserve MBEs, in my view, but there are quite a few of them so that would be hard to do. Citizens Advice was able to save households from the financial pressure building up and destroying families. I saw that myself. Rather obviously, I am not as close to it now as I was. My noble friend Lord Sharkey is absolutely correct that we are now seeing people unable to pay their council tax or rent. Utility debts bring even greater dangers to households in terms of how people get themselves out of trouble. We need to recognise that.
On top of that, the extent and severity of the problem are increasing. I am a natural pessimist—you have to be a pessimist to be a Liberal Democrat—and I am absolutely certain that this problem is going to get worse during this Parliament, for reasons that other people have explained. Having a few new functions and a new, single body is a very good idea—it is a step forward. The Prime Minister was very welcoming. On the steps of No. 10, she said all the right things about “just about managing” and I thought that that made perfect sense, but by itself this Bill will not do all of that. If it is a first step, that is great, but we will be looking for other political developments, and that involves resources.
When the Financial Inclusion Taskforce was set up by Brian Pomeroy some years back, a small budget—I think it was something like £20 million a year—over a short period of time completely transformed the lives of a number of people in the United Kingdom who were unbanked. You can make a case for small amounts of money—resources well targeted through a body that knows what it is doing—very easily. It does not take huge resources but it needs more than we have at the moment.
I agree that there is a concern about the ability to keep the advice holistic. Other Members of the House know more about that than I do, but there is a confusion that we have an opportunity in this Bill to try to bottom out. That is very important.
I want to underscore the point made by the noble Lord, Lord Hunt, about the relationship with Scotland. It is not just in CDCs, it is in the debt side of the Bill as well. Ministers’ responsibilities include talking regularly and frequently with their counterparts in other jurisdictions in the United Kingdom and I hope that that will be added to the list of ministerial responsibilities and will be given due time.
I look forward to the Committee stage of the Bill. The difficulty I think we are going to have is that I would like to pursue the breathing space idea that StepChange has come up with; again, I think it was my noble friend Lord Sharkey who mentioned this. It is already in place in Scotland under a statutory debt arrangement scheme and it works very well. It was, after all, in the Conservative manifesto. I do not think it will be easy for us to change the statutory shape of the Bill in that kind of direction. Some of us are quite clever about insinuating the debate even if you cannot make the amendment selectable, but we will try to behave and do what we can to raise some of these important issues.
I declare my interest as a member of the advisory board of a company called Neyber. It has impressed me enormously by setting up employer-related schemes for short-term, low-cost interest and credit deals for employees. I do not get a fee for the advisory board, but I have learned an enormous amount about what can be done with a sympathetic, usually larger scale, employer in terms of knowing its employees and helping them to stay out of the clutches of loan sharks. There are lots of ideas of that kind, including using the auto-enrolment-type pension process to try to increase low-level household savings and get in place the important cushion to which the noble Baroness, Lady Drake, referred.
There are a lot of things that I would like to try to talk about in Committee. It might be difficult because of the constraints of the Marshalled List and the Long Title, but I look forward very much to Committee. I agree with noble Lords who welcomed the Minister’s approach in making officials and the Bill team available to Members who are interested in trying to improve the Bill. With the pool of talent we have around the Chamber, I will be disappointed if we cannot do a little to help her improve the Bill as it goes through its stages in the House of Lords.
Lord Holmes of Richmond (Con)
My Lords, it is a pleasure to take this opportunity to speak at Second Reading on this short but significant Bill. I welcome my noble friend to the Front Bench for her first legislative canter. This is not a bad steed to ride through the various stages. Like the noble Lords, Lord Kirkwood and Lord McKenzie, I was lucky enough to be on the ad hoc Lords Select Committee on Financial Exclusion, which published its report earlier this year. Will the Minister give us a hint as to when to expect the government response on the 22 recommendations made in that report?
It is delightful to see a stranger, Mr Guy Opperman, at the Bar, not only because it shows great commitment to be here for our deliberations but because it means that we do not have to wait for the Government’s response on the recommendation in the report that there should be a Minister responsible for financial inclusion or exclusion, depending on which way you choose to phrase it.
I thank all the organisations that sent such helpful, thoughtful briefings, not least Macmillan Cancer Support and Age UK. I also put on record at this point my thanks for everything that the FCA has done so far, not just in this area but across the piece. I think noble Lords will agree that we are incredibly fortunate in the UK to have a world-leading regulator in the FCA. That is not to ignore the comments already made that the role of the FCA may need to adapt and change, and I will make some suggestions later in this speech about how it will interact with the SFGB and work effectively with it.
We all know the old, and not particularly good, joke: “Is life worth living? It depends on the liver”. It is an awful joke, as is that, but I raise it at this point because, in terms of so much of the first part of the Bill, when one reaches a certain stage in life the joke is probably best reprised as: “Is life worth living? It depends on the nature and quality of, and access to, information, advice and guidance”. As has already been said, it is important to look at information, advice and guidance and to have clear definitions of each of them and delineations between all three. The Bill speaks on this to an extent, but is largely quiet about quality. There is a question around impartiality on all three of those points. There is no sense that anything the SFGB could offer on these points would in any sense overlap with anything coming from private providers because of the question of partiality.
On the costs of SFGB services, I strongly urge the Government, through the Minister, to consider how cost is considered, to look at all innovative and technological solutions for information, advice and guidance and to be clear for those who are currently digitally excluded and offline. The correlation between those who are digitally excluded and those who are financially excluded is stark and clear. As we move through the stages of the Bill, consideration should be given to priorities around the approach of the SFGB. How it chooses to deploy its functions and objectives will have a massive impact on the role it is able to play in this space.
I want to talk about funding. Jessie J is not entirely correct that it is not about the money. Often, it is absolutely about the money. The Bill says very little about the funding of this organisation. That will be critical for the impact it is able to have.
Similarly, on the independence of the SFGB, it is clear that the organisations which are rolling into this have played an important role but have had different experiences of the level of independence they have been able to exercise. One can understand the need for government to have an involvement. Although well-intended, whether it is measures or metrics, I hope it is never meddling. This should never be seen in the short term because, if we are talking about raising the nation’s financial capability, that is by no means an easy task and it is clearly not a short task.
There is a public policy role for the single body which is broader than financial capacity: research, evidence gathering and market intelligence gathering and sharing. We need to be thoughtful about how the single body goes about that and about whether anything needs to be said in the Bill to that effect.
I am nervous about stepping on to the ground of pensions, not least because the noble Baroness, Lady Drake, has spoken, and we are yet to hear from the pensions tsarina my noble friend Lady Altmann, but where the angels stop, I continue. There is a fair amount to be said in this space. TPAS, with which the noble Baroness, Lady Drake, is involved, has done an extraordinary job in this area, not least with its online and telephone service, helping more than 1.5 million people. I am delighted that the Bill wants this to continue, but during the legislative process I do not want to see any disembowelling or weakening of the role that TPAS has played.
Let me say a word on scams. Before our recent leather-wearing, optimism-sapping break, we seemed to have a reasonable amount of support about cold calling, putting some limits on people exiting their pension plans under the new rules and tightening up on the ability of individuals and organisations to set up fraudulent schemes. The Bill is silent on all three. It would be helpful if the Government would consider whether we might want to put them in in Committee and on Report because they are growing problems. They are not limited to pensions, but they are incredibly significant to pensions when one considers the costs and the implications of things going wrong for people at that age and stage of their lives.
Moving to what is not in the Bill, regarding how we measure the strength and success of any financial institution, I do not believe it should be measured merely by profit, the bottom line or even by employment, important though all those three are. In many ways, the greatest measure for any financial institution should be how it relates to the most vulnerable in society and in its consumer group—be they younger people, older people, disabled people or non-disabled—particularly those who are suffering significant health issues.
Again I refer to the excellent briefing from Macmillan Cancer Support on this. There are many such issues which people face in life and which put them into a vulnerable situation. Why do I choose to alight on cancer for this debate? Because of one shocking stat: by 2020, one in two of us will have experienced or will experience in our lifetime a cancer episode—50%. The great news is that survival rates—living with and then through cancer—are massively on the increase as well. That is why it is great to see innovations from charities and organisations such as Macmillan that do not just focus on the excellent care—important, vital and angelic though that is—but look to all the elements which enable a successful continuation of meaningful life with and through cancer.
What does this mean in terms of the Bill and how people relate to financial institutions? Only one in 10 people said they were prepared to tell their bank or building society that they had a cancer diagnosis. Of that one in 10, almost a quarter said they were dissatisfied with the reaction or response that they received from that financial institution. It is perhaps always beneficial to see this in an example. We will call him John: mid-40s, financially sound, a mortgage with 40% equity and a diagnosis of cancer. He goes to his bank, which says there is nothing it can do until he misses his first mortgage payment. There is no sense of engagement or involvement and no putting together a plan, even in those circumstances.
For John and the millions of people who may find themselves in a vulnerable position at some stage in their lives—let us be honest, we all will—I propose to bring forward in Committee an amendment that would impose a responsibility on financial institutions to have a reasonable duty of care for their vulnerable customers. When I consulted on this, it was extraordinary to hear from so many people that they thought such a responsibility surely must already be in place. I would be grateful to hear the Minister respond that the Government will receive such an amendment positively in Committee.
There is a great deal in this short but significant Bill. I have some final questions for my noble friend. What assessment has she made of the role of financial institutions towards vulnerable customers? Does she believe more needs to be done? To improve slightly on my noble friend Lord Hunt, I will quote myself from the speech I am still making: will she look favourably and positively on an amendment being brought forward in Committee to introduce a clause that would bring in a responsibility on financial institutions to exercise a reasonable duty of care—for their benefit and for the benefit of all consumers who may find themselves in those difficult life situations?
The Earl of Kinnoull (CB)
My Lords, it is a pleasure to follow the noble Lord, Lord Holmes, with his typically well-thought-through analysis in this important pair of policy areas. I join all noble Lords who have spoken so far, I think, in welcoming the noble Baroness to her new role and I wish her well in it. It is a very important Bill to start off on, and I hope it will go well. I declare my interests, too, as set out in the register, in particular those relating to my 25 years in the non-life insurance industry, which included large helpings of interactions with regulators in this country and many others.
As others do, I very much welcome the Bill. I had not intended initially to say anything about Part 1, but I was for a period a director of a UK group that included a subsidiary that offered pensions advisory services. Although that subsidiary represented less than 5% of group turnover and no profit, it took up a considerable amount of board time because of the fearful legal and regulatory complications in this area. These complications of course affect clients, the guidance providers we are discussing today, advice providers—which we were—and regulators alike. This Bill will go some way towards reducing complication, which must be good. My half point is really that, as we reach Committee, we must look through the lens that says that the provisions of the Bill must directionally produce greater simplicity, and indeed the many amendments that I am sure will come through should also be looked at through that same lens. This House has an amazing way of having ingenious thoughts put to it, but sometimes those will not add to the simplicity of the situation. We will win here by making things simple for all the people, including, as I said, guidance providers, advice providers and regulators, let alone the clients.
I wanted to speak about Part 2 and have three points to raise this afternoon. My first relates generally to access to justice, which has been mentioned before, where there is a delicate balance to be struck. On the one hand, it is of central importance that those not in a position to get legal or other assistance towards making valid claims can do so via no-win no-fee arrangements with professional firms at a reasonable cost. On the other hand, we have seen an unpleasant load of carpetbaggers arrive and abuse matters. Abuses range far and wide. There is the downright criminal, for example, as we have all read, masterminding or inciting fraud in whiplash cases, which has done so much damage to my beloved insurance industry. There is the disgraceful overcharging, seen in some PPI claims, where a very large percentage of the recovery goes to the CMC and the ordinary citizen who retained them has seemingly little redress.
The noble Lord, Lord Hunt, referred to the targeting of new loophole issues such as the “gastric sickness while on holiday” claim, where, just as the activity for CMCs on lucrative PPI business and on whiplash is dropping off, a huge spike in claims is hurtling towards the insurance industry and the tour operators. This area is developing rapidly. I personally do not believe, and I am sure no one else in this House does, that hygiene arrangements in the kitchens of holiday destinations have fallen off a cliff. Having listened to advertisements on commercial radio, I feel that the naughtiness of a few, being egged on by CMCs, will add to the cost of the holidays of the many in a wholly unnecessary way if not controlled.
Thus I found the very excellent 70 pages of Carol Brady’s independent review to be filled with not-so-common common sense, and I welcome the Government’s resolve to implement, in general, its recommendations. I note that the executive summary of her report says:
“The overwhelming majority of stakeholders, including the banking and insurance industries which have been hardest hit by CMC misconduct, argued that there is a legitimate need for CMCs, and therefore the Government should not seek to regulate them out of existence”.
The Bill seems firmly aimed at reaching that delicate balance that I referred to a moment ago, and I hope that the House will help on that process.
My second point comes off the back of that little sentence and relates to the FCA. I have spent a lot of my life being regulated by and interacting with the FCA and its predecessor organisations and, as I said, with analogous regulators in many jurisdictions in the western world. Regulators in financial services generally in some way charge the cost of regulation back to those that they regulate. Thus, one way of assessing how heavy the regulation is comes from comparing those relative costs. The British Insurance Brokers’ Association reports that the UK is 14 times more costly than Germany, where general insurance broking regulation is concerned, so I assume the regulatory burden is 14 times heavier. The UK regulator concerned there is the FCA. I could go on citing how the FCA has a record, I regret, of gold-plating, and how in other areas it represents a truly heavy burden on the businesses that it regulates. I have spoken about this previously on a number of occasions.
Accordingly, I am concerned that the good firms providing access to justice might be handicapped or worse, yet the bad firms may be able to cope with the regulatory burden. In short, the FCA has a vital role to play in the delicate balance that I have referred to. I should add that in other areas I feel the FCA has relied a bit too heavily on paper-based and process analysis and not at all on industry gossip. I urge it to rely on industry gossip because that will let it know where it should direct its energies, particularly in the area of CMCs. In any event, I would be most grateful for the Minister’s assurances on these concerns.
I turn to my third and final point. I join the noble Lords, Lord Hunt and Lord Kirkwood, in mentioning Scotland, though in respect of a slightly different set of issues. As has been observed, Scotland has a separate legal system and major differences concerning the way in which no-win no-fee operates, but I cannot see that there should be any difference in the regulation of CMCs. How wrong it would be if a substandard CMC could camp in, say, Dumfries and aim at English consumers, free from regulatory control. Indeed, I submit that any form of cross-border arbitrage would be wholly against the admirable intentions of the Bill.
My concerns are widely held. I know that they are held by at least two noble Lords, while DWF, the respected Manchester-based international law practice that has offices in Scotland, commented in February that,
“in recent years increased levels of fraud have been detected in Scotland, along with a significant rise in injury claims. In part this is thought to be due to the effect of LASPO”—
the Legal Aid, Sentencing and Punishment of Offenders Act 2012—
“in England pushing claims management companies into Scotland, where their activities are not regulated and referral fees are allowed”.
That is a warning bell that I think we in this Chamber ought to listen to hard.
The FCA is, rightly, a UK-wide regulator in, for instance, the non-life insurance industry. While I might moan a bit, I think the FCA is upright and highly professional, and I strongly feel that it should have a UK-wide role here. I therefore ask the Minister to comment on the position regarding the territorial scope of the Bill. It seems that the interests of the UK and of those citizens who most need the services of properly functioning claims management companies would best be served by having a single market and a single regulator. Is she in touch with Scottish Ministers to discuss that? In closing, I once again welcome the Bill.
Baroness Altmann (Con)
My Lords, it is an honour to follow so many excellent speeches from so many noble Lords. This House contributes huge expertise to our legislation. I also welcome my noble friend to her new ministerial role and congratulate her on her excellent speech.
I warmly welcome the aims of the Bill. I am wholly supportive of a unified approach to public financial education and free, impartial and unbiased guidance to help people to make better financial decisions. The level of financial education in Britain is very low and the level of consumer debt worryingly high. The latest figures show that consumer borrowing is rising strongly, and the aim of the Bill—to help the public to understand how to manage their finances—is absolutely right.
However, I am concerned that the wording of the Bill will unhelpfully prolong a major misconception in personal finance that has permeated the industry for years but could at last be addressed. I am talking about the use of the word “advice”. For far too long there has been a public perception that this thing called “financial advice” is free. In the past, of course, it often was apparently free because so-called advisers were being remunerated by a financial company for selling its products. They were not really advisers; they were salesmen. This commission-driven culture caused many scandals, and it incentivised behaviour that was not in the customers’ best interests. Rightly, the regulator has tried to clamp down on such practices. It now insists on a stark differentiation between what can be called “advice” in personal financial services and what is merely guidance, information or sales. This is not a minor technical point; it is a fundamental issue. Indeed, we need a proper definition of what constitutes guidance, which I do not believe we yet have.
The new single financial guidance body will look at pension guidance, money guidance, a national strategy to improve financial education, and debt advice. In fact this debt advice does not even have to be regulated but in some cases can be delivered by unregulated bodies. That is worrying. The word “advice” is a hangover from past thinking. It is the last vestige of an old system that needs updating. You cannot give what is called “advice” in a personal financial sense without being regulated. Nowadays, with auto-enrolment into workplace pensions and with pension freedoms available to people over 55, focusing only on the debt part will make any so-called debt advice incomplete and thus not holistic. However, if the debt help or counselling takes account of pension matters—as it should, especially given auto-enrolment—then the new service from the single financial guidance body could fall under regulated financial advice rules and would stray beyond pension guidance. This opens up the Government or those delivering the service of the new body to risk, and perpetuates confusion. At last there is an opportunity to address some of the confusion in the context of financial help for individual citizens. Guidance, help, information, education and counselling can be available for free, but advice is not.
There has been much misuse of the word “advice” for so long, even at the top of government. When Chancellor George Osborne announced the pension freedoms, he said the Government would also ensure that members of the public would have access to free impartial advice. What he meant, and what was introduced, was free guidance, not advice. Indeed, the helpful briefing from the House of Lords for today’s debate talks about merging three existing advice channels into a single body, yet those three bodies do not give advice even though their names misleadingly suggest that they do. The Money Advice Service and the Pensions Advisory Service do not actually give financial advice.
The October 2015 consultation on public financial guidance and the March 2016 public financial guidance review led to the decision to replace the Money Advice Service with a new streamlined body for money guidance, and then a second new body to merge the Pensions Advisory Service and Pension Wise. It seems to me that pensions cannot be divorced from other finances, whether that means savings accounts, auto-enrolment, debt or whatever. The thinking behind having two bodies was wrong, and I believe having one body is right. The old idea was based on products, not people. People have a broader need than one product, and I hope the new guidance body will give us an opportunity to think about it from the point of view of the people who need help, rather than the products that tend to be focused on by the industry.
Unfortunately, the Bill prolongs the problem. If the debt piece is called advice, then it has to take account of the pension piece, and once it is doing that, the pension element will have to be advice too, not just guidance. I ask my noble friend the Minister to consider amending the word used by the single financial guidance body and the FCA so that it is debt guidance, not debt advice. We could use other words, such as debt resolution, counselling or help, but guidance seems to make sense.
On another topic, I am seriously concerned that the Bill must not pose a threat to the marvellous work done by the Pensions Advisory Service, which has rightly been commended by many noble Lords. This is one of the jewels in the public financial guidance system. Staffed significantly by volunteers, TPAS helps the public to understand pension issues and can intervene to assist if there are difficulties with pension schemes. It even has a dedicated helpline for women, who so often lose out in pensions and need special help. It is funded from the general levy on pension schemes, and the costs are low but the value it delivers is high. The Pension Wise service is also funded by the pensions guidance levy, but I note that it has just been announced that the levy for pension guidance has been cut. Satisfaction ratings for those services are really high. Please can my noble friend offer some reassurance that the operations of TPAS and Pension Wise will not be downgraded but will be preserved and protected after the restructuring?
Turning briefly to claims management companies, as has already been pointed out, the Conservative manifesto promised to consider banning claims management companies from cold-calling members of the public. This is absolutely right, and the Bill should clamp down on CMCs which operate unscrupulously and their unsolicited calls or texts—which so many noble Lords, such as me, regularly receive. As the APIL says, lawyers are not allowed to cold call, so why should CMCs? Tougher regulation and capping fees can help, but banning nuisance cold calls that encourage people to make false claims is absolutely right.
Let us not stop there. To echo the calls from, among others, the noble Lords, Lord McKenzie and Lord Sharkey, I ask my noble friend to consider bringing back the abandoned legislation to ban cold-calling on pensions, too. If others do not, I hope to table a probing amendment in Committee on the issue, as it is one that I feel so strongly about and had hoped would be resolved. It is important that we can give the public the message that if someone cold calls them about their pension, they are breaking the law, so just hang up. I am also interested in the idea put forward by consumer group Which?. It suggests requiring companies to pay the claims management firms, rather than consumers having to pay from any compensation. If the companies have to pay, it may deter some of the cowboys, because they will be better able to recognise poor practice.
Finally, I raise two further items. The Bill proposes not carrying over powers for the financial guidance body to help the public with secondary annuities. I know that this has been abandoned for now, but I still hope that somehow a change of heart may arise and that people may indeed be able to sell their unwanted annuities. Transferring this power to the single financial guidance body would at least ensure that there would not be any new unnecessary barriers in the way to that.
The problem of net pay schemes rumbles on. Many of the lowest earners, particularly women, are losing out on money that they should have, and the size of the problem is growing, but employees are powerless to get this money back. I suggest that the single financial guidance body should have a remit to help employers and members to understand the need to ensure that the pension scheme used for low earners in auto-enrolment does not force them to pay more for their pensions than they should. I ask my noble friend to go back to the department and consider this matter again carefully.
Having said all that, I stress that I welcome the Bill and its overall aims and look forward to seeing it pass through Committee and its other stages—slightly amended, I hope—and on to the statute book.
Lord Haskel (Lab)
My Lords, my interest in the Bill stems from my membership of the Select Committee on Financial Exclusion, which reported in March this year. Our report dealt with financial exclusion; the Bill deals with financial inclusion, but, even so, it puts into effect some of the 22 recommendations to which the Minister referred. This is not really surprising, because it was an all-party committee and the report was unanimous. I join other noble Lords in welcoming the Bill. Indeed, one of our recommendations, as my noble friend Lord McKenzie and others have pointed out, was that a clearly designated Minister should be appointed to co-ordinate the work in this area, and the Bill makes that happen. Indeed, we were fortunate for a few minutes to have both Ministers here in the House.
We asked in our report for co-ordination, so I welcome Clause 1, which merges the three main advice services into a single financial guidance body. This makes sense, because when we were taking evidence, it became clear that people’s financial lives are very complicated. As the noble Baroness, Lady Greengross, explained, it is often difficult to separate getting into debt, pensions, savings and money guidance. However, we also found that a huge number of charities and other organisations are keen to offer assistance. My noble friend Lord McKenzie mentioned some, but there are many. Banks, trade unions, housing associations and advice centres of all different kinds play a valuable role. Yes, many are small and local, but they are long-established and trusted. I am not sure that the work of the SFGB as laid out in Clauses 2 to 4 deals with the relationship with all those other organisations.
The outcome must be that, yes, there will be one government organisation, but all these other organisations must be allowed to flower and bloom in their own way, because we found that they played a very important role. This needs to be clarified in the Bill so that they will not be disadvantaged. Yes, Clause 6 sets up standards for the provision of advice and information by the SFGB and its partners in delivery, but many other organisations will be doing this work locally and informally, and it will be very difficult to supervise them all.
Many noble Lords have this evening agreed with our report when we asked for the Financial Conduct Authority to be more consumer focused when regulating financial organisations. Both the Bill and our report seek to improve financial education and capacity-building to deal with debt. This appears in Clause 2 for debt and Clause 3 for pensions. The Financial Services and Markets Act 2000 provided for this, and there have been many initiatives since, but progress has been very slow. We found that financial education needs to be added as early as the primary school stage, and our evidence showed that additional measures are necessary, particularly at secondary school stage. Many young people need to be better informed when taking decisions about getting into debt as they prepare for training or further education. In many cases, so do their parents. But as other noble Lords have said, this must be managed better and needs to be more strongly emphasised in the Bill. I realise that this is a matter for the Department for Education, but I hope that the Minister will lean on her fellow Ministers to get some action. The Department for Education got it together on relationships and sex education, and it is important that it gets it together on this as well. I hope that there will be the cross-government action that my noble friend Lady Drake spoke about.
It is very easy to get into debt, particularly if you work in the gig economy or on a zero-hours contract or depend on the state for tax refunds, with numerous organisations offering loans to tide you over. Yes, much work has been done to regulate them. However, as the noble Lord, Lord Holmes, said, we found that much of this lending happens online. New developments in artificial intelligence and machine learning mean that quite often you are not actually dealing with a human. Indeed, one bank now offers a low-cost investment advice service to small savers based entirely on artificial intelligence. That raises many questions, not only the usual ones about ownership of the information and data but questions about confidentiality—how it is stored, processed, manipulated and traded. Who is liable in these digital transactions? That further emphasises the point made by the noble Baroness, Lady Altmann, about the need to differentiate between advice, information and guidance, especially when artificial intelligence is involved. Clause 12 deals with the disclosure of information, but not in that respect.
In other areas of legislation, we in this House have had to make sure that Bills properly deal with the disruption and change caused by digital and intangible forces. We make that point in our report. I have tried to assess whether this Bill and the proposed regulations deal with them, or whether, as with other Bills, in a few months’ time we will be busy playing catch-up. I do not think that it actually does, so I hope that the Minister can agree that we can work jointly on an amendment to deal with this issue.
The noble Lord, Lord Sharkey, pointed out that there are many ways of getting into debt outside the financial sector, such as rent to own or buying a car on a weekly purchase. I join him in asking whether the Bill takes care of those businesses. It is not quite clear. Indeed, many self-employed and micro-businesses are financed in this way too, so I agree with the Financial Services Consumer Panel that the work of the SFGB should include the self-employed and micro-businesses, particularly at a time when the line between company employment and self-employment is becoming very blurred. In our report, we were particularly concerned about the lack of a duty of care towards customers. Like other noble Lords, I would like to see this much more clearly stated in Clause 2.
I certainly support Part 2 of the Bill, dealing with claims management companies. It is long overdue that we put a stop to the widespread malpractice and sometimes fraudulent claims made by these companies, and the huge commissions charged. Yes, they are sometimes made with the connivance of members of the public, but more often than not people are conned into it by the unsolicited phone calls that all of us have received and which other noble Lords have described.
Many claims management companies operate from outside the UK. Will the proposed regulation in Clause 16(9) really be able to control them, irrespective of where their offices are located, bearing in mind that many of the calls and emails inviting claims are digitally generated and are a form of phishing? It is difficult to find out who these people are, never mind where they are. The noble Lord, Lord Hunt, painted a vivid picture, but I am not as confident as he is that they can be regulated. The FCA will be regulating claims management companies in the financial sector, but what about claims made outside the financial sector?
The Minister referred to our report many times and assured us that all our recommendations have been carefully considered. I join the noble Lord, Lord Holmes, in asking when we can expect a full response to make sure that all the recommendations have been considered.
Baroness Coussins (CB)
My Lords, I am grateful for the opportunity to speak on this important Bill and begin by declaring my interest as president of the Money Advice Trust, a charity which is one of the UK’s major providers of free debt advice—and I believe that it is advice, in the very best sense of the word, and is absolutely people-focused. As other noble Lords may be aware, the trust runs the National Debtline and Business Debtline, which provide vital free advice and support to individuals and small business owners struggling with unmanageable debt. Last year, the trust helped almost 200,000 people by phone and webchat, and had more than 1.3 million visits to its websites. Some of that work is funded by the Money Advice Service, including through an important partnership with Citizens Advice.
I strongly support the creation of a single financial guidance body, bringing together provision of debt advice, money guidance and pensions guidance, and welcome the inclusion in the Bill of a standards-setting function in all three areas. The role of the Department for Work and Pensions as the lead department for the SFGB is also welcome, especially given the creation last month of a dedicated ministerial brief for financial inclusion in that department. But I would like briefly to raise three issues relating to Part 1 of the Bill, and I hope the Minister will be able to offer assurances on these when she comes to reply.
The first issue is the need to ensure sufficient supply of free debt advice, at a time when a large number of households are not receiving the free advice they need, and when debt charities are seeing an increasing demand for their services. The combination of rising inflation, slow wage growth and a significant surge in household borrowing means that demand is likely to continue to increase, so there is clearly a need for increased funding for debt advice. Funding currently comes from a levy on financial services. I encourage the Government to explore widening that funding base, particularly as debt advice services are increasingly dealing with debts and arrears relating to utility bills, and also from the public sector itself. I would welcome a commitment from the Minister that the Government intend to address the gap between supply and demand for debt advice as a key priority.
The second issue relates to the ring-fencing of levy funding for debt advice in the new arrangements. As I understand it, there has been the suggestion that the SFGB will enjoy greater flexibility in the use of levy funding than is currently the case with the Money Advice Service. I hope that the Minister can understand that there is considerable concern about this in the advice sector, given the increasing demand that I have outlined. I would be grateful if she could offer an assurance that there will be an appropriate ring-fence around debt advice funding in the new arrangements, including in the case of the devolved Administrations.
The third issue is the nature of the debt advice that the SFGB will provide through its delivery partners. The continuation of the current commissioning approach for debt advice is welcome but, in my view, it is important that it is restricted to free-to-client, not-for-profit advice agencies only. The noble Lord, Lord Sharkey, touched on that issue. I believe strongly that no one in financial difficulty should have to pay for debt advice, and no financial gain should be made from people seeking government-backed help, whether that gain is direct or indirect. The commissioning of commercial providers by the new body, even where the activity being commissioned may be free to the client, risks undermining this principle. Clause 5 provides a mechanism through which this restriction could be implemented, through the Secretary of State’s power to issue guidance and directions to the SFGB on the exercise of its functions. I would welcome the Minister’s view on whether the Secretary of State would consider this approach.
On these three issues, there is much that the Government can do to offer reassurances that the SFGB will take the right approach for people in debt. I hope that the Minister will take this opportunity to do so this evening.
Baroness Kramer (LD)
My Lords, I first thank the attendants for lowering the air conditioning. It seemed as if, in this corner of the House, we had been sent to Siberia—it is now far more congenial. I join others in welcoming the Minister to her new role and thank her for the meeting she has already invited both me and my colleagues to attend, and for meetings that will follow in the future. She will gather from the overall mood of this House and from listening to the speeches that the Bill is regarded as worthy, significant and not contentious, and that across this House there is an intention to strengthen and improve it. We on these Benches join exactly in that approach.
A number of speeches have addressed issues that appear to be both relevant to the topic and essential background substance to the Bill, but which may be difficult to include in its current Long Title. In particular, the issues of pensions and financial exclusion were raised by my noble friend Lord Kirkwood, the noble Lords, Lord Haskel and Lord Holmes, the noble Baroness, Lady Altmann, and others. I say to the Minister, I once took a Bill through this house that was informally known as the “dump it in here” Bill, which had new clauses added at almost every stage of its progress. Would the Government consider amending the Long Title in such a way that other issues that seem so relevant could be included in a slightly more generous fashion, particularly given the amount of time available for the Bill to be discussed and pursued? I recognise that this would be a government decision.
The noble Lord, Lord McKenzie, described this so accurately as a Bill in two parts. Part one creates the single financial guidance body, and I pick up on a couple of related issues. The noble Baroness, Lady Altmann, focused on the potential it creates for joined-up thinking and for a people-focused approach to guidance and advice that stretches across the continuum, whether it be on debt, savings or pensions investment, all of which are now captured under this overall body. It is crucial that we have mechanisms in the Bill that allow the relevant body to take advantage of that possibility of much more holistic thinking.
The noble Lord, Lord Hunt, and others, including the noble Earl, Lord Kinnoull, identified that important activities carried out by the existing bodies must not be lost. The phrase that the noble Lord, Lord Hunt, used was, “customer-focused”. We should reinforce that, because it might be easy, for example, for debt advice to be downgraded as the focus shifts towards aspects of pensions, or vice versa. To lose the strength of those existing bodies would be a waste, frankly, and I hope the Government are aware of that issue.
A number of speakers talked about the incredible indebtedness—indeed, over indebtedness—of a large part of the UK population. My noble friend Lord Sharkey and the noble Baroness, Lady Drake, talked particularly about this issue. The phrase that I think the noble Baroness used was “lack of financial resilience”: one in six people in the UK is over indebted and slow to seek advice, and many are vulnerable. The noble Baroness, Lady Coussins, just made the point that wage stagnation, sharply rising inflation, a collapse in savings and a very sharp increase in consumer credit are all adding to the pressures that require individuals to turn to debt management. I pick up on another point raised by the noble Baroness, Lady Coussins: it is really important that support and advice in this arena is free to consumers. Like others, I sometimes look rather askance at the idea that anyone would choose a paid option when a high-quality free option is available. I hope that this overall body will stress and advertise the quality embedded in that free advice. There is often a public perception that free equals second best, and I do not think anyone would argue that that was true in this case.
On the Money Advice Service, there are some questions that need to be answered. The noble Lord, Lord Holmes, talked about access for all, and the noble Baroness, Lady Coussins, and various others talked about the need for resource. Currently, the Money Advice Service commissions advice on a needs basis, adjusting the capacity for each region based on its pattern of overindebtedness. With devolution, it is hard to understand how this will operate—will it be according to the Barnett formula or on a needs basis? The two, very significantly, do not overlap. If it is on the Barnett formula, what would happen to areas that would presumably see a cut in the level of advice they receive, even though they have very high levels of local indebtedness? The Money Advice Service is currently funded by the financial services industry, and this raises the question of ring-fencing, including making sure that, in any new system, it cannot be dissipated. As we have seen, many councils have cut their contributions to debt advice and management because they are under broader pressures. If this is now to be on a non-ring-fenced basis, it creates concerns and would also raise questions within the industry providing that financing. I hope that the Government will address these issues.
At the moment, the Money Advice Service is largely funded through grants. Will there be government pressure to shift to contracts? Given the complexity of cases, these would seem to be the kind of clients for which contracts are not appropriate and grant funding is far more typically successful. My noble friend Lord Sharkey—he was not alone but, I am sorry, I forget which other noble Lords raised the issue—called for a moratorium period, as in Scotland, for those who face a debt crisis and are seeking advice.
On the pensions issue, I think that we are all aware that Pensions Wise, at present, provides advice only to those over 50 and for defined contribution pensions. The Pensions Advisory Service, as I discovered myself through personal experience, limits its response to rather straightforward questions. Given the complexity of our population, I fear an awful lot of people fall between the various cracks in the structure of the service. Will this be an opportunity, as my noble friend Lord Sharkey recommended, for a much more comprehensive approach to providing guidance in this crucial area? We know that it is crucial—I am a great supporter of the triple lock, because it removed the disincentives to save for old age as well as, frankly, rescuing pensioners from pensioner poverty—but we have had such a proliferation of products. The noble Baroness, Lady Greengross, and others talked about the complexity of products that comes with pension freedoms. There are growing numbers of people with defined contribution pensions, which absolutely require investment decisions. We have a very complex pensions picture to cope with. It is noticeable, as various Member of the House have said, that although guidance is available, its take-up is relatively low, despite the complexity. This single body will hopefully become a mechanism to encourage far broader use, but we need some assurance that it sees this as a crucial challenge that it will address.
The noble Baroness, Lady Drake, referred to standards. The new body must set standards but the FCA has to approve them. She pointed out that the FCA’s remit and that of the body are not identical. I hope the Minister will address how the tensions and issues will be resolved. Various Members of your Lordships’ House talked about financial capability. There have been calls for that to be a standalone function within this single body because it is so important. There was discussion on the Floor of the House about the role of financial education in schools—I personally believe that it should be statutory—but how will this body tie in with post-school education? The point at which people need financial education tends to be when they start to save, invest in an ISA, join a pension scheme or engage with a mortgage. It is very hard to anticipate when that will happen for those aged 18 and under. Therefore, we have to recognise the need for ongoing education on financial capability.
The last section of the Bill addresses claims. I think the Minister will have picked up the message from across the House that claims management firms are not well favoured by Members of your Lordships’ House, and that many have been victims of constant cold calling, whether on PPI or a whole range of other issues. The noble Lord, Lord Hunt of Wirral, took the approach that we should close every loophole. I suspect that very much reflects the mood in this House. I join others in supporting the transfer of supervisory authority over claims management companies to the FCA, and support the powers that it will be given to cap fees. However, the cold calling issue surely deserves a focus of its own. To echo the noble Baroness, Lady Altmann, this applies just as much to pensions as it does to debt management, as my noble friend Lord Sharkey said, and to the range of other issues that claims companies exploit. I pick up the point made by the noble Earl, Lord Kinnoull, that some companies provide legitimate access to justice and come into a separate category. However, there is a very large group of essentially rogue companies that simply move from issue to issue where they reckon the public are most vulnerable, and seek to exploit any loophole in the law that they can. I hope that we are giving sufficient powers to the FCA to target all these groups, because if one area is closed off to them they will simply move their activities into another. I am not clear what happens to overseas-based companies that fall into this category. It would be good to hear the Government comment on that.
We on these Benches are very supportive of the Bill, which offers some important opportunities. However, we hope that the Government will consider whether there is an opportunity to use it to accomplish further aims that are not controversial and are generally agreed across this House, and which would allow us to respond more expansively to the issues around pensions, cold calling and financial inclusion.
Lord Stevenson of Balmacara (Lab)
My Lords, I add my welcome to the noble Baroness in her first substantive outing as a Minister. Of course, we have had many exchanges across the Dispatch Boxes on other Bills, where she occupied a more junior position, but now she is free to fly her own route on this. I hope that she is successful.
Others have mentioned the first Minister for financial inclusion, who was able to join us. I am afraid that he failed the Jo Johnson test as he has left before the end of the debate. Nevertheless, it was pleasant that he was able to hear much of it and I hope that he will come back for further instalments as we go forward.
This has been a very good debate. We have all been on roughly the same territory—I am afraid that I will not move away from it—in that we like what is in the Bill and we think that it is doing a good thing at a good time. However, it does not quite go far enough. I think that we all have issues tucked up our sleeves which we have raised on other occasions and failed to get across, but which we now see an opportunity to raise again. I have no speeches to quote from and no perorations to share with noble Lords, nor do I anticipate the speech which I believe the noble Lord, Lord Holmes of Richmond, will make tomorrow on a not dissimilar subject—financial inclusion in hyperspace. I think we all get the message that there is a little bit more to do on this. Indeed, we have already met the Minister privately and warned her that other issues could be added to the measure.
Let me declare my interests. I was a chair of StepChange, the debt charity mentioned by several noble Lords, and I am a current member of the Financial Inclusion Commission, along with the noble Lord, Lord Kirkwood of Kirkhope. I find that a very useful sounding board for many of the ideas and issues that have been raised today. It is a non- partisan, independent body of experts and includes parliamentarians from all parties. Indeed, until the last election, we had an SNP Member as well. The sharing of issues and ideas has been very helpful in formulating a policy in this interesting area of financial inclusion.
It is rather an interesting time to discuss what is, in truth, a non-political Bill. It is starting in the Lords, which changes the terms of trade in how it is to progress. We also have the benefit of an excellent Lords committee report on this issue—many of its recommendations have already been mentioned. They are obviously relevant and may need to be considered as we move forward. Given that the elected Government do not have a majority in the other place, many of our conventions do not apply. I do not necessarily mean to make much of that as a political point; I simply think that it is interesting as it opens up a range of options for making progress on this issue, as many noble Lords have said. By working together, we could make a huge difference. I hope that will be the spirit with which we enter the Committee and Report stages of the Bill.
These issues are in the public interest. For a variety of reasons they have not been given the full-scale consideration they need. However, I say to the noble Baroness, Lady Altmann, and to the noble Lords, Lord Sharkey, Lord Hunt of Wirral and Lord Holmes of Richmond, that we are available. If they want to come and talk to us, we would be happy to sign up to their amendments.
Why is financial inclusion so important? If you think hard about how this country is going to progress, whether or not the current state of concern about Brexit will be realised in practice, the availability and uptake of central financial services at affordable cost to every section of society is important in itself. It is very important that everyone in society has sufficient skills and motivation to use these services and to benefit from them. Financial capability—the awareness of the necessary skills—is key and must not be neglected.
As we have heard, the numbers are extraordinary. Nearly 2 million adults in the UK do not have access to a basic bank account. Financially excluded people pay a “poverty premium”, which I think is about £1,300 a year at present. Nearly 9 million people are overindebted and 13 million people do not have enough savings to support them for a month if they were to experience, for instance, a 10% or more cut in their income. The situation is not good. We have heard other figures in the debate illustrating the way in which credit growth is fuelling the expenditure we are seeing. Some serious consideration needs to be given to this. The Bill, which will help make progress in this area, is something we can all support, but I hope that it will be improved.
I will make some detailed points about debt and follow up a number of the points made by the noble Baroness, Lady Coussins, because I think that we come from the same place on many areas of this issue. I also acknowledge the expertise on pensions displayed by my noble friend Lady Drake; I endorse everything that she said. My noble friend Lord McKenzie covered many of the more general points in his introductory remarks.
On the question of whether the Government get this, as I have said already, it is important that there is now a Minister for financial inclusion based in the DWP, which is an interesting choice. However, I wonder whether that is sufficient. As I think has already been said, there may well need to be a Cabinet committee on this. I also think there is a case for trying to see whether it is worth having designated Ministers or champions in other departments such as the Treasury, Health and DCMS as a start, because without that group of interested and committed individuals at Cabinet level we will not get the purchase and buy-in across the various departments.
We have already said that we welcome the creation of the single financial guidance body, but I wonder whether the lessons about the problems with MAS have properly been learned. The Money Advice Service did not work successfully, and it is important that we pick up from that what worked and what did not—and mainly what did not.
It is relevant—although I would not want to make too much of it—that it took three consultations and a number of expert advisers to get us to this point. I was struck by the way in which the Minister felt that she had to rely on a lot of endorsements from outside bodies in making the case for what the Government are proposing. Usually when people have to rely on endorsements, that means that they are not terribly confident about what they are saying; I hope that that is not the case on this occasion. In particular, the focus of many of the contributions today has been about the debt space—I will concentrate on that, although I will touch on other things at the end.
The relationship to the bodies operating there, which are independent and separately authorised by the FCA—they are mainly charities, although not all of them are—in the free-to-client debt advice and debt solutions is not, or does not appear on the surface to be, compatible with what the Bill says in Clause 2(5):
“The debt advice function is to provide, to members of the public … information and advice on debt”.
That implies some sort of direct traction. The Minister said that the Money Advice Service does fund debt advice. That is partly true, but only a very small proportion of the money is spent on that. The MAS funded some of that, but most of it was raised bilaterally by the individual organisations such as independent charities. Therefore, the MAS never really got to the heart of what its relationship was with bodies like the Money Advice Trust, Citizens Advice, StepChange and others, such as Christians Against Poverty. It could never really match the money, the aspirations and the organisational structures that would make that work.
In addition, the noble Lord, Lord Sharkey, made an important point about the way in which debt has changed. I mention this because I will come back to it on the funding side. The existing debt advice and solutions sector is financed largely directly by those who provide credit. Whereas before it was largely the credit cards and the banking sector, that is no longer the case. Increasingly, the debts being incurred in the population come from store cards but also from the utilities, local government and from the Revenue—government—itself.
It is important for the continuation of the model, which the noble Lord, Lord Sharkey, described as being under pressure, that these bodies continue to fund this. There are signs that that will not work through. In any case, the proportion of funding that goes on providing a service to those bodies which offer credit that is going wrong is relatively low compared to the overall costs elsewhere; I will come back to that point. The lesson that needs to be learned is that the combination of three functions into one—pensions, the operation of a proper financial education service, and the debt space—is useful. However, the way it has been done makes it seem that they have just been bolted together like some sort of mechanical tool, and I do not think that thought has been given to what will happen on the ground. We will need to come back to this in Committee.
On the funding, the change that has been proposed in the Bill is not clear; that has not been picked up, except by the noble Baroness, Lady Kramer. The system under which the Money Advice Service was funded involved raising a levy, which was paid to the MAS by the FCA. The new system is that the levy will be used but the companies are being taxed to provide a stream of funding to central government, which will then be passed to the new single body as a grant. That point seems to be a fundamental change to the way in which the operation is done. When we had a meeting with the Ministers before this Session it was explained why that was, and I understand it. However it radically changes the way in which people operate.
For example, if companies which are currently funding independent debt advice—for example, the Money Advice Trust—are already being taxed to fund a central body, are they not going to ask why they are paying twice for this? That has not been thought through properly, and we will need to return to it in some detail when we get to Committee. I am not against it but there are implications of changing to a non-departmental body, with all that that implies, which is grant-funded; we may be through with the financial problems that have been caused but we are surely not in a situation where the money will be found on trees—or are we? If we are, will it be enough to make sure that all the suppressed demand for debt advice can be funded? I estimate that 1 million people a year are probably getting advice, but there are figures which say that the number of people who need advice is probably double, if not three times, that. Where will the money come from for that?
It is obviously right that the new body should have a standard-setting aspect—it should certainly not fund anything substandard, and I am sure that we can all support that. Since all the bodies in the debt space have to be regulated by the FCA, and all are proud of the fact that they have been authorised to do whatever they do, whether it is holding client money or not, it is not obvious how the standards will operate. We cannot have two standard-setting bodies—that will not work.
A point that has been raised in other places is that a number of commercial companies—too many of them—operate in the debt space, and, as some noble Lords have said, their charges are outrageous for people who are under pressure anyway. Will this system look at those, or will it be restricted to only the free sector or the free-to-client sector? We will return to those points in Committee with, I hope, a chance to debate them.
We have not talked much about banking: the need to make sure that people in vulnerable circumstances receive banking services and that those services meet the needs of low-income consumers. Banking is in some senses a utility, and we have never really come to terms with whether that issue should be taken up. There were a number of debates a few years ago about whether models that apply in other countries, such as the Community Reinvestment Act, might be applied to our banking system. Clearly, banks are a part of everyday life—it is impossible to do things without them. You have only to look at the fallout from the terrible disaster in north Kensington, where it was said that those who were affected would receive £500 in cash and the rest through their bank accounts. How many of those people have bank accounts, and was that question even asked? I suspect that a very large number of them do not. Obviously, it can be settled, but the instinctive reaction does not meet with what low-paid people have to live through. We need a better approach, maybe along the lines of the broadband universal service obligation. Perhaps this will be picked up in the debate tomorrow.
On credit and debt, there are still problems with how we deal with people who get into unmanageable debt. The statutory breathing space has been mentioned; this already works successfully in Scotland and it would be easy to introduce it down here. Indeed, last Session a Private Member’s Bill gave us the main mechanics of it. We will want to see whether we can get that into the Bill. The question also has to be asked about other systems which are operating; for instance, the debt relief scheme, which is currently running at a cost to the charities which are involved with it—mainly Citizens Advice and StepChange—of about £2 million per annum. It is an important part of the debt relief solutions but it does not stack up in financial terms, and that needs to be addressed. We also need to think about the way in which the credit rating industry deals with financially vulnerable people, particularly when they are emerging from a debt repayment process but may be barred from accessing credit for many years.
Finally, we support the proposal to transfer responsibility for supervision of claims management companies to the FCA, and I echo calls from many noble Lords around this House and from outside for this to be done speedily and efficiently so that there is no question of a loophole remaining. We will also probe, as others have done, why the Government are not taking steps in the Bill to ban cold calling and cold texting.
I will end on the following point, even though others have mentioned it. The excellent report by Carol Brady on claims management, which many noble Lords have mentioned, had a wide-ranging number of recommendations but only two or three have been implemented in the Bill. What is happening to the rest of them? That report needs to be taken up and taken through to its conclusion. I would be grateful if the Minister could respond on that.
Baroness Buscombe
My Lords, I was expecting some excellent contributions to this debate, and I was not disappointed. I thank all noble Lords who welcomed me to this role. It is somewhat a baptism of fire, with such a technical Bill, but I look forward to further debate and to the opportunity to meet again with noble Lords between now and our first day in Committee. That would be most welcome.
I agree with the noble Lord, Lord Kirkwood of Kirkhope, that the presence of my honourable friend Guy Opperman MP from another place was most welcome. He brings considerable energy, experience and passion to his new role as our first Minister for Pensions and Financial Inclusion.
My noble friend Lord Trenchard was very much hoping to speak but unfortunately, due to pressures of time, he had to scratch. He looks forward to contributing to our debates in Committee.
I join noble Lords in acknowledging the excellent work done by TPAS, of which the noble Baroness, Lady Drake, is a board member. As she, my noble friend Lady Altmann and others said, it is concerning to know that the financial resilience of the public is getting weaker. That being so, as noble Lords have said, clearer signposting and an increased awareness of financial guidance is important. As the noble Baroness, Lady Drake, said, there is a real need for a single cohesive strategy, and we, the Government, must provide leadership of that strategy. As the noble Baroness, Lady Greengross, said, particularly with regard to retirement, we need to encourage more people to give proper thought to their financial future.
I agree with the noble Earl, Lord Kinnoull, about simplicity. If we can keep this simple, that will enhance accessibility and trust in the new body and increase rigour in the regulation of CMCs. I hear what my noble friend Lady Altmann says with regard to language and its consequences—we will need to give further consideration to advice versus guidance. The contribution of the noble Baroness, Lady Coussins, as president of the Money Advice Trust, accentuated the need for us to ensure that we can reach a consensus on the language that we use in the Bill.
A number of salient points have been made this evening and I hope that I will be able to cover as many of them as possible. There are many points that we need to consider with care, and I apologise up front if I cannot cover absolutely everything that was raised in the time available.
A number of noble Lords questioned the seamless transition to the new body of the existing services provided by the MAS, TPAS and Pension Wise. The Government want to build on those bodies’ wealth of experience. These services will continue to provide information and guidance until the SFGB has been set up, and this will allow for an uninterrupted service to the public. The DWP and the Treasury are working closely with the three bodies to make sure that plans to go live are reasonable and practical, and that existing services are maintained throughout the transition. A programme has been set up in the DWP with membership from the existing services to enable a smooth transition to the new body. TPAS services are covered by the SFGB’s pensions guidance function, and there is a specific requirement for the SFGB to include guidance on pensions flexibilities—a service currently delivered by Pension Wise.
Several noble Lords raised the question of the Government responding to the Select Committee on Financial Exclusion, including on the role of the FCA in promoting financial inclusion and the possibility of a duty of care by financial institutions towards their customers. The Government are planning to respond formally to the committee’s report in the very near future, with full responses to each of the committee’s 22 recommendations.
A number of noble Lords also asked why the Bill does not include a provision for a breathing space scheme. We recognise that the cost of living can sometimes become too great. Problem debt is hard to escape and can compound family breakdown, worklessness, stress and mental health issues, and this Government remain entirely committed to supporting people in problem debt. A breathing space scheme could help people affected by serious debt by stopping creditor enforcement and freezing further interest and charges on unpaid debt. However, breathing space legislation would be lengthy and complex. As such, any breathing space legislation would need to be properly prepared and consulted upon, and Treasury Ministers will outline further details in due course.
A number of noble Lords asked why the Government are not taking action to ban pensions cold calling through this Bill. The Government take the threat of pension scams very seriously. Such scams can cost people their life savings and leave them facing retirement with a limited income, with little or no opportunity to build up their pension savings again. That is why the Government launched a consultation in December 2016 looking at three potential interventions to tackle this issue, including a ban on cold calling in relation to pensions to help stop fraudsters contacting individuals. The Government plan to publish our response to the consultation shortly, setting out our intended next steps. It is a complex area that requires careful and detailed consultation with stakeholders during the year. In particular, there are questions of how to define existing relationships and how to deal with referrals and third parties. As such, we do not propose to include a cold-calling ban in the Bill at this time.
A number of noble Lords asked why the Bill does not include measures on preventing nuisance and cold calls from CMCs. We believe that strengthening the regulation of claims management services should reduce the number of nuisance calls made by CMCs, as they will have to comply with the FCA’s tougher regulatory rules on marketing and advertising. CMCs are already banned from introducing claims or details of potential claims to solicitors if these have been obtained through an unsolicited approach by telephone or in person. The Information Commissioner’s Office—the ICO—also enforces restrictions on unsolicited direct marketing calls, and the upcoming data protection Bill will include updated powers and sanctions for the ICO.
A number of noble Lords, including the noble Lord, Lord McKenzie, my noble friend Lord Hunt and the noble Baroness, Lady Drake, referenced a pensions dashboard. This is an exciting idea. The Treasury worked with industry to deliver a working prototype of the dashboard in April 2017 but it is still at a very early stage, with many policy questions outstanding. As the noble Baroness, Lady Drake, said, the purpose of the dashboard is to provide a clear picture of all your pensions entitlement in one place online. The successful demonstration of a prototype dashboard in April proved that providing pensions information from different schemes in one place is feasible. However, because it is still early days and work is needed to address the several outstanding questions before consumer-facing dashboards can be rolled out, we feel that we should proceed with this with care.
The single financial guidance body may choose to provide a dashboard or direct consumers to a reputable dashboard in the future if it deems that to be appropriate. Nothing in the Bill limits its ability to do that, but legislating for the SFGB to provide a pensions dashboard at such an early stage in its development and before it is possible for consumer-facing dashboards to be developed would, we feel, be a little overzealous and a little risky.
The noble Lords, Lord McKenzie and Lord Sharkey, particularly questioned what delivery channels the SFGB will use. Our response document, published yesterday, indicates that we do not wish to specify how the SFGB should deliver its functions. The SFGB will be best placed to design its own service delivery and to refine its approach over time based on evidence of what works best for people.
I turn to the question raised by the noble Lord, Lord McKenzie, about whether the SFGB’s capability function should be altered to give it a duty to develop and deliver a strategy. Through its strategic function, the SFGB will bring together interested partners with the aim of improving the ability of members of the public to manage their finances. The premise of the strategy is that one organisation working independently will have little chance of greatly impacting financial capability but many working together will—a point that the noble Lord, Lord Haskel, also touched on. As such, the new body will be responsible for bringing the sector together on a UK level but it will not attempt to deliver all the strategy, as this will be delivered through industry, the voluntary sector and the devolved authorities. The body may deliver some aspects of the strategy if it sees a gap, but this is very much a collective effort requiring the body’s support and co-ordination.
The noble Lord, Lord Haskel, also asked whether the SFGB will provide guidance and support for microbusinesses. The SFGB will provide information, guidance and debt advice for individuals who are struggling with their finances, not businesses—the focus is entirely on individuals. However, the Government recognise that microbusinesses often face financial difficulty and often need extra support. Support is currently provided by the Department for Business, Energy and Industrial Strategy.
The noble Lord, Lord Sharkey, and others asked whether the SFGB will monitor compliance with its standards on an ongoing basis. The answer is yes. We have set up a programme to develop the governance and accountability arrangements for the SFGB. This will include assessing the existing performance measures of MAS, TPAS and Pension Wise to develop a robust set of qualitative and quantitative indicators for the SFGB. These standards are likely to form part of those indicators.
Financial education, which I personally feel is incredibly important, was raised by a number of noble Lords. Under the strategic function, this refers to the co-ordination of projects and initiatives delivered by the private, public and third sector aimed at children and young people. Under the function, the body will promote the sharing of knowledge and will evaluate the impact of financial education initiatives to ensure that best practice is acknowledged and shared as widely as possible.
I take on board, however, the issue of what we do following the age of 18—a question raised by a number of noble Lords, including the noble Baroness, Lady Kramer. We need to consider this point further. It may be a fanciful idea that someone aged 16 would take their pension particularly seriously, but we all know, possibly from personal experience, that we have to consider how we can encourage people moving into their 20s and 30s to think much more about the future and, as the noble Baroness, Lady Greengross, so eloquently said, their retirement.
A number of noble Lords asked how people take up the opportunity of the financial guidance offered to them. At present, not enough people are aware of or taking notice of the signposting which I referenced earlier. They are not doing enough to avail themselves of the opportunity for guidance. I absolutely agree that nudges are an effective way of encouraging members of the public to use the services of the SFGB, as suggested by the noble Baroness, Lady Drake. As noted in their recently published consultation document, the Government expect the FCA to review its rules so that individuals are signposted by industry at moments when they are most likely to benefit from guidance.
The noble Baroness, Lady Drake, also asked why there is no criminal offence for imitating the SFGB, as there is for the Pension Wise service. The brand and service offer of the new body will be protected by existing stringent criminal offences under fraud and copyright laws. We believe there is no evidence to support the creation of a criminal offence for the SFGB. Existing offences will help protect people, and the SFGB, from those who seek to exploit the brand and name to commit offences.
In response to my noble friend Lady Altmann I touched very briefly on the difficult issue of language, which we may wish to explore further. Having set out what I believe to be the clear difference between advice and guidance in opening this debate, I take on board her questioning whether we should be using the word “advice” at all. I want to take that away and consider it further between now and Committee. I would also welcome the opportunity to speak with my noble friend and others about some of these issues in our meetings before we begin Committee.
My noble friend Lady Altmann also raised the issue of the secondary annuities market. The Government engaged extensively with industry and consumer groups on how they could establish the conditions for an effective secondary market in annuities to develop. Over the course of this engagement it became increasingly clear that creating the conditions to allow a vibrant and competitive market to emerge, with multiple buyers and sellers of annuities, could not be balanced with sufficient consumer protection. I have been reading up on this subject considerably and it seems that the risks attached are considerable. Allowing this market to proceed could have produced poor outcomes for consumers. As noble Lords have rightly said, we must remember that our focus must be the consumer. For that reason, we decided not to take this policy further, and this position has not changed. Therefore, the SFGB is not being required to give guidance on this market.
Further questions were asked by the noble Earl, Lord Kinnoull, and my noble friend Lord Hunt, on the idea of applying FCA regulations only in England and Wales, meaning that Scottish-based CMCs could cause consumer detriment across the UK. That is a very insightful question. We have engaged with both the Scottish Government and the Northern Ireland Executive at ministerial and working levels. Both have confirmed that they do not want the regulation to extend to Scotland or Northern Ireland as there is limited evidence of malpractice, they say, in these regions. The Bill gives the Treasury a power to define when a person should be treated as carrying on claims management activity in England and Wales. This gives government the flexibility to adapt the definition should the CMC market change. The Government will keep this position under review. The intention is that CMCs approaching consumers in England and Wales and taking forward their claims should be subject to FCA regulations as far as possible. However, I take on board the example given by the noble Earl, Lord Kinnoull, of what would happen if someone just north of the border were to make these calls and claims, and direct them to people living in England and Wales.
My noble friend Lord Hunt and the noble Earl, Lord Kinnoull, asked whether I would commit to examining whether the definition in any order could be extended to close loopholes, including credit hire, the commissioning of medical reports, holiday sickness claims and so on. The issues my noble friend raises concerning credit hire agreements and the commissioning of medical reports are separate to that of claims management regulation, although they are related through the impact they can have on the cost of insurance premiums and other fees for consumers.
The Government agree that these are important issues, and sought views on credit hire as part of the call for evidence on the whiplash consultation that was published in November 2016. Responses are currently being considered and the Government will respond in due course. MedCo, a not-for-profit company, was established to enhance the quality and independence of initial medical reports in support of whiplash claims. Good-quality medical evidence supported by the MedCo system is, and will continue to be, an integral part of the Government’s whiplash reforms going forward.
I want to quickly cover a few more points. The FCA will develop an appropriate, proper and tough regulatory regime, and will begin consulting on this in due course. It will undertake a full cost-benefit analysis before implementing rules. We do not want it to be handicapped by regulatory burdens.
What about CMCs that contact people from overseas? The Bill gives the Treasury a power to define when a person should be treated as carrying on claims management activity in England and Wales. The intention is that CMCs approaching consumers in England and Wales and taking forward their claims should be subject to FCA regulations as far as possible. Perhaps that begins to cover the question of the noble Earl, Lord Kinnoull.
I should make it clear that pension taxation is a matter for HMRC. The Pensions Regulator provides guidance to employers choosing a pension scheme for their staff. This guidance covers the choice between net pay and relief-at-source schemes, and the implications of net pay schemes for employees who do not pay tax.
There were several questions on the funding of debt advice. The SFGB’s debt advice function will be funded by the levy on the financial services industry. Free-to-client debt advice is currently provided by a range of organisations, mostly from the third sector. The debt advice levy funding currently makes up 40% to 50% of the free-to-client debt advice providers’ total budget, and the Government have no plans to reduce this funding contribution. The remainder of the budget comes from voluntary contributions made by organisations in different sectors. A levy-funded model remains appropriate, given the benefits that firms will gain over time from effective debt advice, money guidance and financial capability interventions.
The Money Advice Service is working closely with partners in the debt advice sector on the plans for an independent review of the funding arrangements for the sector. The development of a more coherent approach to funding from organisations that benefit from debt advice is expected to be within the scope of this work.
I hope I have covered the issue of the general funding of debt advice, a number of other questions and the questions raised by the noble Lord, Lord Stevenson.
There is no doubt that this small Bill contains a great deal of detail. In addition to ensuring that people are able to access high-quality claims-handling services, the Government are committed to ensuring that action is taken when markets work against consumer interests.
I again thank all noble Lords for their contributions. I commend the Bill to the House and ask that it be given a Second Reading.
Financial Guidance and Claims Bill [HL]
Wednesday 19th July 2017
(7 years, 4 months ago)
Lords ChamberRead Full debate Financial Guidance and Claims Act 2018 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 1-I(Rev) Revised marshalled list for Committee (PDF, 106KB) - (18 Jul 2017)
Lord McKenzie of Luton
“( ) As soon as is practical after the completion of the transfer schemes referred to in subsection (7), the single financial guidance body must produce a business plan which must—(a) outline its business plans for a minimum of three years;(b) follow consultation;(c) be informed by a comprehensive assessment of consumer need; and(d) be updated annually.”
Lord McKenzie of Luton (Lab)
My Lords, I shall speak also to Amendments 2 and 3. Amendment 1 is a probing amendment designed to give the Government the opportunity both to expand on the process of creating the SFGB and, more importantly, to offer a greater understanding of the intended scale of the operation initially and going forward.
The amendment requires the production of a three-year business plan as soon as possible after the transfer schemes are completed. It requires that this be done following consultation, updated annually and informed by a comprehensive assessment of consumer need. At present, there appears to be no formal requirement in the Bill for there to be a business plan, although the response to the consultation of this month reminds us of the proposed publication of a framework document, which will provide further details of the governance arrangements under which the body will operate, including requirements for preparing, securing approval for and publishing its corporate and annual business plan. We know that SFGB will not be operational before autumn 2018, but perhaps the Minister might take the opportunity to expand on the timetable and say when the framework document is expected to be published.
As things stand—and we are grateful for a further meeting with officials on Monday—we have no information about the timing or sequencing of the transfer processes in Schedule 2, or certainty about what even the initial corporate and business plans might look like. Neither the response to the consultation, the impact assessment or the policy statement give any definitive information about the proposed initial scale of the operations of SFGB. Will SFGB have to commence within a funding envelope that reflects the existing arrangements? When will the SFGB levy components be set and how will they be consulted on? To what extent is it planned that efficiency savings arising from the amalgamation will be made available to the new body or applied to a reduction in the levies?
Is it envisaged that the Secretary of State will issue any initial directions or guidance to the SFGB in connection with the set-up arrangements? What parameters are to be given to the chair and chief executive on their appointment? At what stage in the process will they be in a position to influence the starting position of the new body?
There is a requirement in the Bill to make services available to those most in need. What initial assessment has been made of what this means in practice? Will the Minister outline for us how the transition is to be organised from the existing position to the introduction of the new body, and how smooth signposting can be secured?
Going forward, the NDPB will not be able to carry any reserves. So what will happen to the reserves and cash surpluses of MAS, which at March 2016 amounted to nearly £10 million—although they may have reduced since? Will these be available to the new body?
We know that MAS is to be dissolved, presumably at a point when a transfer scheme to the SFGB has been completed. Is it anticipated that any residual assets will be available at this point? If so, to whom will they accrue?
The landscape is changing for pensions and money advice. On pensions, we see the growth of auto-enrolment, provider signposting and pension freedoms; on money advice, the growth of those struggling with high levels of over-indebtedness and negligible savings. They amount to nearly 23% of the UK adult population— 11.6 million consumers. The Bill may have a technical framework to deal with all this, but we are seeking to understand how it is to be resourced to meet these challenges.
Amendments 2 and 3 are minor matters. Amendment 2 relates to the non-executive members of the NDPB. At present, the Secretary of State must be satisfied that a person does not have a conflict of interest before being appointed. The amendment would require the Secretary of State to be so satisfied also from time to time in future. I think this is a fairly routine approach to these matters that would not cut across any obligation on members to declare their interests in the usual way.
Amendment 3 deals with executive member appointments. Under paragraph 6 of Schedule 1, the chief executives and other executives must be appointed before the SFGB provides services to the public. The amendment requires that this also must be the case before any of the Schedule 2 transfers are put into effect.
We are seeking to understand the scale of this body and how it will look. At the moment, we are lacking a lot of information and we hope that the Minister can help us on this matter. I beg to move.
Baroness Coussins (CB)
My Lords, I support Amendment 1, and remind the Committee of the interest I declared at Second Reading as president of the Money Advice Trust, the national charity that provides free debt advice to individuals and small businesses through the National Debtline and the Business Debtline.
Amendment 1 corrects a notable omission in the Bill. Although the Bill requires the SFGB, as one would expect, to produce an annual report on its activities each year, there is no such provision for it to publish its business plan. Amendment 1 rectifies this quite effectively—and, perhaps more importantly, requires the body to consult on the preparation of this plan.
The Government have stated their intention that the SFGB should work in a consultative and collaborative way. Indeed, there are references to working with others elsewhere in the Bill. Amendment 1 would simply embed this consultative approach in the organisation, from the business plan down, and help set the appropriate culture in what will be, after all, a new organisation. I hope that the Minister will agree that this is a helpful amendment and give it serious consideration.
Viscount Trenchard (Con)
My Lords, I shall also comment on Amendment 1, proposed by the noble Lord, Lord McKenzie. I am not quite sure that I understand clearly everything it is trying to achieve.
I agree that to outline the business plans for a minimum of three years is a sensible move. Indeed, if that is not done and there is no requirement to outline the business plans, it is quite possible that those plans will not be adequately prepared. If they are prepared, it should also be clearer what efficiencies and savings could be achieved resulting from the merger of the three bodies. It is rather disappointing that the Government could say only that the costs and charges to the levies could be looked at and savings might be found in future, but in the short term the total charges to the levies would be roughly equivalent to what they are today. Perhaps the requirement to produce business plans would make it clearer where savings and efficiencies could be derived.
I am also not quite sure that the noble Lord’s amendment passes the necessary clarity test. In proposed new paragraph (b), “follow consultation” is a bit vague. What consultation and with whom? Proposed new paragraph (c) says it must,
“be informed by a comprehensive assessment of consumer need”.
Who provides such assessment, and in what detail? It is almost open ended. While I am sympathetic to the noble Lord’s amendment, I could not support it in its present form.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Buscombe) (Con)
My Lords, I thank the noble Lord, Lord McKenzie, for tabling these amendments on the establishment of the body, and the noble Baroness, Lady Coussins, and my noble friend Lord Trenchard for their contributions. The approach we have taken to the legislation is to create a high-level framework that enables the body to be responsive in its focus. I welcome this opportunity to talk in more detail about the transition from the existing services and how the body will operate going forward.
Amendment 1 seeks to specify requirements that must be met in relation to the single financial guidance body’s business plans. Those requirements would be that business plans should cover a forward period of a minimum of three years and be updated annually; plans should be informed by an assessment of consumer need; and plans should be subject to public consultation.
The Department for Work and Pensions’ arm’s-length bodies are required to produce corporate strategies covering a forward period of three years. Corporate strategies must incorporate a detailed business plan for the first year. The business plan is then updated annually and discussed with the sponsor department before sign-off by the body’s board. Corporate strategies and annual business plans are published and placed in the Library of both Houses. These requirements reflect Her Majesty’s Treasury guidance that applies to all arm’s-length bodies across government. As for other Department for Work and Pensions-sponsored bodies, these requirements will be written into the framework document that will be developed in the run-up to launch and agreed with the chief executive officer of the body. It will be reviewed regularly thereafter and will be published by the body.
The other requirements specified in Amendment 1 would make it necessary for the body to carry out a comprehensive assessment of consumer need to inform its business plans, and to consult on its business plans. I agree it is important for the single financial guidance body’s plans and activities to be informed by robust data, and information about its customers and their needs. There will also be aspects of the body’s work on which consultation will be helpful. Indeed, existing services have been developed and evolved based on data, research and consultation. We will ensure that this intelligence and experience are not lost in the transition.
As part of its functions, the body will liaise with stakeholders at strategic and operational levels all the time. This will include partners across the financial services industry, the devolved authorities and the public and voluntary sectors, informing the body’s thinking as it puts its plans together. The existing services regularly consult on matters which seek to assess consumer need without a statutory requirement to consult; for example, this week MAS published a consultation on debt advice commissioning. The body will work in a complex landscape. Without consultation on its plans and assessment of consumer needs, it would be failing in its objectives, set out in Clause 2(8), if it did not continuously assess the needs of the public and consult widely on its activities.
Lord Kennedy of Southwark (Lab)
I have looked at the amendment and listened carefully to what the Minister said. I agree very much with the comments of the noble Baroness, Lady Coussins. Nothing that the Minister said on Amendment 1 leads me to think that the Government are particularly opposed to these provisions. Is she saying that they are not necessary, or that they will be dealt with elsewhere? They all seem perfectly reasonable points to make, as any sort of future body would want to do these things—to have a business plan, to consult properly and to make sure that it does proper updates and seeks to be informed. Is it the intention that these things in the amendment can be done elsewhere and are not necessary to include at this point, but the Government are not opposed in principle to what the amendment says?
Baroness Buscombe
I hope I have understood the noble Lord. Is he suggesting that we should include all of this in the Bill?
Lord Kennedy of Southwark
No, I am just trying to clarify for the noble Baroness. Is she saying that, in principle, she sees the points that my noble friend Lord McKenzie is making in the amendment but that she does not think they are necessary to include at this point in the Bill?
Baroness Buscombe
I accept what the noble Lord says but I am also saying that what is necessary is already either in the Bill or, as I explained, in the requirements reflected in Her Majesty’s Treasury guidance which apply to all arm’s-length bodies across government. As for other DWP sponsor bodies, those requirements will be written into the framework document that will be developed in the run-up to launch and agreed with the CEO of the body. It will be reviewed regularly thereafter and published by the body.
Lord McKenzie of Luton
I thank the Minister for that reply and all other noble Lords who have participated in this debate. I thank the noble Baroness, Lady Coussins, for her support—in particular for the concept that this is a chance to embed in the culture of the new entity good practices around consultation and proper planning. I think that the noble Viscount, Lord Trenchard, also supported the broad thrust of what the amendment is trying to do. Ultimately, we are trying to get on to the record some clarity about the process. That was a key objective in tabling the amendment in this form.
The Minister said that the Bill is a high-level framework document and although I thank her for putting on to the record some comforting remarks about the things we were pursuing, I am still at a loss to understand the scale or scope of the new body and whether, on day one, it will look like an aggregation of the three existing operations. Will it be half that size or twice that size? We have no sense of that from this debate and it is a germane issue. As she says, this is a very high-level framework Bill and our one chance to address it in this House will come over the next few months, and then it will be gone. There are no parliamentary processes genuinely attached to the processes that the Minister outlined. I do not know whether any more could be said on that, but the other part of moving this amendment was to see what the concept was.
Again, is it expected that the new body will have to operate within the levy base at the moment, or will it be constrained in any way? Can the Minister give us some sense of what the new body will look like in terms of scale?
Baroness Buscombe
I again thank the noble Lord for these amendments. It is helpful to have on the record a little more detail about how the three bodies will transfer into one. It is important to emphasise that we cannot predict exactly what the new body will look like, and it would be wrong to try to do so. Initially we will bring the three bodies together but, over time, the three will evolve into one. It is important to protect current services during transition. We do not want to pin down, constrain or compromise the CEO and his board in their ability to produce the most effective single body out of these three bodies. Therefore, we must trust in them to some degree, although there has to be a lot of consultation during the process to produce something that will be much more efficient and, we hope, practical, particularly for the consumer, than what we have at the moment.
It is hoped that we will have sufficient finances to cover the transfer. The money currently held in reserves when MAS closes down, and the SFGB, could be used for some of the set-up costs if that is necessary. At the point of transfer, the reserves will be transferred to the new body and should be used up in year. The new body will be a non-departmental public body of central government and will not hold reserves. It is impossible to predict exactly how large the funds will be, but that is something that the board and the department will stay in touch with as the transition takes place.
Lord McKenzie of Luton
I thank the Minister for that further explanation—I think we are almost there. Only that big question remains unanswered.
Regarding the appointment of the chair and the chief executive, will they go before the Select Committee in the other place?
Baroness Buscombe
That is a good question. I do not have the answer, so I will write to the noble Lord.
Lord McKenzie of Luton
I am grateful for that. I think we have taken this as far as we can go this afternoon. I beg leave to withdraw the amendment.
Baroness Altmann
Baroness Altmann (Con)
My Lords, this amendment goes to the heart of the consumer experience of what we are trying to do in the Bill. The single financial guidance body aims to provide holistic help, guidance, information and education to the public on their financial issues. The public are understandably often confused about what constitutes help, guidance, information and education versus what is called “advice” in a regulated sense. There is confusion at the regulatory level about the word “advice”, which itself has fed through into the wording of the Bill.
I respectfully request that my noble friend the Minister carefully considers the perspective of the person coming to this single financial guidance body and expecting to receive a holistic service that will cover their financial circumstances, in particular the circumstances of somebody who has significant debts and is looking for assistance in managing those debts in the best way for them. In the past, without auto-enrolment, the issue would have much easier, which may be why we are in this position, because there would have been no expectation that somebody in significant debt could also be contributing to a pension scheme, and increasingly, that is likely to be the case. The Bill is very clear that when it comes to pensions, money and other finances, this body will only give guidance, but when it comes to debt the word used is advice, because that is the word that has been used always in the past.
I have been trying to understand the customer experience of someone who will be coming to this body. I am informed that if that person has large debts, and goes for what is called in this Bill “debt advice”, the adviser will not be able to advise them on whether or not they should opt out of their auto-enrolment workplace pension scheme. Naturally, they would want to know that, but they cannot have a recommendation from this service, even though it is called an advice service. The only advice they can get is restricted and narrowly focused on what to do about the debt. We immediately have a potential confusion set up for the customer. We have an opportunity in the Bill to start to remedy this, but so far we have not.
There are two important points. First, advisers at the Citizens Advice money advice service have told me that the words “debt advice” are often off-putting for those who are in debt. They do not like terms such as “advice” or “financial advice” for some reason. Furthermore, the regulated activity is actually called “counselling”, and the definition that the regulator uses for “debt counselling” says that it involves the several elements, including advice given,
“to a borrower about the liquidation of a debt due under a credit agreement”.
It is clearly narrowly focused on that. The regulatory instructions in the manual about debt counselling spend quite some time trying to unpick what would constitute advice and what would not, but in each case what would constitute advice is not what one would consider to be independent financial advice on someone’s whole financial circumstances. We are supposed to be setting up a holistic guidance body. I am entirely supportive of the aims of the Bill and am not trying in any way to undermine them—they are right. What I am asking noble Lords to consider is whether we can take this opportunity to change the wording in the Bill which says “debt advice” and to use “debt counselling” instead. From what I am told by the advisers, that would be better received by those who need help. It would also be less misleading to those who might think that somebody can help them with the pension decision when this is not the case. I beg to move.
Viscount Brookeborough (CB)
My Lords, I support this amendment. I was on the ad hoc Select Committee on Financial Exclusion, which produced the report Tackling Financial Exclusion: A Country that Works for Everyone. We spent a whole Session on it and we covered all these points. I suggest that those who have not looked at the report should do so, not only because I was on the committee but because it is quite concise. We went to places like Toynbee Hall and we saw people who were affected.
If I ask you for your advice, you can just tell me to do this and that, which is the point the noble Baroness is making. Advice may not be helpful, whereas counselling is a two-way thing. To invite people to counselling is not to invite them to take your advice—it is to invite them to discuss what they are willing to find out, and to give them options. It is not speaking to them, it is discussing and talking things through with them.
The word “debt”, which has been mentioned, is not always helpful. Debt is almost considered a crime, but it is not. In fact, very often government institutions and regulations cause people to go into debt—so in many cases the debt is not even their own fault. We must remember that the Bill is about people, the way they think and are approached, and we want to encourage them to take this counselling. We do not want to ask them why they are here and then say, “Here is my advice”. It should be about invitation and discussion. This is a very simple amendment and I support the change of words.
Lord Kirkwood of Kirkhope (LD)
My Lords, it is a pleasure to follow the noble Viscount, Lord Brookeborough. I too served on the ad hoc committee and I was going to make exactly the same point. I was very struck by the visits the committee made to front-line staff; they are always impressive in terms of their commitment. They give of their time, mostly as volunteers, in various organisations and circumstances. There are always difficulties to contend with in terms of managing and assisting households to stick together—it is as serious as that. I support this amendment in the name of the noble Baroness, Lady Altmann. I trust her judgment; she has a lot of experience from a consumer point of view that this Committee would be ill advised not to consider seriously.
What is not to like about counselling? I do not see what the cost is. If there is a government communications programme to underline that, and the organisation is told that the tone and tactics it uses should be in that direction—if that is made crystal clear—it will be a serious service to assist the delivery of this important public function. Contrarywise, as the noble Baroness has said, if we do not take this opportunity, there is no way of rowing back. Should this Bill go on to the statute book with this inherent confusion, the damage will be done. This point is clear and has been well explained by the noble Baroness. It would not be safe for the Committee to pass by this amendment without careful consideration. I support it.
Viscount Trenchard
My Lords, my noble friend Lady Altmann has done us a great service by tabling her amendment and the others with which it is grouped, but I am not sure that the issue is as simple as all that. It clearly is not, and I fear that it will be difficult to solve all these problems. It is not just that there is a significant difference between the words “advice”, “counselling” and “guidance” in the way that most people understand them. It is a pity that the good, much used and understood word “advice” has been partially hijacked in that it is part of a regulated activity when it is financial advice. “Counselling” has another connotation and insinuates that the person may also be suffering from some mental illness or disability. “Counselling” is also probably one of the most commonly misspelt words in the English language, because people confuse counsellor and councillor, and it is not so well understood or used.
My noble friend’s amendments do not just replace “advice” with “guidance”—I am not sure whether, to the man in the street, one is clearer than the other. I understand the problem about the regulatory meaning of “financial advice”, but sometimes we have “guidance” and sometimes we have “counselling”. In Amendment 21, my noble friend refers to “individualised independent financial advice”. In that amendment, she seeks to improve,
“public recognition of the distinctions in personal finance terms between ‘education’, ‘information’, ‘guidance’, ‘counselling’ and ‘individualised independent financial advice’”.
I fear that it is extremely unlikely, without huge expenditure and alteration to the schools programme at all levels, that we will get anywhere near an even basic understanding among the public of the difference in meaning between those terms. In Amendment 38, we have distinctions between “advice” and “guidance”, but does “advice” mean only an activity regulated by the FCA? If so, that is a matter for regret, because “advice” is a very good word.
My noble friend is quite right to table the amendments. As was noted by several noble Lords on Second Reading—I apologise for not having been able to participate due to another pressing appointment—the Government have to consider carefully before deciding on the name and branding of the new body. People go to the citizens advice bureau, not the citizens counselling bureau, to get all kinds of advice, including advice on debt. I note that the Citizens Advice website avoids using the term “debt advice”, preferring to talk about help with debt, although I believe that this gives the impression that the CAB can easily provide the panacea of debt relief through an individual voluntary arrangement. This is complicated, and my noble friend is quite right to raise it.
Lord Haskel (Lab)
My Lords, I served on the ad hoc committee, and I would like to add one point. One thing that came out loud and clear when we were working on the committee is that people’s financial lives are very complicated. Everything is interrelated. People do not actually differentiate between their pensions, their debts or their mortgage—the whole gamut of things. I support the noble Baroness’s amendment because it describes more accurately the way in which people view their financial lives. They want advice on the totality, not just on one particular aspect, because they see it all as being interrelated. That is why I think this is probably a good amendment.
The Earl of Listowel (CB)
My Lords, I hope the noble Baroness, Lady Altmann, will not mind my taking this opportunity, which was probably taken at Second Reading, to pay tribute to the work of organisations in this area, particularly to Toynbee Hall and the late Earl Attlee, who was a trustee of Toynbee Hall. When my father left university at Oxbridge, he went and lived in Toynbee Hall in the 1930s and learned a bit about what it was like living in that area at that time. It shaped Clement Attlee’s view of the world, of course, so perhaps the welfare state that we have now is partly due to the work of Toynbee Hall. It gives advice to care leaders, and the noble Lord, Lord Northbrook, has spoken of the evidence that it gave him. It is organisations like that which have been providing support and advice to vulnerable families and individuals over many years that we really need to celebrate and give credit to.
Baroness Kramer (LD)
My Lords, the amendments moved by the noble Baroness, Lady Altmann, are significant. They go to the heart of whether or not this new body is going to be structured in such a way, with a set of responsibilities and clear communication with the public, that will allow it to become properly effective. I think that is what everyone in the Committee both hopes and wants.
It is clear from listening to every Member across the Committee that we have a situation at the moment where the confusion between advice, counselling and guidance is intense. We need clarification around the use of language. The noble Baroness put it well in saying that this new body should be shaped, and therefore the legislation has to be shaped, from the perspective of the potential user, not from the perspective of the legal gurus whose primary objective is to bring three pre-existing bodies together—bodies that were set up in a different financial era with rather different purposes. I have no objection to them being brought together, but the primary purpose of the Bill is surely not to bring three bodies together but to end up with a body that meets the public need in handling the complexity of modern finance, ranging all the way through from debt at one extreme to savings and investments at the other, and recognising that most people in today’s world are engaged right across that spectrum, sometimes at different phases of their life but often all at the same time. There are complications now when people get into debt, but obviously some of that debt is considered desirable in terms of mortgages. We have ISAs of many different kinds, all with somewhat different purposes.
Pension funds used to provide defined benefits but now we have defined contribution schemes. The Committee will be well aware that many people now with defined contribution schemes have pots that they are beginning to draw down and remove from their pension schemes. At this point in time, that may not be that significant, because for many people that will be a relatively small amount of money because the change in the structure of pensions has been recent, but with every year the group of people newly coming through to this opportunity to draw down is looking at a pension that represents a bigger and bigger piece of the financing that has to support them through the rest of their lives.
The general confusion has to be tackled urgently. I point the Committee to the Financial Conduct Authority report, Retirement Outcomes Review, a very recent document—within the last couple of weeks—which speaks almost with some despair about the percentage of pensions that are being drawn down without any advice being taken at all. The Committee may not be aware that,
“Accessing pots early has become ‘the new norm’. 72% of pots … have been accessed by consumers under 65, most of whom have taken lump sums”.
That is a huge change. The report says:
“Most consumers choose the ‘path of least resistance’”—
in other words, they do not review the various options and instead go with their current provider when they do the draw-down. However,
“Many consumers buy drawdown without advice but may need further protection to manage their drawdown effectively”.
The report talks about the risks of people,
“paying more in charges and/or tax”,
than they should,
“choosing unsuitable investment strategies … losing valuable benefits”,
and,
“running out of pension savings sooner than expected”.
To get that group to take advice, we need a body that is fit for purpose. It seems to me that the amendments proposed by the noble Baroness, Lady Altmann, are exactly designed to create a body that is fit for purpose in its use of language, presentation of its programme and shaping of its objectives, because it will have worked through these issues of advice, counselling and guidance and eliminated the endless confusion, which is, I would suggest, one reason why many people have not taken advice—they are, frankly, so confused about the offer that is out there that they have no idea which way to turn. It is interesting that the FCA report at no point talks about people seeking guidance and therefore getting appropriate outcomes; it recognises that advice is the direction that will be essential for most people. This body surely has to play a role in that, so language clarity is required.
In reference to the title or naming of this new organisation, we note that the Government have kept to themselves the powers to name the organisation. They have not shared with us what the title will be but, as we talk about this language confusion, it is rather important. The Committee will also note that the Delegated Powers and Regulatory Reform Committee recommended that it should, in fact, be Parliament that sets the name, recognising the importance of that name both in shaping strategy and in making sure that communication with the public is as clear as possible and that the body does not continue to struggle with the existing difficulties that have set by terminology.
I hope that the Government will take this whole issue away, recognise its significance, work through it and come back with something that will let this new body be as effective as it could possibly be in meeting the public need.
Lord Stevenson of Balmacara (Lab)
Well, my Lords, what is in a name? I start by declaring my interests: I am a former chairman of StepChange, the debt charity, and I am currently on the Financial Inclusion Commission, which is a group of all-party interests and experts that tries to lobby for increased financial inclusion and less financial exclusion. I mention StepChange for two reasons: first, because I have to declare it as an interest and, secondly, because it recently went through a change of name, which may bear on some of the points made in this debate. When I took over as chair, it was as chair of an organisation called the Consumer Credit Counselling Service—I could not say it without spitting out most of my teeth and I got very confused about the terminology.
As a matter of interest, at the time that I took over, the organisation was seeing over 500,000 people a year—so a lot of people—but we did not believe that the people whom we saw were “consumers” of our services in that classic sense. We did not deal with credit, because we were talking about people who were in debt. Now, obviously, debts and credits are simply optical illusions, one against the other, but people recognise them differently and, therefore, our name did not really say what we did. We did not do counselling —I am sorry to disappoint the noble Baroness opposite—and we were a service, but it was not just a service of advice. Our intention going into any engagement with anybody who rang us or contacted us through the web—I am sure this is also true of the Money Advice Trust, the Citizens Advice service and others working in this area—was that we wanted them to become debt free. In other words, it was a case not just of simply holding their hands and telling them what the options were but of working with them until they got to the point that they were debt free. I do not know where that fits in the catalogue of names with which the noble Baroness is enticing us, but I do not think that her amendment gets to the reality of the issue facing us.
The noble Baroness, Lady Kramer, is right to remind us above all that where we are trying to go with this organisation is to get to a place which will add value to those who approach it by providing impartial and independent advice which will get them to where they want to get to. There are real difficulties in trying to combine in one body the different bodies, organisations and ideas. The pensions work, the financial guidance work and the debt space are all very different. They are not operated at the same level but are regulated differently, and the information that is provided, the guidance, the counselling—all the other words that we are using—will change considerably.
Where I think the noble Baroness is right is that it would be entirely against the best interests of the people we are talking about if the body were set up in a way that did not create an opportunity to resolve the issues that were brought before it. The examples she gave were all relevant. I add one which we picked up in earlier discussions—I think it was raised on Second Reading—namely, that, at least initially, although I hope that it will change, it will not be possible for the new body, however named, to answer direct questions about individuals’ state pensions. That seems to me a completely useless start for a body that is trying to deal holistically with people’s issues for all the reasons the noble Baroness gave about the increasing importance that pension draw-down will have for any of these solutions.
At present, StepChange is regulated to give debt advice and debt solutions but not to give pensions advice. It could apply to be a pension adviser and give advice on pensions, but it has not done so. It was the present management’s decision to do that. However, the issue stems from the initial problem about whether or not it is reasonable to have all those different types of expertise in one place or whether you need more expertise than would be available in a general advice system.
It is easy to describe this as a mess and a problem, and it is very hard to see how we will make progress. I look forward to the noble Baroness’s response to this debate. The noble Baroness, Lady Kramer, is right that we need to rethink this. However, I have a slightly different approach to it which I would like to try out with the noble Baroness. As she will have picked up, our Amendment 38 in this group replicates what she said to the House on Second Reading. In terms which I think are not unreasonable, it defines “guidance” and it defines “advice” in terms of what the FCA considers it to be. That may be the current state of the art for this discussion and it may need to be looked at again. However, I do not think it is helpful to try to analyse the best word we can select to describe all the things that this body should do. We need to go back to what the noble Baroness, Lady Kramer, suggested and ask what this is about. We need to ask what this body is trying to achieve.
It seems to me that the two fixed points on which we can agree are, first, the functions that are currently carried out by these bodies, or could be considered to be added to the existing functions to achieve the aim that we are going to set for this body, and, secondly, the regulatory structure. I do not think there is much room for manoeuvre on either of those two things. We have a pretty good appreciation of what people want and we have a pretty good regulator that is capable of regulating these things. The names seem to me to fall back a bit in our consideration of that. If we get the infrastructure right, we will also get the processes which support it right. What is this body set up to do? What aims and responsibilities will it require to achieve that? What functions are required to achieve that? What are the regulatory constraints and what will they be called? That seems to me the right way to approach this. I hope that, when the noble Baroness responds, she will pick up at least some of those points.
Lord Skelmersdale (Con)
My Lords, before this debate concludes with, I hope, the wise words of my noble friend the Minister, I should say that the noble Lord, Lord Stevenson, seems to have widened the subject of this amendment or group of amendments beyond what my noble friend Lady Altmann intended. I have been looking at Clause 2(5):
“The debt advice function is to provide, to members of the public in England, information and advice on debt”.
The noble Lord, Lord Stevenson, almost got it. What we really want to happen is advice on debt reduction, so why cannot the Bill say so?
Lord Stevenson of Balmacara
I do not wish to prolong the debate, because we could continue this discussion outside if we wished to. However, I was not the only person to say that there were wider issues at stake here, so I accept the charge, but I am not the only one guilty of this. Secondly, I was trying to make the point that information is only part of the story. It is of no value if we cannot get somebody who owes £10,000 to five different creditors to a position where they owe nothing. So it is a process leading to a resolution. I think that we are on the same page.
Baroness Buscombe
I thank all noble Lords who have taken part in this helpful debate, and in particular my noble friend Lady Altmann for raising these issues through her amendments. It is important to be straight about it: let us not get hung up on legal terms that we need to use in the Bill to ensure that the body can deliver the crucial support on problem debt need. How the sector and others promote the services is another matter. It needs careful consideration based on evidence and insight.
I thank my noble friend Lady Altmann for bringing forward Amendments 4, 12, 44 and 67, which replace references to “debt advice” with “debt counselling” or “guidance and counselling”. My noble friend has tabled a further amendment in this group, 21, which would add to the body strategic functions to improve public understanding of the distinction between certain personal finance terms and improve their knowledge of how to access relevant information and guidance. I also thank the noble Lords, Lord McKenzie of Luton and Lord Stevenson of Balmacara, whose Amendment 38 would establish a definition for the terms “advice” and “guidance” used in the Bill.
Regarding Amendment 38, I reassure noble Lords that the Financial Conduct Authority provides thorough definitions of guidance and advice in the relevant section of its handbook. The handbook includes examples which clarify how the distinction between guidance and advice works in practice, and the Government believe that such detail is best articulated by the regulator rather than through primary legislation. I also observe that through the specifications in Clauses 6 and 7, the FCA will have a formal role in ensuring that all the activities conducted on behalf of the new body are in line with its regulatory standards and guidelines.
The FCA has conducted a significant body of work in this area, providing clear definitions of the terms “guidance” and “advice”. The Government are grateful to it for these efforts and believe that any ambiguity over the use of these terms has been appropriately addressed. It is therefore not appropriate to insert definitions of these terms in the Bill.
As she did on Second Reading, my noble friend Lady Altmann raised the important point about language and its consequences, as have other noble Lords. I agree that it is important to ensure that the Bill’s wording accurately reflects the activities the new body will be undertaking, and that members of the public fully understand the nature of the support available to them. I have reflected on this point, take it seriously, and have therefore given it careful consideration. However, I have concluded that it would not be right to include these amendments.
The first reason for not including the amendments is that “debt advice” is the term that most appropriately reflects the provision that the new body will deliver in relation to its debt function, so it should be used instead of alternatives. There are two key reasons for this. First, “debt advice” reflects a broader set of activities than “debt counselling”, and this broader set of activities is precisely what the new body will have a duty to deliver. For instance, while “debt advice” can be said to cover providing recommendations for individuals about which debt solution they should pursue, as well as adjusting individuals’ debts through a debt management plan, “debt counselling” can be said to cover only the first of those activities.
Secondly, I should note that, like financial advice, debt advice is an activity regulated by the FCA. It involves advisers offering a personal recommendation to an individual which steers them towards a particular course of action. Under FCA rules, in giving this recommendation the adviser is required to make it clear that they are giving a consumer regulated advice. Only those providers who have been authorised by the FCA to deliver this service or who are exempt from authorisation can provide this advice. As such, this makes it different from the other functions delivered by the body and means that other previously been suggested terms—for instance, “debt guidance”—would not be an appropriate description. “Guidance” in this context refers to the provision of generic information about money matters without the inclusion of a personal recommendation. Authorisation is not required for guidance, so using a term such as “debt guidance” would, we believe, be equally misleading.
The second reason why I do not believe that we should amend the term “debt advice” brings me back to the underlying purpose of ensuring that the language we use is clear, accurate and consistent. We must ensure that the way we structure and label the services on offer to individuals reflects the way they use and understand these services. There is no compelling evidence that use of the term “debt advice” is an issue for consumers or that it affects their ability to access appropriate provision. Indeed, the term is almost ubiquitously used among leading debt charities. We also need to bear in mind that we have carried out three consultations covering this issue, among many others, and have found that to be the case.
Baroness Kramer
Perhaps I may ask the Minister for some clarification. My question relates to a point raised by the noble Baroness, Lady Altmann, the reply to which I did not clearly understand. If an adviser provides debt advice to an individual who has a debt issue but also belongs to an auto-enrolment scheme for a pension, is the adviser permitted to propose that the individual opt out of that pension or would they be violating their authority as an adviser if they did so? From looking slightly to the Minister’s side, I gather that they would, and therefore they would be unable to provide that advice, even if it was the correct and best solution for the individual. That is part of the complication that is coming out of this language.
Baroness Buscombe
I thank the noble Baroness. Looking behind me, and in order to be absolutely right on this, I would like to come back to it in a moment, if I may.
We must ensure that we do not make changes to the language we use without strong reason if there is a risk of confusing service users. For that reason, I believe “debt advice” to be the most appropriate term to use. An important point which I do not think I have made is that we must ensure that the way we structure and label the services on offer to individuals reflects the way they use and understand them.
Finally, I should like to reassure my noble friend Lady Altmann on a specific concern that she raised during Second Reading—that the debt advice the new body offers will not be holistic in nature. The Money Advice Service has recently launched a consultation paper entitled A Strategic Approach to Debt Advice Commissioning 2018-2023. It covers a range of things, including how best to deliver debt advice and money guidance in a blended fashion in line with the needs of the individual. This consultation will underpin the approach taken by MAS and later—towards the end of next year, we hope—by the new body.
Just as other forms of advice take into account an individual’s broader situation, such as their debt levels and spending commitments, debt advice will take into account an individual’s broader situation, such as their pension. I hope that that is helpful. Similarly, just as pensions advisers will not provide recommendations to individuals about specific debt solutions to pursue, debt advisers will not provide specific recommendations to individuals about which pensions options to pursue.
However, that does not mean that the support offered by the single financial guidance body is not holistic in approach. Ensuring that the new body offers joined-up, holistic support to members of the public who require help with overlapping needs is important. Indeed, one of the key aims of bringing the functions of the Money Advice Service, the Pensions Advisory Service and Pension Wise together was to improve the co-ordination of these services. The body will be well placed to deliver this seamless service, including through—this is the important point—warm handovers and signposting to the different functions it offers. This will be central to ensuring that members of the public receive the personalised, holistic support they need.
That brings me on to the wider strategic function of the new body. My noble friend rightly draws attention to the need for a greater public understanding of how to access information and guidance, as well as distinguishing between some of the key terms, such as education, information, guidance, counselling and advice. These are key elements in improving the financial capability of members of the public. The existing services are already doing important work in these areas, and we expect the body to pick that up and continue it in the future. Indeed, the recent report from the Financial Advice Working Group, which conducted research into the terms “advice” and “guidance”, concluded that there was no value in changing the terms. The key is to have agreed and easily understandable definitions. We know from this work that people draw on multiple sources of information for help with their financial decisions but typically do not think of these as advice or guidance.
It is important that the body and its delivery partners ensure that the person they are supporting is clear about whether they are being advised to take a course of action or being given a range of options. That is what we must bear in mind. It is also important to think about the set of skills and permissions that advisers have when considering whether they can give advice on certain ways forward. However, rather than specify these elements—important as they are—within the legislation, we expect them to be wrapped up as part of the body’s wider strategic function to improve the financial capability of members of the public. Not only will that ensure that we do not limit the body’s ability to tackle a range of priority concerns now, working with others in the industry, the devolved nations and public and voluntary sectors; it will also ensure that the body is flexible enough to respond accordingly to emerging issues in the future, including any potential changes to language.
I am grateful to my noble friend Lady Altmann, the noble Lords, Lord McKenzie and Lord Stevenson, and other noble Lords for giving me the opportunity to put on the record the Government’s view on these important matters. It is also worth saying that the Financial Advice Working Group has recently looked at the broad terms “guidance” and “advice” in relation to the Financial Advice Market Review. The Financial Advice Working Group conducted consumer research that tested alternative terms but none emerged as strong alternatives to “advice” and “guidance”. However, consumer understanding of these two terms significantly improved with concise, consumer-friendly explanations. That is at the nub of this question. Therefore, the Financial Advice Working Group recommended that the terms “advice” and “guidance” should not be changed, as there was no clear consumer preference for new terms to justify the cost of changing them. Instead, the working group recommended that the market should, subject to analysis, consultation and cost-benefit analysis by the FCA, adopt a consistent set of explanations for different types of service.
Turning back to the question raised by the noble Baroness, Lady Kramer, a debt adviser is only authorised to give debt advice. As to whether the body could give advice to members of the public with automatic enrolment issues, no, it could not recommend that they opt out.
Lord Stevenson of Balmacara (Lab)
I understand that a note has come at pace with its best advice. It might be sensible to ask for a letter on this point because it is at the heart of not so much the naming game but functions. If advisers of the body will not be able to move seamlessly, however many hot keys they are able to employ, from pensions to general expenditure and back again, it is a different body to the one we are trying to set up. As I understand the situation—this is what I would like to be checked back—it is possible for an individual to be authorised to give advice on both debt and pensions, but the debt advice community has broadly not chosen to go down that route, regarding pensions as needing expertise that would be difficult and expensive to acquire. What the noble Baroness has said is not entirely wrong, but it is not entirely right either.
Baroness Kramer
Perhaps I may add to that. Partly this is problematic because individuals receiving the debt advice may not understand that there is no discussion of their pension pot, because the adviser is unable to raise the issue and, therefore, they may not recognise that they are being offered a series of potential solutions within a limited framework that does not make use of the full financial resource that describes essentially who they are and what they have available to them. We use advice only in the regulated sense, but the person listening thinks that it is advice in common terminology, and that is why we end up with the problems that the noble Baroness, Lady Altmann, is trying to address.
Baroness Buscombe
This turns on the question of what we mean by seamless. The point is that this body will be able to signpost people. The most important thing about the use of language, in a sense, is the ability of the advisers to clearly signpost and explain who can advise on what. It is a question of who has the advice, the skills and permissions to give debt advice and who can only give guidance.
I am not sure why there is an issue about this. It is more about the ability to signpost people in the right direction. Certainly, all the analysis has shown that changing the terminology makes no difference at all. What makes a difference is the ability of people to understand what it is they are able to receive and from whom.
Lord Sharkey (LD)
Is it not the case that, if you can give only debt advice, that advice will be defective if you cannot take into account the pension liabilities and pension assets?
Baroness Buscombe
There is clearly an issue here. This question is being looked at, at the moment. As I explained before the noble Baroness, Lady Kramer, intervened, there is a consultation which covers a range of things, including how best to deliver debt advice and money guidance in a blended fashion, in line with the needs of the individual. This consultation has come about in recognition of the fact that there is no magic bullet at the moment for this issue. However, surely that should not prevent or preclude the creation of a body that will, to the best of its ability, signpost people in the right direction to receive the right guidance and advice as is appropriate.
I note what the noble Baroness, Lady Kramer, said about the name. I hoped that we had made it clear at Second Reading that the reason why we do not want to put the name of the body in the Bill is, unfortunately, we have every good reason to suspect that it could lead to other individuals holding themselves out and mimicking the body. It could lead to all kinds of problems if it was set up online as a spurious website, and so on. Call us cynical, but we have to be particularly cautious about that.
I am not convinced that politicians in Parliament are best placed to decide what the name should be. A lot of the terminology used within your Lordships’ House and beyond in our political lives, by those of us who are of a political leaning, no one understands. For example, when we talk about political wards, and so on, it sounds as though we are in a hospital. It is best left to the people who will be brought on board to run the single body to make those decisions and that that is done, therefore, through delegated legislation. On that basis, I hope my noble friend will withdraw her amendment.
Baroness Altmann
I thank my noble friend the Minister for her remarks and all noble Lords for their excellent contributions on these vital issues and for much of their support.
This debate gives a clear example of why these amendments are necessary. There is obviously immense confusion about what advice is, what guidance is, and how they work. If we are setting up one body, it is essential that we are able to have a holistic service. I reiterate that one of the issues at the heart of this, for me, is that the body needs to serve and think about people, not products. Currently, we have different bodies that are geared towards products, whether it is helping people with debt, pensions or other savings, or managing their money. However, we are setting up one body, which is being explained to the public as providing holistic help in one place.
If we continue to call this “debt advice”, I can imagine someone coming along to the body and saying, “Can you help me manage my debts?”, and the body saying, “Yes, go and get your debt advice”. The individual goes for the debt advice and then says, “I have got this workplace pension that I ought to enrol in, what do you think? Should I opt out or not?” The person giving the debt advice currently would have to say to them, “No, you need to get financial advice for that”, because that is what the other activity is called. The individual would say, “But I thought I was here for advice. You are giving me debt advice”. “Yes, I am giving you debt advice, but you need financial advice for the pension. I can only give you guidance on the pension”. So immediately it is not holistic and immediately the person is confused.
The official umbrella term for helping people with debt is “debt counselling”. Debt advice is a subset as a part of that. We have an opportunity now, when we are setting up a unified holistic body, to do something that is in the interests of the person who will come along with complicated circumstances. It would be a missed opportunity if we let this pass without clarifying it for ourselves and changing the words “debt advice” to something else. My noble friend mentioned that the Citizens Advice Bureau does not call it debt advice but “help with debt”. That is a clear indication that the people it serves do not like the term debt advice, which is what it has told me, too.
I accept completely and appreciate that my noble friend the Minister is looking at this and has spent time considering it, so I would ask her to please carry on doing so.
Baroness Buscombe
I am mindful of what my noble friend has said, and I hope that she is encouraged by my reference to the consultation that has been set up so that we can somehow overcome the issues around providing a truly seamless and holistic approach to giving people advice and guidance. We will think it through some more before Report, and I shall reflect on all that noble Lords have said. It has been very helpful to have this detailed debate.
Baroness Altmann
I thank my noble friend for those remarks and I beg leave to withdraw the amendment.
“( ) the debt solutions function.”
Lord Stevenson of Balmacara
My Lords, in moving Amendment 5 I shall speak also to Amendment 42. Here I shall begin to put some flesh on to the bones of the discussion we have already been having. The amendment tries to unpick some of the questions about exactly what is going on among the various legs which are being added to this body. We are beginning to recognise that it is no longer going to be called the single financial guidance body for debt but the “signposting to other financial guidance support services”. That may well be where we end up, although I think that that would be sad.
Amendment 5 adds to the list of functions set out in Clause 2(1) what I call the “debt solutions function”. There is no advice, no guidance and no information. It will have none of that airy-fairy stuff because it is about solutions—getting people from the point at which they are unable to manage because their debts are beyond them to the point where they can re-engage with the wider world, take out credit and get back into ordinary living. That is the difference which was alluded to in the last debate; namely, that which can only be advice and that which is regulated to be solutions. It is important to make that point strongly here. Simply using the debt advice function can include these other areas, and indeed the earlier debate showed that, but it would be more helpful if the Bill explained and extended what is available to those who will approach the body and did so by clearly signalling that one of the important functions, one that will be important to them, is a debt solutions process.
The purpose of putting this in Amendment 5 and linking it to Amendment 42 is to be able to take a further step in the discussions which this Bill should engage with in terms of what it will allow, permit, encourage and support. That will lead naturally to the amendments in the fifth group containing Amendments 7, 23 and 41, the first two in the names of the noble Baroness, Lady Kramer, and her colleagues. Those amendments seek to add another function to the way we hope that debt advice can lead to debt solutions by creating what is commonly called a breathing space, to which I will return when we come to that arrangement. They can be seen both as an opening up of more functions and providing more certainty about what the body will be able to do and to deliver. They are also an example of what action is required in terms of insolvency which would seriously enhance the ability of those who are working in this area to take clients on a journey that allows them to emerge from their current debts.
We had some difficulty with the clerks in getting this amendment in scope. It is not in the form that I would have preferred to see because—I will say this again on the breathing space amendment—what is required now is what was set out in both the Conservative Party and the Labour Party manifestos, which is that England and Wales are a long way behind Scotland in dealing with debt solutions. One of the great advances made by the Scottish Parliament has been to introduce a statutorily based breathing space and different insolvency regimes which very much have the client at the heart of what they are doing. The regimes are not creditor dominated. I could give noble Lords a brief lecture on the history of credit and creditors in this country but I will not because there are too many experts here who might pick me to pieces. However, we are obsessed by the place of creditors in our society. We ignore the problems that an overly zealous approach leads to: whenever there is a problem, the creditors are always assumed to be in a strong enough position to require 100% repayment of the debts that they have advanced to people. That has led to real difficulties when for reasons which have already been mentioned, people get into problems with their finances, even if it is not always their fault.
Baroness Buscombe
My Lords, I thank the noble Lord, Lord Stevenson, for his positive contributions so far on the Bill. He has raised an important issue regarding the status of current insolvency regimes available to members of the public in England and Wales.
Amendments 5 and 42 tabled by the noble Lord would introduce a new function to the body with regard to debt solutions in addition to requiring it to review the current insolvency regimes available for members of the public in England. This would also apply in Wales, as the insolvency regime is common across both nations.
The Government are committed to helping those worst affected by problem debt. I agree with the noble Lord, Lord Stevenson, that the insolvency regime for members of the public, including businesses, must be of high quality and be kept under review to ensure that it works as it should. It must provide essential debt relief for those who need it while offering those able to repay their debts the opportunity to do so. I commend the noble Lord on the work that he has done with StepChange and have listened with care to the examples that he gave, which are of course deeply concerning, in relation to debt and insolvency.
I assure the noble Lord that the Government are indeed committed to ensuring that we retain the best possible personal insolvency regime. The Insolvency Service, which is an executive agency of the business department, is charged with delivering economic confidence by, among other things, supporting those in financial distress. The service has implemented a number of changes to the personal insolvency regime to make improvements where they are required. For example, in April 2016, the Government removed the need for a person applying for bankruptcy to go to court. The Insolvency Service keeps the personal insolvency regime under review on behalf of the Government and works closely with the Money Advice Service and the wider debt advice sector.
Working with the Insolvency Service, MAS—the Money Advice Service—launched a consultation on improvements to the debt solutions regime across the country in February this year. This consultation followed a period of in-depth research with users of the main insolvency solutions across the UK and a review of each separate insolvency solution. All the major debt advice providers and many other stakeholders responded to the consultation. MAS will publish a response to the consultation later in the year. It is reviewing the responses with its debt advice steering group, which includes representatives of all the major advice providers and the largest creditors.
The single financial guidance body’s strategic function requires that it, too, works with others in the financial services industry, the devolved authorities and the public and voluntary sectors. The Government therefore expect that the SFGB will continue to work closely with the Insolvency Service to ensure that the insolvency regime in England and Wales meets the needs of members of the public.
The Government agree that the insolvency regime must remain fit for purpose and be regularly reviewed. That is why MAS, working closely with the Insolvency Service and the debt advice sector, has undertaken its consultation. However, the duty to review the regime remains the responsibility of the Insolvency Agency. Of course, there is a role for the new body to work with the Insolvency Agency on this matter, as MAS does now. My view is that this is captured by the strategic function set out in Clause 2(7). For these reasons, I ask the noble Lord not to press his amendments.
Lord Stevenson of Balmacara
I thank the Minister for her full response and recognise much of what she said about the work currently going on. We are back in the same territory. The body will not work as we are beginning to envisage it if at every turn blockages are put up. It will be an insolvency service behind a different departmental boundary—it is in BEIS and not in DWP—making decisions of primary importance about clients coming to the single financial guidance body and the debt advisers seeking help with a problem. I accept that it is way the world is, but if it became clear after the reviews and further consideration of the points made here—there are many other people who can send in evidence—we might want to change that, having missed the opportunity to do so in the Bill. I appeal to the Minister to think again about this and to see whether it might be sensible to have a power somewhere in the Bill giving the single financial guidance body the opportunity to make proposals at least. In my view, we have the power to change it to help the consumers that it tries to deal with, but I realise that may be a step too far at this stage. I beg leave to withdraw the amendment.
Baroness Drake
“that must remain free at the point of use for members of the public.”
Baroness Drake (Lab)
My Lords, I shall speak also to Amendments 28, 29, 30 and 32. I refer the Committee to my interests in the register, including TPAS.
Amendment 6 would put in the Bill the requirement that the functions delivered by the financial guidance body remain free at the point of use for members of the public. Supporting vulnerable individuals and increasing people’s ability to manage their financial affairs and make informed decisions are a major public policy challenge which has systemic roots. It underpins the creation of the new body to improve life outcomes for members of the public. The policy will need to be long term, as will the essential ingredient, “free at the point of use”. For it not to be free risks undermining the body’s reach to those who most need it and compromising its impartiality, because introducing charges raises conflict as to where organisational effort and resource are directed, as between most in need and potential to raise revenue.
Amendments 28, 29, 30 and 32 are all directed at requiring the provision of information, guidance and advice by the new body to be independent and impartial. Much in this Bill is at high level, which is understandable because of two requirements: the new board needs scope to build an organisation fit for purpose; and the new body needs flexibility so that it does not duplicate fit-for-purpose information and guidance sources that already exist, but also so that, over time, it is allowed to go wherever it identifies it needs to go in provision to assist and support the public. However, in meeting these two requirements, the Bill cannot be so imprecise that it introduces uncertainty. There should be little ambiguity as to the footprint of the new body’s functions and objectives, as hard experience tells us that in the field of public provision of financial information and guidance such ambiguity has not been a good thing.
My amendment would address that problem by amending Clause 2 so that the objective of,
“to support the provision of information, guidance and advice in areas where it is lacking”,
was amended to read,
“to support the provision of independent and impartial information, guidance and advice”.
Introducing “independent and impartial” would set qualitative parameters to what is provided, commissioned or otherwise approved or endorsed by the financial guidance body brand. It must be wholly customer focused, driven by the interests of the individual and not fettered by commercial or other vested interests. If the new body is not independent and impartial, it will not be trusted by the public and it will compromise its own objective to enable people to make informed decisions. A commercial comparison website that takes commission is very different from a factual comparison table that provides information based on customer needs. Guidance from a provider with a vested interest in the decision a customer makes is likely to be partial.
Baroness Coussins
My Lords, I support Amendment 6, which I rather hope might prove uncontroversial. This is because, as I understand it, it is the Government’s firm policy intention that the services that the SFGB will commission will be free at the point of use to members of the public—as is the case with current arrangements. Given that what we are debating here are the arrangements for advice and guidance for individuals who are often in financial difficulty, certainly in the case of debt advice but also in other situations, this free-to-client principle is of such fundamental importance that it should be in the Bill.
On a separate point, the amendment uses the phrase “members of the public”—as does the Bill in relation to the SFGB’s functions and objectives. I would like clarification from the Minister that this phrase will include those members of the public who are self-employed. At Second Reading she referred to the body’s remit excluding micro-businesses, so clarification on the position of self-employed people would be welcome, in particular as they now account for 14% of the UK’s workforce. Indeed, the growth of self-employment has led to a significant increase in debt; self-employed people are increasingly taking out personal loans to finance their business needs, so the dividing line between personal debt and business debt is becoming increasingly blurred. Current arrangements for debt advice provision through the Money Advice Service do cover debt advice for people who are self-employed, and I would be grateful if the Minister could give us an assurance that this will continue.
Baroness Kramer
My Lords, we support the amendments in this group. I start from the assumption that they are remedying a momentary lapse in the energy of the team that was drafting the Bill, because I cannot believe that the Government are not fully signed up to the principles that advice should be free at the point of use, and also both independent and impartial. So I, too, suggest that these amendments are surely uncontroversial and are useful to the Bill to make sure that the point is not lost, as they remedy those moments when long hours of work and not enough coffee made it difficult to remember every single issue that had to be grasped in the general drafting of a Bill of this complexity.
Lord McKenzie of Luton
My Lords, it may come as no surprise that we on the Front Bench support my noble friend Lady Drake, for all the reasons that she and others mentioned this evening. Certainly, if advice was not free at the point of use, it would undermine the function and could create conflicts of interest, as my noble friend said. Issues around independence and impartiality are absolutely crucial. I am delighted to hear that HMRC had to cough up for a fridge—it is not a usual occurrence and I congratulate my noble friend on engineering that.
I say to the noble Baroness, Lady Coussins, that we entirely agree with the point about the self-employed. We have tabled an amendment on that later in the Bill and I hope that we will be able to make common cause on that as well.
Baroness Buscombe
My Lords, I thank the noble Lords, Lord McKenzie and Lord Stevenson, and the noble Baroness, Lady Drake, for putting their names to the amendments in this group. They seek to amend the existing functions and objectives in the Bill to ensure that the body’s services are free at the point of use, that the guidance, information and advice provided is independent and impartial, and that the body provides its services broadly rather than focusing support in areas where provision is lacking.
Amendment 6, tabled by the noble Lords, Lord McKenzie and Lord Stevenson, specifies that any information, guidance or advice delivered by the new body or its delivery partners must be free. I note that this point was raised by the noble Baroness, Lady Coussins, as well. The Government absolutely agree that any help funded by the new body should be free at the point of use. The Government’s intention is to ensure that information and guidance are available to those who need it. We would not wish to prevent members of the public accessing help on the grounds of cost.
Pension Wise, the Pensions Advisory Service and the Money Advice Service currently offer free-to-client help and, as the Government noted in their consultation, the new body will do the same. Indeed, by bringing together pensions guidance, money guidance and debt advice in one organisation, the Government expect that savings will be made. As a result, we expect a greater proportion of levy funding to be made available for the delivery of front-line services to members of the public. I am grateful for the opportunity to address noble Lords’ concerns and will observe that Clause 5 confers on the Secretary of State powers of guidance and direction that may be used to prevent the new body entering into arrangements with fee-charging providers in the unlikely event that it should wish to do so.
Amendment 29, tabled by the noble Baroness, Lady Drake, would alter the wording of the Bill to remove the requirement for the body to focus its support for the provision of information, advice and guidance on areas where it is lacking. I understand the concerns that the noble Baroness raised, and it is right to make the point that the new body’s responsibilities and functions are not relinquished simply because provision of some kind is already delivered by a third party. That is a very important point to stress. However, with respect, I do not think that the amendment is required in this instance.
It is important that the new body uses the funds it receives in a cost-effective way, thereby achieving maximum impact for members of the public. The current wording of the Bill aims to achieve this by ensuring that the body targets its activities towards those areas where information, advice and guidance are lacking. It would be helpful to explain what we mean by “lacking”. For example, provision may said to be lacking where it is not of the right quality, lacks impartiality—or, indeed, where it is absent altogether. As such, the Bill’s current wording ensures that the body carries out its functions in the most effective way possible, delivering value for money from public funding and avoiding unnecessary duplication.
As noble Lords will be aware, duplication of services with other providers was a key criticism of the Money Advice Service, both from the Treasury Select Committee and from Christine Farnish’s independent review. The Government are keen to ensure that the new body avoids this issue and have drafted legislation to reflect this. However, the proposed amendment could increase the likelihood of the new body duplicating existing and already adequate provision rather than complementing it, thereby compromising its ability to deliver value for money. Not focusing its activities on areas where support is lacking would increase the risk of leaving gaps in provision, to the detriment of members of the public.
Amendments 28, 30 and 32, tabled by the noble Baroness, Lady Drake, would alter the wording of the Bill to include a requirement for the information, guidance and advice delivered by the body to be independent and impartial. The Government agree with the intent behind the amendments. Of course, it is important that information and guidance provided by the body is both impartial and independent from commercial interests. Members of the public must be confident that information and guidance provided by the body or on its behalf is trustworthy and accurate, and that it is not designed to sell particular financial services products—a point stressed by the noble Baroness.
Baroness Kramer
Will the Minister take away and think through this issue? Their Lordships have been perfectly correct in saying that many people who are self-employed raise a personal loan that then finances their business activity. Historically, there would have been relatively little overlap between these categories. When people went to a bank, the category would have been specifically personal or business. In today’s world, particularly with people borrowing from peer-to-peer platforms and through various other internet mechanisms, that clarity has disappeared. I would not want to see—as I am sure this House and the Government would not—an adviser caught in a particularly awkward trap, trying to work out whether they are talking about an individual or have tripped over into a prohibited category because the funds are used for a business. Therefore, clarity around this will be crucial.
Baroness Buscombe
I will certainly take the point away—it was well made. I assure the noble Baroness that this should be part of the whole development of the service, whereby there is very clear signposting on the part of the adviser when talking to any individual to make sure that they understand that it is about their personal finances; it is not about finances that are in any way connected with their business.
Lord Sharkey
Many of the jobs we have created since 2010 are sole-trader jobs. Is it not the case that there is no meaningful distinction in sole-trader jobs between personal finance and business finance?
Baroness Buscombe
As I just said, we will need to take back and clarify this point. My understanding is certainly that we should focus on an individual’s finances, as opposed to finances attached to their business.
Once again, I thank noble Lords for bringing forward these amendments. I hope they will agree that they are unnecessary in the context of the Bill. I am grateful to the noble Lords because we have had the opportunity to make it clear—it will be clear in Hansard—that it is unnecessary to put into the Bill additional terminology. I urge the noble Lords, Lord McKenzie and Lord Stevenson, and the noble Baroness, Lady Drake, not to press their amendments.
Baroness Drake
I thank the Minister for her reply. We are in danger of breaking out into agreement, because I agreed with a lot of what she said. However, the Bill does not state what the intention is. I completely agree with the body being cost effective. I do not want to engage in duplication. I agree with its focus on the front line and that it must identify and address where information and guidance are lacking. I do not believe that any of my amendments contradict any of those requirements or the desirable directions that the Government want to take. But when the body seeks to implement the objective of identifying where something is lacking—and therefore where it has a footprint and something to do—there is a test to be met, and there is no guidance or reference or indication of any kind in the Bill as to how that test would be met. My argument is that of course one would not want to be too prescriptive but that independence and impartiality must be the essential characteristics of any test.
This will be a controversial area. There are lots of private sector guidance and information functions. There will be contests over where the boundary of the footprint of the single financial guidance body ends and commercial practice begins. I do not want to detract from the Government’s aspiration for the body but I think there is a gap, because there is no legal or legislative guidance for the test to determine what is lacking. I ask the Minister to reflect on that. I said at Second Reading that if ever there was a word that needed testing, it was “lacking”. If something is lacking, there has to be a test to identify that. I beg leave to withdraw the amendment.
Lord Sharkey
“( ) In relation to the strategic function, such advice to the Secretary of State may include advocating for the introduction of a period of up to 12 months during which time interest and other charges on an individual’s debts may be frozen, and enforcement action halted, in order to allow them time to seek and act upon debt advice.”
Lord Sharkey
My Lords, in moving Amendment 7, I shall speak also to Amendment 23. These amendments, in my name and those of my noble friends Lady Kramer and Lord Kirkwood, concern debt moratoriums, and cold calling for the benefit of debt management services and pensions providers or advisers.
Both issues were discussed extensively at Second Reading. Along with other noble Lords, we asked why there was no provision in the Bill for a debt moratorium or a ban on cold calling. I made the point that much cold calling for fee-paying debt management services has been found by the FCA to be misleading and damaging and affected the most financially disadvantaged. I also noted that we do not allow cold calling for mortgages and we should not allow it for debt management, pensions or claims management.
The problem represented by cold calling is getting worse. Truecaller, a call-blocking service, produced research last week that shows Britain’s cold-calling nuisance to be the worst in Europe. The number of spam calls has risen by an astonishing 180% in the past 10 months. We are now bombarded with 2.6 million calls a month—more than 31 million calls per year—despite new rules intended to limit the problem. This is a completely unsatisfactory situation, as is the absence of a debt moratorium.
In her Second Reading response, the Minister acknowledged the merits of a debt moratorium. She said:
“A breathing space scheme could help people affected by serious debt by stopping creditor enforcement and freezing further interest and charges on unpaid debt”.
A stronger version of this statement appears as a commitment on page 60 of the 2017 Conservative manifesto. The Minister went on to say:
“However, breathing space legislation would be lengthy and complex. As such, any breathing space legislation would need to be properly prepared and consulted upon, and Treasury Ministers will outline further details in due course”.—[Official Report, 5/7/17; col. 943.]
This is not promising. The two-year legislative programme in the Queen’s Speech does not provide a suitable legislative vehicle for future action on breathing space. This is not at all surprising when you consider the complexity of the inevitable difficulties with the Brexit Bills that were in the Queen’s Speech, but it is bad news for those in serious debt.
The Minister said much the same things and gave the same reasons for not producing the already promised ban on cold calling for pensions. She said:
“It is a complex area that requires careful and detailed consultation with stakeholders during the year. In particular, there are questions of how to define existing relationships and how to deal with referrals and third parties. As such, we do not propose to include a cold-calling ban in the Bill at this time”.
Again, this is very disappointing. As the Minister noted, pension scams can cost people their life savings and leave them facing retirement with no opportunity to build up their pension savings again. That is a catastrophic risk. Surely it is the duty of government to act very quickly to protect people against that risk.
The Minister was equally discouraging about cold calling by CMCs. She said simply that,
“strengthening the regulation of claims management services should reduce the number of nuisance calls”.—[Official Report, 5/7/17; col. 944.]
She said “should” not “would”, and “reduce” not “stop”. This is entirely unsatisfactory, as the airline and holiday industries are currently and loudly pointing out. The huge and absurd rise in claims for food poisoning while on holiday abroad is a clear example of cold-calling abuse.
Our amendments address both the breathing space and the cold-calling issues. We would have preferred to amend the Bill to institute the former and ban the latter, but the scope of the Bill is narrow and to stay in scope our amendments stop short of that. Instead, Amendment 7 allows the SFGB to advocate to the Secretary of State that a breathing space be introduced. Amendment 23 requires the SFGB to publish an annual assessment of,
“the extent to which consumer detriment is caused”,
by the absence of a breathing space and a ban on cold calling for the benefit of debt management services and pension providers or advisers.
However, these are only approaches to a resolution. There is a better way. The Government could table, later in Committee or on Report, a simple amendment which gives the Secretary of State the power to bring forward secondary legislation to introduce a debt moratorium and to ban cold calling for DMCs, pension providers and advisers, and CMCs; with a corresponding and minor tweak to the Long Title. It is perhaps a little unusual for an opposition party to suggest a Henry VIII clause to the Government; the convention is normally that it is the other way round. But since it is clear that the Government agree in principle with these moves and the only barrier is one of time, we could use this legislative vehicle—the Bill before us—to achieve what the Government have already promised.
If the Government do not do this, we see no likelihood in the next two years of helping those seriously in debt or in danger of being fleeced by cold calling. That is much too long and quite unnecessary. We should use the Bill to give the Government the power to protect those at risk. This is in the Government’s hands. Might I suggest that we meet to discuss this unusual proposal as a matter of urgency? I beg to move.
Viscount Trenchard
My Lords, I have some sympathy with the amendment moved by the noble Lord, Lord Sharkey, to introduce a breathing space, and I have very much sympathy and agreement with his proposal that cold calling should be banned. He is right to say that cold calling has become a complete menace. It has, and it is getting worse by the month. I receive all kinds of spam texts and calls to my mobile, telling me I have debts and saying, “Would you not like us to help you repay them or have them written off?”. These people are a complete menace. The worst thing is that young people are taken in by them.
Of course, a lot of the problem is caused by lenders putting out offers of very cheap money to hard-up people, young and old, who are tempted to take advantage of 0% for 20 or 24 months. Then in very small type somewhere at the bottom it says that, after a relatively long period, the interest rate applicable to these loans will change from 1% or 0.8% to an APR of anything from 25% to 37%, or even higher. I would think it utterly reasonable that some kind of moratorium be put in place to protect people who have been tricked into taking out loans of the kind that I have just described.
Baroness Altmann
My Lords, I echo the wise words of my noble friend Lord Trenchard and certainly support the spirit of these amendments. It is right that we in the Committee should debate the concept of the single financial guidance body being able to help the Government in circumstances where the market is failing customers in a significant manner, such as has just been described. We all know that people are being enticed with teaser rates into debts that they are ultimately unlikely to be able to afford to repay. This is sometimes because salespeople are rewarded for the loans that they manage to get people to take on but do not necessarily stay around to worry about whether that debt is ultimately going to be repaid.
I also support the concept of banning cold calling. We will come to other amendments later on the claims management side. I would echo the concept in those on cold calling for pensions. The unsolicited approaches to people, enticing them to do things that are not in their interest, is a real problem. We would be wise to see whether we can find ways to address that while we are concerned with the financial circumstances of the general public in the context of the Bill.
Lord Stevenson of Balmacara
My Lords, we are not having much success with our amendments here on the other side. I had hoped that the climate of a Government not having a clear majority in either House and the general spirit of wanting to work together on improving things would allow them to put at least one change of wording into the Bill as it stands, if nothing else. But I see that the tyranny of the Bill is with us still, and that there is a determination in the serried ranks of those looking with stern faces from the sidelines to ensure that Ministers do not depart in a single way from the track by showing weakness. In fact, we think they would be strengthening the Bill by accepting some of our amendments.
At this moment, we are giving them two options for the breathing space. The very good amendment put down in the names of the noble Baroness, Lady Kramer, and the noble Lord, Lord Sharkey, is echoed by Amendment 41, which is in my name and that of the noble Earl, Lord Listowel, and the right reverend Prelate the Bishop of Newcastle, whom I thank very much for their support. There is a bit of a movement across the House whereby the time has come for a breathing space. I hope that the response to this amendment will be better than before.
As has been said—I said this on an earlier amendment—it would be much better if the Long Title of the Bill were such that it would take a real policy direction, and that the amendments were therefore not curtailed in the way that they are. We are having to seek that the body, as part of a strategic function, has generalised powers. Would we go as far as a Henry VIII power? I think that our arms could be twisted on that. As the Minister is aware, they have been offered on previous occasions; in debating the Digital Economy Bill, we were almost throwing Henry VIII powers at them. But they would not take them, the tyranny of the Bill being so strong.
Here is another option: there is no doubt that a scheme called breathing space has been working well in Scotland. It has done so now for nearly 10 years and been through three or four refinements. Some of the questions raised by the noble Viscount, Lord Trenchard, have therefore already been addressed there, and I do not think he would find it quite so bad. I know that the noble Viscount is shocked by having the curtain of secrecy torn down regarding what happens in the creditors’ dark rooms when they discover that they have unpayable debts. However, I can tell him that if a breathing space is built in, as it has been in Scotland, it is possible to get returns to creditors that are much nearer the full 100% which they seek. We may be talking about 60%, 70% or 80%. Indeed, in the Scottish system the debt arrangement scheme has a pretty good record of getting 90% or 95% back to the creditors.
The noble Viscount should not be too worried about small entrepreneurs and others, when this is not their province. We are talking about household bills, credit card companies, banks and, increasingly, the Inland Revenue—it has money to spare, has it not? We are talking about local authorities, store cards and utility companies. These are the bodies creating the conditions, not necessarily in any destructive sense, under which it is too easy for people to borrow beyond their means to repay. The spiral of debt moves very fast when they suddenly get into it and find themselves in a hopeless situation. In StepChange—I am sure it was true of the other debt advice organisations—our best day in the year for business, but our worst day because of what was happening, was 23 January. That is the day when the credit card bills come in for Christmas and at that point, reality sometimes sinks in and people realise that they are out of their depth. They cannot respond and that is when the panic calls start.
One theme that we have not addressed in the Bill so far, but which I want to nail now, is the real problem there is in getting people to engage with the services that are available. We can label or signpost them—we can do what we like—but getting people to move from the vague realisation that there is a problem to actually seeking help in a constructive way that will get them out of their debt is the hidden problem. As well as making sure that the bodies we set up through the Bill work with the sole purpose of making sure that the consumer or individual citizen is at the heart of what they do, we have to recognise that we are not doing it well at the moment and there is still a long way to go.
Research carried out when I was at StepChange showed, I think, that it took about a year from people’s first indication of problems with their debts to seeking a debt management plan and going ahead with one. It must therefore be right that we all make every effort we can to ensure that there are systems, bodies, organisations, structures, mechanisms and techniques that will get people on to a way that gets them out of the debt, because the damage is so great. The breathing space scheme works in Scotland, and it is not difficult to see how it could be adapted to work in England. At the moment, there is no statutory scheme. We are talking about a breathing space period where interests, charges and collection activities are postponed without a requirement to make payments. That would give people time to seek advice and stabilise their finances enough for their debt adviser to recommend how to get out of it.
There is another thing about debt advice. I meant to make this point on an earlier amendment, and I apologise for getting carried away by what we were trying to do when we were discussing names. The physical product of most debt advice that is being exchanged in return for people’s engagement is a budget, which most people do not have. I am guilty of this, and most people in the Chamber probably are as well, as I do not have absolute certainty about where every penny of the very limited number of pennies I have under my direct control goes every month. Multiply that by the 63 million people in this country and you recognise that there is a bit of a problem here. If you ask them, people have no idea of what they are doing with their money. When I first went to Step Change, I was told that of 100 people who rang it, 30 people were obviously suitable to go straight on to a debt management plan and did, but about 10 of them actually had enough money to sort out their problems but did not know it. It was a question of going through every item of their expenditure line by line and making them believe that it was going to be all right and that, although it might take four or five years, there was certainly a solution. They did have the money, but they just did not realise it.
There is both a very simple solution to a lot of the problems we are seeing and a very complicated one, but both would benefit from having time to work through the options and to make sure that people are signed on and can go forward and get out of debt. We have to crack getting people. I think the Minister used the phrase “hot keying”, and I agree. If you catch them at any point in the cycle, hold on to them. Make them do something about their problem. Get them engaged and excited—and not only will you get them out of their debt problems but they will get an educational experience. It is only when people are in the crisis of not knowing what they are going to do, how they are going spend their money and whether they have enough cash to buy a meal for the kids that evening that they begin to feel, “I must get out of this and get it right in future”. That is what we must do.
When you can get a breathing space in, it is a sensible solution. It would work. The problem is that the Bill as currently constructed does not easily allow us to put this in as an amendment, but at the very least can we make sure that the powers exist for this to be taken as the next step forward, because it is certainly worth supporting?
The Earl of Listowel
My Lords, on cold calling, my mother suffered from dementia and, in the early stages, before we realised quite was the problem was, we were very concerned about attempts to defraud her, so I say to the noble Viscount, Lord Trenchard, that it is a problem not just for young people but for the elderly and the increasing number of people with dementia. I welcome that aspect of the debate.
I thank the noble Lord, Lord Stevenson, for tabling Amendment 41, to which I was pleased to add my name. I am grateful for the expertise on this issue that he brings to the Committee with his long involvement with StepChange. It has been good to hear the Government’s concern for those who have been left behind and for families who are struggling. I welcome that their manifesto said:
“We will adopt a ‘Breathing Space’ scheme, with the right safeguards to prevent abuse, so that someone in serious problem debt may apply for legal protection from further interest, charges and enforcement action for a period of up to six weeks”.
That is a very welcome commitment from the Government. I think the noble Lord is just seeking to help the Government to meet that commitment as soon as possible.
As treasurer of the All-Party Parliamentary Group for Children, I am particularly concerned about the way that family debt impacts on children. We know from Children’s Society research that, where a family has multiple creditors, the children fare worst. This welcome breathing space scheme would enable multiple creditors to be held at bay for a period of six weeks. What often happens is that, just because one creditor will not agree, there will not be that breathing space and proper planning cannot be put in place, so this is a very important proposal.
As a particular example, I think about care leavers. Until fairly recently, one-third of them left local authority care at the age of 16, and more recently one-quarter of them left at that age. We are making further progress on that. They are young, they have had trauma and they are out in the world fairly unsupported. Over the past 15 years, as a member of the All-Party Parliamentary Group for Looked After Childrenand Care Leavers, I have heard many young people talking about how they got into debt and about issues about paying for their housing. We know that care leavers are historically overrepresented among rough sleepers, often because they have fallen into debt around housing.
I can give as an example Emma—I shall call her Emma—who sought advice from Toynbee Hall. She was a care leaver. In 2015, she began a zero-hours contract. She had council housing, but she fell into debt, so over the course of about a year and half she was being pursued by the council for not paying her council tax and rent arrears and by a number of non-priority creditors. This caused her a great deal of stress. At the end of 2016, she got herself a regular job and was able to get a plan and begin to pay her debts off. How much better for that young woman if help had been there at the beginning of 2015. She would not have had to go through that and the creditors would have got their payment. At times, she was having to choose whether to eat, pay her rent or pay her debts. I hope the Minister can give a sympathetic response to the amendment.
Baroness Meacher (CB)
My Lords, I apologise for not having been present at Second Reading. I rise to express my support for the generation of this new body on condition that it leads to an increase in resources for front-line services. I particularly support Amendment 41, although I also support the comments made about cold calling.
I am sure I am not alone in receiving endless calls from single mums, in particular, with young children, who are desperate because of their debts which are mounting week by week. We all know the burgeoning use of food banks and the interminable queues at citizens advice bureaux of desperate people seeking help.
The breathing space proposal has cross-party support. It is so obviously badly needed, and urgently so. The fact that 60% of people offered this service were enabled to stabilise their debt and begin working towards solving their problems is surely evidence enough that the introduction of a breathing space programme should not be delayed.
Some 2.4 million children are living in families with problem debt in England and Wales. What proportion of these children’s parents have mental health problems? I suggest that an extremely high percentage of those parents are suffering from depression and anxiety or both, yet the services for these disorders remain inadequate to say the very least. Our mental health services are under huge pressure, and they certainly do not need the addition of more clients because of these horrendous debt problems.
In 50 years or so of being quite close to poverty and unemployment, I have never known a benefits system so harsh, so inclined to sanction claimants and to cut or remove benefits and so limited a level of benefits available to people out of work. It is difficult to imagine that those claimants can avoid debt, even at the best of times, but once debt begins to build, resolution of the problem quickly becomes impossible. I urge the Government to take seriously Amendment 41 and the other amendments in this group.
The Lord Bishop of Newcastle
My Lords, I, too, rise to speak in support of Amendment 41. I declare an interest as a vice-president of the Children’s Society.
In the area covered by the Diocese of Newcastle, the Children’s Society data tell me that there are more than 42, 000 children living in poverty and that almost 18,000 children from almost 16,000 families are living with the blight of problem debt. Last year, I read a report in the New York Times on a large, randomised trial involving 21,000 people on the efficacy of various aid mechanisms to bring people out of poverty and debt. What emerged surprised the researchers. It emerged that one key mechanism is more effective than any other, and that mechanism is hope. Families that are stressed and trapped in poverty and debt can feel real hopelessness that becomes entirely self-fulfilling. Give people a reason to hope, and it can make an extraordinary and real difference.
A breathing space is one of the things that can offer such a hope—a hope that there is time to find a way through. I am sure the Minister is aware of the long-running campaign of the Children’s Society and StepChange to achieve a breathing space scheme for those in problem debt. I understand that, prior to the election, the Government indicated their support for the principle of such a scheme, and I would be very grateful if the Minister could update us now as to the current situation and about any further progress on this.
Lord Kirkwood of Kirkhope
My Lords, I do not want to delay this debate, which has been a very important one. This is the most important issue for me in the first 16 clauses. I share the frustration that has been reflected by powerful speeches from colleagues including my noble friend on the Front Bench, who made an excellent speech about the significance of the proposal in this group of amendments, particularly the breathing space provisions.
One of the reasons why this is so important is that debt, I think, is going to get worse, which is probably a realistic assumption to make, for the next four or five years. I have spent my entire life working on the benefits, social security and social protection side of state provision. It is increasingly untenable that the calculation of means testing takes no account whatever of levels of benefit. People might well be applying for universal credit now, and being allowed work allowances and tapers that are appropriate to a clean sheet of paper, but no question is ever asked of decision-makers about to what extent the household debt behind the application affects the family circumstances—which affects child poverty, as the right reverend the Prelate Bishop of Newcastle just pointed out to some effect. This is the most important part of the Bill for me.
This also puzzles me because I come from Scotland and absolutely endorse what the noble Lord, Lord Stevenson, said. For 10 years now, this system has been tried and tested there, and there is no doubt about the fact that it works. I know there are rumours that people in Scotland are particularly stingy and difficult when it comes to how they spend their money—particularly on the west coast of Scotland late on a Friday night—but it seems self-evident to me that consultations with jurisdictions in other parts of the country are part of what we should be doing in a new devolved United Kingdom. I would have expected the department to go across the border to make urgent and active inquiries into exactly what ingredients in Scotland have made this successful.
Indeed, you can argue it the other way round: it is not a good thing to have this level of disparity across the United Kingdom when the body we are setting up is UK-wide. The best practice that Scotland has demonstrated is being ignored—almost wilfully, if I can put it as strongly as that—through the position the Government are taking. Both the cold calling and the breathing space provisions are popular things to do. The Government would not be attacked by anybody I would think of as reasonable on either of these two important subjects. I do not understand why the Government are not being a bit more responsive to the unanswerable claims made in powerful speeches earlier this afternoon. I think the Government will lose in this House if they do not make some amendments, and solutions have been offered.
I know Governments do not like tinkering with Long Titles. I was a Whip for long enough to learn that, and it is not something I would want to start doing a lot myself. But there is a case to be made for my noble friend’s point about the small change needed to shoehorn these two important subjects into consideration so that they can be addressed more directly—and, if I may say so, in a more adult way than we are doing at the moment by trying to look round corners and use smoke and mirrors—to achieve an objective that we all think is sensible.
My plea to the Minister, who is very good at responding to these things and considering them further, is that she carefully consider particularly the breathing space proposal. It will dog the rest of the Bill’s proceedings if the Government and the department do not offer a compromise that enables one or both of these important issues to be addressed more directly.
Baroness Buscombe
My Lords, I start by thanking all noble Lords, including the noble Baroness, Lady Kramer, the noble Lords, Lord Sharkey and Lord Stevenson, and the noble Earl, Lord Listowel, for their positive contributions so far on the passage of the Bill, particularly in relation to this important debate. Noble Lords have raised important issues such as indebtedness, the introduction of a breathing space scheme and protecting individuals from pensions and debt-management cold calling. I welcome the opportunity to talk about these significant issues.
Clause 2 sets out the functions and objectives of the single financial guidance body. An important function of the new body is to work with others in the financial services industry, the devolved authorities, and the public and voluntary sectors, to support and co-ordinate the development of a national strategy to improve financial capability, the ability of people to manage debt and the provision of financial education to children and young people. I say that up front, because it is important when we are thinking about how this body will evolve that the strategic function means that the body will work with others rather than in isolation. That is why we refer to its “strategic” function.
The amendments tabled by noble Lords seek to specify in statute that the body, in discharging this function, will need to focus on reviewing the case for a breathing space. This would include considering the impact of not having such a scheme, reviewing the insolvency schemes available and considering the impact of not banning pensions and debt-management cold calling.
I will first talk about the breathing space issue, which probably all noble Lords who have spoken in the debate have raised. The amendment proposed by the noble Baroness, Lady Kramer, and the noble Lord, Lord Sharkey, seeks to give the single financial guidance body the ability to specifically advocate for the introduction of a breathing space scheme. The amendment proposed by the noble Lord, Lord Stevenson of Balmacara, and the noble Earl, Lord Listowel, seeks to give the single financial guidance body a specific requirement in respect of its strategic function, which is to review the case for the introduction of a statutory breathing space scheme.
The amendment proposed by the noble Lord, Lord Sharkey, and the noble Baroness, Lady Kramer, seeks to give the single financial guidance body a specific requirement in respect of its strategic function. It would require the body annually to assess the extent to which consumer detriment is caused by, or contributed to by, pensions and debt-management cold calling and the lack of a moratorium for debt recovery, also known as a breathing space. Both the noble Baroness and the noble Lord noted during Second Reading that the level of overindebtedness among the UK population is of increasing concern—a concern I share with all noble Lords this evening.
As I said at Second Reading, the Government recognise that the cost of living can sometimes become too great. Problem debt can be hard to escape and can compound family breakdown, worklessness, stress and mental health issues, along with other issues such as those raised particularly eloquently by the noble Earl, Lord Listowel. I understand that the breathing space is of particular interest to noble Lords and that some expressed disappointment that a breathing space scheme was not provided for in the Bill. But I would like to reassure noble Lords that the Government are committed to tackling problem debt. The Government’s manifesto, as noble Lords have referenced this evening, proposed the introduction of a statutory breathing space scheme and statutory debt repayment plan. This is an important and complex issue. It requires thorough preparation and consultation on details, such as who could be eligible, which debts could be in scope and how someone could enter into a breathing space.
Lord Stevenson of Balmacara
My Lords, every journey starts with a single step. We are not able to put in as an amendment the existing scheme—which has been through another Parliament close to here, has worked for 10 years and has answered all the questions that were on the lips of the noble Baroness—because the Long Title does not encompass it. We have put down a second-order amendment, but if we have to wait for an entire financial education edifice to be created and think about a cultural revolution in the way people deal with their credit card bills on 23 January, we will never get there. I urge her to think about taking powers now, so that in the future, where she does see this as a strong possibility, it becomes more real and tangible than it is at present.
Baroness Buscombe
I hear what the noble Lord says, but I want to assure noble Lords that, as I said, the Government are seriously considering this issue. I take slight exception to the inference from the noble Lord, Lord Kirkwood, that the Government are not doing anything. Why would the Government put this in their manifesto if they were not doing anything? The Government believe in this in principle; they simply want to get it right.
Baroness Buscombe
Noble Lords may laugh, but I have the advantage of having been at the other Dispatch Box in opposition when noble Lords opposite were in government. We suffered continually from the inability to get that Government to introduce and think about really important measures like this. That is why the situation has become so much worse over the past 19 years that I have been in your Lordships’ House. But we want to get this right.
Baroness Kramer
I think the Minister may have misread noble Lords’ tone and intent. As everyone has said, there is common ground on this issue across all the Benches. Everyone is attempting to put in a breathing space and everyone wants to stop cold calling. The Minister’s argument is that the amendments have been twisted to come into the scope of this Bill. They are not the ideal amendments and everybody has said so. But in response to the discussion that has taken place across this House—a discussion that these amendments enabled—would the Government look at making a small amendment to the Long Title to enable the introduction of powers through statutory instrument? This could introduce both the breathing space and the stop on cold calling, without describing exactly how that is done, so the Government would have the opportunity to think through those complexities.
This measure is being proposed because the legislative timetable means that no vehicle other than this Bill is available for at least 24 months to make those changes. The Government may be ready to make the changes three months from now, but will find themselves without any legislative vehicle to enable them to do so. A small change here could enable the Government to act on the timetable they have identified, but which they now have no mechanism for because of the way the legislative timetable is playing out. Perhaps I am being confusing, but I am trying to make the point clear.
Baroness Buscombe
My Lords, I understand entirely and accept what the noble Baroness is saying. Indeed I understand that that is the purpose of all noble Lords who have spoken this evening. However, I take issue with the idea that there is no legislative opportunity over the next two years. The Government have made it very clear that we will not be confining ourselves to Bills relating to our departure from the European Union. There will be other opportunities to legislate in these important areas, but we want to make sure that when we do it, we get it right. It is important that I address—
Lord McKenzie of Luton
Can the noble Baroness particularise for us the Bills mentioned in the Queen’s Speech for the next two years that might be used to this effect?
Baroness Buscombe
No, I cannot do that at the moment and I think it is unfair to ask me to set out the Bills that could be used at this time. What I am saying, though, is that noble Lords should not presume that there are no other opportunities to bring forward legislation over the next two-year period, other than those relating to the departure from the European Union—
Baroness Kramer
I am sorry, but other than a Private Member’s Bill—I think even all the Private Member’s Bills have been allocated over the next two years—I am not sure it is possible to identify such a vehicle. If it is, we would all feel much comforted. A reassurance that such a vehicle is coming within a reasonable timeframe would be very helpful, but we cannot see one.
Baroness Buscombe
I hear what the noble Baroness is saying, but I stick to what I said before: there may be opportunities in the coming few sessions or so. The important thing is that we want to take this forward with care, and we are very committed to it in principle.
I should also refer to cold calling and the question the noble Lord, Lord Sharkey, raised. We are consulting on pensions cold calling, but the situation is different from mortgages cold calling. We have consulted on banning pensions cold calling through legislation, while a ban on mortgages cold calling has been put in place through FCA rules. Legislating to ban cold calling makes the activity illegal and therefore sends a stronger message to members of the public to put down the phone.
There are already measures in place to tackle unsolicited calls more broadly. The Information Commissioner’s Office enforces restrictions on unsolicited direct marketing, and the Digital Economy Act, passed earlier this year, required it to issue a statutory code of practice on direct marketing activities. The code will include guidance for direct marketing organisations on complying with the law, including the Privacy and Electronic Communications Regulations (EC Directive) 2003, and the upcoming data protection Bill. Unsolicited direct marketing calls to a person who has not agreed to be contacted are illegal.
Lord Sharkey
In view of what the Minister is saying about the measures in place to reduce cold calling, does she think that they are a success so far, with a 180% increase in the past 10 months and now 2.6 million calls a month? Where are the signs of success in reducing cold calling?
Baroness Buscombe
The Government take the threat of scams and the whole issue of cold calling very seriously. On the specific issue of pension scams, the Government launched a consultation in December 2016, looking at three potential interventions. These included a ban on cold calling to help stop fraudsters contacting individuals. The Government plan to publish the response to that consultation shortly, which will set out the intended next steps—but, throughout the consultation period and during engagement with stakeholders, it became clear that this is a complex area. For example, where the consultation said that the ban would not extend to existing relationships, respondents highlighted the potential difficulty in defining existing relationships and ensuring that legislation is appropriately worded.
It is clear that this policy requires careful and detailed consultation as we further develop plans. We do not propose to extend this ban to debt management cold calling. We have focused on pension scams because they can have such a detrimental impact on individuals. Pension scams can cost people their life savings and leave them facing retirement with limited income and little or no opportunity to build their pension savings back up. I should add that, at the same time, we have sought to increase standards in the debt management sector by requiring organisations to be authorised by the FCA.
I assure noble Lords again that the Government take the issue of problem debt and cold calling very seriously. Work is ongoing in these areas. I do not think that the amendments would add value to the new body’s functions—and, although I appreciate noble Lords’ intentions, this is not the right time or the right place to amend the Bill, so I ask the noble Lord to withdraw his amendment.
The noble Lord, Lord Stevenson, referred to officials in the Box. They are doing a brilliant job. I took to heart his reference to them as if they are just there to be difficult. They are doing a superb job.
Lord Stevenson of Balmacara
I feel humbled if in any sense what I was saying was taken as a criticism of the wonderful work that is being done to make sure that the good things in the Bill get done. I in no sense intended to say that, and I hope that the officials will accept my apology, gracefully given. I was trying to say that there is a mentality growing about the tyranny of the Bill, which is set up in part because those who have responsibility for drafting it—not always Ministers—feel very attached to it, having gone through the process, done the consultations and decided things. It is inevitable and perfectly understandable that they do not want to see it changed. I was making a light quip at Ministers. If I were in their position, I would probably be saying exactly the same thing—but it does not make it right.
The Earl of Listowel
Before the noble Lord withdraws his amendment, I thank the Minister for her kind words to me. I gently remind her that the right reverend Prelate had her name attached to Amendment 41 as well. It has been a very difficult and bruising time recently, and we now have the breathing space of summer, so I welcome the Minister’s reaffirmed commitment to reintroducing breathing space eventually. It is reassuring that there is work going on to look at how these measures will be brought about. I hope that, after the breathing space of the summer, we may perhaps have a more fruitful conversation in the autumn. I thank her for her reply.
Baroness Buscombe
I thank the noble Earl. Of course, I take very seriously everything that noble Lords have said in this evening’s debate and will take it back to the department to think it through carefully between now and Report.
Lord Sharkey
I start by thanking all noble Lords who have spoken in this debate. I think it is true that all supported the general principles behind all three amendments. As I am sure the Minister will have expected, I am disappointed by her response. Both amendments are obviously entirely benign and useful, and I am disappointed that she has not taken up my suggestion of a meeting to discuss the Henry VIII proposal. I believe that the Government are seriously considering both a moratorium and how to deal with cold calling—I do not think that anyone in the Chamber would disagree with that. We believe that the Government are taking it seriously and are doing what they can. That is not the issue; the issue is timing.
I also agree that we need to proceed with care—as the Minister pointed out, these are complex issues—but, above all, we need to proceed. Giving the Secretary of State powers to institute by secondary legislation will significantly bring forward the point at which we can institute a debt moratorium and ban cold calling. The sooner we do that, the more people we protect and the more people we rescue from debt. The issue of timing is important.
I understand that it is difficult to answer the questions asked about legislative vehicles, but it would be immensely reassuring to the Committee to hear more specific answers to the questions, “Likely, when? Likely, how? Likely with what vehicle?”. In the absence of those answers, it is perfectly reasonable for us to say that we think we need more definite speed, which is what we propose.
I am sure that we will return to the issues on Report, when I hope that we can focus on producing a moratorium on debt and a ban on cold calling. In the meantime, I beg leave to withdraw the amendment.
Financial Guidance and Claims Bill [HL]
Wednesday 19th July 2017
(7 years, 4 months ago)
Lords ChamberRead Full debate Financial Guidance and Claims Act 2018 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 1-I(Rev) Revised marshalled list for Committee (PDF, 106KB) - (18 Jul 2017)
Lord Stevenson of Balmacara (Lab)
My Lords, this is a brief amendment and stands on its own, I think primarily to ensure that the next group gets enough focus. We are back to the definition of words, which is obviously going to bedevil us as we go through the Bill. This one is slightly more generic than the others, in the sense that the description we have been given of the task of this new body is that of creating a mixture of direct provision and commissioning. However, sometimes the wording does not seem to match up to that, so the amendment suggests a better form of wording that would leave out “provide” and insert “ensure provision of”. When we look up the dictionary definition of “provide”, we see that it is basically an active verb whose primary meaning is to make available for use or to supply.
As I read it, it is there as an active verb, which means that the body to which it is applied will be doing things—implementing in an active way. Substituting “ensuring provision of” would mean a much greater accent on working with others to make sure that these things happened. The amendment applies to the pensions arrangements referred to in line 19 of page 2. In many cases, the pensions guidance function would be carried out mainly in house, or others would be commissioned to do the work, so it may not be the most appropriate place for the amendment, but we pick up the same idea as we move through the Bill and look at the other aspects of the work of the organisation.
It is a probing amendment at this stage to invite the Minister better to articulate what “provide” means here. We want to know in particular whether commissioning work is envisaged in this limb, whether it involves any direct provision and, if so, what that would be. Can the Minister give some broad breakdown of the balance between those two aspects? I beg to move.
Baroness Kramer (LD)
My Lords, I agree with the noble Lord, Lord Stevenson, that the amendment is possibly sitting in the wrong spot, because the various pension bodies being absorbed into this single body have provided guidance directly. It is advice provided through a commissioning, contractual arrangement, which I am sure everyone intends should remain in place. However, the underlying spirit of the point the noble Lord makes and the request for clarification are important.
I rise to speak merely because the Minister may answer that such issues are covered somewhat in Clause 4. I simply wanted to point out that that clause regularly uses “may”, whereas I think the Government’s intention —and that, I suspect, of many others in this Committee —is that this be a “must”. So, the argument that Clause 4 is the answer to the question raised may not exactly work.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Buscombe) (Con)
My Lords, I thank the noble Lord, Lord Stevenson, for the amendment and for the opportunity to clarify. Amendment 8 would change the wording of the pensions guidance function by replacing “provide” with “ensure provision of”.
I am of the view that the amendment would make little difference to the outcomes that the body will deliver. Pensions guidance will be provided by the body itself or on behalf of the body by its delivery partner organisations, whether or not the requirement is that the body “provide” or “ensure provision of” pensions guidance. It is important that the body be able to design its services in a way that best meets the needs of the public.
It is better to establish clearly the body’s functions in Clause 2 and then set out in another clause which of those functions may be carried out by others. The amendment rather brings the two concepts together in Clause 2 in a way which is less clear.
Taken with Clause 4, as referenced by the noble Baroness, Lady Kramer, the wording of the pensions guidance function allows the body either to deliver information and guidance itself or to make arrangements with partners to deliver some, or all, of it. The mix of in-house and delivery partner provision will be for the body to decide. It would be wrong for me or indeed any of us to try to judge at this stage how much of the body’s work will be done via commissioning and how much in house. That may to some extent depend on how much certain advice is sought and what direction and guidance—
Baroness Kramer
I am sorry to interrupt the Minister but am not clear on what she just said. The provision in Clause 4 says that,
“The single financial guidance body may arrange for another person”.
That applies not just to the pensions guidance but to debt advice. My understanding was that the structure of debt advice currently underpinning MAS would be carried over into the Bill. Is this raising the option that the new body would provide debt advice directly? I am slightly unclear on that point. Could she help us with that?
Baroness Buscombe
I thank the noble Baroness for her intervention but I read it myself and I do not think it does—as she suggests—create that opportunity for the single financial guidance body to deliver the debt advice function. It says that it,
“may arrange for another person … to carry out any of the following functions on its behalf”.
The SFGB is the delivery partner. On the reference to “may” rather than “must”, from a legal standpoint it is already in the Bill that the guidance body can arrange for another person to carry out any of those functions. Indeed, it is implicit that it will.
I apologise but I have just been corrected in relation to the debt advice function. It is an option but not the plan—if that makes sense. I hope this explains what the wording of the pensions guidance function means in practice. I urge the noble Lord to withdraw his amendment.
Lord Stevenson of Balmacara
I thank the Minister for her comments. “An option but not the plan” might go down in history as a rather interesting way out of a dilemma. We might return to this issue in the group after next, so I will not spend time on it now. I am afraid my worry is that “provide”, rather than some other wording, could be applied in future in a detrimental way to bodies that feel they have a role to play in this space, perhaps not so much in pensions but in other areas. For the moment, I would like to read carefully and reflect on what the Minister said before we consider how to go forward. I beg leave to withdraw the amendment.
Lord McKenzie of Luton
Baroness Drake (Lab)
My Lords, in the interests of efficiency, I will move Amendment 9 and speak to Amendment 10.
Amendment 9 adds to the pensions guidance function of the new body matters relating to the state pension. In moving it, I do not seek to interfere or intervene in the role of the Government’s Pension Service. My focus is on the ability of the new body to give holistic guidance in helping members of the public. For many, the state pension will be the most important risk-free element of their income in retirement. Understanding how it and state benefits sit alongside their private savings will be important when considering their options and choices, and then making informed decisions—as will securing entitlements to state pensions, particularly for women where actively claiming credits for caring can be important. Pensions guidance gains from being informed by all of an individual’s benefits and savings. That view will be facilitated if a pensions dashboard is successfully implemented.
Amendment 10 has the effect of extending the pensions guidance function of the new body to provide a single, public good pensions dashboard as a trusted consumer hub. Responsibility for provision in later life is shifting towards the individual. People rely on state, workplace and personal pensions and other savings to varying degrees. There will be multiple channels for them to keep track of and understand. A pensions dashboard would be a digital interface, a viewing space, where an individual can see all the information on their state pension and their different pensions savings pots. They can access their viewing space with their own digital identity.
A pilot dashboard is being developed by 17 providers under the auspices of the Treasury. A successful dashboard could evolve over time to include information such as ISAs and income drawdown—a range of information about an individual’s finances, savings and investments. The fintech industry may develop the basic dashboard to include more tailored personal finance products.
Baroness Kramer
My Lords, I very much support the amendments moved and spoken to by the noble Baroness, Lady Drake, and the pressure they create on the Government to come up with some coherent answers to the very significant questions which have been posed. We are great supporters of the dashboard, as is, I suspect, almost everybody in this House who is engaged in pensions, savings and investment issues. However, I also spend quite a bit of time now trying to understand where artificial intelligence is taking us. The first question that is always asked is: who controls the data? Secondly, who controls the best analytics to be able to turn the data into a marketing opportunity?
The data will clearly become dominated very quickly by a limited number of companies. That in itself will become a mechanism that limits options for individuals and makes it extremely difficult for them to compare the options that they could source from a variety of providers. It tends to tie them back to a single, dominant provider. The Government surely have an interest in preventing the development of either those quasi- cartel or monopolistic structures, but early intervention is needed to make that possible. Who controls the dashboard will be an issue of real significance and there is a strong argument that it cannot be one of the commercial players, in whose interests it would always be to manage that dashboard to the advantage of their own proprietary products. I hope that the Minister will engage with this opportunity, because events are taking over in this area and government has a relatively limited scope in which to intervene to shape the framework.
Lord McKenzie of Luton
My Lords, briefly, I support my noble friend Lady Drake and the powerful case she has made for the public service dashboard. I will also speak to the proposal that pension guidance functions should include the state pension.
Decisions around receipt of the state pension are not necessarily a straightforward matter. As we know only too well, there has been some confusion over the age at which some—particularly women—reach state pension age and are entitled to access their pension. Reaching state pension age does not of course necessitate giving up employment. Deferring the state pension can generate a higher rate of pension and therefore possibly tax, albeit no longer with a lump sum. But deferral will not earn an income uplift in weeks where certain benefits might be in payment, for example for carer’s allowance. The deferral increase is not inheritable. There are transitional rules for those reaching state pension age before 6 April 2016. As entitlement depends on a person’s national insurance record, paid or credited, there may be decisions about the appropriateness of buying extra years. These are just some of the intricacies surrounding the state pension.
It is accepted that the Pension Service will provide details, including forecasts of entitlement, but should these matters not be considered in the round, particularly with the person’s broader retirement planning? After all, for many people the state pension will constitute their biggest single risk-free income source for the rest of their lives. In their response to the final SFGB consultation, on page 10, the Government stated:
“the government believes people would benefit from access to joined up information and guidance to help them develop the financial capability they need”.
Surely an understanding of what might flow from the state pension system is as important as an understanding of choices around pension pots. Indeed, given the recognition that the service should be directed at those most in need, are they not likely to be those for whom the state pension represents a significant part of their income?
My noble friend Lady Drake made, as ever, a powerful case for the pensions dashboard, and in collecting together details of all of a person’s pension pots it is important that it should include the state pension. To be clear, we do not argue for SFGB to replace the Pension Service but for it to be able to feed its choices into how it might fit together with other pension opportunities.
Baroness Buscombe
I thank noble Lords for their contributions to this debate about the pensions guidance function. I shall begin by focusing my response on the questions around the state pension and shall then move on to the dashboard.
On Amendment 9, the noble Baroness, Lady Drake, and the noble Lord, Lord McKenzie, raised a question about information and guidance in relation to the state pension. It is, of course, vital that people have access to information about their state pension. Noble Lords will be aware that the Department for Work and Pensions is responsible for the policy and administration of the state pension. DWP offers a range of information and guidance through a variety of contact channels for people wanting to know about their state pension. The GOV.UK website is a key source of that information and guidance. It includes links which take people to the online services. For those who prefer to access information offline, DWP also provides leaflets, letters and other guidance on the state pension. All these forms of communication contain telephone numbers and the addresses of pension centres.
People seeking information about their state pension age or wanting a forecast of their state pension are able to contact DWP via telephone, textphone or email or, alternatively, they can write if they prefer. DWP also offers a digital service called “Check your State Pension” where customers can check a version of their state pension statement. Customers using this service can ask questions or raise queries by completing an online form. However, as with the current services, it is not appropriate for the body to become involved in specific issues relating to the detail or the handling by DWP of an individual’s state pension entitlement, for example, where a person has not received their state pension. These are matters that only DWP can properly respond to. As it has access to national insurance contribution records, DWP is the right organisation to deal with state pension-related questions, information and guidance. It would be inappropriate to expect pension schemes or the financial services sector to fund guidance on the state pension.
The single financial guidance body will be able to provide general guidance on the state pension in the same way as the existing services do now, for example, as general information on its website or as part of discussions with people. It will also direct people to the correct part of the GOV.UK website or provide the relevant telephone number or leaflet if a state pension query is raised during a face-to-face discussion, call or web chat or online inquiry. We expect the single financial guidance body to look for opportunities for a more seamless customer journey in the future as part of its programme of transformation across all its delivery functions.
I hope that I have clarified, in relation to state pensions, what the single financial guidance body can do and also the extensive service the DWP already provides to the public. Of course one of the key issues is the huge challenge which the noble Baroness, Lady Drake, referred to with reference to dashboards, and the same applies to the state pension in detail. The priority has to be around consumer protection safeguards, as she quite rightly said.
Baroness Drake
My Lords, I thank the Minister for her reply. I hope she will indulge me as there was quite a lot of detail, which I would like to pick up on. I completely accept the point that the single financial guidance body cannot take on the responsibility of the state, as delivered through the Pension Service, in determining what a person’s state pension entitlements are. I was not seeking to transfer authority from one to the other. As the Minister mentioned, two elements of the “seamless journey” are that guidance can be made easier—because of the ability to access or integrate state pension information into the guidance process—and, if the pension dashboard is a success, it unlocks transparency of information quite considerably and transforms how guidance can be performed.
The Bill is silent on the state pension. It would be welcome if there were some clarification—even if it is a sort of future banking—of what the function can embrace, in a way that is acceptable to the Government and the Government’s Pension Service guidance embracing the state pension.
On the dashboard, I was not arguing—and I hoped I had stressed that—that the dashboard had to be a single entity. I was arguing, first, that there must be a public dashboard. It should not be the case that the public are dependent on a commercial provider for use of the dashboard. Secondly, there has to be a pretty clear statement, fairly soon, about some kind of public ownership of the governance and the dashboard. One cannot encourage 20 million people and rising—and every holder of data on an individual—to allow the data to be drawn down, unless these issues are addressed and the public have that level of assurance.
I welcome the Minister’s statement that the legislation allows the financial guidance body to be the provider of a public dashboard. I am assuming—and I invite her to correct me if I am wrong—that Clause 2(3) and (4) would be the source of the legislative authority for the financial guidance body to be a provider of the public dashboard.
Where I disagree with the Minister is on the suggestion that these are early days. These are not early days; people are getting anxious. People wish the dashboard well; I wish it well. If we get it right, it is a transformational, welcome and great piece of progress. If we get it wrong, it is a high-risk consumer issue. I assure the Minister that increasing numbers of people are getting anxious about the governance issue. I have had lots of people—once they have seen my amendment—saying that these issues need to be rehearsed; they need to be brought out in public.
I ask the Minister seriously to think about using the opportunity of the Bill at the very least to write the fullest statement that the Government can give about their attitude to governance, the priority of the consumer interest driving this and the role of public governance, ownership and oversight of the dashboard, because there is real anxiety. People want to know. Sometimes, when one is sitting closely with the people working on the dashboard, one misses the growing anxiety of the wider community—including in the industry—on the issue.
I welcome confirmation that the legislation specifically allows for this, if the Government decide to do so, but there is a real need for the Government not simply to say that these are early days—we accept that these are complicated issues—but to come forward with the fullest possible statement recognising the challenge. People want that.
Baroness Buscombe
I very much thank the noble Baroness for her proposal, and I will certainly take her suggestion away. That is a sensible way forward, because the Government have at the forefront of their mind the importance of developing the dashboard with great care. The priority should be the consumer—indeed, this is a consumer-based Bill—and the role of public governance. So I will take her suggestion away and hope to come back with a full statement on Report.
“(5) The debt advice function is to commission the provision of sufficient debt advice services, which are to be free at the point of use, to meet the needs of people in financial crisis in England.”
Lord Stevenson of Balmacara
My Lords, we return to the question of provision, helped by the intervention of the Minister to say that the wording of Clause 2(5) is to be read as if it actually said, “the debt advice function is to provide”—with the assumption that it is an option but not a plan to do this by delegation to other bodies. That reflects comments made on an earlier amendment.
I should like to use this group of amendments to probe for responses on the scale, scope and funding, particularly of the debt space, because there are concerns in this area. Amendment 11 is a way to express the ambition across the debt space, and I recommend the wording. It is not open-ended; it sets down a few markers that could be used. It confirms that the debt advice services which are to be provided either directly or through commissioning bodies are to be free at the point of use and are to meet the needs of people in financial crisis in England.
Informed estimates suggest that there are probably about 2 million people in that category in England at the moment, of whom just over 1.25 million get a reasonable level of service from the existing bodies, primarily those which are offering pure advice, which are the Citizens Advice service, the Money Advice Trust and other smaller groups, but also those providing debt management plans, such as StepChange and some of the other smaller groups. There are also those offering solutions, which we talked about on earlier amendments.
The amendment would replace the current subsection. It clears up the question of what “provision” or “provide” mean and allows us to take the question forward on a secure basis, which will be comforting to those who are likely to be affected by the change from MAS to the new body.
Amendment 13 takes forward the point already made: this cannot be a top-down exercise. The single financial guidance body must work together with the existing debt advice services, which have been operating for 20 or 30 years—in the case of Citizens Advice, for much longer—know their stuff, are doing it well and are well respected by the industry, supported by it with cash and are able to operate largely on their own without support from central Government or any other body.
I said at Second Reading and I say again that the proportion of money brought in by the Money Advice Service is very small relative to the total expenditure on debt advice. It has largely come from historic funding made by grant to Citizens Advice when it was a body directly responsible for consumer support more generally under BIS, and now it has been transmuted into support through the levy and paid through MAS. But that is not the totality of what is available in the debt space. The wording suggested in Amendment 13 is on the basis of the consultation and makes a general statement about what it is to be used for—which, again, I think would be helpful in clarifying those who are involved in it.
The Deputy Speaker (Baroness Fookes) (Con)
I point out to noble Lords that if this amendment were agreed, I could not call Amendment 12 by reason of pre-emption.
The Earl of Listowel (CB)
My Lords, I shall speak to Amendment 35. In thinking about services for children, many of us are often concerned that we do not begin with the needs of the child and work back from there; rather, we think, “How much money have we got to spend?”, and then we start introducing the services according to what we can afford to do. So to begin by thinking how the service would need to be funded to deliver the reasonable needs of the public in England seems to be a very good starting place, and I hope the Minister can give a sympathetic reply.
Baroness Buscombe
My Lords, I thank the noble Lords, Lord Stevenson and Lord McKenzie, for tabling these amendments. The noble Lords have tabled a number of amendments that would make changes to the single financial guidance body’s debt advice function. The approach of this legislation is to enable the body to respond to changing needs and cultural and technological development by giving it broad functions. It is our intention that the body commissions out the delivery of its service, as appropriate. Debt advice is currently commissioned, and I cannot see this changing any time soon. If we had not intended that the body should commission for its delivery services, including debt, there would have been no need for Clause 4 to specifically provide for this. That is just in relation to the whole issue of debt advice. I wanted to start off with that.
Clause 2 sets out the functions and objectives of the new body, including the debt advice function. The provision of debt advice is a core function of the new body. Problem debt can blight individuals’ lives, and it is crucial that support is available to those who need it. Amendments 11, 13, 35 and 43, proposed by the noble Lords, Lord Stevenson and Lord McKenzie, offer a substantial revision of the new body’s debt advice function. They are made up of five key parts, which specify that: first, the body must commission advice; secondly, advice must be free at the point of use; thirdly, advice must meet the needs of people in financial crisis in England; fourthly, advice must be commissioned on the basis of consultation with relevant bodies involved in the provision of information, guidance and advice on personal debt; and, finally, sufficient funds must be dedicated to the body’s debt advice function. I shall address each of these components in turn.
In the first instance, it will be important that the new body commissions other parties in its efforts to ensure that debt advice is available to members of the public when they need help. As drafted, Clause 2 and Clause 4 together enable the delivery of regulated debt advice through delivery partners. Noble Lords will know that MAS currently acts as a commissioning body for debt advice; the Government intend the new body to fulfil the same, or a similar, function.
In the second instance, the Government absolutely agree that any help funded by the new body should be free at the point of use. The Government’s intention is to ensure that help is available to those who need it, and we would not wish to prevent members of the public from accessing help on the grounds of cost. Pension Wise, the Pensions Advisory Service and the Money Advice Service currently offer free-to-client help and, as the Government have noted in their consultations, the new body will do the same. Indeed, by bringing together pensions guidance, money guidance and debt advice into one organisation, this measure allows for greater provision of free-to-client help. The Government expect that savings will be made as MAS, TPAS and Pension Wise are brought together and, as a result, we expect a greater proportion of levy funding to be made available for the delivery of front-line services to members of the public.
On the third point, on the needs of people in financial crisis, it is of course critical that those in crisis receive support. However, I am concerned that the proposed amendment restricts the activities of the new body, placing too great an emphasis on those who are already in crisis while failing to mention help that the body might give to members of the public who are approaching moments of crisis. I think of the example of Emma, who the noble Earl, Lord Listowel, referred to on an earlier amendment. As the noble Earl quite rightly said, if only it could have been possible for her to approach something earlier—that has to be an aim of this body. It must be able to help not only those who are in real crisis but those sensing that they are getting into what we might colloquially call “hot water” and need help.
On the fourth point, I agree with the intention behind this amendment, which I believe is to ensure that the new body will work closely with those it is commissioning and that there is a comprehensive strategy for the sector. The spirit of this amendment is already captured by the body’s strategic function and its stated objectives. The strategic function explicitly states that the body will be required to work with others in the financial services industry, the devolved authorities and the public and voluntary sectors, which together capture the organisations specified by the noble Lord in his amendment. The body’s five objectives, including delivering its functions to those most in need, in areas where it is lacking and in the most cost-effective way, would not be deliverable if the body did not consult others.
Finally, I turn to the final point on ensuring sufficient debt advice funding. The Government agree that it is important that the body is able to meet increasing demand for debt advice in England if it is required to do so. As drafted, the current clauses allow funding for debt advice to increase so that debt advice is available when there is increased demand from members of the public. The body will submit a business plan for approval by the Secretary of State, which will form the basis on which the Secretary of State will instruct the Financial Conduct Authority to raise funds from its levy. The Government are confident that these arrangements are robust and will give the new body the ability to ensure that its debt advice function is properly funded. Decisions about how the body should allocate its resources, including to debt advice, are best taken by the management of the body in the light of its agreed business plan. It is, after all, accountable to Ministers for its decisions, who are in turn accountable to Parliament.
I would also like to observe that the Money Advice Service is working closely with partners on the plans for an independent review of the funding arrangements for the sector. Under its strategic function, the new body will be able to continue this valuable work as part of its aim to improve the ability of members of the public to manage debt.
Having heard these explanations, I hope the noble Lords will agree that the amendments are not necessary. I therefore urge the noble Lord, Lord Stevenson, to withdraw the amendment.
Lord Stevenson of Balmacara
I thank the Minister for her very comprehensive response. I would like to read it in more detail in Hansard but in the meantime I beg leave to withdraw the amendment.
Lord McKenzie of Luton
Lord McKenzie of Luton (Lab)
My Lords, I shall speak also to Amendments 15 and 20 in this group. Amendment 14 is straightforward and clarifies that the money advice function must ensure provision of advice as opposed to providing it—an issue over which we have already ranged. Amendment 15 spells out some of the aspects of the money guidance function. Amendment 20 adds to the strategic function,
“the awareness of scams and frauds relating to financial products”—
again, an issue we have touched upon already.
The Bill is drafted in somewhat general terms and states that the function is to provide information and guidance,
“to enhance people’s understanding and knowledge of financial matters and their ability to manage their own financial affairs”.
When exercising these functions, the SFGB must have regard to its objectives, which include improving,
“the ability of members of the public to make informed financial decisions”,
and focusing on where information, guidance and advice is lacking and is most needed, and where it can be provided in the most cost-effective way. This must be set in the context of the acknowledgment that financial capability—what this is all about—in the UK is low, and many people face challenges when it comes to managing money.
In July 2017, in the response to the consultation, the Government recognised the importance of providing information and guidance by delivering, or signposting to, information on all money matters, including budgeting and saving, insurance, financial advice, bank accounts, protection from fraud and scams, planning for retirement and debt solutions. Therefore, it seems that a broad remit is anticipated, and we would support this. However, there seems to be no good reason why these functions could not be spelled out in more detail in the Bill. Can the Minister say whether any of the matters set out in the amendment are considered outwith the Government’s intended scope of the money advice function and, if so, which?
Financial scams are, unfortunately, many and varied. We have already heard about that matter, so I will be brief. The people who perpetrate them are inventive and merciless. According to the Economic Crime Directorate of the City of London Police, financial crime has cost the UK a staggering £50-plus billion. Techniques encompass scams such as phishing, bogus investment opportunities—particularly for pensioners—intercepting home deposits, freebie scams, fake websites and many more. They can devastate people’s lives, and, as we have heard, can destroy a person’s retirement. Given the so-called pensions freedom, people around the age of 55 are being bombarded with investment opportunities. Citizens Advice calculates that nearly 11 million consumers have received calls about their provision since 2015. Given the hour, I do not propose to go further into that, because we have discussed it already. I beg to move.
Baroness Buscombe
My Lords, Amendments 14, 15 and 20, tabled by the noble Lords, Lord McKenzie and Lord Stevenson, all cover issues relating to the body’s money guidance function.
Before addressing each amendment individually, I will first explain what will be covered under this function. Under money guidance, the single financial guidance body will provide information and guidance on all money matters, including budgeting and saving, insurance, financial advice, bank accounts, protection from fraud and scams, planning for retirement, and debt solutions. This information and guidance will be provided to all members of the public mainly through a central website and call centre, but the body will also be able to delegate this function to external providers. It will also fund financial capability initiatives, designed to help people manage their finances better and gain the confidence, skills and knowledge to engage with the financial services sector.
Amendment 14, tabled by the noble Lord, Lord Stevenson, would replace the word “provide” with the phrase “ensure provision of” with regard to the money guidance function. I assure the noble Lord that the existing wording of the Bill would allow the single financial guidance body to provide money guidance itself or to ensure provision of such guidance through commissioning, as is further outlined in Clause 4. I agree with the noble Lord that it is important that the body have the flexibility both to run its own central website—an element overwhelmingly supported by the respondents to the Government’s consultation—and to leave open the possibility in future to deliver money guidance through others.
Amendment 15, tabled by the noble Lord, Lord McKenzie, would add subsections to the money guidance function to include the statutory objectives of the Money Advice Service as originally set out in Section 6A of the Financial Services and Markets Act—the FSMA. In October 2015, the Government launched the public financial guidance consultation to seek views on how publicly funded pensions guidance, debt advice and money guidance—including financial capability—could best be structured to help individuals make effective financial decisions. There was a common view among consultation respondents that MAS’s statutory objectives required it to deliver on too many fronts, making it difficult for it to truly excel in any areas and causing it to duplicate activity being carried out elsewhere.
The Government agreed with the respondents at the time that the statutory objectives of MAS are too broad—for example, the generic objective of promoting awareness of the benefits of financial planning. Respondents suggested that publicly funded money guidance should be targeted at filling gaps, where it is most needed. I assure noble Lords that the Bill as drafted will allow any existing MAS functions and services that meet the body’s objectives to continue.
More specifically, promoting awareness of the benefits of financial planning and the financial advantages and disadvantages relating to the supply of particular kinds of goods or services, and publishing educational materials or carrying out other educational activities, are covered under the money guidance function. The SFGB’s money guidance function also enables it to promote awareness of the benefits and risks of different kinds of financial dealing among members of the public.
Amendment 20, tabled by the noble Lord, Lord McKenzie, would include in the body’s strategic function the awareness of fraud and scams. The Government believe that the body can already do this under its money guidance function and the financial capability element of the strategic function, and that it is not necessary to specify this further.
The Bill’s functions were drafted to provide a framework so that the body has clear parameters but also the ability to prioritise. MAS’s objectives were wide ranging but specified in a way that meant it had to deliver against them all with equal weighting.
However, we consider that giving the new body a specific requirement to advocate for a particular issue is unnecessary and could have unintended consequences. There are several topics that the body may wish to look into as part of its money guidance function, and specifying just one in legislation could risk limiting its ability to look widely at the sector and have regard to emerging issues in the future. That is absolutely key. This is a framework, because we have to think about future-proofing. Issues relating to money guidance and the handling of money will arise—issues we have not even contemplated as of today. That is why we are trying to keep this provision as broad as possible.
However, I am very grateful to noble Lords for asking what we mean by this or that, as I am able to clarify what we are seeking to achieve while giving the body sufficient flexibility to do the right thing going forward. For those reasons, I urge the noble Lord to withdraw his amendment.
Lord McKenzie of Luton
My Lords, I thank the Minister for that reply. I think we are in agreement on where the Government are on this issue. However, I would like to clarify one point. Can she say whether any of the money guidance functions listed in the amendment are now off the table?
Baroness Buscombe
At this time of night I want to be absolutely clear that I give the right answer, in which case I will write to the noble Lord.
The Earl of Listowel
The Earl of Listowel
My Lords, this group of amendments begins our discussion on the very important matter of financial education. Clause 2(7) reads:
“The strategic function is to support and co-ordinate the development of a national strategy to improve … the provision of financial education to children and young people”.
My amendment would add “care leavers” to that group.
I apologise to the Minister, to officials and to noble Lords for having tabled this amendment late. Sometimes I take a little too much on, and I apologise in particular to the officials. I appreciate that the Minister’s reply may have to be short and, if she wishes to write to me, I shall quite understand.
The main gist of my concern is to ensure that young people in care get the financial education they need. The Minister has just highlighted how important it is to get in early before the troubles arise, and I shall expand on that briefly.
I welcome the Children and Social Work Act, which was brought forward in the previous Session and clarified the duties of local authorities to both young people in care and care leavers. Peripheral to that, there is an ongoing review of personal advisers, looking at how well advised care leavers are on matters such as housing, employment, education and training. This is an opportunity to get reassurance that thinking about financial education will be fully integrated in that ongoing process.
Learning to manage finances is often a part of normal growing up. However, research by the Children’s Society in 2016 found that almost half of local authorities do not provide financial education for children leaving their care. It is well documented that care leavers are particularly at risk of falling into financial difficulty and in the absence of a strong support network, the move to independence and the associated shocks and stresses can mean that the risk of debt can be very high. On average, children leave home at the age of 24 in this country, so care leavers have both the disadvantage of early trauma and are leaving and becoming independent much earlier than most of our children.
I urge the Minister to ensure that guidance to support the development of local authorities and others regarding care leavers in their area should include the commitment to provide high-quality financial education prior to young people leaving care.
Will the Minister join with me in welcoming the encouraging news that almost 30 local authorities—I believe it is 27—across England have taken the decision to exempt care leavers from council tax? That can be a particularly large bill and difficult debt for these young people up until the age of 25. Many local authorities which have a duty to care for these young people when they find themselves in difficult situations, are vigorously pursuing them to pay their council tax debt. That cannot be right and it is good that so many local authorities recognise it and I hope that many more will, too. I hope the Minister will encourage them in their efforts tonight.
I look forward to the Minister’s reply. I beg to move.
Viscount Brookeborough (CB)
My Lords, I welcome these amendments because they attract attention to the subject of education, which, in our report on financial exclusion, was a major part. The top of Clause 2(7) states:
“The strategic function is to support and co-ordinate the development”.
It does not appear to have a lot of force behind it. Anything that we can do for care leavers, or anyone else, is most welcome, but one has to go back a stage and ask about the perfectly normal schooling that goes on: is the education actually occurring and, no matter what we write here, will it happen?
We wrote in our report:
“When considering provision in English secondary schools it is also important to note that the national curriculum”—
to which financial education was added in 2014—
“applies only to maintained schools (those run by local authorities) and not to academies, free schools and the independent sector”.
That has resulted in there being still no requirement for English primary schools to include financial education as part of their teaching. In addition, as only 35% of state-funded secondary schools are now maintained schools, the obligation to teach financial education does not apply at all to nearly two-thirds of all secondary schools. Therefore, there was a big hole in this from the start. No matter what we say in these clauses to attract attention to all parts of schooling, the basic financial education is not taking place, as the noble Earl said.
From the point of view of our report, the one thing I could never understand is that we are talking about financial education throughout people’s lives, and the only time we have the total population—in this case of England—within our control and have their attention is at school. If we do not have compulsory financial education of some kind in school, when things go wrong later we do not know where we are trying to pick them up from.
When we raised this subject, the question of teacher time arose. We also heard the comment that teachers were not qualified to teach financial education. However, at the moment we have no financial education and anybody must be qualified to teach children—we all had money boxes—to save a bit, to add it up, to save it for the weekend, even if it is done with sweets or whatever. They complicate this by saying, “How can teachers be capable of teaching children about pensions and so on?”. We are not getting to the point of teaching them about things like that in the first place, and surely there must be a simple level playing field by the time everybody leaves school, or they are permitted to leave at the earliest age of 15. By that time all young people should have been given a very basic financial education: how to save money, where to put it, what a bank is for and so on. I do not believe that not being able to teach them about investing in the stock market or pensions is the crucial point.
As I understand it, a comment made in the Youth Parliament, made up of young people who have left school and are ready to go to university, showed that one of their highest priorities was that they had not been given any financial education. These are life skills. All education, whether it is in physics, chemistry or geography, is part of a young person’s education and is for a job, but financial education is a basic skill and the lack of it is the cause of so many social problems in our country. Why can we not ensure a level of financial skill when young people leave school so that anybody picking them up later on knows that they have only to go back so far? Instead, we have some young people with a little knowledge and many with none. So I totally support these amendments for drawing attention to the issue, but I am afraid that we have to go back one stage further. We have to do something about this because once young people have left school, we no longer have the audience and we wait for them to appear in debt, homeless and everything else. For those reasons, I certainly support the amendment.
Baroness Altmann (Con)
My Lords, given the hour I shall speak briefly to my Amendment 17 in this group. The single financial guidance body is being asked to develop a national strategy to improve financial education. At the moment the Bill specifies only that this needs to be delivered to children and young people. However, we need to educate everyone about finances, not just young people. We are auto-enrolling everyone in the workplace into pension schemes. We know that workers will not have been given any financial education at school, so why are we focusing only on children and young people? I would like to replace the phrase “young people” with the word “adults”. By the way, I accept completely the point that care leavers are extremely important. But as a complement to auto-enrolment, making sure that financial education is delivered, perhaps in the workplace alongside auto-enrolment, seems to be an important potential function of the single financial guidance body.
Lord Sharkey (LD)
My Lords, I shall speak to Amendment 18 in this group which is tabled in my name and that of my noble friend Lady Kramer. I agree with everything that has been said so far except perhaps for one thing. If the Government accept the amendment tabled by the noble Baroness, Lady Altmann, we will have a universal obligation as regards financial education. I can see the appeal of that in theory, but in practice I wonder how it would work out. Children and adults constitute the whole of the population, but I think that the intention of the Government in Clause 2(7)(c) is to identify groups where particular emphasis on the provision of financial education is needed. That is probably why they specifically mention “children and young people”. I agree with the approach of putting an emphasis on the groups that most need or will most benefit from financial education.
However, there are other critical target groups in need of special attention, and the noble Earl, Lord Listowel, has identified such a group. That is what our amendment is aimed at. It seeks to extend the group of special targets beyond a couple of age demographics to major financial events in the course of people’s lives. It would extend the group of special targets to those who are about to make major financial commitments. It specifies the obvious ones such as mortgages and pensions, and nowadays vehicle finance plans, but leaves it open to the SFGB to decide what other major financial commitments it may want to include in its overall strategy.
The Bill is drawn a little too narrowly on this issue and would benefit from our proposed changes and those proposed by the noble Earl, Lord Listowel. I hope that the Minister will feel able on this last amendment of the first day to break the habit of the day and accept a modest and uncontroversial amendment.
Lord McKenzie of Luton
My Lords, we would support a proposition which broadens as widely as possible the provision of financial education, but the issue that arises is how it will be delivered. I say to the noble Viscount, Lord Brookeborough, who was the leading voice on the committee in favour of financial education and led the charge on it, that if he is around September he will see that we have tabled a couple of amendments which deal specifically with two of the recommendations in the report about making it part of the curriculum in the primary sector, because we are behind the devolved Administrations in that regard. Latching on to the Ofsted framework is a means of getting some leverage, but, even with that, we know that it will be a challenging task. However, it is hugely important.
The data show that by getting to young people at school you can embed those ideas early, and they stick. Of course, a framework is there within which it can be delivered. Notwithstanding that it has been a requirement of the secondary sector for a number of years, as the noble Viscount said, we know of its patchy delivery—and there are clearly funding issues. I have pre-empted a little the amendment which we will come back to in September. We will perhaps pick up this important issue again then. Certainly, making sure that such education is available to the most vulnerable is important, and we support it.
Baroness Buscombe
My Lords, Amendments 16A, 17, and 18, tabled respectively by the noble Earl, Lord Listowel, my noble friend Lady Altmann, the noble Baroness, Lady Kramer, and the noble Lord, Lord Sharkey, would alter the strategic function on matters relating to financial education. However, I thank all of them for highlighting the important issue of financial education. While I appreciate the points that they make, the amendments as drafted simply do not work and are not appropriate.
Financial education is a specific area under the body’s strategic function targeted specifically at children and people of a young age to ensure that they are supported at an early stage on how to manage their finances—for example, by learning the benefits of budgeting and saving. I entirely agree with what the noble Viscount, Lord Brookeborough, said in this regard. It is crucial to “capture them young”, as I think the expression goes. Perhaps it would be more useful if I set out more fully what is covered by the body’s strategic function and the financial education element within that.
Through its strategic function, the single financial guidance body will bring together interested partners in the financial services industry, the public and voluntary sectors, and the devolved Administrations with the aim of improving the ability of members of the public to manage their finances. To deliver that, the body will support and co-ordinate a strategy. The premise of the strategy is that one organisation working independently will have little chance of greatly impacting financial capability, but many working together will—a point referenced by the noble Lord, Lord Sharkey. It is question of delivery. One body cannot deliver to all; it simply would not be practical for that one body to be in charge of every stage in life. The strategy should therefore be seen as a collective effort by multiple parties. The role of the new body will be to drive the process forward and oversee implementation.
More specifically, financial education is a subsection of that effort under Clause 2(7)(c). The SFGB will have a co-ordinating role to match funders and providers of financial education projects and initiatives aimed at children, and will ensure that they are targeted where evidence has shown them to be more effective. This falls within the wider strategic financial capability work of the body and should form part of a national strategy to enhance people’s financial capability. The Money Advice Service has been undertaking that role, which is one of the aspects that respondents to the Government’s consultations overwhelmingly agreed the new body should continue working on.
Amendment 16A would alter this function so that a strategy for the provision of financial education was extended to care leavers. I thank the noble Earl for raising this important issue. The Money Advice Service in its financial capability strategy recognises that more needs to be done to address care leavers’ financial needs and skills for independent living. The Government agree, and we expect the new body to consider further initiatives to support care leavers, but also other young people from marginalised backgrounds—for example, those leaving youth detention or with learning difficulties. The Government believe all these segments of the population are already covered in this section under the provision for young people. Specifying a provision for care leavers would create a specific requirement for the body and remove its discretion to target those most in need.
Amendment 17 would alter the wording of the Bill so that the strategy for the provision of financial education extended not to children and young people but to children and adults. Amendment 18 would make provision specifically for adults contemplating difficult financial decisions, such as mortgages, pensions and vehicle finance plans. As my noble friend Lady Altmann stressed, it is important that adults are informed and educated throughout their lives about how to manage their money well and avoid falling into problem debt. However, this is the role of the SFGB as a whole, as it delivers money and pensions guidance and debt advice. Also, the strategic function under Clause 2(7)(a) already gives the body a specific responsibility to work to improve the financial capability of adult members of the public, including in relation to the areas highlighted in the amendment tabled by the noble Baroness, Lady Kramer, and the noble Lord, Lord Sharkey.
We believe that it is unwise to give the new body a requirement to advise the Secretary of State on explicit issues, as worthy as those issues are. There are several topics that the body may wish to look into as part of its strategic function. Choosing a few could risk limiting the body’s ability to look widely at the sector and have regard to emerging issues in future.
I want to make further reference to what the noble Viscount, Lord Brookeborough, said this evening. I entirely support much of what he said on teaching basic skills in managing finances. I am aware that the Lords Select Committee on Financial Exclusion raised the primary school curriculum in its recent report on financial inclusion. The Government will address the committee’s recommendations on this issue when they publish their response in due course. I just add that the first recommendation made in that report proposed that we should have a Minister for financial exclusion. We preferred to refer to “inclusion”, and my honourable friend Guy Opperman MP is the first Minister for Pensions and Financial Inclusion. I have already been in discussions with him about how we can work with the Minister for Education in another place to take forward some of the recommendations in the report and discuss in further detail the concerns raised in it, particularly about primary school education. For those reasons, I hope noble Lords will accept that the amendments are not necessary. I urge the noble Earl to withdraw the amendment.
The Earl of Listowel
My Lords, I thank the Minister for her sympathetic and encouraging response. I am particularly pleased to hear that the body is going to look at issues such as youth detention and young people with learning difficulties, and have a strategic role in that. I thank noble Lords, particularly the noble Viscount, Lord Brookeborough, who spoke in support of this issue around early education and access to financial education. I am most grateful to them.
A particular issue for young people in care is that they may not have easy access to school and may be changing schools a lot. It is very important that the people in the parental position—the corporate parent—take that opportunity to teach them about financial matters, especially as they often have such early responsibility for their own financial matters. Perhaps the Minister might consider writing to me on what progress is being made in improving the financial education delivered by local authorities to young people in care. In 2016, the Children’s Society report found that only half of young people leaving care had had that experience. Is there some progress on that? If the Minister has time to do that, that would be welcome. It is very good news that we now have a Minister, Guy Opperman, looking at financial inclusion. That is welcome. I beg leave to withdraw the amendment.
Baroness Altmann
Baroness Altmann
I thank my noble friend for her response. I stress that it is really important for us to overcome the idea that education is something that happens only when you are young. Education should be happening throughout life and, if this body is not going to co-ordinate the development of a national strategy for financial education not just for people who are young, perhaps my noble friend could give some thought to how we will develop such a national strategy.
Financial Guidance and Claims Bill [HL]
Wednesday 6th September 2017
(7 years, 2 months ago)
Lords ChamberRead Full debate Financial Guidance and Claims Act 2018 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 1-II Second marshalled list for Committee (PDF, 108KB) - (4 Sep 2017)
Lord McKenzie of Luton
“( ) financial inclusion,”
Lord McKenzie of Luton (Lab)
My Lords, I shall also speak to our other amendments in this group, namely Amendments 22, 25 and 39. Amendment 19 adds “financial inclusion” as one of the matters which the national strategy should specifically seek to improve. Amendment 22 sets out a range of factors which the SFGB must address as part of this national strategy. Amendment 39 offers definitions of financial inclusion and financial exclusion for this purpose. Amendment 25 takes us back to issues of financial education, which we discussed at the end of our previous Committee day.
As will be readily identified, these amendments draw heavily on the recommendations of the House of Lords Select Committee on Financial Exclusion. We acknowledge that the Government have already dealt with one of its recommendations—that there should be a clearly designated Minister for Financial Inclusion, and we support this. However, this opens the way for other recommendations of the Select Committee report to be taken forward, two in particular. These are that the Government should lead and set a clear strategy to improve financial inclusion in the UK as one aspect of a wider strategy to tackle exclusion, and that there should be an annual progress report submitted to Parliament. A Minister should have lead responsibility, but work is needed across government. The role of the SFGB in these circumstances would be to support the production of the annual report in conjunction with the devolved Administrations. This is exactly what Amendment 22 provides. However, if the Government were not minded to proceed with leading on a strategy and routine reporting, how will they take these matters forward? Can the Minister say more about when the Government will respond to the totality of the Select Committee’s report, and set out in particular what they see as their role in tackling financial exclusion and promoting financial inclusion?
As the report sets out, the precise use of the terms “financial exclusion” and “financial inclusion” has varied over the years, but we warmed to the approach adopted by the Select Committee, which we have set down in Amendment 39. This might be broadly characterised as financial exclusion representing the problem and financial inclusion the solution—that is, what we should seek to achieve.
One of the objectives of the SFGB is that it must have regard to improving the ability of members of the public to make informed financial decisions. Those who struggle to do so face the risks of financial exclusion, such as the inability to access what might be considered everyday financial products and services. As we know, such individuals can face significant barriers to engagement in modern society. Hence Amendment 22 requires the SFGB, as part of its role in developing a national strategy, to work widely with financial institutions and technology companies to support hard-to-reach groups in accessing financial support and products online.
At the same time as internet banking is growing, causing more financial services to move online, we are experiencing a programme of significant bank closures: 53% of UK bank branches closed between 1989 and 2016. It is suggested that this is a particular problem for older age groups who, we are told, place a high value on face-to-face contact, tend to be more reliant on cash and experience challenges in travelling, and one-third of people over 80 either have never used a cash machine or prefer to avoid them. Some of the high-street banks are responding to this by helping to develop the digital skills of their customers, and there is an obvious role for the SFGB in encouraging and promoting this.
Exclusion is not only a consequence of the digital challenge. The House of Lords committee heard about the difficulties for some, such as those without a passport or driving licence, in meeting rigorous requirements for bank accounts. These matters particularly affect the homeless, ex-offenders and migrants, to name but a few. Amendment 22 also highlights some of the financial exclusion issues which affect those suffering with mental health conditions. The report describes how certain behaviours, such as,
“disengaging … from contact with creditors and financial services providers”,
lead to the build-up of debt and problems with credit ratings, and that,
“excessive spending during manic episodes”,
can also lead to the build-up of debt. It is important, therefore, that arrangements include “control options” for customers.
However, as recent events demonstrate, the existence of control options does not guarantee provider compliance. One especially disturbing issue reported on by the Select Committee is the communication strategy pursued by some online retailers. This involves potentially “predatory behaviour” in the early hours of the morning, when lonely and isolated individuals are at their most vulnerable. This is a matter for the Government, the SFGB and others to be concerned about. Is the Minister satisfied with the current state of regulation and its implementation in this regard?
Finally, Amendment 22 calls for a review of the impact of the Welfare Reform Act 2012 on financial inclusion. While it calls for an annual review, we accept that it might better call for, as did the committee,
“a detailed, comprehensive cumulative impact study of how changes in social security policy resulting from the Welfare Reform Act 2012 might have adversely affected financial wellbeing and inclusion”.
Other organisations have tried, such as the IFS and the CPAG. A recent analysis by the latter showed that under universal credit and child benefit changes since 2013, families and children have lost more than any other group, with cuts far outweighing the increased support for childcare costs. Compared with the original design of universal credit, the average family with three children will be more than £2,500 a year worse off. The point is that the changes to universal credit will be heavily poverty-producing and lack of money is a feature of financial exclusion. While an annual review to monitor changes is helpful, the cumulative effect of all components of the changes to social security shows how mean-spirited and counterproductive they have been.
Baroness Coussins (CB)
My Lords, I support the amendments in this group, particularly Amendments 19 and 22. I remind the Committee of my interest as president of the Money Advice Trust, the national charity.
These amendments have been tabled by the noble Lord, Lord McKenzie, and therefore carry a great deal of weight given his recent experience as a member of the Financial Exclusion Committee. I was pleased to see the Government follow that committee’s recommendation for a dedicated Minister for Pensions and Financial Inclusion, creating this additional ministerial brief within the DWP. That is a very welcome step.
Amendments 19 and 22 offer an opportunity for building further on that, by expanding the remit of the single financial guidance body’s strategic function to include improving financial inclusion. The amendments in effect implement several of the Financial Exclusion Committee’s other recommendations, which have particular relevance to the objectives that the Bill sets out for the new body. The ministerial brief for financial inclusion within the DWP, together with that department’s role in relation to the new body, seems a perfect alignment of policy. With the right resourcing, the new body’s objectives and its expertise could equip it very well to lead on financial inclusion, so I hope very much that the Minister will be able to respond positively to these amendments.
The Earl of Listowel (CB)
My Lords, I offer my support for these amendments in considering the particular needs of young people in care and leaving care. Most young people leaving care do so by the age of 18—many are still under that age—and they have to run their financial lives. There is a duty on the local authority to provide support but many of them are plunged, too early in their lives, into the sorts of responsibilities that such education would help them to deal with more effectively. Half of children from run-of-the-mill families are still with their parents up to the age of 20, so I can see particular benefit from these amendments for vulnerable young people who may have to look after themselves very early in their lives.
Baroness Finlay of Llandaff (CB)
My Lords, first, I declare my interest as chair of the National Mental Capacity Forum. I join in the comments of my noble friends Lady Coussins and Lord Listowel in welcoming the spirit of these amendments. Perhaps I may flag up, as I would be glad to have it on the record, that these amendments may not go far enough for those who have difficulty with financial issues.
Capacity impairments are related not only to mental ill-health. They may be related to frailty and there may be fluctuating mental capacity. For a group of people with communication difficulties, since banks are closing and local branches are no longer there, there is no one with whom they can communicate. If they have speech difficulties, they certainly cannot communicate well over the phone. They may have a mobility tremor, for example, which makes it difficult for them to use the internet without assistance, yet they may want to manage their affairs with a degree of privacy, which they can do in a face-to-face consultation with somebody in a bank.
In addition to impaired capacity and disability issues, there is another difficulty we increasingly see, particularly among the older population: coercion, which may be from other family members and a form of elder abuse. It can be very subtle indeed. I had a meeting this morning with Building Societies Association representatives, who are certainly detecting coercion in face-to-face encounters. But I also asked them whether there is any evidence of detecting coercion in the online systems that are in place. There is none, which becomes worrying. Although this group is right on the borderline of impaired capacity, they are inhibited from exercising their capacity because they are frightened of being intimidated by others.
Another group of concern is those with addictive behaviours such as the hypomania the noble Lord, Lord McKenzie, referred to in his opening remarks. For example, people may have a gambling addiction—a very defined addiction—and be increasingly enticed into spending more or doing a great deal of shopping during the night, when they are hypomanic. The control options on accounts should really be strengthened, so that someone can put them on but not have the ability to take them off themselves without a consultative delay period. The problem is that when they are hypomanic, they think it very reasonable to spend or gamble massively, but later they realise they did not have the capacity to do so. I hope the Government will look very favourably on these amendments and that when we come back on Report, they might even consider extending them a bit further.
Baroness Kramer (LD)
My Lords, if I may join in the general chorus, the concern that these amendments express—that the single financial guidance body is not directed to look at the issue of financial exclusion—is a serious lost opportunity. This body primarily directs channels of communication to all kinds of people about how to manage their money, whether that is in time of crisis or to maximise the opportunity for a good pension in old age, for example. As a result, it is in contact with people and is therefore aware of them in a way that, for example, a formal regulator such as the FCA can never be. Not to try to tackle the very individual and human complexities of financial exclusion seems a lost opportunity, given the palette of opportunity being created by the structure of the body. Financial exclusion matters greatly. We all know about growing inequality within our society and how it undermines the progress we wish to make. The contribution this body could make in this arena could help tip the balance in the direction in which we all hope to go.
Baroness Hollins (CB)
I add my support, but I wish to take this a little further. Older people are not the only members of the public who rely on easy access to cash in order to manage their daily budgets. People are now being required to use chip and pin instead of a cheque to obtain cash in a bank, which is not possible in a post office. The risk of chip and pin for many vulnerable people who have limited capacity is that it opens them to exploitation. They are more at risk of scams and other kinds of financial exploitation. It is just putting some more vulnerable people at risk. This is a wonderful opportunity to address the risk that many people now being encouraged and empowered to live more independently in the community could lose some of that independence.
Viscount Trenchard (Con)
My Lords, I well understand the objectives of the noble Lord, Lord McKenzie, and I have the greatest respect for what he is trying to achieve and for other noble Lords who have supported these amendments. However, we need to be careful not to make the legislation too complicated. I am not quite sure that I really understand the difference. The noble Lord is trying to include the need to provide information on financial capability. He is talking about financial inclusion and financial exclusion. The Bill already includes the need to have regard to financial capability. I am not quite sure that financial capability is the best way to describe what is meant. I think it is intended to mean financial literacy or financial awareness. Financial capability implies having financial assets. I therefore find it a little confusing. We have financial capability in the Bill anyway, which I do not think is perfect, and are now talking about adding financial inclusion and financial exclusion. The noble Lord’s definition of financial exclusion in Amendment 39 includes reluctance to seek appropriate advice. I do not fully understand why, if somebody is reluctant to seek the advice or guidance that sensible people tell him he should seek, that means he should be regarded as being financially excluded.
Lord Kirkwood of Kirkhope (LD)
My Lords, I am happy to follow the noble Viscount, Lord Trenchard. His point is understandable but it is more easily understood in the context of the ad hoc committee’s report on financial exclusion. We have had some response to that, already adverted to by the noble Baroness, Lady Coussins, and it is a great leap forward to have a Minister to whom we can now address some of these issues. But as the noble Lord, Lord McKenzie, was saying, what is missing is an overall strategy into which the differences he was trying to analyse can fit more comfortably. Absent a strategy, the Committee is perfectly entitled to try to make what it can of this important Bill—which is an important part, although not the whole, of the strategy—in order to expand the envelope as much as we can. These amendments do that. The speeches we have heard so far from colleagues support that, and I support these amendments.
Lord Young of Cookham (Con)
My Lords, the co-pilot is in charge of this leg of the legislative journey, and I apologise in advance for any turbulence. I thank the noble Lord, Lord McKenzie, for tabling these amendments and for the way he argued in support of them. As I listened to some of the contributions, it struck me that during this debate we have identified gaps in existing provision. One of the things we want the new body to do is to identify those gaps and then fill them. I will come back to this issue later on in dealing with some of the specific points that have been raised. I am grateful for the contributions that have been made and I will try so far as I can to address them.
Clause 2 sets out the functions and objectives of the new body, including the role of the strategic function. In designing these functions, we have set the parameters so that the body has a clear remit to focus its efforts while at the same time ensuring that the scope is sufficiently wide so that it can respond to changing needs and circumstances in meeting that remit.
I begin with Amendments 19 and 39, which seek to integrate financial inclusion within the new body’s strategic function and to set out in statute a definition of financial inclusion and exclusion, the case made by the noble Lord, Lord McKenzie. As my noble friend mentioned at Second Reading, we take the issue of financial exclusion seriously. The Government are grateful for the work of the ad hoc Select Committee on Financial Exclusion in highlighting this important issue. I am all too aware of the appetite of noble Lords to read the Government’s response, and I recognise that the general election held this year and subsequent ministerial changes have, unfortunately, pushed back that response, which will be published shortly. None the less I am grateful for the comments from the noble Lord, Lord Kirkwood, and the noble Baroness, Lady Coussins, about the appointment of my honourable friend Guy Opperman as a Minister with responsibilities in his department.
I cannot anticipate the Government’s final response, but in the meantime I want to be as helpful as I can to the noble Lord, Lord McKenzie, and others by outlining our understanding of the term “financial inclusion”. I begin by picking up the point identified by my noble friend Lord Trenchard in looking at issues of definition. To quote the World Bank:
“Financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs—transactions, payments, savings, credit and insurance—delivered in a responsible and sustainable way”.
That is an internationally accepted definition of financial inclusion. When we consider that definition, it follows that the Government’s policy regarding financial inclusion must be focused on ensuring that there is an adequate and appropriate supply of useful and affordable financial services and products. The Government therefore work closely with the industry regulator, the Financial Conduct Authority, to ensure that appropriate action is taken when the market fails to supply services and products. The noble Baroness, Lady Coussins, mentioned bank closures, which is an example of where the market has failed to supply what particular customers want. In passing, I note that in many parts of the country the Post Office is stepping up to the plate, and one should not underestimate its contribution.
On the matter of “financial capability”, the term refers to the ability of the public to manage their money well, including the ability of members of the public to engage with services and products made available by the financial services sector. So there are two different concepts—capability and, as I shall refer to in a moment, the supply of services. Of course there is little value in ensuring an appropriate supply of useful and affordable financial services and products if people do not have the ability to actually use them. That is where financial capability comes in. It is the role of the single financial guidance body to improve the ability of the public to manage their money so that they have the skills, knowledge, motivation and confidence to fully use the financial products and services on offer.
Against the background of those definitions, the concern that we have about these amendments is that the reference to “financial inclusion” would fundamentally change the nature of the new body from an information and guidance body to more of a regulator with specific powers to intervene in the financial services market. At the moment the Treasury and the FCA have responsibility and the relevant powers to intervene when the financial services market fails to supply affordable products and services. Against that background, the attempt in the amendments to give the body a remit over financial inclusion risks duplication and confusion.
I think noble Lords will be aware of the FCA’s work in the area of financial inclusion. It is of the utmost importance that this progress is not impeded by unnecessary confusion over the role of different public bodies. Indeed, the FCA’s competition objective states that it may have regard to,
“the ease with which consumers who may wish to use”,
financial,
“services, including consumers in areas affected by social or economic deprivation, can access them”.
The FCA takes those objectives very seriously and has undertaken a number of pieces of work in recent years—
Baroness Kramer
Perhaps there is a slight misunderstanding here. The FCA certainly sees its role as regulating appropriately those financial services that exist, but where a gap exists, it takes no responsibility for filling it. Many in this House have had a long dispute with both the Treasury and the FCA about that, because the gap never gets closed. I draw that to the Minister’s attention, because often those who are not close to this matter assume that it has that role.
Lord Young of Cookham
My initial response is that if the gap is indeed not closed, it is one of the objectives of the FCA to address that. I was just quoting that it has to have regard to,
“the ease with which consumers who may wish to use”,
financial,
“services, including consumers in areas affected by social or economic deprivation, can access them”.
If it is not responding and ensuring access, that is a case not for giving that responsibility to another body but for holding the FCA to account to get it to discharge the responsibilities that we have given it.
The FCA takes its objectives very seriously, and has undertaken several pieces of work in recent years to increase access and protect consumers, including a report on consumer vulnerability in February 2015. To give one example, in June this year, the FCA published a call for input on access to insurance, following a broader report on access to financial services that it published in May last year. The call for input seeks views on the challenges that firms face in providing travel insurance for consumers who have or have had cancer and the reason for pricing differentiations in quoted premiums.
I look forward to seeing that work develop, and I encourage all relevant stakeholders to provide responses to the call for input. It is important work and, in response to the noble Baroness, is an example of the sort of project to promote financial inclusion that the FCA can conduct in its role as industry regulator.
Against that background, I urge the noble Lord, Lord McKenzie, to withdraw Amendment 19 and not to press Amendment 39. I am grateful for the opportunity to address the important topic of financial inclusion, to which I am sure we shall return, but, as I said a moment ago, the Government are concerned that the amendment could create confusion between the roles of the FCA, on the one hand, and of the SFGB, on the other.
I turn to Amendment 25, which makes provision for the new body to advise the Secretary of State on the role of Ofsted and the primary school curriculum. I am aware that the Lords’ Select Committee on Financial Exclusion made a similar recommendation on the role of Ofsted and the primary school curriculum in its recent report. We will of course respond to each recommendation in due course and give them the close attention that they deserve but, for the time being, I just comment that the Government believe that this amendment could cause confusion about the remit of the new body with regard to the school curriculum.
As was stated earlier, the new body will have a role to help co-ordinate and support initiatives delivered by charities and other parties which are designed to improve the financial education of children and young people. It will be able to identify gaps in provision, identify best practice, and work with schools to understand how they are delivering financial education, in which lessons that is taking place, and explore further the barriers to school involvement. The Government are clear, however, that the school curriculum and monitoring of school performance is a matter for the Department for Education in England and those of the devolved nations.
In practice, this means that the body will be able to undertake activities to help schools to provide financial education. For example, the body will be able to undertake activities such as funding the project undertaken by the Money Advice Service and the Education Endowment Foundation to run a trial of Young Enterprise’s Maths in Context programme. Some 12,000 pupils in 130 English schools will take part in the trial, testing whether teaching maths in real-world contexts improves young people’s financial capability and attainment in GCSE maths exams.
Lord McKenzie of Luton
My Lords, I thank all noble Lords who have spoken on these amendments. With the exception of the noble Viscount, Lord Trenchard, who had some equivocation about them, and the Minister himself, all were in support and I am grateful for that. The Minister has given a very long, very full reply and I will certainly need to take Hansard away and have a read of that, but I would like to pick up one or two points. He referred to the evaluation already in place for universal credit and the welfare reform. What evaluation specifically has focused on the impact of these welfare changes—or social security changes—on the build-up of debt and on the relationship with preponderance of debt? I ask this particularly because there are a number of instances identified in the report where there is clearly a correlation between the social security provisions and debt. The issues around the seven-day waiting period is a simple example. There are issues around the payment of rent—a monthly payment for some. There are also issues around council tax support. That support has changed and is delegated to local authorities at a time when their budgets are being slashed. We will discuss the nature of debt shortly. One of the issues flowing from that is the changing nature of debt. For example, utility bills and council tax bills are featuring more prominently in debt. I believe that at least part of that is a direct consequence of the system that the Government have put in place.
The Minister was concerned about the definition of financial inclusion or capability and said that the amendments could introduce confusion into the standard international definition. Leaving aside the precise semantics, what does he see as the Government’s role in all this? What are they going to do to improve financial capability—if that is the terminology he prefers—or financial inclusion to help people make better use of financial services and banking so that they can play a wider role in everyday life? That is what this is about at the end of the day. What will the Government do? What is on the Minister’s agenda? How will that be shared across Governments given that the report talks about needing to join up these services? I believe that a financial inclusion task force used to do some of this work but the coalition Government abolished it a few years back. This issue features as one of the strong recommendations in the report. Leaving aside terminology, these issues are not joined up at the moment and they need to be.
The noble Baroness, Lady Kramer, rightly pressed the Minister on the extent of the FCA’s role when there is a gap—namely, precisely what it should be doing in these circumstances. I need to read the record but there seemed to be a dispute over the extent to which the Minister’s assertions were correct in that regard.
A number of other points were made, including that of post offices filling the gap when banks close. However, I think there is some way to go before that happens. It is right to say that post offices are becoming more alert to these situations but I do not think that they are anything like clear substitutes for banks.
I thank the noble Baroness, Lady Coussins, for agreeing about the importance of financial inclusion—or whatever term we use—being an integral part of the strategy we adopt. That must be right. The noble Earl, Lord Listowel, mentioned the importance of this area to young people. The noble Baroness, Lady Finlay, rightly expanded the range of circumstances about which we should be concerned. I think the Minister said that nothing in the Bill prevents action being taken in relation to fluctuating mental health and disability issues and issues around coercion. Incidentally, the noble Viscount, Lord Trenchard, talked about people’s reluctance to seek advice. I would have thought a clear case of that would be where it is available but they might feel intimidated—actually intimidated or intimidated by the environment.
The noble Baroness, Lady Finlay, touched on the important issue of gambling. There is quite a chilling paragraph or two in that report about online providers deliberately targeting vulnerable people at two or three o’clock in the morning, when they are most susceptible to spending and making their commitments.
The noble Baroness, Lady Hollins, supported the amendment and referred to the challenges of chip and pin. A statistic in the report says that one-third of people aged 80 or over have never used a cash machine or would not want to. That is quite a frightening level of disconnect.
We have been at this for quite a long time but it is an important subject. I propose to take the Minister’s response away, and we may return to it on some basis at a later stage. In the meantime, however, I beg leave to withdraw the amendment.
Baroness Drake
“( ) The single financial guidance body must produce a report advising the Secretary of State on how government departments might best assess the impact on financial inclusion, financial capability and household debt of any proposals for a change to public expenditure, administration or policy. ( ) The report must be published within the period of 12 months beginning with the day on which this Act is passed.”
Baroness Drake (Lab)
My Lords, we all know that the UK faces a series of systemic challenges, which drives the need for the new financial guidance body as part of the armoury of response. Within the population there are persistently low levels of financial capability, rising indebtedness, falling financial resilience, and poor understanding of pensions and other complex financial products. The financial capability challenge is not restricted to the squeezed and financially struggling; it goes up the income value chain. The Money Advice Service figures, on a range of measures, reveal that the picture has got worse since 2005. The growth of these problems has many roots, but they are compounded by inefficiencies in the financial services market, such as the poverty premium paid by the poor to access credit; the asymmetry of knowledge and understanding of products and services, which disadvantages consumers across the income range; and geographic and digital access barriers.
I shall scope the scale of the national challenge. ONS statistics reveal that the proportion of disposable income that goes into savings has fallen to a record low. Wages have been weak for much of the period since 2008, and the Bank of England’s chief economist has observed that the structural factors contributing to weakening wages are unlikely to reverse any time soon. Household debt is rising. Recent Bank of England figures reveal £200 billion owed in consumer credit, excluding mortgages, and the biggest surge in the number of customers missing loan repayments and default rates on credit card overdrafts since 2008. Figures for unsecured loans and car finance are even worse, and some 3 million people are struggling with severe debt.
The Lords Select Committee report on financial exclusion sets out clearly the multiple causes of exclusion and its effect on different groups of society, compounded by the barriers that the low-incomed, elderly and disabled face in accessing financial services. Auto-enrolment has seen the rise of defined contribution workplace pension savings as a mass market, involving some 16 million workers, their savings expected to reach £1.7 trillion by 2030. The largest increase in workplace pension participation rates has been for those earning between £10,000 and £20,000. That is all good news on pension savings but over time, as more workers save into defined contribution schemes, the financial capability challenge gets greater. In future, individuals will bear more risk than previous generations of pensioners, yet many are ill equipped to manage those risks and make complex decisions. Many accessing defined contribution pension pots today have other main sources of retirement income, such as a defined benefit pension. That will not be true for future generations.
The financial resilience of the public has weakened. A growing sense of unfairness and heightened insecurity across both low and moderately incomed households is eliciting behavioural responses. The Bill gives the financial guidance body a strategic function to co-ordinate the development of a national strategy on financial capability and managing debt. However, that remit cannot displace the need for government leadership and overall co-ordination. The lessons of the past confirm that substantial funding of national financial capability programmes does not deliver the step change needed in the absence of government ownership and drive.
The new body will be an executive non-departmental public body—a delivery arm of government. One has to be realistic about how far its authority and resources can reach. It will have a demanding focus on delivering front-line support for millions of people. The new body can map, measure and identify problems, and it can provide insight, give guidance and support a national strategy, but it cannot manage the process of government—it will have neither the means nor the resources.
Public policy in many areas can be looked at through the lens of financial inclusion and capability, such as taxation, welfare, education, the regulation of markets, health and transport. The whole tanker of government has to be moved to mainstream consideration of the problem and to get departments to assess how their policies, administration and expenditure impact the financial capability of the UK population. Indeed, the Prime Minister herself observed in January that the Government needed to,
“recalibrate how we approach policy development to ensure that everything we do … helps to give those who are just getting by a fair chance—while still helping those who are most disadvantaged ... they need a government that will make the system work for them”.
An important way in which the new body can discharge its function to support a national strategy is to give it a remit to produce a report advising the Secretary of State on how government departments might best assess the impact on financial inclusion, capability and household debt of any proposal for a change to public expenditure, administration or policy. The concept is not novel—impact assessments are already required from departments on a range of matters, such as regulatory burden or equalities. There are impact assessment toolkits in use; the NAO audits their quality and effectiveness.
This amendment gives a new ingredient by placing a requirement on the guidance body to deploy its expertise and report to the Government on how departments might best assess the impact of their actions on financial capability and household debt. Giving the new body a duty to produce such a report, to which the Government will need to respond, will contribute to achieving greater government ownership and engagement in delivering a national strategy.
I return to the theme of my opening comments. The UK faces a series of systemic challenges which require a shift in the nature of government engagement—something on which I think the Prime Minister and I agree. Without the formal discipline of government mainstreaming and assessing the impact of public policy, a national strategy on financial capability and household debt will not deliver the desired outcomes. Just giving a large budget to an NDPB is not going to do it. The Government have to buy in to mainstreaming and delivering a strategy to meet these challenges. I beg to move.
The Earl of Listowel
I support Amendment 24, to which I have added my name, and I hope that the Minister will find it helpful. I am particularly concerned about parents and children involved in indebtedness and the pressure on families that arises from that—something that we discussed during the first day in Committee. At a time of crisis, when Governments have to make very difficult decisions, they often seem to make short-term decisions that can have a long-term, adverse impact on society, particularly on families. There are many routes to productivity or failure to be productive, but family dysfunction is a core basis of the failure to produce productive citizens.
More and more evidence is becoming clear that if children—even those up to the age of 25—experience adverse circumstances or difficult relationships within the family, particularly during the pregnancy or immediately after birth, their ability to do well at school, make and keep relationships, and have good physical and mental health well into adult life is impaired. This is a helpful amendment to give us a bit more breathing space and think more about the decisions that we as parliamentarians come to in the heat of very difficult economic circumstances, and about what impact they have on the long-term success and productivity of our society.
I visited Germany earlier this year and was impressed to learn that none of the shops is open on Sundays. It is not permitted for businesses to send emails after 8 pm at night. It is a cultural norm not to work beyond 6 pm in the evening. It is seen as inefficient to do so. Germans seem to have a far better work/life balance than us and are renowned to be more productive than we are. I am sure that there are many more factors to take into consideration, but under pressure and in the heat of the moment, with the short-term decisions that seem so important, perhaps we lose sight of the fundamentals.
I give credit to the Government for recognising the fundamental importance of family life and the significant investment that they have made in supporting couple relationships. The high levels of employment that the Government have achieved have reinforced couple relationships. Professor Melhuish makes clear that high levels of employment tend to conduce to less family breakdown. These are complicated matters, but a report of this kind could give us space to step back and think about the implications of the decisions that we are feeling pressed to make at the moment, particularly what impact they may have on families and the ability of our children to thrive in the future. I hope that the Minister can give a sympathetic response to this amendment.
Lord Stevenson of Balmacara (Lab)
My Lords, I support the amendment introduced forcefully by my noble friend Lady Drake. I am not sure who is responding from the other side—whether it will be a transatlantic journey or just a short hop—but I am sure that it will be entertaining nonetheless. I have three points to make and I hope that the Minister will be able to fit them into the very brief swoop around the skies that he is about to make.
The amendment tries to flesh out a little more of our earlier discussion. In so doing, it makes this point: there needs to be a body that has responsibility for assessing many of the activities that either advertently or inadvertently are made by government at all levels, whether regional or national, and by other bodies involved in the space that we are talking about—people’s lives and their capabilities to cope with the financing of them. The method chosen by my noble friend in her proposal, supported by the noble Earl, Lord Listowel, is to think about how other policies initiated by government as a whole need to be measured and impacted.
My noble friend mentioned the impact assessment. I have the impact statement for this very Bill. Those who have read it—and I have—can see that, as well as the broader discussions about the intricacies of the costs of this provision, there are statements around the impact of the measures that we are discussing on competition, innovation, the wider economy, equality, the environment, and social and sustainable development. This is not new ground, in terms of what the Government have to do to assess that the proposals they are bringing forward for legislation are properly considered.
I have reflected a little on what was said in our earlier debate this evening. The noble Lord made a point in relation to trying to sort out the impact that it could have been alleged was being made on the SFGB, as opposed to the FCA or indeed the Government. It would be sorted if more work were done by those preparing policies across the range of government activities in the manner specified in this amendment. Therefore, I commend it to him.
Lord Young of Cookham
My Lords, I will try to reflect the German work/life balance referred to by the noble Earl, Lord Listowel, by sitting down well before six o’clock. I am grateful to the noble Baroness for introducing her amendment, and as I do so often, I found myself in agreement with nearly all of her analysis of some of the challenges out there: the fall in the savings ratio and the need for a holistic approach to these challenges. I also agree with what the noble Earl said about the problems faced by young families. Where I parted company with the noble Baroness was when she sought to place this extensive new duty on the single financial guidance body. Basically, what her amendment does is to require the new body to produce a report within its first year advising the Secretary of State on how government departments might best assess the impacts of any changes in public expenditure, administration or policy on financial inclusion, financial capability and household debt.
I have a lot of sympathy with the intent behind the amendment. I agree with much of what the noble Lord, Lord Stevenson, has just said about the need to stand back and take a holistic approach to the issue, and of course the Government do not want to do anything that would have an adverse impact on financial inclusion, financial capability or household debt through any of the policies that they pursue. However, I have real difficulty with the point that the noble Baroness is trying to make here, and I do not think that the amendment is either necessary or appropriate.
As I implied a moment ago, the scope of the report proposed in the amendment is very far reaching indeed. The definition of,
“public expenditure, administration or policy”,
is very broad. I have to ask the noble Baroness whether she will compel the body to produce a report for the Secretary of State which considers how to assess the impact if, for example, the Chancellor chooses to adjust expenditure on infrastructure, defence or healthcare. I am really worried that the amendment could overstretch this body’s resources in its first year and expand its remit far beyond that which was originally envisaged. In its first year the body is going to have to prioritise resources into bringing together three disparate bodies, identifying gaps in the market, as we heard earlier, and building on its primary task. If we start going down this road, I see a real risk of diverting resources away from the front line of providing services, bringing together and co-ordinating the functions of the three pre-existing bodies, and from front-line delivery.
The second point is one that has already been touched on. Ministers already review a range of issues when they assess new policies. The financial impacts on individuals and families are considered as a normal part of policy-making, and as noble Lords know, impact assessments are also produced to accompany legislation. I am not convinced that this broad requirement is in keeping with the body’s strategic function of working with others to support the co-ordination and development of strategies to improve people’s financial capability, their ability to manage debt, and the provision of financial education for children and young people. This function is about identifying the most important issues and possible interventions in financial capability, personal debt management and financial education for children and young people working through others.
In response to the point made by the noble Lord, Lord McKenzie, in winding up the last debate and in part response to the issues raised in this debate, a lot will become clearer as to where the Government are coming from on this when we publish our response to the ad hoc Select Committee. The noble Lord, Lord McKenzie, asked me where the Government are coming from, and given the number of recommendations made by the ad hoc Select Committee, I think that that is the right place to reply.
On government leadership, we take the issues of capability and inclusion very seriously, and perhaps I may reiterate my comments about government leadership. In addition, the Secretary of State can request guidance or advice from the new body under Clause 2(2), which will help co-ordination between the Government and the body. I am grateful to the noble Baroness for giving me the opportunity to put the Government’s view on this important issue on the record and to underline our concerns about the potential diversion of resources if we go down this particular route.
Lord McKenzie of Luton
May I receive a bit of clarification on the Government’s response to the House of Lords Select Committee? I think the Minister said that it would be soon, but can he give us an assurance that we will receive it before we get to Report? We are going to have a little gap after next week. I hope that that will be enough time for the Government to respond.
Lord Young of Cookham
I would love to give a direct and helpful response to the noble Lord’s very reasonable question. It would be irresponsible of me so to do. There are a lot of government departments involved in this. I cannot give an exact timetable at the Dispatch Box today, but I will make some inquiries and see whether we can shed some light on a publication date perhaps later in our proceedings.
I think I was at the end my peroration, imploring the noble Baroness, Lady Drake, to withdraw her amendment.
Baroness Drake
I thank the Minister for his reply. I totally disagree with most of what he said. I thoroughly agreed with the bit where he agreed with my analysis— it was just the bit about the amendment not being practical. This will be neither onerous nor expensive, which is really his only argument against it. This is not saying to map every problem that contributes to financial capability or financial exclusion, but to give a report that sets out in the methodology how best to make an impact assessment across government departments when they are pursuing their policy.
This is not novel; it is a methodology and a discipline that operates in a range of areas. A huge amount of work has already been done. A national strategy has already been created by the work of the Money Advice Service—there is already its capability survey. It has mapped the problem. I was rereading it over the weekend. There is no need to reinvent the wheel. A lot of that work exists and it is an organisation that is going into the new organisation. The Bill already gives to the new financial guidance body responsibility for co-ordinating and developing a national strategy. The Government have already given it the heavyweight bit, which is to co-ordinate and develop the national strategy, but ensuring that that strategy is effective and delivered—ensuring that the whole machinery of government is responsive to the challenge—is a methodological challenge in terms of what I am proposing on how you assess the impact so you can take it into account.
I do not accept that it is expensive or onerous. It is a challenge of how one guides departments to make those impact assessments. There is plenty of advice and guidance from the NAO, other government departments and other bodies that have given guidance to the Government on how to make impact assessments. If there is such a resistance to making impact assessments, how is the Prime Minister to meet her commitment? If she wants to make the Government function better she has to stand back, look at the problem and make an assessment. All I am saying here is that simply giving a budget to an NDPB and saying, “Get on with developing and co-ordinating a strategy; we as a Government have now discharged our function”, is not sufficient. The whole machinery of government has to be told that when it comes up with its actions or policies that it has to assess the impact it will have on capability and debt. The Government will go on to make their policies, but they have to put a discipline in. Just handing over the more labour-intensive bit to the NDPB, not the least labour-intensive bits that I am suggesting, will not get good outcomes for the country.
I reject the premise of the Minister’s argument that it will be very expensive and labour intensive to do. A lot of the groundwork has already been done by the MAS. None the less, I beg leave to withdraw my amendment.
Lord McKenzie of Luton
“( ) As part of undertaking its strategic function to improve the financial capability of members of the public, the single financial guidance body must carry out research on a periodic basis, in collaboration with other bodies with an interest in debt issues, to determine—(a) the level of unmanageable debt across England, Wales, Scotland and Northern Ireland,(b) the causes of unmanageable debt, and(c) ways to prevent unmanageable debt.”
Lord McKenzie of Luton
My Lords, in moving Amendment 26 I will speak also to Amendment 40. These amendments concern unmanageable debt, which we seek to define in Amendment 40—with some trepidation given my last attempt to define something. Amendment 26 would require the SFGB to carry out research from time to time relating to unmanageable debt and to do so in collaboration with other bodies with an interest in debt issues. The focus of the research should be to determine levels of such debt across the whole of the UK, the causes and the ways to prevent it.
Unmanageable debt is defined to recognise those situations where individuals are not routinely able to, or heading for circumstances where they will not routinely be able to, meet their financial commitments when they fall due. Research into such matters would not be new, but it is of particular relevance given the levels of unsecured personal debt in the UK. Citizens Advice reports that unsecured debt, after falling from its peak in 2008, is now growing faster than incomes and faster than secured debt. It cites an OBR forecast that levels of unsecured debt will return to pre-crisis levels by the end of the decade. These have implications for the individuals and families concerned, as well as the aggregate impact on the national economy. Citizens Advice research shows that unmanageable debt is unevenly distributed, taken as a measure of unsecured debt equivalent to six months or more of a person’s income but taking into account savings. Not surprisingly, those in the lowest income group are three and a half times more likely than the highest fifth to have unmanageable debt, those who are 20 to 29 years old are twice as likely as those who are 30 to 39 years old, and private renters are twice as likely as those with a mortgage.
Amendment 26 would require not only that the level of unmanageable debt be recognised but that the causes of the debt and ways to prevent it be determined. That is a more challenging requirement but would reflect changing circumstances over time. Evidence given by the Money Advice Trust to the House of Lords Select Committee was to the effect that, 10 years ago, the problems reported by 69% of callers to its National Debtline were to do with loans, overdrafts or credit cards, but that this percentage has fallen significantly to 42%. However, the service has seen a dramatic 140% rise in calls concerning household debts such as rent arrears, energy and water bills, telephone bills and, as we have discussed, council tax. This analysis was echoed by others, including StepChange.
We discussed in a previous amendment consequences of the abolition of council tax benefit and the detrimental effect that this has had on council tax debts. Another feature highlighted was the impact of the tax collection practices of different local authorities and how this could impact debts generally. We are, of course, coming on to discuss the importance of a breathing space. It has been suggested that the loss of debt advice and benefit advice services, particularly those funded by local authorities, has exacerbated the problem.
In seeking to bring research to bear on ways of preventing unmanageable debt we also need to focus on the wider consequences of individuals and families living with unmanageable debt, including family breakdown and poor physical and mental health, as well as on the fundamental issue underlying much of this—low and erratic pay. Research is not only about looking back. The Money Advice Service, together with CACI, published research on the design of a model to estimate the probability of an individual being overindebted. It concluded that the overindebted population is younger and more likely to rent and have children; feels the impact of macroeconomic changes more significantly; and is more exposed to changes in the welfare system. Unsurprisingly, they claim that, together with partners, this research will enable services for overindebted people to be provided earlier to help resolve crises and support them to stay out of debt in the longer term. We know that debt advice can be effective. Research can assist in channelling that advice in the most effective and efficient way. I beg to move.
Lord Sharkey (LD)
I have a small additional question arising from Amendment 26. As things stand, I understand that the kind of research that it calls for is already undertaken by the MAS and forms the basis of the budget requests made by the MAS and of the distribution of funds coming through the MAS. If this research is not to be done I am curious about how budget requests will be made and how funds will be distributed across the regions.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Buscombe) (Con)
My Lords, I thank the noble Lord, Lord McKenzie, for tabling these amendments. Amendment 26 relates to the strategic function of the body and would add a requirement for the new body to conduct research on levels of unmanageable debt across England, Wales, Scotland and Northern Ireland, the causes of unmanageable debt and ways to prevent it. Amendment 40 then seeks to provide a definition of unmanageable debt. It is right that this House takes great interest in seeking to understand the causes of debt and how the Government can best help those who are struggling. I thank noble Lords again for their important contributions on this matter at Second Reading, in the meetings we have conducted since and in their amendments. I have given them a great deal of thought. I assure noble Lords that the Government take problem debt very seriously.
We understand, as the noble Lord, Lord McKenzie, has said, that the cost of living can sometimes become too great and that problem debt can be hard to escape and can compound family breakdown, worklessness, stress and mental health issues. The Government are committed to supporting those who are struggling with their finances and, as we have previously outlined, work is ongoing on this area. Indeed, during the Recess I paid a visit to the Money Advice Service to see for myself some of the work that it is doing in this regard, particularly the different areas of research it is carrying out. I also take this opportunity to acknowledge the work that Citizens Advice is doing in this area, and particularly the report they published last week, Stuck in Debt, which highlights the problems faced by many. The report highlights the risk of people taking on debt that they cannot repay and clearly shows the impact of unaffordable debt.
The strategic function of the single financial guidance body will be critical. It will give the new body the ability to work with others in the financial services industry, the devolved authorities and the public and voluntary sectors to identify the most pressing issues and possible interventions in financial capability, personal debt management and financial education for children and young people. I understand the very worthwhile aims of this amendment; however we do not believe that it is necessary to specifically reference one area of research in legislation. Clause 2(3) enables the body to conduct research on,
“anything that is conducive or incidental to the exercise of its functions”,
so it could conduct research into anything that noble Lords have raised this afternoon, for example. Furthermore, the body will, under its strategic function, be expected to work with stakeholders across the financial services industry, the devolved Administrations and the public and voluntary sectors to share and pool research evidence and knowledge among each other to inform the national strategy on financial capability.
Let us not forget that the whole purpose of this new body is to improve the financial capability of the public, through both its delivery and strategic functions. In order to deliver its objectives and functions effectively, this body, like any other delivery organisation, will need to conduct research to understand the issues it is addressing, test and learn new approaches to determine what works and continuously improve the services it is providing. I would find it hard to believe that this body would not conduct research on the very issues that the noble Lord has raised. The question here is not whether the body should conduct research on this and other matters—the Government are clear that, of course, it should. The question is, is it necessary to have it defined in primary legislation?
There are several topics that the body may wish to look into, but I am concerned that specifying just one could risk limiting its ability to look widely and strategically at issues across the whole sector. It must also have regard to emerging issues in the future. Amendment 40 seeks to provide a definition of the unmanageable debt levels that the body would be tasked with researching under Amendment 26. The noble Lord’s amendment undoubtedly highlights some of the key characteristics displayed by those who are struggling with their finances, such as being able to make only minimum repayments on outstanding credit commitments, difficulty in paying for essentials and a reliance on credit. The question here is not whether the Government agree with this definition; it is about whether this should be defined in legislation. As I have already explained, the Government believe that the new body should have the ability to choose the specific topics it researches in relation to its functions, and that these should not be specified in legislation.
Should the new body choose to research the causes and effect of unmanageable debt, it should also have the ability to define what it is researching. Although I understand the intention behind the definition suggested in the noble Lord’s amendment, defining unmanageable debt in legislation could unintentionally limit the scope of the body’s research. It is envisaged that the body will continue to support the aim of reducing problem debt, and this is clear in Clause 2(7)(b), which states that part of the strategic function is to improve,
“the ability of members of the public to manage debt”.
As I have said, the Money Advice Service and others already conduct significant amounts of research into the causes of overindebtedness. They are doing a great deal of work at the moment on how to support the aim of reducing problem debt in the first place. Indeed, I had an extensive discussion about how to do this in a much more strategic way; I think it was the chair of MAS who said that if someone falls off their horse, it is not just a case of looking at how they get back on it; it is how they learn to ride. It is about people’s whole approach, from an early age, to managing their finances. We envisage that the fantastic work the organisation is carrying out in research will be transferred and will extend and continue through to the new body, so I cannot quite accept the premise of the question asked by the noble Lord, Lord Sharkey, that if the money is not spent on research, how is the budget assessed. If that were the case, it would go to the core issue of whether the body is functioning: a crucial part of its function is to ensure that the body is looking at and thinking about how to improve people’s ability to manage their finances through life.
I know that a particular focus of research at the moment is to do with people’s attitudes; not just how they manage their debt in the short term, but their whole attitude to money and how they manage it going forward. I have various pamphlets here and I found it incredibly encouraging to learn about what we are doing for young children, going through to the elderly. Of course, as always there is lots more to do but the whole tenor of my response is that we should not restrain or constrain this body by tying it down, by listing or being too prescriptive in primary legislation. I hope that, after considering the points I have raised, the noble Lord will withdraw the amendment.
Lord McKenzie of Luton
My Lords, I thank the Minister for that sympathetic reply and for the detail contained in it. The thing I am struggling to understand is why, simply because the Government have particularised an approach in the Bill, that precludes any other approach to research or indeed any other type of debt to be the subject of that research. But this is probably not the time to pursue that in great detail. I simply do not see why the amendment cannot be accepted without impairing the argument the Minister has made for how she sees research and the importance of it. Unless she wants to say anything more, I beg leave to withdraw the amendment.
Baroness Drake
“( ) to improve the ability of members of the public to plan for and address sudden variations in income,”
Baroness Drake
My Lords, Amendment 27 adds an objective for the new guidance body,
“to improve the ability of members of the public to plan for and address sudden variations in income”.
Clause 2 sets out that the new body’s money guidance function is to provide,
“information and guidance … to enhance people’s … ability to manage their own financial affairs”,
but the effective exercising of that function must involve improving people’s ability to manage income shock and strengthening households’ financial resilience. Improving resilience includes assisting households both to manage better once in the grip of a financial crisis or debt and to anticipate and protect against financial crisis or shock through a savings buffer, insurance buffer or some other means. Prevention and cure for households in financial difficulty are both within the remit of the financial guidance body and both require attention.
Evidence of weakening financial resilience within the UK population is abundant. Eight out of 10 people have little or no savings to pay an unexpected bill of £300. The Money Advice Service’s Milestones & Millstones report in 2015 showed that 3.3 million people face an income shock each year. The work, health and disability Green Paper, Improving Lives, reveals that each year almost 2 million people suffer a prolonged sickness absence from work caused by cancer, accident or other major illness, which usually leads to a sudden and significant fall in household income; and 1 million experience divorce, separation or death of a partner, again, often leading to a substantial fall in household income.
Many people lack the financial resilience to weather such a storm and consequently any children they have will also be bruised and buffeted. According to the Children’s Society, financial shocks leading to problem debt have a significant impact on children’s well-being, with many struggling with school and suffering anxiety or depression as a result of enforcement action by creditors. A recent report by Aviva, Protecting Our Families, suggests that three in 10 UK adults have seen their finances hit as a result of temporary or permanent leave from work due to ill health, a cancer diagnosis or death within the family; 31% of adults took forced leave from work, of which 77%—12 million people—saw their income drop by an average of 24%. The Aviva report also reveals that 27% of parents with dependent children have suffered a health crisis, with 91% of these suffering financially. They are quite stark figures. I was quite surprised at the volume when I started to drill down into this.
At Second Reading we heard from the noble Lord, Lord Holmes of Richmond, that by 2020 50% of us will have had or will experience a cancer episode in our lifetime, yet only one in 10 will tell their bank or building society that they have a cancer diagnosis. The noble Lord recounted the experience of John—mid-40s, mortgage, diagnosis of cancer—who can get no engagement from the financial services providers to help him manage through this financial crisis. This experience is consistent with the FCA’s observation in its Occasional Paper 17, Access to Financial Services in the UK, which specifically identified the poor access, particularly to insurance, that people who have experienced serious illness suffer. It cites the statistic that 2.5 million people living with and after cancer—forecast to rise to 4 million by 2030—would find themselves in the non-standard category for a financial services “imperfect customer”. It went on to define what that meant but I think the House is quite capable of determining what a phrase like that means. Lynda Thomas, chief executive of Macmillan Cancer Support, observed:
“Every day, I see people, and I hear of people, whose finances have been really badly hit because of their cancer diagnosis. What our frontline experience shows us is that people affected by cancer find it really, really difficult to access ... all insurance products”.
Lord Sharkey
My Lords, I shall speak to Amendment 27A in this group. This amendment makes a very small change to Clause 2(8)(b), which sets out the objectives of the SFGB. The second objective currently reads,
“to support the provision of information, guidance and advice in areas where it is lacking”.
We agree with this objective, but we feel that it does not go far enough. It is good to support the provision of information, guidance and advice, but it is surely better also to support the use of this information, guidance and advice. Provision is necessary, but it is not sufficient. Provision without use risks wasting time, money, effort and opportunity. This amendment reworks that paragraph by adding “and use”, so that it would read: “to support the provision and use of information, guidance and advice in areas where it is lacking”.
I can illustrate the point by talking briefly about Pension Wise. The service provided by Pension Wise is excellent: 94% of users said they were likely to recommend the service to others; 91% were either very or fairly satisfied by their experience; and 85% said that Pension Wise helped to improve their understanding a great deal or a fair amount. But the problem is that the level of take-up of this excellent service is very low. Research published in June by the Treasury and the FCA suggested that just 7% of eligible pension savers planning to retire in the next two years received guidance from Pension Wise.
Low take-up, both of public and private advice and guidance, would not necessarily be a cause for concern if UK pension savers were generally engaged and well-informed, but they are not—the opposite is the case. Financial capability in the UK, as we have been hearing this afternoon and this evening, is poor. The Financial Advice Market Review baseline report found that just 27% described themselves as capable of sorting out their own finances, and 34% of those who had purchased a financial product later regretted the decision.
Specifically, there is a problem with the levels of knowledge and awareness about pensions and retirement. The International Longevity Centre UK, under the aegis of the noble Baroness, Lady Greengross, who is not in her place at the moment, has published extensive research on consumers’ understanding of retirement planning. In 2015, only half of those with a DC pension said that they understood, either quite well or very well, what an annuity is. Only 3% said they understood what income draw-down was.
There is not just a lack of understanding; there are also dangerous misunderstandings. July’s PLSA survey found that over half of DC pension savers incorrectly believed draw-down products offered a guaranteed income in retirement. Perhaps worse, 25% believed draw-down carried no investment risk at all. This illustrates that the need for guidance and advice is clear. More accurately, the need for people actually to use guidance and advice is clear and pressing.
This is the problem that Amendment 27A sets out to address. The amendment requires the SFGB to have the objective of promoting the use of guidance and advice, not just the provision of guidance and advice. This is a simple but vital change, and I hope the Minister will be able to agree to it.
Lord Stevenson of Balmacara
My Lords, I support the amendments in the names of my noble friend Lady Drake and the noble Lord, Lord Sharkey. The noble Lord’s rather graphic descriptions make it very clear that there is a bit of a problem here in terms of how one ensures that any body—not just the new body we are talking about today—is able to get someone to do something which they clearly are not willing to do, and how to engage with, and learn from, the experience of taking out the loans, or preparing for the retirements which they are going to encounter later in their lives. I suspect that the Government will come back and say that, while the wording is admirable and something that they could support, they are not quite sure how it could ever be measured, or whether “use” is in fact the right term here, because getting people to the point where they recognise that they have a problem is not the same as getting them to do anything about it.
When I was working at the StepChange Debt Charity, one theme that we developed in my time there was that there was a sense in which those who had responsibility for activity in this area relied on generic, rather than specific, advertising or advocacy of another form. We took the view that was not where action was likely to be most profitable. What worked was this: when you had someone going through a really serious incident, sad and difficult though that was, the learning that took place as a result of that process was so incredible and so obvious that it was almost worth going through the process. We all have similar experiences with our own friends and family. It is only when reality sinks in, that the credit card bills do not get magically paid by themselves and that the bank is not going to continue to provide the money-tree support that it has done in the past, that you have to learn how the world actually works and what you are going to do about it. I wish the noble Lord, Lord Sharkey, well with his amendment, but I think it probably needs a bit more work before we have got the right balance between knowledge and understanding, in terms of information, guidance and advice, and the practical learning that can come from actually operating in that world.
On my noble friend Lady Drake’s amendment, which we definitely support, in some senses our debates this evening have run the slight danger of demonising debt as a feature of our society today, whereas most of us need to borrow money at some points in our lives. For many people, it is an affordable way to make large purchases or to balance competing financial priorities. The problem is when one does not plan for or anticipate, but then experiences, unexpected events. We have had examples given, and the numbers or statistics are incredible. A recent report published a month or so ago gave two headline figures, which I will focus on rather than go into the detail. In Britain today, almost 2 million people a year suffer an illness of such length that they are absent from work such that, as a result, their income is reduced. That is a very large number of people. Another 2 million people experience job losses or loss of overtime or condition pay in other ways. In terms of the overall working population of about 23 million or 24 million, nearly 4 million—almost one-sixth—are affected by that. In a sense, it is not surprising that we are having problems in this area, and it is something that we need to think about.
On the question whether income shocks are sufficiently important to require changes to the Bill as currently drafted, it will be interesting to get a response. I think that this issue has had less attention than it needs, and the amendment plays back into the points made by my noble friend Lady Drake about the impact on other persons who would otherwise not be affected, such as young people, those in care and those who are dependent on those who are affected. The amendment also brings back all the points that we have been hearing about in terms of mental health, those who suffer from disability and vulnerability in other ways, and those who are preyed on by others who wish to make them do things that they do not want to do. It brings together a number of the issues we have been talking about this evening and focuses on the need to have some sort of balance and arrangement.
Finally, the amendment also picks up the point about whether the market could provide, if left on its own and not subject to any exert or constraint. With respect to the noble Lord the Minister—our aviator for this evening—I think he is being incredibly naive about this. The noble Baroness, Lady Kramer, is absolutely right. The competition imperative imposed on the FCA drives out the possibility that there is any agency around, not in central government, which could provide the changes that are necessary in order to provide these services. Left to their own, financial services will never come up with that. Financial services, without any imperative to take into account a duty of care, or fiduciary duty as we call it, will never see it as their responsibility to bring forward the insurance, the payment protection and other issues that are so necessary to try and underpin not just the income shock issue but the broader issue as well. Therefore, to rely on a simple transparency and information flow as being the way to do that is just naive.
Take the example—I have used this before, but I make no apologies for doing so again—of the payday loans scandal that this House had so much to do with, with notable contributions from all sides of the House, including the most reverend Primate the Archbishop of Canterbury. We took the view that the existence of those who were offering payday loans was on such a scale that action needed to be taken. The Government initially resisted that completely, saying that what we needed was more transparency, but the final result was that action was taken. That action was based on what the FCA could do, and it is defective. What the FCA said to us, in essence, was that its vision of cleaning up the payday loans scandal was to create a fairer market in which there were fewer operators, but that they would operate efficiently at a reasonable profit margin and be well capitalised. At its best effort, at the end of the day that did not stop loans of more than 1,000% APR from populating this market. Recent research from the StepChange Debt Charity, which I had the honour to chair until a few years ago, shows that nearly 20% of people still rely on high-cost credit, including payday loans, to pay their basic end-of-month bills. This is outrageous, and I do not think that the market works to the benefit of consumers.
We will need to come back to a lot of the issues raised today by my noble friend Lady Drake and others, but it is really important that the Government get a grip on this.
Baroness Buscombe
My Lords, perhaps I may address Amendment 27, in the name of the noble Baroness, Lady Drake, and Amendment 27A, in the name of the noble Lord, Lord Sharkey. The first of these amendments seeks to include an additional objective for the single financial guidance body, which is,
“to improve the ability of members of the public to plan for and address sudden variations in income”.
The second amendment would amend the body’s second objective so that the body must support the provision “and use” of information, guidance and advice in areas where it is lacking.
I thank the noble Baroness and the noble Lord for their contributions on the important topic of financial capability during Second Reading, and during the first day of Committee before the summer break. For instance, I agree with the noble Baroness that many people in the UK need help with boosting their financial resilience. People need to know how to plan for and address sudden variations in income, and she gave a number of very pertinent examples.
The Money Advice Service is involved in some important work in this area. In developing its financial capability strategy, MAS supports the work of a wide range of organisations across the public, private and voluntary sectors. As I have said, the strategy looks to address not just people’s skills and knowledge around money management but the attitudes and motivations that can hold them back. As I stressed on a previous amendment, I believe that that is truly important in this exercise.
To take an example, some of MAS’s “What Works” projects targeting young adults are focused on helping them adjust to the income shocks and financial implications brought about by the life transitions they experience, as they move between welfare and work and/or further and higher education. For example, MAS is funding a project with The Mix, a leading national digital youth agency and helpline, to explore how we can engage young adults with money guidance as they make such life transitions between post-school education and the labour market. MAS’s research shows that this work is vital. Almost one-third of UK adults have experienced a serious financial shock in the past five years, such as losing their job or being unable to work due to injury.
The noble Baroness, Lady Drake, specifically referenced cancer. In line with its objectives to focus its efforts on the most in need, the body should, as part of its money guidance function, provide support for those who fall into financial difficulty as a result of cancer. More broadly, as part of its objective to increase the financial capability of members of the public, the body should help to build individuals’ ability to deal with such income shocks.
We also know that there is a gap between the number of people experiencing unexpected events and those who have a plan in place to safeguard their finances. Research, again by the Money Advice Service, shows that three-quarters of households receive an unexpected bill every year but that 26% of working-age adults have no savings to fall back on, while a further 29% have less than £1,000 saved. That is why we have provided that the new body should have the money guidance function, giving it a duty to provide information and guidance designed to enhance people’s understanding and knowledge of financial matters, and their ability to manage their own financial affairs. The Government would therefore expect that the duty proposed by the noble Baroness’s amendment—
“to improve the ability of members of the public to plan for and address sudden variations in income”—
would inherently be addressed by the money guidance function.
The MAS research that I previously referenced is a clear example of the type of work that the new body would be expected to carry out under its money guidance function. Clearly, enhancing people’s understanding and knowledge of financial matters must include both expected events, such as retirement, and the more unexpected, negative income shocks caused by events such as a job loss. This also includes financial education initiatives aimed at children.
In the same vein, I reassure the noble Lord, Lord Sharkey, that the body will support members of the public to use information, guidance and advice under its current statutory functions and objectives. This is because the ability to use information, guidance and advice is at the heart of building financial capability and, therefore, already provided for within the body’s statutory objectives. To be more specific, the provision of help to support members of the public use information is implicit in the money guidance function and the body’s first objective, both of which are designed to enhance people’s understanding of financial matters and their ability to manage financial affairs generally. My view is that the objectives set out in the Bill, alongside the money guidance function and the strategic function, already allow the body to support people so that they are better able to deal with income shocks and to use information, guidance and advice.
Given a number of things that noble Lords have said this evening, it is important to add to this debate some of the initiatives that the Government themselves, and government creditors, have in the support systems that are in place for those struggling to repay their debts. We have to look at this in the round, and departments have taken steps to ensure that they collect debt in a responsible way. For example, HMRC can put what we call a time to pay arrangement—TTP—in place, which enables a debtor to pay the debt in affordable instalments over time. These arrangements are entered into on a case-by-case basis and tailored to the ability of the customer to pay, taking into account their circumstances.
As another example, the Department for Work and Pensions will always look to introduce a sustainable repayment plan that is bespoke to the individual’s circumstances. Its existing approach includes the provision of breaks in debt repayments or reductions in the rate of repayment for individuals who are experiencing hardship. There are a number of other examples, but as a final one the DWP has also established personal budgeting support for universal credit, which aims to prepare all claimants for the financial changes that universal credit brings. The need for budgeting support is assessed for all claimants at the start of the claim and support can be requested at any time. I include these initiatives at this stage because it is important to recognise that we are creating a framework for this body to work within and develop, using its skills and expertise.
We are grateful for these debates because to have noble Lords stress, and explain in Hansard, their concerns with regard to the kind of work that this body should undertake will, I am sure, be enormously helpful in the development of its strategic functions. On that basis, I hope that the noble Baroness, having heard this explanation, will withdraw her amendment.
Baroness Drake
I thank the Minister for her sympathetic reply. Sadly, the path of life does not always run smoothly. Illness, bereavement, divorce and unemployment can intervene and be quite devastating in their impact. The market can be very reluctant to deal with people in those vulnerable situations. This is something that the FCA observed in its recent paper on access to financial services. It recognised that its remit does not allow it alone to deal with this situation in the market, for the very reasons that the noble Baroness, Lady Kramer, observed, and that addressing these issues needs a wider approach.
The main purpose of my amendment was to highlight the need for the guidance function to help people address the need to plan ahead and anticipate the preventive approach as much as the curative approach. I thank the Minister for her reply, and I beg leave to withdraw the amendment.
Lord Stevenson of Balmacara
My Lords, I can be relatively brief because I have heard both noble Lords who have spoken for the Government express their concern that in some of the amendments we have already discussed, we are overloading the new body to such an extent that it will become diverted from its main purpose. This amendment is in that vein, so I am sure it will commend itself. Indeed, it may be our first hint that the Government are listening and willing to work with us on these matters—we have not had much success until now—to ensure that resources available not just as a result of efficiency savings, but because of a conscious decision on behalf of the management of the new body, mean that front-line activities and services are what counts. In recent years, some of the work of MAS in its current and previous incarnations, has been criticised, however unjustifiably, in that the money was not spent well.
Before I finish what I promise will be a very short speech, I wish to flag up that we have not really had a chance, so far, to discuss in any detail the implications of the new financing arrangements for the new body which are embedded in the Bill. At this stage, I do not think we have a particular concern that would be addressed by an amendment, but I hope that at some point, at the Dispatch Box or perhaps by letter, we could have some information on the Government’s assessment of the changes being made. Noble Lords will be aware that the Bill changes the fundamental arrangements under which the current MAS is funded. At present, MAS is an independent body which is related to the FCA, to the extent that its business plan is reviewed—I am summarising to make the point—and the funding required for the year is agreed; it is then levied directly from the companies in scope to the FCA and passed directly from the FCA to MAS. In future, the Treasury will inform the FCA of the moneys it judges will be required by the single financial guidance body. The FCA will raise a levy on the companies under the present arrangements, but that money will not go to the new financial body directly but back to the Treasury, which will adjust the DWP’s baseline RAB grant for the year in order to allow it to make a grant to the single financial guidance body. That raises all sort of questions about why the Government decided to do this. We had an offline discussion about this but we did not get satisfactory answers, so I would like this detail.
I speculate—I know it is wrong to do so in the circumstances of this debate—and I worry about the implications of things such as Barnett. Since this is now a tax on financial companies being paid into the Consolidated Fund, then being paid across to DWP, in effect, and then being issued to a non-departmental body, we are talking about public expenditure to be recorded in the books as such, and there will be requirements in the national regions for their funding to be increased pro rata. I wonder about that. Is it really the most efficient way of doing this? I am sure there will be an argument on that.
My worry is that companies will be concerned that the funding they are used to paying to the FCA will be added to by what is in effect a tax on business. There is an issue about how that is managed in making sure that information gets out correctly. For those who are currently funded by those very same companies by direct application or through some system such as the fair share agreement, there is obviously a worry that the new funding mechanisms will impose an additional strain on companies that might not wish to continue to fund at the present level. I am sure there are good reasons why the Government have decided to go down this route, but I do not think I have heard them properly and I would be grateful if today or in the near future we can get some information on that. I am speaking from the perspective of my former chairmanship of StepChange, but this affects other bodies such as Citizens Advice, the Money Advice Trust and Christians Against Poverty. As a result of the Barnett implications, the situations in Scotland and Northern Ireland are going to be considerably more complex than is set out in the Bill.
Baroness Buscombe
My Lords, I shall cut straight to the quick, as they say, with the noble Lord, Lord Stevenson, and say that I will be very happy to discuss the issue of expenditure in detail. It is covered in Clauses 8 to 10, which I think we will be covering on day three in Committee. That said, I want to address this amendment in full and in so doing will be touching on the issue of expenditure, in broad terms, in the provision of services and so on.
I thank the noble Lord for tabling this amendment. Amendment 31 proposes that, as part of its objective to ensure that information, guidance and advice be provided in the clearest and most cost-effective way, the single financial guidance body prioritise the allocation of its resources to front-line delivery services. As the noble Lord noted at Second Reading, we need to learn lessons from our experience when the Money Advice Service was set up. One of those lessons is to ensure that this body has a clear focus on front-line services and that delivery of those services should be its priority. The legislation places a duty on the body to have regard to a range of objectives in exercising its functions. The objectives as they stand collectively prioritise the body’s activities on meeting customer needs and working collaboratively with other financial guidance and debt advice providers to meet those needs.
In restructuring the public financial guidance landscape and creating the single financial guidance body, the Government want to provide a more joined-up, customer-focused approach to the delivery of public financial guidance. In the Government’s response to the consultation on creating a single financial guidance body, we were clear that:
“By rationalising the provision of services, the government expects there to be long term operational efficiencies that will mean more funding can be channelled to front line delivery of debt advice, money and pensions guidance”.
The new body will need to harness the opportunities created by bringing the three existing services together and be innovative about how resources generated by rationalisation can be utilised to best effect in delivering better services to the public.
We do not want the body to spend unwarranted sums on, for example, untargeted marketing. The Government were clear on this in our consultation response. Instead, we want the body to link up with industry, the voluntary and public sectors and the devolved authorities to promote its services in a targeted and value-for-money way.
However, this does not mean that the single financial guidance body should not look to devote resources to investing in other activities where to do so would be in the interests of its customers. For example, in discussing previous amendments, we have already been talking about investing in research that builds an evidence base on matters such as what type of front-line interventions have the highest impact for customers. This sort of activity will help the body design and target its front-line services more effectively.
We want the body to keep pace with developments in people’s financial guidance and debt advice needs. We want it to evolve and adapt in line with technological advances, so that its services continuously improve. I do not think any of us want the body to stagnate and fail to deliver what people need. Requiring the body to prioritise its allocation of resources to front-line services could do that.
Clause 2 sets a framework within which we want the single financial guidance body to use its expertise, skills and knowledge and to have the flexibility to design its services so that they meet the financial guidance needs of UK citizens now and in the future. We should also remember that the body has a strategic function to work with others to support and co-ordinate the development of a national strategy that will aim to improve the financial capability of members of the public, their ability to manage debt and the provision of financial education to children and young people.
This is not a front-line delivery service, but it is a critical function, and the body will need to allocate resources to it. The strategic function of the body will bring together the body, the financial services industry, the public and voluntary sectors, and the devolved authorities to develop joined-up plans and activities that are more likely to deliver improvements in financial capability than activities undertaken by each party individually. I hope the noble Lord, Lord Kirkwood, heard what I just said. We very much take on board that it is really important that we involve, as far as we can, devolved authorities in this and work with them. Debt advice is separate, of course, but it is very important that we all work together on guidance, for example.
I do understand the concerns of the noble Lord, Lord Stevenson. It will be important that the governance and accountability arrangements for the body are transparent and robust. It is important to keep in the forefront of our minds that, as a statutory non-departmental public body, it will be accountable to Parliament for its activities, and the Department for Work and Pensions will be the sponsoring department.
Key elements of the body’s accountability and governance arrangements are set out in the Bill, including the requirement to prepare a statement of accounts in respect of each financial year, which must be laid before Parliament. It must also inform Parliament of its activities and expenditure through an annual report that must be published. Here, I reference the question previously posed by the noble Lord, Lord Sharkey, about what happens if certain money is not spent. This should all become clear in its annual report.
The relationship between the single financial guidance body and the Department for Work and Pensions will be set out in a published framework document that will follow the principles in the Cabinet Office’s Partnerships between Departments and Arm’s-Length Bodies: Code of Good Practice and Her Majesty’s Treasury’s Managing Public Money. The framework document will also provide further details of the governance arrangements under which the body will operate, including requirements for preparing, securing approval for and publishing its corporate and annual business plans.
The single financial guidance body will deliver guidance which supports the policy of both Her Majesty’s Treasury and the Department for Work and Pensions. Although the Department for Work and Pensions will be the sponsor department, both the DWP and Her Majesty’s Treasury have responsibility for ensuring the body receives the support it needs to deliver its statutory functions in an effective and efficient manner that meets the needs of citizens.
As I said at the beginning of this debate, we will go into further detail on the funding at a later stage of Committee. On that basis, I urge the noble Lord, Lord Stevenson, to withdraw his amendment.
Lord Stevenson of Balmacara
I thank the Minister very much for that full and considered response. I look forward to the discussion and wait to be enlightened as to the intricacies of international and national funding across the various parts of the United Kingdom that will come together to cement the changes that have been made.
On the broader question about efficiency and effectiveness and the objectives, can I just check one point? A simple nod will suffice. Given that the body is likely to be judged to be an NDPB—because that is an objective test after the body has been set up, not something that one can assert beforehand—and given the nature of its relationship to its sponsoring department, will it in fact both be audited by and subject to periodic review by the National Audit Office? I did not get a nod—maybe we will need more information. But I get the sense that that is correct, and will be happy with a later response on that.
At some point we might also have a discussion about the role of Parliament in this, which would be helpful. Clearly, the PAC will look very closely at the NAO, but it is often necessary to make sure that the DWP Select Committee is also engaged, because Parliament’s role is most effective, as already referred to, through committee work. With that, I beg leave to withdraw the amendment.
“( ) The single financial guidance body should seek to ensure that all communications with individual members of the public about their services are clear as to whether they are receiving advice or guidance, as defined in this section.”
Lord Stevenson of Balmacara
My Lords, I will also speak to Amendments 34, 36 and 37. I am afraid this is quite a wide-ranging group, so I may have to put a little time into each of the amendments. We are pointing in slightly different directions here, but there is a common theme, so it is useful to have them together in one group.
We start with our old, standard question about what is advice and what is guidance. The Government are beginning to get themselves into rather bad habits here, if I might be so rude as to suggest that more thinking needs to be done. I am not sure whether other Members of the Committee will also have had the background note to all Peers on defining advice and guidance that I got at 3.46 pm this afternoon. I have not had time to look at it. It was circulated from the Government Whips’ Office. It is quite helpful, and I have been reading it in the interstices of the debate today but, obviously not wishing to miss a word from either of the Ministers or from others participating, I have not been able to focus on it entirely. However, although I look forward to what the Minister may say in response, if I judge it correctly it repeats, in essence, the wording that she used at Second Reading and in earlier stages of Committee on the difference between advice and guidance. I accept that that is probably as far as we are going to get on this, as it is a three-page document and has quite a lot of detail in it, but I am sure that others present—I am not looking at anyone in particular—might wish to come in on this point later, or indeed on later amendments.
I mention this because Amendment 33 is again probing the definitions of advice and guidance. There is not much point in going into this in any detail other than to say that we now have more information, which may allow us to get a little further down the line on this. If I am right, the advice now being given is that there are quasi-statutory and statutory definitions which will take us down the road of defining financial advice as an activity that involves a personal recommendation to an individual about a particular course of action, rather than the provision of information about a range of options that may be available to them; and that guidance is generally understood to be any service to support clients making investments that is not advice. That presumably needs to be interpreted for the wider range, with an additional comment on what the definition of debt advice is, which is different to the guidance functions delivered and involves activity specifically regulated by the FCA. I will use those as the basis for the further remarks I will make tonight.
Amendment 34 would ensure that if a member of the public comes to the new body seeking advice from two or more different functions of the body, they will be able to access it if needed, as opposed to only one function. The intention here is that catching someone as they come into the system means that they stay in the system until the advice or guidance that they want is resolved. I think we all agree that that is important, but it is more obvious in the breach than in the observance. The technology has not always been as good at picking up as we might wish.
The word that is often used in these circumstances is “hot-keying”; in other words, once you have someone on the phone or through a computer system who is engaging with you in the process of trying to resolve their problem regarding any one of the issues that have been dealt with by the SFGB, you do not lose them until you are at least in progress or on a programme—that is, you are informing them or if possible, if it requires more than that, making sure that they stick with it until such time as it is resolved. The amendment is meant to strengthen the arrangements to ensure that we get to the point where we have a seamless approach, however many bodies are involved and however many different operations are required to provide the information, advice and guidance sought.
Baroness Altmann (Con)
My Lords, I support the amendments. As a passenger behind my noble pilots, I thank the Minister for the helpful letter she sent to me about the issue of guidance versus advice. As the noble Lord, Lord Stevenson, rightly said, we seem to be back to this old chestnut, and I am very pleased that he has tabled his amendment. Perhaps my noble friend has rather missed the point in so far as there is an important element of confusion among the public, which will extend over into the new body if we choose not to address it in the Bill, over what constitutes guidance and what constitutes advice, particularly in the context of debt. This also goes to the point made by the noble Baroness, Lady Kramer, about gaps as far as FCA coverage is concerned.
This financial guidance body is meant to offer holistic services—the point of Amendment 34 is, rightly, to suggest that if someone needs one element of the financial guidance body, they should be able to be passed straight to another to help them with their particular issues—but the new body sits in the middle of the confusion between the word “advice” and the word “guidance” as they apply elsewhere. In particular, the FCA, the department and the Government have not recognised that the existence of auto-enrolment fundamentally changes the position of individuals when they approach the new body. If someone needs advice on their debt, as defined in the current FCA regulations, it is impossible to take account of whether they should or should not opt out of a workplace pension. That is really important in helping people improve their financial circumstances and deal with their financial position.
I beg my noble friends on the Front Bench to take this opportunity to explore once again the issue of guidance versus advice from the point of view of individuals who need to use the service. It will be important for the new body to help people understand what service they will be getting when they come for help, but it is also important that whoever is helping the public has the best possible chance of ensuring that they will understand what is going on. If someone is trying to reschedule their debts and work out a repayment plan, which would be called debt advice, they may ask what they should do about their pension, but the person they are speaking to cannot tell them. That person can send them back to the pensions section, but they also cannot tell them whether to opt out, they will tell them that they need advice, and the person will say, “I have just had advice on my debts”, but they will say, “No, that is different from advice on your pension”. Over time, this will keep coming back and confuse the public.
I support Amendments 33 and 34, and think that we need to consider the matter in a wider context. I support the idea in Amendment 36 that we need to work collaboratively. The service must work with the financial services industry, charities and the voluntary sector. Perhaps we should also consider asking the new body to work with employers. The more one considers the situation around the country, the more one sees that the workplace could be an ideal conduit to promote the service, not only to deliver financial education and debt management, in some cases, but to signpost people to the new service.
I am struck by some further figures which, if I may, I add to the debate this evening: 17 million working-age Britons have less than £100 in savings; debt has risen by 25% since 2014; 33% of employees say that debt worries impact on their work—so employers clearly have an interest in helping. Those figures come from a company called SalaryFinance, which helps employees consolidate and manage their debt more cheaply and is making strides as a social business working with employers. Finally, the Money and Mental Health Policy Institute states that people with debt problems are twice as likely to suffer from a major depression. Employers could well make good use of this financial guidance body and perhaps incorporate it into workplace intranets. For the self-employed, we could work with other networks and organisations to ensure that this body is promoted. That takes us back to Amendment 27A, tabled by the noble Lord, Lord Sharkey, to encourage people to use the service rather than just to ensure that it is available.
I support the amendments and hope that the Government will consider them carefully.
Baroness Kramer
I will say just a sentence or two, because the noble Baroness, Lady Altmann, has put the case so well. I hope that the Government will take it away to consider it. One of the underlying flaws in the Bill is that it takes a Victorian view that there are people who have debts, who are struggling to deal with them, and others who have investments and need to work out how to maximise them. In this day and age, they are the same people dealing with, from their perspective, a single pot of money which they have in various places or have various issues with. If this is not cleared up in the Bill, the noble Baroness is exactly right to say that we undermine the benefits that the service can bring. It needs to be brought into the modern era. It is good to have a nice legal definition— I should like the MiFID definition, which is in the letter; that makes a great deal of sense—but, as the noble Baroness, Lady Altmann, put so clearly, that does not deal with the perspective of the consumer: where do they stand, what do they need and what on earth is this service providing?
Lord Kirkwood of Kirkhope
I did not intend to contribute to this debate, but it is a very important issue. The note, which I also received at 3.46 pm this afternoon via the Whips Office despatch, misses the important point about auto-enrolment. That is causing the most concern. The noble Baroness, Lady Altmann, clearly explained how that changes the circumstances. The Government need to continue to work on this. I am not an expert, but, speaking for myself, I would want to test this in the Division Lobby if they cannot come up with a more rational response to the amendment of the noble Lord, Lord McKenzie, and the arguments of the noble Baroness, Lady Altmann.
Baroness Buscombe
My Lords, I thank all noble Lords for their contributions to this debate, particularly the noble Lord, Lord Stevenson, for introducing Amendments 33, 34, 36 and 37. Straightaway, I apologise that the all-Peers note arrived at only 3.40-something this afternoon.
Lord Stevenson of Balmacara
According to those with better intelligence than I in the use of electronic devices, it was actually circulated at 10 o’clock but, because it was circulated to our Whips Office, which took a dim view of it, it did not get around until 3.49 pm.
Baroness Buscombe
I am very grateful to the noble Lord, who has mitigated the situation. Even so, it is very last-minute, and let us put the blame at my door as the Minister responsible. It is important that we try to address this to the best of our ability.
I can assure all noble Lords that we have spent a considerable amount of time this summer, when perhaps I should have been on the beach, discussing this issue with different people in the industry along with MAS and TPAS. What I hear from consumers and those involved on a day-to-day basis is a very different tale from what I hear from noble Lords this evening. The public have the ability to understand the difference between advice and guidance, but we need to convince noble Lords of that—I appreciate that.
I thank noble Lords for the opportunity to clarify the important issues raised by these amendments. I begin by discussing Amendments 33 and 34, which concern guidance and advice; I will then move on to Amendments 36 and 37, which concern collaboration with the financial services industry and the devolved Administrations. Amendment 33 would add an objective for the body to ensure that at every stage of communicating with members of the public about its services, people are clear whether they are receiving guidance or advice. It will, of course, be important that members of the public are aware whether they are receiving financial guidance or financial advice. We discussed the distinction between guidance and advice in some depth in July, and I believe our conversation has highlighted the importance of clarity in this issue. Indeed, we have taken on board the points made by noble Lords, and I have had a number of meetings with officials, who have worked on a detailed information paper, which I hoped would be helpful.
In the meantime, I do not think that the amendment as drafted is appropriate or necessary. We fully appreciate the risk that members of the public may receive guidance, take it as advice and then go on to make financial decisions when they ought to seek further assistance. However, I can reassure noble Lords that there are already appropriate measures in place to mitigate that type of risk. In fact, I can quote the exact wording currently given to customers by the Pensions Advisory Service and Pension Wise on this matter. In the case of TPAS, clients who ring the helpline will hear a message telling them that it does not provide regulated financial advice and that its service provides generic information and personalised guidance on occupational and private pension-related matters.
As Michelle Cracknell, the chief executive of TPAS, said to me:
“We give a simple disclosure: ‘We cannot tell you what to do’”.
She also said that, as debt advice is defined as a regulated activity, it would be confusing to describe it as anything else in the Bill. She has made that point very strongly, as have others in the industry. When I was sitting with an incredibly experienced, thoughtful and helpful group of people working at TPAS, giving advice to people and working through their systems on the web and on the telephone, I was hugely impressed. They have not had one problem in 34 years with people being confused or complaining about thinking that they were receiving guidance when they were actually receiving advice. It has never been a problem. So we are getting a different story outside, with the user, and we must not underestimate the public, who have the ability to understand the difference between advice and guidance. The whole purpose of this body is to provide a more seamless customer journey so that people can obtain guidance and advice without there being a problem.
Baroness Altmann
I apologise to my noble friend for intervening, but this is a really important issue. The points she makes are absolutely correct and I do not disagree with them—and nor, I think, would noble Lords around the House—but they are beside the point. When we have a new body it is designed to be holistic. At the moment, Pension Wise deals with pensions, so people will not be confused, and the Money Advice Service, or debt advice, deals with debt. We are trying in this Bill, apparently, to bring everything under one roof. The big change that will not have been relevant over the past 30 years or so, is with auto-enrolment, when people come to the new, holistic single body with a debt problem and need someone to help them with their pension, but the person trying to rescale their debts cannot take that into account. It may well be that we have alighted on a problem that extends to the FCA and the regulatory system—that perhaps the FCA is not concerned enough, in the new environment whereby next year or the year after any worker earning more than £10,000 a year will be in a workplace pension, and debt advice needs to be able to consider the question of whether that person should opt out of the workplace pension. Currently, it cannot do so. It could do, but at the moment there is this regulatory hole.
Baroness Buscombe
I thank my noble friend for her intervention. Perhaps I am not making it clear that it is not necessarily one person who will be able to give guidance and advice in one session. The point, notwithstanding that it is becoming one body, is that we do not expect a situation in which someone receives all that information from one individual. When someone is in problem debt, for example, and worried about bailiffs, the initial outcome of the debt advice session has to be on stabilising the situation. That may be followed with more in-depth support to understand the root causes of the debt problem and how to address them. It may involve bringing in people who have different types of expertise, depending on the person’s needs. We do not expect that because it is one body—bringing three bodies together—it will necessarily be the same person in one session who gives advice and guidance. As I have learned this summer through visiting these bodies, different people have different kinds of expertise. We want it to be as seamless as possible and provide a more seamless customer journey, but it will not be perfect, given that advice is regulated and guidance is not. However, as there is time pressure on your Lordships’ House, I shall take this issue away and talk again with my noble friend, and the noble Lord, Lord Stevenson, and others to see if we can find a solution to it.
As I was saying, in my experience of talking to those dealing with this matter on a day-to-day basis, they have every expectation that the new body will be able to cope perfectly well with the definitions as they are. As noble Lords will see from the note that we sent out this morning, there could be some serious confusion and regulatory issues if we changed definitions, so we have to take that into account as well. So it is a tough one.
These processes are robust, and we will ensure to the best of our ability that they are carried forward to the equivalent services offered by the new body. In fact, as I said, the Pensions Advisory Service has not received a complaint from a customer that he or she has received regulated advice. We have to make sure that processes are in place to protect consumers who might take guidance for advice in this new body. Those objectives are not specific requirements to do X, Y or Z, but broad, overarching principles and aims to which the body must have regard while exercising its functions. The objectives guide the body in the exercise of its functions; they should not provide a to-do list for the body.
Amendment 34 would alter the wording of the Bill to add a new objective that would require the new body to signpost appropriately to each of the body’s functions if people need multiple kinds of help. As I have said, the Government agree with the intent behind this amendment. We recognise that members of the public will have overlapping issues which require a mix of advice and guidance relating to debt, money and pensions. The body will be well placed to deliver this seamless service, including through warm handovers and signposting to the different functions it offers. This will be central to ensuring that members of the public receive the personalised, holistic support they need. It is important to remember that one of the key aims of bringing together the functions of the Money Advice Service, the Pensions Advisory Service, and Pension Wise is to improve the co-ordination of these services.
However, while we agree with the sentiment of the amendment, I do not think that it is required. I have already explained the purpose of the statutory objectives and we expect the body to signpost members of the public to the most appropriate source of help in order to provide a joined-up and holistic service. Having met some of these wonderfully skilled people who have many years of experience in the financial services industry and already operate in this sphere, I can only assume—because of their brilliant expertise and the way that they handle the public and the advice and guidance that they are able to offer—that they will achieve this. The current objectives enable the body to do just that. Indeed, for the reasons given, I believe that Amendment 34 is, with respect, rather narrow and inappropriate to include within the broader objectives specified within the primary legislation.
Lord Stevenson of Balmacara
I am very grateful to the noble Baroness, Lady Altmann, and the noble Lord, Lord Kirkwood, for their support and for opening up the debate, in particular on Amendment 33. I thought that the Minster made a bit of a Freudian slip there, because she wanted me not to press Amendments 34, 36 and 37 and then realised that she should have included Amendment 33. In fact, I do not think that is what she meant—she means that we need a further discussion on this.
There is a really important issue that we want to sort out. The current regulatory phraseology may fit the legal requirements of the current situation but, as the noble Baroness, Lady Altmann, said, the game’s a bogey—that is a Scottish expression. It is no longer as it was; we are in a different world now with auto-enrolment and all the ways in which technologies are coming forward. Fintech is the word on everybody’s lips in the sector. We need to think harder about future-proofing the current legislation. At its heart, sadly, this problem is probably of the Government’s own making. Had they decided to stick with the two-body solution, we would probably not have had this problem, because we could then have had different regulatory structures for debt and for pensions or other activities. Because they have been bolted together, however, the issue is not going to go away.
If we are to have an integrated, warm-key, hot-key, all-singing, all-dancing issue, we need to face up to it and be very clear about it. It may be true that the people the Minister talked to did not have difficulties with this, but I can tell her that, out there in the country, people do not follow you when you start talking about regulated and non-regulated advice. In the regulated pensions area, if it is possible that regulated pensions advisers cannot tell people what to do, but it is also possible that regulated debt advisers can tell them what to do—it happens—then we have a problem and we need to resolve it. If we are to be seamless, why settle for less than that? We should get it right but, with that, I beg leave to withdraw the amendment.
Financial Guidance and Claims Bill [HL]
Wednesday 6th September 2017
(7 years, 2 months ago)
Lords ChamberRead Full debate Financial Guidance and Claims Act 2018 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 1-II Second marshalled list for Committee (PDF, 108KB) - (4 Sep 2017)
Baroness Greengross
“( ) As part of its pensions guidance function, the single financial guidance body must provide guidance on other sources of retirement income, including housing wealth, to enable members of the public to make fully informed decisions about pensions and retirement income.”
Baroness Greengross (CB)
My Lords, we all know that because of the profound changes since pension freedoms were introduced, retirement income decisions have become much more complex. From the age of 55 there are a greater number of options for using the pension pot, including taking the pension as cash, keeping the fund invested or purchasing an annuity. Accordingly, I welcome the broad drafting in this Bill of the objectives and functions of the single financial guidance body and, in particular, the recognition of provision of advice as well as guidance, and the continuation of the vital role played by the Money Advice Service in support of the financial capability strategy.
Financial decision-making is complex and retirees must consider their long-term, not just their short-term, retirement income needs. The SFGB needs to encourage this by ensuring that consumers understand the full range of options available, including the potential role of any housing wealth. Consideration of the potential role of housing wealth is already included in the pensions advice allowance, which allows people to withdraw £500 tax-free from their pension pots on up to three occasions, to pay for financial advice on their retirement. I welcome that inclusion and think it should be extended.
This means that pension income and the value of housing equity are considered alongside one another. Because some people will feel unable to afford, or be unwilling to pay for, such advice, it is crucial that free impartial guidance is available through the SFGB. The Equity Release Council’s White Paper, Equity Release Rebooted, estimates that over-55s in England possess about £1.8 trillion in housing wealth, and that is expected to double to £3.6 trillion by 2036. Meanwhile, the average value of a defined contribution pension in 2012-14 was £30,300. Research by the Equity Release Council estimates that while the average 55 to 64 year-old should have a pension pot of £123,000, they may only have an average of £30,200, indicating that a likely future need for supplementary retirement income is there, such as from housing wealth.
I would want not to push people into equity release but to look holistically at their assets. In one important area affecting retirement assets, the FCA’s prediction means that approximately 2.6 million interest-only mortgages will reach maturity over the next 30 years, with estimates that 48% of borrowers may not have enough money to fully repay their loan. It is not surprising that statistics from the council’s spring 2017 market report indicated that the use of property wealth to fund lifestyle and health in old age is growing rapidly, and is likely to continue to grow in the coming years.
In 2013, Demos estimated that the over-60s were holding unmortgaged housing wealth of £1.23 trillion; that figure would be significantly higher now. The Aviva Real Retirement Report suggested in 2016 that 46% of homeowners aged over 45— approximately 6 million households—see property as a key part of their retirement income planning, increasing to 58% among 45 to 54-year-olds. This is borne out by the Equity Release Council seeing a year-on-year equity release lending growth of £342 million. The average amount lent under an equity release policy during the second half of 2016 was very high, at £92,376 for lump-sum plans and £54,584 through drawdown plans, with an additional £37,751 reserved for future use.
I share the view of Age UK and many commentators that a saver withdrawing their pension pot should receive guidance, including on housing wealth, by default. But since that is the subject of a later amendment, I shall not discuss it any further here. In summary, as part of this wider landscape of helping people to preserve their lifestyles and well-being in retirement, a consideration of the important role of housing wealth should be an explicit part of the advice envelope proffered by the new body. I hope that that might be acceptable. I beg to move.
Baroness Finlay of Llandaff (CB)
I support this amendment from my noble friend Lady Greengross because, as she has outlined, a lot of people have the majority of their wealth tied up in their property. The current equity release schemes are much more flexible than they used to be and contain a variety of safeguards. The Equity Release Council’s statement of principle, by which all the council members must abide, mandates that all equity release customers must receive independent financial advice. Can the Minister clarify whether all equity release schemes will fall under the FCA? I understand that currently it is only those from members who are part of the Equity Release Council, which means that we will potentially have twin-track standards going on for the customer.
The requirement for a solicitor to sign off the arrangement becomes particularly important when we look at the issues around mental capacity and coercion. When I was at the Equity Release Council’s annual meeting, I was quite shocked to hear from one person there who had been negotiating equity release with a client. She had a suspicion that something did not quite seem right and decided to visit the client without the client’s son present, at which point the client said, “I don’t really want to do this at all. My son’s pushing me to do it”. She had the sense to say, “That’s very simple. I am refusing the equity release, and I will write to you”, and she tore up the forms there and then.
Baroness Kramer (LD)
My Lords, I am strongly in favour of this amendment, which picks up on an issue addressed earlier by the noble Baroness, Lady Altmann. It is that the world we live in is far more complex than the one that provided the framework when these original bodies, which are now being brought into one, were set in place. We need that revision for this single body to encompass the whole of the arena of life as it is today.
The noble Baroness, Lady Greengross, was very clear that for many people, the overwhelming majority of their wealth and assets is in their home, that using that as part of their support for their old age may well be a strategy they want to pursue, and that they cannot consider a pension without looking at that issue with the same kind of clarity and without looking at the situation as whole.
I have personal experience of this. I have an elderly family friend who is considering equity release or some similar way to use the wealth embedded in her home. I started to look at the various websites and at the products that are available. Noble Lords will be delighted to know that this is apparently the golden age of equity release, which is increasing at the rate of 28% per year. The websites are exceedingly seductive. The comparison sites compare one product to another, but none of them exposes the real issues of concern or the questions one should be asking about whether the product is appropriate. It is also easy to find a way to access that equity without being in a regulated environment. Recognising that, equity release is for some people entirely appropriate but for many it is entirely inappropriate, and advice is critical.
If people are not signposted and sent through a guidance mechanism to get that financial advice, it seems to me they are in very murky waters. It takes a very sophisticated financial expert to work their way through this. It makes pensions look simple, and I hope very much that the Government will take on board and make use of this excellent amendment.
Lord McKenzie of Luton (Lab)
My Lords, this is an interesting amendment. I believe that it is possible for the noble Baroness to achieve what she wants under the terms of the Bill as it stands, but that is not entirely clear and not quite for the reasons set down in the amendment. The amendment says:
“As part of its pensions guidance function, the single financial guidance body must provide”,
et cetera. Clause 2(4) says that the “pensions guidance function” under Clause 2(1)(a) is,
“to provide, to members of the public, information and guidance on matters relating to occupational and personal pensions”.
I do not think that equity release falls within that definition. There is a separate issue as to whether it would fall within Clause 3, which says:
“As part of its pensions guidance function, the single financial guidance body must provide information and guidance”,
et cetera, but that is to do with,
“flexible benefits that may be provided to the member or survivor”.
It seems to me, on a straightforward reading of the Bill, that it would not be possible to use the pensions guidance function strand of the new body, but there seems absolutely no reason why the money guidance function could not be used for that purpose. That would be a potential quarrel I would have. The Minister may say that interpretation is too restrictive and not right, but I do not think it would preclude the noble Baroness achieving what she wants. It seems to me the money guidance function should enable guidance to be provided on assets including on equity release.
The noble Baroness, Lady Kramer, raised the question of whether the FCA regulates all these schemes. I am advised that it probably does not, but obviously there is an issue there and perhaps the Minister would respond to that. We can support the thrust of this, because I think it achieves what the noble Baroness wants, but not quite, as I understand it, in the terms of the amendment, because of the other functions in the Bill.
Lord Young of Cookham (Con)
My Lords, I begin by thanking the noble Baroness, Lady Greengross, for her amendment, which seeks to add an additional requirement to Clause 3. She has a formidable reputation for campaigning on behalf of those of above average age. For as long as I have known her, she has taken a particular interest in housing, so there is a lot of force behind her amendment.
Clause 3 specifies that as part of its pensions guidance function, the single financial guidance body must provide information and guidance to help a member of a pension scheme make decisions about the options open to them as a result of the pension freedoms. This requirement replaces the current duty on the Secretary of State for the DWP to take steps to ensure that people have access to guidance on the pension freedoms. It ensures that the single financial guidance body will continue to meet the guidance guarantee made by the Government when they introduced the pension freedoms legislation back in 2015.
In its recently published interim report on the review of the retirement income market, the Financial Conduct Authority identified some emerging issues. For example, the review found that draw-down of defined contribution pots is becoming much more popular, and accessing pension pots has become the “new norm”. The FCA is now working with the Treasury, the DWP and other stakeholders to fully understand all the emerging themes and to develop ways in which any issues can be addressed. Without reopening some of the earlier debates, that shows the FCA is able to respond to concerns about consumer interests.
At Second Reading the noble Baroness raised questions about the adequacy of saving into a pension scheme at the levels required by automatic enrolment. The amendment she proposes would make it a statutory requirement for the body to provide guidance on other sources of retirement income, including housing wealth. While I agree with her that it is important that people plan for retirement, no matter what they age they are, and that they consider all their retirement income options, I hope to persuade her that her amendment is not necessary.
As part of its pensions guidance and money guidance functions, the body will provide general information and guidance to members of the public about the benefits of saving towards retirement, and the range of products available to provide income in retirement, including the products that the noble Baroness mentioned in her speech. I think the noble Lord, Lord McKenzie, came up with the answer before me: these services are already provided by the Money Advice Service and the Pensions Advisory Service. For example, the MAS website has information on what equity release is and on other products, such as home reversion plans. In establishing the single financial guidance body, the information and guidance about sources of retirement income that are currently spread across all three existing bodies will continue to be delivered but will be much more joined up—for example, there will be just one website instead of three—making it easier for people to access and consider in the round. That will also make it easier for the new body to assess any gaps in the provision, quality or impartiality of the information and guidance available.
Reverting to the debate that we had before the dinner break, the body will not provide advice on specific products. Its role is to provide general information and guidance on the options open to people so that they can make their own more informed financial decisions. It is not in the remit of the body to provide financial advice. In some instances, though—this was touched on during our debate—it may be that the body would need to refer an individual to an independent financial adviser, who would be able to advise them which products were the most suitable in their circumstances; I think that is what the noble Baroness, Lady Kramer, was implying. That in itself is a helpful service; we know that often, people are reluctant to seek financial advice or unsure of where to go. The body and its partners can play a role in breaking down those barriers, enabling people to understand when it will be beneficial or necessary for them to seek financial advice.
Housing wealth, as the noble Baroness knows better than anyone, is a complex area. Equity release schemes, as an example, may be a suitable option for some, but it is important that people are made aware of the associated risks. The FCA’s ageing population study, to be published later this year, will consider how lending in retirement can be made to work better for older consumers—again, evidence that the FCA is conscious of its responsibility to consumers. That study will consider product innovation and building upon existing industry initiatives to facilitate mortgage lending to older consumers. The Government are clear that anyone considering equity release should seek independent financial advice to ensure that the product is appropriate to their individual circumstances.
The noble Baroness, Lady Finlay, raised a number of issues. I may have to write to her about the transparency of exit charges. In a nutshell, though, so far as equity release is concerned, the FCA, as I think she said, has responsibility for the regulation of equity release products and advice on these. The Equity Release Council is the industry body for the sector and sets out rules and guidance that all members have to comply with. All customers must receive independent legal advice before taking out an equity release product. I hope that addresses some of the issues the noble Baroness raised about undue pressure being exercised by family members with an interest. The borrower has to provide a written suitability report, and the FCA requires the borrower to be provided with a “key facts” illustration for each product. Independent solicitors must also verify understanding before proceeding, and the customer must signal receipt and acceptance of the written suitability report. That report explains why they believe that equity release is suitable and why a particular product is being recommended to that customer. I think the noble Baroness raised the issue that people do not have to get regulated advice. I would like to reflect on that and perhaps drop her a line.
So while the body may provide general information on these schemes, that is an example where it would be best placed to make people aware that they should be speaking to regulated advisers, and signpost them to the appropriate place. As I explained, the body is required to provide guidance to replace the pension guidance guarantee. That is because we want to ensure that the move to a single body in no way reduces the guidance on offer for those who wish to consider exercising their pension flexibilities.
To conclude, the SFGB’s money guidance and pensions guidance functions already enable it to provide people with information and guidance on retirement planning, saving in a pension scheme, different sources of retirement income and, where appropriate, to signpost them to regulated advisers. These are all services which MAS and TPAS deliver now, and the body will continue to do that but in a more joined-up way for customers.
Against that background, I ask the noble Baroness to withdraw her amendment.
Baroness Greengross
My Lords, first, I thank noble Lords who supported me, at least in principle: the noble Baronesses, Lady Kramer and Lady Finlay, and, in particular, the noble Lord, Lord McKenzie. I do not mind how this happens and I am aware, having done a lot of work over the years on abuse of older people, that there are extreme dangers in people being given the wrong advice, particularly adult family and children. I just want to be sure that older people are being pointed in a direction that will be helpful to them. This is so complex and it is very important that we get it right; I thank the Minister for his obvious commitment to that. As long as it works, I do not mind. I just want to be sure that older people are getting the range of advice that they need. That includes their being sure that they are going along a track that is in their interests in the long term, so that this complicated system of new ways of using your pension is put into action wisely for those who cannot afford the sort of private advice that many of us here would not dream of acting without. I thank the Minister for his understanding of what I am getting at. I am happy to withdraw the amendment; I just hope that we achieve the goals that I think we all share. I beg leave to withdraw the amendment.
Lord Sharkey
“( ) As part of its pensions guidance function, the single financial guidance body must make provision to ensure that members of the public receive the information and guidance set out in subsection (1) through either—(a) the single financial guidance body, or(b) regulated advice from a financial advisor,before accessing defined contribution or money purchase pension benefits.”
Lord Sharkey
My Lords, Amendment 42B is in my name and that of the noble Baroness, Lady Altmann, for whose support I am extremely grateful. I will speak also to Amendment 42C. Amendment 42B is very simple. It provides that, before accessing pension pots, people must have received the appropriate information and guidance either from the SFGB or from a regulated adviser. I touched on the need for this in my earlier remarks on Amendment 27A, and I am sure that I do not need to remind the Committee that take-up of advice on pensions is very low and that financial capability and understanding are also at very low levels. Conversely, financial misunderstanding is at very high levels. This augurs badly for sensible pension decisions.
The FCA’s July interim report on retirement outcomes shows that accessing pension pots early has become the new norm under pension freedoms, as the noble Lord, Lord Young, noted a moment ago, with 72% of pensions accessed by people aged under 65. Most of these people withdrew lump sums. Half withdrew the full value of their pension. The FCA says that it found no evidence of people squandering their pension savings, but expressed concern about why people are shifting their savings out of pensions. Over half of the fully withdrawn pensions were not spent but were transferred into other savings or investments. This suggests, according to the FCA, a mistrust of pensions, and raises the possibility or even probability of new risks, such as paying too much tax and missing out on investment growth and higher retirement income. The FCA also found that most consumers chose the path of least resistance; they usually accepted the draw-down option offered by their existing pension provider without shopping around or even using the information provided by their own pension provider. That is perhaps entirely unsurprising, given the very low levels of take-up of advice and the high levels of ignorance and misunderstanding. It may be unsurprising, but it is also worrying.
The FCA’s Retirement Outcomes Review is the fifth such investigation into the UK’s retirement market. All five investigations have found much the same thing: they have consistently identified DC pension customers’ poor awareness of their options and the distrust, disinclination or inertia that can so easily lead to poor decisions. It is not just poor decisions that are a concern but scams and frauds as well. Without taking proper advice, vulnerability to scams and frauds increases. The FT reported earlier this year that losses from pension scams in March this year alone had risen to a record high of £8 million. Victims of what they described as “liberation fraud” were typically conned into placing their pension funds into investments that do not exist or are illiquid or incapable of delivering the promised returns. Victims are not usually warned about tax charges in liberating their pension funds before the age of 55, which can wipe out half the value of their savings. Being better informed and advised will not, of course, prevent all poor decisions or prevent all scams and frauds, but it is a powerful safeguard against these things. It is not the same as just having information advice out there somewhere; it means accessing and using this information and advice, which is what our Amendment 42B would do. It requires people, before they can access their pension pots, to have received information and guidance either through the SFGB or regulated advisers—the same kind of controls that currently apply to taking out a mortgage. The amendment would make that work for many more people.
I turn briefly to deal with Amendment 42C, which would simply require the SFGB to report annually on the levels of usage of pensions guidance and regulated financial advice by those accessing their pension pots. As I explained earlier, the quality of guides is very high but the take-up is very low. We need to know how well the SFGB is doing in fixing this problem and have the SFGB publish the data. We need to see how successful it is, for example, in raising the level of take-up from the current extremely low 7%. That is a vital way in which to hold the new body to account and what the amendment does—although, having thought about it a little more, I accept that the SFGB may not be the best-placed organisation to do that. The Minister, from whom I gratefully take correction, is nodding as I say that. But I hope that the Minister will give careful and sympathetic consideration to Amendment 42B in particular. I beg to move.
Baroness Altmann
My Lords, I support the amendment, to which I have added my name. It would make the take-up of guidance the default option or a mandatory option for anyone who does not have independent, regulated financial advice. We are taking time and spending so much effort setting up a body that is designed to help to guide and inform the public; this amendment would help to ensure that the public actually get the benefit of it.
Clause 5(1) gives the Secretary of State powers to issue,
“directions to the single financial guidance body”,
to do this. Therefore, before anyone could transfer or access their pension savings, they would have received this guidance, which will be set up specifically to make sure they understand the risks before they make any decisions about their pension. Someone would also explain the tax consequences and the potential long-term dangers of giving up a pension because, once they have given it up, they cannot get it back. As the noble Lord, Lord Sharkey, just remarked, the recent FCA research shows that there are some people who are transferring money out of their pension and just putting it into a cash account or a different investment because, clearly, they do not understand the benefits of keeping it in a pension. Having somebody explaining it to them first would be very much the aim of this particular body.
I wholly support the pension freedoms that the Government have introduced, but they are introducing them into a landscape where, for the past few decades, people were encouraged to believe that they did not really need to understand or engage with pensions, because all the decisions were taken for them. For most people, they were in a default fund on their savings journey and then, when they took the money later on, they were put into an annuity and that was it. They did not really need to understand what any options were because they did not really have many options. Unfortunately, people did not understand how annuities worked either. If we make this guidance a default or mandatory option then we make sure that we are protecting the public as well as giving them the freedoms. It is right that we give them the opportunity to make decisions that will suit them, but we have to make sure that we give them the opportunity of making properly informed decisions and as fair a chance as possible of making the freedoms work for them.
Providers too often want people to make a decision when they are too young, for example. It is not just in the freedoms landscape that people are taking their pensions early; the majority of people were buying annuities well before the age of 65 under the previous system, too. I hope that the Government will seriously consider that the 7% take-up rate for Pension Wise is woefully low—we need to find a way to increase that and we need to make sure that we protect the public and give them the fairest chance of making the freedoms work. Pension Wise or the new body could, for example, issue vouchers for everybody who is coming to the stage at which they might need to make a decision about their pension. They could be sent a voucher for a free guidance session. The financial guidance body, perhaps with the FCA and with providers, can work on ways of boosting take-up, but it is definitely something that would make the work that we are doing in this Committee so much more valuable around the country. I support this amendment.
Lord McKenzie of Luton
My Lords, we support this amendment. We think that it is a good, strong, robust amendment. It takes us back to the introduction of pension freedoms which, I am afraid, were done rather precipitately and without the groundwork being properly laid. This was a point that my noble friend made at the time but it fell on stony ground.
I was going to ask what the take-up of regulated advice or guidance was at the moment but the noble Baroness has given us the 7% figure for Pension Wise. If one is heading for a much higher percentage, it raises the question of what the resource implications of that would be. I do not know if any groundwork has been done—it is not a reason for not doing it. These are important situations. My noble friend has prompted me about the idea of an MoT at the age of 50 as part of the process to get people to focus on their upcoming pensions. We are certainly happy to support this. I am interested to hear what the Minister has to say on what the problems with it might be. Whatever they are, I would hope that we could overcome them, because this could make a very significant difference to the pensions landscape.
Lord Young of Cookham
I thank all those who have taken part in this debate for these amendments on the specifics of the pensions guidance function.
Amendment 42B, tabled by the noble Lord, Lord Sharkey, and my noble friend Lady Altmann, seeks to ensure that people have taken guidance or regulated advice before accessing their defined contribution pension pot. The pension flexibilities introduced in 2015, which a number of noble Lords who have taken part in the debate have spoken about, gave people the freedom and choice to decide how to access their defined contribution pension savings. The flexibilities give people control of their money and allow them to make choices which tailor their approach to their own particular circumstances. As has been mentioned in the debate, at the point of introduction, this provision was not there.
Since 2015, we have provided Pension Wise as a source of free and impartial guidance to help people make more informed decisions. There have been over 5.3 million visits to the Pension Wise website since launch and there have been more than 154,000 appointments. Customer satisfaction with Pension Wise remains very high. In 2015-16, Pension Wise delivered 61,000 guidance appointments. In 2016-17, this had increased to 66,000. By the end of July this year, there had already been nearly 27,000 appointments. This clearly demonstrates that the work we and the industry are doing to promote Pension Wise guidance is working.
It is important that people know that help is available when making important decisions about their pensions. Clause 3 ensures that the Government’s guidance guarantee will continue to be met by the new body. It is also important, however, that people have the freedom to choose sources of information, guidance or regulated advice that are right for them before making a decision about their pensions. It is not immediately clear that such an intervention at this point in the journey would be effective in changing people’s behaviour, and it might serve only to frustrate people who have already made the decision about accessing their money. As has been mentioned, such an approach would not be without cost, which would fall on the firms that pay the levy. Additional costs would need to be justified with clear benefits in terms of better outcomes for people.
Pension schemes and providers are required by law to signpost people to Pension Wise guidance. We know that this is working: pension providers are consistently cited by around half of the people who contact Pension Wise as the place they first heard of the advice. We are working with providers to ensure we continuously improve the effectiveness of signposting. We are also working with a number of employers, locally and nationally, to promote the Pension Wise service.
The FCA’s Retirement Outcomes Review: Interim Report found that take-up of Pension Wise was low. However, it also highlighted a number of mitigating contextual factors which should be considered. It found that 53% of pots had been fully withdrawn, but that the vast majority of these were small pots—60% were smaller than £10,000 and 90% were smaller than £30,000. It also found that 94% of people making full withdrawals had other sources of retirement income on top of the state pension, and so the FCA did not see this as evidence of people squandering their pension savings. Lastly, some people who did not use Pension Wise decided that financial advice was the right route for them. Between October 2015 and September 2016, sales to people who took regulated financial advice accounted for 37% of annuity sales and 70% of draw-down sales.
Having said all that, I find this all quite difficult. As noble Lords have suggested during this debate, it may well be the case that people could benefit from using more guidance. However, the landscape is somewhat complex and bears further scrutiny. I am not persuaded that the amendment in front of us is the right way to go. I listened with interest to a number of the alternative suggestions that were made.
I return to my script. The interim report to which I referred a moment ago has raised a number of issues, and the FCA has proposed a number of remedies. It has invited views and is actively engaging with government, regulators, industry and consumer bodies before delivering its final report in the first half of 2018. The right way forward may be to wait for the full report of the FCA and consider its recommendations, which may pick up some of the points made in this debate, in light of all of the information and evidence. This will ensure that we make the right interventions at the right time, which help people make the right choices for their circumstances.
Amendment 42C—which I was never attracted to—tabled by the noble Lord, Lord Sharkey, would require the new body to report annually on the usage of pension guidance and regulated financial advice by members of the public accessing their pension pots. The noble Lord made it clear that, on reflection, he thought that this might not be the best way to proceed, so it might be for the interest of the House if I skip the next four paragraphs of my remarks, as I think that the noble Lord indicated that this may not be the best way to go forward. There is already a robust process in place in this area, and we should not seek to duplicate work which is already in train and well advanced. The FCA has already identified a range of indicators that are intended to give a snapshot of the market for financial advice and establish a baseline.
I think that I have dealt with the points that have been raised in the debate; if I have not, I would like to write on them. However, against the background of what I have just said, I hope that the noble Lord may feel able to withdraw his amendment.
Lord Sharkey
My Lords, I thank the noble Baroness, Lady Altmann, and the noble Lord, Lord McKenzie, for their contributions to the debate. In a way, I am not quite certain where this leaves us. I listened quite carefully to what the Minister said, and I can understand the merit in having this completely underworked, over-resourced FCA carry out yet another inquiry in its spare time into this again. However, I can also understand the merits of doing something fairly concrete, fairly soon, about what I think we all agree is a problem. I am also puzzled about why it is quite so difficult, in the sense that this is what happens when you take out a mortgage. It seems to me perfectly reasonable to suggest this is also what should happen when you access your pension.
In passing, I should say that, first, I am quite grateful for the Minister’s speedy dispatch of the second amendment—I will not dwell on that—but I disagree with him when he talks about Pension Wise working. That is not right or accurate; it is misleading. A more accurate view is that it works exceptionally well for the very small number of people who use it. That is a better statement than the blanket statement that Pension Wise is working. That is one of the roots of the problems that we face here.
In the face of the lack of absolute enthusiasm for the first amendment, I will withdraw it. However, we should continue the conversation about this and not just wait for the FCA to opine. There is perhaps room for a more round-table general discussion about what advances we can make without waiting for whenever—shortly or in due course—the FCA will publish its findings. However, in the meantime, I beg leave to withdraw.
Baroness Altmann
“( ) As part of its pensions guidance function, the single financial guidance body must provide information and guidance regarding unsolicited communications and make provision to ensure that members of the public receive this information and guidance before taking any action following an unsolicited communication, such as transferring an occupational or personal pension to an unregulated scheme.”
Baroness Altmann
My Lords, I will also speak to Amendment 42E. Effectively, these amendments would ensure that anyone who received an unsolicited approach about their pension would have to go to Pension Wise before they were permitted to do anything or receive the guidance if they did not have an independent financial adviser.
I admit that this amendment is the result of the fact that we were unable to find a way to ban the cold calling that leads to the scams that we are trying to deal with here in the Bill. I also thank the Minister for the recent statement from the department that it has decided that it will ban cold calling for pensions. However, I hope your Lordships will agree that this seems like an ideal legislative vehicle in which to carry out the Government’s wish to ban cold calling and to protect the public effectively. Banning cold calling effectively protects members of the public from scams. Scams that result in people losing much or all of their pension are almost always the result of an unsolicited approach. So this is a roundabout way of trying to achieve something which is clearly in the public interest and which the Government themselves would like to do.
We could require people who had an unsolicited approach either to have a financial adviser to ensure that what they were doing was right or to have a conversation with our guidance service to assess what they were about to do. Presumably, the first question from whoever was speaking to them from the guidance service would be, “Is this the result of an unsolicited approach—a cold call or an email from someone you did not know, or a text or whatever?”. At that point, it would be possible to protect the person before they could sign away their pension in a scam. There is a classic trick of rushing people into parting with their money or signing on the dotted line by saying that it is a limited offer which is available only today or is about to run out. That would not be able to happen if somebody had had to make an appointment with Pension Wise or the guidance body and had discussed it first.
I hope that we can discuss this issue. If this is not the best way of achieving the aim, I hope that the Government will consider introducing into this Bill another method of achieving it so that we can start the ball rolling on protecting the public and getting rid of cold calls. We have done that for mortgages. I know that the Minister has said that it is a complex matter, but I would be very grateful if she could explain the complexity which means that we should pass up this opportunity to do something that the Government themselves want to do when no other legislative vehicle in which to do so is in sight for the next couple of years. I beg to move.
The Earl of Kinnoull (CB)
My Lords, I had not intended to say very much but, after discussing this issue with the noble Baroness, Lady Altmann, earlier, I thought that I should say a few words now. As I said at Second Reading, my interest is very much in Part 2 of the Bill—an area that is home territory for me and on which I have something to say. My drafting eye was caught by Amendment 42E. I feel that having a decent definition of “unsolicited communication” would be very valuable in legislative terms as we go through this process. It applies not just in this area, which has been very eloquently explained by the noble Baroness; it applies also in Part 2 and elsewhere. Therefore, I feel that it is worth debating it now.
As I see the definition, even simple things such as a letter or some sort of Facebook communication would not fall within it, so I simply say that it is worth having a good definition so that we know what a cold call is. It is not just a telephone call. I receive an awful lot of Part 2-type telephone calls at home, admittedly in Scotland, every single lunchtime, but there are other methods of cold calling. Certainly I have been shown very worrying letters by local vulnerable people in Scotland suggesting that they do something urgently about their pensions and so on.
Therefore, I think that we need that definition, and I strongly support the thinking behind these two amendments. I would be very happy to join a meeting to talk about how one might tweak definitions and whether a definition is needed here or elsewhere in the Bill, but I think that it would be very helpful to have a clear idea of what a cold call is.
Baroness Finlay of Llandaff
My Lords, has the definition of cold calling been sought from the trading standards group of scambassadors who have been looking at all types of scams? It would be incredibly helpful to have that definition. I also wonder whether this amendment is too narrow as written. However, I congratulate the noble Baroness on using this opportunity to do something that desperately needs to be done. The amount of scamming is a scandal.
Baroness Altmann
My Lords, I refer to my Amendment 73, which attempts to define cold calling using many more words. That was in the context of banning cold calls for claims management companies. I do not claim that this is the correct version for cold calling.
Lord Sharkey
My Lords, I was pleased to add my name to the amendments in the name of the noble Baroness, Lady Altmann. Both amendments address the problem of cold calling and pensions. I would, like the noble Baroness, have preferred an outright ban on cold calling, just as I would like an outright ban on cold calling for the benefit of debt management companies and for claims management companies. We can deal with banning cold calling for claims management companies later in the Bill, as the noble Baroness just pointed out, and she and I have both tabled amendments to do exactly that. Regrettably, banning for pensions and debt management companies is outside the scope of the Bill.
The amendments before us, therefore, cannot and do not go that far, but they do offer a pretty good work-around. They would do two things, as the noble Baroness has explained. They would require the SFGB to provide information and guidance on cold calling. They would also require people to have received this information and guidance before taking any action following a cold call.
Noble Lords have discussed cold calling on many occasions in this Chamber. On every occasion there has been universal dissatisfaction with the process and universal recognition that it is a menace, yet it still goes on. There has been a 180% increase in the past 10 months alone. There are now 2.6 million calls every month. This is an omnipresent menace. But there is no cold calling for mortgages. We banned that. Successive Governments have never got around to banning cold calling for pensions, for debt management or claims management and I know that the Government have promised, yet again, to ban cold calling for pensions. But, yet again, it is a promise without a delivery date. It is a promise that has no obvious legislative vehicle except this one.
I still do not understand why the Government are dragging their heels over this or over debt management and claims management cold calling either. I acknowledge that there will be complexities in devising the details of any ban, but it is surely not beyond the ability of the Government to deal with it speedily if they assign the right priority and the right resources to it. In any case, I remind the Minister that we have already held out in these debates the possibility of an enabling clause in the Bill with the details to follow later in secondary legislation. We have had no response to that—all rather disappointing and mystifying. In the absence of any willingness on the part of the Government to actually do anything in the Bill, these amendments show how progress can be made. I very much hope that the Minister will respond positively.
Lord McKenzie of Luton
My Lords, we support the thrust of the amendment, but there is just a query on its precise ramifications which perhaps I may raise now. The amendment states:
“As part of its pensions guidance function, the single financial guidance body must provide information and guidance regarding unsolicited communications and make provision to ensure that members of the public receive this information and guidance before taking any action following an unsolicited communication”.
I am not quite sure how that could be caused to happen; that is, where the knowledge of an unsolicited communication is and how that feeds through to encourage people not to take any action until they have considered these matters. When the Minister winds up, she might expand a little on that.
I certainly support what the amendment is trying to achieve. The idea of taking a power in the Bill to seek to move forward more quickly once it has left this House is certainly worth considering. But I guess that my key message is to the Government. Their response to the consultation document was robust and covered not only cold calling, but we have this equivocation as to when it is going to happen. I find it difficult to understand, given everything that is going on with Brexit, which is changing the world, why we cannot move swiftly to introduce provisions in a vital area where there is clear consumer detriment that is destroying many people’s lives. It would be helpful to have that clarification in the wind-up, and subject to that we support the amendment.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Buscombe) (Con)
Perhaps I may give an indication of my support in principle for banning cold calling of every type by saying that I have given up my landline because so many calls now are nuisance calls. They are about pensions and all sorts of other things. Apparently I have more accidents in my car than hot lunches. We have all had enough of it and this is an issue which is close to the hearts of many, if not all, noble Lords.
These amendments seek, under the pensions guidance function, to give the single financial guidance body a duty to provide information and guidance to members of the public about unsolicited communications. I should like to start by thanking my noble friend and all noble Lords for their contributions to this topic at Second Reading and during the first day of Committee. I really do understand that pension scams, and particularly unsolicited communications, have to be dealt with. As I have sought to reassure noble Lords, the Government also take the threat of pension scams extremely seriously and have committed to taking action to tackle the issue. Noble Lords have already made reference to the fact that last month the Government published their response to the consultation on pension scams, and in that document the Government underlined their commitment to bring forward a package of measures designed to tackle such scams.
As noble Lords will be aware, the Government intend to introduce legislation in a finance Bill later this year to tighten the rules in order to stop scammers opening fraudulent pension schemes. Tougher measures to prevent the transfer of money from an occupational pension scheme into a fraudulent one will be introduced following the rollout of the master trust authorisation regime in 2018-19. The Pensions Regulator will be given new supervisory measures to authorise and deauthorise master trusts according to strict governance standards, and the Government will consider how the legislation to limit transfers should align with these measures.
On pensions cold calling, which is the subject of my noble friend’s amendment, the Government’s consultation response committed to bringing forward legislation when parliamentary time allows. I really would like to reassure noble Lords that work is under way to ensure that the ban, which will include emails and text messages, is robust. We will continue to work with stakeholders and those with an interest in this space as work progresses. We hope to be able to outline more about our plans for engagement on Report. I say that, but I also ought to make it clear that, as the noble Lord, Lord Sharkey, has said, while we would love to do this overnight, the truth is that this is not in the scope of the Bill. I wish noble Lords could be flies on the wall at some of the meetings I have had with officials from the DWP and the Treasury, and also with ministerial colleagues including the Pensions Minister. We have been searching every which way to find an opportunity to introduce this legislation. We will not be overcome. We are determined to do it as soon as is practically possible. Indeed, it was not until I became a Minister that I realised how hard it is. It is easier for me now to understand, even after nearly 20 years in your Lordships’ House, how difficult it is to get some of these things done in practice.
I hope my strength of feeling is coming across: we are genuinely working on this as we speak. We are not dragging our heels. There is no lack of willingness. We are absolutely clear that we want to take this forward, but at the same time we need to be really careful about how the legislation is drafted—for example, by being careful not to exclude legitimate transactions and so on. I have the result of the consultation in front of me, which sets out in some detail the reasons why we have to be a little bit careful about how this is drafted, but I assure noble Lords that if it was in scope it would be in this Bill. Unfortunately, it is not in scope and we have been given clear instructions on that by all the powers that be who advise us on drafting of legislation in Parliament.
I turn to the amendment tabled by noble Lords on the pensions guidance function. This function allows for the body to provide information and guidance on matters relating to occupational and personal pensions. The noble Lords’ amendment would see the single financial guidance body given a duty to provide information and guidance on pensions cold calling and a duty to ensure that members of the public receive this information and guidance before taking any action following a cold call.
I will take each part of the amendment in turn and will first talk to the duty to provide information and guidance on pensions cold calling. As my noble friend and all noble Lords will be aware, information on spotting, avoiding and dealing with scams is currently provided by the Money Advice Service, TPAS and Pension Wise. Information on pensions scams is also available via the Financial Conduct Authority’s and the Pensions Regulator’s websites. This function allows for the body to provide information and guidance on matters relating to occupational and personal pensions, but the amendment would give the single financial guidance body a duty to provide information and guidance on pensions cold calling and a duty to ensure that members of the public receive this information and guidance before taking any action following a cold call.
Under the new body’s money guidance function, which will allow the body to provide information and guidance to enhance people’s financial capability, the Government would expect the body to continue to provide information of this sort. However, the Government believe that the new body will be best placed to determine exactly what information and guidance it provides. It will have the ability to assess the landscape and see what information and guidance is already out there. I agree that information on avoiding financial scams is vital, and, as I have already said, the Government expect that the body will continue the existing services’ good work in this area, but I do not agree that it is necessary to specify this in legislation.
On the second part of Amendment 42D, which states that the body should,
“make provision to ensure that members of the public receive this information and guidance”,
after receiving a cold call, I wholeheartedly agree that members of the public should know where they can go to seek information and guidance if they need it. Of course, the Government would expect that any information or guidance that the body provides is as accessible as possible. However, the amendment would not help to achieve this. In practice, it is not possible or reasonable for the body to be required to ensure—the noble Lord, Lord McKenzie, has said it is quite difficult—that people will come to it for help after receiving a cold call. Having said that, I heard an example of this when I was at TPAS. It was absolutely brilliant. It had all been recorded, of course, so one could hear this woman say, “I think I’ve just had a cold call”. Sure enough, this brilliant adviser—the person giving guidance—said, “I’m very sorry to say this sounds very much like a cold call that you should ignore. Well done for calling us, thank you so much”. This is happening daily, as I saw for myself. The body would not know who had received a cold call unless, of course, they went to the service. Even if the industry had access to this information, the body would not have the power to require the industry to ensure that members of the public received information before taking action.
I understand what noble Lords are seeking to achieve with this amendment. However, it would not be helpful to mandate the guidance that the body provides, particularly when there is already a clear expectation that the body should provide it, or to make the body responsible for ensuring that people seek out this guidance. I therefore ask my noble friend to withdraw the amendment.
Baroness Altmann
I thank my noble friend for her answer and for her passion at the beginning of her response. She clearly understands the concerns that have been expressed right across the House. Perhaps we in this House can help to accelerate the process by which we could achieve what she is struggling at the moment to achieve. Let me first respond to the question of the noble Lord, Lord McKenzie, and try to explain that these amendments are actually linked to Amendment 42B. If you have mandatory guidance that has to be taken before anybody can make a decision to access or transfer their pension, then Amendments 42D and 42E allow that to apply to a cold call.
As the noble Lord rightly pointed out, Pension Wise, or the financial guidance body itself, would not know in advance who had had a cold call and therefore needed to come, but if guidance were mandatory the guidance body would have a duty, as specified in this amendment, to ensure that anyone who had a cold call received advice or came for guidance before they were permitted to transfer the money. The problem with the scams comes when people transfer money from their existing pension elsewhere. So, as I say, the mandatory default guidance in Amendment 42B links in to Amendments 42D and 42E to try to capture the public protection that we wish to achieve.
It is, however, important to specify that this body must inform the public and provide adequate information about the risks of unsolicited approaches about pensions and about guidance and so on, because the body might think, “Well, if there is another organisation dealing with scams—we have Project Scorpion and Project Bloom, different initiatives going on around government—we do not need to be so cautious about informing the public”. This is the place where we want to make sure that the public is informed about pensions. Having said that, it seems that if we can get the ban on cold calling into the Bill at this very time, perhaps by changing the title of the Bill, or in some other way, with support across the House, working together to find a way that would be acceptable, we would all, including my noble friend, be much more comfortable with the protection we are offering the public. In the meantime, I beg leave to withdraw the amendment.
“( ) When arranging with a primary SGFB delivery partner to carry out on its behalf the debt advice function, the single financial guidance body may contract only with organisations and companies which are established for charitable or not-for-profit purposes.”
Lord Stevenson of Balmacara (Lab)
My Lords, it is well past my bedtime and I will therefore be very brief. I think I can be. I was going to say that these are two sides of the same coin but there are three amendments. Let us be imaginative and say they are grouped around a common theme, which is again to get on record the idea that the work that is going on either directly or through the SFGB must ensure that the services delivered are free at the point of use. That is the main point of Amendment 45, which restricts the operations to,
“companies which are established for charitable or not-for-profit purposes”.
It may be argued, and I think I would accept, that many companies operate in a way that has different branches and it may be that the particular branch which deals with, for example, debt advice might be a not-for-profit operation. Provided it is understood that the advice is always free, the actual status of the company is probably of a lesser order and I would understand if the Minister were of a mind to mention that in his very brief response.
Amendment 46 deals with how the objective attaching to the SFGB also applies to the overall system, in the sense that it would be perverse if the arrangements were such that the initial interactions with the partners and organisations working with the SFGB were free at the point of use but these were also referring clients to profit-seeking or charging operations. This is primarily a probing amendment but, again, I am looking to make sure that the advice circle is complete by retaining this free-at-the-point-of-use idea.
Amendment 47 picks up the possibility that with regard to the general governance arrangements that are set in place—which the Secretary of State has responsibility for, as we have learned this evening—the FCA may have an involvement but the single financial guidance body certainly has an arrangement for making sure that governance is properly arranged and the level of accountability is appropriate. One might ask why that was necessary but it would be a rhetorical question and I do not expect a lengthy response. Given that the delivery partners are being supervised by the FCA in most cases, and certainly where clients’ money is concerned, it is a requirement that they be authorised by the FCA. Given that most of these are charities and therefore also subject to the regulatory requirements of the Charity Commission, it is unlikely that the SFGB would be in a situation where governance arrangements were falling short of absolutely perfect. Again, reassurance from the Minister would be most welcome. I beg to move.
Lord Young of Cookham
My Lords, I am grateful to the noble Lord, Lord Stevenson, for moving Amendment 45 and then demolishing it, which saves me the task of so doing. I confirm that we are absolutely clear that any help funded by the new body will be free at the point of use. The difficulty we have with his amendment is that it may be appropriate for the body to enter into arrangements with organisations which provide free-to-client advice but also make a profit elsewhere. He made it clear that as long as it is free at the point of use to the client, he was relaxed. That deals with that amendment.
Turning to Amendment 46, we agree it is important that delivery partners refer members of the public to additional help when they are unable to provide the information themselves. The difficulty with the amendment is that it prevents delivery partners referring members of the public to the most relevant source of help in the first instance. For example, if a member of the public needs legal advice, we do not believe that delivery partners should be obliged, as the amendment requires, to refer that individual back to the SFGB. They should be free to refer that person for appropriate legal advice.
Finally, I may need to write to the noble Lord on Amendment 47. Given the SFGB’s relationship with government, it would be inconsistent with the precedent set by other arm’s-length bodies if the sponsoring department sought to interfere with, or have direct involvement in, the contractual arrangements that the body seeks to enter into. But I assure the noble Lord that as an arm’s-length body the SFGB will be required to comply with government policy on public procurement. The sponsoring department will support the SFGB in dealing effectively with any issues that may arise in the area of delivery partner governance and accountability. If the noble Lord wants more information on that, I would be very happy to drop him a line. Against that background and given the hour, I hope he will be able to withdraw the amendment.
Lord Stevenson of Balmacara
I thank the Minister for his comments and his brevity. Hansard will have an interesting time trying to unscramble all our mixed-up shorthand for the body that is still yet to have a name. I wish we would get a name quickly and then we would not have to worry about “F”, “S”, “G” and “B”, and my teeth falling out. I will read Hansard very carefully, and I am sure that any additional information that might be provided by letter will be most welcome. I beg leave to withdraw the amendment.
Financial Guidance and Claims Bill [HL]
Monday 11th September 2017
(7 years, 2 months ago)
Lords ChamberRead Full debate Financial Guidance and Claims Act 2018 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 1-IV Fourth marshalled list for Committee (PDF, 77KB) - (11 Sep 2017)
Lord McKenzie of Luton
“( ) Guidance issued by the Secretary of State under subsection (1) is to be made by statutory instrument subject to annulment in pursuance of a resolution of either House of Parliament.”
Lord McKenzie of Luton (Lab)
My Lords, I will also speak to Amendment 48. Clause 5 says:
“The Secretary of State may issue guidance and give directions to the single financial guidance body about the exercise of its functions … The Secretary of State must publish any directions that are given to the single financial guidance body … The single financial guidance body must have regard to guidance, and comply with directions, given to it by the Secretary of State”.
Amendment 48, which is where we started, requires the Secretary of State to publish any guidance issued as well as directions. This guidance is, as we have heard, not discretionary, and the SFGB must have regard to it. The Delegated Powers and Regulatory Reform Committee, however, in its first report of the 2017-19 Session, takes the view that a parliamentary scrutiny process should apply to these provisions. It considers the negative procedure an appropriate level of scrutiny, hence Amendment 47A; that is what the amendment requires. Obviously, such a procedure would appear to encompass the guidance being published in any event. I beg to move.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Buscombe) (Con)
My Lords, I thank the noble Lord, Lord McKenzie, for tabling these amendments to Clause 5, which provides for the Secretary of State to issue guidance and directions to the single financial guidance body about the exercise of its functions. It requires the body to comply with any directions and have regard to any guidance, and requires the Secretary of State to publish any directions.
Amendment 47A would require any guidance to be made by statutory instrument subject to annulment in pursuance of a resolution of either House of Parliament. Amendment 48 would place an obligation on the Secretary of State to publish any guidance.
Clause 5 facilitates a sensible working relationship between the body and the sponsoring Minister. It allows the body flexibility and independence in managing its business but balances this with a recognition of Ministers’ responsibilities to Parliament. Conferring functions on an arm’s-length body involves recognition that operational independence from Ministers in carrying out those functions is appropriate. Nevertheless, the sponsoring Minister remains answerable to Parliament for the activities of the body, including any failures.
I believe we are in agreement that creating the body is the right thing to do. I also agree with the comment of the noble Lord, Lord Stevenson, at Second Reading that it is important that we learn from the experiences with the Money Advice Service about what worked and what did not work successfully. One issue highlighted by the independent Farnish review of the MAS in 2015 was that the MAS’s formal accountability regime needed to be strengthened. The review concluded that it was not possible for any party, including the FCA and HM Treasury, to hold the MAS fully to account, either for the way it discharged its role or for the money it spent.
In setting up the single financial guidance body, it is therefore important that a balance is struck between enabling the sponsoring Minister to fulfil his responsibilities and giving the body the desired degree of independence. An arm’s-length body needs to have a degree of autonomy in order to deliver effectively but it also needs to have a good and constructive relationship with its sponsoring department. Arm’s-length bodies represent an extension of the department’s delivery, so it is important that we think about a department and its arm’s-length bodies as a total delivery system. Building trust between the department and the new body—this is critical to the point—will be essential in enabling the right balance to be struck between the body’s autonomy and the Government’s accountability.
In drafting Clause 5, and the Bill more widely, we have sought to provide a legislative framework that allows the body flexibility and independence to make the most of expertise and innovation in managing its business, and to balance that within the context of it being a public body. The single financial guidance body will be a non-departmental public body, responsible for supporting the delivery of government policy.
Clause 5 provides for the Secretary of State to give guidance to the body and requires it to have regard to that guidance in exercising its functions. Amendment 47A would require regulations to be made by statutory instrument, subject to annulment, in pursuance of a resolution of either House of Parliament. I consider that this would represent a degree of scrutiny unwarranted by the non-binding nature of the guidance in question.
Guidance provided by the Secretary of State to the arm’s-length body could cover myriad topics. Guidance could also be sought by the body; it is not necessarily just given. The relationship between an arm’s-length body and its sponsoring Minister and department is critical to the successful delivery of its functions. As in all professional relationships, whether between a sponsoring Minister and an arm’s-length body or a board and its executive team, being able to seek and give guidance in a straightforward and candid way will be important.
Having regard to guidance does not mean that the body must act on that guidance. For example, in commissioning or contracting services, the single financial guidance body may seek guidance concerning government procurement rules or the interpretation of those rules. Guidance may also be given or sought by the body to inform business planning. For example, where government develops a new policy that could affect the services it provides, the body will need guidance to enable it to prepare for potential change. Noble Lords will recall that the Pension Wise guidance service went live at the same time as the pension freedoms were introduced. This required considerable advance planning and service design.
In all those circumstances, it would be disproportionate to expect a statutory instrument to be drafted and for Parliament to scrutinise it. Also, the Secretary of State publishing guidance would not be consistent with the informal nature of much of the guidance that may be given. It would inhibit the critical relationship between the sponsoring Minister and the body supporting the delivery of government policy, and it could deter the body from seeking guidance, or the Minister giving guidance when it would be more sensible to do so. Further, a requirement to publish a guidance could lead to a position where the body feels obliged to respond publicly should it not act on the guidance, or feels under undue pressure to follow the guidance provided regardless whether it makes sense or is appropriate in the circumstances.
Lord McKenzie of Luton
My Lords, I thank the Minister for that reply. I am a little surprised at the position the Government have taken on this. We all agree about the need for balance and flexibility in the arrangements—that is important—but the Government have written into the Bill provisions that give the Secretary of State the opportunity to issue directions and for there to be guidance. The Minister said the guidance is not binding. I accept that it is not technically binding but the provision is clear that a single financial guidance body must have regard to it. There is a strong imperative for the body to do that unless, presumably, there are exceptional circumstances.
Even if the Minister is not happy with the recommendation of the Delegated Powers and Regulatory Reform Committee that the negative procedure should be attached to this, the Government are setting their face against the guidance being published as well. That is an unduly restrictive approach. The report of the Delegated Powers and Regulatory Reform Committee is very clear. It states:
“There is a clear distinction between guidance that the recipient is free to disregard and guidance to which the recipient must have regard and must follow. People required by statute to have regard to guidance will normally be expected to follow the guidance unless they have cogent reasons for not doing so”.
The Government have not taken that into account in their very restrictive response.
There is no point in ranging over this point more extensively at the moment. However, I am surprised and we will return to this on Report. In the meantime, I beg leave to withdraw the amendment.
Lord Stevenson of Balmacara (Lab)
My Lords, in moving Amendment 49 I shall speak also to Amendments 54 and 55 in this group. I am grateful to the noble Baroness, Lady Meacher, for adding her name to the first of those amendments.
The amendments continue the debate we have had about standards and seek to draw out a response. In that sense they are probing amendments and I do not expect them to be accepted as they stand. They are probing in the sense that they are trying to draw out more clearly what standard setting will involve. As has been mentioned, Clause 6 states simply:
“The single financial guidance body must from time to time set standards to be complied with”,
but does not specify what the standards are. Are they about dress codes or eating habits? Presumably they relate to the more detailed work of how it deals with its customers. I would hope that it is the latter but that does not exclude the former. A word of comfort from the Dispatch Box might ease troubled concerns outside.
The underlying problem is that for many of the bodies to which the standard setting will apply there is an existing regulatory framework operated by the FCA and therefore we are in danger of seeing dual regulatory powers. This is not just a trivial point about bureaucracy. In a recent report from the StepChange Debt Charity, in which I have already declared my interest, the chairman points out that the arrangement under which it receives its regulatory authority from the FCA has added 7% to the charity’s costs. This is a body with a £20 million turnover so it is a significant sum for getting itself ready, and rightly so, to be regulated by a body. To think that more of the money that StepChange raises for charitable purposes will have to be spent on satisfying another regulatory body would seem to be unusually onerous.
To be clear on what we would like the Government to say on this point, there is a case for something to be said at the Dispatch Box which makes it clear that the SFGB’s currently broad and largely unconstrained regulatory powers should be moderated by some sort of framework. We propose in our amendment that the regulation should be specifically addressed to a commissioning framework, because certainly in the debt space the intention is that the bodies concerned will be commissioned to provide particular services which the single body thinks should be available. We have taken wording from other legislation which suggests that the commissioning framework should be based on the competencies of the provider against which it will satisfy itself when it commissions and procures services. That would give a route in towards the thinking here.
When we are talking about charities, we are also talking about those that are regulated separately by the charities regulator on certain aspects of their work. Again it is important to recognise that additional and triple regulation would be unnecessary.
The powers will come mainly from the FCA. Once more, it would be helpful if the Minister could respond to the likelihood of that. There is only one comparable situation at the moment where the FCA regulates bodies operating in the debt space, and indeed it has just completed a full review of a number of them. At the same time it has been asked to look at the current rules as they affect the Money Advice Service. When the authority did that, it said that it would not review or comment on the particular requirements of MAS—here I give a sense of its comments—because it felt that its standards were sufficiently high to encompass anything that would be involved in MAS and relating to the bodies that it funded. Again, what that would mean in practice is a little uncertain and perhaps the Minister will think about whether it will be necessary to get a better specification from the FCA, which perhaps could be done through correspondence, of the type of regulatory framework it thought it would be looking for from the SFGB, at which levels there would be any overlap, and in what sense any additional work would be needed. In short, we are looking for legislation that is concise and focused along with a broader statement of practice prior to the passing of the Bill which would give us more detail on how the body will operate in practice and the impact and burdens on those bodies it commissions. I beg to move.
The Lord Speaker (Lord Fowler)
My Lords, I should inform the Committee that if this amendment is agreed to, I cannot call Amendment 50 by reason of pre-emption.
Lord Deben (Con)
My Lords, I point the House to my declaration of interests. I want to underline something that the noble Lord has just said about the danger of having conflicting areas of advice.
I am sure that my noble friend will be able to explain this, but it is already true in the financial services industry, and elsewhere, that often there are serious conflicts between the decisions being handed down, for example by the Financial Services Authority, the way that such decisions are interpreted by the ombudsman and the way that things come together. That is now a major incubus on the best companies in the field; therefore it is crucial for us to know in advance that what is being done here will not be yet another different series of things that people have to bring together. That is not to defend anybody who is doing wrong or to excuse people who have not bothered, but merely to say that the better the firm, the more important it is for it to be clear what governance it should be concerned with, what guidance means, and ensure that the opportunities for contradictions are eliminated before we start.
The Earl of Kinnoull (CB)
My Lords, I rise briefly to speak to Amendment 56, which is in my name. I note that the clause on setting standards, which is only 11 lines long, has eight amendments. That underlines its importance.
The origins of Amendment 56 are my concerns with the behaviour of the Financial Conduct Authority; I have been regulated by it and its predecessors for the whole of my commercial career. I realise that the single financial guidance body will only be a client organisation of it, but I am concerned about FCA ethos leaking down to the SFGB.
Perhaps I should explain further. When a regulated client rings up the FCA with a specific question, asking for help in the interpretation of its rules, the FCA, in my direct experience, simply says, “We can’t give you any help in interpreting those rules”. That is quite unlike regulators in other jurisdictions in other places—I originally wrote down “competitor regulators”. That is very unhelpful, but while it is unhelpful in the financial services world, firms are usually big enough to afford advice from big firms of solicitors. Here we are often dealing with very small charities that do not have access to £1,000 per hour for Allen & Overy, so it is important that the SFGB offers that advice.
It has been said to me that there is a big problem concerning resourcing. I think that that is quite a difficult position to maintain. First, other similar regulators in other jurisdictions do not perceive those resourcing problems. In fact, most of the questions that come up, such as on a drafting issue, do so repeatedly and the same question will be asked by many of those being regulated. Secondly, just thinking about one particular bit of FCA regulation because I know about it—the regulation of insurance brokers—the FCA and those that are being regulated bear the cost of that regulation, which is more than twice as expensive as Ireland, Bermuda and Hong Kong. That multiple is far bigger than for France and Germany. I do not therefore think that good regulation has to be expensive.
The amendment is aimed at trying to ensure that that sort of behaviour is not replicated and that the SFGB remains friendly and helpful in interpreting the regulations that it will impose on those that it regulates.
Baroness Altmann (Con)
My Lords, I add my support to Amendment 56. It is important that if those who are involved in the actions that will be part of the new body want to know and to clarify what their duties are, there is clear direction for them. I share the concerns that a number of financial companies have offered to me: they want to abide by the regulations, yet when they ask the FCA, “If I do this, would that be compliant?” the response often is, “If you do it and we don’t like it, we’ll see you in court”, which really is not very helpful.
Baroness Buscombe
I thank noble Lords for their scrutiny of Clause 6, which requires the body to set standards from time to time for the delivery of its information, guidance and advice services. It also requires the body to obtain the FCA’s approval prior to finalising the standards and to publish the standards. I understand that there has been concern among the debt advice sector that the body’s standards will apply to all debt advice providers. I reassure the Committee, and others, that the single financial guidance body is not a regulator. These standards will apply only to the body itself and its delivery partners.
I turn first to Amendments 49 and 54, tabled by the noble Lord, Lord Stevenson, which set out an alternative to setting standards for service delivery. Amendment 49 would require the body to publish a commissioning framework against which it would test the competence of service providers when delegating any of its functions. Amendment 54 would require the body to consult on this framework and to obtain the approval of the FCA.
The setting and publication of standards, and their monitoring and enforcement, provided for in Clause 7, are designed to give assurance to members of the public that the information, guidance and advice services provided by the body meet robust criteria. These standards will apply only to the body itself when it is delivering these services directly, and to any delivery partner organisations it engages to deliver these services on its behalf.
The noble Lord proposes to replace the requirement for the body to set standards with a commissioning framework, but there is a difference between these two. The proposed commissioning framework would only set out requirements that the body’s delivery partners must meet to enable bidders for contracts or grants to understand what the expectations were. The standards will set out the requirements that both the delivery partners and the body itself must meet. The standards will play an important role in enabling members of the public to have confidence in the services provided by or on behalf of the body, and both could not and should not be replaced by the proposed commissioning framework.
When contracts are above a certain value, the body will be required to comply with the Public Contracts Regulations 2015, the regulations that govern public procurement, including the requirement to advertise its requirements and undertake a competitive tendering exercise. Where the size of the contract is below the thresholds cited in the regulations or where the body will be making grant arrangements, we would expect it to follow similar principles.
If the body decides to delegate any of its guidance or advice functions and procure services from other providers, we would expect it to publish its requirements, including any technical requirements, with adequate time for delivery partners to prepare their propositions. It is unnecessary to be specific about this in legislation, as we would expect the new body to build on the good practice of existing organisations. For example, the MAS already has a commissioning framework for debt advice.
Amendments 50 and 55, tabled by the noble Lords, Lord McKenzie and Lord Stevenson, would require the single financial guidance body to consult on the standards. The body will be able to set different standards for different types of information, guidance and debt advice. One size will not fit all. For example, standards for an online service such as the body’s website would of necessity differ from standards for a face-to-face guidance appointment. In addition, the body may need to develop standards if new services come online or if the nature of the service provision changes. We would expect the body continuously to review its service standards. This will be important to the body’s board in ensuring that its services remain customer focused.
In developing and updating the standards, we would expect the body to work closely with a range of stakeholders, including delivery partners—large and small; I stress that to the noble Earl, Lord Kinnoull—devolved authorities and consumer representatives, to ensure that the standards it sets are robust, cover a range of qualitative and quantitative measures and can be properly monitored. The noble Lord, Lord Stevenson, asked how the body would set its standards and what they might be, and about the consultation with the FCA. We would expect the standards broadly to cover delivering the guidance, advice and information, professional standards, communications systems and controls, complaints management and content of the guidance session.
Prior to anything being published, the body is required to gain the approval of the FCA. The FCA will add value by providing independent scrutiny, and the standards will benefit from the FCA’s expertise in relation to financial services and the debt advice sector, and its experience in setting the standards for Pension Wise. Having the input of the FCA will also ensure that the body’s standards complement the FCA’s debt advice authorisation process. As my noble friend Lord Deben has stressed, it is important that there be clarity.
Should the body consider it valuable to conduct a consultation exercise before setting or revising its standards, it could do so. However, I do not consider it necessary or proportionate to require in legislation that the body undertake a formal consultation process, particularly as this would apply even to very minor revisions of the standards.
Amendments 51 and 52, tabled by my noble friend Lady Altmann, return to the debate on earlier amendments to Clauses 2 and 4. There, I made the case that “debt advice” is the appropriate term to use in the functions of the body. I have also written to my noble friend with further explanation of the terminology used in the Bill. The Government believe that it remains the right term here. I apologise for going over old ground with these arguments, but I want to do justice to my noble friend’s amendments.
First, “debt advice” reflects a broader set of activities than “debt counselling”, and this broader set is what the new body will have a duty to deliver. Secondly, similar to independent financial advice, debt advice is an activity regulated by the FCA. Using the term “counselling” may mislead customers who are actually receiving regulated advice. I hope that this is a further response to my noble friend Lord Deben. It is particularly important that we do not confuse customers by introducing other terminology. We should be very clear here on the vital service this body will provide. It will fund and co-ordinate—
Lord Deben
I thank my noble friend for referring to me. I do not want her to believe that I do not agree with my noble friend Lady Altmann. The fact is that we have had far too much trouble in the past with the word “advice” being used wrongly. “Advice” should be used only when it consists of somebody who is on your side and giving you advice personally and individually. That is not what we are talking about here; “counselling” or some other word should be used. I hope the Minister will not include me in her supporters on this particular point. This is really serious and we ought to think again.
Baroness Buscombe
I hear what my noble friend is saying. I hope he read in Hansard what I set out in detail on day 2 of Committee and what I wrote to all noble Lords. I commit here to spend more time between Committee and Report trying to persuade noble Lords of the reasons why we feel it right to stick with the current terminology regarding the difference between debt advice and guidance, not least because this is already set out in regulations, at the FCA and so on. We are very keen to avoid confusion or duplication. We also very much take on board the experience and expertise we have heard from those who have given this guidance and debt advice for more than 30 years. They said they had never had a problem with this. However, I hear what my noble friend said and can see that I must do more to persuade some, though not all, noble Lords—there is great support for what the Government are trying to do. I can only stress the number of consultations we had prior to introducing the Bill to ensure that we are doing the right thing to the best of our ability, particularly in our focus on the consumer.
Most people who access debt advice have lived with debt problems for more than a year before doing so. They may be facing up to something they have avoided for a long time. They seek help because they do not know what to do. They turn to services such as the Money Advice Trust, Citizens Advice and StepChange, which are all MAS delivery partners, for urgent help with getting out of their immediate crisis. Although there is a clear difference between debt advice and the advice given by independent financial advisers to those lucky enough to have some extra money to pay for it, the advice given by debt advice is still regulated by the FCA.
Debt advisers help people identify the steps they need to take, recommend a course of action, represent people at court facing repossession and, crucially, build their clients’ confidence to deal with their creditors themselves. Under FCA rules, these excellent advisers are required to make it clear that they are giving a customer regulated advice. These individuals need help to work through their problems. They want advice on how to get out of the situation. The labels we use to describe the service on offer must reflect the way these customers use and understand the service. For these reasons, I maintain that debt advice is the most appropriate term to use.
Amendment 53, tabled by the noble Lord, Lord McKenzie, would require that the standards include measures of outcomes for members of the public as well as measures of outputs for the body and its delivery partners. The noble Lord raises an important issue but I do not agree that attaching this requirement to the standards is the right approach. I reassure the noble Lord that assessing the body’s success in improving the ability of members of the public to make informed financial decisions will be very important for both Her Majesty’s Treasury and the Department for Work and Pensions.
The Committee discussed during debate on Clause 1 the business planning process for the single financial guidance body. Part of that process will be for the body to agree a range of key performance indicators with Her Majesty’s Treasury and the DWP. These will be set out in the body’s corporate strategy and business plans. The corporate strategy and business plans will be published, and will include how the indicators will be measured. It is too soon to set out exactly what the performance indicators will be for the body but, as an example, Pension Wise is testing its customers’ knowledge of the pensions freedoms and comparing it with that of a group of non-users of its service. This research seeks to ascertain what difference Pension Wise is making to people’s understanding of their options under the pension freedoms. This evaluation is also recording customers’ intentions shortly after their Pension Wise appointment and any actions they have taken about three months after their appointment.
Lord Stevenson of Balmacara
I thank the Minister for a very full response. There were points where I felt she was in a bit of a hole and continuing to dig, and we may well have to come back to them. They were largely in response to the rather sharp questions posed by the noble Lord, Lord Deben, on which I do not think we have reached the end of the journey. We will need to come back to this.
It was very nice to see support from the noble Earl, Lord Kinnoull, and the noble Baroness, Lady Altmann, on different aspects of the same thing. As the noble Earl said, the fact that we have eight amendments in this group and a few more in the next on this area shows that this part of the Bill is not as well baked as some of the rest of it. There are areas that we have some concerns about, but I will read what was said in Hansard and we can perhaps pick up some of the points in correspondence before we come back on Report.
I wonder, however, whether we are not in a bit of a car crash—a hard word to use. I do not think the Bill has quite taken the trick here on a number of the issues that have surfaced. First, we have a body called the FCA which has responsibility for overseeing operations in the financial services area, but its remit, as we have pointed out on a number of occasions, has a different focus from that which we expect for the SFGB. With its overriding responsibility for making sure that markets are fair and that competitive markets are operating in those areas, it is not right for the Minister to say that the FCA can be relied on to have regard to the position of consumers. Indeed, our debate last Wednesday on amendments on exactly this point, which were supported right around the Committee, pointed out a number of glaring exceptions to the feeling that all was all right in this world in relation to those who are generally called vulnerable customers. These range across those not included in any financial arrangements at the moment, whether by desire, function or mental or physical disability. These people who do not currently participate, cannot currently participate and are not finding the services and opportunities for participating that they would expect to find will not be served if the end result of this operation is the FCA’s mode of operating and not what we currently have, which is much more consumer-led. We shall have to come back to that.
On what the standards are doing and how they are operating, enough has been said in Committee to feel that there is a bit of uncertainty about exactly what is being done here. In pensions, where there is direct provision, the standards are internal and operating, but they will not be the same in the debt space, where very expert bodies, which, as the Minister said, have been doing this work for some 30 years, will not take it kindly if some new body, although it has a history as a previous organisation, starts setting standards without consultation and without some sort of specification. I hope the wording is sufficient to take that point.
If we are in a situation where all the services are to be done under existing regulations, does that imply that bodies not currently in the UK might also have to be offered the chance to bid for these services? Presumably this will be done under the EU procurement directives. Is that right? Will the Minister respond to me on that point, not necessarily today, but perhaps in writing? It changes the ball game if we are talking not about Citizens Advice but about a body with a similar but different name and perhaps the German republic offering to operate it because it is able to fulfil a document that has been prepared to elicit bids at an appropriate price. We might be heading for a bit of trouble.
Finally, there is advice and counselling. I am on a bit of a journey here, I confess. I was more firmly in favour of leaving things as they are when I started my work on this Bill than I am now. I am beginning to think there is a problem here because I do not think the consumer is with us in the way the Bill is being drafted. I do not think a consumer has the same expectation about the words “information”, “advice” and “counselling” as is displayed in the Bill, and I appeal to Ministers to use the time between now and Report to reflect quite hard on this. We have to be where the consumer is. If we are saying that there ought to be a body that can deal with people’s genuine need for information, advice or counselling about their financial situation—and I agree with that—we should not set preconditions about how, in what manner and under what regulatory framework that information, guidance and advice is to be delivered. There may be necessary constraints on what can be said, but it is important that we try to align this more closely with people’s motivations when they come forward. That is the first point.
The second point is that this body will not be the success that we all hope it will be if it cannot give the information that is being sought promptly and efficiently to the person making the request. We have already established that that will be difficult in the pensions area from day one, but we also expressed our hope, at Second Reading and subsequently in amendments, that it would be looked at very closely and, indeed, that the pensions dashboard would be under the ownership and control of that body.
Baroness Buscombe
It is very helpful that the noble Lord, Lord Stevenson, is giving such a full reply, but perhaps I may ask one question. He made a very interesting point in day two in Committee, saying that the whole problem of debt advice and guidance would have been resolved if we had gone down the path of having two separate bodies, one giving guidance and one giving advice. Is he therefore suggesting that if there were one single financial guidance body, we should expect that one person would have the expertise—for the convenience, in a sense, of the customer—to give all kinds of guidance and advice to one person, so that they would not have to be directed to other people to talk about specific issues?
Lord Stevenson of Balmacara
That is a very good question. I think the answer is that yes, I am saying that; but I am also saying that it is probably impossible. I want to unpick that slightly. It would be fantastic if somebody approaching a body—let us call it the single financial body—primarily for debt advice also had embedded in their series of questions about their unmanageable debts the possibility of going in, or not going in, to an auto-enrolment situation for pensions, or has equity in a house that could be released which might resolve those things. At the moment, there is no way in which any one person could answer those questions effectively and efficiently. I think we all hope that that is where we will be at some point in the future, perhaps with much more use of automation and expert systems which would be able to take a person down a much longer and richer journey on these issues. If we build in barriers now to say, “Oh no, that’s guidance, not advice. We’re not going to go that way—we’re not even going to build a design or even think about how we might do that”, we will build in problems for ourselves further down the line.
We have a bit of time before the Bill goes to its next stages. I think I am asking whether we can use that time constructively to try to get really certain in our mind that, even if it is not the perfect solution, we are progressing with the right approach to this. As I said at the beginning of this little section, I had started on the basis that debt advice was straightforward and I understood it, and I was confident that I knew that because I had worked in the area. I am now not so sure. I have a feeling that we need a broader, higher-level definition that takes us a bit further down that route, where we think about things in terms of perhaps what is paid for and what is not paid for—anything which involves the offering up of clients’ money to be held in trust for them would need a completely different level of care and scrutiny and everything else.
Even with the simpler questions, such as whether people should join a new pension scheme or take money off an existing pension scheme—which will be real to the person asking them, although they may not be aware of the regulatory and other functions behind them—we might be making a terrible mistake. I am sorry to cast problems in what has already been a well-worked-through field—I know that a lot of this stuff has been discussed and debated ad nauseam and we should know better than this going forward—but my feeling is that we might have not quite got there yet, and we need a bit more help.
Baroness Buscombe
Before, I hope, the noble Lord withdraws his amendment, I should say that between last week and this week we in the department have constantly visited this issue, and we continue to do so. I do not want to test the patience of the Committee but I have further information on how this might work. I confirm that we will have meetings for all interested Peers so that we can discuss this in more detail between now and Report.
Lord Stevenson of Balmacara
I am grateful to the Minister for that. I think that those meetings will be helpful and useful. In the meantime, I beg leave to withdraw the amendment.
“(1) The single financial guidance body must monitor and report on its own and SFGB delivery partners’ compliance with the commissioning framework.”
Lord Stevenson of Balmacara
My Lords, this amendment is really the second half of the debate that we have just been having so I think we can skip quite a lot of the introductory part and get straight to the main point. The focus in the amendment in my name—I think other issues will be raised by the noble Baroness, Lady Kramer, and the noble Lord, Lord Sharkey, regarding their amendments, as they bear on the matter in a slightly different way—is Clause 7(2)(b), which states:
“The FCA must, at least once in every three years, carry out a review of … how the single financial guidance body is monitoring and enforcing the standards”.
I have searched reasonably hard through the documentation and I cannot find out what that enforcement is. At the heart of my amendment is a probe—actually, a direct question—to find out what the enforcement would be. Is this in relation to commissioned services being given some sort of penalty? Are fines to be involved? Is it going to involve reporting them to the FCA for a rap on the wrist or worse by some disciplinary body that the FCA might have? We do not know about that and I do not think we understand it. The sensibility is right—there is no point in having standards and asking that they be informed if you cannot do something if they are not informed—but we need a bit more detail before we can take what is in the Bill as being the right approach to this.
In Amendment 59, which I am speaking to but not moving at this stage, the assumption is made that some movement has taken place on earlier amendments and that the SFGB is doing the process of commissioning through a set of standards and a framework. That amendment has been withdrawn so it does not apply, but I still think the sensibility is right. If we are going to ask for reviews, they should be in relation to a specific issue. As it stands, Amendment 59 would give a slightly more flexible framework for that than every three years because it would relate to the success or otherwise of a judgment made by the SFGB on whether or not the work it is doing was going well, and therefore it would have a bit more teeth. I beg to move.
Lord Sharkey (LD)
My Lords, I will speak very briefly to Amendments 58, 60 and 61, tabled by my noble friend Lady Kramer and me. We agree with the Bill’s requirement in Clause 7(1) that the SFGB must monitor its own compliance with standards and that of its delivery partners. However, we feel that the results of this monitoring should be in the public domain; in fact, it would be extraordinary if they were not. Our Amendment 58 would rectify what seems to be an omission. It says simply that the SFGB must produce and place in the public domain an annual report of its assessment of its own, and its delivery partners’, compliance with the standards. We hope that this is completely uncontroversial and the Minister will feel able to accept the amendment.
Amendment 60 is equally simple and straightforward. In Clause 7, dealing with the monitoring and enforcement of standards, and in subsection (3), the Bill lists those to whom the FCA must provide a report on its review of whether the standards continue to be appropriate and how the SFGB is monitoring and enforcing those standards.
The Bill specifies that the FCA must provide its report to the SFGB and to the Secretary of State, but there is no mention of Parliament and we think there should be. Parliament will have set up the SFGB. It is a matter of transparency and accountability that Parliament should also have sight of the FCA’s report. Our amendment simply adds Parliament to the list of those to whom the FCA must provide its report.
In Clause 7(4), the Bill provides that the FCA’s report may contain recommendations to the SFGB. But that is it—the Bill does not say what should happen when the SFGB is in receipt of these recommendations. Clearly, something should happen and it should happen in public. Our Amendment 61 provides for this. It simply says that when the SFGB is in receipt of recommendations in an FCA report on its review, the SFGB must then publish a substantive response within three months to any recommendations made by the FCA.
The changes proposed, I hope, in all three amendments are completely uncontroversial. They are nothing more than an application of the principles of transparency and accountability to this new public body. We hope that the Minister will see their merits and feel able to accept them.
Viscount Trenchard (Con)
My Lords, I have some sympathy with the amendment moved by the noble Lord, Lord Stevenson, which reflects the concerns expressed by StepChange. I understand that the SFGB is to carry out its commissioning function by setting standards for advice, whereas I think the Bill casts the body in the role of a kind of second regulator. That is also made clear by the amendments of the noble Lord, Lord Sharkey, which deal with the same thing. I worry whether the SFGB will become too like the FCA in terms of its culture. I had understood that it would set the standards which would enable the right partners to be commissioned, but if it has too many powers to act as a regulator, I am concerned that it will become more like the FCA and less sympathetic to consumer concerns.
Baroness Meacher (CB)
My Lords, I have added my name to this amendment; I simply want to express my strong support for it, and to endorse the comments made by the noble Lord, Lord Stevenson. I apologise to the Committee because I was unable to be in the Chamber for the debate on the previous group of amendments where again, I had added my name. The debate was important and I hope that we will come back to it on Report.
Baroness Buscombe
My Lords, I thank noble Lords for Amendments 57 to 61. Clause 7 requires the single financial guidance body to monitor and ensure compliance with its standards. It requires the Financial Conduct Authority to periodically review the standards, and how the body is monitoring and enforcing those standards. After completing its review, the FCA is required to provide a report for the single financial guidance body and the Secretary of State. Once again, I reassure the Committee that the standards will not apply to all debt advice providers. These standards will apply only to the body itself and its delivery partners.
First, I shall address the Amendments 57 and 59, tabled by the noble Lord, Lord Stevenson. I have made the argument previously that the framework set out in Clauses 6 and 7—for the body to set and monitor compliance with quality standards—is the right mechanism for assuring the quality of the services provided by or on behalf of the body. I refer the noble Lord to our discussion on Clause 6, where we discussed the proposed commissioning framework for the procurement of services. There I made the point that it was unnecessary specifically to require the body to publish a commissioning framework, since we would already expect the new body to publish its requirements and expectations, with adequate time for prospective delivery partners to prepare their propositions. I also pointed out that, when contracts are above a certain value, the body will be required to comply with the public contracts regulations, including the requirements to advertise its requirements and undertake a competitive tendering exercise. We hope that those expectations and requirements on the body meet the spirit of the noble Lord’s amendments.
The noble Lord’s proposed commissioning framework would also have replaced the requirement on the body to set and monitor compliance with quality standards. I made the argument that the standards actually play a different role to a commissioning framework, in that they will assure the quality of the services provided by the body and its delivery partners. The standards therefore play the crucial role of enabling members of the public to have confidence in the services that they receive.
I disagree with my noble friend Lord Trenchard that there is a concern about the possibility of the culture of the FCA becoming similar to the culture of the body—or maybe that would be a good thing. The body would not necessarily be influenced by the culture of the FCA, because it has a statutory duty to put the consumer first, as I said under the last set of amendments.
Lord Stevenson of Balmacara
I am sorry to interrupt, but I think that we have had this debate before. It is not right to say that the primary purpose of the FCA is to give the consumer pride of place. That is not what it says in the statute. We had endless discussions about this when this was going through the House, and the Government were adamant that it was an economic regulator and that the main focus had to be on the efficiency of the markets that it served. I think that the noble Baroness, Lady Kramer, made the same point on Wednesday. I understand why the Minister would want to say that, and I am sure from discussions with the FCA that it has regard to consumers and their interests—but there is no consumer representative on the board of the FCA. It has a consumer panel, but it is not allowed to have a main position. I think that there is a representative with an Australian background on the board who has some expertise in consumer affairs, but that is not the same thing as building in from the bottom and ensuring throughout the work of the FCA that it focuses on the consumer, which is the impression that the Minister gives.
Baroness Buscombe
I hear what the noble Lord says, but the FCA has a statutory objective to protect consumers. It is clear that the culture of the body will be different, not least because its focus will be to provide a customer-focused service. I hope that that is helpful.
I turn to Amendments 58, 60 and 61, tabled by the noble Baroness, Lady Kramer, and the noble Lord, Lord Sharkey. These would require the single financial guidance body to produce and publish annually a report of its assessment on compliance with the standards; the FCA to additionally lay a copy of its periodic report on the body’s standards and monitoring framework in Parliament; and the body to publish a substantive response to any recommendations made by the FCA in its report within three months of the FCA providing the body with the report. I agree that it is vital to ensure that the public are confident that the body delivers consistent good-quality information, guidance and advice either itself, or through its delivery partners.
Lord Stevenson of Balmacara
I thank the Minister for her very full reply, which I look forward to reading in detail in Hansard; we will consider what she has said. The noble Viscount, Lord Trenchard, made a rather good point on a common theme which we need to come back to. Two regulators doubling up—having a second one—is a worry, and we need to make sure that the statute reflects the difference between the two, if there is to be one. He is right to make that point. I thank the noble Baroness, Lady Meacher, for her support. We anticipated it when discussing a previous amendment, when she was not present, so her name is recorded in Hansard in that regard.
What I am missing from the long response—I mean that in a positive sense; I welcome a long response—is a sense of what enforcement there is in practice. I would be grateful if the Minister wrote to me about that. It is important for people hoping to engage with the SFGB that they should understand what they are going into. The relevant word is in the Bill.
I return to the difference between the FCA and the SFGB in terms of consumers. I am grateful to my noble friend Lord McKenzie for providing me with the evidence submitted by the Financial Conduct Authority to the Lords committee dealing with financial inclusion, which stated that when considering what degree of protection for consumers may be appropriate, the FCA must have regard to, among other things, the differing degrees of experience and expertise of different consumers. Therefore, we are not talking about a single response. We are also required to have regard to the general principle that consumers should take responsibility for their decisions. That is hardly putting consumers at the very forefront of the decisions. The FCA recognised that consumers can do this only if they have access to appropriate financial services that meet their changing needs, and that under its objective to secure an appropriate degree of protection for consumers, regard must be had to consumers’ need for timely provision of information and advice that is accurate and fit for purpose. In other words, this is entirely about market-facing competition and efficiency, not those in vulnerable circumstances. In the interim, I beg leave to withdraw the amendment.
Baroness Drake
“Offence of falsely claiming to be giving guidance and advice on behalf of the single financial guidance body
(1) It is an offence for a person who is not giving pensions guidance, money guidance or debt advice on behalf of the single financial guidance body—(a) to describe themselves (in whatever terms) as a person who is doing so, or(b) to behave, or otherwise hold themselves out, in a manner which indicates (or which is reasonably likely to be understood as indicating) that they are doing so.(2) In proceedings for an offence under this section, it is a defence for the accused to show that the accused took all reasonable precautions and exercised all due diligence to avoid committing the offence.(3) A person guilty of an offence under this section is liable on summary conviction—(a) in England and Wales, to imprisonment for a term not exceeding 51 weeks or a fine, or both;(b) in Scotland, to imprisonment for a term not exceeding 12 months or a fine not exceeding level 5 on the standard scale, or both;(c) in Northern Ireland, to imprisonment for a term not exceeding six months or a fine not exceeding level 5 on the standard scale, or both.”
Baroness Drake (Lab)
My Lords, Amendment 62 seeks to make it a criminal offence for a person to mimic, impersonate or behave in a way which indicates that they are giving advice and guidance on behalf of the single financial guidance body when they not in fact giving guidance on its behalf and are not authorised to do so. This is not a novel proposal. Under existing legislation, it is a criminal offence to impersonate Pension Wise. This provision would not stop every organisation seeking to use or mimic government initiative statements to give credibility to their approach to attract members of the public, but it would be a powerful deterrent. A deterrent is definitely needed because the human cost of receiving fraudulent, wrong, conflicted or partial guidance from organisations or persons who win people’s trust by misleading them into believing they are acting under an authorised government initiative can be just dreadful, leading to irreversible financial losses, life-changing losses, debt and more.
Those vulnerable to the activities of the misleading, mimicking guidance operators are not only the struggling, the stretched and those with more basic levels of numeracy and literacy, although their needs are very important; in the context of finances, those individuals who are vulnerable and at risk go up the income chain as consumers deal with products and services that can be diverse, complex and rapidly changing. Those with retirement savings, for example, are usually people who have typically had good and sustained periods of employment over their working life and have usually compulsorily or voluntarily set aside money aside for their later life. These impersonators can be ingenious in their hunt to claim fresh victims, as a recent press release from the Pensions Regulator demonstrated when it warned that,
“rogue pension websites that are carrying anti-scam messages to try to trick consumers into believing that they are legitimate businesses”.
Some even imply they are regulated by carrying warning messages designed to prevent people falling victim to scams. These imitators are using material owned by the regulators or other government initiatives to impersonate and mislead the public. Therefore, in this instance, a mechanism designed to protect consumers is now used to dupe them.
The deterrent of criminal proceedings is needed not only to protect the public and the integrity of the services of the new financial guidance body but to protect the legacy names of its predecessor bodies, such as Pension Wise and the Pensions Advisory Service, names which the public will continue to recollect for some time before they recognise and internalise the name of the new body. It must be a criminal act to mimic not only the new brand but any of the existing brands that will move into the new single financial guidance body.
The Government thought it necessary to make an explicit criminal offence to imitate Pension Wise but no provision is contained in the Bill for it to be an offence to mimic the new financial guidance body. At Second Reading the Minister commented that there was no need for such a criminal offence provision in the Bill, as:
“The brand and service offer of the new body will be protected by existing stringent criminal offences under fraud and copyright laws”.—[Official Report, 5/7/17; col. 946.]
However, that view was not considered sufficient to protect the public from operators imitating Pension Wise—such imitation was made a specific criminal offence. I remain concerned that the absence of a specific provision to make it a criminal offence to mimic the new financial guidance body is a weakness in the Bill. Why was it considered appropriate to create a specific criminal offence of imitating Pension Wise rather than relying on existing fraud and copyright laws? Which existing legislation would ensure that any form of imitation of the new financial guidance body was a criminal offence, and why is that not referenced in the Bill? How will the Government ensure that imitating any of the existing brands that will move into the new single financial guidance body, including Pension Wise, will continue to be a criminal offence? I beg to move.
Baroness Kramer (LD)
My Lords, I strongly support the amendment moved by the noble Baroness, Lady Drake. This is an area where we need belt and braces—every mechanism that we can to make the new body and the services that it will deliver resistant to the scammers, who are ingenious beyond the capacity that most of us find credible, until we experience or hear about a scam ourselves.
In many cases, when people seek advice or guidance over an important matter in their lives, they turn to an organisation in which they have built trust over many years, where they have a whole series of experience and where they have neighbours and friends who share that experience. From that, they can be quite informed in choosing to whom they turn. However, that tends not to be true in the kind of issues that this body will deal with. People who are under debt pressure often panic when they finally reach the moment when they feel they must turn to somebody. It makes them particularly open to scammers, who will do things such as charging them, taking commission and exploiting their vulnerability at that moment. In the area of pensions people are exceedingly confused and, again, are hesitant to turn to names that they might know or which are well established for fear that they will meet a sales opportunity. Therefore, someone who sets themselves up as providing impartial advice suddenly becomes productive. Again, they have no testing mechanism due to previous experience of that body.
Therefore, in supporting the noble Baroness, Lady Drake, on this amendment, we very much seek belt-and-braces protection for consumers, recognising that people are increasingly vulnerable to scamming, particularly with modern instruments such as the internet. The Government need to be motivated to make sure that real and significant protection is in place.
Baroness Altmann
My Lords, I too support the thrust of this amendment moved by the noble Baroness, Lady Drake, and the remarks of the noble Baroness, Lady Kramer. I hope my noble friends on the Front Bench will take seriously the efforts being made around the House to improve protection for consumers. I whole- heartedly support the aims of the Bill and I congratulate my noble friends on bringing it before the Committee, but adding to it measures such as this would very much strengthen protection for the public.
Lord McKenzie of Luton
My Lords, I support my noble friend, who has drawn a strong parallel with the experience of Pension Wise, with which she was heavily involved. She made the point that it is not only those who might be termed traditionally vulnerable people who are at risk from the ingenuity of impersonators but those who might be more sophisticated.
I should like to make a brief reference to paragraph 17 of the memorandum that the DWP sent to the Delegated Powers Committee. It says:
“Deferring the announcement of the name will also help protect the new body’s brand and reduce the likelihood of the setting up of ‘imposter’ websites as a means of deceiving and defrauding the public. Imposter websites could put members of the public at risk”,
and,
“were an issue when the Pension Wise brand was launched”.
If they were at risk before the naming of the body, what will give strong protection once the body is named? That seems to be the thrust of my noble friend’s amendment, which I support.
Lord Young of Cookham (Con)
My Lords, the co-pilot is back. I thank the noble Baroness, Lady Drake, for tabling this amendment, which would make it a criminal offence to falsely claim to be giving pensions guidance, money guidance or debt advice on behalf of the single financial guidance body. She set out very clearly the devastating impact that misleading or criminal advice can have on people’s lives. Both she and the noble Baroness, Lady Kramer, identified the ingenuity and adaptability employed by scammers and fraudsters to con people.
I was very interested in this amendment and made inquiries to see who would be caught by it. Clearly, people who claimed to give advice on behalf of the SFGB, or whatever it is called, would be caught but, as it stands, I understand that it would not cover someone pretending to give advice on behalf of a delivery partner. The noble Baroness may like to think about that.
Protecting people from financial fraud and scams is important, and I say to my noble friend Lady Altmann that the Government take it very seriously. Anyone who has served in another place will have seen at first hand the devastating impact that this can have on people’s lives. We will come on to cold calling when we reach Clauses 16 and 17.
Ensuring that people have confidence in the financial guidance and debt advice provided by, or on behalf of, the SFGB will be central to its success and to the success of other government policies to improve people’s financial well-being. This is a matter that we have explored in depth with the existing service providers—the MAS, TPAS and Pension Wise. As the noble Baroness said when she moved her amendment, of those three, only guidance provided under the Pension Wise banner is covered by a specific measure making it an offence to falsely claim to give such guidance. The MAS and TPAS rely on existing criminal offences.
In response to the speeches made, we have considered very carefully whether to go down the Pension Wise route and create a new, bespoke offence to cover all the single guidance body’s guidance and advice services. We have weighed up whether there is evidence to suggest that a bespoke offence would have any greater effect than existing criminal offences, taking into account that the Pension Wise offence has never been used in a prosecution.
There are already criminal offences that would cover imitation of the new body; again, the noble Baroness referred to these. For example, if an individual was misled by someone dishonestly claiming to give guidance or advice on behalf of the body with the intention of causing financial loss, this would amount to an offence. In England, Wales and Northern Ireland a person could be prosecuted under Sections 1 and 2 of the Fraud Act, and in Scotland such conduct would likely amount to the common-law offence of fraud.
In addition, under the Consumer Protection from Unfair Trading Regulations 2008, Regulation 9 makes it an offence to advertise or market a service in a manner that deceives or is likely to deceive the average member of the public. If that advertising or marketing causes or is likely to cause an average person to take a decision they would not have taken otherwise, again, this is an offence. This would make it a criminal act, for example, for scammers to use the logo of the new body.
Offences under the Fraud Act are subject to a maximum term of imprisonment of 10 years and offences under the Consumer Protection from Unfair Trading Regulations carry a maximum term of imprisonment of two years. As a deterrent, both maximum terms are significantly greater than the maximum 12 months envisaged by the amendment.
For these reasons, and having listened to the arguments, our assessment is that there are already existing offences which will provide for the single financial guidance body to take action against people claiming fraudulently to be delivering its services or using the body’s brand and reputation to mislead members of the public. Where people seek to scam and defraud by falsely claiming to be acting on behalf of the body, they will be liable to prosecution under existing offences, leading to the possibility of a custodial sentence. We believe that the protections in existing offences are sufficient and I therefore urge the noble Baroness to withdraw her amendment.
Baroness Drake
I thank the Minister for his response. I am not sure all my questions were answered, particularly on how to protect from the mimicking of existing bodies that go into the organisation, while they still have credibility, until the new body’s name becomes absorbed by the public. However, in responding to his points, I borrow the phrase of the noble Baroness, Lady Kramer: the Bill needs to be belt-and-braces in terms of it being a criminal offence to mimic this body.
The new body’s guidance will influence people’s decision-making—that is why it is being set up. It recognises a market failure and many consumers who would use the guidance service could be at risk if they go in the wrong direction and to an organisation which is mimicking it. I note the Minister’s point that my amendment would not cover all the circumstances of the criminal offence, but the fact that my amendment could be improved is not a reason for not having explicitly in the Bill a provision that expressly says it is a criminal offence to mimic this body.
There are two strands to my argument: first, it should be expressly in the Bill that it is a criminal offence to mimic, impersonate or imitate the service of the single financial guidance body; and, secondly, there must be some reference to the legislation under which that would be an offence. A Bill would normally refer to the legislation or spell out specifically new legal provisions about the criminal offence. At the moment, however, the Bill is silent on the issue. That is a gap in the Bill. I beg leave to withdraw the amendment.
Baroness Drake
“FCA: requirement to signpost to the single financial guidance body for pension guidance, money guidance and debt advice
(1) The Financial Services and Markets Act 2000 is amended as follows.(2) After section 137FBB insert—“137FD FCA general rules: requirement to signpost to the single financial guidance body for pension guidance, money guidance and debt advice(1) The FCA must make general rules requiring information about the availability of pensions guidance, money guidance and debt advice from the single financial guidance body to be given by relevant organisations to any category of individuals who may benefit.(2) Before the FCA publishes a draft of any rules to be made by virtue of this section, it must consult—(a) the Secretary of State;(b) the Treasury; and(c) the single financial guidance body.””
Baroness Drake
My Lords, Amendment 63 places a requirement on the FCA to make rules requiring information about the availability of advice and guidance from the new body to be given by relevant organisations to individuals who would benefit from it—otherwise referred to as signposting.
If the new body is to deliver on its function to increase people’s ability to manage their financial affairs, there needs to be public use of the guidance. It has to have extensive reach. Experience shows that simply relying on high levels of marketing expenditure is not a cost-effective way of engaging with the public, although from time to time there may be a good reason for running a focused bespoke campaign and, in certain defined circumstances, there is a role for compulsory referral to the guidance service.
Two effective levers for driving public use—they are not exclusive but they are effective—are achieving high levels of public trust by delivering a service which has a spreading reputation for impartiality and efficiency, and the relevant organisations such as market providers and other key bodies actively signposting those who would benefit from it to the guidance available. Evidence of the public need for guidance has been well rehearsed in this Chamber. Research by the Money Advice Service reveals that across a range of measures, financial capability and resilience has got worse over the past 12 years, and other reputable data sources confirm this. Effective signposting will improve the public use of guidance and, in some circumstances, address the known barriers put in place by some providers who are reluctant to see their customers accessing impartial guidance for fear that it increases the risk that they will not buy a product or a service from them. Effective signposting means not just compliance but organisations actively promoting the guidance service.
The Government expect the FCA to review its rules on signposting, but that leaves room for ambiguity, argument and yet more consultation. This amendment would remove any ambiguity and would put into the Bill a requirement on the FCA to set rules to secure the effective signposting to guidance for those most likely to benefit from it. On pensions guidance there is currently a legal requirement on providers to signpost to Pension Wise. DWP figures show that of the people who use Pension Wise, 58% heard about it from their provider and only 8% from advertising. The take-up of Pension Wise has been modest, but I suspect that that is in part because some providers have not actively signposted and in part because, in the first year of pensions freedom, those accessing pots would have included many for whom their DC or AVC pot would not have been a significant part of their retirement income. That will change over time as DC savings become more dominant. The use of guidance will increase, as indeed the Pension Wise figures are increasing.
Signposting to TPAS dispute services is captured in various occupational, personal and local government pension scheme regulations—some 12 sets in all, I think. My amendment would strengthen the FCA duty to set rules on signposting across the financial guidance space. Signposting needs to happen at the right point for those who would benefit from it and be actively supported by providers and other relevant organisations. The ABI has worked with the existing guidance bodies on signposting, such as on the template for Pension Wise, with the result that more people hear about the service through that route. They have indicated that they want to work with the FCA and DWP to improve communications and promote the use of Pension Wise as the norm.
But there is no unanimity of view in the industry. Some providers set up guidance units as part of their own commercial proposition and not all will want to actively signpost customers to impartial and independent guidance which could impact on their own company sales and customer retention. It is estimated that, by 2030, workplace defined contribution schemes will hold £1.7 trillion, five times the £340 billion held in 2015. As DC savings become the new norm, the need to support consumers will increase. The FCA’s recent Retirement Outcomes Review Interim Report scopes the problem well, observing that pension freedoms have made retirement decisions much more complex than ever before, and that consumers can struggle to understand their options and to think through the implications, leading to decisions which may not be best for them. They can choose the “path of least resistance” on drawdown and stay within the walled garden of their existing provider without shopping around. Some 94% of non-advised drawdown sales were made to existing customers. Some consumers cannot, or will not, engage with these decisions. Not all of them will take advice because of its cost and availability— a market gap.
Baroness Buscombe
My Lords, I very much thank the noble Baroness, Lady Drake, for her amendment. I agree with much of what she said, but her amendment would amend the Financial Services and Markets Act 2000 to require the Financial Conduct Authority to create a new rule. That would require all relevant firms regulated by the FCA to signpost their customers to the new single financial body.
The noble Baroness outlined her concerns on the matter on Second Reading. She said:
“There should be a requirement on the industry and relevant players to clearly signpost the services of the new body to the public”.—[Official Report, 5/7/17; col. 919.]
The Government agree with the noble Baroness that signposting has an important role to play in helping to improve public access to guidance. A key challenge for the body will be promoting its services in an effective and efficient way to ensure that those who need support can easily access it.
The new body will need to think creatively about how it works with the financial services industry, the devolved Administrations, and the public and voluntary sectors to target and promote the services it offers. The FCA is clearly a key player in this. Both the Government and the FCA are determined to help members of the public to take advantage of the financial guidance available to them. We envisage that signposting by authorised firms will be a crucial way of encouraging people to engage with the new body.
I should note that the FCA already has some measures in place to ensure that firms promote the Money Advice Service’s guidance offering. To take one example, consumer credit firms cannot communicate a financial promotion with relation to high-cost short-term credit without a risk warning that points consumers to the Money Advice Service. However, the Government believe that the FCA should review its current rules and expand them where necessary. The creation of the new body provides an excellent opportunity for such an exercise to be conducted. Indeed, the Government’s response to the most recent consultation noted that they expect the FCA to review these rules in the light of the creation of the new body so that individuals are signposted to the body by industry at moments when they are most likely to benefit from guidance. I am pleased to say that the FCA has now committed to updating its current measures and, where appropriate, will look into creating new rules to increase uptake of the new body’s services.
I will offer a couple of further examples of current FCA rules that I hope in some way respond to the noble Baroness’s concerns. For example, if the customer falls into arrears on a regulated mortgage contract, a mortgage firm must provide a customer with a Money Advice Service information sheet called Problems Paying Your Mortgage in 15 days. In its first communication with a customer a debt management firm must inform customers that free debt counselling, debt adjusting and provision of credit information services is available and that the customer can find out more by contacting the Money Advice Service. Also, a debt management firm must provide a link on its website to the Money Advice Service’s debt advice locator tool.
In the light of the FCA’s commitment to review its rules, create new rules and increase uptake of the new body’s services, I do not believe that legislation is required to achieve the worthy aims set out in the noble Baroness’s amendment. I am grateful to her for giving me the opportunity to put on record the Government’s view on this very important matter. Having done so, I hope that she will be prepared to withdraw her amendment.
Baroness Drake
I thank the Minister for her reply. My amendment does not seek to set down in detail what the FCA’s rule should be or specifically cover, or whether it should require signposting in every instance. The driver is that there should be signposting where those individuals would benefit from guidance. That is obviously a judgment to be made in the circumstances that would apply.
Although the Government expect the FCA to review its signposting rules, a review is a review—that is what it is. There will be lots of discussions and consultation. Not everybody in the industry will support active signposting. Putting the duty on the FCA in the Bill removes any ambiguity about the fact that, to get the public to engage with the guidance service, there has to be an effective system of active signposting by providers and organisations relevant to the service. It is a simple proposition: the new guidance body will fail in its strategic objectives if it does not get public use of the service it provides. It would be a wonderful Rolls-Royce service; it is just nobody would be using it. We know in many instances that the behaviour of the provider defines the consumer experience. There is merit in putting in the Bill that the FCA has a duty to come up with signposting rules that will ensure that those who benefit the most from guidance will be actively and effectively signposted. I beg leave to withdraw my amendment.
Lord Stevenson of Balmacara
My Lords, I shall speak also to Amendments 65 and 66. They bear on the financing arrangements for the new single financial guidance body. We have talked about how the money is to be raised and the change from the current arrangements, with a move away from a straight levy system within the financial sector to an arrangement whereby money goes to the Government and into the Consolidated Fund before being paid out in grants.
The amendments are not meant to be taken word for word, but probe the way in which the case for this funding is built up. Amendment 64 would make sure that the single financial body did not underestimate the amount of money it would require by virtue of not having sufficient information to hand about the costs that it would be likely to have to meet given the aspirations for it. An earlier amendment referred to assessing this on the basis of the likely number of those in need of financial advice being the main element in building up the funding envelope. Obviously, there is difficulty in trying to assess that. This amendment adds a little more in terms of the consultation and guidance.
It would be to the advantage of the Bill if it provided for a little more accountability for the funding received. We set out in the amendments the specifics, which may well be covered by other points that the Minister may raise when she responds. At the moment, there is nothing very much in Bill about monitoring the use of the funding and making sure that the information gathered is published, particularly for Parliament, so that due scrutiny can take place.
Amendment 66 deals with how funding is to be established for the national regions. There is nothing exceptional in what is being said in terms of the mechanics—I am sure that the Bill is drafted with due concern for the proprieties involved. A number of the bodies that will be in partnership with the SFGB, or funded by it, already operate in Scotland, Wales and Northern Ireland and offer direct services themselves. If the Treasury is to get information on that, as is specified in Clause 11(1), it will need information which it is not clear that it will be able to get—or, if it is, I have not spotted it—on the costs and expenses of the existing bodies operating existing services in Scotland, Wales and Northern Ireland and how that matches what the devolved Parliaments think should be spent there. There is a lacuna there on which I look forward to hearing a response. I beg to move.
Lord Young of Cookham
My Lords, it is the co-pilot again. I thank the noble Lord for tabling these amendments to Clauses 8 and 11. Clause 8 provides for the Secretary of State to give financial assistance to the single financial guidance body; Clauses 9 and 10 provide for those expenses to be recovered respectively from the levy on pension schemes and through the financial services levy.
At Second Reading and in earlier Committee debates, the noble Lord has questioned this funding framework and the money trail, suggesting that it represents a fundamental change in the way in which things are done currently and that it would radically alter the way in which people operate, particularly in respect of the services provided by MAS. I am not sure that the changes are that fundamental, but, in any case, we think that they are both necessary and beneficial.
One criticism of MAS made by the Farnish review was that it lacked accountability for the activities it delivered and the money spent. As the noble Lord suggested, we need to learn lessons from our experience with MAS. These funding clauses provide a basis for strong accountability and governance arrangements. We want the body to have a clear focus on undertaking its statutory functions. As happens now with the existing organisations, the body will prepare an annual business plan setting out its planned activities and the associated budget required to deliver its proposals. That plan will be discussed and agreed with the DWP.
Lord Stevenson of Balmacara
I am very grateful to Minister in his capacity as co-pilot, first for the ministerial looping of the loop to allow him to correct the earlier misstatement about the role of reserves in NDPBs. We were concerned about that issue and we would have come back to it, so I am grateful to have the clarification that in certain circumstances—although he did not disclose them—it is possible for NDPBs to hold reserves. That accords with our experience.
Flying has lots of problems and hazards, and one is undoubtedly fog. The Minister did well when he was soaring high on some of the more general points, and I am very grateful to him for his full responses on the way the funding will operate. When they are read in Hansard they will be as clear as daylight at midday, and I will be very happy with them, but two things occur to me. First, we still have not had a response to a point raised earlier—not explicitly in today’s debate, but it is still part of it—about the way the financing system has been constructed. While many of the companies that will receive the benefits of better advice, more financial inclusion, less financial exclusion and all that goes with that will be funding the SFGB, which will be operating many of the services, not all the companies will. I am thinking particularly about the utility companies, which we have discussed already, for which substantial work is done to help their customers who get into debt problems. I know directly of a number of such cases. I do not want to overegg the case, but increasingly, other organisations such as HMRC, DWP and local authorities are involved in trying to sort out debt problems and do not currently contribute to the way that is funded. The levy system is a clean and efficient way of doing it, and I understand all the points made by the Minister, but it misses out a sort of “polluter pays” principle, and it might have been rather more satisfying had we been able to include that. Individual organisations and companies receive funding from other bodies involved in debt advice and other money guidance operations, but not all of them, and a little more pressure and help from the Government on this would have been helpful.
My second point in this general whinge on fog is that I am not sure whether we got to the bottom of where UK national bodies operating in Scotland, Wales or Northern Ireland—whether or not based in Scotland, Wales or Northern Ireland—are going to get their funding from. If Scottish Ministers, for example, are shortly—is that the same as “soon”?—going to agree a system in which funding for debt advice operating in Scotland is to be funded through the Scottish block grant, does that mean that funding will not be available to UK national bodies such as the Money Advice Trust, which operates in Scotland but is currently funded from England? It is probably too complicated an issue to get an answer to at the Dispatch Box, so I would be very grateful if the Minister wrote to me. There is logic in trying to align geography with the funding settlement. But it would be perverse if, as a result of the good and effective work done by StepChange, which runs an office in Glasgow and in Wales and has a franchise arrangement in Northern Ireland, it was unable to be funded and had to be shut down or taken over by somebody else. I am sure that is not the intention, but it is an implication of what is being said.
The situation in Scotland is relatively well developed: there are good systems operating there, a long history of funding from the Scottish Government and local authorities for good debt advice, and good education and training for the advisers. I am sure that will continue and that the Scottish Government, who have always been in the lead on this, will want to see it continue. However, I hope it will not be at the expense, for instance, of work directly funded by MAS and the organisations themselves in Scotland in recent years.
Lord Young of Cookham
I have some in-flight refuelling. We are working with the devolved authorities on a final agreement and will write with more detail once discussions with the devolved authorities are completed.
Lord Stevenson of Balmacara
Gosh—that was worth waiting for! I look forward to any information that can be provided on a more direct basis, preferably soon, but I think we have covered enough ground there.
Finally, some good points were made about the need for flexible funding solutions when there are crises, and I would like to read those in Hansard. This is very recent history, so it will be in the forefront of the minds of the bodies concerned. When the FCA was going through an accreditation process regarding debt management companies, it became fairly clear that about 50% of them were going to go out of business, leaving many people with debt management plans paid for through these commercial companies, but which those companies were going to withdraw from. MAS was able to organise substantial additional funding to all the bodies concerned to cope with that. That would not neatly fit into an annual financial cycle, so it is important that we have flexibility at the edges. I am completely open to that being done by government grant or by the holding of reserves, but it is important that it be built into the systems. However, as long as that point has been taken, and I gather it has been, I beg leave to withdraw the amendment.
Baroness Drake
“12_ For section 3S (the consumer financial education body) substitute— “3S Duty of the FCA in respect of the single financial guidance bodyIn discharging its duty to approve standards set by the single financial guidance body under section 6(2) of the Financial Guidance and Claims Act 2017, the FCA will act in the interests of consumers and promote financial inclusion.””
Baroness Drake
My Lords, Clause 6 requires the single financial guidance body to set and publish the standards that it will meet in the provision of information, guidance and debt advice. It is specifically required to obtain the approval of the FCA to those standards. Clause 7 requires that every three years the FCA must review whether those standards are appropriate, review how they are being monitored and enforced, and make recommendations. Amendment 68 would place a requirement on the FCA that, when discharging its duty to approve these standards, it will act in the interests of consumers and promote financial inclusion. The intention of the amendment is to strengthen the remit of the FCA, in this instance, to act in the consumer’s interests.
The single financial guidance body is an organisation whose function is expressly to support individual members of the public. Its objectives are to improve individuals’ financial capability and their ability to make informed decisions and to manage debt. Problems of access undermine the general principle that consumers should take responsibility for their own decisions. People cannot reasonably exercise that responsibility if they struggle to understand the nature, processes, terms and conditions of products and services.
The financial guidance body standards have to be approved by the FCA, whose remit is different—its remit is to ensure well-functioning competitive markets. If there is a gap in the market, the FCA often does not have the power to fill it, and if there is a market failure it seeks to address it by improving competition, even though in many instances the weakness of the consumer buy-side market forces cannot exert the necessary force to achieve a well-functioning market in parts of the financial services industry. The FCA acknowledged in its Retirement Outcomes Review Interim Report that competition is not working well for consumers who do not seek advice; it has concerns about whether a competitive market can develop in future; and consumers can struggle with the complexity of decisions. This echoes the view of the OFT, in its 2013 report on workplace pensions, that the buy side there was one of the weakest that it had ever encountered.
Competition will not always be an effective way to overcome access problems; the very creation of the financial body is a recognition of that fact. As for the wider market, in its paper on Access to Financial Services in the UK, the FCA observed that,
“left to the market, some consumers will be unable to access the products or services they want or at a price they are willing or able to pay”.
The market can go only so far in addressing the various financial needs of people.
The FCA is an economic regulator with a statutory objective to secure an appropriate degree of protection for consumers of financial services, which is largely focused on the provision of information and disclosure, given the general principle that consumers should take responsibility for their decisions and providers should give consumers a level of care that is appropriate, having regard to the capabilities of the consumer. However, the FCA does not have a specific objective or duty relating to consumers’ access to financial services or financial inclusion. The extent of the FCA toolkit in assisting vulnerable customers can appear uncertain.
The single financial guidance body, by comparison, is created to focus expressly on the needs of the public and the consumer, to improve their financial capability to make informed decisions. It is given the power in Clause 2(3) to do anything that is conducive to the exercise of its function.
So there is clearly a potential for tension between the remit of the FCA, when it considers whether to authorise the guidance body standards, and the aspirations of the guidance body on how to support the public when setting those standards. The objectives of the FCA and the financial guidance body need to be aligned when the standards for the provision of service by the new body are set and approved. That is the purpose of my amendment, which would give the FCA the duty to act in the consumer’s interest when authorising those standards.
The standards are a matter for the new body when it is set up. I do not seek to debate what the standards should be, but as a way of illustrating my point I could speculate on matters where tensions could arise: the qualitative standards for the guidance and how far guiders can go in their role in enhancing individuals’ ability to manage their financial affairs and make informed decisions; the guidance output given to the customer; standards for determining when the provision of guidance and debt advice are considered lacking such that the new body has a locus; the consumer’s journey, including how they get the guidance; the ability of vulnerable customers to access financial guidance; and the extent of active promotion of the financial guidance service by relevant organisations.
The answers to the questions of what the standards should be on these and other matters may be different depending on whether they are looked at wholly through the lens of the individual—the consumer’s interest—or from the perspective of a competitive, well-functioning market. The FCA and the new financial guidance body should look at these standards through the same lens, that of the consumer’s interest. That is what my amendment seeks to do. I beg to move.
Baroness Kramer
My Lords, I will speak in support of this very important amendment moved by the noble Baroness, Lady Drake. Much of the difficulty in the conversations we have had around this Bill has come over the role and obligations of the FCA. If the Minister or her officials care to look at the FCA website, they will understand that consumer protection is very much interpreted in the realm of preventing mis-selling and preventing scams; it is not a broader protection of the consumer in the way that some might interpret that language—for example, to make sure that the consumer has successful routes to navigate financial services.
I can give the Minister one simple example of which she will be aware. Many of us around this Committee—and, indeed, probably the Minister herself—believe that a breathing space scheme would be very advantageous in helping people to move through debt management to restore their finances. However, the FCA cannot mandate such a thing. It cannot act, as it were, to protect the consumer even though one might consider, if using just the English language, that such an action would be captured by the words “consumer protection”.
In the same way, on the issue of access the FCA can try and act so that a banking institution, for example, does not put up barriers that would discriminate or set itself up in such a way that people could not get on to the relevant website to access the service, but that is not access as in, “What financial services do members of the public require, and are those kinds of services being provided by the financial service sector and industry?”. So it cannot gap-fill. Actually, it is quite unusual to have an arrangement where such gap-filling is not possible. For example, in the United States, that may be done indirectly through things such as the Community Reinvestment Act, so there are paths by which that kind of back-filling can be pursued by the regulator.
I hope very much that the Government will understand that, in terms of providing advice and guidance, the FCA in looking at the standards that have been set cannot operate within the usual realm of an economic regulator of essentially promoting market efficiency or market fairness, which is its fundamental and underlying approach and responsibility. That is why the inclusion of language that talks about acting in the interests of consumers and about promoting financial inclusion is very appropriate when the FCA is now engaged in something that steps outside its traditional, typical overarching role.
Baroness Altmann
My Lords, I too support the amendment moved by the noble Baroness, Lady Drake. It is an important amendment, and it would be most welcome if my noble friend would seriously consider extending the protection for consumers that this Bill is rightly aiming to achieve. I echo the comments of the noble Baronesses, Lady Drake and Lady Kramer, in terms of focusing on the FCA promoting the interests of consumer protection, perhaps in new ways from what has happened in the past.
Lord McKenzie of Luton
My Lords, like other noble Lords who have spoken, I speak in support of my noble friend’s amendment. As ever, my noble friend has been very concise and focused on this key issue about how we can get the FCA in these arrangements to be seen to act in the interest of consumers and financial inclusion. There is a tension between the FCA as a regulator of the market and what we seek through this Bill—an improvement in financial capability and for guidance to be given to people so that they can make better-informed financial judgments.
Baroness Buscombe
My Lords, there is much agreement around the House about this issue. I am hoping to persuade noble Lords that, while absolutely agreeing in principle, I believe that it is unnecessary to have this provision in the Bill.
I thank the noble Baroness for her amendment, which would impose a legislative requirement on the Financial Conduct Authority to act in the interests of consumers and to promote financial inclusion while discharging its duty to approve standards set by the single financial guidance body under Clause 6(2). We have discussed the setting and publication of standards and the monitoring and enforcement of those standards in our useful debate on Clauses 6 and 7. The standards are designed to provide ongoing assurance to members of the public about the quality of the services provided by the new body. Those standards will apply to the body itself when delivering its services directly, and to any delivery partner organisations that it engages to deliver services on its behalf.
We have already covered the role of the FCA in the standards-setting process. The FCA will add value by providing useful independent scrutiny, and the standards will benefit from the FCA’s expertise in relation to the debt advice sector and its experience in setting the standards for Pension Wise. We are confident that the FCA will, of course, act in the interests of consumers throughout this process; as noble Lords may know, the FCA already has a statutory objective to secure appropriate protection for consumers.
On the topic of financial inclusion, I am aware that the statutory objectives of the FCA were of some debate during the Lords ad hoc Select Committee on Financial Exclusion. One of the committee’s recommendations included giving the FCA a new objective to promote financial inclusion. As the current amendment touches on the subject, I observe that the FCA has already taken several steps to promote financial inclusion. Access to financial services is already written into its competition objective, which states that the FCA may have regard to,
“the ease with which consumers who may wish to use”,
financial,
“services, including consumers in areas affected by social or economic deprivation, can access them”.
Indeed, noble Lords will be aware of the good work that the FCA has done to promote financial inclusion through its occasional papers on vulnerability and access, as well as through its work to promote financial technology. To take one example, the FCA’s TechSprint events have brought together teams from the technology industry and across financial services to develop ideas and proof of concepts. The first of these events focused on identifying potential solutions to improve financial inclusion and access to financial services. In light of that work, I do not believe it necessary to amend the FCA’s objectives or specify financial inclusion in the context of the body’s standards. Indeed, I have provided definitions of financial inclusion and capability on other occasions, as has my co-pilot, and I hope that these definitions have convinced noble Lords that it would be unhelpful to connect financial inclusion to the new body within legislation.
In relation to the previous amendment I made reference to the fact that the FCA has committed to creating new rules on access, to increase uptake of the new body’s services. The new body will be focused on financial capability, and the standards are very much focused on the body’s ability to deliver high-quality guidance, information and advice that will help members of the public to make informed financial decisions. To be clear, the standards do not concern financial inclusion, which is about the supply of useful and affordable financial services and products by the financial services industry.
In response to my noble friend Lady Altmann, I absolutely agree that the focus for the FCA in terms of the new body has to be protection in new ways of the interests of consumers. In our negotiations and discussions with the FCA, we feel very much that that is the way forward. It is correct that the FCA has a number of objectives, of which consumer protection is only one. Given the strength of the debate, I shall of course consider this fully between now and Report. It is important that maybe we think about this a little further, in terms of the relationship between the FCA and the new body, because clearly it raises concern across your Lordships’ House.
It is important to note that the FCA has a lot of relevant expertise in setting the framework for the financial advice provided to consumers and setting standards for the Pension Wise service—just two examples. However, given the strength of the debate, if noble Lords are supportive, it would be sensible for us to have the opportunity to consider the matter between now and Report. Perhaps we could have another meeting with all interested Members to discuss this very important issue. The relationship between the two bodies will focus on the consumer, and I am working hard to persuade noble Lords that that will work—but, clearly, they feel that there is more to be done and more reassurance to be given. I am very happy to be able to do that before Report. I hope on that basis that the noble Baroness will withdraw her amendment.
Baroness Drake
I thank the Minister. I am very pleased that she has agreed to consider the matter further before Report. I stress that this is not a criticism of the FCA but a recognition that the creation of the financial guidance body is in part to deal with market failure. Consumers cannot exercise their influence; if the authoriser has to look at functioning markets, but the person seeking the authorisation exists solely to be a consumer champion, there is a dysfunctionality in how standards are assessed and how efficient that guidance body can be in fulfilling its remit. However, I shall not labour the point, because the Minister has very kindly agreed to consider the matter before Report. I beg leave to withdraw my amendment.
Baroness Altmann
Baroness Altmann
My Lords, Amendment 69 seeks to remove Clause 33, which proposes to cancel legislation, passed by Parliament only last year, which ensures that the pensions guidance body can help members of the public who have bought annuities they neither want nor need, perhaps having been forced to in the environment which existed before the pension freedoms were introduced. Section 2 of the Bank of England and Financial Services Act 2016 amends Section 333A of the Financial Services and Markets Act 2000 and extends the definition of pensions guidance, expanding the scope of Pension Wise so that pensioners who are able to sell their annuity income can access free, impartial guidance before they make this irreversible decision. Since May last year, when the Act was passed, the Government have unexpectedly announced that they have changed their mind and no longer intended to allow people—who had been assured that they would be able to sell unwanted annuities from April 2017—to do so. This decision will obviously have disappointed many of those people, but I accept that Ministers believed it was right.
However, there are two important reasons why it is unwise and unnecessary to revoke the legislation that was enacted just last year. If we retain authorisation for Pension Wise or the new single financial guidance body and the FCA to facilitate mandatory guidance for people who may, in future, be allowed to sell their unwanted annuities, we will not need to take up precious primary legislative time to introduce the measure once more—that has already been done. We do not need to explicitly remove this measure; it can either be considered redundant or, in so far as it relates to something that already exists but is little known, it could be of use to many members of the public.
No further regulations have yet been laid in this connection. However, it is important that the single financial guidance body and the FCA should still have a remit to inform or guide the public on selling an unwanted annuity. The particular reason is that it is already possible for people to sell their existing annuities if they are under £10,000. Although the Government changed their mind on anyone’s overall ability to sell an unwanted annuity, there is the ability—which is not widely known—for people to sell one valued at under £10,000. It is surely important for the single financial guidance body or Pension Wise still to be involved in this area and ensure that there is public information and guidance about the risks of such a sale. I beg to move.
Baroness Kramer
My Lords, I support the noble Baroness, Lady Altmann, on this. Given that we have loosened up pension provision very widely, and recognised people’s ability to make decisions about their future, I have never understood the Government’s decision on taking away the right to sell an unwanted annuity. There are many reasons why this might be the right and appropriate decision for people in some circumstances. People may be facing large mortgages on which, for historic reasons, they are paying very high interest rates and which could be wiped out, to their overall financial benefit, if they could access their annuity. I could understand it if the Government thought that necessary safeguards should be added. In that case, the answer is to add those safeguards. For example, people could be required to access guidance at the very least, or there could be a much stronger recommendation that they access advice under these circumstances. To choose this vehicle, when this issue has been paid very little attention and focus, seems like an under-the-radar change to something absolutely fundamental. I support the amendment.
Lord McKenzie of Luton
We are less than happy with the amendment. The noble Baroness, Lady Altmann, will know that my noble friend Lady Drake and I looked at the issue of the secondary annuity market some while ago, and we paid her a visit in Caxton House when she had another role. At the time, our conclusion was that there is a lot of hassle, expense and complexity in the prospect of selling annuities into a secondary market and there simply have to be other priorities at the current time. If we were to proceed with it, there would need to be full legislation, properly debated. We understand that, in other respects, there is room for legislation in due course that could be applied to the secondary annuity market.
To illustrate some of the complexity, the players in the secondary market would need to include: individual annuity holders; beneficiaries and dependants; purchasers of rights of an annuity under a specific regulated activity; further regulated activities or providers buying back annuities; regulated intermediaries; EFAs providing mandatory, regulated advice; and authorised entities to check that annuity holders have received financial advice, to name but a few. This is a very complex area and we should let it rest where the Government have recently decided it should be. There are complexities and costs. The big risk is an asymmetry of understanding of how the market would work. Other complex issues are pension sharing on divorce and the impact of these arrangements on people in receipt of benefits and social care. It is a minefield: the Government have looked at it, we have looked at it, we are not happy and it should not be resurrected at this time. There have to be greater priorities in the pensions field.
Baroness Buscombe
My Lords, my noble friend Lady Altmann has moved Amendment 69, which intends to retain the section of the Bank of England and Financial Services Act 2016 which amended FiSMA to allow Pension Wise to offer guidance to consumers wishing to make changes to the payment of their annuity. Pension Wise was set up with the very specific remit of delivering guidance to help people make decisions on their options following the introduction of the pension freedoms. The Pension Wise remit was subsequently extended to include guidance to people who needed help in considering selling their annuity. This would have supported the Government’s proposals at the time to extend the pension freedoms to those who have already purchased an annuity. The Government decided in October 2016 not to proceed with this proposal because of concerns around consumer detriment.
The new body the Government propose to create in this Bill will inherit the guidance guarantee that Pension Wise provided but will also be able to help with guidance on any pension matters. Therefore, this amendment is not needed. I am particularly grateful to the noble Lord, Lord McKenzie; we entirely agree with the Opposition’s view of these proposals, which would allow those who have already purchased an annuity to sell the income they receive for a lump sum. Following extensive engagement with industry, consumer groups and financial regulators, the Government decided they would not continue with these proposals. Indeed, through discussions with stakeholders it had become clear that, while many annuity providers were willing to allow customers to sell their annuities, it is likely that there would be insufficient buyers to create a competitive market.
In September 2016, Money Observer reported a survey of 10 annuity providers, in which only one firm said it would purchase annuities issued by others and six ruled themselves out. This corresponded with government findings of a lack of interest from potential purchasers of annuities. This could have led to consumers receiving poor value for their annuity income streams and suffering higher costs in the sales process. The Government estimated that only 5% of annuity holders would have opted to sell their annuity and, although some people have been disappointed, consumer protection is a top priority for the Government. As the noble Lord, Lord McKenzie, said, priorities have to be thought through and this was not considered a key priority. Although some people have been disappointed, it would not be acceptable to allow a market to develop that could produce poor outcomes for consumers. I therefore encourage my noble friend Lady Altmann to withdraw her amendment.
Baroness Altmann
My Lords, I thank my noble friend for her response and thank the noble Baroness, Lady Kramer, for her support. This is about consumer protection. Of course, I respect the Government’s decision not to approve a secondary annuities market at this point. However, that does not address the fact that there are people out there with annuities worth £10,000 or less who are able to sell them, whether or not there is a market. They are particularly at risk, presumably, of obtaining very poor value. It is not clear to me why we need explicitly to undo legislation that is already in place to ensure that the financial guidance body can at least help people who might want to sell an annuity understand what the risks are. If the new body no longer has any requirement to inform or guide people on this issue, we still leave those consumers high and dry. As the legislation is already in place, it seems rather strange that the Government explicitly want to repeal it. They could just leave it on the statute book and make sure that there is adequate information as part of the new pensions guidance framework.
Baroness Buscombe
My noble friend referenced the possibility of making the legislation redundant in some way. With respect, that is very problematic. The Government have made it clear that they do not believe it makes sense to mandate guidance on a market that no longer exists, and that therefore it is far better to revoke the legislation. However, the broad remit of pensions and money guidance gives the body the option of guidance on this if it is appropriate.
Baroness Altmann
I thank my noble friend. The legislation says that Pension Wise should enable pensioners who are able to sell their annuity income to access free impartial guidance, and some can do so. However, I am reassured to hear that the new pensions guidance body will still be able to carry and promote information and guidance for the public on this matter. I beg leave to withdraw my amendment.
Lord McKenzie of Luton
“( ) When exercising the powers granted by subsection (1), the Secretary of State must adhere to the procedures set out in section 11 (procedure) of the Public Bodies Act 2011.”
Lord McKenzie of Luton
Clause 14 enables the Secretary of State by affirmative resolution to dissolve the SFGB. The background to this, including the Henry VIII power that it includes, is set out in the Government’s memorandum to the Delegated Powers and Regulatory Reform Committee. That memorandum points out:
“This power will allow the Secretary of State to dissolve the single financial guidance body. The Bill does not provide for a fixed lifetime for the new single financial guidance body. This clause is therefore in line with the Cabinet Office guidance relating to setting up new arm’s-length bodies, which states that:
‘The legislation setting up a new Public Body should contain powers to permit winding up at a later date and for finalising and auditing the closing accounts, if a fixed lifetime is not established at the outset. Departmental legal advisers would need to be involved in this process. Difficulties have occurred in past cases where sponsor Departments have not been able to wind up statutory bodies when their work has been completed due to problems in securing a Parliamentary slot to amend the primary founding legislation. The bodies therefore continue to exist as legal entities even though there is no longer a requirement for them’.
If there is ever a need to dissolve this body, it will be essential to have a range of options and sufficient flexibility to be able to transfer functions, property rights and assets without recourse to primary legislation. This is the point made by the Cabinet Office’s guidance”.
That is all well and good but, as the Delegated Powers and Regulatory Reform Committee points out:
“Although the new single financial guidance body will be created by Parliament, clause 14 allows Ministers by affirmative-procedure regulations to abolish the body and transfer its functions to any other person. The normal principle is that what Parliament has created, Parliament alone should dissolve. In this case, the Minister: does not have to be satisfied as to anything before deciding to abolish the body, does not have to consult, does not have to conduct a formal review, and does not have to wait a certain time before seeing whether the new body works well.
Where Parliament has previously legislated to abolish public bodies it has provided procedural safeguards. Under the Public Bodies Act 2011, a Minister proposing to abolish a public body must consult the body concerned and others affected by the proposal; he then has to allow 12 weeks for responses. The Minister has to lay before Parliament a detailed explanatory document. A committee of either House of Parliament may require an enhanced affirmative procedure and the power to abolish is time-limited. None of these procedural safeguards is included in the current Bill.
The power to abolish the body and transfer its functions to any other person is a very broad power. For example, it is important that the guidance is independent of any commercial interests. However the power to transfer functions to another body is, on its face, unlimited.
The Committee raised similar concerns in its report on the Enterprise Bill, 9th Report of Session 2015-16, where the power was to abolish the Small Business Commissioner by statutory instrument. In response, the Government acknowledged the Committee’s concerns and tabled amendments that made the abolition of the Commissioner dependent on a 12-week consultation, the laying before Parliament of an explanatory document in addition to draft regulations”.
We support the recommendations of the Delegated Powers and Regulatory Reform Committee, which is what this amendment does. We take the view that it is inappropriate for the Bill to confer on Ministers a power to abolish the single financial guidance body. It is all the more unsatisfactory because the power is unaccompanied by the sorts of procedural safeguards found in the Public Bodies Act 2011 and the Enterprise Act 2016. This is exactly what this amendment is about and it seems to me pretty straightforward. Should the Government set their face against this, the noble Lord, Lord Sharkey, has an alternative proposition that the clause do not stand part of the Bill. We would be minded to support that as an alternative. I beg to move.
Lord Sharkey
My Lords, Clause 14 is pretty surprising. It runs entirely counter to normal practice and to the provisions of other Acts of Parliament and is careless of the need for proper scrutiny by Parliament. I entirely support the amendment of the noble Lord, Lord McKenzie. Your Lordships’ Delegated Powers and Regulatory Reform Committee commented on Clause 14 in some detail in its first report of the current Session.
As Clause 14 stands and as the DPRR Committee and the noble Lord, Lord McKenzie, have explained, the Minister does not have to be satisfied as to anything at all before abolishing it, consult anyone at all, have to conduct a formal review or have to wait a certain time to see if the new body is working well or at all. This is all at odds with the provisions of the Public Bodies Act 2011, as well as smacking of hubris and a cavalier disregard for parliamentary authority.
Baroness Buscombe
My Lords, first, I thank the noble Lord, Lord McKenzie, for tabling this amendment.
The purpose of Clause 14 is to provide for the single financial guidance body to be dissolved and for its functions, property, rights or liabilities to be transferred to the Secretary of State or another body. It provides for wind-up to be effected through affirmative regulations that must be debated and approved by both Houses of Parliament.
We believe that this provision is a pragmatic measure. It seeks to ensure—should it ever be necessary—that there is a smooth transition of the delivery of government-sponsored debt advice, pensions and money guidance from the single financial guidance body to another body or the Secretary of State. I appreciate that as we are here today debating the establishment of the single financial guidance body, it may be difficult to envisage that at some point in the future we may need to revisit again how we deliver government-sponsored financial guidance. Yet, just as we are now looking to meet the needs of members of the public by bringing together three separate services into this body, we may find there is a case to join up financial guidance with other services in the future. This clause would facilitate a smoother transition should we need to transfer the functions, assets and employees of the body to another.
The ambition behind this clause—should it ever need to be used—is to facilitate a more flexible approach to transition that would deliver the best outcomes for members of the public who need financial guidance. There would be no need to find a primary vehicle to transfer functions and to wind up the body. It would provide the opportunity for Parliament to respond more quickly should it be more appropriate for public financial guidance to be delivered by another body. It will be important, should this clause need to take effect, that the service to consumers is not compromised.
Where a Bill does not provide a fixed lifetime for a public body, Cabinet Office guidance states that departments should consider whether legislation should contain powers to permit winding up at a later date and for finalising and auditing the closing accounts. However, I assure noble Lords that this power does not take away Parliament’s ability to scrutinise or reject any proposals. Regulations would be required to dissolve the body, following the affirmative procedure, giving both Houses the opportunity to debate the proposals and—if they see fit—to reject them.
Before taking the decision to repeal the legislation for the Money Advice Service and Pension Wise and establish the new body, the Government consulted three times over a period of two years. We have chosen not to go down the same route as the Public Bodies Act or the Enterprise Act, which were referred to by noble Lords, but I assure noble Lords that in taking this power to wind up the new body by affirmative regulations we were not suggesting that consultation would not happen or that it would not be necessary. We would, of course, want to involve stakeholders and the public in the decision to dissolve the body in the same way that we have involved them in the development of these provisions.
Baroness Kramer
So often in this House I have heard Ministers argue that it is totally inappropriate for Members of this House to support a fatal Motion to a statutory instrument, yet the Minister is here arguing the rights and appropriateness of this House to do just that. I find it somewhat confusing that there is one message on these issues when it appears to suit the Government’s purpose and a completely different message on an occasion such as this.
Baroness Buscombe
I reject what the noble Baroness says. For example, with regard to banning cold calling in pension scams we are finding it extraordinarily difficult to find a primary opportunity to introduce that legislation. Here, there is no question of hubris, recklessness or carelessness on the part of government. We are trying to enable a smoother transition if, following consultation some time in the future, it is felt necessary to have a fundamental change to the current body, for whatever reason. At the moment I cannot foresee it, but it could happen.
Lord Tyler (LD)
I serve on the Delegated Powers and Regulatory Reform Committee, whose report has been referred to. Is the Minister saying that the committee has this wrong? Is she saying that there is a precedent for this attempt to shortcut the normal procedure or that it would somehow or other be more convenient for the Government to ignore the precedents that have been referred to by my noble friend Lord Sharkey? I do not quite understand where the Government are on this.
Baroness Buscombe
Far from it; we are not ignoring Parliament—indeed, we have listened to the committee that the noble Lord sits on—but we do not always have to accept what the committee proposes. It is important that we listen, but no—we do not always have to accept what the committee proposes. We propose instead that there should be affirmative regulations, with consultation, that would allow a smooth transition if in future we found ourselves in a situation where it was decided that there should be a fundamental change to the make-up of this body. For example, Pension Wise was set up only a few years ago. However, since then it has been decided that it would be far more effective, efficient and supportive of the consumer if we were to have one single body, following considerable consultation both with the public and with stakeholders to ensure that the Government are reflecting the wish of the consumer.
Baroness Kramer
I must question the Minister on this. Is she saying that she wishes that she was in a position to be able to introduce the Bill, in effect, as a regulation rather than as a Bill, and that the Government are frustrated that at present they have three bodies, consider that one body would be better, and that in future they wish such decisions to be made through not primary but secondary legislation?
Baroness Buscombe
The noble Lord’s amendment seeks to add safeguards to the winding-up provision by mandating the Secretary of State to undertake procedures set out in Section 11 of the Public Bodies Act before the wind-up can take effect. The power in the clause would mean that the draft regulations would be subject to the affirmative procedure where both Houses of Parliament would have to approve a Motion before the regulations could take effect.
Further, as I have indicated, I can see no reason why—should it ever be necessary—the Government would not consult prior to taking any action to dissolve the body. This would be contrary to the open and transparent culture that we are all committed to. However, as I noted earlier, I have some sympathy with the noble Lord’s intentions on consultation and, in the light of the committee’s comments on this clause, as well as the debate, I will consider further whether there is anything more that we can do to meet any concerns that have been raised. I therefore urge the noble Lord, Lord McKenzie, to withdraw his amendment.
Lord McKenzie of Luton
My Lords, I am grateful to the Minister for that. It was a long time coming but we must be grateful for small mercies.
This is an important point and very valid matters were pressed on the Minister, which I hope will help the Government to take this issue back and think again. It seems to me that a proper process is necessary here. As we have argued and as has been argued today, the affirmative process is not sufficient. We know that we cannot vote against it or vote to amend it. The noble Baroness said that it would be accompanied by a consultation. That is fine and we can put that on the record but, as I understand it, it is not mandatory under the processes. There are very important issues here, which the Delegated Powers Committee focused on, concerning a complete lack of knowledge about to whom transfers might be made. Also, important issues of conflict of interest lie at the heart of what the Bill is trying to achieve.
However, I shall quit while I am ahead. I am grateful to the Minister for taking this matter back and I hope that we will revisit it in a positive frame in due course.
Financial Guidance and Claims Bill [HL]
Wednesday 13th September 2017
(7 years, 2 months ago)
Lords ChamberRead Full debate Financial Guidance and Claims Act 2018 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 1-IV(Rev) Revised fourth marshalled list for Committee (PDF, 77KB) - (12 Sep 2017)
Lord Hunt of Wirral
“(ba) arranging the provision of temporary replacement motor vehicles,”
Lord Hunt of Wirral (Con)
My Lords, these amendments in my name seek to extend the scope of regulations in the sphere of personal injury claims. Before speaking to them, I remind the Committee that regulation should always remain proportionate—something on which the Government have always been very clear and which I strongly support.
The problem we face and the reason why extension of regulation should be considered at all is that we continue to be in the grip of what the Government themselves describe as a “rampant compensation culture”. Noble Lords may recall that I set out a brief history of the regulation of claims management companies during the debate on Second Reading. The reason why we are back debating, and I hope supporting, more effective regulation of CMCs is that this insidious, divisive and potentially ruinous problem continues to grow. There is a serious danger that our civil justice system, which has long been the envy of the world, could be overrun and reduced to a laughing stock by the waves of claims generated by these cynical and ruthless companies.
I will return to this point on another amendment to refer the Committee to the latest phenomenon of holiday sickness claims. For now, perhaps I may just quote from the decision of Lord Justice Jackson last week in the Court of Appeal case, Thomas v Hugh James. It stated:
“The civil justice system exists to enable injured parties to recover compensation for genuine wrongs. It does not exist to service artificial claims stirred up by advertisements”.
Lord Justice Jackson, who has done so much brilliant work producing recommendations for containing legal costs and whose latest proposals on fixed costs in cases up to £100,000 in value were published on 31 July, struck right to the heart of the matter with characteristic precision and candour. Noble Lords will know that I have long been an insurance solicitor, having started life as a solicitor for the Transport and General Workers’ Union, so I have quite a history and declare my interests in this matter. This growing culture of artificial claims really is the tail wagging the dog.
When we first dealt with the regulation of CMCs in 2006, we were very conscious of the effect of the self-serving mantra of the CMC sector: “Where there’s blame, there’s a claim, and it won’t cost you a penny”. I am keen to establish that where there is a claim, there should be proportionate and effective regulation in the public interest. Many participants in the injury claims industry are already regulated: solicitors, insurers, brokers, doctors, even claims management companies. The amendments would close loopholes to ensure that control by regulation extends to all those with a financial interest in the damages and legal costs pursued in the name of injured claimants.
This is not just about controlling the cost of insurance claims, although ultimately that restraint is good for society as a whole as well. It is also an essential part of consumer protection. Amendment 69A would address something known as “credit hire”—I have used the term “temporary replacement … vehicles” because that is a term understood within the industry to cover all relevant arrangements.
A motorist whose vehicle is damaged through the fault of another may recover damages for the loss suffered as a result of their vehicle being out of use. That may, where reasonable, involve recovering the cost of a hire vehicle. This straightforward concept has spawned an industry of “credit hire organisations”. “Credit hire” allows customers to hire on “credit” terms, which are offered with the expectation that a recovery will be made from the at-fault driver’s insurer. The hire rate charged by the credit hire organisation is usually much higher than the prevailing rate on the high street. This is, in effect, the cost of the credit risk, but it is not badged as a charge for credit and therefore is completely unregulated. Nor is the customer told how much of the price might represent the cost of credit.
The whole concept has been the subject of much litigation over the years and formed a major part of an investigation by the Competition and Markets Authority into the cost of private motor insurance in 2014. The CMA actively considered greater regulation as a solution, but ultimately decided it lacked the authority to impose such a remedy.
Many credit hire providers are already FCA authorised and all are likely to be licensed by the FCA for provision of consumer credit. This core activity of credit hire is, however, delivered through the use of exemptions which circumvent the consumer credit regime. This market affects many people. Consumers often sign up to credit hire without understanding that they had other options. They are all too frequently unaware that, when they agree to accept a credit hire vehicle, they are signing a contract that makes them bound to pay the full price for the vehicle. They are not protected from unclear terms for payment or cost.
Amendment 69A would make all the activities of such organisations subject to regulation by the Financial Conduct Authority. Not all the attendant problems can be addressed by extending the scope of regulation but it would be a positive step in the right direction. These companies provide a consumer service but it should be done in a properly controlled environment.
Baroness Kramer (LD)
My Lords, this is not an area that I knew about before the noble Lord, Lord Hunt of Wirral, got to his feet, but he has thoroughly persuaded me and I hope that he has thoroughly persuaded the Government.
The Earl of Kinnoull (CB)
My Lords, as usual, the noble Lord, Lord Hunt, is right on the money and I do not disagree with a word that he said. I would add one tiny little thing: the net effect of the MROs and the CHCs is that they add to the cost of motor insurance in this country so that poorer people who struggle to pay their motor insurance will find it further away from them. For that solid reason, I strongly support the noble Lord’s two amendments.
Viscount Trenchard (Con)
My Lords, I, too, offer my support to my noble friend Lord Hunt. I agree with his two amendments, which seek to attack one of the major menaces of the spurious claims activity in our society at present. Does my noble friend the Minister think that the FCA is qualified and able to take on all these extra tasks? Will there be a new category of authorised person within the FCA? The skills required to regulate CMCs of various kinds may not be exactly the same as, for example, those required to give financial advice. It is also worth checking that there are not any other areas of spurious activity or the encouragement of spurious claims which are already being practised by unscrupulous people.
Lord McKenzie of Luton (Lab)
My Lords, as we have heard, these amendments would add two types of services to be brought within the definition of claims management services and hence within the regulatory provisions provided for in the Bill. The amendments were introduced with some passion. We support both of them.
We heard from the noble Lord some of the unacceptable behaviours of those delivering these services which warrant such inclusion. As part of the rampant compensation culture, we have heard about holiday sickness claims, which we will come on to debate, and artificial claims being stirred up by advertisements. Of course, medical reporting organisations and credit hire companies are involved in the claims process for road traffic accidents, providing medical reports and temporary replacement vehicles—an important service, perhaps, but it should be undertaken and conducted properly.
By way of background, we make it clear that we support the provisions in the Bill which enable the regulation of CMCs to transfer to the FCA but need to be reassured that it will be properly resourced to meet the totality of its new tasks—a point touched on by the noble Viscount, Lord Trenchard. The FCA currently regulates around 56,000 authorised financial services firms.
At present there is an exemption, which the noble Lord, Lord Hunt, touched on, from the regulation for claims management companies which employ solicitors on the grounds that such entities are under the jurisdiction of the Solicitors Regulation Authority—which, incidentally, bans cold calling. However, it is suggested in some quarters that the SRA regulation is less rigorous than the current MoJ regulation of CMC activity and as a consequence some CMCs are changing their business structures to take advantage of this. Is the Minister satisfied that there is no weakening of the regulation through this route?
There is another, tangential matter I would like to raise, of which I have given notice to the Minister—frankly, seeking a meeting rather than a detailed answer to an amendment. This is to do with tax refund companies. These are businesses which help people who have had too much tax deducted at source from their wages complete and submit the paperwork required by HMRC to claim back the overdeducted tax. There is absolutely nothing wrong with that—it is a vital service. This will include employees who have spent their own money on tax-deductible employment expenses; for example, care workers who do mileage in their own cars. Tax refund companies generally make their money by making high volumes of low-value, simple claims that they charge fees for. While some of these tax refund companies make sensible claims and charge proportionate fees for the service they provide, others are less scrupulous. It is these which we want to focus on. It is worth noting that tax refund companies’ bread-and-butter activities—refunds based on unused personal allowances —have recently been curtailed by HMRC’s auto-reconciliation service, which makes it harder for them to stay in business.
How do the companies work? There are some similarities with the points made by the noble Lord, Lord Hunt. They are mainly online businesses, typically with fun and appealing websites that contain eye-catching claims such as “Let us maximise your refund” or “We make claiming your refund easy”. They may somehow imply that they have an inside track with HMRC. They often pay for advertising space so that they appear at the top of search engine results, where their ads are not necessarily distinguishable from organic search results by those who are not IT-savvy. The costs vary but there can often be two elements: a minimum admin fee—the Chartered Institute of Taxation says that it has recently seen a minimum fee of £90—and a charge based on a percentage of the refund, such as 20%. Percentage fees of up to 40% for relatively straightforward claims have been seen, which are a scandal. The company will normally mandate the refund back to itself in the first instance and collect its fee before transferring the balance to the individual. Often, the two fee elements taken together will outweigh the tax refund if it is small. Sometimes the companies add on charges for transferring money to a bank account, which they are not always transparent about. The pricing structure incentivises poor practices such as putting in inflated or fraudulent claims.
Who do these companies target? It can be workers who are unaware of or confused by the rules around when a refund might be due. The work-related travel expense rules are a particular example. It can be people who may have an inkling that they are due a refund but who lack confidence or knowledge of the tax system to initiate a claim themselves, or those who could probably organise a claim but do not have the time or the inclination.
Some tax refund companies meet a genuine need in the market and operate according to appropriate standards but the area is unregulated, like the issue we have just been debating, and there is a huge spectrum of providers. The Chartered Institute of Taxation’s report on tax refund companies identified a range of consumer protection issues with some of the more exploitative agents and made pages of recommendations. While some of these were taken up, many were not. We acknowledge that HMRC has invested in improvements in certain areas by offering online channels to apply for refunds, restricting agent access to taxpayers’ pay and tax details, and dealing with refund agents who gave the impression that they were in some way affiliated to or approved by HMRC. However, tax refund companies continue to proliferate, which suggests that things are still too complex or that taxpayers are still being swayed because of things such as overinflated promises or misleading information as to fees.
I apologise for taking the Committee’s time to focus on this issue. I was not quite sure how to address it otherwise. My purpose is to give this an airing and to seek from the Minister the opportunity of a meeting in due course, together with the Chartered Institute of Taxation and the Low Incomes Tax Reform Group, to delve further into the issue. Having said that, I reiterate that we support the two amendments proposed by the noble Lord, Lord Hunt, and do so enthusiastically.
Lord Mackay of Clashfern (Con)
My Lords, I very much support the amendments proposed by my noble friend Lord Hunt of Wirral. I just wonder whether regulation should sometimes encompass outlawing these activities altogether. It is probable that the amendment is sufficiently broad for that to happen but some of these activities may well be best outlawed rather than regulated.
Lord Young of Cookham (Con)
My Lords, Amendments 69A and 69B, which my noble friend Lord Hunt has put forward, seek to include credit hire agreements and the commissioning of medical reports within the scope of claims management regulation. He seeks to do that by amending the definitions in Clause 16. The Committee is grateful to him for the powerful way in which he put forward his case. I am sure we all agree with his quote from Lord Justice Jackson about artificial claims.
I understand my noble friend’s concerns and agree there are links, as the noble Earl, Lord Kinnoull, said, between these issues, not least in terms of the impact they can have on the cost of insurance premiums and other fees for consumers. However, credit hire and medical reports are separate from the issue of claims management regulation. They are important issues which are being considered through other government work, taking into account the broader context of the market. In both cases, CMCs are a very small part of the overall market. To revert to my aeronautical analogy, they are on a separate flight path from the measures in the Bill, but they are none the less important.
As my noble friend explained, credit hire is the supply of a like-for-like replacement hire vehicle on a credit basis to a not-at-fault vehicle owner following a road traffic accident. This can, of course, be part of the overall insurance claim process, but it is not in itself a claims management activity. Similarly, some CMCs are involved in medical reporting, but the market is far broader than CMCs, with most reports sourced by claimant lawyers and/or insurers. Medical reporting organisations provide services organising the provision of medical reports, as my noble friend explained, for personal injury claims, but they do not pursue claims themselves.
That is not to say that these issues are not important. It is clear from the interventions of noble Lords on all sides of the Committee that they are. They should be addressed, and the Government will address them. The Government are considering what more can be done on credit hire. We sought views on this issue in the call for evidence section of the whiplash consultation that closed in January 2017. Responses are being considered, and the Government will make an announcement in due course.
With regard to commissioning medical reports, as my noble friend noted, MedCo is an industry-owned, not-for-profit company that was established to enhance the quality and independence of initial medical reports in support of whiplash claims. As my noble friend said, attempts to subvert government policy in relation to the introduction of greater independence in medical reporting have resulted in firm enforcement action by MedCo against medical experts, lawyers and medical reporting organisations who have breached MedCo’s user agreements. Good-quality medical evidence supported by the MedCo system is, and will continue to be, an integral part of the Government’s whiplash reforms going forward.
I shall pick up some of the points made in this debate. My noble friend Lord Trenchard asked whether the FCA is qualified and resourced to take on the responsibilities in CMCs. The independent review, which I will refer to again in a moment, concluded that stronger regulation is necessary in order to deliver a step-change in the regulation of the sector. It recommended transferring regulatory responsibility for claims management companies to the FCA. All the costs of regulation will be borne by the CMC market through the FCA’s levy-raising powers, which we discussed at our previous session.
The noble Lord, Lord McKenzie, asked whether firms might get round the regulation by turning themselves into another body, such as a solicitor. Currently, the CMRU, which is in the MoJ, regulates CMCs while the Solicitors Regulation Authority regulates firms of solicitors that conduct claims activities. The full scope of claims management services for the purposes of FCA regulation, including the extent of any exemptions, will be defined through secondary legislation. We want to make sure that there is a tougher regulatory regime and greater accountability for CMCs while ensuring that solicitors are not burdened with unnecessary regulation. The scope and nature of exemptions will be drafted to reflect these priorities, and we will, of course, take on board the point which the noble Lord made.
The noble Lord, Lord McKenzie, then mentioned tax refund companies. I think we all believe that too much tax is being deducted from our income. He is quite right to say that tax refund services are currently unregulated, but they will be subject to trading standards. I can tell the noble Lord that we will further consider and consult on secondary legislation to ensure that the definition of claims management activities is both proportionate and relevant. I would like to reflect on the points that he made about tax refunds and perhaps write to him in more detail.
The thrust of the Government’s case in response to these amendments goes back to the independent review of claims management, which recommended the transfer of claims management regulation to the FCA—that is the foundation of the Bill. However, the review did not consider the extension of scope to credit hire and medical reporting, as suggested by the amendment. CMCs are only part of a larger market in the case that my noble friend has raised, and this wider context needs to be considered, as credit hire and the commissioning of medical reports are separate issues to those under consideration within the Bill. As they are being dealt with separately by government, I would encourage my noble friend to withdraw his amendment. If he wants a further discussion about the action the Government are taking on this, I would be more than happy to meet him.
Lord Hunt of Wirral
My Lords, I accept the offer of a further discussion. I am very grateful to the noble Baroness, Lady Kramer, the noble Earl, Lord Kinnoull, my noble friend, Lord Trenchard, and the noble Lord, Lord McKenzie of Luton. I am intrigued by the idea of my noble and learned friend Lord Mackay of Clashfern that perhaps we ought to go a step further and find out ways to stop all this happening in the first place by making it impossible to bring such claims. No doubt we will be delving further into how we control what I have described as this insidious, nasty part of the marketplace when we come to the civil liability Bill and through various other opportunities. I know my noble friend has said that this Bill is on a separate flight path, but I am dealing with drones, and these drones are criss-crossing all the flight paths and creating new flight paths. With that acceptance of the offer of a further meeting, I have no hesitation in saying this problem will not go away and that we have to sort it out. But in the meantime I beg leave to withdraw the amendment.
Lord Holmes of Richmond
“Regulatory principles to be applied in respect of claims management services
(1) In relation to the regulation of claims management services, the FCA must act according to the principles that—(a) where appropriate, authorised persons should act honestly, fairly and professionally in accordance with the best interests of consumers who are their clients; and(b) where appropriate, authorised persons should manage conflicts of interest fairly, both between themselves and their clients, and between clients.(2) In this section, “authorised person” has the same meaning as in the Financial Services and Markets Act 2000, and “authorised persons” shall be construed accordingly.”
Lord Holmes of Richmond (Con)
My Lords, I am pleased to bring forward this amendment, and in doing so I express thanks to all the organisations that have offered me advice and guidance on preparing it. Perhaps, in the light of the Bill we are discussing, I should not have used either term, advice or guidance, but just thanked them for the briefing in the spirit in which it was offered. Not least among those organisations was Macmillan Cancer Support, which demonstrates brilliantly how a charity can operate in 21st-century Britain not only by offering superb palliative care, nursing services and the like, as we would expect, but by fundamentally understanding just how important financial services are and how people are affected when they get a cancer diagnosis.
I am pleased to speak to Amendment 70 not least because we have gone over the ground of the SFGB at Second Reading—which takes me back to a previous life, when SFGB stood for the Swimming Federation of Great Britain. Bearing in mind my previous life, it seems only appropriate that I should dive straight in.
The purpose of Amendment 70 is to create a duty of care on claims management services to act for all customers, not least those who find themselves in a vulnerable situation. My desire in Committee was to bring forward an amendment that would impose a duty of care across the whole financial services sector but, sadly, that was deemed to be outside the scope of the Bill, so this amendment is far more limited and relates just to claims management services. However, I hope that, within that, noble Lords can see the potential and the need for wider application and an amendment at a future date that will address duty of care across the whole financial services sector, not least when we look at where financial services came from.
At one stage there was truly a sense of a relationship between customer and provider. In many ways we need to get back to that, not least because there is so much that financial institutions can do to assist people. Indeed, many financial institutions and claims management services may well do things to assist people, particularly when they find themselves in a vulnerable situation—not least if they have had that most awful news of a cancer diagnosis. But when we look at the evidence, only one in nine people who receive a cancer diagnosis reveals it to whichever financial institution they are dealing with. The reasons for that are pretty clear. But if that were not enough evidence, survey data illustrate that of the small number who did declare to their financial provider, 23% said that they had a wholly unsatisfactory experience. We can deduce from that that there is a really low level of declaration but, even within that small number, almost one-quarter have a negative experience after declaring.
I believe that Amendment 70 will go some way, in the specific claims management arena, to demonstrating the need for such an amendment and the benefit it can have on claims management services. There is a lot more for the Financial Conduct Authority to consider in terms of this duty and, indeed, the general duty of care. We know that the FCA is considering putting out a consultation paper on a duty of care across financial services, but we also know that it has stated that there will be no change at least until 2019. Consultation could last until 2019, then there would be a proposal, then pre-legislative scrutiny and then the process of implementation. I think we can all agree that there has been more than enough delay already in making sure that vulnerable consumers get the level of service that they should expect to receive from claims management services and the entire financial services industry.
I ask the Minister to support Amendment 70. Will he also say something about the Government’s view on placing a general duty of care on the FCA across the whole financial services sector? This would bring benefits not only to consumers but to financial institutions and the nation. Amendment 70 and a general duty would both in their own way clearly help to deliver a financial services sector and a nation that work for everybody. I beg to move.
Baroness Meacher (CB)
My Lords, I support Amendment 70 tabled by the noble Lord, Lord Holmes. As he indicated, what we really need is a wider power, but it is outside the scope of this Bill. I want to challenge that, at least for the moment. I refer to Clause 2(3), which makes it clear that:
“The single financial guidance body may do anything that is incidental or conducive to the exercise of its functions”.
This is an attempt to build on the powers that that subsection suggests.
The fact is that the prevention of debt is even more important than helping people once they fall into debt. In terms of preventing debts arising, the duty of care is particularly important to people with serious health conditions and disabilities, for whom financial problems can quickly become overwhelming, as the noble Lord, Lord Holmes, has indicated. I want to concentrate on the particular plight of sick and disabled people. For example, 400,000 people in the UK with cancer struggle to pay their household bills because of their diagnosis. Banks and building societies have a vital role to play in helping such people; it makes a huge difference if a bank or building society offers flexibility in mortgage and other payments or interest freezes on credit cards and other loans. Although the Bill highlights the importance of early help, there is a growing consensus that greater leadership is needed from the Government to make it clear that providing this support to vulnerable customers must be a priority for financial institutions.
Baroness Drake (Lab)
My Lords, I, too, rise to support the noble Lord, Lord Holmes of Richmond. I congratulate him on using the opportunity of the Bill as it opens up the issue of how the FCA regulates claims management companies to seek to introduce the regulatory principle that an authorised person should act more in the best interests of consumers, particularly vulnerable customers. Consistently, not just today but previously, the noble Lord has put a powerful and informed case, particularly with regard to people with serious health conditions, including cancer, who have to cope not only with their illness but the financial impact of their diagnosis. That impact is felt not only in loss of income but in loss of access to or poor treatment by financial services companies. This, in turn, compounds their financial difficulties. The evidence of that negative experience is increasingly documented but people just know it themselves, intuitively. As Macmillan confirmed, and as referred to by the noble Lord, 90% do not even tell the bank when they have a problem, because they know that either it will be held against them or that there is little or no prospect that the firm will assist or offer support to mitigate the problems that their ill-health diagnosis has triggered. Not only will they face prejudice but they will be competing with customers who present a more attractive commercial prospect.
This growing problem will not be addressed simply by exhorting firms to behave better; the Government need to take much more of a lead. The Government have also been urged to take such an initiative by the Lords Select Committee on Financial Exclusion and the Financial Services Consumer Panel itself. A regulatory principle, as proposed by the noble Lord, Lord Holmes, would place an expectation on firms to support customers at times of vulnerability, change corporate culture towards the vulnerable and enable vulnerable customers to have the confidence to ask—and to ask earlier—for support, thereby enhancing their ability to manage their financial affairs.
As other noble Lords have mentioned, the FCA has committed to publishing a paper on duty of care but, by resting on that, the Government are kicking this problem into the very long grass. As the noble Lord, Lord Holmes, commented, the FCA has stated that it will not prepare such a paper until after our withdrawal from the EU. The paper will, as has also been said, only just start a very long process of dialogue, consultation, response, drafting and so forth. There will be a lot of people diagnosed with serious ill health in that time whom the environment will not support. There really is an urgency for those 4 million or more people who are expected to be diagnosed with cancer within the next 15 years.
The Government should seize the moment by taking the opportunity of this Bill to embrace the intent of the amendment of the noble Lord, Lord Holmes. I am sure the Minister will say that the amendment is either too extensive in its expectation or creates regulatory uncertainty, but it allows for the detail of how the regulatory principle of duty of care can be translated into the financial conduct rules by the FCA. Through its supervision, the FCA can identity and assess firms’ conduct that may affect consumers’ access. It has the power to make firms change their behaviour, but only where this is within its remit. Unfortunately, the FCA has no specific duty relating to consumers’ access to financial services. The noble Lord’s amendment strengthens the FCA’s remit in respect of claims management companies by introducing that regulatory principle, which begins to define how and when those companies should act in the best interests of consumers.
Baroness Altmann (Con)
My Lords, I, too, rise briefly to support my noble friend’s amendment and congratulate him on laying it in the way he has. I certainly sympathise with him about wishing to put in measures which might originally seem out of scope and the need to be rather convoluted about it. I also echo the words of the noble Baroness, Lady Drake: these are issues that have been recommended by the Financial Services Consumer Panel, highlighted by the Lords Select Committee on Financial Exclusion and would go some way to help change corporate culture to support those who are going through serious, perhaps unexpected, illness and need time to adjust to their circumstances or to cope with their treatment.
The cancer charities are rightly raising this issue and it would be very helpful if the FCA were able to encourage firms to introduce some kind of special measures or special help in recognition of the circumstances that people will from time to time find themselves in—not only to help those people when they apply for that help but to encourage somebody who has had a cancer diagnosis, for example, to ask for help, which very often right now they do not even think of doing. Therefore, I hope my noble friend will take this matter to heart and take this opportunity to address an issue that could have serious and important social benefit.
Baroness Kramer
My Lords, I was a member of the Parliamentary Commission on Banking Standards, which looked at the duty of care issue. In the end, the commission made the decision not to pursue the matter and to empower the FCA to take up regulation and play a role. I thought at the time that was not a good decision but the argument was very much based on the idea that the remit of the Parliamentary Commission on Banking Standards was to do with banking, and that the new banking standards body would tackle many of these culture issues, of which duty of care is obviously an inherent part. Looking at the work of that banking standards body, I do not think most of us think it has followed that direction. I do not see any significant change in pressure from the various bodies, whether applied to banks or financial institutions, to make them become much more conscious of the needs of their customers, especially vulnerable ones.
I have never understood why the industry has resisted this duty. Frankly, it is akin to constraints on mis-selling as behaving in the wrong way towards any individual, providing them with an inappropriate service and not giving them adequate support to understand whether that is the service they need surely falls into that mis-selling category. Expanding the powers of the FCA to allow it to provide a more general approach through the mechanism of duty of care would make the FCA’s job on issues such as mis-selling significantly easier. Therefore, I hope very much that the Government will take this on board. Frankly, the long-grass decision is very frustrating. Whenever I hear that an important piece of legislation is being postponed because we have the Brexit Bill, I begin to wonder whether we recognise appropriately the needs of the country.
Lord McKenzie of Luton
My Lords, this is an important amendment and we should congratulate the noble Lord on its introduction. It goes to the heart of what the regulation of claims management companies should be about, although I think we recognise that it is a surrogate for a broader duty of care issue. It is understood that there will anyway be a consultation around the regulatory principles that the FCA should adopt. Others have commented on the timing of that. Perhaps the Minister will let us have his view on whether the current timescale attached to that is appropriate.
The issue takes us back in part to our debates on earlier sections of the Bill, and to the current position of the FCA and the CMRU. As the Brady report sets out, the primary objectives of the CMRU are protecting and promoting the interests of consumers, protecting and promoting the public interest and improving standards of competence and conduct of authorised persons. This is quite different from the operational objectives of the FCA, which are to secure appropriate protection for consumers, protect and enhance the integrity of the UK financial system and promote effective competition in the interests of consumers.
Some of the “ideal organisational objectives” for claims management regulation proposed by the Brady review co-mingled some of this but included empowering consumers to choose a value-for-money service as well as maintaining adequate and effective access to justice.
While I support the noble Lord’s proposals, I quibble on the inclusion of “where appropriate”. Where is this not appropriate? Certainly, the proposed new subsection (1)(a) places a strong and proper focus on consumers, which we support. It addresses dealing with conflicts of interest, and although it is implicit in the noble Lord’s amendment, it seems desirable that transparency should feature in the requirements. However, the noble Lord has given us at least a starter for 10 on this important topic, and we look forward to the Minister’s reply.
Lord Young of Cookham
My Lords, this amendment, tabled by my noble friend Lord Holmes of Richmond and the noble Baronesses, Lady Meacher and Lady Greengross, seeks to include in the Bill a set of regulatory principles to be applied by the FCA in respect of claims management services. It has reopened one of the discussions which have run through the debates on the Bill about the interface between the SFGB and the FCA and the overall responsibilities of the FCA so far as the consumer is concerned.
I am grateful to my noble friend for the way he proposed his amendment, which would require that authorised persons act and manage conflicts of interests honestly, fairly and professionally. I do not think that anybody who has spoken in this debate—I am grateful to all noble Lords who have taken part—would disagree that these are worthy principles for the FCA to adhere to. I am sure that my noble friend is aware that the FCA already applies these principles in the way it regulates the conduct of business.
The FCA will give careful consideration to the appropriate design of the precise rules that apply to claims management services and how they fit together as an overall regime. Noble Lords may have looked up the FCA’s principles for businesses. They already include the requirements to act with integrity, to,
“pay due regard to the interests of its customers and treat them fairly”,
and to,
“manage conflicts of interests fairly”.
There is a degree of overlap between those and the principles set out in my noble friend’s proposed new clause. If one drills down and looks at the conduct of business rules, they say:
“A firm must act honestly, fairly and professionally in accordance with the best interests of its client”.
Those three adverbs are exactly the same as the ones in my noble friend’s proposed new clause.
When designing new rules for claims management companies, the FCA must take into account its statutory operational objectives, including its objective of securing an appropriate degree of protection for consumers. The FCA will consult publicly on the proposed rules for claims management companies. Here, I may get into trouble with air traffic control. I am not quite sure whether there was an implication that it was going to wait until after we had left the EU before consulting publicly on the rules for claims management companies. As far as I am concerned, there is no need to wait at all: it should get on with it—“Lights touchpaper and retires”.
I therefore hope that I have allayed concerns that there will be an unreasonable delay. The FCA will consult, and when it does, I am sure that it will take on board the points made in this debate. I noticed that the words “duty of care” do not appear in the proposed new clause, but I hope they can be embraced in some of the principles that we have been discussing.
We have every expectation that the FCA will create appropriate rules for claims management companies that will extend existing principles in FCA rules regarding integrity and the interests of customers to claims management companies. I touched on those principles a moment ago. Therefore, our debate this afternoon is not so much about the destination—on which we agree—but about the vehicle. The Government’s view is that there is an existing framework for the FCA to set out its principles—I referred to that. As there is an existing framework for conveying its objectives and its principles for businesses, the regulatory principles do not need to be enshrined in the Bill, which is what my noble friend suggested. The Government are sympathetic —they always are—but this is not a necessary way forward. For that reason, I hope that I can persuade my noble friend to withdraw his amendment.
Lord Holmes of Richmond
I thank my noble friend for that response. It would certainly be a courageous Back-Bencher who sought to push an amendment this afternoon when his Whip is on the Front Bench. But I thank all noble Lords who participated in the debate.
I am grateful to the Minister for taking us through some of the rules set out in the handbook. Indeed, much in there is worthy of note. I wish to put on the record in Hansard that I believe that the FCA does an extraordinary job in a number of ways, not least—departing slightly from this issue—in its regulation of fintech, which leads globally in London and the UK and is always worth a mention in your Lordships’ House.
Having said that, despite what was read from the handbook, it is pretty clear that there is a need to consider a duty of care. On the specific issue of claims management services, which we are discussing this afternoon, and indeed in general terms, I am grateful to my noble friend for, as he put it, lighting the blue touch paper. I hope that it does indeed burn bright and that there is action on a consultation on these points by the FCA sooner rather than later, in 2019.
The Minister says that it is not about the destination; we are merely discussing the vehicle. It seems clear that from his point of view, the vehicle would be an aeroplane. However, we are probably not just talking about the vehicle but discussing the timetable and having a timely duty of care in respect of claims management services and generally across all financial services. It would be excellent for the FCA to have that additional remit, which would sit alongside all its other services.
I am grateful to my noble friend the Minister but I will certainly look at what we can potentially bring back on Report. However, for the time being—certainly as he was formerly a Chief Whip in the other place and, even more significantly, as he is my Whip in this place—I beg leave to withdraw the amendment.
Baroness Altmann
“(1A) The power of the FCA to make general rules includes the power to make rules that the losing defendant to any claim brought by a claims management company shall, subject to subsection (2), be liable for any charges payable under or in connection with a regulated claims management agreement.”
Baroness Altmann
My Lords, Amendment 70ZZA seeks to give the FCA the power to direct providers who are found liable for compensation to pay the claims management company’s fees direct, rather than the CMC taking money out of the customer’s compensation award. The aim of this change is to drive different behaviour in the market and bring about better outcomes for customers by making it more expensive for providers to pay redress to customers who use a CMC than it is in respect of those who claim direct.
It is clear that claims management companies are extremely profitable, with the National Audit Office reporting in February 2016 that CMCs are estimated to have earned between £3.8 billion and £5 billion just from PPI mis-selling compensation between April 2011 and April 2015. That means that consumers could have had billions of pounds more to spend but, instead, some of their compensation has gone to firms that have done very little work for the payments. Indeed, most people could have claimed compensation on their own, particularly if it was made much easier for them to do so. If providers were required to pay the CMCs directly rather than customers funding them, there would be an incentive for providers either to proactively contact customers to offer compensation or to make the process of applying for compensation much simpler, thereby encouraging more people to claim directly and saving the extra costs to the provider.
Claims management companies exist because the process of claiming compensation is not straightforward. Again, PPI is a good example of this and it highlights that the current redress practices are not working well enough for consumers. Therefore, as well as helping consumers keep every penny of their compensation, the amendment could also help to improve the redress system overall. I venture to suggest that it could be an alternative and possibly achieve better overall outcomes for consumers than banning claims management companies from charging fees at all.
Clearly, if the CMCs cannot charge for their services they will not remain in operation. However, simply doing this would address only one part of the problem: it would still not give firms any incentive to make it easier for people to claim compensation themselves, nor would it encourage the firms proactively to offer compensation in cases where there is a clear entitlement. Therefore, the risk would be that customers entitled to compensation would not receive their redress.
This measure would still benefit from being combined with a reasonable cap on claims management companies’ charges. I beg to move.
Lord Young of Cookham
My Lords, the amendment tabled by my noble friend Lady Altmann would, in effect, give the FCA a power to make rules requiring firms at fault rather than consumers to pay the costs associated with claims management services and she explained why this would a popular step. The FCA would be able to use such a power only in respect of firms it regulates.
I understand why this idea might seem appealing. The approach could, for example, incentivise those firms that the FCA regulates to be more proactive in offering compensation and dealing with consumer complaints, although this would be a rather indirect way of trying to do this. There are risks that such measures would lead to an increase in speculative and unmeritorious claims by CMCs, which could in turn have an adverse impact on consumers by burdening consumer redress schemes such as the Financial Ombudsman Service. Hopefully consumers will be helped by the ability to cap the fees in certain circumstances, therefore reducing the risk of the consumer not getting as much as they would otherwise be entitled to.
We are not ruling out the possibility that in some circumstances, the FCA might consider it appropriate to make a rule which has the effect that my noble friend seeks. This is within the FCA’s existing rule-making powers—subject of course to the normal principles and procedures which govern the FCA’s rule making, including public consultation and the preparation of a cost-benefit analysis.
However, as I mentioned earlier, such a rule could apply only in respect of defendants which are firms that the FCA already regulates. Claims management services include personal injury cases, and certain housing disrepair and employment cases. The FCA does not regulate defendants in that wide range of cases, so its rules could not apply to them.
Given the possibility of the FCA, within its existing rules, moving in the direction my noble friend has suggested, I hope she might withdraw her amendment.
Baroness Altmann
I thank my noble friend for his courteous and helpful reply.
I have been working with the consumer group Which? and it has been very forthright in explaining that it believes this would help the market and consumers overall. However, in light of my noble friend’s saying that the FCA already has the powers and may even be considering such a measure in certain circumstances—I am delighted that we have aired this issue in Committee— I beg leave to withdraw the amendment.
Baroness Greengross
Baroness Greengross (CB)
My Lords, the noble Baroness, Lady Meacher, apologises to the House that she is unable to be in her place. However, we both support the objectives of the Bill to protect people from unscrupulous practices by CMCs.
The spirit behind the amendment, as we are all aware, is to ensure that transitional provisions are in place in time to safeguard people who face the risk of a significant detriment as a result of the mis-selling of payment protection insurance. It is of the utmost importance that plans are in place as soon as possible, to respond to the Financial Conduct Authority’s campaign to inform people about the deadline for compensation claims for the substantial numbers of people affected.
Baroness Kramer
My Lords, I support the amendment. We all understand that the amendment has drafting problems, but the intent behind it is an important one: to avoid delay in taking action against pernicious behaviour by some of these companies.
Lord McKenzie of Luton
My Lords, I will be brief in a similar vein. We support the thrust and spirit of the amendment, which is to make progress on the cap before we get to the stage where PPI claims have all gone through the system. It would be a tragedy if people continued to lose significant amounts of money from claims management companies when there is a clear remedy available.
This also partly picks up the issue, which we touched on earlier, regarding SRA regulation being less rigorous than MoJ regulation of CMC activity. The noble Lord felt that that was not a problem, but as I understand it a thematic review of solicitors who undertake claims management activities has been commenced, with the intention of strengthening their approach to regulation on this activity. The noble Lord may be able to confirm that or help us, but it seems to be a clear worry of some whether being able to escape CMC regulation because a solicitor is on board—albeit that brings in a different form of regulation—is a fair way to proceed.
However, the substantive point is to have the opportunity to get that cap in place well before the PPI claims have run their course.
Lord Young of Cookham
My Lords, the amendment tabled by the noble Baroness, Lady Greengross, seeks to require the FCA to make rules restricting fees relating to claims for financial services within two months of the Bill receiving Royal Assent. I agree wholeheartedly with what the noble Baroness and others who have taken part have said on the need to ensure consumers are not charged excessive fees by companies offering claims management services. I also appreciate the Committee’s wish to ensure this protection is given to customers of CMCs as soon as possible. However, it will not be possible for the FCA to make all the necessary rules within two months of Royal Assent. That is indeed an ambitious target.
The Bill puts a duty on the FCA to make rules restricting charges for regulated claims management activity relating to financial products or services. The duty is broad so as to give the FCA the flexibility to design an appropriate cap relating to a wide range of claims for financial products and services. Conceivably, different types of claim might require different levels of cap. To ensure the cap is appropriate, the FCA will need to obtain evidence from across the sector, analyse that information to develop suitable proposals, prepare a cost-benefit analysis and consult on draft fee cap rules. This will, necessarily, take some time. I am sure noble Lords will agree that we need a robust cap, developed on the basis of sound evidence and consultation.
The Government are giving the FCA the tools it needs to start that work as soon as possible. Schedule 5 to the Bill gives the FCA the information-gathering powers it will need to do the work, and Clause 19 provides that those powers will come into force on Royal Assent. However, the scale of the work that needs to be done means it cannot do it all within a two-month window.
Noble Lords have quite rightly raised the current campaign on PPI and how it impacts on the proposals in the Bill that may not come into force for some time. They have asked what might be done in the meantime, which is a very good question. The Government remain committed to establishing a tougher regulatory regime for CMCs. We are considering further the nature of any fee controls that could be introduced before the FCA’s new powers are switched on, using the helpful and comprehensive range of responses to the Ministry of Justice’s consultation. Indeed, this could include a ban on up-front fees. To that end, the Claims Management Regulator is working with the FCA. We are taking the opportunity in the Bill to incorporate a duty on the FCA as the new regulator to develop and implement a fee cap for financial services claims. As that debate gets under way I am sure those concerned will take on board the concerns expressed in the debate to make sure CMCs do not use the benefit of any hiatus to unduly disbenefit—
Baroness Kramer
Will it be possible for the Government to bring forward some appropriate language that achieves that when we get to Report so it becomes a locked-in proposition rather than one that has various legislative stumbles before it can be achieved?
Lord Young of Cookham
I will do what I can to shed some more light on those issues. As I said, discussions are going on to see whether we can bring those proposals forward. We will certainly update the House when we come to Report.
In response to the noble Lord, Lord McKenzie, this is a similar point to one he raised earlier, and the answer is very similar. The CMRU regulates CMCs, while the Solicitors Regulation Authority regulates solicitors firms conducting claims activities—I think that I am reading exactly the same note as I received earlier. The full scope of claims management services for the purposes of FCA regulation will be defined through secondary legislation, including the extent of any exemptions. The Government want to ensure that there is a tougher regulatory regime and greater accountability for CMCs, while ensuring that solicitors are not burdened with unnecessary regulation—the more I read, the more familiar the sentences become. Both the scope and the nature of exemptions will be drafted to reflect these priorities.
Against a background of what I have said about the Government seeing whether, if we cannot—as we cannot—implement the full Act within two months, something can be done in the meantime, and against an undertaking to update noble Lords by the time we get to Report, I hope that the noble Baroness might be able to withdraw her amendment.
Baroness Greengross
I thank the Minister and the noble Baroness, Lady Kramer, and the noble Lord, Lord McKenzie, for their support on a matter which obviously they and, I hope, others feel sympathetic about. I hope that we can discuss the issue with Ministers before Report and make sure that we can in some way protect these very vulnerable consumers, as everybody has agreed is necessary. On that basis, I beg leave to withdraw the amendment.
Lord Hunt of Wirral
Lord Hunt of Wirral
My Lords, I declare my interests as set out in the register.
Who does not enjoy a holiday in the sun? But your Lordships should be warned, for the ingenious claims farming industry has us all in its sights—or at least those noble Lords who take package holidays to Spain or other more exotic destinations. ABTA, the Association of British Travel Agents, records that, since 2013, its members have reported an increase of more than 500% in the number of holiday sickness claims, with no corresponding rise in reported sickness levels in resort.
We now hear stories of CMCs targeting holidaymakers while still in resort to make claims, and of claims being made long after the holiday—the time limit is up to three years—when no real verification of the facts is possible. No doubt many such claims are the result of cold calling, although I suppose touting for business in a Spanish resort might more properly be dubbed hot calling. At the heart of this new surge of claims is the ability of CMCs to obtain a commercial return from a combination of deductions from the claimant’s damages and from side arrangements with solicitors and medical report providers.
Amendment 70A proposes to extend Clause 17 to cap the fees that CMCs can charge in claims for personal injury, as well as in claims for PPI and financial mis-selling. Most of Part 2 of the Bill deals with transferring existing powers to the FCA, but Clause 17 represents an extension of those powers. It gives the FCA power to cap the fees charged by CMCs in certain types of claim.
Clause 17(2) requires the FCA to make such rules to cap fees only in respect of claims relating to financial products or services. I respectfully suggest that that is not wide enough and we should extend that now. This amendment would extend the requirement to cap fees to claims for personal injuries—beyond holiday sickness claims, which is wholly intentional, as I will explain.
The Earl of Kinnoull
My Lords, again, I support the noble Lord, Lord Hunt of Wirral, and agree with every word he said. I thought it would be helpful to give a few figures for just how raging this fire is.
The first figure comes from CEHAT, the Spanish hotel and apartment trade body, which estimates that over the past three years the Brits have cost its members €100 million in claims. That is just Spain and just members of that trade body. The second is a wonderful statistic, which comes from an unnamed big tour operator in the Guardian on 31 July. It said that from July to August 2016 it took to Europe 750,000 British customers, 800,000 German customers and 375,000 Scandinavian customers. The Scandinavians lodged 39 claims, the Germans lodged 114, and the British lodged around 4,000. One can see just from those facts how much of a fire is burning here and what an important issue the noble Lord, Lord Hunt, has zeroed in on. I can say only that I support his thinking wholeheartedly and hope he is feeling very persuasive, providing he gets to see the Minister and the officials.
Baroness Altmann
My Lords, I, too, support my noble friend’s Amendment 70A. He has highlighted a very important issue. It is right that in Clause 17 the Government are looking to cap the charges made by claims management companies, but this should apply to personal injury claims as well as those for financial products and services. The cap on charges is also important because there will be problems in future associated with the increased use of the small claims track when it is extended to cover cases up to £5,000 for personal injury claims.
I was going to quote the same figures as the noble Earl, Lord Kinnoull, but I have also heard from a number of holiday operators and other representatives of the travel industry that resorts are now threatening to sharply increase prices for British holidaymakers or even withdraw all-inclusive packages from the UK market altogether. This situation is damaging the reputation of British holidaymakers and I support my noble friend’s amendment.
Viscount Trenchard
My Lords, I, too, strongly support my noble friend Lord Hunt’s amendments. I was completely horrified to hear the statistics relayed by the noble Earl, Lord Kinnoull. It does not surprise me because I travelled to Spain last summer—not on a package tour but they nevertheless somehow know where you are and I started to receive unsolicited texts and emails from people inviting me to make claims for the bad food or being sick. I just deleted them, of course.
I also agree with my noble friend Lady Altmann that, where possible, the cap on fees should be broadened because I would have used a CMC to pursue a claim against an airline. This was not this summer but the summer before, when our flights were cancelled and I tried to get refunded by an airline. My daughter had booked on the same flights through a different travel agent, but in the end neither of us has made a successful claim, although we are both entitled to. It was too difficult because the airline had contracted the flight to another airline. When you are entitled to a refund for a service that was contracted but not delivered—as in the cancellation of a flight—then, as the Committee is well aware, it is made extremely difficult for you to receive reimbursement. When I received an unsolicited email from a CMC about cancelled flight claims, I was quite tempted to use it. But even though I had virtually given up on the claim against the airlines, I decided not to because a quick examination of the company made me suspicious. I also thought it would absorb in fees most of what it might get back, so I decided not to proceed.
Once such companies are capped in what they can charge, I will feel much happier about using their services because of what they specialise in and because it is made extremely difficult for individuals to pursue refund claims themselves. In many areas there may be a route whereby the individual can do the same thing as a CMC, and do it for free, but it is often made so difficult. It is intended that people will get bored or be too busy to go on waiting, while listening to music and pressing “1” or “2”.
Lord Stevenson of Balmacara (Lab)
My Lords, I support the amendments in the name of the noble Lord, Lord Hunt. Once again, he has made his case brilliantly and without having to resort to metaphors about drones or anything else. He seemed this time to be firing a set of missiles rather closely to his right. I am sure progress can be made on this important issue and want to make two points.
First, to pick up on the point made by the noble Baroness, Lady Altmann, in the representations that many of us have received there was a slightly larger package than just the question of claims management companies. There was a question about the small claims limit going from £1,000 to £5,000 and I would be grateful if the Minister, when he responds, could give us some better information about how that impacts on this issue. There is also a narrower question about an amendment to the public liability protocol, which I do not fully understand. But I hope the Minister will rise up in his helicopter, or whatever he is currently riding in to get to his scenic views, to give us a view of what this is about. There is an exception for claims arising overseas in these areas, which seems a little unfair because if a claim is genuine then it should be possible to mount it in whichever jurisdiction. If the package travel regulations are UK law and need to be resolved in that way, it seems odd if an exception is made for those who want to claim from an overseas position.
My other point would be that while I think we are all in the same place in wanting to see this issue resolved, I hope it will not be at the expense of genuine illnesses. The Minister might want to make sure that there is an avenue open when he comes to respond. Rather like the noble Viscount who has just spoken, I had a problem with a holiday—not a package holiday but one booked through an agent. It was in Italy, at a villa which was a nice place to be, but it became overrun with rats; I think this was on day three. So numerous were these creatures, and of such an extraordinary puissance, that they climbed up on to the veranda and entertained us while we tried to eat. They then ran round the bedroom while we tried to sleep, knocking over our toothpaste and other things in our bathroom. We eventually had to retreat to the top floor of the villa and barricade ourselves in.
The response from the locals was that they were “ratti”, which I think is the Italian for rats. We were therefore fairly clear what they were. At one point the locals produced some materials to capture these rodents. It consisted of a large plane of wood, about the size of the Dispatch Box, on which was placed some translucent gooey substance. They did not want to kill these things—they were very eco-friendly and against that—but just wanted us to capture them. But the blooming things were so strong that when one ran up and landed on that sticky substance, it could not quite get all four legs off at once but it got one limb up and then just hopped off. It was not very effective.
We sued the company that let us this property. The interesting thing about suing holiday companies—I am sorry, this is a long way into my point—is that holidays exceptionally attract damages because holidays are not repeatable instances. In other words, under English law you can claim for exemplary damages for a holiday lost in a way that you cannot for other damage. That is an issue that need not detain us in the Bill, but given that that particularity exists in the law, I hope that the sense of the amendments would not damage genuine claims. Illness does occur on holiday, and sometimes rats invade, and we would want to make sure that people can sue properly and, given that it was a holiday that was spoiled, get the additional money available without any recall or loss.
Lord Young of Cookham
My Lords, I am sure the noble Lord, Lord Stevenson, will find himself on “Yesterday in Parliament” because I am not sure there is much else to report from your Lordships’ House today apart from that moving explanation of a very unfortunate holiday.
My noble friend’s Amendment 70A seeks for the duty on the FCA to cap fees on financial services claims to include personal injury claims. I am grateful to my noble friend for outlining the reasons behind his amendment and to all noble Lords who have taken part and shared with us their various experiences on holiday. It has given us the opportunity to discuss the different types of claims management services that the FCA will be responsible for regulating.
Like other noble Lords, I am irritated by the advertisements on some radio stations encouraging me to recollect what happened three years ago and to apply for compensation. Other noble Lords made it clear that they are against this claims culture and want to see action taken.
CMCs manage claims in different ways. Those dealing with personal injury claims, such as holiday sickness claims, typically focus on marketing activities—we have heard how people are approached overseas—and refer clients to lawyers. They do not usually charge consumers directly, so the opportunity to provide customers with poor service and charge high fees is greatly reduced. To that extent, they are different from some of the activities that we have been talking about.
In the financial services claims sector, CMCs tend to represent clients through the claims process and charge them directly for this service. Evidence suggests that the average completion fee for financial services claims is 28% of the claim value, despite there being very little work involved in processing many financial services claims. The most common example, as we have heard, is PPI, where the consumer only needs to complete and submit a form to the lender. In 2015-16, 95% of complaints about CMCs related to financial services claims; only 2% related to personal injury. However, I recognise that markets and business plans can change. That is why the Bill provides the FCA with a broad power to restrict fees across the range of claims management services it will regulate. It will be up to the FCA to decide whether to exercise this power, based on evidence about how the market is operating, so it could extend it to holiday sickness, which we have heard about in this debate.
My noble friend and other noble Lords referred specifically to holiday sickness claims and the apparent propensity of Brits to be ill overseas more than other Europeans. The Government are concerned about the apparent recent increase in this type of claim. Tackling fraudulent claims is a key priority, and the claims management regulator and the Solicitors Regulation Authority have taken significant steps to deal with abuses in this area. I recall reading in the press that a case is imminent in this country regarding an alleged fraudulent claim, and I also read that prosecutions are taking place in Spain, I think.
The Claims Management Regulation Unit recently cancelled the licence of a CMC responsible for pressuring people into making holiday sickness claims. On top of this, the Solicitors Regulation Authority recently issued a warning making it clear that any solicitor handling holiday sickness claims must carry out proper due diligence. They must make sure they advise clients properly and are dealing with a genuine case where the client is seeking legal help of their own accord.
There is a difference between personal injury and financial services claims management services, so it is logical to impose a duty on the FCA to cap fees for financial services CMCs only. As I said a moment ago, it does have a broad power to restrict fees across the range of claims management services that it regulates.
Amendment 70B provides a useful opportunity to discuss some of the recommendations put forward in the Independent Review of Claims Management Regulation. My noble friend’s amendment would provide for a 0% cap where free alternative claims routes are available, except if it can be shown that the claimant was provided proper information on alternative free methods to claim.
As the Committee is aware, and as my noble friend reminded us, we accepted the recommendations of the Brady review, including the one my noble friend refers to, which was to ensure better signposting to alternative claims resolution channels in order to enhance consumer awareness and help consumers make informed decisions. I am confident that the FCA will take the independent review’s recommendations into account as it develops the new regime.
I would also note that the FCA already has the power to make rules requiring firms to signpost customers to free alternatives, and that power will be available, when the Bill hits the statute book, in relation to claims management companies. It has already made rules to that effect in relation to debt counselling, debt adjusting and the provision of credit information services. In each of these cases, firms must indicate that free services are available and that customers can find out more by contacting the Money Advice Service in their first oral or written communication with their customers. In addition, their websites must provide a link to the Money Advice Service. The FCA already has the power to make rules that would signpost customers to free alternatives, as well as substantial powers to enforce those rules.
I return briefly to the issue of the small claims threshold, which was recently changed. I think it best to write to the noble Lord on the impact of the change to that limit. On overseas claims, the Bill gives the Treasury a power to define when a person should be treated as carrying on claims management activity in England and Wales. The intention is that CMCs approaching consumers in England and Wales and taking forward their claims will be subject to FCA regulation as far as possible. In relation to holiday sickness claims, a CMC carrying out all of its marketing and advertising in Spain is outside of the England and Wales jurisdiction, but if it refers the details on to a UK law firm, that action would be captured by CMC regulation. I hope that answers the noble Lord’s query.
Against the background of what I said earlier, I repeat my acceptance of my noble friend’s offer of a meeting and hope he might feel able to withdraw his amendment.
Lord Hunt of Wirral
My Lords, I am grateful to all those colleagues who participated in this debate. I always want the noble Earl, Lord Kinnoull, to participate in debates in which I have spoken because he supplies all the information which I lack. His statistics were staggering and worrying, and once again an indication that something has to be done. I am also very grateful to my noble friends Lord Trenchard and Lady Altmann. I would just say to the noble Lord, Lord Stevenson of Balmacara, that his story will follow us for a long time to come. It is the sort of nightmare from which fresh and better laws are born.
We must find ways of ensuring that genuine claims are dealt with properly. ABTA would say that it has now set up this free service which will deal promptly and well with that sort of situation. No doubt the Minister is overwhelmed by the Cross-Bench, Liberal Democrat, Conservative and Opposition support that has come today for the amendments I have had the honour to table. I detect that there is already a willingness on his part to find a solution, which is why, in anticipation of the many meetings we will hold between now and Report, I so readily beg leave to withdraw the amendment.
The Earl of Kinnoull
“(6A) The FCA must provide reasonable assistance in the interpretation of the rules under this section for those providing claims management services.”
The Earl of Kinnoull
My Lords, I declare my interests as set out in the register of the House, particularly those relating to the non-life insurance industry.
At Second Reading I commented on the vital nature of access to justice. It is of central importance that those who are not in a position to get legal or other assistance towards making valid claims can do so via no-win no-fee arrangements with professional firms and at reasonable cost. The very excellent claims management regulation review already referred to by noble Lords, led by Carol Brady, is very firm on this point. I remind the House that her executive summary says:
“The overwhelming majority of stakeholders, including the banking and insurance industries which have been hardest hit by CMC misconduct, argued that there is a legitimate need for CMCs and that the Government should not seek to regulate them out of existence”.
The central role of the FCA is clear. Its regulation must be proportionate and helpful.
Regulators in financial services generally charge the cost of their regulation back to those whom they regulate. So one way of assessing how heavily you are regulated in any jurisdiction, and the burden, is simply to compare the relative costs of the regulation. The British Insurance Brokers’ Association, using London School of Economics numbers, supplied me with some data earlier in the week. It reports that the UK—for insurance broking, which is just one of the very large number of areas that the FCA regulates—is more than twice as expensive as Ireland, Hong Kong and Bermuda, and that that multiple is bigger again for France and Germany.
It is not just the cost or weight but the fact that, in the insurance space at least, you cannot ring up the FCA and get help in interpreting what for our industry is 1,000 pages of regulations on a situation-specific basis. It simply will not answer the question but will refer you to the regulation and say, “Go and get some advice from somebody else if you need it”. That is completely different from how regulators in other jurisdictions around the world operate, as being helpful to those whom they seek to regulate helps a jurisdiction become competitive internationally. This amendment seeks to ensure that there is a cultural change for the FCA where the CMCs are concerned. I fear that an unhelpful regulator would act as a deterrent to the formation of new small CMCs. It is vital that new CMCs can be born to maintain that access to justice that I started with, just as it is vital that a proportionate regulator deals with unsatisfactory CMC behaviour.
I would point out one more thing—that if you get regulation wrong, the FCA can reach through the corporate veil and get at the regulated persons connected with the firm concerned. They can be fined and sanctioned generally in all sorts of ways. If a regulator is unhelpful it is quite a disincentive for individuals who might be thinking of forming a small charitable CMC to help people with certain things, and that disincentive would impede access to justice. I am concerned, accordingly, that good firms providing access to justice might be handicapped or worse, and yet the bad firms may be able to cope with the regulatory burden. In short, this is a vital role for the FCA. This amendment is aimed at ensuring a cultural change in the FCA, and helping CMCs to interpret what I am sure will be complicated and long regulations. I beg to move.
Lord Stevenson of Balmacara
I rise briefly to support the noble Earl, Lord Kinnoull, in his quest for a more equitable arrangement with the powers that be in terms of the FCA. I think he would be the first to admit that this is a recurring theme in many of his contributions to debates around financial guidance and similar issues. On the surface, it seems extraordinary that a body so well resourced and organised as the FCA should be so diffident in coming forward with helpful advice to get people to work better and more constructively within the sector it is regulating.
This amendment has had to be framed to get it into a debate around claims management but it touches on a much wider issue about all the aspects of the FCA that we are talking about. Indeed, it is about an attitudinal and possibly a conduct approach, which is also part of it. I hope that there is a way to get this matter resolved one way or another because it is part and parcel of the other issues we have talked about in terms of duty of care and responsibility for consumers and the vulnerable. If the FCA—and indeed, by implication, the SFGB—took a more interactive and supportive stance, we would all be better off.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Buscombe) (Con)
My Lords, it is my turn to rise to my feet to support my noble friend Lord Young, who has been more than a co-pilot for this part of the Bill. Perhaps I see myself more as flight observer.
The amendment moved by the noble Earl, Lord Kinnoull, aims to ensure that the FCA helps firms to interpret the FCA rules. I absolutely accept and understand his reasons for tabling this amendment in terms of the importance of that interpretation and in order to be helpful. I agree that ensuring that firms understand the FCA’s rules will be vital to the success of this new regulatory framework, and I would like to draw the noble Earl’s attention to the steps the FCA already takes to ensure that firms are well informed of regulatory requirements.
The FCA undertakes a range of communications activities, including monthly e-newsletters summarising all the main changes that have taken place over the previous month and a programme of regional events across the UK for firms to discuss regulatory issues. The FCA holds round tables and other briefings on specific issues with trade associations and firms to help them better understand how new policy may impact their business models. It also maintains a smaller business practitioner panel which represents smaller regulated firms which may not otherwise have a strong voice in policy-making. I have noticed that the noble Earl has, quite rightly, throughout our debates in Committee focused on those smaller businesses that may not have their own strong voice.
On top of this, the FCA is aware of the need to engage with firms about new regulatory provisions. Building on the approach taken in the consumer credit transfer, the FCA will develop a clear communications strategy to engage with firms as a key part of the transition process. The FCA is committed to alerting firms to changes in regulation that affect them and has several well-established channels to support this—for example, in its regulation round-up, which is a monthly e-newsletter sent to more than 50,000 recipients summarising all the main changes that have taken place over the month. That will have links to further information on the FCA website. There is a programme of monthly regional events called “live and local”, across the UK, for firms to discuss the changes, and round tables and other briefings on specific issues. In addition, the FCA sends over 500 speakers each year to talk at industry conferences and events to discuss regulatory issues, and maintains regular relationships with trade associations.
These actions will help to support CMCs through the authorisation process as they work to meet the FCA’s regulatory requirements in the provision of claims management services. The FCA’s strategic objective is to ensure that the relevant markets function well, which will ensure that the market for CMCs’ services functions well. Communication on that basis is vital. The FCA also has a competitive objective, which requires it to have regard to the ease with which new entrants can enter the market. Of course, being able to understand the rules is critical to that.
I hope that the actions that I have set out help to support CMCs through the authorisation process. This short debate with the noble Earl and the noble Lord, Lord Stevenson, will, I hope, give a nudge to the FCA that it is of critical importance that it undertakes this important issue with care to make sure that the process works. For those reasons, I hope the noble Earl will withdraw his amendment.
The Earl of Kinnoull
I am very grateful to the Minister for her words, which I shall have to read a bit more carefully in Hansard. I also thank the noble Lord, Lord Stevenson of Balmacara, for his generous words. I am sorry that he has had to listen to me a number of times on the FCA.
The list of things that the FCA is doing, which the Minister told us about, is much more to do with transmitting than receiving. You do not want to turn up to a round table as a business and talk about a new idea; you want to be able to talk about the new idea with your regulator and say, “Will this new idea work? I am thinking of doing it. Does it fall within section 772B on page 956 of your regulations?”. That is the sort of helpful thing that other regulators around the world have been able to do. In trying to fine-tune our honey trap for UK financial services, we are out of step with the rest of the world—and good regulation is one way in which we will attract more businesses in future to come to British markets.
I hear what the Minister says about that issue and wonder whether it might be possible for her to reflect a bit further about what I am saying, which is a different thing from all the various round tables and letters to 50,000 people and so on. It is about having the ability to have a hotline and to ring up and go to see your regulator to chat through a business issue in relation to the interpretation of blooming complicated regulations. It would be a great step change, and it would be a good opportunity to begin here; they will have to design a whole new system for regulating CMCs, and they could begin by building into the design from day one this element of something that would be very helpful to the small, good firms which I hope will grow up in the CMC space. I think the Minister is saying that she would agree to have a chat in the period before Report. If there were no progress, I might want to bring it back at Report. But on that basis, I am happy to withdraw the amendment.
Lord Sharkey
“Ban on unsolicited direct approaches by, on behalf of, or for the benefit of, companies carrying out claims management services
The FCA must, within the period of six months beginning with the day on which this Act comes into force, introduce a ban on unsolicited direct approaches to members of the public carried out by whatever means, including digital, by, on behalf of, or for the benefit of, companies carrying out claims management services.”
Lord Sharkey (LD)
My Lords, as I mentioned on day 2 of Committee, there has been an enormous increase in the number of cold calls—180% in the last 10 months. There are now 2.6 million cold calls every month, which is an absolutely enormous number. No noble Lord disagreed when I described cold calling as an “omnipresent menace”. It turns out that the menace is even more omnipresent than I had thought. It has even reached the Bank of England. I have the transcript of a cold call received by one of the Bank’s regional offices. The bank official answers the phone and says, “Bank of England, hello”, the cold caller says, “Hello, can I speak to the business owner?”. The official asks, “Of the Bank of England?”, the cold caller says, “Yes”. The official says, “No”. The cold caller says, “Well, do you want to sell the business?”. The official says, “What, the Bank of England?”, the cold caller says, “Yes”. The official says, “No”. The cold caller then says, “Oh all right, bye bye”. Not all cold calls are as harmless as that turned out to be.
The Bill acknowledges and tries to remedy some of the problems with the claims management companies and the associated cold calling. We believe that the transfer of regulatory authority to the FCA is a very desirable move, as is the transfer of the complaints procedure from the Legal Ombudsman to the Financial Ombudsman Service. The impact assessment to the Bill lists some of the problems with the CMCs that will be addressed by these regulatory changes. It notes that, in 2014-15:
“23% … of all CMCs faced some sort of regulatory intervention”.
In addition to what were rule breaches, an independent review identified poor practices among many CMCs. One example of poor practice was poor value for money services offered by the CMCs. The impact assessment noted that evidence from the FOS showed that CMCs do not in practice achieve higher-value redress settlements than consumers complaining directly. The second example was the misrepresentation of services offered to consumers and a reliance on nuisance tactics, such as unsolicited calls or texts. A third example was the progression of speculative and/or fraudulent claims by CMCs. That last point is developed in the report of the Insurance Fraud Taskforce of January last year. The report says that,
“unscrupulous CMCs … play a role in encouraging fraudulent claims. As well as causing a social nuisance through their reliance on cold calls, also known as ‘claims farming’, CMCs have been reported to pressurise otherwise honest people to exaggerate or make up claims”.
This is all pretty unsavoury and the Government are to be congratulated on doing something about CMC practices in this Bill.
The impact assessment also lists the expected benefits brought by the measures in the Bill to consumers. It notes about cold calling that:
“Consumers are expected to benefit from reduced demand from CMCs for leads sourced through nuisance calls and text messages”,
but it does not estimate the reduction and clearly does not expect the cold calling problem to vanish. The question is whether this expected reduction will be significant and whether third-party claims farmers will really be affected by the regulatory changes.
But there is a better question than that: why should we tolerate CMC cold calling at all? After all, we do not allow it for mortgages, and the Government have promised to ban it for pensions. Banning cold calling has been debated many times in this House. On every occasion there has been universal dissatisfaction with the practice and, I believe, a universal desire to put an end to it. Cold calling not only is a profound social nuisance but also does real damage. Whiplash claims are an obvious case in point—I have lost count of the number of times that I have been called by someone saying that I was entitled to recompense because I may have been in a car accident. But speculative and fraudulent whiplash claims are reducing, largely because of the welcome provisions in the civil liabilities Bill. It looks as though one consequence of this is that CMC activity has moved in bulk to holiday sickness claims. The UK travel industry has seen a huge and dramatic increase in claims for food poisoning, essentially. As the noble Lord, Lord Hunt, has already explained, these claims have risen 500% since 2013 and they show a 600% increase year-on-year for 2016 alone. Such claims now represent over 90% of all personal injury claims.
ABTA is aware of the dubious marketing tactics used by CMCs. As we have already been told, they include UK holidaymakers being approached by CMC reps in their resorts and at ports of arrival back in the United Kingdom. Then, of course, there is cold calling. All this adds up to a major problem. This is not just damaging the travel industry, although it is doing that; it is also persuading people to commit fraud on a massive scale. As I have mentioned, we have reached the point where more than 90% of all personal injury claims are for alleged food poisoning. ABTA is campaigning for a ban on cold calling on behalf of, or for the eventual benefit of, CMCs. That is no wonder. The situation is clearly out of control. It again raises the question of why on earth we allow cold calling to go on. Here is our opportunity to ban it for CMCs. That is what our amendment sets out to do. It simply says that the FCA must, within six months of this Act coming into force,
“introduce a ban on unsolicited direct approaches to members of the public carried out by whatever means, including digital, by, on behalf of, or for the benefit of, companies carrying out claims management services”.
Lord Deben (Con)
My Lords, I support this measure. This industry has become huge. I emphasise the very simple point to my noble friend that it is an industry which encourages fraud and leads people to do things which they would never have done without this pressure. I do not believe we want that kind of thing in our society. It is expensive for decent people, holidaymakers and everybody, and the people who do it are among the most unpleasant people in our society. They are leeches on our society. My noble friend the Minister has treated this Committee extremely well and has spoken most charmingly about many things. I do not think this is something we can just pass off with good words. We have to tackle this. If we do not do that, we will fail the public as a whole. Above all, this is something we can do about morality. We should not have a society in which people are led astray in this way. This is not an industry that we need to encourage and the way to kill it is simply to say, “You can’t impose yourself on other people”. There is too much imposition anyway. This is something we could do.
Baroness Altmann
My Lords, I support this amendment and speak to my Amendment 73 on the same topic, which seeks to achieve the same aim as Amendment 72. The scale of nuisance calls is of great concern, as has been expressed in previous debates on this Bill from noble Lords on all sides of the House. The Association of Personal Injury Lawyers states that an estimated 51 million cold calls or texts are received each year from regulated claims management companies for personal injury claims. Although such nuisance calls are supposed to be prevented by existing regulations, current measures are clearly ineffective.
Reforms of claims management companies are clearly urgently needed. I congratulate my noble friend on introducing the Bill. Carol Brady’s excellent independent review of the regulation of claims management firms recommended moving responsibility to the FCA, which is what the Bill does, and I wholly support that. However, it is also important to protect the public from nuisance calls and texts, which the claims management companies often plague people with; to reduce the level of speculative and even fraudulent claims, which cause added costs for companies and end up costing other consumers extra money; and to stop customers being fooled into paying up-front fees to unscrupulous claims management companies, which they then never recover after they discover that they did not have a valid claim in the first place.
FCA regulation of CMCs will help toughen the oversight of nuisance calls, but that move alone is not sufficient to properly protect consumers. The FCA has powers of enforcement that are better than the current regime; it can strip those found to be flouting the rules of their ability to operate and can hold directors personally liable. But a ban on unsolicited approaches would add much more protection. It would be clear to consumers that they should not engage with firms which contact them and encourage them to make spurious claims. Currently, the claims management companies act with impunity to entice people to make easy money. But of course this has the effect of imposing higher costs on the wider public, as we have already heard this afternoon, because firms will charge more to cover the risks of such claims. We have seen this clearly with whiplash injuries and we are seeing this with holiday sickness claims. Indeed, the Law Society has also written to me to support the banning of cold calls. ABTA cites the problems that we have already discussed about the dramatic rise in speculative and fraudulent claims. This will cause detriment to the wider public if we do not make sure that we take the opportunity in the Bill to retain effective measures to address the issue.
The Minister has already said how much she wishes that she could ban cold calling for pension companies, and there was support across the whole House for that measure, but it is questionable; we hope that we might be able to find a way to get that into the Bill. However, cold calling for claims management companies clearly is in scope of the Bill. When defining “claims culture” in a Parliamentary Answer on 19 April 2016, my honourable friend in another place, Dominic Raab, said:
“The Autumn Statement referred to the cost to society of the substantial industry that encourages claims through cold calling and other social nuisances and which increases premiums for consumers”.
Therefore the Government have clearly equated claims culture with cold calling, and the logical and fair action would surely be to ban cold calling for personal injury claims rather than restrict the rights of people who have been injured through no fault of their own, which the Government are expected to do in the forthcoming civil liability Bill. These proposals perhaps aim slightly at the wrong target, but the Bill gives the Government the opportunity to aim at the right target and ban cold calling, which they state encourages a claims culture.
As the Government recognise that there is a problem, and there is both industry and public support, the Bill could be amended to include this ban on cold calling. Whether it is through Amendment 72, in the name of the noble Lord, Lord Sharkey, and the noble Baroness, Lady Kramer, or Amendment 73, in my own name and that of the noble Earl, Lord Kinnoull, I hope that we might take this opportunity to protect the public in this manner by banning cold calling.
The Earl of Kinnoull
My Lords, I strongly support the noble Baroness, Lady Altmann, and I thank her for allowing me to add my name to her amendment. Obviously, I also strongly support the thinking behind the amendment in the names of the noble Lord, Lord Sharkey, and the noble Baroness, Lady Kramer, and I just wish to add one or two points.
There was a very helpful Which? report in November 2016 detailing the full horror of nuisance calls in the UK. For the report, telephone calls in 18 cities were sampled. In 17 of the cities—the survey took place over a long period—more than a third of all the private phone calls were nuisance calls, and in Glasgow, which topped this terrible table of nonsense, more than half of the calls in the sample were nuisance calls. The top type of nuisance call was about PPI, which of course is firmly a CMC nuisance. In commenting on the November 2016 report, Keith Brown MSP, the relevant Scottish Minister, was quoted as saying:
“These calls are a serious problem that can cause both emotional and financial harm, particularly to some of our most vulnerable citizens”.
A very horrible statistic in the report was that four in 10 people in Scotland who had received these calls felt intimidated by them. It is barbaric behaviour.
I was delighted to read in their manifesto what the Conservatives are going to do about cold calling on pensions. Like, I think, every other noble Lord in the House, I feel that we must use this opportunity to extend the ban to this area as well. I suppose that it is the businessman in me who does a quick upside/downside analysis. My upside analysis has a reduction of emotional and financial harm and intimidation, and my downside analysis has nothing. Perhaps the Minister could tell me whether she agrees with that analysis. I hope that she feels as I do—that it is a social necessity that we carry through one or other of these amendments and put it in the Bill.
Viscount Trenchard
My Lords, I too express support for both the amendment proposed by the noble Lord, Lord Sharkey, and that proposed by my noble friend Lady Altmann, supported by the noble Earl, Lord Kinnoull. I ask my noble friend the Minister to consider both amendments sympathetically. I expect that she is likely to say that she agrees with the amendments in principle but that this is not the time or the place for such a measure. However, surely it would be popular with the public to introduce a complete ban on unsolicited cold calling across a broad range of activities.
The Law Society and the ABI have both called for a crack-down on nuisance calling of all kinds. ABTA has also suggested that the Bill provides an opportunity to introduce an outright ban. As noble Lords are aware, solicitors, who are more tightly regulated than CMCs, are already banned from making unsolicited calls.
What I find particularly annoying is that if you answer your phone when you are overseas, you have to pay. I get so angry when this happens to me that I am sometimes more likely to start a conversation with the cold caller than I am to just hang up, which would obviously be the sensible thing to do. I say, “Do you know it’s three in the morning and I’m in Japan, and this is costing me money?”, but I find that the cold callers are not a very nice type of person in general and they are not sympathetic. My noble friend Lady Altmann mentioned that every year there are 51 million cold calls in respect of personal injury claims. In that case I am getting many more than my share, because I get about one a week.
It is a difficult area because, as noble Lords have pointed out in earlier debates, the FCA is not necessarily the most sympathetic regulator, and I agree with the noble Earl that we should look more closely at equivalent regulators in other countries. I had the privilege of serving under the noble Lord, Lord Burns, on the Joint Committee on Financial Services and Markets in 1999, which set up the FSA. We talked at great length about getting the balance right between protecting the industry and protecting the interests of the consumer. We did not necessarily get it right in the sense that the culture needs to evolve in a direction which is more sympathetic to the consumer.
Baroness Stowell of Beeston (Con)
My Lords, I am sorry that I was not in the Chamber earlier to hear my noble friend Lord Hunt of Wirral make his contributions on earlier amendments on a similar theme. I should declare that I have recently become a member of the board of ABTA.
I know that the explosion of claims for holiday sickness has been mentioned already, and I am grateful to the noble Lord, Lord Sharkey, and my noble friend for highlighting the way in which cold calling is encouraging people to commit fraud. However, we need to recognise that in encouraging this kind of fraudulent behaviour—which, in itself, is very bad for all the obvious reasons—false holiday sickness claims are also affecting our reputation abroad. We might like to make fun sometimes about the Germans and their towels, but we Brits are now gaining a reputation not only for having dicky tummies and not being able to weather the food overseas but, much worse than that, as a nation of people who are now willing to commit fraud.
This goes more broadly than the narrow way in which we are debating it today, and I want to lend my support in principle to the efforts to tackle a growing and serious problem.
The Earl of Lytton (CB)
My Lords, I would not normally deign to interpose in this debate but, having listened to a number of the arguments that have been put forward, I feel compelled to voice my support, but with a word of warning.
I was looking at my private emails and found that since half-past two this afternoon I have had four spurious emails from an outfit called Metro Bank, with which I have no business, telling me about the suspicious activity on my account and suggesting that I might like to click on a link. The fact that such messages usually contain spelling mistakes and start off “Dear Customer” without any other personal identifying information, and the fact of the sheer number of these repeated emails, probably tells its own story, but never mind. The reason I raise that is because in my experience—along with that of probably everybody in this House who has received on their mobile phone something to do with PPI or a personal accident—I frequently get messages that tell me my claim has been settled in the sum of £4,275.80, or something like that, and ask me to click on a link so they can process the claim. I have had no such incident and made no such claim; the process is led by a completely bogus and fraudulent promise of something for nothing.
In my experience, these things are increasingly moving from a posse of anonymous, but still identifiable, 0800 telephone numbers of one sort or another to people’s mobile numbers and landlines. In particular, the mobile numbers may well be a pay-as-you-go account: completely anonymous and possibly passed on in a pub, complete with its ticket. Nobody can track down where these things are coming from. So, if somebody makes a cold call from a pay-as-you-go mobile phone, and having made contact then pass that live contact back to a claims management company of perhaps no great repute and even less good intent, is that still a cold call? If not, then straightaway the whole process of what these amendments are designed to deal with is bypassed. I would like to make sure it is not.
Lord Sharkey
Could I try to provide a little clarity, perhaps even a partial answer? The amendment is worded so that cold calls, or the result of them, cannot be used for the benefit of claims management companies. It is not just about the cold call itself—information cannot be passed on in a way that benefits CMCs.
The Earl of Lytton
My Lords, I am grateful for that. The nub of what I am getting at is whether we have a problem with enforcing that. These people are clever and devious and will basically stop at nothing because it is a free bet—they seem to be able to weave their way in and out of our virtual world of technology to con people and mislead them. I would be absolutely in favour of anything that can reliably prevent that happening. That was the only point I really wished to make.
Lord Elystan-Morgan (CB)
My Lords, these debates endorse the fact that we dealing with a social nuisance of massive proportions. There are, I suppose, situations where a few cold calls might possibly be justified on some grounds, for example where a person has rights but is not conscious of how those rights can be carried out and brought to fruition. Those instances are in a small minority. The vast majority of cold calls are fraudulent and disgraceful. If there is an agreement between the two parties, then that amounts to an agreement to pervert the course of justice. I think I am right, as a proposition of law, to say that every agreement to pervert the course of justice is of itself a perversion of the course of justice. It is as serious as that.
A blanket overall prohibition, as the noble Earl, Lord Lytton, reminded us, is probably not appropriate. On the other hand, some very strict and practical steps have to be taken swiftly.
Baroness Drake
My Lords, I too rise to express my sympathy with the views articulated by the noble Lord, Lord Sharkey, and the noble Baroness, Lady Altmann. I also empathise with the point made by the noble Earl, Lord Kinnoull. I listen to what he says because he often makes some very wise nuggets on a point that warrant reflection.
We do not want to regulate CMCs out of existence, because people need access to redress where they have been poorly treated or have experienced a serious problem. Public policy has been pushing assisting people with access to justice out to the private sector, so we have to come up with a toughened regulatory system that does not deny that. In a well-regulated, well-run system where public policy itself is making it more difficult for people to pay for access to justice, well-regulated claims management companies have a role to play.
However, the way the CMC industry currently operates is clearly totally dysfunctional. It gives rise to three key problems. One that the noble Lord, Lord Hunt of Wirral, articulated in the previous debate is that it stirs up such an artificial level of claims without merit that it risks undermining that very protection regime for the genuine claimant. It raises the costs and charges faced by other customers for what they have to pay for products and services, often hurting those on lower incomes.
We know that the ease of entrance to the market means that claims management companies often do not treat claimants well. They give poor value to the claimant on fees and service; there is little inhibiting them doing so. I see that, a couple of years ago, 22% of claims management companies in one year lost their accreditation or received a formal warning—basically one-quarter of the industry having its card marked or forced out.
Also, we have a situation where new technology allows claims management companies to operate on a huge scale. They are harassing the public with very aggressive techniques, using new technology that allows such mass approaches. People are being bombarded with calls and texts; if you answer them by mistake, God are you hooked in. That triggers another series of harassing texts and calls. Very often the person does not even have the product or has not had the experience the call management company is targeting. These call management activities are one huge fishing trip that new technology allows which has got completely out of control. That trawling simply has to stop. There needs to be some appropriate intervention.
In supporting that, I go back to the reflective point that the noble Earl made. In a situation where assisting people with access to justice is increasingly being put into the private sector, we want a well-regulated claims management company that will help the genuine claimant get access to justice.
Baroness Kramer
My Lords, I intervene because it is important to stress that it is essential to ban cold calling, not give it a space. For example, those who are concerned about PPI claims can see advertising on the television. That is not cold calling or a sort of personal assault on your letterbox or your phone, whether by call, messaging or email. It is the personalised cold call that arrives. Often it is content that is intimidating and unless every phone call is recorded and checked there is absolutely no way to make sure it is not intimidating. It is the number of these things. If, for example, you say, “You can send five texts to every individual”, you will simply have a much greater group of people all sending five texts. It becomes almost impossible to manage unless you go for the ban strategy.
There are many ways to communicate. For example, I look at the way the FCA is now communicating with the general public over PPI. It has some excellent ads on television making it clear that there is a free way to call. It provides a phone number and a website. The whole process is easy. We would all be offended if the FCA now started cold calling individuals across the country, even to provide a free service. It is an invasion of private space. We have to protect private space, and cold calling is a mechanism which violates it. I hope that, in the interests of making sure people remain informed about the options available to them, we do not require them to give up control of that private space.
Lord McKenzie of Luton
My Lords, this has been an extensive and fascinating debate. We on these Benches support the call for a ban on cold calling, as laid out in Amendments 72 and 73. As to which is the right formulation, the answer is probably neither of them as they stand, but we can work on that between now and Report.
My noble friend Lady Drake argued for a well-regulated market and the need for access to justice. That is not inconsistent with a ban on cold calling; it seems to me entirely consistent. I hope that deals with the concern expressed by the noble Baroness, Lady Kramer.
We have heard some very powerful presentations. The noble Lord, Lord Sharkey, introduced the amendment with a range of statistics. His term was “omnipresent menace”, which has been demonstrated extensively in this afternoon’s debate. The noble Lord, Lord Elystan-Morgan, said that such cold calling was a social nuisance of massive proportions, and I agree. For me, it interrupts my slumbers on the sofa on the Sunday afternoon, but that may be a minor inconvenience.
The noble Lord, Lord Deben, said it was an industry we could do without. My noble friend Lady Drake dealt with that point: we need a well-regulated industry because we need a means of helping people reach justice.
Lord Deben
I am sorry; it was a slip of the tongue. It is a mechanism which we could do without from this industry.
Lord McKenzie of Luton
I take the noble Lord’s point.
The noble Baroness, Lady Stowell, made the interesting point that some of the behaviours that the existence of cold calling has generated have an impact on our reputation not only here in the UK but around the world. Many other points were made, all in favour of a ban on cold calling.
We should reject the suggestion that we should shy away from such a move because the Government have perhaps set their face against it for the time being. Anybody from outside the Chamber who has listened to this debate would readily see the consensus reflected on all these Benches. We should test the democracy of this Chamber and bring forward amendments that are in scope but focus on claims management as a start. We realise that the Ministers are not unsympathetic, so it would help them in their cause of persuading Secretaries of State and the wider mechanisms of government to support the measure. The Government have done the right thing, although too slowly, on pensions; here is an opportunity to follow that up swiftly and ban cold calling for claims management operations as soon as we can. We should do that quickly.
Baroness Buscombe
I thank all noble Lords who have taken part in this important debate. I thank in particular the noble Lord, Lord Sharkey, the noble Baroness, Lady Kramer, my noble friend Lady Altmann, and the noble Earl, Lord Kinnoull, for tabling the amendments and prompting this debate about cold calling. I think we are all familiar with the nuisance calls and texts that noble Lords seek to address.
However, I fear I shall disappoint noble Lords, but will do my utmost to persuade the Committee that legislating for a ban on cold calling at this stage is not the right thing to do. The arguments against the amendments are twofold. I shall begin with what we are doing by way of this Bill. The Government have put on record their commitment to clamping down on rogue CMCs that bombard consumers with unsolicited nuisance calls and texts, or provide poor service for consumers, by transferring regulatory responsibility to the FCA. Strengthening the regulation of claims management services—good regulation, I might add—should reduce the number of unsolicited calls made by CMCs as they will have to comply with any additional rules that the FCA makes in relation to how CMCs obtain customers or pass their details on to others.
The FCA will consider unsolicited approaches to consumers in the wider context of rules around advertising and marketing. It is too early for the FCA to have decided on specific rules for CMCs. I make that point clear to all noble Lords who entered into the debate on this amendment: this is not something the FCA has had a chance to do before but now, through the Bill, it has the opportunity to decide on specific rules for CMCs. It will consult on its proposals.
There are already measures in place to tackle unsolicited calls. The Information Commissioner’s Office enforces restrictions on unsolicited direct marketing. Unsolicited directing marketing calls to a person who has subscribed to the Telephone Preference Service or told the company they do not wish to be called is prohibited under the Privacy and Electronic Communications (EC Directive) Regulations 2003. In addition, organisations responsible for breaching these regulations can be fined up to £500,000 by the Information Commissioner. In 2016-17, the Information Commissioner’s Office issued more civil monetary penalties for breaches of these regulations than ever before, issuing 23 companies over £1.9 million of fines for nuisance marketing.
There was reference to scams. Of course, scams fall into the sphere of fraud and are therefore criminal. Many cold calls are conducted by unauthorised businesses. CMRU increased its capacity to identify, investigate and take enforcement action against unauthorised businesses, including all call centres marketing unauthorised claims management services. Since these regulations began, CMRU has taken enforcement action against 1,280 unauthorised CMCs. Moreover, in May this year, a company behind 99.5 million nuisance calls was fined a record £400,000 by the ICO. Action is being taken now and the FCA will introduce tougher regulation in this area.
The noble Lord, Lord Sharkey, asked why, if we are able to ban calls for mortgages and pensions, we cannot ban them for CMCs. It is important to differentiate between the two types. The Government absolutely decided that cold colds in relation to, for example, pensions are a special case because the levels of consumer detriment are uniquely high. For some UK customers, especially inexperienced investors, pensions savings may be their largest financial asset. Often, CMC nuisance calls are just that—a nuisance. The potential for customer detriment is therefore also much less.
It is not that this is not an issue for the Government to consider. I say that with some feeling. Strengthening the regulation of claims management services should help reduce the number of unsolicited calls made by CMCs. As I said, there are already measures in place enforced by the ICO.
Baroness Kramer
The Minister talked about the current enforcement and recommended it with such vigour. Could she then explain why the number of calls is so great? I think the noble Baroness, Lady Altmann, cited a figure of 50 million and it is growing every year. To my mind, the two things do not tally.
Baroness Buscombe
I am trying to make the point that the transfer of claims management company regulation to the FCA will result, we believe, in tougher regulation and should reduce the number of unsolicited calls made by CMCs. What I am really saying is: can we please give the FCA a chance? While there are already measures in place to tackle unsolicited calls, enforced by the Information Commissioner’s Office, unfortunately there is a minority of disreputable companies which flout the law. The ICO will take enforcement action where appropriate; as I have said, in 2016-17 it did so against 23 companies. We need to improve on this and we hope this will happen through tougher regulation.
I hope I have explained the difference between cold calling for CMCs and cold calling for pensions, which we are taking action on. I think my noble friend Lord Deben was suggesting, as indeed were other noble Lords, that we should have a wholesale ban on cold calling, but one has to be really careful what one wishes for. This point about access to justice is very important. Clearly, there are different routes to making unsolicited approaches. If we had a wholesale ban on cold calling, what would political parties do?
Lord Deben
I was not going to interrupt my noble friend but since she has mentioned it, the matter is very clear. We are talking about cold calling for a particular purpose. She has to accept that there are 50 million calls and the number is rising all the time, so the present system does not work. It is very simple: we just ban them. Why can we not do this? I do not understand.
Baroness Buscombe
I think I have just tried to explain that one of the reasons for transferring the regulatory role to the FCA is to take this forward through good regulation in the hope that it will work. As I was trying to say, we have to be careful what we wish for in terms of access to justice through the means of people being able to receive calls, which we can call unsolicited—such as those made by political parties. That is part of a wholesale ban on cold calling, which noble Lords have referred to.
Lord Deben
I am sorry to interrupt my noble friend again, but I specifically did not do that. Better regulation is to ban the calls. That is what better regulation is.
Baroness Buscombe
I thank my noble friend for his further response.
To respond to my noble friend Lord Trenchard’s question about whether SMS, email and letters are all cold calling, this is an important point and I confirm that we differentiate between them. Cold calling is the solicitation of business from potential customers who have had no prior contact with the salesperson conducting the call, while unsolicited direct marketing is communication by any means, including email and text, of marketing and advertising material. We genuinely believe that the existing measures I have set out, alongside the new FCA regime, should help tackle CMCs conducting unsolicited direct marketing. I know there is a very strong feeling across the Committee, and we take this on board, but, for the reasons I have set out, the Government do not believe that the amendment is necessary. I hope that the noble Lord will withdraw his amendment.
Lord Sharkey
I am extremely grateful for the support of all noble Lords who have spoken. I am especially grateful to the noble Lord, Lord Deben, for his forceful reminder—several times—that this kind of cold calling activity should have no place in our society. It is not necessary, it is damaging, it lures otherwise honest people into crime and it is morally repugnant. Thinking about what the Minister said, I feel that she was right at the beginning: she did disappoint the House.
The Earl of Kinnoull
The Earl of Kinnoull
My Lords, this is not really the final furlong but the final approach, I suppose, if we are to keep the metaphor going. I shall also speak to Amendment 76, which is connected. I begin by thanking the Minister, who has been very helpful to me on this. He was even sending me lucid emails at 7.21 am today. I also thank the Association of British Insurers, which has been extremely helpful in the preparation of my remarks.
These probing amendments address two issues that I perceive. First, Scotland has a separate legal system and major differences concerning no-win no-fee. There are major differences, too, in its regulation of CMCs. In Scotland, CMC activities are not regulated and referral fees are allowed—unlike in England, where CMCs are regulated and the paying of referral fees is an offence. How wrong it would then be if a substandard CMC could camp in Dumfries and aim at English consumers, free from regulatory control. I am certain that any form of cross-border arbitrage would be wholly against the admirable intentions of the Bill.
It appears, however, that this is exactly what is happening. DWF, the respected Manchester-head- quartered law practice, which has offices in Scotland and internationally, commented in February that,
“in recent years increased levels of fraud have been detected in Scotland, along with a significant rise in injury claims. In part, this is thought to be due to the effect of LASPO in England pushing claims management companies into Scotland, where their activities are not regulated and referral fees are allowed”.
There must be a general principle that businesses must not be allowed to arbitrage the UK’s regulatory and legal environments to the detriment of consumers. The FCA is, rightly, a UK-wide regulator in, for instance, non-life insurance. I feel strongly that it should be so here. Can the Minister comment on the position of the territorial scope of the Bill and whether this legal and regulatory arbitrage is acceptable to the Government?
My second point concerns CMCs in Scotland generally. I have already referred to the November 2016 Which? report and some of the rather horrifying position that it laid out. However, I note that three of the top five cities for nuisance calls were Scottish, and that in Scotland PPI calls were the number one type of nuisance call. In Glasgow, as I said, over half of the one million calls sampled were nuisance calls, according to the report.
This very week, Citizens Advice Scotland is running a campaign called Calling Time on Nuisance Calls to highlight the problem. I wish it well. It aims to reduce this pernicious problem, causing as it does, according to Keith Brown MSP, the responsible Minister, “emotional and financial harm” to Scottish citizens. This month the Scottish Government have put out a paper, A Response to Scotland’s Nuisance Calls Commission: An Action Plan. Keith Brown is behind the paper. On page 5, when referring to the statistics from which I have been quoting, he writes:
“Faced with these statistics, we must take action now that will make a difference, even as we press the UK Government to do more”.
What is that “more” where CMCs are concerned? Is the Bill not an ideal opportunity to deal with that and the regulatory and legal arbitrage problem to which I referred earlier? I strongly urge the UK and Scottish Governments to bring CMCs in Scotland under the experienced wing of the FCA. I beg to move.
Lord Stevenson of Balmacara
My Lords, we have Amendment 75 in this group, and I shall speak to it briefly. It is a gentle prod to the Government that in the clause that deals with commencement there is an extensive list of the various sections that come into play. Then at the top of the next page is just a general provision stating:
“The other provisions of this Act come into force on a day appointed by regulations”.
No date is given for that. It would be helpful if the Government could urge themselves to do a bit a more than just leave it open that regulations will come forward at some future date. A lot of what we have been talking about in this area would be helped if there was urgent action, and the urgency should apply to the regulations that need to come forward as well. I hope that will be well received by the Government at this point.
The noble Earl, Lord Kinnoull, has done another good service to us in bringing forward a possible lacuna in the approach being taken by the Government. It fits in with the various sensible amendments that I have been tabling, asking the Government to look again at the way in which the financing arrangements for debt advice in Scotland, Wales and Northern Ireland operate. I sense that there is also an issue around CMCs that needs a response. I look forward to hearing from the Minister.
Lord Young of Cookham
My Lords, Amendments 74 and 76, tabled by the noble Earl, Lord Kinnoull, seek to extend Part 2 to Scotland. I am grateful to him for the way he set out the case for this extension. The Government carefully considered the scope of claims management regulation during the development of this policy. The current framework for claims management regulation, set out in the Compensation Act 2006, limits the extent of claims management regulation to England and Wales only and this will remain the case as we transfer regulation to the FCA. The matter is currently reserved, so we cannot simply make regulations to devolve the matter to the Scottish Government.
In reaching this decision, the Government had a dialogue with the Scottish Government to establish their view. Their view, as outlined in correspondence from the Scottish Business Minister, was that there is limited evidence of malpractice by CMCs in Scotland, and they concluded that extending the scope of claims management regulation would be unnecessary and disproportionate. That view is clearly challenged, and is about to be challenged again.
The Earl of Kinnoull
The Scottish Government have come out with a long paper—it is a dozen pages or so—in which they publicly state completely the opposite. We have been citing these terrific statistics from Which?. I do not know at what point in time their views are dated, but events have moved on and the old views are clearly wanting.
Lord Young of Cookham
I am very grateful to the noble Earl, who has been very influential, as I will explain in a moment, in persuading the Government to think about this again. I will not quote it again, but what I just quoted was the view at the time we consulted. The Scottish Government concluded that regulation would be unnecessary and disproportionate. It may well be that, from the evidence the noble Earl referred to, since then they have changed their view.
As for regulatory arbitrage, it should not mean that a firm can evade regulation by moving across the border. The Bill gives the Treasury a power to define when a person should be treated as carrying on claims management activity in England and Wales, which gives government the flexibility to adapt the definition should the market change. When exercising this power, the Government intend to capture CMCs approaching consumers in England and Wales, and CMCs taking forward their claims should be subject to FCA regulation. This mirrors the current regulatory framework, in which the requirement to be authorised is not dependent on where the CMC is located but based on where it carries out the regulated service.
With regard to nuisance calls in Scotland, the Government continue to build on a package of measures to tackle this problem across the UK. We have already delivered a number of actions, including: a measure in the Digital Economy Act 2017 making it a requirement for the Information Commissioner to issue a statutory code of practice on direct marketing; requiring all direct marketing callers to provide caller line identification; and increasing the maximum level of monetary penalty the ICO can issue to £500,000 for serious breaches of the regulations. In the light of what the noble Earl has said, we will re-engage with the Scottish Government on this issue and keep our position on claims management regulation under review.
Amendment 75, tabled by the noble Lords, Lord McKenzie and Lord Stevenson, seeks to establish a timescale within which the Government will commence the legislation relating to the single financial guidance body. I am not sure the amendment would do what the noble Lord wants: these regulations would have to be made within 18 months of Royal Assent, but the regulations could then provide for these sections to come into effect after 18 months have passed. I am sure that was not the intention, but that is the reading of the amendment as I have interpreted it. As indicated in our response to the consultation on the single financial guidance body, the new body will come into existence no earlier than autumn 2018. We want to ensure that we provide for the best possible transition from the existing services to the new body. We are conscious, though, that the process has already created some uncertainty for existing services and for consumers. For that reason, as well as those given by the noble Lord, we would like to move as quickly as is practicable.
We also want to provide time for the chair and chief executive to assess and contribute to the key set-up arrangements. In line with Managing Public Money principles, the Bill must have passed Second Reading in the House of Commons before a recruitment exercise for the chair and chief executive can commence. We anticipate starting this recruitment exercise as soon as possible after that point. We are working with existing services and other key stakeholders to ensure that we remain on track to establish the new body. Although I sympathise with what the noble Lord is seeking to achieve with this amendment, I assure him we have every intention of establishing the new body as soon as is practically possible and ensuring that the body is able to deliver an improved, joined-up service to meet the needs of the public.
Against the background of the undertaking I have given to the noble Earl, and the assurances I have just given to the noble Lord, Lord Stevenson, I hope this amendment might be withdrawn and the others not pressed.
The Earl of Kinnoull
I am very grateful to the Minister for his typically courteous response and the courteous way in which he dealt with my rather not-so-courteous interruption, for which I apologise. What he said about my point on arbitrage sounded very good, although I want to read it again in Hansard, as did the undertaking. I would like to see how things progress from here, to see if there is anything left on these issues to discuss on Report. But it sounds as if progress is being made, for which I thank the Government very much indeed. On that basis, I beg leave to withdraw the amendment.
Financial Guidance and Claims Bill [HL]
Tuesday 24th October 2017
(7 years ago)
Lords ChamberRead Full debate Financial Guidance and Claims Act 2018 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 1-R-I Marshalled list for Report - (20 Oct 2017)
16:30 - Division on Amendment 1 - Ayes: 263 / Noes: 208 - Amendment 1 agreed.
16:47 - Division on Amendment 2 - Ayes: 253 / Noes: 205 - Amendment 2 agreed.
19:04 - Division on Amendment 12 - Ayes: 80 / Noes: 167 - Amendment 12 disagreed.
Lord Sharkey
“( ) the consumer protection function;”
Lord Sharkey (LD)
My Lords, in moving Amendment 1 I will also speak—eventually—to Amendments 2 and 7. They form a linked package of consumer protection measures enabled by, and consequential upon, Amendment 1. I am grateful to the noble Lord, Lord McKenzie of Luton, the noble Baroness, Lady Altmann, and the noble Earl, Lord Kinnoull, for adding their names to the amendments and for their support for them. Amendment 1 simply adds consumer protection to the functions of the SFGB. The notion of consumer protection is implicit in the other functions set out in the Bill, but the amendment gives it statutory life. In doing this, it allows a broader definition of the reach of the SFGB. It widens its remit to something closer to the real-world situation for consumers and enables it to deal more comprehensively with the dangers and risks that consumers face.
Pensions guidance, debt advice and money guidance are all aimed at doing this, of course, but there are related areas where intervention would be of direct benefit: cold calling is one. One effect of Amendment 1 would be to allow cold calling to be dealt with in the Bill. We have discussed cold calling many times during the passage of the Bill and on many other occasions in this House. On several occasions I have described it as an omnipresent menace—and no one has disagreed. It is clear that there is a firm and widely held dislike of and dissatisfaction with cold calling, extending well beyond this Chamber. It is not only a thoroughgoing social nuisance; it is often a threat, directly and comprehensively, to consumers’ financial well-being. It is often an invitation—or more exactly, an inducement —to criminal activity.
The figures are remarkable and very alarming. There are now 2.6 million cold calls every month; that number has increased by 180% in the last 10 months. I noted that the Minister, when presented with these figures—and even larger ones—at an earlier stage in the debate, prayed in aid the ICO and the FCA. I am afraid that whatever the ICO is doing, and whatever the noble Baroness hopes the FCA might do at some unspecified time in the future, the problem is not only terrifyingly large but continuing to grow very rapidly.
On the fourth day of Committee, the noble Earl, Lord Kinnoull, made a very telling intervention; I am sure he will not mind me repeating it here. He quoted a Which? report from November 2016, which he described as detailing,
“the full horror of nuisance calls in the UK”.—[Official Report, 13/9/17; col. 2491.]
The report found that in 17 of the 18 cities surveyed, more than a third of all private phone calls were nuisance calls, and four in 10 people in the Scottish sample were intimidated by these calls. It is not easy to intimidate people in Scotland. In the same debate, the noble Earl, Lord Listowel, pointed out and emphasised the fact that many old people are particularly vulnerable to cold callers.
Then there is the successor to the whiplash scandal: the absolutely huge, and rising, number of claims for alleged holiday sickness. In July and August 2016 alone, one operator took 750,000 British, 800,000 German and 375,000 Scandinavian customers to Spain. The Scandinavians lodged 39 claims; the Germans lodged 114; but the British lodged around 4,000 claims for holiday sickness—essentially, food poisoning. That kind of thing not only costs our travel industry a huge amount and raises prices for everyone but directly encourages criminal acts on a large scale. As the noble Lord, Lord Deben, said in Committee, this a huge industry which,
“encourages fraud and leads people to do things which they would never have done without this pressure”.—[Official Report, 13/9/17; col. 2489.]
The Earl of Kinnoull (CB)
My Lords, my name was added to the three amendments. I declare my interests as set out in the register of the House, particularly in respect of the non-life insurance industry. I pay tribute to the noble Lord, Lord Sharkey, for his drafting skills—I shall make one or two points in a moment about the drafting, which I think is particularly elegant.
The dataset of 9 million telephone calls to UK cities to which the noble Lord, Lord Sharkey, referred had one other gem within it: 42% of those 9 million calls were nuisance calls. That dataset was gathered over three years, so it is fairly robust and it gives the House yet another sense of how inherent this problem is in our society. We stand here today with the opportunity to do something about that.
Keith Brown MSP, the relevant Minister at Holyrood, said when the report originally came out—it is a very good quote—that:
“These calls are a serious problem that can cause both emotional and financial harm, particularly to some of our most vulnerable citizens”.
Indeed, as the noble Lord, Lord Sharkey, pointed out, Citizens Advice Scotland, in data mining the same 9 million calls, said that four in 10 Scots had felt intimidated. That is a form of mental harm. In our society, if I do or threaten to do physical harm to people, we have protected our citizens under Section 47 of the Offences Against the Person Act 1861—he says, looking at a noble and learned Lord—but we have been less good at protecting them from mental harm. This is one of the ways in which we can begin to redress that balance.
These are subtle amendments because they seek to empower Ministers to go along that path by way of a double trigger. The first trigger is for the SFGB to state that there is a problem worth addressing and to make a report. The second trigger is that the Secretary of State concerned can then decide, yes or no, whether to make an order. The double trigger is particularly subtle because it means the problem will be considered in a complete way. Given that, ultimately, the order will have to come here, we can be assured that there will be plenty of debate.
This mechanism, which will enable the apparatus of government to protect people, will strengthen the legislation. I can see no down side but a strong upside, given that Citizens Advice Scotland particularly noted that these nuisance calls weigh on the most vulnerable in our society.
Viscount Brookeborough (CB)
I was on the Financial Exclusion Committee. When we talk about targeting the vulnerable, it is not a matter of someone taking all the numbers or addresses out of a book; it is done scientifically. These people look at the vulnerable and consider when they will be vulnerable and how they will get at them.
The amendment includes digital. We were given evidence that single, older and vulnerable people were especially targeted digitally in the middle of the night. So if they are not sleeping well and switch on their computer, what comes up? We should not think that this is just blanket coverage and some of these people picked it up. The high numbers we have been given are targeted numbers and therefore the response rate, sadly, is very high. These are the people we are trying to protect.
We would like to reduce the number of cold calls that people receive purely by chance and do not listen to, but far too high a proportion of these cold calls are listened to because they are targeted on vulnerable individuals in our society.
Lord Faulks (Con)
My Lords, I join this debate relatively late and I hope the House will forgive my intervention. I speak from the position of having been a Minister in the Ministry of Justice. One of my tasks was to try to do something about cold calling and the frustrations and distress it can cause. The noble Lord, Lord Sharkey, was right to identify whiplash injuries and, more recently, the problem with holiday sickness. It is a scandal and one is acutely conscious that the vulnerable should be protected from this offensive practice.
My question to the Minister about the amendment is this: is this really the right body for this particular function? I note that the drafting by the noble Lord, Lord Sharkey, the skill of which I admire, tacitly acknowledges this by giving the body a consumer protection function which seems, on the face of it, rather beyond its original remit; albeit it includes a consumer protection function, I accept. Then there are the various stages which are included in Amendment 2 and the riders in Amendment 7. This is quite a cumbersome method of achieving what I think all the House will agree is a satisfactory aim, which is to prevent cold calling.
I understand that the Government are committed to doing something about cold calling. Various attempts have been made before and I acknowledge that they have not been as successful as they should have been, but this does not seem to be the obvious fit for such an initiative. Can the Minister satisfy me and the House that the Government intend to bring forward appropriate legislation if they believe, as I suspect they may, that this is not the right vehicle for that process?
Viscount Trenchard (Con)
My Lords, I understand the motives of the noble Lord, Lord Sharkey, and other noble Lords in seeking to introduce a consumer protection function to the Bill. However, I believe that it places too broad and onerous a responsibility on the single financial guidance body. If noble Lords look at the functions already included in the Bill, the first three are specific. The fourth, the strategic function, seeks to improve the financial capability of members of the public by supporting the provision of financial education to children and young people—although I think that should perhaps be widened. I believe that the strategic function enables consumers to protect themselves better than they would be able to do without it.
Proposed new subsection (3E) would define cold calling as,
“unsolicited real-time direct approaches to members of the public carried out by whatever means, digital or otherwise”.
This is too all-encompassing. I would be delighted if cold calling by direct telephone and text were banned, but I am not sure that banning all unsolicited approaches is a good idea. If all unsolicited approaches were made illegal, including those by letter or email, how would a business market its services to new potential customers? Would such a draconian measure not result in severe restriction of choice for consumers? How would they know what products and services were available in the marketplace?
I suspect that the 2.6 million nuisance calls made every week—or 9 million a month; I am not sure what the figure referred to in the debate was—is a serious underestimation. What do the Government intend to do to protect the consumer from unsolicited telephone and text approaches?
Baroness Kramer (LD)
My Lords, perhaps I can be helpful on a couple of the points just raised by the noble Viscount, Lord Trenchard. These amendments ban solicitations in real time, as he will have noticed. That obviously excludes letters. It means that you can send information through the post; no one would wish to prohibit proper kinds of marketing. It is the nuisance and intrusion and the element of pressure that comes from that real-time activity that is the pernicious side of solicitation. That, essentially, is cold calling and is exactly what this is intended to deal with.
The noble Viscount suggested that financial education and capability are the way to go; indeed, many in the Government feel that that is the route to deal with cold calling, so that people know to hang up. However, the noble Viscount, Lord Brookeborough, was very clear in illustrating that, while we all get cold calls, we are merely the tip of an iceberg. For those who pursue this, the real focus is on people who are absolutely the most vulnerable. Being realistic, financial education and capability, even on the most extraordinary scale, would be very unlikely to provide adequate protection to that group of people who are now constantly being abused.
On the point made by the noble Lord, Lord Faulks, if this body is not associated with consumer protection, quite frankly I wonder what this body is for. That is the underlying premise that sits behind both the predecessor groups that are now being put into the single financial guidance and advice body. It is essential to bring this on to the face of the Bill in a very clear way, as it is the underlying motivation and characterisation of this body, and certainly it is a responsibility.
The noble Lord, Lord Faulks, also suggested that the Government do intend to move in this area. We have been hearing that for an incredibly long period of time and, with constant pressure, perhaps one day the Government will move. The problem is that we need protection now. We need protection in the near term because, as my noble friend Lord Sharkey, the noble Earl, Lord Kinnoull, and others have illustrated, this has grown in such scale and momentum that there are daily victims. Every day that we wait there are more victims. Since it is completely unnecessary to wait because the language in this Bill serves the purpose, then in a sense it would be extraordinary to say we will sit back and wait 18 months or two years or whatever else, allowing people to be abused. We can bring a stop to it now in a very simple and straightforward way.
If I understand the Government correctly, they are willing to look at certain targeted areas in which to stop cold calling but not to provide a stop to cold calling in each area where there is clear detriment, which is what the amendment allows through use of this new single body to identify and communicate that detriment. These organisations are so slick and quick they can move from one topic to another very rapidly—you close one door and another door gets opened. For example, we stopped cold calling on mortgages. That is an excellent example that tells you we can do it. It is straightforward. The dimensions are understood. The complexities are well-considered and we have plenty of track record to look back at to make sure that it is done well. We have all of that in place. However when cold calling on mortgages was banned, it shifted on to the next issue—currently, it is pensions, claims management and holiday sickness. Everybody can be absolutely sure there will be something new, provided loopholes are left, by simply attacking one issue here and one issue there. That is the beauty of this particular amendment: it gives us the power to deal with this whole industry, the same people and the same players.
I shall make one last remark and then sit down. I want particularly to congratulate the four noble Lords whose names are on this amendment, all of whom have been working so hard in this area. Three of them are here today, able to speak for themselves, but one of them cannot. The noble Baroness, Lady Altmann, as we know, has been a real mover and shaker on these issues, not just over cold calling for pensions—pensions are her area of real expertise and we have heard her on that—but we have also heard her in this House speaking around the much broader issue as well, which is why she has put her name to the amendment. She had a speaking engagement at lunchtime in the Midlands which she felt she could not cancel. She has not eaten lunch but run to the train station. She is on the train which pulls in to the station at 4.30 and had been greatly hoping there would be a Statement today that would delay this long enough that she could be here to join in with this particular section of the debate. I am sure she will speak in later parts of this Report.
The noble Baroness should not be left out when we recognise that the movers and shakers on this are from every side of the House. This is not a partisan or party-political set of amendments. This is a set of amendments by Members of this House who recognise their responsibility to protect those who are most vulnerable now, before more damage is done, and I hope the Government will see it that way.
Lord Faulks
Before the noble Baroness sits down, will she clarify one thing? She was critical of my suggestion that the insertion of the consumer protection function is in some way an attempt to expand the scope of the SFGB. She said, quite correctly, that it is part of the SFGB’s function to protect consumers, but surely the purpose of this amendment is to expand the scope of its activity beyond that which is already in the Bill so that it can deal with matters that are beyond what is apparently in other parts of the Bill.
Baroness Kramer
I thought that we could only speak once on Report, but I hope that the House will excuse me if I get to my feet again. Fundamentally, I disagree with the noble Lord. Consumer objectives are merely bringing to the face the underlying discussion and the ethos which sits entirely behind this body and every one of its instructions. If the noble Lord reads all the roles and responsibilities and the debates about those roles and responsibilities, he will understand that this meshes perfectly with these activities. It strengthens its hand in an obvious way, rather than leaving it in a slightly awkward, ambiguous situation.
Lord Elystan-Morgan (CB)
My Lords, I am full of respect for and sympathy with the amendments and the spirit in which they have been moved. We are facing massive social abuse that is complicated and extremely extensive. I doubt very much whether in the complicated and convoluted society in which we live it is humanly possible to rid us of all of it. I am sure that is beyond us.
The remarks made by the noble Lord, Lord Faulks, triggered two thoughts in my mind. The first relates to the Offences Against the Person Act 1861 and how well that Act has served society. We are still dealing with it day in and day out in the courts, and with the help of judicial interpretation it is as fresh in many respects as it was the day it was passed. In so far as the offence of assault occasioning actually bodily harm—Section 47—is concerned, the noble Lord is absolutely right. There should be a parallel offence that is not confined to an assault and does not concentrate upon a physical consequence. There have been attempts in the past to widen that offence, but they have been rather vague and less than totally successful. It has to be revamped completely so that the concept of assault is not basic to it and it is not confined to bodily harm.
My other point relates to the higher end of the scale with regard to cold calling. At the very bottom of the scale there is the fishing exercise, the hopeful prospect that something might come of what is not of itself a criminal act. At the other end of the scale, there is a very serious criminal act where A says to B “Let us pretend that an accident occurred—we know nothing like that ever took place—and you are the claimant in regard to that matter and that you are prepared to put forward a statement of facts about a fact that you know to be totally false. I will support you, and we will split the profits between us. You should be prepared, of course, to commence an action in the courts”. The moment you do that, you have probably committed a very serious offence. You have attempted to pervert the course of justice. I believe that as a proposition of law, exceptional to the usual law of attempts, every attempt to bring about a perversion of the course of justice is of itself a perversion of the course of justice. It is at that end that we should start concentrating. Very few of these cases are brought to court, and very few of them are successful, but it would be marvellous to be able to make an example of some of the very worst cases, and by such example a very considerable social lesson would be taught.
Lord Mackay of Clashfern (Con)
I would like to ask whether the “direct approaches” referred to in proposed subsection (3E) need to relate to financial matters.
Lord Sharkey
That would fall within the ambit of the consumer protection function of the SFGB.
Lord Kirkwood of Kirkhope (LD)
My Lords, I will be quick, as the House obviously wants to make progress on this. As a former business manager, I can see where all this is going and can anticipate what the Minister is going to say. The position was warmed up rather nicely by the noble Lord, Lord Faulks. He is an honest man, whose opinions always have to be weighed in the balance, but anybody who seriously suggests that there is going to be legislative time in the future for some other vehicle lives on a different political planet.
The noble Viscount, Lord Brookeborough, made an important speech, and I agreed with my noble friend Lady Kramer when she said a lot of colleagues have done a lot of serious work on this. I was first alerted to the extent of the evidence while serving as a colleague of the noble Viscount, Lord Brookeborough, on the Financial Exclusion Committee. There is a sense of rage and anger about this, which has been going on for far too long. The evidence is there, and as an institution we have a chance of changing it. I for one think it is inconceivable that any Minister in the position that the noble Baroness finds herself can convince this House—certainly me—that this is something we can do another day. We will be deep into European withdrawal for the next two years, and the DWP will be lucky if it gets any Bills during that time—I assert that based on my experience over many years. We have to deal with this now, and I support these amendments. I hope they will be pressed to a Division and passed.
Lord McKenzie of Luton (Lab)
My Lords, I start by thanking the noble Lord, Lord Sharkey, for his comprehensive introduction of this important package of amendments, which we support in its entirety. As we have heard, fundamentally it would enable a ban on cold calling across the piece, together with related reporting functions to the FCA on consumer detriment. We should congratulate the noble Lord, Lord Sharkey, on his drafting, which would enable us to proceed now with a ban. We know the detriment that cold calling can bring, not only by CMCs but in the pensions arena, and the harm that can produce.
A number of noble Lords touched on this. The noble Viscount, Lord Brookeborough, talked about vulnerability in the digital age and how damaging that can be. The noble Earl, Lord Kinnoull, spoke about the opportunity to do something today to help deal with a process that causes real mental harm. We agree with that. The noble Lord, Lord Sharkey, talked about the scams around holiday sickness and the impact of the advance of technology if we do not get stuck into this sooner rather than later—the need to deal with the “omnipresent social menace”, as he put it. I agree with the noble Lord, Lord Kirkwood, on his challenge to the noble Lord, Lord Faulks. If it is not in this piece of legislation, when will it happen?
The FCA recently published its Financial Lives Survey 2017, which identified that in the last 12 months, 23% of adults, or 11.6 million, received an unsolicited approach, although of course that does not mean that they would all have necessarily suffered detriment from that. Banning cold calling is not only an opportunity to deal with a nuisance, it is an effective way of disrupting the business models of the scammers and fraudsters. Perhaps this would be an opportunity to get to those higher-end activities to which the noble Lord, Lord Elystan-Morgan, referred.
I know the Minister is supportive of a ban on “every type” of call, because she told us so in Committee, but the strenuous efforts of Ministers have apparently failed to deliver on that aspiration. Notwithstanding the asserted complexity that the legislation might entail, we were told that if it was in scope, it would be in the Bill. It seems that it is in scope. That hurdle has been overcome, so what is the problem? We accept that there may be some complexity in drafting, but surely nothing beyond the wit of parliamentary counsel.
We urge the Government to make progress. Every day that goes by without the ban holds the risk that someone somewhere will be defrauded of their savings, their life turned upside down. We may hear from the Government, as we have before, that there are already restrictions on cold calling and unsolicited direct marketing, but this has not prevented consumer detriment continuing. On several occasions during our debates the Minister has told us she has disconnected her landline. If there is such confidence in the current framework, why on earth would that be necessary?
This is a hugely important issue, which is why we have common cause around the Chamber from pretty much all Benches. This is an opportunity to do something now. If we do not do it now, when will it be? I urge the whole House to support the amendments of the noble Lord, Lord Sharkey.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Buscombe) (Con)
My Lords, I thank all noble Lords who have taken part in this important debate with which we begin our Report stage on this important Bill. Amendments 1, 2 and 7, tabled by the noble Lords, Lord McKenzie and Lord Sharkey, my noble friend Lady Altmann and the noble Earl, Lord Kinnoull, would introduce a consumer protection function for the body and a statutory duty in respect of cold calling. I want to say straightaway that we do not believe that Amendments 1, 2 and 7 would depend on each other to work.
Amendments 1 and 7 would set a statutory function for the Financial Conduct Authority to pass on casework from consumers to the FCA on inappropriate, misleading or harassing approaches by financial services providers to consumers, as well as poor behaviour by providers in the areas of activity related to the body. The Government agree with the logic behind this but the Bill already gives the body the power to share information with the FCA under its information-sharing provisions. Specifically, Clause 12 contains a two-way information-sharing gateway between the single financial guidance body and the FCA that allows the disclosure of information, provided it is pursuant to the functions of either organisation. This would include information relating to cold calling on debt advice, debt management and pension access services.
The single financial guidance body will not exist in a vacuum. It will need to work closely with key stakeholders, and Clause 12 is designed to facilitate close working between the body and its sponsor department, the devolved authorities, the Financial Conduct Authority and the body’s delivery partners. The clause allows these key stakeholders to share information with the body and vice versa. The intention is to allow unpublished data, such as performance-related statistics and confidential insights gained into the financial guidance landscape, to be shared. This information may include personal data as long as any disclosure is in accordance with the Data Protection Act. The clause also allows information to be shared regarding suspected dishonest, unfair or unprofessional conduct by those supplying financial services so that the FCA can take appropriate action against the offending firm.
The powers would enable casework to be passed between the body and the FCA. We would expect that, subject to provisions in Clause 12 and the Data Protection Act, the body would share this with the FCA if that were the right thing to do for the individual. The Bill does not require the body to supply information of this kind to the FCA because there will often be circumstances in which it would be more beneficial for the customer to be signposted elsewhere—for example, to the Pensions Ombudsman Service or the Financial Ombudsman Service. As such, it is best for the body and the FCA to work out how this handover could take place using the powers in Clause 12.
To illustrate, let me give an example of what a consumer’s journey looks like today when impacted by fraud or scams, and what we see as the new body’s role to support the consumer. Where the body believes there has been wrongdoing, we would expect it to contact the FCA or other appropriate authorities. If an individual feels that they have been subject to inappropriate approaches or misconduct by an authorised firm, we would expect the new body to recommend to the individual that they contact the Financial Ombudsman Service or the Pensions Ombudsman Service, depending on the particular nature of their complaint. If an individual suspects that they have been contacted by an unauthorised firm or individual carrying out an FCA-regulated activity, it is already possible for the new body to transfer the casework to the FCA.
Furthermore, organisations involved with Project Bloom, a multi-agency group dedicated to tackling pension fraud scams—of which the FCA is part—have an agreed customer journey to which we would expect the new body to sign up. Part of this journey is that, if the individual or the body believes that a customer may have been a victim of a scam, the body should encourage them to contact Action Fraud, which is the UK’s national fraud reporting centre. The body would also recommend that customers contact Action Fraud when a customer or the guider suspects that the customer has been a victim of types of fraud other than pension scams. Action Fraud will collect information from the customer about the alleged fraud, and then act as a co-ordinator to cascade the information to the City of London Police or other relevant local police forces to investigate the issue further.
When you report a fraud to Action Fraud, you are given the option for your contact details to be passed on to Victim Support, a national charity that helps those affected by crime. If you take up this option, you will then be contacted by someone from the charity and offered free and confidential emotional support and practical help. Indeed, the Pensions Advisory Service currently encourages those who have been a victim of a pension scam to come back and contact TPAS for support in rebuilding their retirement savings, and offers a bespoke appointment where they discuss rebuilding pension funds and potential next steps. We would expect that the body would perform a similar service.
I hope this illustrates that a blanket obligation to share casework with the FCA would be unnecessary. A requirement for the body to share the casework could lead to adverse consequences; at worst, this could result in the customer being hindered in getting the right help that they need. I hope this reassures noble Lords that there is provision in the Bill for individuals to be channelled to the appropriate services if they have been victims of fraud or scams. It is of paramount importance that the body helps customers in this situation.
Amendment 2 introduces a statutory duty in respect of cold calling, which has been the subject of most noble Lords’ interventions this afternoon. The amendment seeks to do a number of things: to require the new body to publish an annual assessment of consumer detriment as a result of cold calling; to require the body to advise the Secretary of State to institute bans on cold calling if it thinks that would be conducive to its functions; and to give the Secretary of State the power to introduce a ban on cold calling, if recommended by the guidance body. I assure the House that the Government already do work to consider the impact that unsolicited calling has on consumers. Indeed, we have been clear that there is no place for nuisance calls or texts and there are already a number of measures in place to protect consumers from the impacts of such nuisance calls.
As I noted in Committee, the Information Commissioner’s Office enforces restrictions on unsolicited direct marketing. We have already increased the amount that regulators can fine those breaching direct marketing rules. On top of that, we have forced companies to display their number when calling people, and made it easier to prosecute wrongdoers.
As noble Lords will be aware, cold calling is already illegal in certain circumstances, such as where a person has registered with the Telephone Preference Service or has already withdrawn consent. Furthermore, the Bill already provides the possibility for the body to alert other organisations to any issues relating to cold calling. Clause 12 contains a two-way information-sharing gateway between the single financial guidance body and the FCA that allows the disclosure of information to each other, provided it is pursuant to the functions of either. This would include, for example, information relating to cold calling on debt advice, debt management, and pension access services. This information may include personal data, as long as any disclosure was in accordance with the Data Protection Act. The clause also allows information to be shared regarding suspected dishonest, unfair or unprofessional conduct by those supplying financial services, so that the FCA could take appropriate action against the offending firm.
Lord Rooker (Lab)
My Lords, I am sorry to interrupt, and I have listened to the whole debate, but how can a Government bring forward an amendment in the other place unless there is a vehicle sent from this place to allow them to do so? You cannot simply amend on the exchange like that without an amendment from this place.
Baroness Buscombe
My Lords, I beg to differ. Despite the noble Lord’s extensive experience in another place, it is entirely possible for us to bring forward an amendment in the Commons to introduce such a ban.
As I was saying, we want to ban pensions cold calling because a private pension plan is often an individual’s most valuable asset. A ban will send a powerful message to consumers to put the phone down. My officials recently met a range of stakeholders to explore the details of the ban and are currently working on developing the details of the policy arrangements.
Pensions cold calling is also a complex area which we want to get right. Indeed, the recent discussion with stakeholders uncovered interesting questions around how to define existing relationships and express requests for information. The Government will continue to finalise these complex policy details and we intend to publish draft legislation for scrutiny in early 2018. Following this, we will legislate at the earliest opportunity. This gives us the opportunity to develop legislation which is more carefully targeted and allows us to make proper provision for enforcement which this current draft does not allow.
The Government have listened and want to work at pace to introduce a targeted response which will strengthen the arrangements already in place. However, the proposed approach in this amendment could delay implementation of any such ban. If this amendment were passed, the Government would first have to wait for the body to be set up. It is not expected to be set up and operational until October 2018. Then, recommendations would have to be made to the Secretary of State. No doubt, this would not be immediate because this body will have a huge amount of work to undertake when it is first set up. So it could be at least another year or two before any consideration could be made, prior to a recommendation being put to the Secretary of State to introduce such a ban. Then the Secretary of State would have to make and lay affirmative regulations.
The noble Baroness, Lady Kramer, said that we need protection now. If Amendment 2 were passed, there would be much more delay than if the Government were to wait.
Baroness Kramer
I think the Minister distinctly said that she was considering a ban being introduced in the Commons on cold calling for claims management but not for pensions. So the timetable she has described becomes rather complicated compared with the alternative for which she has not given a timetable.
Baroness Buscombe
I have already made it clear, as we did in Committee, that we intend to bring forward a ban on pension scams. We cannot be entirely accurate on timing because, as the noble Lord, Lord Kirkwood, made clear, we have to find a legislative opportunity. As I have just said, we will introduce draft legislation early next year and that will go through a process of pre-legislative scrutiny. I hope noble Lords will accept that this is very sensible in order to get it right. Indeed, some years ago, this House introduced the possibility of draft legislative scrutiny in important situations such as this. We do not want to get it wrong.
I also say to the noble Lord, Lord Kirkwood, that it is not without this planet to expect and hope that there will be opportunities—gaps in the timetable—for legislation to come forward. Given the timetable for setting up the body and for the many things it will have to undertake in its early months, I suspect that passing this amendment would mean a protracted delay in introducing a ban on CMCs. The noble Baroness knows perfectly well that we cannot introduce the ban on pensions cold calling in this Bill because it is out of scope. CMCs are actually in scope.
Baroness Kramer
This amendment is in scope. It allows the banning not only of cold calling, but of a broader range of issues. The point made from the Labour Benches was that the Government always said they would have done it in this Bill had there been any mechanism for it to be in scope. It is now in scope, which is why we are debating it on the Floor today. We are not debating an out-of-scope amendment.
Baroness Buscombe
That is why I am making it clear that banning pensions cold calling is out of scope of this Bill, but the CMCs are in scope. I am sorry; this is very confusing for noble Lords. I shall focus on what really matters—namely, whether this amendment would bring forward a ban on cold calling. I must stress that that is not the case; there would be a protracted delay.
To reiterate, the Government agree with the spirit of these amendments and will bring forward legislation in this Bill, in the other place, in relation to cold calling for claims management activities. Along with our pre-stated commitment to ban pensions cold calling, I hope that reassures the House.
My noble friend Lord Faulks asked whether the SFGB is the right body to handle cold calling. I stress that I do not believe this is the right duty to place upon this body. It should be the subject of primary legislation. However, the Government intend to bring forward the appropriate legislation that will work in practice. That is the important thing here. My noble friend Lord Trenchard questioned whether this amendment was right and said that we needed to take care to avoid unintended consequences with a complete outright ban that could possibly work to the detriment of the consumer.
I shall detain noble Lords no longer. I hope that the amendment will be withdrawn.
Lord Skelmersdale (Con)
My Lords, before my noble friend sits down, she has given a commitment to legislate, or move an amendment, in another place to cover something like 90% of what is required by this amendment. Since when, the noble Lord, Lord Rooker, questioned the ability of the Government so to do. Surely to goodness, this Bill started in this House and has not even touched another place. Therefore, surely to goodness the Government can do what they like.
Baroness Buscombe
I am very grateful to my noble friend for clarifying that point.
Lord Sharkey
My Lords, I am grateful to all noble Lords who have spoken in this debate. I am particularly grateful to the Minister for her close engagement with the matters in these amendments and for her willingness to discuss the issues involved both inside and outside the Chamber. However, I am afraid that the Minister’s objections to Amendment 1 did not have much conviction or force at all, not even when supported by the noble Lord, Lord Faulks. The simple fact is that the SFGB should obviously be in the business of consumer protection. Its remit should allow it to consider, for example, the effect on consumers’ financial well-being of cold calling for financial services. That is what Amendment 1 does, thereby allowing the consequential Amendment 2 to tackle financial harm caused by cold calling. I was grateful for the Minister’s proposals to ban cold calling for CMCs via a Commons amendment, which clearly could be done. However, Amendment 42, which is only a week away, would do exactly the same thing. Why do we have to go round to the other place to do what this Bill would do if Amendment 42 were accepted? I look forward to the Government’s support for Amendment 42 as a means of saving time in the Commons.
I was also grateful for the commitment to publish—I think I heard it correctly—draft legislation on a pensions cold-calling ban. I am sorry that the train of the noble Baroness, Lady Altmann, is due to arrive in only two minutes. However, I think I heard the Minister say that she would publish this in early 2018, which is government-speak for probably June. But I note that there was no indication at all of the timetable for such a Bill, and I refer the House again to the remarks made by my noble friend Lord Kirkwood when it comes to the probability of such a Bill. I am afraid that I did not feel the objections aimed at Amendment 7, though extremely extensive in length, were at all compelling. They were full of “shoulds”, “expects” and “mays”, when in fact “must” is better, which is what the amendment does.
With these amendments we have an opportunity to increase significantly the financial protection of consumers —particularly vulnerable and financially stretched consumers. We can, with this Bill and these amendments, bring about bans on cold calling—not just for pensions, but also for CMCs and DMCs if there is evidence of consumer detriment, as there clearly is. We have argued about preventing cold calling for a very long time, during which the problem has become significantly worse. These amendments would finally address the problem and would address it for whatever creative cold-calling scam comes next off the cold-calling scam production line. These are simple, effective and linked measures which will reduce nuisance, reduce harm and significantly increase the protection of consumers. I would like to test the opinion of the House.
Lord Sharkey
“(3A) In exercising its functions the single financial guidance body must have regard to the effect of cold-calling on consumer protection and must make and publish an annual assessment of any consumer detriment.(3B) If the single financial guidance body considers that there are products or services where a ban on cold-calling would be conducive to its functions it must advise the Secretary of State to institute bans on such cold-calling and the commercial use of any data obtained by such cold-calling.(3C) On receipt of advice from the single financial guidance body under subsection (3B), the Secretary of State may by regulations made by statutory instrument introduce a ban on cold-calling and the commercial use of any data obtained by such cold-calling as recommended by the single financial guidance body.(3D) A statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament.(3E) For the purposes of this section “cold-calling” refers to unsolicited real-time direct approaches to members of the public carried out by whatever means, digital or otherwise.”
Baroness Buscombe
Baroness Buscombe
My Lords, before turning to Amendment 3, it may be helpful to the House if I were to say now that, in the light of earlier Divisions, the Government will accept Amendment 7 as it is consequential on Amendment 1.
Amendments 3, 5 and 6 address concerns raised by the noble Baroness, Lady Drake, and referred to by other noble Baronesses, including the noble Baroness, Lady Coussins. They provide certainty that the information, guidance and advice services provided by the single financial guidance body and its delivery partners will be impartial and free to members of the public.
As we stated in the Government’s response to the consultation on the single financial guidance body—and as I confirmed in Committee—it has always been the Government’s firm intention that the body’s information, guidance and advice services should be provided free to members of the public. We recognise the concerns that often the people most in need of financial guidance or debt advice are already in financial difficulty. The existing organisations already provide free services and we are clear that this should not be any different when those services transfer to the new body.
In Committee, the noble Baroness, Lady Drake, made a number of very pertinent points about the importance of the new body being wholly customer-focused and not influenced by commercial interests. She highlighted that, in the case of guidance, the body needed to be trusted to take the customer up to, but not into, the “decide and buy” or “decide and act” moment. She stressed that a commercial comparison website that takes commission is very different from a factual comparison table that provides information based on customer needs.
We agree that guidance from a provider with a vested interest in the decision a customer makes carries a greater risk of being partial. Impartiality—ensuring that the person or organisation giving the information, guidance and advice has no vested interest, whether that be the single financial guidance body itself or its delivery partners—should be central to the new body’s ethos. This amendment provides certainty on these two important matters. It places impartiality at the heart of the body’s culture and ensures that its services will be free to members of the public. For these reasons, I beg to move.
Baroness Drake (Lab)
My Lords, I support and very much welcome these government amendments. I thank the Minister for the consideration she has given to the arguments put forward in Committee. These amendments would make the guidance and advice free to the user and impartial. It is very important that it should be free to the user and not vulnerable to ministerial discretion to decide to charge a fee at some later point for three important reasons.
I do not want to prolong the debate, having got the amendments but, just in case there were ever to be reconsideration of the point, I say that if the new body is to be effective in meeting its objectives it needs to be trusted and universally recognised for supporting members of the public and those most in need. To charge for information and guidance would make the relationship transactional, which risks undermining trust and public perception of the purpose and ethos of the service. It also needs to be free to the user if it is to reach the people who need it most. Charging a fee could deter many people on low and moderate incomes. In many instances, getting customers even to seek guidance often needs a pull, and charging just makes that problem more difficult. If the service is not free to the user but subject to a fee, the new body’s priorities and impartiality could be compromised because of potential conflicts over where to put resource from the organisation—towards those most in need or to the services with the greatest potential to raise revenues.
The requirement in the Bill that guidance and advice given must be impartial is very important. The Minister referenced arguments used in Committee that there are so many providers of information and guidance that they nudge or encourage the consumer in directions that are not driven solely by their needs. It will be the fact that the new body is impartial in the advice and guidance it gives that will distinguish it and allow it to build trust and to deliver its statutory objectives. I thank the Minister for bringing these amendments forward.
Baroness Kramer
My Lords, I join in thanking the Minister for bringing these amendments forward. I think she recognises that the three existing bodies to be merged all have a reputation for impartiality. Their services are free and she is making it absolutely clear that those vital elements which she respects and appreciates so much in the existing bodies will carry through into the new body. It seems to me that stating it clearly, rather than leaving it to be read and potentially misconstrued, is exceptionally helpful.
Lord Stevenson of Balmacara (Lab)
My Lords, I thank the noble Baroness for making the statement she did at the Dispatch Box at the start of this debate. We are very appreciative of the acceptance of Amendment 7, which goes with the spirit of the way we have conducted the discussions over the Dispatch Box and in meetings over the period of the Bill. It has been one of the happiest Bills I have been involved in and I have been involved in some very happy Bills. I extend the thanks to the Bill team for their good supportive work. It has been a very good experience all round. This amendment is another example of that, because Members will recall that in Committee the Government’s line was that—although they absolutely agreed that advice, guidance or information given by the new body or by its contracted other bodies must be free at the point of use—they did not think it necessary to amend the Bill. However, over the time we have been talking about it, it has grown on them that there might be an advantage in doing so, for all the reasons my noble friend Lady Drake gave. Having those words at the heart of its mission statement and affecting all the work it does will make it a much better body, so we are very grateful and we support the amendment.
Baroness Drake
Baroness Drake
My Lords, the intent of Amendment 4 is to require that the introduction of a pensions dashboard shall be as a single, public service dashboard overseen and hosted by the single financial guidance body, a safe viewing space where an individual can see all the information on their state and other pensions savings. I welcome the Government’s recent statement that the Department for Work and Pensions is to take ownership of the dashboard project and take it forward to the next phase. Releasing data on individuals’ state pension entitlement to the dashboard is a key criterion for its success. The DWP being now responsible for the database of state pension entitlements and taking ownership of the project is in itself reassuring, because the department could never allow release of this personal state data through the dashboard unless it was completely satisfied with the governance, standards and protection of individuals.
The industry has done a good job in driving the dashboard project forward and the recent report on the project from the ABI asserts,
“that it is possible to build the ‘plumbing’ to connect multiple pension schemes to dashboards and for people to see their pensions in one place … infrastructure can be delivered, and a data standard for sharing information can be agreed … industry can work successfully with FinTech providers to make this happen”.
That is good and it has done good work, but the project now needs to move into a new phase, owned and driven forward by the Government, engaging a wide body of stakeholders, including, importantly, consumer groups. The public need to see clear proof of concept from the perspective of the consumer’s interest and the public good.
Within the dashboard there will be a pension finder service: the engine that sends out messages to search the records of all providers and schemes records to see if there is a match to the customer details. The engine then collects that data to populate the consumer’s front-end viewing space. If introduced, the data of millions of people will be accessible through the dashboard—high standards, tough regulation and sound governance will be required. To be successful, a dashboard requires all providers to release their data, but there are some big and significant questions still to be answered on governance, implementation and consumer protection before the Government can move to compel all providers to provide their data, which the industry is calling for.
There is a major governance challenge to be addressed: the consumer protection of millions of people in both the provision of the dashboard and the infrastructure that supports it. Issues such as identify validation and security, data matching and pension-finding consent need to be overseen and policed.
The ABI report acknowledges,
“the need for strong governance to make clear what obligations, liabilities and controls are in place … to oversee the setup and maintenance”,
of the dashboard. Under what circumstances should individuals’ data be shared with third parties? What will be the requirements around consent and protection? What happens if those parties are not regulated? Certainly, any unregulated party must be excluded from using dashboard data. After all, the consumer will be giving permission for the use of their personal data to search for pension savings, and for the provider or scheme to share that data with the dashboard.
The dashboard, in requiring near-universal coverage, raises the governance bar on protecting consumers from bad behaviour by both regulated and unregulated providers, scammers and consumers’ own vulnerability when all their pensions and savings data can be identified and viewed in one place, accessible through a digital identity. Oversight of that governance must rest with a public body with the right powers to work with regulators and industry to deliver what is required.
The potential scale of the dashboard raises the importance of public control over its implementation and rollout. There will be the constraint of the minimum viable product, but a staged implementation approach to full coverage will reduce the risk to the consumer. I recognise the dashboard is only as useful as the data that populates it, so a pathway to full coverage is needed for its success, but that needs public control.
The Government need to give clarity on the consumer benefits and public policy outcomes that a pension dash- board is expected to deliver. Any decisions on the project must be benchmarked against these desired benefits and outcomes. The dashboard may provide people with the information they need to consider their options but, of itself, it will not enable them to make informed decisions. It is important that support structures exist around the dashboard to avoid people making poor decisions with the information they have accessed.
Baroness Kramer
My Lords, I congratulate the noble Baroness, Lady Drake, on such an extraordinarily comprehensive but succinct speech framing the future structure of the kind of pensions dashboard that I think everybody in this House feels consumers deserve. I also congratulate the Government on their willingness now to step forward and take ownership of this process. As the noble Baroness, Lady Drake, said, the two key underlying issues that will be crucial to the public are protection of data—the whole issue of access to data—and quality guidance to enable them to make use of the information that comes to them through that dashboard as they try and structure their future financial circumstances.
I assure the House that although very often we on this side will try to write an amendment that we think is comprehensive and will basically create the legal framework we want the Government to follow, there are times—this is one of them—when we recognise that the need for development and the underlying complexity of the issue mean that the far better route is government ownership of the policy and the project to take it forward. The Minister will know from having listened to the noble Baroness, Lady Drake, and others in the House that we will always be here with scrutiny and with recommendations to the Government, but it will be exciting to see the process that they now put in place to make sure that this goes from merely a possibility enabled by technology to a very real service for consumers in this country.
Baroness Altmann (Con)
My Lords, I too congratulate the Government on their decision to host the pensions dashboard and to put in place the necessary measures for the dashboard to be held in one place. I congratulate the noble Baroness, Lady Drake, on her persistence and her excellent description of why it is so important that this measure is implemented in the manner she set out.
The public need a single dashboard. If individual private sector organisations each released their own dashboard, it would be too confusing for the public. One thing that will certainly assist in any dashboard is standardised statements, required perhaps by the FCA and the Pensions Regulator, whereby anyone who receives a statement about what pension they have—what terms it has and so on—has to be given a piece of paper. Sometimes called a pensions passport—although it does not matter what it is called—this will be a standardised, simple statement that tells people in one place what they have and clearly explains the kind of terms that the pension has, its value and any special features. Sadly, too often, the private sector has not been able to achieve that. Very often the statements that people get are almost unintelligible. They are sometimes far too long and use different language for the same type of pension, so that people struggle. I support this amendment and congratulate the Government and the noble Baroness.
Lord McKenzie of Luton
My Lords, I too thank the Government for the announcement that the dashboard is to be taken forward and acknowledge the role that has been played by several Members of your Lordships’ House, particularly my noble friend Lady Drake, who with her impeccable logic and powers of persuasion has really led the charge on this. I also acknowledge the noble Baroness, Lady Altmann, who has long campaigned on this issue.
We know that the delivery of the dashboard will be a huge challenge, but it is an opportunity for individuals to see all their savings and pensions in one place, including the state pension. As my noble friend Lady Drake said, the key fact is that it is a single, public service dashboard, so that individuals who use it can have confidence that there will not be a conflict of interest between those seeking to use information and data to sell products and those who are genuinely attempting to help people to understand the pension pots that they have. The data shows that over their lifetime people could change their jobs 11 times. I am not sure how current that is, but 11 changes of jobs could mean as many as 11 pension pots. We know the challenges of small pension pots and how difficult it is for people to access those—they forget where they are. It is particularly an issue for women.
Hearing that the dashboard is to be taken forward makes this a good day. There is lots of hard work to do, and there are many governance issues for your Lordships’ House and others to keep an eye on as it gets developed.
Baroness Buscombe
My Lords, this amendment, tabled by the noble Baroness, Lady Drake, is identical to the one tabled on 17 July 2017, which I have to say sounds an awful long time ago and feels it too. It would require the body to provide a pensions dashboard as part of its pensions guidance function. The purpose of pensions dashboards is to provide a clear picture of all an individual’s pension savings in one place, accessible online. Pensions dashboards are potentially an important tool to help people to take control of their retirement planning. With automatic enrolment, more people than ever before are saving into workplace pensions, and we know that the nature of work is changing, with more people taking a number of jobs in their lifetime—the noble Lord, Lord McKenzie, has just talked about 11 times possibly becoming an average. The ability of people to view their pension savings in one place could make a real difference in assisting them to plan and save for their retirement, including making better-informed choices on the financial impact on their pension provision of working longer if they choose to do so.
I promised to come back on Report with a full statement on the Government’s position on the dashboard project. The Government are firmly committed to the delivery of pensions dashboards and have restated our commitment, as announced last week at the Pensions and Lifetime Savings Association conference in Manchester by the Parliamentary Under-Secretary of State for Pensions and Financial Inclusion in another place. It was announced that, to take forward this work, the Department for Work and Pensions will take lead responsibility for the policy within the Government and manage the next phase of the project. Working with industry, consumer organisations and regulators, the department will conduct a feasibility study to examine the complex issues that still need to be addressed, such as those highlighted by noble Lords today, particularly the noble Baroness, Lady Drake. We will share an update on this work by spring next year.
The very helpful report published on 12 October by the ABI-led pensions dashboard project sets out many of the key questions to be explored, and we will look at its research findings and recommendations in detail as part of the feasibility work. We are grateful to all those organisations involved in the project so far. The aims of the feasibility study will include the following: exploring in more detail what will be of the most use to individuals to help them plan effectively for their retirement, as consumers’ needs must be at the heart of our approach; the viability and implications of different delivery models; determining a suitable framework of governance for pensions dashboards; ensuring that consumer interests are safeguarded and their personal information is protected—as the noble Baroness, Lady Drake, has said several times today, we are talking about providing a safe space for public good so it is incredibly important to get this right—and thinking through issues of regulation, standards, data security and identity verification; establishing how to ensure the widest possible contribution of data from pension providers, bearing in mind that effectiveness will be linked to how much information individuals can see in one place, while also taking account of the potential impact on industry; determining the indicative costs of potential models and how they might be funded sustainably; and setting out a pathway for delivery with provisional milestones and recommendations around communications and publicity.
Baroness Drake
My Lords, I am grateful to the Minister for her reply. I tabled my amendment for two reasons: the first from conviction, and the second to ensure that I could secure the fullest possible statement from the Government on Report. I recognise that ownership is being transferred to the DWP. I consider that to be very positive, first, because of its remit and experience; and secondly, because it has an alignment of interest over its own database, which is the state database. The Minister has already confirmed that the Bill would not preclude having a public governor of the dashboard in the single financial guidance body if that was the policy decision. In her statement, she has quite clearly said that the Government accept that the dashboard must be of use to individuals; that consumers must be at the heart of the design; that it has to be viable, and that the framework of governance must hold public confidence. The Minister referred to a report being produced in spring next year, and I recognise that there is a lot of work to be done, but I think she can assume that there will certainly be several Members of this House who will be looking to scrutinise what the Government say in the report. On that basis, I beg leave to withdraw the amendment.
Baroness Buscombe
Lord Sharkey
“( ) The consumer protection function includes the obligation for the single financial guidance body to pass on casework from consumers to the FCA relating to—(a) suspected inappropriate, misleading or harassing approaches with regard to debt advice, debt management, pension access and claims management services; and(b) suspected dishonest, unfair or unprofessional conduct by those supplying financial services relating to the areas of activity of the single financial guidance body.”
Lord McKenzie of Luton
Lord McKenzie of Luton
My Lords, I will also speak to Amendment 17. Together, these amendments revisit the issue that we raised in Committee concerning the SFGB’s role in financial inclusion and add as a specific objective of the body contributing,
“to the reduction and elimination of financial exclusion”,
particularly for vulnerable people. Our amendments spring in particular, as will be recognised, from the House of Lords Select Committee report on financial exclusion, which regrettably has still to receive the Government’s response. I would press the Minister on when this might be forthcoming, but can anticipate that the answer will be some variation of “soon”, “in the near future”, “imminently”, or perhaps even “before Christmas”.
The amendments raise two particular issues: where are we as a country on financial inclusion and financial exclusion; and what, if any, should be the role of the SFGB in addressing these challenges? Dealing with the latter first, we argue that it should be included in the strategic function of the new body and that it should have as one of its objectives contributing to the reduction—or elimination, although we accept that that is perhaps overly ambitious at the moment—of financial exclusion, especially for vulnerable persons. We should stress that this does not seek to have the SFGB usurp the role of the FCA or the Treasury in these matters—a point made by the Minister on our original amendments—but to support financial inclusion and help reduce financial exclusion.
As defined by the Minister, the noble Lord, Lord Young, financial inclusion is about individuals and businesses having access to useful and affordable financial products and services that meet their needs. If the single financial guidance body does not have a role in addressing these matters through its money guidance function or improving the financial capability of members of the public, then what is its purpose? Will the Government be clear on this issue and say precisely what role they believe the single body should play in promoting financial inclusion and combatting financial exclusion? What is the Government’s view on that?
The need for a strategy to improve financial inclusion in the UK was a key recommendation of the Select Committee. We have already acknowledged the importance of appointing a Minister for financial inclusion and the need to engage across government to lead, co-ordinate and monitor a strategy. We accept that leadership on this might reside primarily outside the SFGB, but to suggest that it does not have a role seems perverse. If financial inclusion is about access to financial services, capacity to manage financial transactions and avoiding problem debt, then financial exclusion would clearly cover circumstances when this is not the case. That more should be done to advance financial inclusion can hardly be in doubt. Promoting financial inclusion was a key recommendation of the Financial Inclusion Taskforce, whose mission was to increase access to banking, improve access to affordable credit, savings and insurance, and improve access to appropriate money advice. It undertook monitoring of financial inclusion initiatives as well as regular research. Unfortunately, the taskforce fell by the wayside when abolished under the coalition Government and thus left a gap. We hope that that gap can be filled with the help of the single financial guidance body.
There are a raft of statistics that identify the levels of financial exclusion in the UK, those at risk of being financially excluded and those at risk of facing significant barriers to engagement in modern society. Some 13.5 million people live in low-income households or in poverty, and 1.7 million adults do not have a bank account. One-third of people over the age of 80 have never used a cash machine or prefer to avoid them; 3.8 million UK households do not have any internet; and 40% of the working-age population have less than £100 in savings. The vulnerable or potentially vulnerable are not a fixed or homogeneous group, but a common characteristic is often poverty—simply not having enough money—and having to transact on the most expensive terms.
The Select Committee outlined some of the particular circumstances that made various groups vulnerable: those with identity verification issues, such as ex-offenders; those with mental health challenges, where financial exclusion can have a variety of negative consequences; and the disabled, where often reasonable adjustments are inadequate. We have very serious issues to confront.
We could debate these important issues all day, but I am aware that we have a further amendment coming up in the name of the noble Baroness, Lady Finlay, which might be a formulation on which the Government can offer a measure of support. It certainly has our support. In the meantime, I beg to move.
Baroness Kramer
My Lords, I was glad to add my name to Amendment 8, moved by the noble Lord, Lord McKenzie of Luton. Amendment 17 is almost the other side of the coin.
I think that most Members of this House, including those in the Government, feel that financial inclusion is sufficiently important that it should be expressed through most of the financial bodies that we create. The noble Lord laid out very well the depth of the problem; others on the committee may speak to that in a moment.
It would be helpful to have clarification under the Bill, in part because we have genuine confusion. I am pretty sure that Ministers have all been under the impression that this matter is wrapped up and dealt with in the context of the powers, responsibilities and objectives of the FCA but, having talked to the FCA, they will now be aware that it has a very constrained role in this area and does not provide capacity to deal with the problem—for example, filling in gaps—that most people assume that it has.
Part of our problem, of course, is that we never consolidate financial legislation, so there is genuine confusion over who does what and assumptions that particular issues are taken care of when they are not. Financial inclusion is one of those that has fallen right through the holes, due to the mismatch of a whole variety of different pieces of legislation. This is an opportunity to provide for a body to consider these issues centrally to everything that it does. What it does is very relevant to that process. That is obviously not a complete answer to the problem of financial inclusion—that involves many others—but we have to make a start somewhere. It should now become a regular habit for financial inclusion to be addressed in each piece of financial legislation.
Viscount Trenchard
My Lords, nobody in this House would disagree with the idea that we must do as much as possible to reduce financial exclusion and promote financial inclusion, but, again, I am not sure that the amendments are practical. Normally, anything proposed by the noble Lord, Lord McKenzie, and the noble Baroness, Lady Kramer, is of the very greatest sense; I know that from experience going back many years.
However, I worry that to amend the strategic function as proposed to strengthen further the obligation on the new body may be just a bit too much of a burden, too onerous, too open-ended and not properly defined. It is very hard to define exactly what is financial inclusion and what is financial exclusion. Obviously, the former is a good thing and the latter a bad thing, but if the strategic function is already there to support improvement in financial capability, the ability of the public to manage debt and the provision of financial education to children and young people—although I think that should probably be to everybody—the amendment duplicates that, makes it too vague, too hard to define and, potentially, too onerous.
Furthermore, I also worry about enshrining in statute the terms,
“vulnerable individuals, families and communities”,
because there is nobody in your Lordships’ House who does not recognise that vulnerable individuals need more help and support than those who are not so vulnerable. Nevertheless, it is very hard to define, and to create a different obligation for an ill-defined set of individuals and communities from the general obligation to all members of the public may be confusing and make the legislation less clear and less effective. For those reasons, although I understand the noble Lords’ objectives, I cannot support their amendments.
Baroness Tyler of Enfield (LD)
My Lords, I rise briefly to add my strong support for the amendments. In so doing, I apologise to the House that I have been unable, for reasons of ill-health, to participate in earlier discussion of the Bill.
As chair of the former Lords Select Committee on Financial Exclusion, I was very pleased when I read the amendments. The noble Lord, Lord McKenzie, and my noble friend Lady Kramer have set out their rationale very well, and I shall not go over that ground again, but if we are setting up a new single financial guidance body, promoting financial inclusion must be clearly set out as one of its key objectives.
On the point referred to by the noble Lord, Lord McKenzie, it would be nice to know when we will receive the government response to the Select Committee report. Correct me if I am wrong, but I think I recall that the noble Baroness, when asked back in July, said that the government response would be available “very soon”. We are now some way off the tail end of July. If the Minister could give any clarification of when the government response will be available, that would be extremely helpful.
Lord Young of Cookham (Con)
My Lords, the co-pilot is in charge for this leg of the journey. I take this opportunity to address the amendments tabled by the noble Lord, Lord McKenzie, and the noble Baroness, Lady Kramer, on the common theme of financial inclusion, and welcome the contributions from the noble Baroness, Lady Tyler, and my noble friend Lord Trenchard, who anticipated in part some of my response.
Having listened to the noble Lord, Lord McKenzie, I would not disagree with what he said about the challenges that confront the Government in this area: the problems of financial numeracy and the serious issues, to use his words, that he identified as needing to be addressed. I will come to that in a moment.
As I said in Committee, we take the issue of financial exclusion very seriously and are grateful for the important work of the Financial Exclusion Select Committee in highlighting this important issue. We have considered the committee’s wide-reaching report, including its recommendations concerning government leadership and the welfare system.
In answer to the two questions about timing, the Government aim to respond to the committee’s report—here I use an option not mentioned by the noble Lord, Lord McKenzie—before Third Reading. I understand noble Lords’ impatience that we did not have our response to the report available for Report, but I hope that there will be adequate time to consider it before Third Reading. I reassure noble Lords that the Government’s response will address the committee’s recommendations and will bring forward new proposals on how better to co-ordinate across government, the regulators and the wider sector on the key issue of tackling the significant issue of financial exclusion.
As was mentioned in our debate, this area has been given new prominence within the DWP ministerial team by the appointment of my honourable friend Guy Opperman. At the same time, it is important that this change is seen in the context of HM Treasury’s ongoing, government-wide policy responsibility for financial inclusion and exclusion. A key part of the Government’s approach to tackling these issues will be to require the relevant departments to work collaboratively, and the response may say something about that.
I stressed in Committee the Government’s understanding of the terms “financial inclusion” and “capability”, and I thought that we had established an element of agreement on this point. At the risk of reopening a theological discussion, financial inclusion refers to ensuring that members of the public have access to financial services. Financial capability is ensuring that the public are best able to make use of the financial services to which they have access. These terms are widely accepted by, for example, the World Bank. It is important that we build on this shared understanding of the terms so that there is clarity about the intentions for the body, which is to build financial capability among members of the public. To put this another way, the new body should not have a role to regulate the supply of financial services and products by the industry. It should, however, play a key role in helping people engage with or consume these products and services.
This does not mean that the supply of these products is not important. The point is that it is the role of the Financial Conduct Authority—not the SFGB—to ensure that appropriate action is taken when the market fails to supply useful and affordable services and products. So the omission of financial inclusion in the Bill is not an oversight; it is deliberately omitted from the body’s functions and objectives which refer to the supply of useful services such as savings, credit and insurance products. The proposed amendments would greatly expand the body’s statutory remit and are also likely to create confusion over the roles of the Treasury and the FCA, both of which have the relevant responsibilities and powers and are better placed to influence the supply of financial services and products.
In terms of financial exclusion, as the noble Lord, Lord McKenzie, rightly observed in Committee, even more important than these definitions is the question: what will the Government do to act in a more co-ordinated way to tackle financial exclusion? I want to assure noble Lords that, following the Select Committee’s work in this area, the Government will propose, in their response, more appropriate and effective ways to address this issue than through the functions and objectives of the SFGB.
With regards to the particular issue of improving access to financial services for vulnerable people—which comes under Amendment 17—we consider that the FCA, and not the SFGB, is more appropriate to deliver that role. The FCA has already carried out a great deal of work in this area. Many Peers had a helpful meeting with the FCA last week. I hope it reassured noble Lords that the FCA takes its responsibility on consumer protection very seriously. The FCA published two pieces of in-depth research, carried out in 2015 and 2016, which supported the development of current initiatives to address access issues for vulnerable people. I came away from that meeting with a slightly different impression from that of the noble Baroness, Lady Kramer.
As discussed in the meeting, issues regarding access and vulnerability are at the core of the FCA’s mission and business plan, published in April this year. To quote from the mission:
“Understanding vulnerability is central to how we make decisions. Consumers in vulnerable circumstances are more susceptible to harm and generally less able to advance their own interests”.
The FCA is due to undertake a number of further projects to understand better the concerns of vulnerable groups, not least through its forthcoming work to develop a consumer strategy by means of its consumer approach paper to be published in the next few weeks. This will provide a means for the FCA to measure outcomes for vulnerable consumers. It will work to develop vulnerability mapping so as to ensure that it has captured the needs of vulnerable consumers when finalising its business priorities.
In Committee, I mentioned the FCA’s TechSprints, so I do not need to do so again. It is also exploring issues for those living with cancer and the problems they face in gaining affordable access to travel insurance. In due course, the FCA will publish a feedback statement with its findings and the next steps in the light of responses to its call for input.
More recently, in September, the FCA published an occasional paper outlining the findings of its ageing population project. This paper reviews the policy implications of an ageing population and the resulting impact on financial services. The FCA highlights risks to older consumers who are more likely than other groups to be vulnerable—an issue raised by the noble Lord, Lord McKenzie. To try and minimise harm, it has suggested areas where financial services firms could give greater consideration to how they treat older consumers.
Finally, even more recently, the FCA published its inaugural, annual financial lives survey—its largest tracking survey of consumers and their use of financial services. This is a huge undertaking, drawing on responses from just under 13,000 UK consumers aged 18 and over. The report tells the financial story of six different age groups to show key themes at each life stage, from those aged 18 to 24 to those aged 60 and over. The survey shows that 50% of UK adults—25 million—display one or more characteristics that signal their potential vulnerability. The FCA will use the results of the survey to prioritise its work. I hope the description of some of what the FCA is doing reassures noble Lords that it takes seriously its responsibility towards those who are vulnerable.
As a result of the FCA's work and its engagement with firms, there have been tangible developments from the industry in this area. This includes work led by the Financial Services Vulnerability Taskforce. In addition, the FCA has also seen increasing evidence that firms identify and then improve outcomes for vulnerable consumers.
To reiterate, as my noble friend Lord Trenchard said, the current amendments would greatly expand the remit of the body and could cause confusion over the role of different public institutions. I hope that, having heard this explanation, the noble Lord might be willing to withdraw his amendment.
Lord McKenzie of Luton
My Lords, I thank the Minister for his reply which does not surprise me in great detail. May I start by saying to the noble Baroness, Lady Tyler, what a great pleasure it is to see you with us this afternoon? I hope we will have another occasion—perhaps before Third Reading—to acknowledge the role that she played in producing this important tome on financial exclusion.
The noble Viscount, Lord Trenchard, said it would be too much of a burden. Throughout our discussions, we have been told that this is a framework Bill. What use is made of this framework will depend on who ends up as the chief executive and the role that they have. From this point of view, these amendments are deliberately non-prescriptive. Are we seriously saying that this body would have no role in relation to a strategy to improve financial inclusion or combat financial exclusion; that this would be off limits and nothing to do with it? I accept entirely what was said about the role of the FCA and the importance of its remit in these circumstances. We may not agree with it in its entirety but are we to say that this new body, which has a range of functions relating to information guidance and the obligation to develop a strategy—particularly on this important issue of financial exclusion—must be silent on these matters; that it has no role at all? This does not seem right.
I have taken on board the debate we had in Committee about it being the role of the FCA to lead on this; or the FCA now and the new Minister across government. I accept that. Perhaps before we had formulated a lead role for the single body; I think we have moved back from that and accepted the points that were made. However, I have difficulty in accepting that it would have no role in the future. The Minister looks as though he is about to spring to his feet.
Lord Young of Cookham
Perhaps I can reassure the noble Lord, Lord McKenzie. Of course, the SFGB is going to work closely with the FCA and the Treasury on issues regarding financial inclusion. As I said, we envisage a partnership, with the FCA promoting access and the SFGB promoting capability; this is where the two meet. We do not see the SFGB leading on inclusion in the way in which it will be leading on financial capability. This is why we have difficulty with the particular amendment that the noble Lord has put forward.
Lord McKenzie of Luton
I thank the noble Lord for that clarification. The amendment does not suggest that the single body would be leading on it. This is the change between the debate we had in Committee and the debate tonight. We recognise that it has a role to play in supporting but not in running the show. Perhaps we had better move on because I am not sure that we are going to reach agreement on this. The Minister’s notes may reflect our original position, but he seems to have acknowledged that there is a role for the SFGB in supporting the activities around financial inclusion and exclusion. At this late stage, I am not sure if there is anything that can be done to reflect this. If we are to get a report, feedback or the Government’s response to the report of the House of Lords Select Committee before Third Reading, I hope that the Minister will acknowledge that this issue will not necessarily be off bounds when we come to Third Reading, as that potential new information runs through a lot of the debate that we have had. I hope that before we conclude on this the Minister will give an assurance that we can raise these issues at Third Reading. If he wants to give that assurance now, that would be good.
Lord Young of Cookham
The noble Lord may be tempting me to say something beyond my pay grade about what is in order at Third Reading and what is not. However, I will reflect on what he said and about the impact of publishing the response. I would be rash to give a commitment at the Dispatch Box that this issue will definitely be addressed at Third Reading but I will do my best.
Lord McKenzie of Luton
Clearly, the Minister is a safe pair of hands in the cockpit. I thank him for that. I am grateful to the noble Baroness, Lady Kramer, for her support. Her remarks mirrored our position. We are not saying that the FCA should not lead on some of this, but it cannot and will not do everything and there is a role for the body we are discussing. Having said that, I look forward to the amendment that will come up soon. I beg leave to withdraw Amendment 8.
Lord Stevenson of Balmacara
My Lords, I will speak also to Amendment 10 in this group. We may repeat some of the ground that has just been covered. Perhaps we can move at the speed of a jet engine rather than that of a turbo prop to expedite things, if I can extend the metaphor a little, as this issue is broadly similar and was raised in Committee.
I make two points. When we raised what is now Amendment 9 in the form of the then Amendment 16A, which I think was in the names of the noble Earls, Lord Kinnoull and Lord Listowel, and the then Amendment 18, which was in the name of the noble Baroness, Lady Kramer, we thought that there was room to explore further the detail that we wanted to see in the wording of the Bill itself. However, we were reassured by many of the Ministers’ remarks in both these debates, so to that extent did not push it. It is interesting to reflect on what might be contained in the Government’s response to the report from the Lords Select Committee which deals with these two important issues. We are talking here not so much about the broader strategic and other issues but particularities about the way in which some of the detailed work that is expected of this body might take place. That work should include care leavers. We had a rich discussion about what care leavers needed in terms of financial strategy and support. The Minister picked that up in her response and we had a sense that there was a government push behind this in view of the recognition that people leaving care who had not been given proper financial support or financial education would need additional help. The hope was that the SFGB would be able to provide that in whatever form seemed appropriate.
As regards Amendment 10, there have been a number of discussions around the question of whether or not one can segment the people who need financial education into groups, perhaps by age or lifestyle. The noble Lord mentioned the report from the FCA on the lifestyles of those who experience difficulties with finance, which I read with great interest and found very interesting. It is a wonderful piece of work which tries to cover the whole United Kingdom. It examines how people live their lives, how difficult and chaotic those lives can be in some cases and how well planned and organised in others—not mine, I should say. It is interesting to reflect on some of the figures mentioned by my noble friend Lord McKenzie. We are talking about a lot of people—4 million people who regularly are at a point where their lives could collapse because of a small incident. That is a terrifying thought. If we cannot provide the education and support necessary for them, we fail as a society.
Amendment 10 attempts to move away from that slightly broad segmented picture to consider the various stages of people’s financial lives when they make major decisions on the purchase of houses, cars or whatever it is we do with our lives. We have learned from those who have spoken in these debates that the educational process that goes on in people’s minds is accelerated and assisted when it is either going through a period of stress or when a particular event is happening. For example, when you buy a house you have to know about mortgage rates, the issues that are going forward and the prospects you have for insuring it, reinsuring it, and all the stuff that goes with that. That tends to fall back once you have done it and you are not thinking of moving again but the point at which the education can take place is tied into an event, not to an age group or particular activity in life. These amendments try to get a sense from the Government of how the SFGB would operate.
The general response which we have already covered, was encapsulated in a previous debate where the noble Baroness said:
“We believe that it is unwise to give the new body a requirement to advise the Secretary of State on explicit issues, as worthy as those issues are. There are several topics that the body may wish to look into as part of its strategic function. Choosing a few could risk limiting the body’s ability to look widely at the sector and have regard to emerging issues in future.—[Official Report, 19/7/17; col. 1726.]
You can agree or disagree with that. I think there is a case for flagging up and embedding certain policies in the Bill. However, sufficient account may be taken of the comments made in the debates in Committee and on Report to allow that to flow naturally into the work that the SFGB will do.
The point about repositioning these amendments for discussion tonight is that time has moved on since July. The Bill itself has changed a bit and some of the thinking around it has benefited from the wider discussions which have taken place, not least the visit by the consumer affairs director at the FCA, who, as the noble Lord said, spoke at a meeting last week and made some very interesting remarks about what the work entailed and what approach would be taken to it. That will complement the knowledge and understanding we have about the SFGB when it comes forward. In that sense it is important that we revisit these areas not because they are important in themselves, although they are, but because of the way in which they tell us more about how the SFGB will operate. If some material on this emerges in the Government’s response to the Select Committee’s report, it would be helpful to take up the issue again at Third Reading, if it should prove necessary. I beg to move.
Baroness Kramer
Obviously, we support these amendments. The Government’s argument has always been that this issue will act as a constraint. However, we think it draws attention to the problem and empowers people. One of our great dissatisfactions historically with the provision of financial education and financial capability is that it does not seem to create people who are more financially capable when they need to be. Amendment 10 raises once again the issue of timing and relevance. We are all human beings and we can go through various forms of training but if we then never use those skills or that information but require it 10, 15 or 20 years later, that is the point at which it needs to be recalled rather than having a tick-box exercise to show that at the age of 16 we took a class on those issues. We want this education to be relevant and to underscore the direction that I hope very much the single financial guidance body will want to take, but is by no means required to take, of looking for relevance and at situations where there is critical need, care leavers being one of the most obvious examples of that. We have known for years that care leavers get themselves into enormous trouble because of their lack of awareness of these issues but no body has felt it necessary to step into the breach. Here we have the perfect body to step into the breach. That would be entirely consistent with what it is doing. That is the mood and spirit of these amendments. I hope very much that the Government take the issues on board because were we not to see results that responded to the spirit and meaning behind these amendments, we would have a body that was very suboptimal. I think the House would agree with that.
Baroness Finlay of Llandaff (CB)
My Lords, I thank the noble Lord, Lord Stevenson, for his very important comments in introducing these amendments. He has covered some issues that I was going to cover in relation to my amendment, which is next. I wonder whether he feels my amendment covers some of the things he is concerned about, because care leavers are just one group in vulnerable circumstances—we all know that—but there are other groups as well. I have a slight concern that once we start to put lots of different lists in the Bill, somebody will be left out. I will explain why our amendment is worded as it is and I am very grateful for the support from his Benches, but I raise that as a question.
Lord Young of Cookham
My Lords, in response to the comments of the noble Lord, Lord Stevenson, about the propulsion available to the co-pilot, it remains the same: the journey may be a little shorter and therefore the destination may be reached more quickly.
Amendments 9 and 10 tabled by the noble Lord, Lord Stevenson, would alter the strategic functional matters relating to financial education. I thank all those who have contributed to this debate for highlighting once again the important issue of financial education. We had a good debate on this issue in Committee and I believe we agreed on both sides that financial education is extremely important at all stages of life—a point made by the noble Baroness, Lady Kramer. A key role of the new body will be to improve people’s financial capability and help them make better financial decisions, and to identify any gaps that there may be at the moment in the provision of such advice and guidance.
The financial education element of the strategic function is targeting a specific area of need, which is to ensure that children and young people are supported at an early age on how to manage their finances, for example, by learning the benefits of budgeting and saving. More specifically, the new body will have a co-ordinating role to match funders with providers of financial education projects and initiatives aimed at children, and will ensure that these are targeted where evidence has shown them to be more effective. This falls within the wider strategic financial capability work of the body and should form part of the national strategy, which we expect it to deliver.
As I explained in Committee, the Money Advice Service has been undertaking that role. It is one aspect that respondents to the Government’s consultations have overwhelmingly agreed it is important for the new body to continue working on. MAS’s work under the financial capability strategy focuses specifically on improving people’s capability, which they need to make key decisions, such as those presented in this amendment. We expect the new body will carry forward and improve the work under the umbrella of the new SFGB. I stress that this does not mean that the new body will not be providing financial education for adults. As I have explained, this is a key role of the body in improving financial capability, as it is for MAS now. For example, MAS currently runs a pilot on adult numeracy with National Numeracy through the What Works Fund. Also, through the work with the Financial Advice Working Group, it is creating a simple portal for employers linking to the MAS website and exploring partnerships for helping employees with money management. Finally, through the financial capability strategy, MAS works with the National Association of Student Money Advisers to test and improve the model for financial education for younger adults. We expect the body to continue and build on work in this space.
Moving to the specific amendments, Amendment 9 would alter this function so that a strategy for the provision of financial education is extended to care leavers. I thank the noble Lord for raising this point. It was also an issue raised by the noble Earl, Lord Listowel, in Committee. As I highlighted to the noble Earl at that point, the Government agree and we expect the new body to consider further initiatives to support care leavers as well as other young people from marginalised backgrounds—for example, those leaving youth detention or those with learning difficulties.
As we heard from the noble Baroness, Lady Finlay, Amendment 11 refers to vulnerable people and I absolutely agree with her: care leavers are vulnerable people. I hope my noble friend will say a little more about how we plan to help vulnerable people, including care leavers, when we debate Amendment 11.
Amendment 10 would make provision specifically for adults contemplating difficult financial decisions, such as mortgages, pensions and vehicle finance plans. As I said in Committee in response to the amendment tabled by the noble Baroness, Lady Kramer, and the noble Lord, Lord Sharkey, this is the role of the SFGB as a whole as it delivers money and pension guidance and debt advice. Also, the strategic function under Clause 2(7)(a) already gives the body a specific responsibility to work to improve the,
“financial capability of members of the public”,
including in these areas. To give the new body a requirement to advise the Secretary of State on explicit issues, worthy as these may be, is unwise. The noble Lord, Lord Stevenson, said that one could either agree or disagree with the point I have just made. I happen to agree with it—he may disagree with it—but there are problems in focusing on specific issues. There are several topics that the body may wish to look into as part of its strategic function and choosing a few could risk limiting its ability to look more widely at the sector and have regard to emerging issues in the future. For those reasons, I hope the noble Lord will withdraw his amendment.
Lord Stevenson of Balmacara
My Lords, I am very grateful to the noble Lord for his comments and for dealing with such speed with the issues concerned. One always has to be a bit suspicious about a pilot who is very determined to be right about what he is doing. We hope they receive messages from outside when they have gone off course to get them back on course.
I think we have given this a fair knock. The issue between us is whether care leavers and others in vulnerable situations should be mentioned explicitly or whether there is another way. I suspect that will be raised in the next amendment—I await that. I broadly agree that the framework and nature of the Bill suggests that we should not be looking at particular details which will just cause difficulty, but I also hope that the words mentioned in these debates are read by those who will take on this position and that they will use them to inform and enhance their understanding of what Parliament wanted out of this process. I beg leave to withdraw my amendment.
“( ) access to financial services for people in vulnerable circumstances,”
Baroness Finlay of Llandaff
My Lords, I am grateful to those who have put their names to Amendment 11: my noble friends Lady Coussins and Lady Hollins, as well as the noble Lord, Lord McKenzie, who addressed these issues in Committee and has been trying to move things forward. I also thank the Minister for meeting me and my noble friend Lady Coussins, for giving so much of her time and paying so much attention to every detail of the arguments that we put to her in that meeting, and for making great efforts to address the points we were making.
I turn specifically to this amendment and the way it is worded. We have used the wording “people in vulnerable circumstances” because people may be permanently deemed vulnerable—such as people with learning difficulties, people who have a permanent speech disorder or those who have difficulty communicating. There are, however, an awful lot more people who have a fluctuating impairment of capacity, either through illness or medication. There are also people who have been coping really well but have something happen to them, such as an acquired brain injury. All find themselves in vulnerable circumstances. To comment again on care leavers’ situation, there is powerful, researched evidence that children who have had four or more adverse childhood experiences are extremely vulnerable to lots of other factors in life, but they, having been in care, are not the only children who are vulnerable. There are a whole lot who were not in care but have had similar adverse childhood experiences and then have a great deal of difficulty handling their adult life and independence, and in responding to things.
Another difficulty now being faced is the closure of some bank branches and the rise of internet banking. People who have a tremor, for example, need assistance, and they may then find that they do not have the privacy they want. The list could go on and on but, one way or another, we would end up including over half the population, to whom things can happen at different times. Everyone in this Chamber must have found that when they are acutely bereaved they are vulnerable for a time. Their thinking is impaired and they cannot cope with some of the decisions they make but they come out of it, and I do not think anyone would label any of your Lordships as having impaired capacity during this debate.
Therefore, our thinking was that improving access to and awareness of financial services for people who find themselves in vulnerable circumstances, whatever those might be, should run right through the core functions. A little like the lettering in Brighton rock, it should go right the way through.
I must declare an interest as chair of the National Mental Capacity Forum. I have been working with banks, building societies and the Equity Release Council, and some of them—I should like to single out the Nationwide Building Society—have done fantastically good work, but there is a need for the whole sector to be taken along. Laws send social messages too. Therefore, I hope the Government will be able to look favourably on the amendment, which is worded to create not a list but a whole philosophy compatible with other legislation, particularly the provisions of the Mental Capacity Act. I beg to move.
Baroness Coussins (CB)
My Lords, I have added my name to Amendment 11. I remind noble Lords of my interest as president of the Money Advice Trust, the charity that runs National Debtline and Business Debtline. I echo my noble friend’s thanks to the Minister for meeting us yesterday to discuss the intentions behind the amendment.
My noble friend has laid out the need to address access to financial services for people in vulnerable circumstances. It is also important to acknowledge the work that is already under way in this area—in particular since the FCA’s paper on vulnerability in 2015. Since then, the British Bankers’ Association’s Vulnerability Taskforce has produced a report challenging the industry to improve, and the issue of vulnerability has remained high on the agenda.
All that is of course very welcome but, as my noble friend indicated, the term “vulnerable people” does not necessarily mean the same as “people in vulnerable circumstances”. Very often in the past, “vulnerability” was used interchangeably with mental health issues, yet there is a growing recognition of the need for financial services and other organisations to consider a much wider range of vulnerable circumstances.
As an illustration of that need, the Money Advice Trust provides training for the sector in supporting customers in vulnerable circumstances, and demand has been growing significantly over recent years. The charity has now trained more than 11,000 staff working in more than 160 firms. Increasingly, this training covers areas way beyond mental health, such as supporting customers with addictions or a serious illness, those suffering a bereavement or redundancy, and people contemplating suicide, to give a few examples. Yet many people in vulnerable circumstances are still excluded from financial services and are unable to access the support they need.
The SFGB provides an ideal opportunity to increase the focus on vulnerability through its national strategy. As I said in Committee, the Department for Work and Pensions, as the sponsoring department, could also provide a very useful link between the body’s work and the broader financial inclusion policy agenda.
This amendment seeks to take the good work on vulnerability that is being done by the industry and the voluntary sector and give it an explicit focus on the face of the Bill. I hope that it will receive careful consideration by the Minister or that something very similar that captures the intention of the amendment but is perhaps better worded can be brought forward by the Government at Third Reading.
Baroness Hollins (CB)
My Lords, I am pleased to add my support for this amendment. My own particular interest relates to people with learning disabilities, who can be presented with significant challenges when it comes to managing money on a daily basis, even where local financial services are readily available to them.
The move to digital banking and even past innovations such as chip and pin present a real risk for people with limited capacity—a risk of exploitation. When bank branches close, the financial services available at the Post Office are often held up as an answer. However, for people with limited mental capacity—not just people with learning disabilities—they are not the answer. For instance, the Post Office no longer provides a paying-in book, and the only way of obtaining cash is through chip and pin. There are hundreds of similar examples, relating not just to people with learning disabilities but to those who are in vulnerable circumstances at different times, as we have heard from my noble friends.
This welcome Bill is creating a single financial guidance body that could make a significant difference in improving financial capability, reducing debt problems and helping more people to engage with their pensions. Perhaps providing easier-to-read or pictorial guides to finances would be a useful starting point for the new organisation to consider—for example, covering banking and managing personal budgets—with the aim of helping people with learning difficulties take more control of their finances. It could consider appropriate training so that people with a learning disability and their families can be better supported, as online guides are unlikely to be adequate for these groups.
I must declare my interest here as the chair of Beyond Words, a community interest company which works to empower people with learning disabilities by developing pictorial narratives to help them when circumstances are too challenging.
I hope that the Minister will support the amendment to ensure that the new body keeps in mind the needs of people in more financially vulnerable situations.
Baroness Kramer
My Lords, we on these Benches would gladly have added our names to this amendment but the list was full, which is always good news, particularly when the inspiration and leadership come from the Cross Benches. I just want to make it clear that we are very supportive of the amendment.
I also want to add one comment. I know that sometimes the use of the term “vulnerable” is challenged but, as I know from dealing with legislation in the other place, although that was quite some time ago, there is a long and very established history of using the term “vulnerable”, certainly at least—although, I am sure, not limited to—among the utilities, which obviously have to recognise and identify all kinds of vulnerable customers for a whole range of purposes. It allows what I would call reasonable common sense to apply in identifying the full scope of people who are vulnerable. Some of the examples that we have had today have been around mental capacity issues and learning difficulties, but it seems to me that nothing in the many historical ways in which this term has been used in legislation previously would limit it or prevent it, for example, applying to care leavers or, in terms of financial education, to younger children and to the broader group that we are discussing.
Therefore, I hope that the Minister will accept that there is a well-tried, true and well-trodden path setting out how we identify vulnerable people. The term is frequently used to tackle a variety of needs and there is plenty of legislative precedent that makes this a very effective amendment.
Baroness Altmann
My Lords, I add my support for the amendment and congratulate the Cross Benches and the noble Lord, Lord McKenzie, on tabling it. In a way, it is very sad that the financial services industry is not making more effort to look after vulnerable customers or indeed to present materials in the ways that the noble Baroness described. I think that doing so pictorially could help everybody. So far, financial services are all about dense words and jargon that people struggle to understand.
This body is due to be financed by the industry and the industry has perhaps not always taken enough care. One hears stories from cancer charities where somebody would call up their bank and say, “Look, I am going through some treatment. Is there any chance I could either have a loan or some respite from repayments?”. It simply is not on their agenda to help people in that way, even when people approach them and explain their vulnerability and their circumstances. So it is right that this body should introduce some measures that are designed particularly for vulnerable customers and, indeed, change the narrative and the language used to explain finance, educate people and inform them about finance, in ways that the industry seems not yet to have been able to do.
Lord Kirkwood of Kirkhope
My Lords, following that speech from the noble Baroness, Lady Altmann, I support these amendments. I want to reinforce something that my noble friend Lady Kramer said earlier. Language is very important in this context and the amendment addresses that perfectly. We have to be careful how we use language in terms of social security and social protection, above and beyond some of the specialisms familiar to some of the noble Lords who made powerful speeches on this amendment.
I want to add something to the definition of people in vulnerable circumstances. A couple of weeks ago, I was interested to read some remarks from Mr Frank Field, who as noble Lords will know is the chair of the departmental Select Committee covering the DWP. He said something that I recognised, which is new to me and him, about what we as a country are facing immediately and over the next two or three years, with the conjunction of interest rates, a freeze in benefits and other things, together with the administration of the ultimate safety net that now resides in some but not all local authorities after the abolition some years back of the Social Fund and community care grants. Frank Field characterised that as families falling out of stable situations into destitution, particularly in relation to three very normal things. Their electricity is being cut off; they are being evicted, because their rent is not being kept up, and there is the dimension of universal credit implementation in relation to that in the short term; and there is food poverty. In these three circumstances we are seeing for the first time in this country, certainly in my experience, these things coming together and ordinary families suddenly finding themselves falling out of financial security and stability.
We have nothing. The previous set of social security provisions always had a residual safety net. I am concerned now that that is absent, particularly in certain local authority areas. I hope that we can find some way to capture this, if not by this amendment then with something that captures the sense behind it. There is a timing issue here. Over the next two or three years, we need the Bill to pick up people who have faced the conjunction of circumstances that Frank Field described and embrace them. If it is not done by this amendment, it should be done by something else.
Viscount Brookeborough
My Lords, could I just look at one other aspect of vulnerability? It is looked on as being a disability of some kind, but vulnerability is also down to isolation, where one might live and being on the periphery. Look at banking in particular—the most basic place that somebody goes or would like to go for financial advice or help at first if they live out in the country. Look at the number of banks that are closing branches left, right and centre. Of course it is business, but we have to realise what is really going on there. They say that they have consulted and we had various banks, without naming them, which came in front of our committee and said, “We consulted before we closed”. But we did not find one instance where a bank had changed its mind because it had consulted. It is as simple as that. We have to look at it on those terms.
Actually, we had Nationwide. I must forgive it for a minute, because I rather liked it. Nationwide said, “We are opening some branches”—and it is being novel about it. It could be opening a branch with one man, who will sit in what could be an office or a caravan. He could be visiting a village or whatever. When the customer says to somebody he probably knows, “Bill, listen. What can you do? I need a loan or a mortgage”, he says, “Hold on”, and presses a button. Up comes Peter from the loans office who says, “Just sit down and we’ll have a chat about this”. He says, “Would you like some coffee?” and the guy says, “Yes please”—because he likes getting anything free that he can. He presses a button and the coffee arrives from next door. The whole thing is very homely. He says, “When I have this loan, what about a mortgage?”. He says, “I’ll bring in Charles on that and the three of us can talk about how it will work”.
Ultimately that is no different from what always used to happen—you went into your bank to the man you knew and he then took you into an office to see somebody else—but this is novel thinking. Banks will always worry about their business, but they should not necessarily be closing branches and we have to encourage them to be novel. The internet is there and the banks must watch out. I heard a comment the other day or saw it in the Financial Times. It was something about banks becoming vulnerable, because people might not keep their money there. The sooner the banks catch on to what is going on and come up with novel ideas, the sooner the vulnerable will not be as vulnerable as they appear at the moment.
I live on the border with the Republic, and we will talk about Brexit another time. The banks have literally all come back from the border. Societies in those villages are increasingly vulnerable. They are beginning to be scared. They have to drive 20 miles, so they had better have something good to talk to the bank about. They had better know exactly what they are doing before they go. A lot of them may be older people without the internet. Something like the Nationwide’s idea is the way we should be going. We must treat vulnerability not only as those who may be medically vulnerable but as vulnerable members of our society.
Baroness Drake
I will carry on the spirit of the contribution of the noble Lord, Lord Kirkwood. In Committee, several Peers ran several amendments trying to capture this issue of vulnerability—whether it was vulnerability because of a health shock or because of some standing reason. As the noble Baroness, Lady Finlay, explained in moving her amendment, the attraction of Amendment 11 is that it does not seek to list or define. It just tries to capture the principle that there is a category of people who become or who are vulnerable for a series of reasons, and they need to be addressed.
The purpose of the single financial guidance body is to achieve a series of improved public and individual outcomes by improving a person’s financial capability, but a person’s capability cannot be improved—it just cannot happen—if they are excluded from the market for financial services or denied the access or the means to make good decisions. As my noble friend Lord McKenzie and I frequently say, the fundamental, immutable requirement of financial capability is that you are included and have access. You cannot begin to become capable without it. One feels the sense around the Chamber, which I hope the Minister is able to find a way of recognising, of a wide concern and a very constructive amendment. It is not overprescriptive but allows the financial guidance body to recognise that it needs to address this problem.
Lord McKenzie of Luton
My Lords, this has been a good debate. I emphasise that we support the amendment, which is no surprise given that I put my name to it. I am sorry that we pre-empted someone: I am happy to step back.
This is a very elegant formulation, which stops a whole list being produced. It instinctively recognises that people might be vulnerable for reasons to do with their circumstances but that this is not necessarily something endemic to them. There are fluctuating circumstances which particularly fit that description: in our short debate we have had discussion of learning disabilities, mental capacity and addictions. A broader issue, but still within the key definition of vulnerability, is isolation. The noble Viscount, Lord Brookeborough, made a very telling point on that. The noble Lord, Lord Kirkwood—I keep calling him my noble friend; we have debated too often over the years—spoke about the impact of vulnerability because of destitution. We should recognise that people may be perfectly fit and able-bodied and have all their mental capacity but if they are broke and have no money then they are potentially vulnerable or in vulnerable circumstances.
The formulation is powerful and succinct and we support it. I hope the Minister will find some way of incorporating it into the Bill—even if not in the precise wording, although it seems excellent to me—so that we can support it.
Baroness Buscombe
I thank all noble Lords who have taken part in this extremely helpful debate. A number of issues have been raised about the scope of the term “vulnerability”. This is incredibly helpful to us and to our overall approach to the Bill. The noble Lord, Lord Stevenson, made reference to his hope that the report of our debate in Hansard will be seen and our words read by those who are charged with taking forward the delivery of this body. I assure the noble Lord that, thus far, everyone I have spoken to who is involved in this world, in the three current bodies, is very aware of our debates and I trust that they will be taking on board what is said.
Amendment 11, tabled by the noble Baronesses, Lady Finlay, Lady Coussins and Lady Hollins, and the noble Lord, Lord McKenzie, would add an element to the body’s strategic function, so it could include issues of access to financial services for vulnerable people in the national strategy. I hope that noble Lords will forgive me for being a bit repetitive, following my noble friend’s remarks in previous debates, but it is important to have this on the record. As I mentioned in Committee, the Government take the issue of financial exclusion very seriously. As my noble friend Lord Young mentioned earlier, the Government are grateful for the important work of the Financial Exclusion Select Committee in highlighting this important issue and will aim to publish their response to the committee’s wide-reaching report ahead of Third Reading.
The Government’s response will address all the committee’s recommendations and bring forward new proposals on how to better co-ordinate across government, regulators and the wider sector to tackle the significant issue of financial exclusion. I see that my honourable friend from another place, Guy Opperman, the Minister for Financial Inclusion at the Department for Work and Pensions, is here. We have been working extremely closely on this Bill and on developing our response to the report.
My noble friend Lord Young earlier highlighted the difference between financial inclusion and capability and the Government’s intention that this body will be designed to build financial capability among the public. The Government have therefore deliberately omitted from the Bill references to financial inclusion and individuals’ access to financial services. An appropriate supply to people of useful and affordable financial services and products is very important, and the Government therefore work closely with the industry regulator, the Financial Conduct Authority, to ensure that appropriate action is taken when the market fails to supply services and products. The amendment would greatly expand the body’s statutory remit and we fear it is likely to create confusion over the roles of Her Majesty’s Treasury and the Financial Conduct Authority, both of which have the relevant responsibilities and powers to influence the supply of financial services products.
Baroness Finlay of Llandaff
I am most grateful to the Minister, particularly for those final phrases in her speech, and to all noble Lords who have spoken and contributed to an extremely rich debate. It has become evident that this is not just about vulnerable people, but about everybody who can find themselves in a vulnerable circumstance. There should be no stigmatisation of any sort; this could happen to anybody.
The Bill seems to be a good one, aiming to look after the whole population. Of course, it needs to look after people in bad times as well as good. That is the purpose of the amendment: to have better public outcomes, not just when capability can be increased, but when it cannot be, with services then adapting to meet the needs of the people they are there for. That is what a community is all about.
We can go away and look at the wording again, to think about whether it can go somewhere else or be adjusted slightly in the Bill, then come back at Third Reading.
Lord McKenzie of Luton
I just want to press the point made by the noble Baroness about Third Reading. If we could come back to it at Third Reading, that would be good.
Baroness Finlay of Llandaff
Through being able to come back at Third Reading, we have the assurance that we can tailor the Bill to try to get it absolutely right and to meet all the needs that have been outlined during this rich debate. Because of that, I beg leave to withdraw the amendment.
Lord McKenzie of Luton
“( ) the awareness of scams and frauds relating to financial products,”
Lord McKenzie of Luton
My Lords, the amendment revisits the now familiar theme of creating awareness of scams and fraud relating to financial products as part of the strategic function of the single financial guidance body.
Unfortunately, financial scams are many and varied. We have already heard about that matter, so I will be brief. People who perpetrate such scams are inventive and merciless. According to the Economic Crime Directorate of the City of London Police, financial crime has cost the UK a staggering £50 billion-plus. Techniques encompass scams such as phishing, bogus investment opportunities—particularly for pensioners—intercepting home deposits, freebie scams, fake websites and many more. They can devastate people’s lives, and, as we have heard, destroy a person’s retirement.
Given the so-called pensions freedom, people around the age of 55 are being bombarded with investment opportunities. Citizens Advice calculates that nearly 11 million consumers have received calls about their provision since 2015. The FCA Financial Lives Survey 2017, already referred to by some, gives a fascinating insight into behaviours and the potential harm associated with some of them: 5.3 million UK adults have given a debit or credit card to someone else to use, shared account PIN numbers with another person or provided current account details by email or over the phone following an unsolicited approach; 23% of all UK adults have received unsolicited calls which could potentially be a scam; 8% of them received one or more requests to access a pension scheme before the age of 55 or the chance to unlock a pension early; and 6% were offered a chance to make a high-return investment or buy shares in a company. The survey shows that a smaller proportion of people responded to such offers, but we should be mindful that a small percentage of a big number means many individuals affected.
Citizens Advice report that last year, it helped consumers with a scam or fraud every 17 minutes, with pension scams moving up the table. It recites that pension scams are most frequently initiated by unsolicited telephone calls. The detriment is not only to individuals but to the level of trust that exists in the wider pension scheme. The Government have previously pointed out that the SFGB would have the power, as currently proposed, to focus on awareness of scams and fraud under its money guidance function and the financial capability element of the strategic function. However, we would urge the Government to be more specific. We know from our earlier debate that the SFGB will not be operational for a while. Perhaps the Minister can say what is proposed for and will happen in the interim.
We have heard that the Government have committed to ban cold calling over a wide scope of pension issues, but have been reluctant, notwithstanding the earlier vote, to clarify the legislative programme. In the meantime, the scams and fraud will go on. What is to be done? I beg to move.
Baroness Buscombe
My Lords, I thank the noble Lord, Lord McKenzie, for tabling the amendment. I think we can all agree that raising people’s awareness of fraud and scams relating to financial products is an important matter, and one where the single financial body can, and should, play a role.
All the existing services—the Money Advice Service, the Pensions Advisory Service and Pension Wise—provide information and guidance about fraud and scams and take their role in that seriously. The Pensions Advisory Service—TPAS—has several regularly updated webpages dedicated to pension scams awareness. These provide clear and simple messages warning people to be vigilant and include more detailed information and guidance on, for example, how to spot a scam, how to protect your pension from scams and what to do if you think you have been, or are being, scammed. In addition, TPAS supports a dedicated “identifying a pension scam” tool on its website. It also suggests that people check with it first before proceeding, including by telephone.
Lord McKenzie of Luton
My Lords, I am grateful for the very full explanation that the Minister has given to the point that I raised. It is a very serious issue that is accelerating in its importance. Notwithstanding the work that is going on and is planned, which I acknowledge, I think that the matter is of such significance that it should be specifically mentioned in the Bill. It may seem a little churlish, but I would like to test the opinion of the House.
Financial Guidance and Claims Bill [HL]
Tuesday 31st October 2017
(7 years ago)
Lords ChamberRead Full debate Financial Guidance and Claims Act 2018 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 1-R-II Second marshalled list for Report (PDF, 110KB) - (27 Oct 2017)
16:42 - Division on Amendment 24 - Ayes: 283 / Noes: 201 - Amendment 24 agreed.
“Debt respite scheme
(1) As part of its debt advice function, the single financial guidance body must operate a debt respite scheme (“the scheme”) under which authorised debt advice providers who approach the single financial guidance body for further advice or guidance in relation to a specific case may receive statutory protections for their clients in respect of the relevant debts for the period during which advice or guidance is being sought.(2) The Secretary of State must make regulations by statutory instrument detailing the operation of the scheme by the single financial guidance body under subsection (1).(3) The regulations must limit access to the scheme to persons who have received debt advice from a debt advice provider who has been authorised by the FCA.(4) The regulations must make provision about the length of a period or periods where the protections under the scheme will apply.(5) The regulations must set out the terms of the scheme, including but not limited to—(a) the nature of relevant debts for the purpose of the scheme; (b) the process and conditions of eligibility under which FCA authorised debt advice providers are able to apply for statutory protections for their clients under the scheme;(c) the criteria under which FCA authorised debt advice providers will be authorised to advise persons on the scheme, support applications to the scheme, and operate designated debt management plans for persons while under the statutory protections of the scheme;(d) the limitations to be placed on actions that may be taken by creditors against persons in receipt of statutory protection under the scheme;(e) the method for determining the level and timing of debt repayments by a person while under the statutory protections of the scheme;(f) safeguards to protect the integrity of the scheme;(g) the arrangements to be made to create a central register of persons admitted to the scheme; and(h) the arrangements to be made to ensure that creditors of persons on the scheme are kept informed.(6) A statutory instrument containing regulations under subsection (2) may not be made unless a draft instrument has been laid before, and approved by a resolution of, each House of Parliament.(7) The Secretary of State must make regulations under subsection (2) within 12 months of the commencement of this section, subject to subsection (6).(8) This section commences on the day on which this Act is passed.”
Lord Stevenson of Balmacara (Lab)
My Lords, in the film “Groundhog Day”, the same character repeats experiences on a number of occasions until, mercifully, he is eliminated from it. I feel a little like that, not least because people stream out when I stand up to speak. But I gather that there are rival attractions about to start elsewhere and I can understand why people might wish to be present for those. I thought that we had also lost the Minister as well, but she was just temporarily unavailable.
Group 1 today contains a single amendment, Amendment 22, which is in my name and the names of the noble Baroness, Lady Altmann, and the noble Lord, Lord Sharkey. I am grateful to them for their support. One of the good things to come out of the Bill has been the incredible willingness of people from all around the House to work together and seek progress, not only on this important issue but on a much wider range of topics. Before I get into the detail, I will declare my interests. I am a former chair of StepChange Debt Charity and a commissioner on the independent Financial Inclusion Commission. I thank debt charities and in particular the Children’s Society for their support of this amendment.
I also want to mention the water companies. Rae Stewart of Water UK wrote to me recently and gave me permission to quote him, so I would like to set the context for the Bill in the light of this industrial comment. He said:
“I understand that your ‘breathing space’ amendment to the Financial Guidance and Claims Bill may be debated today. I thought that you might like to know that the water industry backs a breathing space for those people struggling to pay bills and who are seeking financial advice. But although we already operate that way as an industry, we believe that such a scheme will only be properly effective if other companies follow suit. After all, any responsible creditor—whether in the private sector or public sector—would support a breathing space. It’s something that’s been talked about for years, so we very much support its introduction soon”.
It is interesting to look back at the progress we have made in realising this vision of a breathing space. It has the support of all the political parties, as evidenced in the manifestos for the recent election. More by accident than by design, we have arrived at a system where a group of charities, including StepChange, Citizens Advice, the Money Advice Trust, Christians Against Poverty and a number of others, have created an effective system of debt counselling, which enables hundreds of thousands of people in need of help to receive advice, support and access to formal mechanisms that enable them to pay off their unmanageable debts. I pause to pay tribute to Malcolm Hurlston CBE, who was largely responsible for much of the current debt-counselling activity and was my predecessor as chair of StepChange.
We have the infrastructure and, with the support of the financial companies, it is free at the point of the use to those who wish to be part of it. However, these organisations have struggled for far too long to do their job properly. Basically, the only solutions that are readily available to people with unmanageable debt—such as payday loans, guarantee loans, logbook loans and the rest—push people further into debt. The additional charges, punitive interest rates and appearance of bailiffs compound the situation. The combination of this with the stress of dealing with making ends meet causes what is estimated to be some £8 billion-worth of social cost to the economy each year through illness, relationship breakdown and suffering to children.
All this impacts on creditors, too. Most banks, credit card companies and other lenders have good systems in place to deal with people who have problems meeting monthly repayments. But these companies cannot cope with the situation that so often arises, when people owe money to several different creditors. That is where the debt charities largely come in. Creditors need certainty; they need a timescale and they are entitled to receive 100% of their borrowing back—although in practice they will and often do settle for a lot less.
In my experience most people with unmanageable debt and sufficient resources, most of whom want to repay their debts, can be brought on to a formal repayment plan which ensures that their creditors will receive more of their outstanding debt—and in a shorter timeframe than if those creditors had had recourse to legal action. But it is abundantly clear that this whole process is enhanced if the person with unmanageable debts can be given some time to sort out what their actual financial situation is; to work out with advice what constitutes a sustainable budget; and to sign up to a formal debt-management plan. This is at the heart of the amendment which I am moving.
What we have in Amendment 22 may not be perfect; it has had to be constructed within the very narrow limits of the Long Title of the Bill. Even so, it would introduce the breathing space that we all want to see. It is based on the Scottish system, which has evolved over the last 15 years and does what is required. The amendment has the following key elements: the Secretary of State will have the power to set up the scheme; a body will be designated which will be able to designate authorised charities to operate the scheme; it establishes a flexible regime with reasonable time limits; it identifies categories of protections to be offered; and it ensures that creditors are kept informed.
There is a case for considering this amendment on its merits, but there are also ways in which it might be expanded in future, particularly in its territorial extension to make sure that England, Wales and Northern Ireland follow what is happening in Scotland. It is unreasonable and unfair to have a differential approach, because this problem is common to the whole of the United Kingdom.
Lord Sharkey (LD)
My Lords, we on these Benches very strongly support the amendment, for which the noble Lord, Lord Stevenson, has made such a detailed, eloquent and powerful case. The notion of a breathing space or debt respite scheme has attracted a lot of support both in this Chamber and outside.
The Minister herself has acknowledged the merits of such a scheme. She said at Second Reading:
“A breathing space scheme could help people affected by serious debt by stopping creditor enforcement and freezing further interest and charges on unpaid debt”.—[Official Report, 5/7/17; col. 943.]
There is really no need for the conditional “could” in that assessment. The evidence from the existing scheme in Scotland makes it clear that such a scheme does help people affected by serious debt—and help is very definitely needed.
Last week, the FCA published its detailed study of the financial lives of UK adults. This is a truly remarkable and detailed study and an exceptionally useful piece of work, and I congratulate the FCA on producing it. But it is also a truly worrying piece of work. Among its many findings was the fact that in the case of 400,000 adults who were behind on payments and had contacted their provider, their provider did not encourage seeking free debt advice. Another 300,000 adults in the same position reported that their provider did not allow time to pay. Worst of all, for 100,000 adults in arrears, their providers were unsympathetic, did not encourage seeking free debt advice and did not allow more time to pay.
A debt respite scheme would certainly help the debtor, but Scotland shows that it would also help the creditor, who would recover more of the debt. This is a win-win situation. Both sides gain. The case for a debt respite scheme is clear and compelling. That is why, no doubt, the commitment to such a scheme was contained in the Conservatives’ 2017 general election manifesto. But the Minister seemed to feel, when we discussed this at earlier stages, that the issue was so complex that delay was necessary. She said in Committee:
“The Government’s manifesto … proposed the introduction of a statutory breathing space scheme and statutory debt repayment plan. This is an important and complex issue. It requires thorough preparation and consultation on details, such as who could be eligible, which debts could be in scope and how someone could enter into a breathing space”.—[Official Report, 19/7/17; col. 1683.]
All this is quite right, of course, and includes the important and unresolved question of whether rent and utilities arrears should be included in any such scheme. In that context, it is worth repeating what the noble Lord, Lord Stevenson, mentioned a few moments ago: a debt respite scheme already has the backing of at least part of the utilities sector, Water UK.
But focusing on these undoubtedly important questions avoids the simple question of when. It ignores the fact that primary legislation can establish the framework and leave the details to secondary legislation. However, the noble Lord, Lord Young, said last Friday in this Chamber:
“The legislative programme for this Session is already at full capacity and there is no scope for additional measures”.—[Official Report, 27/10/17; col. 1148.]
So, if the question is when there will be a legislative vehicle that will allow the construction of a breathing space, the noble Lord, Lord Stevenson, has provided the answer. The answer is this Bill and this amendment. I hope that the Minister will see its obvious merit and be able to accept it as an obvious way of making progress without further delay.
Baroness Altmann (Con)
My Lords, I too have added my name to the amendment, which I hope my noble friend will be minded seriously to consider and, if necessary, bring back at a later stage still. There is clearly widespread support across the House and indeed the country for such a scheme. There is also rising concern about the level of consumer debt within the economy as a whole. We know that more and more people are falling into debt, having perhaps been enticed into borrowing at teaser loan rates that have then risen. We also know that the trend in interest rates may well start to go up, which again would cause significant difficulties for those who have taken on perhaps unwise levels of debt. In practical terms, just giving this breathing space, which I know the Government support, could help to manage a situation that has gone beyond manageable for many vulnerable people. I hope that noble Lords across the House will support this, and indeed that my noble friends on the Front Bench will be able to as well.
Baroness Coussins (CB)
My Lords, I very much welcome the proposal at the heart of the amendment, and indeed the very similar idea of the breathing space on which the Treasury announced its consultation last week. At this stage I have just one question on which I seek clarification from both the noble Lord, Lord Stevenson, and the Minister. I remind the House of my interest as president of the Money Advice Trust. In my view, it is essential that any breathing space scheme covers public sector creditors as well as lenders in the private sector. The noble Lord, Lord Sharkey, touched on this point.
Debts to public bodies are an increasing feature of the UK’s personal debt landscape. The Money Advice Trust, for example, reports that 25% of callers to its national debtline service had council tax arrears last year, up from just 14% a decade ago. Calls about benefit overpayments and other public sector debts have also increased, and so too has scrutiny of the debt collection practices of these public sector organisations. So for any new debt respite or breathing space scheme to be truly effective, it must provide breathing space from all creditors, including local councils, the DWP and HMRC in particular, so as to give people the time they need to seek advice and tackle their debt problems. I would be most grateful if the noble Lord, Lord Stevenson, confirmed that the intention behind his amendment is to include public sector creditors, and if the Minister said whether she expects public sector creditors to be included in the Treasury plans.
Viscount Brookeborough (CB)
My Lords, a lot of the time when we talk about debt, it would appear that we are talking about people who may be in debt for a particular item or for a short period of time. These are people who are right down there and close to being in debt, and may be able to manage their finances by only a few pounds every week or month. So this is not just a debt problem overall; it is debt for very vulnerable people. If we do not help them and give them a bridging mechanism, we are creating a big social problem—a problem regarding their characters, the way they live, their friends and how they are seen. It is about much more than just how we keep the debt down and how, one day, they get out of it; it is about their social identity. Many of them have not been in debt before, and consider going into debt at all a crime and a slur on their character. When we have the chance, we must create the means to help protect as many of them as possible. Wherever we have a breathing space or gap whereby we can legislate to avoid them going permanently into debt—such as, dare I say it, in universal credit—we must try to do so. I therefore support the amendment.
Lord Kirkwood of Kirkhope (LD)
My Lords, I shall make just two quick points in support of the speeches that have already been made. I am very much in favour of the amendment but the timing is really important. I say that because universal credit, as we all know, has some introductory rollout problems, such as establishing debts in a way that can sometimes overwhelm new applicants, given the 42-day waiting period. If some magic process could put in a breathing space immediately, that would give succour, support and some respite to families who will almost certainly now face arrears, particularly rent arrears. Therefore, time is of the essence and I hope that the Government will bear that in mind.
I also agree with the point that has just been made about public sector bodies. The Government should perhaps be able to do that anyway by getting people within the public service to be more reasonable about the way they prosecute the recovery of debt.
My second point, which is really important to me, is that the presence of this opportunity in Scotland completely changes the atmosphere in which negotiations can take place. People start acting a lot more rationally and are not driven by fear into doing things and making undertakings which, in their innermost hearts, they know they cannot fulfil. The circumstances are thereby compounded, which makes everybody’s position worse. In Scotland, the ability to just stop the clock, step back and think rationally about the solutions over a longer timeframe transforms the circumstances of families in distress. It is very important that we get this done quickly and take advantage of the experience north of the border, where such an approach has been demonstrated to be worth while and to work.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Buscombe) (Con)
My Lords, I thank all noble Lords who have taken part in this very important debate—indeed in all the debates that we have had on this crucial issue since Second Reading.
As noble Lords will be aware, the Government’s manifesto contains a commitment to deliver a breathing space scheme that would give heavily indebted consumers a period of respite from creditor enforcement action, further interest and charges for up to six weeks. Where appropriate, they would be offered a statutory repayment plan to help them pay back their debts in a sustainable way.
I am grateful, as I said, for the helpful contributions during all our debates from noble Lords, and from the noble Lord, Lord Stevenson, in particular, on the important topic of protecting heavily indebted consumers. Noble Lords will have seen, just last week, that the Government have taken their crucial first step towards delivering this manifesto commitment by launching an extensive call for evidence. I might just say here, as noble Lords have asked about public sector debts, that the breathing space call for evidence seeks views on that. We want to ensure that the scheme is designed in the best possible way to support consumers.
The noble Lord, Lord Kirkwood, referred to universal credit. It is right that I point out to noble Lords that all those going on to universal credit are entitled to up to 50% in advance payments, and in some cases they can receive it on the same day they sign up. So, there should not be a huge increase in debt because of those early days.
In addition to support from this House, the announcement of the call for evidence has been positively received by a wide cross-section of the debt advice sector. For instance, The Children’s Society has said it is “delighted” with the announcement, the Money Advice Trust agreed this was “good news” and Citizens Advice said:
“It’s good to see the government taking action on problem debt”.
We plan to continue to engage closely with these bodies and other stakeholders over the coming months to develop our policy.
Lord Stevenson of Balmacara
I am grateful to all noble Lords who spoke in the debate. There was a question about public sector responsibilities. In the Bill, as in the amendment, it was intended that that be subject to further consultation. The Minister made the point that there was no reason to suppose that public sector bodies would be excluded from that; it has to include all the pressures on the families affected, and the answer would be yes. Behind the question was a certain amount of knowledge about the situation affecting those who have public sector debt. The arrangements in local authorities, in particular, but also in central government, are not of the standard that we would wish to see. There is far too easy a recourse to bailiffs and to worse measures, and it is time that this was looked at—and I hope that that will be part of the consultation.
I thank in particular the noble Lord, Lord Kirkwood, for his contribution on the situation in Scotland. He made a point that I should have made—it is absolutely right —that the introduction of the scheme would affect the behaviour of those involved in it. If it changes behaviour for the good and leads to a broader and better discussion and debate, it has to be the right way forward.
The Minister has suggested that the Government want to see a breathing space introduced, and introduced quickly, that it should have as part of its processes a statutory repayment plan—I certainly welcome that—and that she generally wants it to be designed to be the best possible way in which consumers can repay their debts and creditors obtain the benefit of that. I think that she is in agreement with all the principles that I identified in introducing this amendment. She shares our desire that, given that there is a Bill passing through, we should attempt to latch on to it as quickly as we can.
I noted the Minister’s reservations about the drafting. However, we are where we are because the Long Title of the Bill is very tightly worded—and I do not want in any sense an impression to be left that we have deliberately chosen the single financial guidance body because we thought that it was the best fit, because it is not, for all the reasons given. I do not need to repeat them, and there may well be others. Indeed, there was a hint in what the Minister said about what the Government might be thinking, and I would support that. I mentioned making sure that there was parity of action across the country.
We seem to be in a consensus on this, and I would like to work with the Government. Therefore, in answer to the question whether we would work together to try to achieve a resolution, the answer is yes—we would. There is only one condition that I would make, and I would like the Minister to respond so that I can get a nod from the clerk that we are on the right track. She said that she would like time to discuss matters before Third Reading; she did not give the magic formula that she would come back with an amendment or permit us to bring back this amendment for further discussion at Third Reading. I would be grateful if she could signify that so that I can get the necessary assurance from the clerk that we are in the right place.
Baroness Buscombe
I have to make it very clear to the noble Lord that I am not in a position to make a firm commitment. All I can do is say that we have worked well together through the passage of the Bill thus far, and it is right that he should feel that he could trust what I have said so far, and trust in me and my team to do everything we can to make sure that we can do what he has asked for. But I cannot make a commitment because of the constraints, which I think that he knows I am under, in terms of how the system works. Given the government amendments that are coming forward today and those that came forward last week on Report, I feel that we have had a considerable degree of consensus thus far, and I would be so sorry if that were to end now, because I think that we can do more.
Lord Elystan-Morgan (CB)
The Minister tangentially mentioned devolution here, raising the question as to whether there has been any discussion between Her Majesty’s Government and the Ministers in Wales, for example. It is in the realm of devolved authority, I believe. The Welsh Government would be wholly justified in saying, “This is a matter solely for us”. As she will know, on many occasions such as these, the devolved Administration will say, “We’re quite happy for you to legislate on this matter”. Has any discussion to that end taken place at all?
Lord Stevenson of Balmacara
My Lords, during that helpful intervention I was able to glance across to the clerk. I was looking for a nod but I got more than that. I got a small written note which confirms that the Minister has said enough to ensure that this issue can be discussed again at Third Reading. Without any commitment from the Minister to bring forward a particular form of words, the intention to look further and come back is sufficient on this occasion. On that basis, I beg leave to withdraw the amendment.
Lord Sharkey
“( ) In Schedule 3 to the Pensions Schemes Act 2015 (pensions guidance), after paragraph 6(3) insert—“(3A) In determining what provision to include in the rules, the FCA must include a requirement for the trustees or managers of a relevant pension scheme to ask members of the scheme or survivors of members of the scheme at the point at which they require access to or individual transfer of their pension assets, if they have received the information and guidance available under section 3 of the Financial Guidance and Claims Act 2017 (specific requirements as to the pensions guidance function); and if they have not received such information and guidance the FCA may require the relevant trustee or manager to provide access to such information and guidance before proceeding.””
Lord Sharkey
My Lords, I am grateful to the noble Baroness, Lady Altmann, the noble Lord, Lord McKenzie of Luton, and the noble Earl, Lord Kinnoull, for adding their names to Amendment 24. It may look rather complicated, but it addresses a simple problem and proposes a simple partial remedy. When it comes to pension pot access or transfer, the problem with our current financial information and guidance system is not the quality of the information or advice, but the very low level of take-up. In Committee, we spoke about the quality of the information and guidance and noted the exceptionally high levels of user satisfaction with the Pension Wise service, recorded in the first wave of the service evaluation survey published in October 2016. It was very pleasing to see the same exceptionally high levels recorded again in the second wave of evaluation data published last week. It is clear that the information and guidance provided is of real help to pension holders. That is not the issue: what is the issue are the exceptionally low levels of take-up. The FCA reports that, of those over the age of 55 planning to retire in the next two years, only 10% had used TPAS and only 7% had used Pension Wise. I know that these figures are contested, but even if they were out by an unthinkable 50%—as I am sure they are not—then take-up would still be dangerously and unacceptably low. The simple fact is that too many people will be making decisions about their pension assets without information or guidance.
The amendment is aimed at doing something about that. It is designed to be a nudge, rather than any kind of probably unenforceable or counterproductive compulsion. It amends the Pension Scheme Act 2015 in order to amend FSMA 2000. One way or the other, almost every financial amendment ends up amending that Act. The amendment would require the FCA to change its rules to make possible the provision of last-minute information and guidance to those who have not already had it and who are about to access or transfer their pension assets. The FCA would be required to write into its rule book a requirement for trustees or pension managers to ask members, or their survivors, at the point at which they require access to or transfer of their pension assets, if they have received the information and guidance mentioned in Section 3 of this Act. If they say no, the FCA may require the trustee or manager to provide access to such information and guidance before proceeding.
This is a “may”, not a “must”, because the universal application of this requirement would obviously be unduly burdensome and, anyway, unnecessary. The FCA knows very well which categories of consumer are most at risk and can restrict the requirement to take action to those cases. Adopting the amendment would mean that people accessing their pension funds could be given a final nudge. There is no compulsion; simply the provision of a last-minute opportunity to see for the first time—for those who have not seen it already—the excellent information and advice available to them, if the FCA judges them to belong to a category that is particularly at risk. There is no compulsion, just a chance to look at valuable information and guidance before making an important and irrevocable decision.
We know that levels of financial education and financial self-confidence in this country are very low indeed and that levels of ignorance and misunderstanding are very high. We know that the take-up of the services provided by TPAS and Pension Wise is far too low. It is entirely right that we take every opportunity to rectify that situation and that we should have a go at doing this when people are at the point of making a critically important decision about their pension assets. This amendment would provide a last chance for reassessment for those who need it most, when they need it most. I beg to move.
Baroness Altmann
My Lords, I have added my name to this very important amendment. Of course, I welcome this very important Bill. Providing guidance for consumers is absolutely vital, and I congratulate the Government on bringing forward the Bill. However, the intention of this amendment is to make it work better for the public.
I support this amendment wholeheartedly as it would be a major step forward in ensuring that the pension freedoms work better for the public. As the noble Lord, Lord Sharkey, rightly said, too few people are making use of the excellent Pension Wise service, which was set up to help them make well-informed decisions about their pensions. Indeed, when the Government announced the new pension rules, they rightly recognised that the public were not well equipped to understand the important features of their pension savings and the new landscape that would allow them to make the best use of this excellent new policy, so they also announced what they referred to as the guidance guarantee to ensure that everyone could have free impartial support before making decisions about their defined contribution pensions.
Pension Wise has consistently high satisfaction ratings of 90% or more, as the noble Lord has already mentioned, but the majority of people are at risk of poor outcomes and a worse quality of life in retirement than they could otherwise enjoy because they do not get the guidance. So far, pension providers have been left to encourage people to use the guidance by sending a Pension Wise leaflet with all their so-called wake-up packs. These are sent to a customer about six months before their previously chosen pension age. Providers have to mention that Pension Wise is available, but clearly the message is not getting through. Pension Wise is merely presented as an option for customers rather than what it needs to be: a normal part of the pension access process. Too often, the public do not read the materials they are sent or are encouraged also to call the providers’ own hotlines. Once they have done that, people often feel they have already had free help and, even if they do not realise that it is not unbiased or impartial and may not have explained all the issues they need to consider, they do not go on to Pension Wise.
As we are automatically enrolling people into pensions, I believe it is also right to consider automatically encouraging the use of free guidance to help people before they make these irreversible decisions. The two should go hand in hand. Creating the new single financial guidance body, which is warmly welcomed on all sides of the House, could be an excellent opportunity to deliver a new approach to guidance designed to make using the Pension Wise successor body the expected norm. That is what this amendment attempts to achieve, with people automatically being told that they have an appointment waiting for them, perhaps a voucher of some kind that gives them the time of a telephone appointment that has already been made for them but also makes it clear that they can change this if they prefer a different time or have a face-to-face appointment, if they would like.
An ILC-UK survey of consumers found that only half of defined contribution pension customers thought they understood quite well or very well what an annuity is, and that a shockingly low 3% said this about draw -down. Another study by the Pensions and Lifetime Savings Association found that just over half of pension-age customers wrongly thought that draw-down products offer them a guaranteed retirement income, and about a quarter thought that draw-down carried no investment risk at all. Given such findings, it is surely clear that we urgently need better regulatory requirements to help non-advised customers to receive the guidance and fulfil much better the absolutely appropriate promise of this guidance guarantee. The lack of safeguards for pensions seems out of proportion to the known risks of consumer detriment. Research from Just Group, which has also been pushing for this amendment, suggests that defined contribution pension customers aged over 55 who had Pension Wise guidance believe that the investment of time in seeking such guidance was worth while, with 90% saying that all customers should use it.
This amendment would allow the use of similar principles to auto-enrolment and would help to overcome the inertia and lack of engagement with the complexity of pensions. By arranging or directing customers to free guidance rather than just mentioning it to them, take-up is likely to be much higher. Such auto-enrolment into guidance can be organised in a number of ways. However, the current guidance service management with whom I have liaised has already suggested to me that it believes that providers could book appointments for customers who call up with a request to transfer money from their pension or take some money out of it. I point out to noble Lords that guidance for some transfers is important, not just for when people take money out, because the customer could be helped to avoid falling for a scam scheme. Pension Wise has already managed to stop some customers from losing their pension when they responded to a cold call that was urging them to transfer rapidly out of a good scheme to a scam one.
To ensure that people have a guidance session before they engage with their provider about the possible options for their pension is more likely to result in them not taking out money yet, which the provider may not tell them about, or realising that there are many reasons to keep the money in pensions, such as not being taxed or losing the tax benefits of pensions. Of course, financial advisers can help here, but for those who do not have such independent advice the free guidance service is important. I hope that the Government will accept these sensible ideas, which have wide support from across the House, and which would be a major step forward for consumer protection in pensions.
The Earl of Kinnoull (CB)
My Lords, my name has also been added to this amendment, and I agree with every word the noble Lord, Lord Sharkey, and the noble Baroness, Lady Altmann, said. I declare my interests as set out in the register of the House, in particular those which relate to the insurance industry.
It has long been the case that for homes and mortgages considerable protections exist for consumers to prevent them from doing something in a hot-headed fashion. Indeed, this House has helped to shape those protections over many years—I remember studying the Law of Property Act 1922 at Bar school. Those protections have continued to build and generally are considered to work.
The pension asset has in recent times become just as significant. I say that off the back of an Office for National Statistics report, which it produced in December 2015, one chapter of which is called “Private Pension Wealth, Wealth in Great Britain, 2012 to 2014”. It reports that 59% of our fellow citizens now have a private pension and that the median value of the pension pots at June 2014 was £57,000. Obviously, those pots are growing through time. The median value for people between the age of 55 and 64—to the unscrupulous, the target people—was £145,000. To put that in perspective, the last house price index in this country—in June—listed the average value of a house at £220,000 or so, and Savills has helpfully estimated that the average loan-to-value ratio is about 48%. I do not want to prove anything in particular with that spray of statistics, but I want to demonstrate that the pension asset is now as valuable to our fellow citizens as the house asset across the board. Accordingly, in my mind and in logic, it too should enjoy similar protections to try to stop bad things happening.
The problem has been coming up on us and has been exacerbated by two things in recent times: first, the Osborne pension reforms; and, secondly, the very rapid rate of growth of pensions in general. To give my last statistic, the same ONS report said that in the two years to June 2014 private pension pots had grown by a median of 22%. My concern is not the big pot holder—I think that there will be sophisticated people who can look after themselves—but the large number of small pot holders who, to the unscrupulous, must look like very tempting targets.
The amendment serves to protect particularly the vulnerable and it goes some way towards making the pension asset safer, just as the legislation I referred to earlier has done for homes and mortgages. Pension asset security would be improved, without great effort on the part of government or, indeed, cost for someone who is trying legitimately to access or restructure their pension arrangements. Accordingly, I feel that this is a very sensible amendment and I very much hope to hear shortly from the Minister that the Government can do something in this area.
Lord Deben (Con)
My Lords, I refer the House to my declaration of interests, particularly as chairman of the Personal Investment Management & Financial Advice Association.
It is very important to take this amendment seriously because of the reforms brought in by George Osborne. There are two halves to giving people freedom: one is giving the freedom and the other is making sure that they have access to the best information in order to make the best choices. I fear that sometimes people find the first easier than the second.
I sat for some time as the representative of financial advisers on a committee of the then regulator looking into the financial understanding of people throughout the country. It was a very salutary experience, not least because many of the leaders of the providers were totally unable to explain what they were providing in language that I—being somewhat of a professional—could understand, let alone anyone else. My concern is that this is an industry that, even with the very best of intentions, is not very good at explaining the details. There are two reasons for that: one is that a special language is spoken by the experts and the second is that these things are very complicated. That is why, in many companies, people who are perfectly capable of being chairman or chief executive soon find somebody else to look after the pensions. It is a very complicated matter.
My concern is that the Bill needs constantly to look at the moments when people are most able and willing to receive advice. If that is also the point at which they most need the advice, it becomes particularly valuable. My noble friend might take note of one of the biggest changes to have happened in a quite different area. We were busy trying to get people to understand how important energy efficiency was. Many of the steps that we took seemed to have very little effect until we started to tell people, when they bought a new appliance under the European Union scheme, how energy efficient the appliance was. From one year to the next, we got rid of most of the GH levels and arrived at a situation where we were talking about A, A+ and A++. This was because we chose the moment when it was best to advise people. That is precisely what the amendment means. Not having it is not having the other half of the reforms.
Viscount Brookeborough
My Lords, I support the amendment and I thank the noble Lord, Lord Deben, for saying half of what I was going to say.
However, I should like to add one other point. Yes, this is about protection of the consumer and, secondly, advice. However, there is another word for advice: education. This is not simply about advice for people who go to the right places—very often they do not know where to go unless the advice is put in front of them—but about educating people. In our report on financial exclusion and in the FCA report, it is absolutely clear that there has to be continued learning and education throughout people’s lives. They are at school and then go to their first job and may not be able to save much money. Then they think of settling down, then they want a mortgage, then they want a car and so on—and then they want a pension.
We must look at the fact that a vast proportion of post-graduates—I do not have the figure in front of me now but we have all heard it recently—say that the most important omission from their education is financial education. It is therefore not a wonder that we have to do this. Taking the amendment in isolation, I can see why the Government may not want to accept it, because it is another addition to the legislation. However, it would not be so important if the Government accepted that education in schools should be not only controlled but monitored to ensure that it takes place. However, other things have been allowed to lapse. There are not the checks and the compulsory education, which should start at school and then continue. If there were, people would automatically want to be more educated in financial affairs as they go through life because they would know of their importance at an early stage. This is why this kind of amendment must be brought in at this stage to educate people and keep them in line for the future part of their lives.
The Viscount Thurso (LD)
My Lords, I have followed the passage of this Bill with great interest but I have not felt the need to intervene. However, today I support my noble friend in this amendment based on two experiences.
The first is as a trustee of the Parliamentary Contributory Pension Fund, which, as I am sure many Members know, is a well-run fund and gives a great deal of excellent advice. However, it is always surprising to discover how many well-educated, highly numerate and literate people fail to grasp much of what there is to do with pensions. If those of us who regard ourselves as reasonably well educated, quite numerate and quite literate are having difficulty with pensions, it stands to reason that many people who have not had those advantages will have even greater problems. To my mind, therefore, the need for advice is a case that is clearly made.
The second experience arises from my time on the banking commission of the Treasury Select Committee in another place. We worked extremely hard to ensure that the Financial Conduct Authority had a proper consumer remit. I am delighted that the Government accepted what we had to say because the FCA has proved to have undertaken the remit well and with a degree of teeth. If we want to ensure that a regulation works, we must make sure that the person promulgating it has teeth. It is absolutely right that the FCA should be the body to make the regulations and to follow up on them.
In summary, it would not surprise me if there is considerable resistance from the Treasury, but that is simply a manifestation of its well-known terminal “not invented here” syndrome. Experience shows that where the Treasury is obliged to take on regulation, it comes round to accepting its wisdom in due course. The test of this amendment, therefore, is not “Why should we?” but “Why shouldn’t we”.
Lord McKenzie of Luton (Lab)
My Lords, I have added my name to this amendment. We support not only the manner in which it was moved by the noble Lord, Lord Sharkey, and spoken to by the noble Baroness, Lady Altmann, but all other noble Lords who have spoken in support of it. The noble Baroness, Lady Altmann, said that it was about making the system work better, while the noble Lord, Lord Sharkey, reminded us that it is not about making this mandatory. The noble Earl, Lord Kinnoull, talked about the need to look at pensions. We have looked at mortgages in the past, but now is the time to make sure that pensions are fully protected. The noble Lord, Lord Deben, said that having freedoms is one thing, but being able to use those freedoms effectively with financial knowledge is important. The noble Viscount, Lord Brookeborough, reminded us again of the importance of financial education and the noble Viscount, Lord Thurso, outlined the importance of the FCA.
Amendment 24 is clear in its purpose. The FCA must require all trustees and managers of pension schemes to ask people, at the point at which they seek to access or transfer their pensions, whether they have received the information and guidance available to them from the new financial guidance body under Clause 3. If they have not received that guidance, the FCA may require the trustee or the pension scheme manager to provide the individual with access to it before the manager proceeds with the access or transfer request. In effect, the FCA can require that people at risk are defaulted into guidance through their scheme.
Public pension policy is now predicated on, effectively, dividing pensions into two elements: a saving phase and an access phase. In the saving phase, the barriers to individuals’ acting in the face of complexity, which inhibits optimal decision-making, are recognised and regulated defaults have been introduced—auto-enrolment and default investment funds. In the access phase, policy assumes behaviours to be dramatically different, with individuals bearing direct responsibility for making good choices, even though the evidence is clear that they need more support. People are nudged by public policy to save, but they are left to their own devices when accessing or transferring their savings. As the chief economist at the Bank of England, Andy Haldane, commented on 18 May at the annual dinner of the think tank New City Agenda,
“I consider myself moderately financially literate. Yet I confess to not being able to make the remotest sense of pensions. Conversations with countless experts and independent financial advisers have confirmed for me only one thing—that they have no clue either. That is a desperately poor basis for sound financial planning”.
The radical reforms to accessing savings, introduced in the 2014 pension freedom and choice flexibilities, introduced new risks attached to individual decision-making, which will only increase over time as more pensioners become dependent on defined contribution savings. Many people are not well-equipped to make informed decisions. Many of the pension draw-down products do not have the governance and value for money requirements that workplace pensions possess in the savings phase. The prevalence of scams has increased as a direct result of the new freedoms as, increasingly, fraudsters try to get hold of people’s hard-earned savings.
As the FCA observed in the interim report on its retirement market study following the introduction of the new pension freedoms, consumers are poorly placed to drive effective competition. The retirement income market is not working well and the introduction of greater choice and more complex products will reduce consumer confidence and weaken the pressures on providers to offer good value.
The governance of the UK private pension system remains a challenge and the creation of the single financial guidance body is intended, in part, to address market failures and support people to make informed decisions that are in their interest. That will happen only if people access the guidance available—if those at risk of poor decisions use it and are referred to it before they make their decisions or their decisions are implemented. That is precisely what the amendment seeks to achieve, by requiring trustees and scheme managers to ask people whether they have taken the guidance available before they access or transfer their pensions and, if necessary, by requiring the trustees and managers to provide access to that guidance, in line with rules drawn up by the FCA, before proceeding to implement the individual’s decision. Requiring providers to ask people before they make their decision whether they have received guidance from the new body will improve public knowledge of the service and, in some circumstances, address the known barriers put in place by some providers that are reluctant to see their customers access impartial guidance, for fear that they will not buy a product or service from them as a result. Requiring trustees and managers to provide access to that guidance before proceeding to act will directly help to protect savers from making poor decisions.
The case for the amendment is also provided by the FCA’s recent Retirement Outcomes Review: Interim Report. The FCA observed that,
“pension freedoms have made consumer decisions much more complex … consumers struggle to understand their options and to think through the implications of their decisions … leading consumers to choose what … may not be the best decision for them”.
Some consumers cannot, or will not, engage with those decisions. Not all will take advice because of its cost and availability. That is a market gap. Indeed, the FCA expressed concern about whether a competitive market in retirement products can ever develop in the future. It identified four areas of remedy, one of which was to get savers to use the free and impartial guidance. That guidance is currently available from Pension Wise, the Pensions Advisory Service and Citizens Advice, but will transfer to the new body. The FCA explicitly recognises that favouring more guidance will,
“require cooperation across the Government, regulators”,
and industry. The amendment is an important requirement in securing that co-operation and protecting the increasing number of vulnerable savers. For the vast majority of people, a poor financial decision at the point of retirement or on transfer is a mistake for life. It cannot be remedied.
In conclusion, if noble Lords needed further reason to support the amendment, I refer them to the briefing from the Association of British Insurers on the amendment, delivered yesterday evening, which states:
“Enhancing access to advice and guidance is essential, and the SFGB has the potential to play a crucial role in helping more people understand their pension options. This should include exploring with industry and the DWP how we can make the use of guidance a recognised, positive norm when people choose to access their pension savings. The ABI would like to explore how this could work in practice, for example through options such as defaulting or auto-enrolling customers to guidance, earlier retirement communications to prompt people to use guidance, and introducing a Midlife MOT”.
I urge support for the amendment.
Baroness Buscombe
My Lords, the amendment relates to the specific pensions guidance requirements set out in Clause 3 that the single financial guidance body must provide as part of its general pensions guidance function. The amendment seeks to increase the take-up of this particular guidance by members of the public when they wish to access or transfer their pension.
I am grateful for the opportunity to reference the Pension Wise service, which is currently delivering the guidance described in Clause 3. The Pension Wise service evaluation, published last week, shows that the service is incredibly well regarded by its customers, with customer satisfaction at 94%—a figure referred to by several noble Lords.
The amendment is driven in part by figures that suggest that Pension Wise is not reaching enough people. However, our contention, as my noble friend Lord Young set out in Committee, is that assessing take-up volumes is far from straightforward and that the picture is much better than the figures published by the FCA would suggest. In fact, I recently met with Pension Wise and it was very clear to me that a huge number of people are accessing guidance just on the website.
As noble Lords said, the amendment is driven also by the FCA’s recent interim report on the retirement outcomes review. The report raised some issues, which noble Lords have referred to, and the FCA has proposed a number of remedies. These include additional protections and measures to promote competition for consumers who buy draw-down without taking advice.
The FCA is actively engaging with government, regulators, industry and consumer bodies before it delivers its final report in the first half of 2018. We should take decisions about how to proceed in the light of the fullest information possible. This will ensure that we make interventions that go to the heart of addressing any weakness in the system and ensure people make informed choices for their circumstances.
The amendment would oblige the FCA to make rules requiring pension providers to ask individuals with personal or stakeholder pensions whether they have had the specific pensions guidance set out in Clause 3 when they require access to, or individual transfer of, their pension assets. Beginning with individuals requiring access, it would be helpful if I take a moment to remind noble Lords about the retirement risk warning rules, which are in force today and will continue to be in force when the new body is established.
The FCA already requires that when a person has decided in principle to access their personal or stakeholder pension pot, and before the action is concluded, the pension provider must ask the individual whether they have received pensions guidance or regulated advice. If the person says that they have not or if they are unsure, the FCA requires that the firm must explain that the decision is an important one and encourage the individual to use pensions guidance or to take regulated advice. If the person says that they have had their pensions guidance or regulated advice, or if they insist on proceeding, the FCA requires the firm to give the individual appropriate risk warnings.
These warnings must be relevant to the chosen method of access and, where the pot is over £10,000, the provider must ascertain information about the individual’s circumstances to tailor the warnings. Risk factors that should be covered where relevant are: the individual’s health; loss of guarantees; whether the person has a partner or dependants; inflation; whether the person has shopped around; sustainability of income in retirement; tax implications; charges, if a person intends to invest their pension savings; impact on means-tested benefits; debt; and investment scams.
These retirement risk warnings are in addition to other FCA rules that require pension providers to tell people with personal or stakeholder pensions: first, that free and impartial guidance is available from Pension Wise to help them understand their pension options; secondly, how to access the guidance through the internet, over the phone or face to face; and, thirdly, that they should seek guidance and consider taking independent advice to help them decide which option is most suitable for them.
Pension providers must include this information with the wake-up packs that people are sent when they approach retirement or, importantly, when they contact them about accessing their pension—I always smile when I reference the fact that the packs are called “wake-up” when they are for those approaching retirement.
It may also be helpful to remind the House that the FCA also requires pension providers to include the Money Advice Service booklet, Your Pension: It’s Time to Choose, or materially the same information in wake-up packs sent to members with personal or stakeholder pensions. This provides information and guidance on pension options and where to go for more help, including Pension Wise and the Pensions Advisory Service. Again, I say to noble Lords that I was amazed and hugely encouraged by the extraordinary expertise and experience that exists within those organisations, particularly when I visited the Pensions Advisory Service, where there are people with 30 or 40 years’ experience in the financial services industry giving advice to people over the phone—over the counter, as it were—and on their websites and by email. The booklet also covers essential information about tax, the importance of shopping around and avoiding scams. I hope that noble Lords will agree that this existing regime already provides individuals with important information and strong encouragement to take advantage of guidance and advice before accessing a pension pot.
I now turn to individuals requiring a transfer of their pension. Noble Lords will be aware that many transfers have the express aim of accessing the pension freedoms, and they are protected by the measures I have just spoken about. A large proportion of other transfers from one registered scheme to another can be a routine decision to consolidate pension pots to keep financial affairs simple. This can often deliver better value for members, and adding friction to what is essentially an administrative process could directly inhibit member engagement with their pension.
It is also the case that there are existing requirements in relation to transfers from one registered pension scheme to another. In a transfer situation, the Government are keen that members with valuable guarantees are aware that they have them and of the implications of giving them up. Where an individual has safeguarded benefits—for example, a guaranteed annuity rate—the current provider would need to determine the value of those benefits. If that value is more than £30,000, the individual must have received regulated advice from an authorised financial adviser before the transfer can go ahead.
From April 2018, pension providers must give members with guaranteed annuity rates and similar guarantees more personalised information. This should detail the guarantees they hold and their value, and must be sent at the point they risk giving them up, when they seek a transfer or request access to their pension. There is also a legal obligation for trustees to act in members’ best interests, and the FCA requires that providers treat customers fairly. As well as highlighting guarantees, many pension providers encourage members to think about the implications of transferring, particularly in relation to exit fees and charges.
To sum up, pension providers are consistently cited by around half of the people who contact Pension Wise as the place they first heard of the service. Pension Wise is working with pension providers to ensure that signposting is as effective as possible and with employers locally and nationally to encourage take-up of the service. This includes a major pilot project with Tesco, where Pension Wise appointments are delivered in the workplace. This is in addition to national advertising of the Pension Wise service through a variety of media channels, which has been used since the service was launched in 2015. That has clearly contributed to increased awareness of the service, borne out by the significant increase in the number of people using it.
I appreciate the sentiment behind the amendment and agree that more people should take advantage of the excellent service that Pension Wise provides. However, I do not agree that the amendment is the way to achieve it. It is essentially a reimagining of existing obligations that the FCA already places on providers. As I have explained, the FCA has already made rules, in force now, which place strict requirements on providers when engaging with an individual about accessing their pension.
My noble friend Lady Altmann said that this would be a major step forward, but the rules are already in place. There is no problem with the Treasury—this was referenced by the noble Viscount, Lord Thurso. We already have the rules in place. Take-up of Pension Wise guidance is increasing and bringing together all the offers in this area under one roof. The single financial guidance body will make it easier for people to take advantage of the excellent services available.
For the benefit of noble Lords who have just joined us in the Chamber, this is supposed to be a framework Bill to set up the single financial guidance body—without too many additional powers or burdens placed upon it over and above those which are necessary to take this forward. I trust that, with this reassurance, the noble Lord will feel able to withdraw his amendment.
Lord Sharkey
I thank all noble Lords who have spoken in the debate. I note the support for the amendment from all sides of the House. I note also that the Government seem to rely in their argument on essentially unsubstantiated claims for the performance of Pension Wise in reaching people. The low level of take-up is the problem we are addressing. No matter what current and elaborate arrangements the Minister may tell us are in place, they are not working.
The amendment sets out at no cost—no downside—a simple proposal. It intervenes at an absolutely critical point in the pension process, as people begin to access or transfer their pension assets. We do not claim that it will prevent all bad or suboptimal decisions but we believe that giving people this last chance for information and advice is sensible, prudent and fair-minded, particularly for the most vulnerable people and those most at risk. It is clear—again, given the low take-up figures for the information and advice services—that this is needed. I do see the point of doing all we can to help people make good decisions about their future financial well-being, especially at this critical point in their lives. I would like to test the opinion of the House.
Baroness Buscombe
“( ) In determining whether to approve the standards, the FCA must have regard to the needs of people who are receiving, or who may seek to receive, the information, guidance or advice to which the standards will apply.”
Baroness Buscombe
My Lords, during our debates at Second Reading and in Committee, the noble Baroness, Lady Drake, raised a concern about the Financial Conduct Authority’s focus in approving the service standards for the body. The noble Baroness and other Members of the House stressed the need for the body’s standards to be focused on supporting and safeguarding members of the public. The Government agree that it is important that the standards should be designed with the needs of the public in mind. People’s needs should be at the heart of how services are delivered by the body and its delivery partners.
For example, users of the body’s service will need a variety of delivery channels to be available. They will need the people giving guidance or advice to have the required skills to do so, and they will need information to be presented in a clear and fair way that is not misleading. Members of the public should expect needs such as these to be met by the service, and we expect the standards to be designed to make sure that the body’s services meet those needs.
This amendment makes it clear that the FCA, in undertaking its role to approve the body’s standards, must consider the needs that members of the public have in accessing information, guidance and debt advice through the body. This includes not only people who are using the body’s services, but those who are likely to need information, guidance or advice provided by the body in future. I have already stressed the benefits of including the FCA in the standard-setting process for the body. The FCA currently sets the standards for the Pension Wise service. Figures published last week show a 94% customer satisfaction rating, and these standards are firmly centred on customer needs.
For example, Pension Wise standards include that a guidance provider must have the skills, knowledge and expertise necessary for the discharge of the responsibilities allocated to it; people using the service must be able to change to a different delivery channel; the service must be accessible to people under relevant equalities legislation; and the delivery of the service must be consistent across all delivery channels. These are a few among many Pension Wise standards which are focused on ensuring the service meets the needs of the people who use or will use Pension Wise guidance.
This amendment places a clear obligation on the FCA to have regard to the needs of members of the public when approving the single financial guidance body’s standards. By making this explicit, I trust that noble Lords will agree that this addresses any concerns they may have that the FCA would not take seriously people’s needs when approving the body’s service standards.
I shall turn briefly, if I may, to Amendment 26 in this group. As noble Lords will be aware, the activities of the single financial guidance body are funded by a levy which the Financial Conduct Authority collects from sections of the financial services industry. One part of that industry involves a payment service provider. Clause 10(11) defines a “payment service provider” by reference to the Payments Services Regulations 2009. Since the Bill was introduced into your Lordships’ House, those regulations have been replaced by the Payment Services Regulations 2017. This amendment therefore seeks to update that reference so that it refers to the new regulations.
I hope noble Lords will agree that we should keep the Bill up to date and with this minor amendment we will do so. For this reason, I hope that noble Lords will be willing to accept this amendment. I beg to move.
Baroness Drake (Lab)
My Lords, I support government Amendment 25, and thank the Minister for her reflections on the issues raised in Committee. The amendment is a very helpful addition to the Bill because it makes it clear that the FCA, which is an economic regulator, authorises the standards of the new financial guidance body and ensures that they are complementary to the objectives of that body—to improve consumers’ financial ability and their ability to make informed decisions. I support the amendment and thank the Minister.
Baroness Buscombe
Baroness Buscombe
“False claims about provision of information etc
(1) It is an offence for a person to hold himself or herself out (or where the person is a body, to hold itself out) as providing information, guidance or advice on behalf of the single financial guidance body when that is not in fact the case.(2) It is a defence for a person charged with an offence under this section to prove that the person took all reasonable precautions and exercised all due diligence to avoid committing the offence. (3) A person guilty of an offence under this section is liable on summary conviction—(a) in England and Wales, to imprisonment for a term not exceeding 51 weeks or a fine, or both;(b) in Scotland, to imprisonment for a term not exceeding 12 months or a fine not exceeding level 5 on the standard scale, or both;(c) in Northern Ireland, to imprisonment for a term not exceeding 6 months or a fine not exceeding level 5 on the standard scale, or both. (4) In relation to an offence committed before the commencement of section 281(5) of the Criminal Justice Act 2003, the reference in subsection (3)(a) to 51 weeks is to be read as a reference to 6 months.(5) Proceedings for an offence under this section may be instituted in England and Wales only by or with the consent of the Director of Public Prosecutions.(6) Proceedings for an offence under this section may be instituted in Northern Ireland only by or with the consent of the Director of Public Prosecutions for Northern Ireland.”
Baroness Buscombe
My Lords, at Second Reading and in Committee, the noble Baroness, Lady Drake, highlighted the importance of protecting the public and the integrity of the single financial guidance body. I am grateful to her for raising those issues and have considered them carefully. It is essential that people know that they can trust the single financial guidance body, so that they make steps to get the help that they need to make effective financial decisions.
The amendments will make it a criminal offence for someone to hold themselves out as providing information, guidance or advice on behalf of the single financial guidance body when that is not the case. It will prohibit the impersonation of the body itself, in phone calls or via webpages, and of the body’s delivery partners if the impersonator claims to be providing services on behalf of the body. The provisions are designed to make it easier to prosecute individual members of organisations where the offence is committed by an organisation. As with the existing offence for Pension Wise, the new offence is summary only. It proposes a maximum sentence of 51 weeks in England and Wales although, until the commencement of Section 281(5) of the Criminal Justice Act 2003, the maximum sentence is six months. The maximum sentence in Scotland will be 12 months and in Northern Ireland six months. The offence also allows the courts to impose fines—an unlimited fine in England and Wales, and a maximum fine of £5,000 in Scotland and Northern Ireland. Criminal justice is a devolved matter in Scotland and Northern Ireland; that is the reason for the differences in sentences and fines.
The new offence will provide an additional deterrent to existing criminal offences such as fraud. It will send out a strong message that impersonating the new body is illegal and carries significant penalties. In practical terms, the offence will make prosecutions of offenders more likely, because the evidential burden of proving that a person or organisation impersonated the new body is likely to be lower than that required to prove that fraud had been committed. Unlike fraud, there is no need to prove intent to make a gain or to cause a loss for this offence. However, where scams and fraud are particularly serious, the offence does not limit in any way the ability to prosecute the criminals with offences that attract higher sentences—for example, fraud, which carries a maximum custodial sentence of 10 years.
Noble Lords will be interested to know whether the offence will also protect the branding of the existing service providers. The noble Baroness, Lady Drake, suggested in our previous debate that people might continue to recollect the brand names of Pension Wise, TPAS and MAS—the Money Advice Service—before they began to recognise and remember the name of the new body. I reassure noble Lords that we anticipate a controlled transition between the existing services and the new body. The intellectual property of the existing services will transfer to the new body. That will include the brands and website domains of the existing services.
If people search for or telephone the existing services, we expect that they will be automatically transferred to the new service and, where existing brand names are to be discontinued, that would occur only when the new brand had gained sufficient recognition. That will ensure minimal drop-off from people looking for government-sponsored guidance but being unable to find the correct website or telephone number. Ensuring that customer traffic is not lost will be important throughout the transition period.
In that way, the opportunity for scammers to exploit public recognition of the branding of the existing services will be minimised. The protection that the new offence offers extends to the brands that the body uses. If fraudsters and scammers pretended to be MAS, TPAS or Pension Wise and the body was still using those brands to market its services, that would also be an offence under the amendment. This provision therefore ensures that the legacy names of the existing services are protected for as long as those brands are actively used by the new body.
The offence will apply to all the services offered by the new body. I trust that noble Lords agree that the amendments provide comprehensive protection for the body and the public. I beg to move.
Baroness Drake
My Lords, I support government Amendments 27 and 28, and thank the Minister for her personal efforts on this matter, which are appreciated because it is very important. The amendments are welcome in making it clear that it is a criminal offence for organisations falsely to present themselves as providing a service on behalf of the new guidance body. They are thorough in addressing the actions of the corporate body and the individual officers in those guilty organisations. I particularly welcome the Minister’s reassurance about handling the TPAS, MAS and Pension Wise brands. That is an excellent statement, which I was not expecting. I compliment the department on having thought through in such detail how it can protect those names—so thank you for that.
However, I shall spend a little time on the issue. Spelling out in the Bill that it is a crime to mimic will act as a powerful deterrent, and a deterrent is certainly needed because of the potential human cost of such fraudulent activity. That is illustrated even now by existing cases, such as the person who received a letter with their details on it, which had not come from their pension administrator, claiming that they wished to leave the company pension scheme. The letter asked them to choose whether to withdraw, transfer or take out the paid-up option and to return all policy documents. The website of the company sending the letter advised that it was legitimate and said to be aware that scammers were imitating it. Then, there was the lady who reported the actual Pensions Advisory Service to the Information Commissioner’s office as she believed that it had rung her and she was registered with the Telephone Preference Service. The number was traced to a company bearing a near identical name to TPAS. There are numerous other cases of people being contacted by companies mimicking the public pension advisory services, offering a pension review and persistently pressing individuals to sign to transfer a DC pot; or offering a free pension review and sending a courier round to collect the documents; or claiming to be part of a post-Brexit government-sponsored pensions review.
These impersonators are ingenious in their hunt to claim fresh victims. The documented work of several government agencies, be they police, the Revenue or the regulators, reveals the extent of organisations implying that they are regulated when they are not, some falsely carrying warning messages against scams. A mechanism designed to protect consumers is now being used to dupe them. The Financial Services Compensation Scheme, further to previous public warnings about fake emails from fraudsters promising compensation payments, has issued a new warning about a scam website using the logos of the FCA and the Prudential Regulation Authority to give it false credibility. The Pensions Regulator has just put out a further release advising that it has launched new online warning messages, using animation, circulated via Facebook, Twitter and YouTube, urging consumers to keep their eyes and ears open for scams.
The new financial guidance body will have a substantial remit and a considerable reach out to the public. The damage that can be done to the body and the interests of consumers by those falsely claiming to be providing its services, be they on finance, debt or pensions, could be considerable if not controlled. I support these amendments, which provide a welcome strengthening of the Bill, and thank the Minister for bringing them forward.
Baroness Buscombe
“Offences under section (False claims about provision of information etc) committed by bodies corporate etc
(1) If an offence under section (False claims about provision of information etc) committed by a body corporate is proved—(a) to have been committed with the consent or connivance of an officer of the body, or(b) to be attributable to any neglect on the part of such an officer,the officer, as well as the body corporate, is guilty of the offence and liable to be proceeded against and punished accordingly.(2) In subsection (1)“officer”, in relation to a body corporate, means—(a) a director, member of the committee of management, chief executive, manager, secretary or other similar officer of the body, or a person purporting to act in any such capacity;(b) an individual who is a controller of the body.(3) If the affairs of a body corporate are managed by its members, subsection (1) applies in relation to the acts and defaults of a member in connection with the member’s functions of management as if the member were a director of the body corporate. (4) If an offence under section (False claims about provision of information etc) committed by a partnership is proved—(a) to have been committed with the consent or connivance of a partner, or(b) to be attributable to any neglect on the part of the partner,the partner, as well as the partnership, is guilty of the offence and liable to be proceeded against and punished accordingly.(5) In subsection (4) “partner” includes a person purporting to act as a partner.(6) If an offence under section (False claims about provision of information etc) committed by an unincorporated association other than a partnership is proved—(a) to have been committed with the consent or connivance of an officer of the association or a member of its governing body, or(b) to be attributable to any neglect on the part of such an officer or member,the officer or member, as well as the association, is guilty of the offence and liable to be proceeded against and punished accordingly.(7) Proceedings for an offence under section (False claims about provision of information etc) must be brought—(a) where the offence is alleged to have been committed by a partnership, against the partnership in the firm name;(b) where the offence is alleged to have been committed by any other type of unincorporated association, against the association in its own name.(8) Rules of court relating to the service of documents have effect in relation to such proceedings as if the partnership or unincorporated association were a body corporate.”
Baroness Buscombe
“FCA general rules: information about the availability of guidance
After section 137FBB of the Financial Services and Markets Act 2000 insert—
“137FC FCA rules: disclosure of information about the availability of financial guidance(1) The FCA must make general rules requiring specified authorised persons to provide information about the availability of financial guidance to the descriptions of persons specified in the rules.(2) The rules may specify the circumstances in which the duty to provide the information applies.(3) Before the FCA publishes a draft of any rules to be made by virtue of this section, it must consult—(a) the Secretary of State,(b) the Treasury, and(c) the single financial guidance body.(4) In this section—“financial guidance” means information, guidance or advice provided in pursuance of the single financial guidance body’s pensions guidance, debt advice or money guidance function (see section 2 of the Financial Guidance and Claims Act 2017);“specified authorised person” means an authorised person of a description specified in rules made by virtue of this section.””
Baroness Buscombe
My Lords, Amendments 29, 30, 31, 32, 44 and 45 would amend the Financial Services and Markets Act 2000 to require the Financial Conduct Authority to create a new rule requiring specified authorised persons to signpost to the new single financial guidance body. Signposting will help to improve the accessibility of financial guidance and advice to the public. The Government and the Financial Conduct Authority want to see more people seek financial guidance and advice, and at an earlier point so that it can be of most help to them. The new body will place accessibility of guidance and advice at the heart of its services.
The noble Baroness, Lady Drake, tabled an amendment in Committee which would require the FCA to create a new rule requiring all relevant firms regulated by it to signpost their customers to the new single financial guidance body. When she did so, the Government stated their wholehearted agreement that signposting could help to improve public access to guidance. We are grateful to the noble Baroness for raising these matters. We have considered them carefully and, as a result, have tabled this amendment which takes forward the spirit of her earlier one. I hope noble Lords will be satisfied that the Government have heard their concerns, and addressed them through this amendment. The amendment will put a clear duty on the FCA to set rules to secure effective signposting to financial guidance and advice for those most likely to benefit from it.
I also thank the noble Lords, Lords Sharkey and Lord McKenzie, my noble friend Lady Altmann, and the noble Earl, Lord Kinnoull, for tabling Amendment 29A. This would amend the Financial Services and Markets Act 2000 to require the FCA to create a new rule, which would require specified authorised persons to refer persons specified in the rules for financial guidance, and specify the manner and circumstances in which the duty to refer applies. As we understand it, the noble Lord, Lord McKenzie, has indicated that “refer” is a more involved process than providing information about the availability of financial guidance. This amendment would mean that, rather than providing information on where to obtain guidance and advice, and allowing people to make their own decisions, specified authorised persons would have to actively refer persons specified in the rules for financial guidance.
We understand that this amendment is driven by the desire to ensure that the people who need financial guidance, such as vulnerable consumers, actually use the guidance available. We can assure noble Lords that the Government are wholly committed to improving the uptake of guidance and advice for people who are vulnerable. In fact, the FCA has already carried out a great deal of work on how it supports vulnerable consumers. Many Peers recently had a helpful meeting with the FCA, which I hope reassured them that the FCA takes its responsibility for vulnerable consumers very seriously.
As we discussed at that meeting, issues regarding access and vulnerability are at the core of the FCA’s mission and business plan, which were published in April this year. In the debate we had last week, my noble friend Lord Young referred to the FCA’s mission, which states that:
“Understanding vulnerability is central to how we make decisions. Consumers in vulnerable circumstances are more susceptible to harm and generally less able to advance their own interests”.
The FCA is due to undertake a number of further projects to understand better the concerns of vulnerable groups, not least through its forthcoming work to develop a consumer strategy through its consumer approach paper, which will be published in the next few weeks. The consumer approach will provide a means for the FCA to measure outcomes for vulnerable customers. The FCA will also work to develop vulnerability mapping so it can ensure it has captured the needs of vulnerable consumers when finalising its business priorities. We therefore think that the intent behind this amendment will already be covered under the FCA’s work.
When reviewing existing rules and developing new rules in relation to the single financial guidance body, the FCA will consider whether there is a need for referral, in addition to providing information. I hope this will assure noble Lords that the amendment is not necessary. In fact, it would add confusion and reduce the FCA’s flexibility to design the new rules in a way that best serves the needs of particular customers.
Furthermore, there is a concern that expanding the duty to cover referrals for financial guidance could prove unnecessarily costly and burdensome to the industry. The FCA has a duty to carry out a cost-benefit analysis of any new rules under the regulatory principles in the Financial Services and Markets Act 2000. FiSMA outlines the principle that a burden or restriction imposed on a person, or on the carrying on of an activity, should be proportionate to the benefits, considered in general terms, which are expected to result from the imposition of that burden or restriction. The Government are therefore reticent to legislate for a duty to refer before the FCA does the necessary cost-benefit analysis and consultation with industry about the exact impact over and above the existing costs.
On identified costs, existing legislation and FCA rules require pension schemes to provide information to customers such as TPAS and Pension Wise services. The FCA also requires mortgage providers to signpost customers to the Money Advice Service, and debt management firms to make people aware of free-to-client advice funded by the Money Advice Service in their first communication.
These rules will be updated to reference the single financial guidance body rather than TPAS, Pension Wise and the Money Advice Service. The Government’s impact assessment has indicated that this will create an estimated direct cost on business of £5.65 million in the first year of the policy. The requirement to create new rules on signposting would be an additional cost. Therefore, we should give the FCA flexibility through this Bill to better identify which additional costs would be effective. I understand and agree with the desire to ensure that people are receiving the guidance and advice they need to make the right decisions for them. I hope that the FCA’s commitment to consider the need for referral will give noble Lords sufficient reassurance.
I beg to move the amendment standing in my name and urge the noble Lords to withdraw Amendment 29A.
Amendment 29A (to Amendment 29)
Lord Sharkey
“( ) The FCA must make general rules requiring specified authorised persons to refer persons of a specified description for financial guidance.( ) The rules must specify the manner and circumstances in which the duty to refer applies.”
Lord Sharkey
I will speak very briefly to Amendment 29A in this group. I am very grateful for the support of the noble Baroness, Lady Altmann, the noble Lord, Lord McKenzie of Luton, and the noble Earl, Lord Kinnoull, who have added their names to it.
As the Minister said, the amendment would add to government Amendment 29, the case for which she put eloquently and convincingly. If I may paraphrase, Amendment 29 deals essentially with the provision of information about the availability of financial guidance. It is an amendment about signposting, as I think the Minister said. Subsection (1) requires the FCA to,
“make general rules requiring specified authorised persons to provide information about the availability of financial guidance”,
to persons whose descriptions are “specified in the rules”. Actually, the wording says that such information must be provided to the,
“descriptions of persons specified in the rules”.
I am not sure that you can provide information to a description of a person—but the intent is clear even if the wording is rather odd.
Subsection (2) allows the FCA to decide when a duty to provide the information set out in subsection (1) actually applies. We agree with those provisions, but we believe that they should be extended beyond simple signposting. They should be extended to allow the FCA to require persons of a specified description to be referred for financial guidance and so that the FCA has the power to decide in what circumstances and how this duty of referral should apply.
The government amendment deals only with information about the availability of guidance; our amendment has the power to refer for guidance. In both cases the powers are given to the FCA, which has unfettered discretion in deciding how, when and to whom these powers are to be applied, both as to providers and as to customers of these providers. There is no requirement in either case that the FCA acts universally across providers and across customers. Both Amendments 29 and 29A, taken together, require the FCA to make rules requiring the provision of information about the availability of financial guidance and rules requiring specified providers to refer specified customers for financial guidance. How all this might happen is left to the FCA to decide.
The first part—the government part—is a requirement to signpost. The second part—our part—is a requirement to refer. It seems sensible to have both weapons in the armoury. Signposting is a good idea in principle, even if it has a somewhat chequered and contested success rate or even effective compliance rate. Successful reference for guidance is, we know, likely to produce an effect. All the Pension Wise service evaluation data, which we have discussed several times in this House, shows that to be the case. In both cases—signposting and referral—the FCA may, at its discretion, decide which providers and which customers should signpost or refer, or be signposted or be referred.
It has been a constant theme in our debates on the Bill that in this country people are not financially well educated and do not have confidence in their own ability to handle financial matters, and that dangerous financial ignorance and misunderstandings are widespread. Amendments 29 and 29A, taken together, will allow the FCA to make decisive interventions about signposting and referral among groups it sees as most needing this kind of help. I had hoped that the Minister would see that her amendment was complemented and strengthened by ours and would be able to accept it in the spirit in which it was offered. Having listened carefully to the Minister, I now sense that that may be unlikely.
Baroness Drake
My Lords, obviously, I welcomed government Amendment 29, because it addresses an issue that I raised in Committee. However, I am also persuaded by the arguments used in Amendment 29A, which gives to the FCA the discretion to define the circumstances in which providers would be required to refer people to the impartial single financial guidance body—a reference probably driven by the characteristics of a vulnerable group at risk of making a poor decision. The FCA would define those circumstances. Because under this amendment it can and does, it would not create a blizzard effect of referrals for financial guidance which overreaches the function of the new body, nor need it undermine the new body’s ability to focus on those most in need of guidance. This amendment clearly gives the FCA the duty and the statutory authority to nudge or default people into impartial financial guidance in those circumstances which the FCA specifies. In specifying the circumstances, it will have consulted with the single financial guidance body.
The recent FCA Financial Lives Survey identified that 50% of adults—25.6 million people—are financially vulnerable on one or more characteristics. The single financial guidance body cannot possibly solve a systemic problem of that scale, nor should we take the risk of trying to overload it so that it cannot effectively discharge its key remit. But it can make a material difference by improving the financial capability of those most in need of support. However, to do that, those most in need of support need to use the guidance, and this amendment would give the FCA the complementary authority to enable those most in need of the guidance to be referred to it.
I know that it is possible to list a whole series of regulatory requirements on information and disclosure but the ever-increasing evidence is that they simply do not work when it comes to protecting vulnerable consumers. They need more—they need guidance or other levels of protection.
Lord Hunt of Chesterton (Lab)
My Lords, I am not an expert on these things, as most people obviously are. A scam was carried out on me in France in the summer, and that was very educational. The point is: would a person in a remote village who is confused and has already been scammed trust the mail or any other form of communication? Surely there needs to be somewhere—perhaps the post office or the bank—where worried people can go. At the moment they have to write to some governmental body far away. We are in a desperate situation and I would be interested to know the Minister’s opinion on this.
Lord McKenzie of Luton
My Lords, I can be brief. We welcome the Government’s amendments, which would place in the Bill a duty on the FCA to make rules requiring information to be given to consumers and members of the public by relevant organisations and persons about the availability of impartial financial guidance. This requirement will cover all information, guidance and advice provided by the single financial guidance body.
The substance of our debate on this group has been Amendment 29A, which strengthens the government amendment with the intent of increasing the use of the new financial guidance service by placing a duty on the FCA to make general rules requiring specified persons to refer specified members of the public to the new body for guidance. The FCA must also specify the manner and circumstances in which the duty to refer applies. Therefore, the amendment puts the FCA in the driving seat, which is the thrust of the amendment. The noble Baroness said that this was basically what the FCA was about in any event, in which case I would ask: if we are at one in what we are trying to achieve here on the authority that the FCA should have, why not enshrine it in the Bill?
Baroness Buscombe
I have already spoken in detail on Amendment 29A, so I am possibly at risk of repeating everything that I have said. However, I would ask the noble Lord, Lord Hunt of Chesterton, to refer to Hansard, where he will see that since 19 July we have been discussing the very issue about which he is concerned.
The truth is that we are setting up a single financial guidance body which we hope will be even better than the bodies that already exist when it comes to improving people’s financial capability and giving them regulated advice and guidance. That is the purpose of the Bill. I hope that I have persuaded noble Lords that Amendment 29A is not necessary and that the noble Lord will be happy to withdraw it.
Lord Sharkey
My Lords, I entirely agree with the noble Lord, Lord McKenzie of Luton, that it would be better to have Amendment 29A on the face of the Bill. I think that it is a perfect complement to the elegantly crafted Amendment 29. However, I hear what the Minister says and I beg leave to withdraw.
Baroness Buscombe
“( ) before “, 137SA”(inserted by paragraph (a)), insert “, 137FC”;”
“( ) before paragraph (ac)(inserted by paragraph (a)), insert—“(aba) section 137FC;”;”
“( ) before “, 137SA”(inserted by paragraph (a)), insert “, 137FC”;”
Baroness Buscombe
“(1) The Secretary of State must keep under review the question of whether the single financial guidance body should be dissolved.(1A) If the Secretary of State considers that the single financial guidance body should be dissolved, he or she must carry out a public consultation.(1B) If, after the period of 12 weeks beginning with the day on which the consultation began, the Secretary of State still considers dissolution of the single financial guidance body to be appropriate, he or she must lay before Parliament—(a) draft regulations, and(b) an explanatory document.”
Baroness Buscombe
Amendments 34, 35, 36, 37, 38 and 39 would revise Clause 14 and insert a new clause into the Bill. Clause 14 makes provision for the winding up of the single financial guidance body and for its functions, property, rights or liabilities to be transferred to the Secretary of State or another body. These amendments would add safeguards to the procedures for dissolving the body should that be necessary in the future.
In drafting these amendments, we have listened carefully to the concerns raised in previous debates by the noble Lord, Lord McKenzie, and the recommendations of the Delegated Powers and Regulatory Reform Committee. As a result, we have studied the approaches taken in both the Public Bodies Act 2011 and the Enterprise Act 2016 to provisions to dissolve arm’s-length bodies.
As I explained in Committee, we would expect stakeholders, the public and other interested parties to have the opportunity to give their views before any decision to dissolve the new body was made. We are now putting that beyond doubt by setting out clearly that a public consultation will be required before the Government can lay any draft regulations to dissolve the body.
The amendments also provide assurance that any draft regulations cannot be laid until at least 12 weeks after the consultation has begun. This allows a suitable period of time for consultation and consideration of the responses to take place. In addition, the amendments require that the Secretary of State must, alongside any draft regulations, lay before Parliament a document to explain the rationale behind dissolving the body.
The amendments also give Members of both Houses the opportunity to request that the period for scrutinising the draft regulations be increased from the usual 40-day period to 60 days. During this time, the Secretary of State must have regard to any representations, resolutions and recommendations made by either House, their Members or committees.
I trust that noble Lords will agree that we have listened carefully and responded fully to the strength of feeling on the need for consultation and parliamentary scrutiny. I trust too that they will agree that these amendments provide those important safeguards. I beg to move.
Lord McKenzie of Luton
My Lords, when we debated in Committee an amendment to Clause 14 requiring a more extensive parliamentary process for the dissolution of the SFGB than that set out in the Bill, the Minister promised to reflect on the matter. This she has done and we are grateful for that.
As the Delegated Powers and Regulatory Reform Committee set out in its first report of Session 2017-19, under the Bill as drafted the Minister does not have to be satisfied as to anything before deciding to abolish the body, does not have to consult, does not have to conduct a formal review and does not have to wait a certain time to see whether the new body is working well before deciding to abolish it. Each of those deficiencies appears to have been taken into account in the government amendments. Amendment 39 enables the super-affirmative process to be applied if either House or a relevant committee of either House so determines, and the process is reflected in the detail of the amendment. This requires that the Secretary of State must have regard to the representations received and any recommendations of either House or of a relevant committee. Effectively this means that Parliament can directly influence the terms of the regulations.
We should note that the provisions of Clause 14 have effect not only to dissolve SFGB but to determine where and to whom its functions are to be transferred.
We can support the amendments and I thank the Minister again for addressing the concerns which have been raised.
Lord Kirkwood of Kirkhope
My Lords, I welcome the amendments and congratulate the Minister on bringing them forward. It makes a huge difference if Ministers listen carefully to what is said on the Floor of the House and changes are brought forward as a direct result.
I acknowledge also the important work that the Delegated Powers and Regulatory Reform Committee does in its service to this House. In its first report it made clear the comparisons that the Minister has alluded to with the Public Bodies Act and the Enterprise Act and the earlier precedents they contained. We should study carefully the work the Committee does because it provides an important service to the House. The Minister has listened carefully and she deserves credit for that.
As a member of the Secondary Legislation Scrutiny Committee, which assists the Delegated Powers and Regulatory Reform Committee, I welcome these amendments. Both committees enhance the work of the House.
Baroness Buscombe
Baroness Buscombe
“Regulations dissolving the new single financial guidance body: procedure
(1) The 40-day affirmative procedure applies to draft regulations under section 14 unless, within the period of 30 days beginning with the day on which the draft regulations were laid before Parliament— (a) either House of Parliament resolves that the super-affirmative procedure should apply, or(b) a committee of either House charged with reporting on the draft regulations recommends that the super-affirmative procedure should apply and the House to which the recommendation is made does not by resolution reject the recommendation within that 30-day period.In either of those cases the super-affirmative procedure applies.(2) Under the 40-day affirmative procedure, if after the expiry of the period of 40 days beginning with the day on which the regulations were laid before Parliament, the draft regulations are approved by a resolution of each House of Parliament, the Secretary of State may make regulations in the terms of the draft regulations.(3) Under the super-affirmative procedure, the Secretary of State must—(a) have regard to the matters mentioned in subsection (4), and(b) make the regulations in accordance with subsections (5) to (7).(4) The matters are—(a) any representations,(b) any resolution of either House of Parliament, and(c) any recommendation of a committee of either House of Parliament charged with reporting on the draft regulations,made in relation to the draft regulations during the period of 60 days beginning with the day on which the draft regulations were laid before Parliament.(5) If, after the expiry of that 60-day period, the draft regulations are approved by a resolution of each House of Parliament, the Secretary of State may make regulations in the terms of the draft regulations.(6) If, after the expiry of that 60-day period, the Secretary of State wishes to proceed with the draft regulations but with material changes, the Secretary of State may lay before Parliament— (a) revised draft regulations, and (b) a statement giving a summary of the changes proposed.(7) If the revised draft regulations are approved by a resolution of each House of Parliament, the Secretary of State may make regulations in the terms of the revised draft regulations.(8) Regulations are made in the terms of draft regulations (including revised draft regulations) if the regulations contain no material changes.(9) In calculating the periods of time referred to in this section, no account is to be taken of any time during which Parliament is dissolved or prorogued or during which either House is adjourned for more than four days.(10) The regulations are to be made by statutory instrument.”
Lord Hunt of Wirral
“(ba) arranging the provision of temporary replacement motor vehicles,”
Lord Hunt of Wirral (Con)
My Lords, I declare my interests as set out in the register, particularly as a partner in the global legal firm DAC Beachcroft LLP and as chair of the British Insurance Brokers’ Association.
I return to matters I have raised previously. The context for the further concerns about the regulatory framework for claims farmers lies in the Government’s plans for whiplash reform, as outlined in the Queen’s Speech. The aim of that reform package is to crack down on,
“minor, exaggerated and fraudulent road traffic accident related soft tissue injury claims”.
That quote is from my noble and learned friend Lord Keen of Elie in his foreword to the Government’s consultation paper nearly a year ago.
Noble Lords expressed their dismay in Committee at the rich harvest of unsolicited and unwanted nuisance calls and texts, which Members of this House and millions of our fellow citizens continue to receive as I speak. I spoke previously about the need for every loophole to be closed and for a commitment that where there is a claim there is regulation.
The Earl of Kinnoull
My Lords, I support these three amendments, to which my name was added after the Marshalled List was printed. I pay tribute to the clear introduction of the noble Lord, Lord Hunt.
In the debate on Amendment 24, the Minister talked about the framework element of the Bill. These amendments are three pieces of Meccano that should be added to the framework for the reasons I am about to deliver.
On the enabling provision in Amendment 39A, I looked at the Competition and Markets Authority private motor insurance report, which came out in September 2014. The data in the report was a year older so it is already four years old. The report suggests that in the sampling year 370,000 credit hires were done. It is a very big business. It estimated in paragraph 36 of the report that the detriment—that is, the overcharging by the credit hire companies—was then £84 million. That, essentially, is profit that goes to these sucking entities, which has to be paid by everyone through their motor insurance policies.
The report goes on at length about whether anything should be done about it. It said that, on balance, it is not quite enough money yet to do anything and, anyway, there is not a convenient Bill travelling through Parliament on which one could hang any framework. However, I can say from my experience in the insurance industry that things have moved on rapidly over the past four years. I do not know what the detriment is today because no one has been calculating it, but it is certainly a heck of a lot more than the £84 million that the CMA measured in 2013. Although the evidence base might not be quite there for the Government to act, certainly the Meccano pieces of the framework should be put in place. That would be greatly to the benefit of us all and I can see no downside to it being done.
My logic is exactly the same when it comes to Amendment 39B. Unfortunately I have not had time to hunt around for some relevant statistics, but this area is also an incredibly profitable business for someone sucking money out of the insurance payments that are made. Ultimately, of course, it means that ordinary citizens have to pay higher insurance premiums. This is also a growing business and it is likely that there would be a strong evidence base for a regulator to do something pretty soon.
Amendment 39C, as the noble Lord, Lord Hunt, said, is slightly different. Some powers are already in place, but the insurance industry is concerned that the small claims track increase will mean that within small claims there is plenty of scope for customer detriment, which again is very bad. This is a free piece of Meccano that can be put in so that at some point in the future, if the evidence base is there, the Government will be able to move very swiftly to sort it out rather than having to wait. I note that it has taken three years since the Competition and Markets Authority report for a suitable Bill to come forward on which to hang these important amendments. I hope to hear good news from the Minister.
Lord Flight (Con)
My Lords, I rise briefly to support the amendments in the name of my noble friend Lord Hunt. We all know what they address and we may have experienced these abuses. The existing law and regulations fail to address them, and it is time that they did so. As has just been pointed out by the noble Earl, this is an appropriate piece of legislation in which to include them. I hope very much that the Government will accept the amendments.
Lord Deben
My Lords, in the 19th century there were great battles over trying to insist that people properly labelled their products so that the public could make informed choices. I am afraid that our predecessors would put forward arguments that this was interference in one way or another, the time was not ripe and there was no suitable Bill. A series of reasons of that kind were given. When today we talk about physical things like tins of milk or packets of biscuits, we think it perfectly right that there is a framework of regulation which ensures that people are neither misled nor charged for things that are not what they claim to be. The difficulty is that, the moment we move into anything to do with financial matters, we find it hard to apply the same lessons we learnt to apply in the 19th century.
The reason why I beg my noble friend to take these points seriously is that the people now involved form a much larger group than had once been the case. In the past, this was the kind of issue which might have affected only people of substance, but the amendments brought forward by my noble friend would have a real effect on all those for whom this is a serious matter. I do not mean just those who are misled, but all the others who have to pay insurance premiums that have gone up because of those who were misled.
My noble friend knows how disappointed I was that she did not accept what I think was a reasonable amendment to insist that the cold calling which goes on in many of these areas should be made illegal. I know that she is hoping to find a way in which we might come back to the issue, and I hope she will, because the real truth is that these are popular measures. That is why I find it so difficult to understand why there is any pushback at all. It may be that the amendments are not quite right. Perhaps my noble friend Lord Hunt, brilliant though he is and being a lawyer of outstanding ability, has not quite got them right. However, the tenor or burden of the amendments is clearly right. It is important to put in place the Meccano which, although it may be a little out of date—my grandchildren are great putters-together of things, but they have moved on from Meccano—is an image that those of us of a certain age can recognise very clearly.
We should have in this Bill the ability to deal with these infringements of people’s decent rights, and above all, to deal with things that make people lie. The most unhappy aspect of the failure of this Bill to make these protections much more widespread is that they would guard against activities which, in the end, lead people to lie. We have accepted that on whiplash, but we know that the activities will move on. My noble friend has rightly said that we need to put in place something that can be used to stop yet another move by these unscrupulous people. This House has a duty to stop them because of the people who suffer. They are not only those who are led astray; they are the entire public who see prices increasing. There are going to be a lot of price increases because of the Government’s action on Brexit, so let us at least do something about the things that we can actually affect.
Lord Young of Cookham (Con)
My Lords, the co-pilot is back in charge. Amendments 39A and 39B, moved by my noble friend Lord Hunt of Wirral, seek to include the arrangement of credit hire agreements and the commissioning of medical reports within the scope of claims management regulation. I am grateful to him for the powerful advocacy he put into moving his amendments and for the support he has received from the noble Earl, Lord Kinnoull, who underwrote—that may be the right expression to use—the amendment with a nostalgic reference to Meccano. I am also grateful to my noble friends Lord Flight and Lord Deben for their support. We will be coming to an amendment on cold calling in due course.
As I explained in Committee, I understand and sympathise with my noble friend’s concerns, and I can see how these issues link with claims management activity. However, I would maintain that credit hire organisations and medical reporting organisations are not claims management companies as such, and therefore it does not automatically follow that they should be regulated in the same way as claims management companies or, indeed, by the same regulator. When the independent review of claims management regulation reported and recommended the transfer of claims management regulation to the FCA, it did not consider an extension of scope to the credit hire and medical reporting organisations which we are debating at the moment.
However, I want to be clear with noble Lords that the Government understand how important these issues are. That is why we are considering what more can be done on credit hire. We have identified this as an area of concern and we have specifically sought the views of stakeholders in the call for evidence in the section of the whiplash reform consultation that closed in January this year. I can assure my noble friend that the Government are actively continuing to work on these issues, and as a result of this debate I will certainly speak to my noble and learned friend Lord Keen of Elie and ask that his department prioritise and publish the second part of its consultation response, which will set out the Government’s position on the issue raised in our debate today.
Similarly, and as I set out in Committee, good-quality medical evidence is central to the Government’s whiplash reform programme. MedCo is working well and is providing both the Government and the relevant regulators with invaluable data on a number of important areas. However, medical reporting is much wider than just the provision of whiplash reports. Reports can be sought from and provided directly by individual specialists as well as by medical reporting organisations, and any regulation of this sector would need to be applied fairly to all those involved in it, not just to one component.
Lord Hunt of Wirral
My Lords, I am very grateful to the noble Earl, Lord Kinnoull. I completely understand his reference to Meccano; I suppose it is easy to pretend that we have moved on, as the noble Lord, Lord Deben, said—advised, no doubt, by his grandchildren. I understand the point that there needs to be a structure; it is that about which I was hoping to persuade the Minister.
I am also very grateful to my noble friends Lord Flight and Lord Deben for their support. I sensed a feeling around the House that something needs to be done. Does the Minister understand that I have been gnawing away at this particular problem for over 10 years? I think it was the noble Baroness, Lady Ashton, who took through a Bill some considerable time ago that recognised the need to regulate claims management companies. Many examples were given then, many years ago, of how that represented a growing market. Looking around us today, particularly at holiday sickness claims, you suddenly realise that a new breed of companies are exploiting the admitted rights of individuals to compensation, but in return are demanding a share of that compensation. That has become the lifeblood of these claims management companies; and they keep changing. One moment, you impose a different form of regulation, then the next, you see that the companies have completely escaped any form of regulation.
It may well be that the Minister is right to look to the future with confidence, knowing that the Financial Conduct Authority will now be dealing with the problem. He is right to point out that the FCA has power under existing legislation. Perhaps we will see at last a reining in of these individuals, who have been feeding on the lifeblood of victims who cannot afford to allow part of their compensation to be siphoned off into a developing, stronger claims management company. In a way, I suppose my noble friend was saying that I have made a serious error of judgment in labelling them all as claims management companies. It may well be that they do not fit that description, but I think we all know what we are talking about when we refer to claims management companies. I call them claims farmers. I recently attended a conference where I was asked why I have this vendetta against claims farmers; I admitted that it is because they have no justification for what they do and for the way in which their business model has developed. The Minister has made a number of commitments—I can see him quickly checking his notes on what commitments I am referring to—and I sensed a considerable amount of sympathy for the point I was making. I want to reflect carefully on all the points.
The Earl of Kinnoull
I have here the report I referred to, from the Competition and Markets Authority. Paragraph 2.37 states:
“The range of services provided by CMCs can include … (d)”—
among other things—
“providing credit repair and credit hire for non-fault claimants”.
In other words, as far as the CMA is concerned, claims management companies certainly include credit hire companies. In my bit of the industry—underwriting—we would absolutely think that they are part of the same thing. No one has objected to that. It is very clear throughout that section of the CMA report that they are one and the same.
Lord Hunt of Wirral
I am grateful to the noble Earl for making that important point. I do not necessarily want to speak on behalf of the Minister, but I sense that his response may be that other people do that work as well. We need to try to ensure that we fulfil my objective that where there is a claim, there should be regulation. There should be a structure whereby there is some control of the companies seeking to exploit the situations certain people who need to bring a claim find themselves in.
I will reflect carefully on all the points my noble friend the Minister raised, but this problem is not going to go away. I can see it increasing.
As I am already becoming aware, there is other legislation in respect of which claims managers are looking at new areas to fasten on to and exploit. We have to be prepared to deal with that in advance, rather than seek to catch up, as we have tried to do for the last 10 years. Let us move ahead. In the meantime, I thank my noble friend for all he has said and I beg leave to withdraw the amendment.
Lord Kirkwood of Kirkhope
“Interim rules restricting charges for claims management services
(1) The Compensation Act 2006 is amended as follows.(2) After section 5 (the regulator) insert—“5A Power and duty of the regulator to make rules restricting charges for claims management services(1) The power of the regulator to make rules includes the power to make rules prohibiting authorised persons from—(a) entering into a specified regulated claims management agreement that provides for the payment by a person of charges which, taken with charges payable under an agreement treated by the rules as being connected with the regulated claims management agreement (if any), are specified charges, and(b) imposing specified charges on a person in connection with the provision of a service which is, or which is provided in connection with, a specified regulated claims management activity.(2) Within two months beginning with the day on which the Financial Guidance and Claims Act 2017 is passed, the regulator must make rules by virtue of subsection (1) in relation to all regulated claims management agreements, and all regulated claims management activities, which concern claims in relation to financial products or services.(3) The rules must be made with a view to securing an appropriate degree of protection against excessive charges for the provision of a service which is, or which is provided in connection with, a regulated claims management activity.(4) The rules may specify charges by reference to charges of a specified class or description, or by reference to charges which exceed, or are capable of exceeding, a specified amount.(5) In relation to an agreement entered into, or charge imposed, in contravention of the rules, the rules may (amongst other things)—(a) provide for the agreement, or obligation to pay the charge, to be unenforceable or unenforceable to a specified extent; (b) provide for the recovery of amounts paid under the agreement or obligation;(c) provide for the payment of compensation for any losses incurred as a result of paying amounts under the agreement or obligation.(6) This section is repealed at the beginning of the day on which section 17 of the Financial Guidance and Claims Act 2017 (power of the FCA to make rules restricting charges for claims management services) is implemented by the FCA.””
Lord Kirkwood of Kirkhope
My Lords, I will move Amendment 40 on behalf of the noble Baroness, Lady Meacher, who regrets that she has had to leave the Chamber to attend to an unexpected and unforeseen family problem. I can dispatch the amendment without taking up too much time. It is part of a process. As colleagues will see, it would insert a new clause to bring in interim rules restricting charges for claims management services.
The Government, through the FCA, are promoting public interest in completing applications for PPI claims. There is a public interest in that, and a lot of advertising encouraging people to do so, but as we heard in Committee, many people are being caught up in this and caused significant detriment as a result of the mis-selling of PPI. They are incurring fees of 30% or sometimes more when using a claims management company, when they could achieve the same thing by themselves directly from lenders without charge. Citizens Advice has advised that almost half of the problems and complaints relating to claims management concern disproportionate fees.
I have been involved only at the margins, but it should be acknowledged that the noble Baroness, Lady Meacher, has been working on this issue intensively with the Minister and her team. The noble Baroness, Lady Buscombe, has spent a lot of time trying to make sense of it. This is an interim but necessary measure. The amendment is part of a process and its purpose is to seek assurance that something could be brought forward at Third Reading, and that that is being worked on.
A lot of intensive work is being done, which is welcome, but during the gestation of the ideas currently in play, the noble Baroness, Lady Meacher, and I would like serious consideration to be given to the quantum of the cap we are talking about. One of the figures being considered is approximately 20% plus VAT. We can consider that in more detail at Third Reading, but it sounds quite high to the noble Baroness and me. There may be a technical reason why it has to be set at that level, but our plea in moving the amendment is for careful consideration to be given to the level at which the cap is set.
It has been suggested that if a company charges more than the cap allows under the amendment, that would not be a breach of statutory duty, but the excess only would be recoverable by the claimant. The mechanism is not clear and is difficult to understand. If the Minister can explain why an excess charge would not be a breach of statutory duty, I, as a provincial solicitor many years ago, would go to bed this evening in a happier place.
The process being undertaken by the ministerial team is acknowledged and welcome. On our side, we have had help from Lloyds Bank and Citizens Advice, but I hope the Minister can give us some welcome assurance on the process going in to Third Reading. This is a probing amendment, and anything he can say in that regard would be extremely helpful. I beg to move.
Lord McKenzie of Luton
My Lords, we should be grateful to the noble Lord, Lord Kirkwood, for moving the amendment on behalf of the noble Baroness, Lady Meacher. If I understand the points he made it looks as though this will be another issue for us to consider on Third Reading, so I do not propose to dwell on it extensively. If that is not the case it will be good if the Minister tells us.
The thrust of the amendment is to try to get interim rules in place to put a cap on the charges levied, particularly relating to PPI as the ability to claim is coming to the end of its natural life. The noble Lord raised an interesting point on what the remedy would be when people exceed the cap. Will the Minister confirm that the route would be that the excess is recoverable by the claimant, rather than some other more direct remedy? I look forward to his reply.
Baroness Altmann
My Lords, I thank the noble Lord, Lord Kirkwood, for moving the amendment on behalf of the noble Baroness, Lady Meacher. I ask the Minister whether we have considered the issue, supported by a number of consumer groups, that I raised in Committee requiring a company that has been found to need to pay out on a claim to pay the claims management fee, rather than taking it out of the compensation. That should perhaps be more acceptable with a cap, but also more effective for those who receive compensation, as well as encouraging companies that have mis-sold something or perpetrated harm to the consumer to voluntarily contact consumers who have been harmed, rather than waiting for a claims management firm to do so on their behalf, thus saving them the extra cost of the claims management fee.
Lord Young of Cookham
My Lords, I join the noble Lord, Lord McKenzie, in thanking the noble Lord, Lord Kirkwood, for moving the amendment in the absence of the noble Baroness, Lady Meacher. We are sorry that she had to leave for family reasons. I again pay tribute to the work she has put into this amendment. She has pursued it with diligence.
The amendment seeks to put in place a fee cap from two months after Royal Assent until the FCA implements its own cap. We debated this in Committee. I am grateful to noble Lords who contributed to this debate for highlighting it again.
Clause 17 already makes great strides to secure fair and proportionate prices for consumers by giving the FCA a duty to cap fees charged for financial services claims. However, as a number of noble Lords pointed out in Committee, the implementation of a new regulatory regime and an effective, robust cap will necessarily take some time, during which consumers could continue to be charged disproportionate fees. In that debate, noble Lords expressed concerns that the FCA’s PPI claims deadline may have passed by the time its fee cap is in place. That point was made by the noble Lord, Lord McKenzie. We already know that 90% of financial services claims relate to PPI and therefore we want to ensure that consumers are protected against excessive fees for PPI claims as soon as possible. That is why, as the noble Lord, Lord Kirkwood, anticipated with commendable foresight, the Government intend to table an amendment at Third Reading to introduce an interim fee cap in respect of PPI claims management services.
The amendment will set a fee cap at 20%, excluding VAT, of the claim value and will be enforced by relevant regulators on commencement two months after the Bill receives Royal Assent. The Claims Management Regulation Unit consulted on a 15% cap. The data that it collected on the costs to CMCs of processing claims and market analysis of profit margins resulted in proposals to introduce a 20% excluding VAT cap on claims management services. The amendment supports the Government’s aim of ensuring that the claims management sector works in the interests of consumers by protecting them from excessive fees.
The amendment tabled by the noble Baroness, Lady Meacher, and moved by the noble Lord, Lord Kirkwood, would go some way towards ensuring that consumers are protected during this interim period. However, the government amendment will go further in two key areas. First, it will have a wider application than the amendment tabled by the noble Baroness. The interim fee cap will apply to both CMCs and legal services providers that carry out claims management services in relation to PPI claims, to be enforced by the relevant regulators.
Secondly, it will include in primary legislation a prohibition against charging more than 20% of the claim value for PPI claims, which will enable the regulators to implement the cap quickly. As I said a moment ago, this level was reached using the helpful and comprehensive responses to the Ministry of Justice’s consultation on proposals to introduce a fee-capping regime for CMCs handling financial services claims.
On the procedure for claiming any excesses imposed over the cap, anyone in breach of the interim fee cap will be subject to regulatory enforcement, which could include fines. Furthermore, a contract to receive or pay a sum in excess of the fee cap would be unenforceable, thereby ensuring that firms cannot profit from their malpractice and that consumers are entitled to recover excessive fees.
My noble friend Lady Altmann raised a question about compensation. As we will revert to this issue at Third Reading, perhaps we could deal with it then.
I make it clear that the interim cap is intended to be a temporary measure and, as such, will apply only until the FCA has implemented its new rules under Clause 17. It will also apply only to PPI claims, whereas the FCA’s cap will apply to all claims relating to financial products and services. We remain of the view that the FCA, as the incoming regulator, will be well placed to develop its own cap, or caps, based on an assessment of the market. Given the Government’s undertaking to table an amendment on this matter at Third Reading, I hope that the noble Lord will feel able to withdraw the amendment.
Lord Kirkwood of Kirkhope
My Lords, I am very happy with that undertaking. I hope that the dialogue can continue and I beg leave to withdraw the amendment.
Lord Holmes of Richmond
“Regulatory principles to be applied in respect of claims management services
(1) In relation to the regulation of claims management services, the FCA must act according to the principles that— (a) authorised persons should act honestly, fairly and professionally in accordance with the best interests of consumers who are their clients; and(b) authorised persons should manage conflicts of interest fairly, both between themselves and their clients, and between clients.(2) In this section, “authorised person” has the same meaning as in the Financial Services and Markets Act 2000, and “authorised persons” shall be construed accordingly.”
Lord Holmes of Richmond (Con)
My Lords, being a member of the my noble friend Lord Hunt’s flock in your Lordships’ House, I am a bit concerned that if I overly push on Amendment 41, which comes hot on the heels of Amendment 39A, I, too, may be the victim of whiplash. We discussed many of the issues in Committee. I have brought back the amendment on Report so that I might push my noble friends who understand the timeline for bringing in a duty of care. My initial intention was to table an amendment placing a general duty of care on financial institutions; as a result of the scope of the Bill, a specific duty as set out in my amendment pertaining to CMCs is what we are discussing today.
I am grateful to all the organisations that helped with briefing for the amendment, not least Macmillan Cancer Support, which really demonstrates what a modern charity can do, not just focusing on the specific issue at the centre of its organisation but going wider to all the elements that directly affect people when they receive a cancer diagnosis. That is partly why I chose to focus on Macmillan and cancer in putting down this amendment. It goes to the heart of bringing to life why there is a need for a general duty of care to be exercised by financial services institutions, when one in two of us will receive a cancer diagnosis in our lifetime. This is not a marginal matter; it demonstrates that financial institutions not only have their current responsibilities and obligations but need that general duty of care.
The amendment deals specifically with CMCs. I push my noble friend the Minister to accept it and to give some further description building on comments that he made in Committee on the timeline for considering bringing forward and implementing a general duty of care, with the good offices of the FCA obviously involved—I am grateful to the FCA for meeting me to discuss this, not least Mr Christopher Woolard. I shall say no more; the arguments were put in Committee. I urge my noble friend to accept the amendment and beg to move.
Baroness Kramer (LD)
My Lords, I congratulate the noble Lord, Lord Holmes of Richmond, on sticking with this issue, because it is fundamental. I say to the Government that a duty of care is so important and should be so central to every piece of our financial services industry that we should not let the perfect—having a general duty of care—be the enemy of the good, which is the opportunity to put a specific duty of care in this Bill. I hope the Government will consider that.
I have the privilege to be on the Parliamentary Commission on Banking Standards. As we sought to strengthen the framework of regulation and to expose a lot of misdirection within the financial services industry, I think everybody, not only on the committee but far more broadly, agreed that the key problem lay in culture. We have turned to the banking and financial services industries and asked them through various bodies to improve their culture, but surely we also have a responsibility to drive that with every piece of legislation that comes our way. Duty of care reflects that whole-culture approach: the underlying, underpinning approach that we expect our financial services to take, where the interests of the customer are at the centre. It is not that the financial services should not be able to make profits—of course, that is the business they are in—but it should never be at the expense of that central interest of the client or customer.
I urge the Government to take seriously this opportunity in an area where there has been extraordinary abuse. I listened to the noble Lord, Lord Hunt of Wirral, for example; others talked about whiplash and issues around holiday sickness. In issue after issue, we have seen a complete failure in the culture of the bodies that provide such services. We should tackle that issue head on and not be afraid to use language that is clearly around that duty of care—not considering it too soft or too difficult—so that it becomes a general habit. I hope we will not rely just on general duties of care, because those can sometimes be imperfect, but will make sure that in every piece of financial services legislation this issue is underscored. In that, this legislation could be a leader.
Lord McKenzie of Luton
My Lords, like the noble Baroness, Lady Kramer, we have added our name to the amendment of the noble Lord, Lord Holmes of Richmond, which takes us back to regulatory principles and the duty of care.
The noble Lord is right to have removed the “where appropriate” qualification from his earlier amendment. The amendment deals with the regulation of claims management, although this is seen as an opportunity to debate the wider calls for a duty of care across the financial services piece.
On the narrower point, we acknowledge that in Committee the Minister gave assurances about the FCA consulting on the design of new rules for claims management companies and taking account of its statutory operational objectives, including an appropriate degree of protection for consumers. However, we note that there is no current alignment of the objectives of the CMRU and the FCA, and there seems to be no certainty about where this process will end up.
Baroness Altmann
My Lords, I congratulate my noble friend Lord Holmes on persisting with the amendment. I support the need to make sure that regulated firms have this duty of care, especially in circumstances such as the diagnosis of cancer and other illnesses, from which people can recover but for which they need particular care during that period. While the Bill is going through the House, it would be excellent for the market if we were able to introduce measures of this nature, but I also look forward to hearing from my noble friend and seeing the Government’s response before Third Reading.
Lord Young of Cookham
My Lords, I am grateful to my noble friend Lord Holmes for moving the amendment. He mentioned that he was a member of my flock. He displays exactly the right independence of thought tempered by loyalty to the party that any Whip could wish for. I am grateful to the noble Baroness, Lady Kramer, the noble Lord, Lord McKenzie, and my noble friend Lady Altmann for speaking to the amendment, which seeks to ensure that the FCA adheres to a set of regulatory principles in relation to acting in the best interest of consumers and managing conflicts of interest fairly. Noble Lords also raised the broader issue of duty of care, which is not mentioned specifically in the amendment but is obviously relevant. As noble Lords may remember, my noble friend tabled a similar amendment in Committee.
Aside from the provisions in general consumer law, the FCA already applies rules on firms conducting regulated activities in relation to their dealings with consumers. First, the FCA’s rules set out in Principles for Businesses require firms to conduct their business,
“with due skill, care and diligence”,
and to,
“pay due regard to the interests of … customers and treat them fairly”.
Principle 8 sets out:
“A firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client”.
That accurately mirrors proposed new subsection 1(b) in the amendment, so there is a congruity of objective there.
Secondly, the rules on clients’ best interests require a firm to act in its client’s best interests across most regulated activities. The client’s best interests rule states:
“A firm must act honestly, fairly and professionally in accordance with the best interests of its client”.
Again, those are exactly the words used in my noble friend’s amendment, so there is no disagreement over objective.
Thirdly and finally, a number of FCA rules contain an obligation on firms to take “reasonable care” for certain activities. For example, one of the Insurance: Conduct of Business rules states:
“A firm must take reasonable care to ensure the suitability of its advice for any customer who is entitled to rely upon its judgment”.
Those rules in the FCA Handbook are supplemented by more specific rules in various FCA sourcebooks. The FCA will be able to apply its existing Principles for Businesses, which I have just quoted, to claims management companies and to make any other sector-specific rules that may be necessary, under its existing objectives. The FCA supervises against these rules and other provisions and, where necessary, can take enforcement action against firms to secure appropriate consumer protection.
The FCA is of the view that its current regulatory toolkit is sufficient to enable it to fulfil its consumer protection objective. The FCA will consider the precise rules that apply to claims management services and how they fit together as an overall regime. In doing this, the FCA will take into account its statutory operational objectives, including its objective of securing an appropriate degree of protection for consumers. It will also consult publicly on its proposed rules.
Turning to the broader issue of duty of care, the noble Lord, Lord McKenzie, asked whether there were any pearls. I think the oyster is still at work so the pearls are not available for display this evening. The words “duty of care” mean different things to different people and the precise scope and content of any proposed duty of care are uncertain. The impact of a duty of care obligation needs to be fully considered, as do the cost, complexity and time that might be involved in customers seeking to bring firms to court as a result of a duty of care obligation.
I was asked to say something about the timescale of the work on this. A duty of care could have an effect on many of the FCA’s provisions in its handbook, including the need to replace or remove some. The FCA intends to undertake a comprehensive review of the handbook post Brexit. The FCA believes that it would be best to include duty of care in that review, particularly as the FCA’s ability to change its rules in some areas will depend on the relationship between the EU and UK post withdrawal. Many of the FCA’s current rules are based on EU legislation. Once the relationship between the EU and the UK following withdrawal is clear, there will be more clarity around the degree of discretion that the FCA has to amend its rules.
In addition, the FCA is currently identifying the necessary changes to its rules to ensure that they continue to operate as a coherent set of rules following EU withdrawal. This work is being done in parallel with the work across government to review directly applicable EU legislation. It is a significant, complex and time-critical exercise that must be progressed immediately. If noble Lords have any concerns about the timing of the discussion paper, that is primarily a matter for the FCA.
Returning to the amendment, it is not necessary to include regulatory principles in the Bill because of the provisions the FCA already has. For that reason, I would request—or suggest—to my noble friend Lord Holmes that he withdraw his amendment.
Lord Holmes of Richmond
I thank all noble Lords who have participated in this short debate, and my noble friend the Minister, from whom I am happy to take requests and suggestions in equal measure.
I imagine my noble friend has become far more familiar with the rulebook than he could have imagined or perhaps even desired. I agree with the rules he recited but there seems to be a slight contradiction in that the rules are clearly stated but simultaneously it is accepted by all concerned, not least the FCA, that there is at least a question worth asking and looking into around duty of care. I think we are in a positive place: there is an acceptance that there is at least a question that is worth looking into.
In financial services there is a lot of talk around the acronyms, as in any business or organisation. There is a lot of focus on KYC—“Know your customer”. May I suggest that, rather than promoting just KYC, all noble Lords involved in this debate and everybody outside the Chamber should also promote alongside it CFYC? That would take financial services into a very positive place for the future, as that “Care for your customer” is where banking originated centuries ago. It would be a thoroughly good thing for all financial services organisations to have a sense of CFYC.
On the amendment itself, I have heard my noble friend’s arguments and I understand the position. It would be helpful to have further discussions between now and Third Reading, to see what specifics it may be possible to set out in regard to this amendment. We may have had the answer on the general duty for this stage but it would be worth while having more discussions, not least because we are promised the response to the report of the Financial Exclusion Select Committee, of which I was fortunate enough to be a member. I would welcome further discussions and we could then decide what the route may be to Third Reading. But in thanking all noble Lords who have participated this evening, including my noble friend the Minister, at this stage I beg leave to withdraw the amendment.
Lord Sharkey
“Ban on unsolicited real-time direct approaches by, on behalf of, or for the benefit of companies carrying out claims management services and a ban on the use by claims management companies of data obtained by such methods
(1) The FCA must, within the period of six months beginning with the day on which this Act comes into force, introduce bans on—(a) unsolicited real-time direct approaches to members of the public carried out by whatever means, digital or otherwise, by, on behalf of, or for the benefit of companies carrying out claims management services or their agents or representatives, (b) the use for any purpose of any data by companies carrying out claims management services, their agents or representatives where they cannot demonstrate to the satisfaction of the FCA that this data does not arise from any unsolicited real-time direct approach to members of the public carried out by whatever means, digital or otherwise.(2) The FCA must fix the appropriate penalties for breaches of subsection (1)(a) and (b) above.”
Lord Sharkey
My Lords, Amendment 42 is in my name and those of the noble Baroness, Lady Altmann, and the noble Earl, Lord Kinnoull. Given our extensive discussions of cold calling at every stage of the Bill, I can be brief.
This amendment would require the FCA to ban cold calling for claims management companies. Critically, it would also ban the use by these companies of any data obtained by cold calling. Together, these provisions would make cold calling for CMCs illegal and cut off the revenue stream to cold callers, by preventing CMCs using their data. The amendment would also allow the FCA to set the appropriate penalties for any breach of either of these bans. The bans would come into effect with the passing of this Bill—in other words, fairly soon. I will not rehearse here the manifest evils and dangers of cold calling, either in general or for CMCs in particular, but I will just mention that the disgraceful whiplash and holiday sickness scams are a prime and continuing example of why cold calling for CMCs remains an active and current problem. There will inevitably be another scam along any time soon.
We discussed all this at some length last Tuesday, when the House showed the strength of its dislike and disapproval of cold calling, not for the first time and from all sides. The House voted by a large majority last Tuesday to enable a ban on all types of cold calling where consumer detriment could be shown. During the debate that led up to that vote, the Minister pointed out that our proposed mechanism for banning cold calling involved quite a lengthy process. She went on to make a generous offer to do something about cold calling for CMCs faster than our amendments would allow. The Minister said:
“I have asked officials to consider the evidence for implementing a cold-calling ban in relation to claims management activities, and I am pleased to say that the Government are working through the detail of a ban on cold calling by claims management companies”.
She also proposed to bring forward a government amendment in the other place to meet the concerns of the House. Towards the end of her speech on the issue, the Minister said:
“To reiterate, the Government agree with the spirit of these amendments and will bring forward legislation in this Bill, in the other place, in relation to cold calling for claims management activities”.—[Official Report, 24/10/17; cols. 861-63.]
Baroness Altmann
My Lords, briefly, I support this amendment as well. Cold calling and other unsolicited approaches are a growing nuisance. I have not come across a group pushing to stop the Government from banning these cold calls. Direct marketing to people’s home phones or personal mobiles surely has no place in modern business practice. Leaving responsibility for a ban to Ofcom and the ICO is simply not an effective strategy. It clearly is not working.
The measures in Amendment 42, which has been deliberately and carefully crafted by the noble Lord, Lord Sharkey, supported by the noble Earl, Lord Kinnoull, are designed to prevent the cold calls rather than trying to catch cold callers afterwards, once they have already plagued the public. If firms engage in unsolicited approaches to encourage consumers to make claims which may or may not be valid, using the data thereby obtained would also be an offence. We could finally tell the public that any people who call them out of the blue, or contact them in some unsolicited way, are breaking the law; they should therefore not engage with them.
This provision would not stop claims management companies advertising broadly to offer claims management services, but it would help to stop the speculative nuisance calls, texts or emails which are plaguing millions of British people so frequently. The crucial additional power would be the role of the FCA. Using the regulator and forcing firms to demonstrate, if challenged, that they have not obtained business as a result of leads from cold calls would then mean that they would be at risk of losing their licence. It would be a much more effective strategy to stop the cold calls in the first place. I welcomed my noble friend Lady Buscombe’s words during our previous day on Report, which promised that there would indeed be some action from the Government in another place. I hope that we will get broad reassurance on those points in tonight’s debate.
The Earl of Kinnoull
My Lords, I will be very brief indeed, as we have heard two very clear and good speeches from the noble Lord, Lord Sharkey, and the noble Baroness, Lady Altmann. The first point I made at Second Reading was on the importance of maintaining access to justice for our citizens. The point I make now is that I see nothing in Amendment 42 which in any way fetters access to justice. I see only good features of it, and I very much hope that we will hear good news from the Government in due course.
Lord Stevenson of Balmacara
My Lords, I too support this amendment, which we discussed earlier and which I think has been re-presented in the expectation that it will commend itself to Ministers, and in the hope that they will look kindly at it. It is absolutely right to consider these cold-calling activities as one of the greatest nuisances of the modern age. Indeed, the Minister herself admitted that they had led her to give up her landline so that she could not be persecuted. But that does not seem to stop them; they just find your mobile phone and get on to that as well, using texts and other means. I cannot wait until they start using drones and other things to deliver their messages in the hand. Maybe at that stage we would have the Government on our side, as they might recognise aerial bombardment as taking it a step too far.
But at the heart of this is the question of trust. The noble Baroness was extremely persuasive on an earlier amendment in suggesting that she could be trusted and was a person of trust. Her work with all of us around the House—we have all had a chance to talk to her about issues of interest to us—can be seen in the amendments that she laid herself and the support she has given to other amendments coming forward. Here is a classic: she gave a commitment at an earlier stage, admittedly in slightly different circumstances, to bring something forward. She let slip that the civil servants are already working on it, which suggests that a great deal of activity has probably gone on around Parliament and departments, because she would not have mentioned it if she did not have some confidence that what was being proposed could have been seen and agreed by other Ministers who have an interest in this area. So I suspect that things are well primed. I do not like defence or guns in metaphors, but if the gun has been so charged and so primed, it seems rather odd that it has been left in a loaded position somewhere close to her office not being used. Trust is something we want to see exercised in practice, and I look forward to hearing the noble Baroness’s comments.
Baroness Buscombe
That is quite an interesting one: any gun should be locked in a cabinet. The amendment tabled by the noble Lord, Lord Sharkey, my noble friend Lady Altmann and the noble Earl, Lord Kinnoull, seeks to ban “unsolicited direct approaches” such as phone calls,
“by, on behalf of, or for the benefit of companies”,
providing claims management services. It also seeks to prevent these companies using data obtained through the use of such methods.
I have spoken previously about the significant steps taken by the Government to address these issues. We have increased the amount that regulators can fine those breaching direct-marketing rules. We have forced companies to display their number when calling you. As we have previously discussed in your Lordships’ House, cold calling is already illegal in certain circumstances, such as where a person has registered with the Telephone Preference Service or has already withdrawn consent.
The Information Commissioner’s Office enforces restrictions on unsolicited direct marketing. The Data Protection Act 1998 requires organisations to process data fairly and lawfully. Organisations must: first, have legitimate grounds for collecting and using personal data; secondly, not use the data in ways that have unjustified adverse effects on the individuals concerned; and, thirdly, handle people’s personal data only in ways they would reasonably expect. A serious contravention of the data protection principles could result in a monetary penalty notice being issued by the Information Commissioner. Depending on the circumstances, this could include a CMC which sought to use data that it had originally obtained through unlawful means.
However, we have listened carefully to the views of your Lordships’ House and fully agree that more needs to be done to tackle the prevalence of nuisance calls across the UK. As I previously explained, there are complex issues to work through, including those relating to EU directives. But I can reassure your Lordships’ House that the Government are working through the details of a cold-calling ban in relation to the claims management industry. To that end, I am pleased to say that I revisit the offer made in your Lordships’ House last week and repeat that the Government intend to bring forward an amendment in the other place to meet the concerns of this House. This amendment will look to ensure that the onus is no longer on the consumer to opt out of marketing calls.
Unfortunately, the amendment tabled by noble Lords would give the FCA a duty it cannot enforce under its current regime. I assure noble Lords that the Government are committed to tackling this issue properly and will consult with the FCA, the CMRU and the ICO to ensure that the government amendment addresses these issues in the most effective way. But if Amendment 42 were accepted, it would not achieve its aim. For these reasons, I urge the noble Lord to withdraw the amendment.
Lord Sharkey
My Lords, I thank all noble Lords who have spoken in this brief debate, but especially the Minister for what she has just said to the House. There is only one possible response to what she said, which is to say thank you and to withdraw the amendment.
The Earl of Kinnoull
The Earl of Kinnoull
My Lords, we are on the home leg. In moving Amendment 43, I shall speak also to Amendment 46. I am reporting back the same two amendments that we discussed in Committee, and your Lordships will be delighted to hear that my remarks will be very short. Before I make them, I should say that the Minister is now a great hero of mine. I remarked that he was sending me emails at 7.21 am during Committee stage, but he takes a bit of a lie-in these days: his first email to me this morning was at 8.20 am. He has worked with terrific courtesy, particularly on this issue, which is a very difficult one given the poor state of relations between our Parliament and Holyrood. It will be very helpful, because working on this is greatly to the benefit of people both sides of the border.
Your Lordships will recall that I had two beefs with the law as it is. The first is my beef about arbitrage: companies can set up in unregulated Scotland and aim their activities at England. I felt that any form of arbitrage within the United Kingdom was against the general principle of having a single market in the United Kingdom and was wrong. The second beef I had was that as one looked at the statistics—we have drowned in really depressing statistics in this area—one saw that Scotland had it worse than England in terms of the activities of these very unpleasant companies. So I thought it was time for Scotland to do something about it. The Justice Committee at Holyrood has been studying the problem and feels the same—we had various quotes from various Scottish Ministers feeling that.
I should also say that this is another piece of Meccano, because the trigger in my mechanism would actually be held by Scottish Ministers. Tantalisingly, the good news is that last night a letter surfaced that was being sent by Annabelle Ewing, the relevant Scottish Minister, to the Justice Committee at Holyrood, saying that the Scottish Government were now keen to regulate CMCs in Scotland and that officials were in active discussions with equivalent officials down south to do that. Accordingly, I am hoping that in a minute we will hear some very good news from the Minister. I do not know what happened next, but he does. I beg to move Amendment 43.
Lord Young of Cookham
My Lords, the end is in sight. I am very grateful to the noble Earl, Lord Kinnoull, for his amendment and for the kind words he said about me. It has been a very constructive dialogue to seek to get this bit of the Bill right.
The amendments in his name seek to extend Part 2 of the Bill to Scotland. As noble Lords will be aware, the Government worked closely with the Scottish Government during the development of this policy to ensure that the FCA’s regulatory regime not only achieves the aim of strengthening claims management regulation but is proportionate to the needs of the sector and its consumers. Having sufficient evidence of malpractice by CMCs in Scotland is essential to justify extending regulation across the border. Our initial discussions with the Scottish Government revealed that they did not want regulation of CMCs to be extended to Scotland. Their view was that there was limited evidence of malpractice. We had powerful contributions in our debate in Committee which put forward a contrary view.
Because CMCs in Scotland have tended to be solicitor led, they are often regulated by the Law Society of Scotland. The decision was therefore made to replicate the current scope of claims management regulation to England and Wales only. However, following the very useful debate which we had on this issue in Committee, we have continued discussions with the Scottish Government, and their views are evolving.
The Scottish Government have not yet requested that claims management regulation is extended to Scotland, but I say to the noble Earl that, should we receive ministerial confirmation that the Scottish Government wish to extend claims management regulation to Scotland, we would be ready and willing to table a government amendment to that effect. So we will continue to engage with the Scottish Government and we will keep our position on claims management regulation in Scotland under review.
The Earl of Kinnoull
I thank the Minister for his typically courteous and thorough response. It is incredibly important that the discussions that are currently taking place between UK and Scottish officials progress. I think I am right in saying that what I have heard gives us more than sufficient proof that that is the case and that both Ministers here today have their shoulders behind this one—because it is a very important feature. On that basis, I beg leave to withdraw the amendment.
Baroness Buscombe
Financial Guidance and Claims Bill [HL]
Tuesday 21st November 2017
(7 years ago)
Lords ChamberRead Full debate Financial Guidance and Claims Act 2018 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 70-I Marshalled list for Third Reading (PDF, 106KB) - (20 Nov 2017)
Baroness Buscombe
“Objectives
(1) The objectives of the single financial guidance body are—
(a) to improve the ability of members of the public to make informed financial decisions,
(b) to support the provision of information, guidance and advice in areas where it is lacking,
(c) to secure that information, guidance and advice is provided to members of the public in the clearest and most cost-effective way (including having regard to information provided by other organisations),
(d) to ensure that information, guidance and advice is available to those most in need of it (and to allocate its resources accordingly), bearing in mind in particular the needs of people in vulnerable circumstances, and
(e) to work closely with the devolved authorities as regards the provision of information, guidance and advice to members of the public in Scotland, Wales and Northern Ireland.
(2) The single financial guidance body must have regard to its objectives when it exercises its functions.
(3) In this section “information, guidance and advice” means—
(a) information and guidance on matters relating to occupational and personal pensions,
(b) information and advice on debt, and
(c) information and guidance designed to enhance people’s understanding and knowledge of financial matters and their ability to manage their own financial affairs.”
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Buscombe) (Con)
My Lords, on Report I agreed to consider a range of matters concerning Clause 2, and I now make reference to government Amendments 1, 3 to 9, 12 to 13 and 32. During our debates on the Bill I think that we have all been in agreement that the provisions articulated in Clause 2 were important in setting the tone and ethos for how the single financial guidance body should operate. In the debates on Report, we discussed the need for these provisions to be well structured and clear. I believe that this group of amendments provides that clarity and structure. They tidy up the framework on which the body will progress towards achieving its objectives and assist it and all those with whom it will work closely in understanding our expectations in relation to its activities. I am extremely grateful for the enormous contribution that noble Lords have made to the Bill. Indeed, so significant has been that contribution that we have ended up with a rather long and unwieldy Clause 2, so for this reason we propose to split it into three separate clauses.
Government Amendments 1 and 6 remove the objectives from the end of Clause 2 and insert them as a separate clause immediately before the clause. This reordering picks up on the points made by the noble Lord, Lord Stevenson, that starting with functions and moving on to objectives was perhaps the wrong way around. I agree with him. Placing the body’s objectives upfront will emphasise and aid a wider public understanding of the overarching objectives of the body and how it carries out its functions. Government Amendment 8 divides the remaining provisions in Clause 2 into two. The first sets out the broad functions of the body and the second contains the specific cold- calling provisions pertaining to the broad consumer protection function. It does not change the content of the cold-calling provisions.
Setting out the detail of the body’s new consumer protection function in a separate clause is consistent with the approach we have taken in the Bill. For example, this is how we have, from the introduction of the Bill at Second Reading, treated the specific detail about pensions guidance, which is articulated in a separate clause after Clause 2. Alongside relocating the body’s objectives, this amendment simplifies what had become a very long and complex clause. The Government want the legislation for the single financial guidance body to be clear and to flow in a way that the people who will use it, including the body itself, are able to read and understand. On the whole, people will not have had the benefit of our debates in Parliament, at least not without considerable reference to Hansard. The easier the Bill is to read when coming to it for the first time, the better.
In addition, I have considered the case that was made well by the noble Baronesses, Lady Finlay, Lady Coussins and Lady Hollins, and the noble Lord, Lord McKenzie, about the need for clarity around access to financial guidance and awareness of financial services for people who find themselves in vulnerable circumstances. Again, I agree that we should be clear about the body supporting vulnerable people in exercising its functions. Government Amendment 1 therefore strengthens the body’s objective to ensure that its information, guidance and advice is available to those most in need of it, bearing in mind in particular the needs of people in vulnerable circumstances.
Moving on to government Amendment 3, as I indicated on Report, facilitating the bringing together of expertise to address the difficult and sometimes interrelated financial issues that people experience in terms of budgeting, savings, retirement planning and problem debt is a cornerstone of the policy for the single financial guidance body. We want to make it easier for people to access the help they need to make effective financial decisions. This amendment speaks to the concerns raised by the noble Lords, Lord McKenzie and Lord Stevenson, and places an obligation on the body and its delivery partners to consider all the financial guidance and debt advice needs of people accessing its services, and whether they would benefit from receiving other services that the body provides.
Government Amendments 4 and 5 make small changes to the strategic function of the body. They address points raised by several noble Lords during our debates in Committee about the lack of clarity around the body’s role in developing a national strategy to improve people’s financial capability and ability to manage debt. The strategic function currently requires the body to work with the financial services industry, the devolved authorities, and the public and voluntary sectors to support the development of a national strategy.
These amendments make it more evident that the single financial guidance body will lead on developing the strategy and that it will have some responsibility for overseeing the delivery of activities stemming from the strategy. I believe these amendments address the concerns about accountability that a number of noble Lords expressed.
Finally, Amendments 7, 9, 12, 13 and 32 are minor and technical in nature. Amendments 7, 12 and 13 are together a tidying-up measure. They remove the definition of devolved Administrations from Clauses 2 and 14 and insert the definition into Clause 19, “Interpretation of Part 1”. Amendment 9 corrects a technical defect in Clause 3(2), replacing the reference to the Pension Schemes Act 2015 with one to the relevant section of the Financial Services and Markets Act 2000. Amendment 32 allows for differential commencement by area. This is so that, in accordance with Cabinet Office guidelines, if it is necessary to commence at a later date for Northern Ireland there is a power to do so.
I trust and hope noble Lords will agree that these amendments provide sensible and pragmatic adjustments to the Bill, improving its structure and providing clarity. I beg to move.
Baroness Coussins (CB)
My Lords, I welcome Amendment 1 and remind noble Lords of my interest as president of the Money Advice Trust. The amendment, in clarifying the single financial guidance body’s objectives, will ensure that its services are available to those most in need of them, specifically with the inclusion of the words in proposed new subsection (1)(d), “bearing in mind”, the particular,
“needs of people in vulnerable circumstances”.
As noble Lords heard during our debate on this on Report, there has been a great deal of progress in this area in the financial services industry in recent years, including through the work of the Financial Services Vulnerability Taskforce. It is very good to see that the SFGB should give similar prominence to vulnerability in its work. The explicit inclusion of “vulnerable circumstances” in Amendment 1 is an excellent example of this approach.
I offer my sincere thanks to the Minister for listening so carefully to what I and my noble friends Lady Finlay and Lady Hollins said on this matter at an earlier stage, and for agreeing to reflect this in the Bill. I am very pleased to support Amendment 1.
Baroness Finlay of Llandaff (CB)
My Lords, I add my most sincere thanks to those of my noble friend Lady Coussins. This new clause is incredibly important. Yesterday, this was unanimously welcomed at the National Mental Capacity Forum leadership group, including by all those from the financial sector represented in the group, as being a very important way forward to make sure that our society is increasingly integrated and recognises the needs of those with permanent and transient impairments and incapacity, and those who may temporarily have been put in extremely vulnerable circumstances.
I also thank the Minister for the way she has listened and stayed in communication with us as the wording has been developed. It really was a very positive and constructive dialogue.
Baroness Kramer (LD)
My Lords, as well as congratulating the Minister on bringing the language of “vulnerable circumstances” to the Bill, I want to congratulate the others who have made this issue so clear during our very positive and engaged debates; namely, the noble Baronesses, Lady Coussins, Lady Finlay and Lady Hollins. When the Minister first put down a slightly earlier draft of the amendment, which reordered some of the opening sections of Clause 2, because I am a naturally suspicious person, I tried to see whether there was some bear trap in there or something that I should be afraid of. I could find no such bear trap—and nor could my colleague, my noble friend Lord Sharkey, who I think now has a reputation for the most incisive examination of language in a Bill. I fully understand the desire of the Government to be clear and transparent—they seem very positive. I shall have more to say about the Bill in later stages—but, with this first grouping, we start off on a rather good note for the opening of Third Reading.
Baroness Altmann (Con)
My Lords, I congratulate my noble friend on the hard work done by her and the Bill team to include the changes called for in our earlier debates on the Bill. I fully support the reworking of the sections to improve the clarity of the Bill; the adjustments are sensible and pragmatic. I also add my congratulations to the noble Baronesses, Lady Finlay, Lady Hollins and Lady Coussins, on the important provision relating to vulnerable individuals. It is important that we have achieved that increased protection for them in the Bill. I again thank my noble friend and offer support for the amendment.
Baroness Tyler of Enfield (LD)
My Lords, I add my thanks and congratulations to all concerned in this area. We now have within the objectives the reference in paragraph (d) to,
“the needs of people in vulnerable circumstances”.
That is hugely relevant. As chair of the former Lords Select Committee on Financial Exclusion, I know that we spent a lot of our time looking at the problems faced by people in vulnerable circumstances. We focused particularly on the needs of people with mental health problems and disabilities and the vulnerable elderly. We received a lot of evidence on that point, and I know that many people will be very glad to see these words included.
Lord Kirkwood of Kirkhope (LD)
My Lords, I add my congratulations; this has been a very good outcome. The Minister has done a splendid job in reflecting the concerns. The Bill is now much better as a result, and she deserves some of the credit for that. I am interested particularly in Amendment 3, because vulnerable people are now much better cared for. It will put more work, pressure and responsibility in the direction of the new body. I begin to wonder whether it will be expected realistically to carry the weight of some of these new, important duties with the financial envelope that we have—we will have time to discuss that afterwards—but the shape and framework that the body now has is a lot better for serving the needs of the most vulnerable and distressed.
I hope that consideration of people with vulnerabilities will also include signposting to the official social security benefits that exist so that they are taken up—universal credit will obviously increase take-up automatically, but a lot of other residual benefits still sit outside universal credit. Signposting under Amendment 3 would add value to having the power in the Bill. I look forward to seeing how this works out. It is a much better provision than was previously the case, and the Minister deserves credit for that.
The Earl of Listowel (CB)
I, too, thank the Minister and noble Lords for making significant progress. Perhaps I may ask for clarification: will care leavers be included in the “vulnerable” group? I apologise to your Lordships for being absent from Report—I was not able to be present—so I ask this question now.
Baroness Buscombe
There is no question: care leavers will be included in this group.
Lord Stevenson of Balmacara (Lab)
My Lords, I declare an interest as a member of the Financial Inclusion Commission and a former chair of StepChange, the debt charity. Before I get on to the nature of the amendments, which we support, I want to pick up on the tone that has already established itself around the House of a group of people with expertise and knowledge, willing to put aside any political differences they might have at the start of such a Bill, and with a fierce commitment to work together to improve what we have before us. We have just heard a series of short comments which are redolent of a much greater and more important truth: namely, that when the House does this, it really does it well. I am very grateful to all concerned who have been part of this. We are seeing today a Bill that has been transformed, not because of any particular line or argument in a political or wider sense but because people genuinely believed that there were things here that could be made better and that, as a result, the lives of people right around this country would be improved. I think it is very important that we hold on to that.
I thank the Minister, as everyone else has, for introducing this group of amendments which reorganise and expand the objectives and functions of the new single financial guidance body and set the tone for its future activities. We are pleased to support the group of amendments, as I said. It is important to get a sense of the journey we have been on: we made it clear at Second Reading that, although we agreed with the Bill, we thought it was a framework Bill and not a Bill that had the substantial and important powers that we thought were needed. We wanted to make sure that by the time it left your Lordships’ House it had been changed a lot—and of course it has.
As originally drafted, it was too narrowly focused on the near-term task of bolting together the three separate functions that were being brought together—debt advice, pensions guidance and financial capability—and on transferring the very important responsibility for claims management to the FCA. It was really short—a lot of people picked this up—on the vision that the body should have and what the sector was going to be in the medium term. It seemed to devalue the work on strategy that was so important and is now at the centre of the activities. The fact, as the noble Baroness said, that the original Clause 2 led on functions and only later referred to objectives meant that the Bill, I think unintentionally, gave the impression that the main purpose was the enactment of what would be simply a series of structural adjustments.
This, as we have been reminded, was at a time when the Government had decided to change the terms of trade in financial inclusion by creating a new Minister at the DWP, the department that is sponsoring the Bill, but had not set out clearly what they expected the Minister to do. We all agreed, I think, right around the House, that the Bill and the new functions of the SFGB would actually be about delivering a holistic financial inclusion policy. As we have already learned from its chair, the excellent Lords Select Committee that reported at about this time on a range of issues around financial inclusion made the case for extending the Bill to cover a number of specific proposals.
Towards the end of Report, when it was clear that the Bill had changed and was going to contain much more about the application of financial inclusion policies, as we will hear again later today, we suggested that Clause 2 should be revamped. What we wanted was a bit more of the longer-term vision that the SFGB should be aiming for, and we argued that putting the objectives first and then dealing with the functions at the new body’s disposal was a better way of doing that—and I think that splitting the original clause into separate groups is a concrete way of doing it. So we are very grateful to the Minister for seeing the merit of our arguments and we thank the Bill team for working very hard to get the new draft into shape. I have a reputation in your Lordships’ House for not being very good at drafting, so I was delighted when they agreed to take it away and bring it back in the form in which we now have it: it is so much better.
The noble Baronesses who spoke on the vulnerability issue did the House a great service by raising with great passion the need to make sure that the Bill, as well as generally describing the new body, focuses on vulnerable people. We are very grateful to see that amendment here today. With that, we support these amendments.
Baroness Buscombe
My Lords, I thank noble Lords for this short debate and for their support for this amendment. In reply to the question raised by the noble Lord, Lord Kirkwood, yes, we expect persons in vulnerable circumstances to be robustly signposted to UC and other benefits where appropriate.
Baroness Buscombe
(b) advice to the Secretary of State on the establishment of a debt respite scheme (see section (Debt respite scheme: advice to the Secretary of State)).”
Baroness Buscombe
My Lords, I turn to the protection of indebted consumers, in particular the idea of providing a breathing space scheme, referred to in the amendment as a debt respite scheme. I thank noble Lords for their insightful and constructive contributions to previous debates on the subject.
I promised on Report that the Government would do further work on the issue in time for Third Reading. My officials and I have worked hard to produce an amendment that enables breathing space to be delivered quickly and effectively, a case for which noble Lords—in particular, the noble Lord, Lord Stevenson—put forward eloquent and powerful arguments. Indeed, the wording of the amendment builds on the amendment tabled by the noble Lord, to which the noble Lord, Lord Sharkey, and the noble Baroness, Lady Altmann, added their names on Report.
The best of your Lordships’ House has been on show in the development of the amendment. The way in which the Government and the Opposition have worked together to achieve consensus on a workable amendment which will enable the successful delivery of a breathing space scheme has been impressive, and it is my pleasure to introduce the amendment to your Lordships’ House. I know that there is broad agreement across your Lordships’ House that a breathing space scheme is both necessary and important. It has the potential to help thousands of vulnerable families out of problem debt, and provide a better life for individuals and their families.
I reassure the House that the Government remain strongly committed to the implementation of a breathing space scheme that is well designed and delivered at the earliest opportunity. We have already set out a clear timetable for developing the policy; the amendment provides the legislation that will allow us to implement it. Beyond enabling the introduction of a breathing space, the amendment contains many similarities with the one tabled by noble Lords on Report. For instance, it provides for details of the scheme to be set out once more detailed policy design has taken place. This is crucial, given that the Government are committed to listening to expert views put forward in the call for evidence. It also requires the Government to receive advice on the design of the scheme from the single financial guidance body, which will be important given the body’s expertise and central role in supporting indebted consumers. However, noble Lords may also notice a few differences from the amendment tabled on Report.
The noble Lord, Lord Stevenson, and I are in agreement that the Government’s amendment enables breathing space to be designed in a more effective way, building on, rather than duplicating, the work already commenced through the call for evidence, while still allowing for its introduction to take place swiftly.
I will outline a couple of the specific changes. First, the amendment enables the single financial guidance body to be involved in the design of the policy in a more suitable way. The Government plan to complete an extensive policy development and consultation process over the next year. As set out previously, we published a call for evidence last month on this topic, and intend to consult on a specific policy proposal in the first half of 2018. Through this process we will have established a robust blueprint of a breathing space scheme, informed by the expert views of the sector. Given this, we have agreed that it would not be the best use of the new body’s time and resources to require it to redo this work in its entirety once it is set up. Instead, our amendment would require the single financial guidance body to provide advice on specific issues requested by the Government.
The body must provide this advice within 12 months of its being established, which we expect to be in late 2018. On receipt of this advice, we will make regulations to set up the scheme as soon as is practicable—and certainly within 12 months of receiving the advice. This process will enable the body to supplement, rather than duplicate, the policy work the Government will have done up to that point. It could also speed up the introduction of the scheme, given that the advice is likely to be more targeted.
Secondly, we are in agreement that the amendment provides for more flexibility in designing the eventual scheme, potentially allowing for a scheme with a wider scope. For instance, our amendment enables—but does not mandate—the scheme to extend to Wales and Northern Ireland. We will assess the preferred geographic scope of the policy through our consultation, and the amendment allows us to deliver on the outcome of this process.
These are important changes, which we have reached a clear consensus on. However, after long and exhaustive discussions with House officials we have been informed that, for these changes to remain within scope of the Bill, we must take a power to make these regulations rather than a duty. I must be clear: in our view, this wording change has no practical impact. We have been clear, here and elsewhere, that we will deliver a breathing space scheme. This was a manifesto commitment and we are already midway through an intensive policy consultation process. This is simply a necessary step to give us the power we need to establish the scheme through this Bill. The Government’s position is clear. This amendment reflects the strength of our commitment to implementing a successful breathing space scheme. It sees the scheme delivered quickly and effectively and it ensures the sound design, implementation and operation of the scheme.
I turn to Amendment 33, tabled in the name of the noble Lord, Lord Sharkey. I begin by making it clear that this amendment is, with respect, neither necessary nor meaningful; it is actually entirely meaningless. As the House will have seen, the Government have tabled their own amendment to ensure that the Long Title of the Bill reflects the content following the additions made on Report. I must stress that my view remains that it is standard practice to add wording such as that tabled by the Government to the Long Title, and that it is perfectly adequate as tabled.
I also take this opportunity to remind noble Lords that the content of the Bill informs the Long Title; it is not the other way around. Indeed, the Companion to Standing Orders says that,
“amendments to the long title are not in order unless they are to rectify a mistake in the original title, to restate the title more clearly or to reflect amendments to the bill which are relevant to the bill but not covered by the former long title”.
Clearly, it is the third of these purposes which is relevant to this instance. Any amendment to the Title must therefore reflect amendments made, or being made, to the Bill. It is for this reason that we tabled an amendment to the Long Title to accompany the amendments that we tabled in respect of debt respite. The purpose is not to enlarge the scope of a Bill by amending the Long Title.
I am afraid that I must also express my disappointment that the noble Lord, Lord Sharkey, did not feel that he could discuss his original amendment, which he has now withdrawn, with me. Had he done so, I would have pointed out to him that I did not consider that it accurately reflected the contents of the Bill. His current amendment accurately reflects the content of the Bill so—in the spirit of consensus and because, as I have described, the amendment does not affect the scope of the Bill—I am prepared to accept it. On that basis, I shall not move Amendment 34 standing in my name and shall accept Amendment 33, tabled in the name of the noble Lord, Lord Sharkey.
Lord Stevenson of Balmacara
My Lords, I thank the Minister for introducing the amendments in this group which, as she says, will primarily establish a much-needed statutory debt respite scheme. As she also said, it is necessary and important. We have signed some of the amendments in this group and are absolutely delighted to support their inclusion in the Bill.
The failure to include a breathing space in the Bill left a substantial gap in the services which the debt charities need, if they are to offer the best support to those struggling with unmanageable debt, so we have been pursuing it through the various stages of the Bill and challenging the Government to up their game and honour their manifesto commitment. Initially, I think it was clear to the whole House that the Minister was under strict instructions to agree to nothing. But it is to her considerable credit that, after listening to the arguments and consulting widely, she decided that the case had been made. She and her Bill team then went out to bat for the proposal and, from a standing start, secured support for the amendment from her government colleagues. Only those who have witnessed the turf wars that this sort of decision—to introduce a breathing space—must have precipitated can appreciate what has been going on in Whitehall over the last few weeks. I have seen that at close quarters and it is not a pretty sight. I therefore salute the hard work that the Minister and her team have put into this, and I am lost in admiration at their ability to persuade—at ridiculously short notice—her ministerial colleagues to back this amendment today.
Baroness Kramer
My Lords, my noble friend Lord Sharkey is unable to be with us at the moment because he is at the Economic Affairs Committee. I suspect that, by the time that committee finishes and he can come down and join us, we will have moved to the conclusion of Third Reading, so I am privileged to speak on his behalf, as it were.
I will talk for a moment about the debt respite scheme and then just say a few words about Amendment 33, which stands in my noble friend’s name and now has the added support of the noble Baroness, Lady Buscombe. The debt respite scheme is absolutely crucial and I congratulate all parties, including the Opposition Front Bench and the Government Front Bench, and the Bill team for working through all of this. This is my opportunity to say that the Bill team has been very open to discussion.
Like others, I recognise that this Bill is very different from the fairly narrow, technical Bill that was originally conceived. This House took on board the argument that many of the issues raised, particularly those around financial inclusion, cold calling and debt respite, were not party-political controversies. All signed up to those issues, and the only question was whether there would be other vehicles in the very near future to carry through those policies. We can all see that the works are getting more and more gummed up on a daily basis, and I suspect there is real relief on all sides now that important issues such as cold calling, debt respite and financial inclusion have found their way into this Bill so that action can be taken despite whatever may be happening at a national level on the broader policies, particularly with Brexit. That is a real win for everybody in the House, including the Government and also the Minister, who has turned a technical Bill into an opportunity to make a real impact on people’s lives.
On Amendment 33, which amends the Long Title, I will pick up the point that the Minister made when she introduced Amendment 1 and talked about the importance of clarity and transparency. To the general public, this Bill will not be noted because it brought together three very important bodies into a single body, although all of that matters and will itself breed quite a significant number of good outcomes; it will be remembered most because it gave the Government the power to deal with cold calling and the abuse from which much of the population suffer on a daily basis. As many noble Lords, including colleagues on the Cross Benches and the noble Viscount, Lord Trenchard, have said, the most vulnerable have been impacted most by cold-calling abuse.
The Bill will also be remembered because of the debt respite clauses. To have a Bill in which neither of those two issues appears anywhere in the Long Title would seem most peculiar to anybody trying to find the appropriate legislation tackling these issues. You would have to guess that they might be in a Bill with the more limited Title. The words “and for connected purposes” might mean a great deal to people in this House, but do not mean a great deal to people elsewhere. Making sure that the Long Title fully reflects the strengths of the Bill and that those strengths can be easily recognised is a real improvement. It will rebound very much to the Government’s advantage.
Most of our exchanges have been extremely gracious, so I hope that the Minister will feel able to overcome her irritation around this one last clause. We have worked well together as a House, which has been crucially important. As I say, our thanks go very much to the Bill team, which has been a crucial part of this. I pay particular tribute to my noble friend Lord Sharkey since he is not here and able to speak for himself. He, among a number of others in the House, has contributed to a very worthwhile piece of legislation.
Viscount Brookeborough (CB)
My Lords, I add my praise to the two Front Benches. I should not think they could sustain much more joint praise, but on this occasion they have moved mountains in the length of time that this has taken. I emphasise how important the respite is from the point of view that every single case is a personal case of one family. It is not a matter of statistics, of speaking only of “30% of the families”; every single case that is allowed to go through this debt is a tragedy.
I say on behalf of Northern Ireland, if not the devolved parts of the UK, that it is good to see that it may be extended there, especially, from my point of view, to Northern Ireland. There are many individuals who, although they may not be listening to this, will unknowingly benefit from this to a tremendous extent. I thank all parties involved.
The Earl of Listowel (CB)
My Lords, I add my thanks to the Minister for her hard work and ingenuity in securing this amendment today. It has certainly moved a long way since our first discussion in Committee. She may remember that at the time I raised the issue of a particular care leaver who had a very stressful experience over two years because of the difficulties that we are addressing now. I am really grateful to her, particularly for care leavers who, after all, begin with a difficult start in their families, often have to experience independence very early in life and too often find themselves in financial difficulties. This will be particularly helpful for them. I appreciate the clarity that the Minister gave on the urgency with which the Government are moving forward on this, which was reassuring.
There is one point on which I would like clarification, and the Minister may care to write to me on this. Many care leavers are in difficulty around council tax. Some enlightened local authorities are now deciding not to charge care leavers but many still do so. When care leavers are pursued by their local authority for council tax, they can get into the position of the corporate parent aggressively pursuing their corporate child through the courts. I hope the dispensation will address that particular point.
One further point that the Minister may care to cover in correspondence: I believe that in Scotland the experience has been that six weeks may not be enough of a respite period to build a robust plan to go forward. I hope she might look at what is going on in Scotland and that we may build on that learning, perhaps looking at increasing the length of the respite period in light of the experience there.
I thank the Minister and all those noble Lords, particularly the noble Lord, Lord Stevenson of Balmacara, who took this forward, as well as the charity StepChange, which has been so helpful in all these matters.
Lord Kirkwood of Kirkhope (LD)
My Lords, following on from the comments made by the noble Earl about Scotland, I hope the Minister will encourage dialogue with the authorities in Scotland that have some experience of running these schemes. I am not saying the system is perfect but it would appear a bit absurd not to take advantage of the opportunity, through ministerial joint committees and what have you, to learn as much as can be learned and extract information about the experience in Scotland. I hope that might benefit and expedite the formulation of the scheme in due course.
An important point that I would like the Minister to confirm is that the provisions of this new scheme, which I greatly welcome, apply also to public bodies, local authorities and housing associations. If it does not do that then it will not be as effective, so I hope consideration will be given to that question.
If everything that can go right does go right—if I may invite the Minister to be optimistic for a moment—how quickly does she think this could be done? I absolutely understand the commitment that she has made; she has made it clear that she is personally committed to the scheme, and I am sure she will do everything that she can to deliver it. However, we live in uncertain times, and it may be that she gets promoted on to further and better things and other Ministers come in. If that were the case, we might look to the new Minister for Financial Inclusion to continue her work.
By what milestones can we measure progress of implementation of the scheme? It is so easy for these things just to disappear slowly by desuetude and disinterest, and by the throng and press of other matters in the departmental in-tray for such things to slip considerably. Can she assure us on the efforts that will be made to ensure that it stays up to the best possible implementation timetable to get done quickly, and on what sanctions there would be if the single financial guidance body did not keep up to the timetable limits set in the Bill? We would be even more reassured that this is a useful scheme if we had some sense of how quickly it will be accessible to ordinary people in the United Kingdom.
Baroness Buscombe
My Lords, I shall be brief. I respond first to the noble Earl, Lord Listowel. I very much welcome the opportunity to write to him on his question about council tax for care leavers. On the scheme, I say to both the noble Earl and the noble Lord, Lord Kirkwood, that the Treasury has already issued a call for evidence. I attended a meeting at the Treasury with officials from Scotland, along with Treasury Ministers and officials to discuss how it works, what the processes have been and the path and history behind the debt respite scheme in Scotland. That is already under way.
Perhaps I should repeat one brief paragraph just to reassure the noble Lord. The single financial guidance body must provide advice within 12 months of being established, and on receipt of this advice, we will make regulations to set up the scheme as soon as is practicable, and certainly within 12 months of receiving the advice. It must be no later than 12 months, but we shall make every effort to do it as soon as we can.
I should also add that the scheme can apply to public debts, but we do not want to prejudge the consultation that we are progressing. A number of questions that the noble Lord raised rightly rest with the consultation process.
Baroness Altmann
I intervene briefly to ask my noble friend for some gentle reassurance about the issue of cold calling. I am enormously grateful that we have the debt respite scheme agreed, and the new wording, on which I congratulate the department, and the new wording for the Long Title, which explicitly includes cold calling. Can my noble friend reassure us that the ban on cold calling that the Government intend to introduce will be as effective as possible and that, rather than using the ICO, which has very broad powers, the direct regulator—in particular, on pensions, the FCA—will be responsible for enforcing the ban? Regulatory imposition and enforcement by existing regulators is surely more effective in achieving compliance than relying on enforcement of widely drawn regulation.
This weekend, a story in the Mail on Sunday exposed the problems of nuisance calls to vulnerable elderly people about funeral plans. It was absolutely clear how ineffective the ICO has actually been in enforcing a ban on cold calling. It merely tries to sweep up the mess afterwards. It is cited as saying,
“where we find the law has been breached we will … take … action”.
Baroness Buscombe
I am so sorry to interrupt my noble friend, but there is no amendment in respect of cold calling tabled at Third Reading, and therefore we cannot speak to it. I reassure her that we have already committed to introducing legislation to ban cold calling in the other place.
Baroness Buscombe
“( ) Where the single financial guidance body provides information, guidance or advice to a person in pursuance of one of the functions mentioned in subsection (1)(a) to (c), it must consider whether the person would benefit from receiving information, guidance or advice in pursuance of any other of those functions (and it must ensure that SFGB delivery partners are under a similar duty).”
“develop and co-ordinate”
“(13A) In developing and co-ordinating the national strategy, the single financial guidance body must work with others, such as those in the financial services industry, the devolved authorities and the public and voluntary sectors.”
Baroness Buscombe
Baroness Buscombe
“Debt respite scheme: advice to the Secretary of State
(1) The Secretary of State must, within three months of the establishment of the single financial guidance body, seek advice from the body on the establishment of a debt respite scheme.
(2) A debt respite scheme is a scheme designed to do one or more of the following—
(a) protect individuals in debt from the accrual of further interest or charges on their debts during the period specified by the scheme,
(b) protect individuals in debt from enforcement action from their creditors during that period, and
(c) help individuals in debt and their creditors to devise a realistic plan for the repayment of some or all of the debts.
(3) The matters on which the Secretary of State may seek advice include (but are not limited to)—
(a) the appropriate person to administer the scheme (and the single financial guidance body may recommend the creation of a new body for this purpose);
(b) whether the scheme should apply in England only, or whether it should also apply in Wales or Northern Ireland (or both);
(c) the scope and design of the scheme, for example—
(i) the types of debtors and the types of debts it should cover; (ii) the types of protections it should give;
(iii) the time period for which the protections should apply;
(iv) what the obligations on debtors and creditors should be during any period for which protections apply, including any period of a repayment plan;
(v) the consequences of a failure by a debtor or a creditor to comply with a repayment plan;
(d) how the scheme should work, for example—
(i) how an application should be made for the protections given by the scheme;
(ii) suitable arrangements to keep creditors informed;
(iii) whether there should be a central register of persons admitted to the scheme;
(e) how the scheme should be implemented.
(4) The single financial guidance body must provide the advice sought within 12 months of its establishment.
(5) The Secretary of State must publish the advice.”
“Debt respite scheme: regulations
(1) As soon as reasonably practicable after receiving advice from the single financial guidance body under section (Debt respite scheme: advice to the Secretary of State), the Secretary of State must consider whether to make regulations under this section.
(2) After receiving advice from the single financial guidance body under section (Debt respite scheme: advice to the Secretary of State), the Secretary of State may make regulations establishing a debt respite scheme.
(3) The regulations must take the advice into account.
(4) The regulations may provide for the scheme to apply—
(a) in England only,
(b) in England and Wales,
(c) in England and Northern Ireland, or
(d) in England, Wales and Northern Ireland.
(5) Regulations under this section may—
(a) make different provision for different purposes,
(b) make different provision for different areas,
(c) make incidental, supplemental, consequential, transitional or saving provision, and
(d) apply to obligations entered into, or debts due to be repaid, before the regulations come into force.
(6) Provision under subsection (5)(c) may amend any provision made by or under—
(a) an Act of Parliament,
(b) in the case where the regulations provide for the scheme to apply in Wales, a Measure or Act of the National Assembly for Wales, and
(c) in the case where the regulations provide for the scheme to apply in Northern Ireland, Northern Ireland legislation.
(7) Regulations under this section are to be made by statutory instrument.
(8) An instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before and approved by a resolution of —
(a) each House of Parliament,
(b) in the case where the regulations provide for the scheme to apply in Wales, the National Assembly for Wales, and
(c) in the case where the regulations provide for the scheme to apply in Northern Ireland, the Northern Ireland Assembly.”
Baroness Buscombe
Baroness Buscombe
“the “devolved authorities” means— (a) the Scottish Ministers,
(b) the Welsh Ministers, and
(c) the Department for Communities in Northern Ireland;”
Baroness Buscombe
Baroness Buscombe
My Lords, I announced on Report in response to amendments tabled by the noble Baroness, Lady Meacher, the Government would bring forward amendments to introduce an interim fee cap in respect of PPI claims management services. Amendments 25, 26, 27, 29 and 30 honour that commitment—and I am sorry to see that the noble Baroness is not in her place.
As noble Lords are aware, this Bill already puts a duty on the FCA to cap fees charged in respect of financial services claims. This will ensure fair and proportionate prices for consumers using these services. However, as we have previously discussed, the implementation of the new regulatory regime and an effective, robust cap will necessarily take some time. This is a particular concern, given that the FCA’s PPI claims deadline may have passed by the time the FCA’s fee cap is in place. That is why the Government are introducing an amendment to set a fee cap at 20%, excluding VAT, of the claim value. The interim fee cap will apply to both CMCs and legal services providers that carry out claims management services in relation to PPI claims, to be enforced by the relevant regulators. It will be enforced by relevant regulators from two months after the Bill receives Royal Assent, until the FCA is in a position to implement its own cap. This cap will complement the range of measures in relation to PPI and other financial claims that the claims management regulation unit has announced. These include banning upfront fees and banning charges, where it is identified that the consumer does not have a relationship or relevant policy with the lender, as well as ensuring that all cancellation charges are reasonable and that consumers are provided with an itemised bill setting out details of what they relate to. This package of measures will support the Government’s aim to ensure that the claims management sector works in the interests of consumers by protecting them from excessive fees.
On Report, I also committed to tabling a government amendment to extend the FCA regulation of claims management to Scotland, should the UK and Scottish Governments agree that position. I am pleased to be able to confirm that the Scottish Government have now written to the UK Government to confirm agreement to extending regulation there. It highlighted that the situation in Scotland has changed since this issue was first discussed earlier this year. Legislation is currently progressing through the Scottish Parliament that will allow Scottish solicitors to offer increased funding options to clients on a no-win no-fee basis. As a result of these changes, Scottish solicitors will no longer need to set up CMCs to offer damages-based agreements to clients, and the CMC landscape is expected to change significantly.
To ensure that CMCs are not able to take advantage of this potential gap in regulation by targeting Scottish consumers, the UK and Scottish Governments have now agreed that FCA claims management regulation should extend to Scotland. This will ensure that there are appropriate regulatory standards in place to deal with CMC practices across Great Britain. These amendments follow up on my commitment on Report and do just that, extending FCA regulation of CMCs to Scotland, which will ensure that Scottish consumers are protected in the same way as those in England and Wales.
I note that the constitutional position of this issue has not been entirely straightforward as CMC regulation clearly concerns a mix of reserved and devolved matters. The regulation of the legal profession in Scotland is of course devolved, whereas matters of competition and aspects of consumer protection are reserved. It is the UK Government’s view that CMC regulation concerns reserved matters of competition and consumer protection. The Scottish Government have confirmed that they will seek the legislative consent of the Scottish Parliament for the CMC provisions as part of the wider legislative consent Motion for this Bill.
For the purposes of record, I should note that the UK Government’s view is that only Clause 20(4) relating to consumer advocacy is relevant to the legislative consent process, although I am aware that the Scottish Government might take a broader interpretation of how much of this is covered by the LCM. Nevertheless, the crucial issue here is that we have agreement that FCA regulation of CMCs should cover Scotland. I believe that this represents a sensible outcome which will benefit and protect consumers across Great Britain.
I am sure your Lordships will agree that the introduction of an interim restriction on charges in respect of CMCs is a positive step forward in ensuring that the claims management sector works in the interests of consumers. I am sure you will also agree that it is desirable to extend FCA regulation of CMCs to Scotland, given the change in circumstances there. I beg to move.
Baroness Kramer
My Lords, I apologise, as when I last spoke, I attributed to the noble Viscount, Lord Trenchard, a very eloquent speech that was made on cold calling and the way it targets vulnerable people, when it was the noble Viscount, Lord Brookeborough, who made that speech. I apologise to both parties. If I have any excuse, it is that I confuse my own children, and one of them is male and the other is female, so it is even more embarrassing.
As regards this group of amendments, my only regret is that the cap on fees is set at 20%. It would have been better to have a lower cap. However, we congratulate the Government on the underlying principle of taking temporary action because it is very likely that by the time the FCA gets its grip on this issue we will be beyond the reach of future PPI claims. However, other than that, I once again thank the Minister for being responsive to the issues that have been raised all around the House, including this one and those of cold calling, debt respite and financial inclusion. This is a very important move by the Minister and her name will be attached to these issues well into the future.
Baroness Altmann
My Lords, I too once again thank the Minister and all parties who have worked so hard on this Bill. I thank the noble Earl, Lord Kinnoull, who initially raised the issue of Scotland. It is excellent that the whole of Great Britain is included in the Bill. I thank the department for all the hard work that it has done to achieve this.
I too am delighted to see a cap on the PPI claims management fee. Like the noble Baroness, Lady Kramer, I would very much have liked the Government to agree that the parties responsible for the mis-selling would pay the fee rather than taking it out of the compensation that is paid to the customer. I understand that there may be an issue over the profitability of the claims management company itself but perhaps a compromise would be to split the 20% so that the customer gets 90% of what is due and the financial firm that has done the mis-selling perhaps pays 10% as well to the claims management firm. Having said that, I certainly welcome a 20% cap. I once again thank the noble Lords, Lord Stevenson, Lord Sharkey and Lord McKenzie, and the noble Baronesses, Lady Kramer and Lady Drake, the noble Earl, Lord Kinnoull, and all other noble Lords who have made such great improvements to the Bill.
The Earl of Kinnoull (CB)
My Lords, I cannot resist speaking briefly because of the good news in this group on the Scottish side. I pay tribute to and thank the Minister and her colleague, the noble Lord, Lord Young of Cookham—he of the very early morning email, which I received so often during the process of the Bill and which made me feel jolly lazy. I also pay tribute to and thank the noble Baroness, Lady Altmann, who added her name to my Scottish amendments; they were of course badly drafted, and I thank the parliamentary draftsman for correcting all that.
Lord Hunt of Wirral (Con)
My Lords, I declare my interests as set out in the register, as I have just entered the 50th year of my partnership in the global legal firm DAC Beachcroft. I also chair the British Insurance Brokers’ Association. Colleagues will recall that I have made a number of speeches about the need to regulate the claims management sector. Further reform is urgently needed, but these amendments are a step in the right direction and I welcome them.
One of the biggest problems posed by CMCs is the potential for consumers to lose a large proportion of their damages in fees, despite the fact that the level of expertise required for a CMC to manage claims is remarkably low. The regulation of these firms should therefore be consistent across the whole sector. I will just mention two significant benefits that come from what the Government are now doing. First, we will have a robust authorisation regime based on understanding the business models of individual CMCs, which will prevent those firms that do not offer good value for consumers operating. Secondly, we will have personal accountability for senior managers of CMCs to ensure that when a firm is struck off, its directors cannot simply resurface as a new CMC.
The FCA now has the power to cap under these amendments, but it should urgently consider extending the cap to other claims to address the drastic spike in claims related, for instance, to gastric sickness while on holiday, to which the noble Earl, Lord Kinnoull, drew attention in earlier debates. It is no coincidence that there has been this massive surge in claims, just as CMCs prepare for the deadline for bringing PPI claims and the introduction of measures to tackle the high number of whiplash claims. We are therefore dealing with quite a range of possible actions that the Government need to take.
I was disappointed, not by anything my noble friend Lady Buscombe has ever said or done, but because the Government published a consultation response last week entitled Cutting Costs for Consumers in Financial Claims which was completely silent on any plans for action in the sector. By need for action I mean the need to control charges in the personal injury sector, especially as the Government move forward with long overdue plans for whiplash reform. Question 20 in the original consultation paper was:
“Is there a need to consider further fee controls in other regulated claims sectors such as Personal Injury or Employment in future?”.
I do not know what the replies to that question were but, sadly, there was complete silence in response. I just hope that, as the FCA prepares to regulate this sector, it will bear in mind at the height of its agenda the customer/consumer detriment from the actions of CMCs, which we have debated many times in this House. At last, it appears that action is being taken, but it will have to go much wider than these amendments, although they are a very good start.
Baroness Buscombe
Perhaps I may respond quickly to my noble friend Lord Hunt. Both we and the Financial Conduct Authority are aware that our plans for whiplash reform could have an impact on this market. I reassure him that the FCA will certainly keep this sector under review and will monitor developments closely during the implementation phase.
Lord McKenzie of Luton (Lab)
My Lords, given the strong consensus that has emerged from the noble Lords who have spoken on these amendments—the noble Baronesses, Lady Kramer and Lady Altmann, the noble Earl, Lord Kinnoull, and the noble Lord, Lord Hunt—I can be brief. We support these amendments and we also support the provisions in the Bill, particularly in relation to a senior manager regime. That is very important.
Amendments 14 to 24 respond to the Scottish Government’s request for the regulation of CMCs to be extended to Scotland, and they will also help to negate the concerns that have been expressed about cross-border planning.
With regard to Amendment 25, although she is not here today, we should place on record our thanks to the noble Baroness, Lady Meacher, for leading the charge on this issue. As others have noted, the cap has been set at 20% exclusive of VAT, which is at the upper end of the range on which the Government consulted. However, we should see that in context. Currently it is suggested that the average fee rate for CMCs is some 37% of gross revenue, which is almost double the level at which the cap has been set.
It may be appropriate to remind ourselves of the scale of PPI, which I know will be coming to an end in August. I think that banks’ finance companies have paid out more than £26 billion in compensation over recent years. That is an extraordinary amount of money, and I wonder what that injection of funding to the consumer has done to the economy. It is important that the cap bites as soon as possible. Can the Minister confirm that the cap will apply to charges arising after the entering into force of Clause 21—just two months after this legislation comes into force—notwithstanding that the claims to which they relate may have preceded that? Can she confirm that it is not the date of the claim that is relevant for these purposes but the date when the compensation is paid?
Amendment 29 would appear to limit the application of the cap so that it does not apply to Scotland in respect of charges relating to claims prior to the transfer of regulation to the FCA. Perhaps the Minister could confirm that my understanding is correct. It would also seem to deny the application of Schedule 4 to Scotland. This schedule is concerned in part with transfer schemes in relation to the FCA. Perhaps the Minister could say what, if any, restructuring in Scotland might be affected by this change and how it would be affected if Schedule 4 were not applied to it.
Overall, we support these important amendments and look forward to the Minister’s reply.
Baroness Buscombe
I thank the noble Lord, Lord McKenzie. I am so afraid of making a mistake at this late stage that I would prefer to write to him in reply.
Baroness Buscombe
Baroness Buscombe
“PPI claims and charges for claims management services: general
(1) This section and sections (PPI claims: interim restriction on charges before transfer of regulation to FCA) and (PPI claims: interim restriction on charges after transfer of regulation to FCA) make provision for a fee cap to apply in certain circumstances to charges for regulated services provided in connection with a PPI claim.
(2) The following provisions explain terms used in those sections.
(3) The fee cap applicable to the amount charged for regulated services provided in connection with a PPI claim is 20% of the amount recovered for the claimant in satisfaction of the claim.
Accordingly, where nothing is recovered (whether or not a claim has been made or concluded) the fee cap is zero.
(4) But the charging of a reasonable amount for work done for the claimant is not to be regarded as exceeding the fee cap for a PPI claim if—
(a) the amount is charged for regulated services provided in connection with the claim,
(b) no other amount is charged for those services,
(c) the claimant has terminated the agreement governing the provision of such services (whether before or after the making of a claim), and
(d) the termination was not achieved by the cancellation of the agreement during a cooling off period available to the claimant by right (whether conferred by the agreement or otherwise).
(5) References to a claim are to a claim (however described) seeking compensation, restitution, repayment or any other financial remedy or relief, whether or not the claim is made or could be made by way of legal proceedings.
(6) References to the amount charged for regulated services provided in connection with a PPI claim are references to a sum comprising all amounts charged for such services in connection with the claim (whether or not charged under a single agreement), exclusive of VAT.
(7) References to the amount recovered for the claimant, in relation to a PPI claim, include a reference to any amount which (instead of being paid to or to the order of the claimant)—
(a) is set off against a debt due from the claimant to the person against whom the claim is made, or
(b) is paid to any person other than the claimant (whether a person providing regulated services in connection with the claim or any other person) with a view to discharging the whole or part of a debt due from the claimant.
(8) In this section references to regulated services are—
(a) so far as relevant for the purposes of section (PPI claims: interim restriction on charges before transfer of regulation to FCA), to be read as referring to regulated claims management services, and
(b) so far as relevant for the purposes of section (PPI claims: interim restriction on charges after transfer of regulation to FCA), to be read as referring to any service which is a regulated claims management activity.
(9) “PPI claim” means a claim relating to the selling of payment protection insurance (whether it concerns amounts paid by the policyholder or otherwise).
(10) “Regulated claims management services”—
(a) does not include any reserved legal activities of the kind mentioned in section 12(1)(a) or (b) of the Legal Services Act 2007 (exercise of a right of audience or the conduct of litigation), but
(b) otherwise, has the same meaning as in the Compensation Act 2006 (see section 14 of that Act).
(11) “Regulated claims management activity” has the same meaning as in the Financial Services and Markets Act 2000 (see the definition inserted by this Act in section 417(1) of that Act).
(12) “Section 22(1B) specified activity provisions” means provisions of an order made under section 22(1B) of the Financial Services and Markets Act 2000 (as inserted by this Act) which specify a kind of activity as a regulated activity within the meaning of that Act.
(13) “The FCA” means the Financial Conduct Authority.”
“PPI claims: interim restriction on charges before transfer of regulation to FCA
(1) A regulated person —
(a) must not charge a claimant, for regulated claims management services provided in connection with the claimant’s PPI claim, an amount which exceeds the fee cap for the claim, and
(b) must not enter into an agreement that provides for the payment by a claimant, for regulated claims management services provided in connection with the claimant’s PPI claim, of charges which would breach, or are capable of breaching, the prohibition in paragraph (a).
(2) A breach of either of those prohibitions is not actionable as a breach of statutory duty; but—
(a) any payment in excess of the fee cap for a PPI claim is recoverable by the claimant, and
(b) any agreement entered into in breach of subsection (1)(b) is not enforceable to the extent it provides for a payment that breaches or is capable of breaching the prohibition in subsection (1)(a).
(3) In subsection (2) “payment” means a payment of charges for regulated claims management services provided in connection with the claim.
(4) A relevant regulator—
(a) must ensure that it has appropriate arrangements for monitoring and enforcing the prohibitions in subsection (1) as they apply to the regulated persons for whom it is the relevant regulator;
(b) may make rules for the purposes of doing so (which may include provision applying, in relation to breaches of a prohibition in subsection (1), functions the relevant regulator has in relation to breaches of another restriction).
(5) For the purposes of this section— (a) “regulated person” means—
(i) a person who falls within any category of regulated person specified in column 2 below, or
(ii) any person not within sub-paragraph (i) who, by virtue of article 4 of the Compensation (Exemptions) Order 2007 (S.I. 2007/209), is not prevented by section 4(1) of the Compensation Act 2006 from providing regulated claims management services;
(b) “relevant regulator” means a person listed in column 1 below; and
(c) the regulated persons for whom a person listed in column 1 below is the relevant regulator are described in the corresponding entry or entries in column 2.
Relevant regulator | Regulated persons |
The Regulator | Persons authorised to provide regulated claims management services under section 5(1)(a) of the Compensation Act 2006. |
The General Council of the Bar | 1. Persons who, or licensable bodies which, are authorised by the General Council to carry on a reserved legal activity. 2. European lawyers registered with the General Council under the European Communities (Lawyer’s Practice) Regulations 2000 (S.I. 2000/1119). |
The Law Society of England and Wales | 1. Persons who, or licensable bodies which, are authorised by the Law Society to carry on a reserved legal activity. 2. European lawyers registered with the Law Society under the European Communities (Lawyer’s Practice) Regulations 2000. 3. Foreign lawyers registered with the Law Society under section 89 of the Courts and Legal Services Act 1990. |
The Chartered Institute of Legal Executives | Persons authorised by the Institute to carry on a reserved legal activity. |
(7) In column 2 “reserved legal activity” has the meaning given by section 12 of the Legal Services Act 2007.
(8) This section applies as follows—
(a) the prohibition in subsection (1)(a) applies only to charges imposed under an agreement entered into during the first interim period, and
(b) the prohibition in subsection (1)(b) applies only to agreements entered into during that period.
(9) In subsection (8) “the first interim period” is the period—
(a) beginning with the day on which this section comes into force, and
(b) ending with the day before the day on which the first section 22(1B) specified activity provisions come into force for (or for purposes which include) the purposes of the general prohibition in section 19 of the Financial Services and Markets Act 2000.”
“PPI claims: interim restriction on charges after transfer of regulation to FCA
(1) The rule specified in subsection (2) is to be treated for the purposes of the Financial Services and Markets Act 2000 as if—
(a) the rule were a general rule made by the FCA under section 137A of that Act, and
(b) this section were contained in that Act;
and accordingly functions conferred on the FCA by that Act which apply in relation to general rules made under section 137A apply to that rule as they apply to other general rules made under that section.
(2) The rule is that an authorised person—
(a) must not charge a claimant, for a service which is a regulated claims management activity provided in connection with the claimant’s PPI claim, an amount which exceeds the fee cap for the claim; and
(b) must not enter into an agreement that provides for the payment by a claimant, for a service which is a regulated claims management activity provided in connection with the claimant’s PPI claim, of charges which would breach, or are capable of breaching, the prohibition in paragraph (a).
(3) A breach of either of those prohibitions is not actionable as a breach of statutory duty (despite section 138D(2) of the Financial Services and Markets Act 2000); but—
(a) any payment in excess of the fee cap for a PPI claim is recoverable by the claimant, and
(b) any agreement entered into in breach of the prohibition in subsection (2)(b) is not enforceable to the extent it provides for a payment that breaches or is capable of breaching the prohibition in subsection (2)(a).
(4) In subsection (3) “payment” means a payment of charges for a service which is a regulated claims management activity provided in connection with the claim.
(5) The rule in subsection (2) applies as follows—
(a) the prohibition in paragraph (a) applies only to charges imposed under an agreement which is entered into during the second interim period, and
(b) the prohibition in paragraph (b) applies only to agreements entered into during that period.
(6) In subsection (5) “the second interim period” is the period—
(a) beginning with the day on which the first section 22(1B) specified activity provisions come into force for (or for purposes which include) the purposes of the general prohibition in section 19 of the Financial Services and Markets Act 2000, and
(b) ending with the day before the coming into force of the first relevant general rule made by the FCA (whether for all purposes or for any specific purpose).
(7) In subsection (6)(b) “relevant general rule” means a general rule that—
(a) is made under subsection (1) of section 137FD of the Financial Services and Markets Act 2000 (as inserted by this Act), and
(b) applies to, or to any description of, PPI claims (whether or not it also applies to anything else).
(8) In this section “authorised person” has the same meaning as in the Financial Services and Markets Act 2000 (see section 31(2) of that Act).”
Baroness Buscombe
“( ) Sections (Debt respite scheme: advice to the Secretary of State) and (Debt respite scheme: regulations) extend to England and Wales and Northern Ireland.”
“(3) The following provisions in Part 2 extend to England and Wales—
(a) section 20(12) and Schedule 4;
(b) section (PPI claims: interim restriction on charges before transfer of regulation to FCA).
(3A) The other provisions in Part 2 extend to England and Wales and Scotland.”
Baroness Buscombe
“( ) Sections (PPI claims and charges for claims management services: general) to (PPI claims: interim restriction on charges after transfer of regulation to FCA) come into force at the end of the period of two months beginning with the day on which this Act is passed.”
“( ) Regulations under subsection (2) must provide for sections (Debt respite scheme: advice to the Secretary of State) and (Debt respite scheme: regulations) to come into force on the same day as section 1(1).”
Baroness Kramer
Baroness Buscombe
My Lords, I would like to take a moment to reflect on the Bill and its passage through your Lordships’ House. This is important legislation that will benefit members of the public and provide a sustainable legislative framework for public financial guidance and the regulation of claims management companies in the future. It has improving financial capability at its heart and I am proud to be associated with it.
At Second Reading I said that I hoped we would have constructive engagement as the Bill progressed through this House. Your Lordships have not disappointed. The Bill has rightly been accorded due and diligent attention from noble Lords across the House, and I would like to thank all those who have engaged on the Floor of the House and also in the many meetings we have had outside.
I would like also to thank my noble friend Lord Young of Cookham for all his help and assistance as the Bill has progressed. He has been a tower of strength and a more than able co-pilot throughout.
Finally, but importantly, I would like to thank the Bill team and officials across the Department for Work and Pensions, Her Majesty’s Treasury, the Department for Digital, Culture, Media and Sport, and the Ministry of Justice. Many of them have put in incredibly long hours to support my noble friend and me during debates, facilitate briefing meetings and provide the updates, letters and briefings that many noble Lords have received. I may add that other noble Lords, in particular the noble Lord, Lord Stevenson, referenced the cross-departmental support we have had. It has been amazing and has made an enormous difference to the outcome of the Bill.
Throughout the passage of the Bill we have listened to the arguments and suggestions made by noble Lords, and, in many cases, have agreed and brought forward amendments that strengthen it. I think we can all agree that this Bill leaves here in good shape, and I believe that this is in no small part due to the helpful and constructive manner in which all sides of the House have engaged with it.
Lord McKenzie of Luton
My Lords, I will say just a few words. I start by thanking the noble Baroness, Lady Buscombe, for her kind words. We are grateful again for the open-minded manner in which she and her co-pilot, the noble Lord, Lord Young, have approached the Bill. I never had the opportunity to ask him whether Luton Airport was on the flight path, but I will try to on a future occasion.
Invariably it is said at the end of a Bill process that the House of Lords has improved the Bill from its starting point. While tenuous in some instances, it is definitely true with this Bill. Support across the Chamber has enabled the framework for a debt respite scheme; consumer protection on cold calling; strengthening access to information and guidance on accessing pensions; a duty of care on setting standards; requiring that pensions guidance functions are provided freely and impartially; strengthening offences of mimicking; as well as securing the dashboard. These changes have come about because, broadly, we have had a shared analysis of what the Bill could achieve; a shared analysis with the Lib Dems and Cross-Benchers as well as with the Government, including the noble Baroness, Lady Altmann.
We are very grateful for the proactive approach of the Bill team, which went above and beyond in trying to fit our amendments into the confines of the scope of the Bill. I do not know how many variations of the debt respite provisions the team had to cope with, but there were many. I offer my thanks to the Lib Dems for their joint working on some key areas, among them the noble Lords, Lord Sharkey and Lord Kirkwood, and the noble Baroness, Lady Kramer.
Finally, I thank my colleagues, my noble friend Lady Drake, our pensions supremo who unfortunately is not in her place today, and of course my noble friend Lord Stevenson for his experience and passion on matters of the debt space. It has made my role a good deal easier.
Financial Guidance and Claims Bill [Lords]
Monday 22nd January 2018
(6 years, 10 months ago)
Commons ChamberRead Full debate Financial Guidance and Claims Act 2018 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 70-I Marshalled list for Third Reading (PDF, 106KB) - (20 Nov 2017)
The Secretary of State for Work and Pensions (Ms Esther McVey)
I beg to move, That the Bill be now read a Second time.
The Bill will reform the current financial guidance service landscape to improve outcomes for people in their everyday lives. It will bring about two changes. First, it will restructure the financial guidance landscape for members of the public by creating a new single financial guidance body and providing funding to the devolved authorities for locally commissioned debt advice. Secondly, it will move the regulation of claims management services from the Ministry of Justice to the Financial Conduct Authority. Both measures will benefit members of the public and provide a sustainable legislative framework for public financial guidance and the future regulation of claims management companies.
Ensuring that people, especially those who are struggling, are easily able to access free and impartial financial guidance to help them to make more effective financial decisions and to improve their confidence in dealing with financial service providers is an important step towards improving people’s financial capability. In addition, ensuring that people are able to access high-quality claims management services speaks to the Government’s commitment to ensuring that action is taken when markets work against consumer interests.
The provisions in part 1 of the Bill follow three consultations, conducted by the previous Conservative Government, on the provision of pensions and money guidance and the provision of advice on debt management. In particular, the consultations examined the demand for such services, how their provision should be structured and how to make that provision more effective for consumers. The final consultation revealed a broad consensus for a single body for financial guidance. As a result, the Bill will bring together the important work done by the Money Advice Service, the Pensions Advisory Service and Pension Wise to create a single financial guidance body. The relevant measures have received strong support from industry, stakeholders, charities and consumer groups.
Mr Chris Leslie (Nottingham East) (Lab/Co-op)
It is vital that we all work across party lines on financial guidance. I encourage the Secretary of State to place on the new financial guidance body a duty to promote financial resilience. Every year in Britain, 2 million people have unforeseen sickness absence. They cannot cope as their income suddenly falls. Eight out of 10 people in this country have very little savings, or none at all. It would be a real step forward to have a body that promotes financial resilience.
Ms McVey
The hon. Gentleman makes an important point. Once the new body is set up, it will be able to see what is needed in the public arena and shape and craft what it does. That is important, as is debt advice for vulnerable people, who need to be able to plan a path for their future.
Rebecca Pow (Taunton Deane) (Con)
The fact that household debt in this country now stands at £1.9 trillion shows just how important it is to give people knowledge and understanding about the management of their finances. I welcome the Bill. Will the Secretary of State assure us that it will help constituents such as mine in Taunton Deane, who currently have to go to a plethora of bodies to get advice, to make the decisions that we hope will prevent them from getting into debt?
Ms McVey
My hon. Friend raises a very good point about how to help those who are most vulnerable—how to help them to get out of debt. Debts are at high levels, but they are lower than they were in the first quarter of 2010. The latest figures, for the third quarter of 2017, showed that they had gone down, but they are still high, and we need to help people understand their finances. Understanding really is key to this—they need to understand what is going out, what is coming in and how to get life on a firmer footer, so that they can go forward with confidence.
Ms McVey
If I can make a bit progress, I will take some more interventions.
Old Mutual Wealth has noted that consolidating the Money Advice Service, the Pension Advisory Service and Pension Wise into a single financial guidance body presents an opportunity materially to improve the quality and reach of Government-led primarily industry-funded services to encourage consumer engagement. Accordingly, the new body will ensure that people have access to the information and guidance needed to make the necessary and effective financial decisions that we all have to make throughout our lives. This information, guidance and, in respect of debt, advice will be not only independent and impartial, but free at the point of use, making it accessible to all those who need it. By merging those services into a single body, we will remove duplication of services, increase the efficiency of the service and ensure that those who require information, financial guidance and debt advice know exactly where to find it.
A single body also gives us the opportunity to provide a more seamless customer journey, doing the joining up behind the scenes. Importantly, it provides a hook back into the customer for follow-up support. The Government are concerned about low levels of financial capability in the UK. We recognise that not enough people know how to manage their money effectively, which is why we are taking decisive action through the Bill.
Steve McCabe
I am very grateful to the Secretary of State for giving way. As she seems to be acknowledging, the evidence suggests that too many people do not have sufficient knowledge to make the best choices about their pensions. On that basis, does she agree that it is important that the new body concentrates on trying to provide as much face-to-face active support and guidance as possible, and does not simply rely on websites, which are a much more passive form of assistance?
Ms McVey
The hon. Gentleman raises a very good point. Different people glean information through different channels, so a website works for some and telephones work for others, and there will be a need for face-to-face advice. At the moment, that is being offered through the citizens advice bureaux. Therefore, he is right in saying that face-to-face advice is important, too.
Mr Jim Cunningham (Coventry South) (Lab)
One big problem with information for ordinary people is that it is complex. Will right hon. Lady give us an assurance that any information or advice that is being given is in simple language that people can understand? That is always the big difficulty with lots of forms—people just do not understand them.
Ms McVey
Again, a valid point—the advice has to be impartial, free and in a language that people understand. Sometimes people might not feel confident to say that they do not understand the terminology, because they think that there is a presumed knowledge that might not be there. I concur with what the hon. Gentleman says.
The new body will have a number of statutory objectives: to improve the ability of people to make informed financial decisions; to support the provision of information, money and pensions guidance and debt services in areas where it is specifically lacking; to ensure that information, guidance and debt advice is clear, cost-effective and not duplicated elsewhere; to ensure that information, guidance and debt advice is available to those most in need, particularly people in vulnerable circumstances; and to work closely with the devolved authorities.
Gareth Thomas
Further to the question asked by the hon. Member for Taunton Deane (Rebecca Pow) about the rise in household debt, does the Secretary of State accept that there is a particular problem with household debt generated by high-cost credit lenders, such as BrightHouse? Under clause 10, the Financial Conduct Authority can levy to cover the costs of the new single financial guidance body. Can she reassure me that high-cost credit companies such as BrightHouse will be covered by such a levy, and will she tell the House what this body will do to encourage the take-up and awareness of the products offered by credit unions—a far lower cost of debt provision?
Ms McVey
First, debt is not rising. It has actually fallen over the past eight years, but it is still too high. This new body will offer guidance and advice, so that people understand what loans they are taking out and, fundamentally, what paying them back will mean for them. Secondly, we are today putting in place the legislative framework to set up the body, but it will determine the key things it wants to pursue. I am convinced that it will listen to the advice that the hon. Gentleman and others put forward.
The new body will also provide advice on a breathing space scheme, providing additional support to the Government’s policy development. The scheme will allow an individual in problem debt to apply for a period of protection from further fees, charges and enforcement action, alongside establishing a statutory debt management plan. One of the new body’s key functions will be to support over-indebted consumers, ensuring the provision of high-quality debt advice that is free at the point of use. Last year, the Money Advice Service spent £49 million to fund 440,000 debt advice sessions. We want the new body to build on that good work.
Kevin Hollinrake (Thirsk and Malton) (Con)
Further to the point that the hon. Member for Nottingham East (Mr Leslie) made about financial resilience, is the Secretary of State aware that household debt as a proportion of household income rose from 93% to a peak of 157% in 2008, under the previous Government? Does not that demonstrate that these kinds of measures are essential in helping people to make sensible choices about their finances?
Ms McVey
My hon. Friend makes a good point. Household debt rocketed under the previous Labour Government, and we are now ensuring that it comes down, because it is still too high. I particularly appreciate that the Bill has cross-party support, because we all know that we need to help people who are in debt.
As a result of a range of broader reforms and initiatives, such as automatic enrolment, which has increased the number of people saving into pension schemes and the pension freedoms that allow anyone aged 55 and over to take their whole pension as a lump sum without paying tax on the first 25%, the number of people looking for high-quality, impartial financial guidance continues to rise. We look forward to the new body meeting those challenges, building on the existing good work of the Money Advice Service, the Pensions Advisory Service and Pension Wise.
Yvonne Fovargue (Makerfield) (Lab)
Has the Minister considered whether the breathing space will apply to public as well as private sector debts, because many people find that they are pursued more vigorously by those creditors?
Several hon. Members rose—
Ms McVey
I will make a little progress before taking any more interventions, because otherwise I will never get through this, and I need to.
The second part of the Bill makes provision to strengthen the regulation of claims management companies. As many hon. Members will be aware, there is evidence of malpractice in the claims management sector in the form of disproportionate fees, nuisance calls, poor service, and the encouragement of fraudulent claims.
Following an independent review of claims management regulation led by Carol Brady, the Government announced in the 2016 Budget their commitment to clamping down on malpractice in the sector. Part 2 delivers this commitment in two key ways. First, it transfers regulatory responsibility for claims management regulation from the Claims Management Regulator, a unit based in the Ministry of Justice, to the Financial Conduct Authority. Secondly, it introduces new measures to ensure that consumers are protected from being charged excessive fees. Those measures include a duty on the Financial Conduct Authority to make rules restricting fees charged for services provided in relation to financial services and products such as payment protection insurance claims, and a power for the FCA to introduce caps in other claims sectors should the need arise.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
It is great to see you back in your rightful place, Mr Deputy Speaker.
May I take the Secretary of State back to the first part of the Bill and the devolved functions in terms of debt advice? How will they be funded? Will it be based on a percentage share—a population share—of expenditure in England? Will it be based on Welsh need, or, as I read the Bill, will the Welsh Government send the Treasury a bill for its functions and then that will be levied by the FCA?
Ms McVey
I reiterate what the hon. Gentleman said by welcoming you, Mr Deputy Speaker, to the Chair.
The money will be collected. At the moment, what is spent and how it is spent is down to the new body being formulated. However, it will be done by Government grants and then money will be taken back—financial bodies will be paying in. Obviously, going forward, where there is most need is where most money will be going. That is how it will be viewed.
Robert Neill (Bromley and Chislehurst) (Con)
I very much welcome part 2, which does improve protections. Is my right hon. Friend aware that the Justice Committee looked at this issue in relation to changes to the small claims limit in personal injuries matters? Will she bear in mind the very strong evidence suggesting that, because the likely increase in the small claims limit will mean more litigants in personal injuries cases, the current cap in relation to payment protection insurance should be extended to personal injuries cases in order to extend consumer protection? Will she consider a “fit and proper person” test in relation to claims management companies operating in this area?
Ms McVey
My hon. Friend always provides wise words. I can assure him that those matters will be taken into consideration.
This is not to say that claims management companies should be regulated out of existence. The Government believe that these firms provide a valuable service to consumers who may be less likely or unable to bring claims themselves. A well-functioning CMC market can also benefit the public interest by acting as a check and balance on business conduct. The measures therefore aim to strengthen claims management regulation in the round in order to enhance both consumer protection and professionalism in the sector.
The Bill ensures that those who use claims management services to make claims in relation to PPI are protected in the interim period before the FCA exercises its duty to introduce a fee cap. The Bill does this through the provision of an interim fee cap on PPI claims management services during the period between Royal Assent and implementation of the FCA cap. The Bill will cap these fees at 20% of the final compensation amount. The Association of British Insurers welcomed the claims management regulation measures, stating:
“Confirmation of tougher regulation of claims management companies cannot come soon enough for people who are plagued by unsolicited calls and texts.”
Andy Slaughter (Hammersmith) (Lab)
One thing that the Bill was silent on, until it was amended by the Opposition in the other place, is cold calling. In the seven years since the Legal Aid, Sentencing and Punishment of Offenders Act 2012, the Opposition have been pressing to have cold calling and spam texts outlawed. Is the Secretary of State going to say anything about that? Does she agree that there is no defence for having this blight on the lives of almost everyone in this country, and that it should not just be regulated but banned?
Patricia Gibson (North Ayrshire and Arran) (SNP)
Will the Secretary of State give way?
Ms McVey
If I may, I will continue a little bit further and then I will take another question.
I will reflect on the passage of the Bill through the Lords. There was overwhelming support in the other place for the measures originally contained in the Bill. The amendments in the other place sought to include a Government manifesto commitment—a debt respite scheme—because noble Lords were concerned about legislative space. Some amendments made explicit in the Bill what was always implicit in policy, including making it clear that the single financial guidance body’s services are free at the point of use, and ensuring that the information, advice and guidance are impartial.
Other changes were more substantial, but none the less welcome. These ranged from the inclusion of a clause making it a criminal offence to impersonate the body to safeguarding clauses for its wind-up and requiring the FCA to create rules on signposting individuals to the body. Further additions include an interim fee cap for PPI claimants, which will ensure that CMCs charge fair and proportionate fees in relation to financial services claims during the interim period between Royal Assent and the introduction of the FCA’s fee cap, and making provision for the establishment of a debt respite scheme, which I will expand on shortly.
Patricia Gibson
Does the Secretary of State share my concern about the UK Government’s intentions with regard to adopting the provisions in my ten-minute rule Bill to do with director-level responsibility for unsolicited marketing communications? The Government have on two occasions set themselves a deadline to adopt this legislation, and on two occasions the deadline has passed. I hear what the Secretary of State has said about the provisions in this Bill, but is she concerned, like me, that it will be confined to protecting consumers with regard to pensions, not in a whole host of areas right across the marketplace?
Ms McVey
We are of course looking at pensions today, but other rules, regulations and laws are in place to protect people from unsolicited, unwanted cold calls and the Department for Digital, Culture, Media and Sport is looking at how to strengthen them further. I now want to address some of these issues.
Several hon. Members rose—
Vicky Ford (Chelmsford) (Con)
I listened very closely to what the Secretary of State said about the breathing space, which is a really welcome period to help individuals —she mentioned individuals—to sort out their debts without getting into more problems. Will she confirm that that also covers households and families so that it helps the whole family, not just the individual?
Ms McVey
When people call seeking advice and support, they may be doing so for themselves or for the household—for example, they may need respite for all the family—and if so, they will invariably be looking for help not just for themselves, but for their family in its entirety.
Mr Edward Vaizey (Wantage) (Con)
May I welcome my right hon. Friend to her new position? As the former Minister with responsibility for telecoms, I was involved in trying to stamp down on cold calling. It may not be necessary to ban cold calling entirely, but I certainly welcome the fact that the Bill has been amended to take account of the knock-on effects of claims management companies on cold calling. I hope that the Secretary of State will comment on the need to make it explicit that the new regulator must consult Ofcom on some of these issues. Ofcom is the body charged with cracking down on cold calling. We often forget that when we introduce measures that are consumer-friendly—rightly, to allow people to have redress—that can, unfortunately, inspire some of the less scrupulous to up their game in terms of cold calling.
Chris Philp (Croydon South) (Con)
On the question of cold calling raised by my right hon. Friend the Member for Wantage (Mr Vaizey), the cold calling provisions appear in clause 4 in part 1 of the Bill. Could the Secretary of State clarify whether those powers to prohibit cold calling will apply not just to financial guidance but to claims management companies, which are the topic of part 2? I hope that the answer is yes.
Ms McVey
That is our intention and that is what we will do, but those finer points will be worked out by the body as it works responsibly on behalf of UK citizens.
I want now to address issues that I know will be of interest to hon. Members. The Government have been clear that we will not stand for unlawful, persistent cold calling made by companies in the claims management sector. Cold calling is already illegal under certain circumstances. Under the privacy and electronic communication regulations, we have forced companies to display their numbers when they call, made it easier to take action against those involved in making the calls, and strengthened the powers of the Information Commissioner’s Office to impose fines.
That being said, a number of companies continue to act disreputably, so it is only right that the Government continue to take steps to further regulate the sector. That is why the Government committed in the other place to introduce measures to tackle those issues. The Department for Digital, Culture, Media and Sport is currently working through the details of an amendment to prohibit CMCs from making live, unsolicited calls unless the receiver has given prior consent. That step, combined with the Government’s previous actions in this area, should act as a warning to those acting unlawfully that we will not rest until the problem has truly been eradicated.
Ms McVey
If I can continue for a little longer, I will take some more interventions.
The Government welcome the findings of the report of the Select Committee on Work and Pensions exploring how to protect pensions from scammers. We remain committed to protecting savers from pension scams. We have already announced that we are banning pensions cold calling, tightening HMRC’s rule to stop pension scammers and fraudulent schemes, and preventing the transfer of money from occupational pension schemes into fraudulent ones.
The Government are currently reviewing the alternative proposals for banning cold calling under the Bill. We have also listened to concerns about the risks of not receiving sufficient guidance or advice prior to taking advantage of the pensions freedoms, and we are currently considering the amendments recommended to ensure that members of the public are aware of the importance of receiving guidance.
Hon. Members will also be interested in the addition of the provision for a debt respite scheme, which includes a breathing space period and a statutory debt repayment plan. We understand the valuable additional support that the scheme could provide for thousands of vulnerable individuals and want to implement a breathing space scheme as quickly as possible.
The Government are pressing on with policy development. We have already set out a firm timetable for consultation and are continuing to work closely with a wide range of stakeholders. The call for evidence on breathing space was published in October last year and has now closed. After responding to that call for evidence, we will consult on a single policy proposal. The Bill gives us an enabling power to lay regulation to establish the scheme after receiving advice from the single financial guidance body on the design and certain aspects of the scheme. It is important that we take time to get this right. The scheme will achieve its intended benefits for indebted individuals only if it is properly designed. I look forward to the Government working constructively with hon. Members so that we can enable a scheme to benefit vulnerable families as quickly as possible.
Neil O'Brien
One of the important things that the Bill does is to regulate nuisance cold calling. It is sometimes tempting to dismiss it as merely a nuisance, but it is more than that for some vulnerable people. A constituent has emailed me to say:
“All my friends and family have signed up to the TPS, but are still bombarded by these parasites. Our friend who suffers from dementia seems to get several a day, as I check his phone calls each time we visit. These vulnerable people…say yes to anything”,
even if they have not had an accident. My constituent adds that
“TPS does not work…The only way to stop this abhorrent practice is for the regulator to hand out punitive fines”.
Will my right hon. Friend both maximise the scope of the Bill and encourage the regulator to clamp down hard on that kind of behaviour?
Ms McVey
I thank my hon. Friend for raising that important point. I bet that many constituents could bring forward similar cases. The maximum penalty for breaches will remain the same; that is up to half a million pounds. We must make sure that people do not abuse the system, which is why, particularly in this Bill, we are looking at ways to ban pension cold calling.
Andy Slaughter
The Secretary of State is being extremely generous. I sense some puzzlement on both sides of the House that the Government are pulling their punches on cold calling. There is to be greater regulation; that is to be extended in some areas. Apart from the cold callers themselves, the consensus is that this should be banned. That includes claimant organisations such as the Association of Personal Injury Lawyers. Why will the Government not undertake now to ban spam texts and cold calls?
Ms McVey
We have brought that forward. That will be for this Bill. For pensions, there will be a ban. It is about working out how that is done, how we deliver it and how it is possible, but that is the intention.
Hon. Members will no doubt be aware that in October the DWP took on responsibility from the Treasury to work with regulators, the industry and other sectors to create a pensions dashboard. That digital interface would allow individuals to see all their pension savings in one place by collecting information about pensions held with different providers. We are conducting a feasibility study to explore the key issues and determine a path towards implementation. We expect to be able to report on that in March.
The Government believe that the needs of the consumer must be at the heart of the dashboard’s design. We want to maximise people’s engagement with their pensions while maintaining their trust. We will ensure that people’s interests are properly safeguarded and their information protected. As part of the study, we are also considering what role, if any, the single financial guidance body may have in relation to the dashboards.
I firmly believe that the Bill is useful, fair and has the individual at its heart. Its goal is to ensure that people are easily able to access free and impartial financial guidance to help them to make more effective financial decisions. Having access to guidance will boost their confidence when dealing with financial service providers and it is a crucial step towards improving their financial capability. The Bill sends a clear message to CMCs by transferring regulatory responsibility to the Financial Conduct Authority, providing a stronger framework to ensure that individuals are accountable for the actions of their businesses, and by introducing fee-capping powers to protect consumers from excessive fees.
This lies at the heart of Conservative philosophy. It is about understanding how an individual can be stronger by understanding their finances and, where possible, by not allowing themselves to get into debt. It is about supporting the individual, the family and the community, and they can best do that by understanding their finances. I look forward to having a constructive and positive dialogue in this House.
Debbie Abrahams (Oldham East and Saddleworth) (Lab)
How lovely it is to see you in your place, Mr Deputy Speaker; I extend my good wishes to you.
It was remiss of me not to welcome the Secretary of State to her place during the earlier urgent question. I congratulate her and look forward to working with her, possibly not always in the same tone as today. I think this will be a constructive debate, but there is a lot for us to discuss in the Work and Pensions portfolio.
I thank the Secretary of State for outlining the content of the Bill. I take this opportunity to thank Members of the other place who have spent many months scrutinising it. Although concessions have been made, we believe that several more are still needed. However, we recognise the importance of the Bill’s stated aims: principally, to increase the levels of financial capacity, reduce the levels of problem debt and to improve public understanding of occupational and personal pensions. As such, we will not oppose it.
As has been explained—I will rush through this bit—the Bill is in two parts. The first establishes a new arm’s length entity to provide money and pensions guidance and debt advice. This body will replace three existing publicly funded consumer bodies: the Money Advice Service, the Pensions Advisory Service and the Department for Work and Pensions’ Pension Wise service. The new single financial guidance body will also have responsibility for the strategic function of supporting and co-ordinating the development of a national strategy. To ensure that the Bill’s stated aims are met, we want the new body to be a highly visible and properly resourced organisation able to identify and support the many people who need help.
The second part of the Bill introduces a tougher and welcome regulation regime to tackle conduct issues in the claims management market. We can also support that provision.
Gareth Thomas
Is not one problem that risks inhibiting the success of the new single financial guidance body the fact that we do not know where the highest levels of problem debt are in this country? Might it not be sensible to take the opportunity in Committee or on Report to consider the example of an American piece of legislation, the Community Reinvestment Act, which requires all lenders to publish anonymised details of the debts taken out with them so that community organisations and debt advice bodies can know where to target their expertise and help?
Debbie Abrahams
My hon. Friend makes a valuable point. I am not familiar with that particular piece of American legislation, but I will look at it and see what we can do in terms of tabling amendments in Committee.
As we have heard, the FCA will regulate claims management company activity as a regulated activity, taking over responsibility from the Ministry of Justice. The Bill is a high-level framework Bill that, thanks to our colleagues in the other place, is now in much better shape. We particularly welcome the Government’s assurances that the SFGB will work closely with the FCA and the Treasury on issues of financial inclusion. Given, however, that the Work and Pensions Committee, of which I was a member at the time, raised concerns nearly three years ago about the inadequacy of Government measures to protect pension savers, and given also the difficulties that have arisen since, I am bound to ask why it has taken so long to recognise these failings.
I am also concerned that there are no specifics on delivery channels, especially given the very large number of people currently failing to access services. It is vital that the SFGB has the autonomy and resources to make itself truly visible to the public. Given the failings in other parts of the Secretary of State’s Department, and given the complex needs and limited resources of the people who will most need its services, “digital by default” is not a mantra we want to hear from the SFGB or its sponsoring Department.
Stephen Kinnock (Aberavon) (Lab)
The transfer of the British Steel pension scheme into a new scheme was announced in early 2017 and was very public. When it all blew up and became fertile territory for unscrupulous pensions advisers, the FCA seemed surprised it was happening. Why did it not see that coming? What steps should the Bill take to improve the early-warning system so that regulators can see these things coming down the track and be far more proactive in getting out there? After all, prevention is better than cure.
Debbie Abrahams
My hon. Friend makes a very valuable point that I will come to later. This is what we are seeing: we saw it with the BSPS and are now seeing it with Carillion and the pension savers there.
Last year’s statistics from the FCA make shocking reading. Of those over 55 planning to retire in the next two years, only 10% had used the Pensions Advisory Service, and only 7% had used Pension Wise. The new SFGB will have to do much better than that. Eight million people in the UK are over-indebted, according to a Money Advice Service report from last March, and less than one in five of these individuals currently seeks advice. Many are among the most vulnerable: over half the clients seen by MAS-funded debt advice projects have had a diagnosed mental health condition. It is vital that those people continue to be supported during the transition period, and that the SFGB develops strategies to identify and reach people who do not currently use any services. The impact assessment talks about “long-term…savings” once the SFGB has been established. It is difficult to see how such savings will be made if the new body is to fulfil all its objectives, particularly its objective of ensuring that information, guidance and advice are available to those who most need them. Have the Government considered what resources the SFGB will need to identify and support those who do not currently access advice or guidance? Has the Minister considered what arrangements will be put in place to ensure that people can continue to access existing services during the transition period?
The five areas on which the SFGB is expected to concentrate include provision of debt advice, and provision of information and guidance relating to occupational and personal pensions, accessing defined contribution pots and retirement planning. We welcome the Government’s decision, at the urging of our colleagues in the other place, to make it explicit in the Bill that the information, guidance and advice will be impartial, and that it will continue to be provided free to members of the public.
The SFGB will also help consumers to avoid financial fraud and scams; give information on wider money matters, and co-ordinate and influence efforts to improve financial capability; and co-ordinate non-governmental financial education programmes for children and young people. It also has a strategic function: to support and co-ordinate a national strategy. Given the appointment of a Minister with responsibility for financial inclusion, that needs to be strengthened to a “develop and deliver” function.
We welcome the focus on the provision of financial education for children and young people, but we think that the Government should be bolder, as recommended by the House of Lords Financial Exclusion Committee report “Tackling financial inclusion”. The new body will have to cope against a backdrop of rising prices and stagnant wage growth, a fall in real incomes and saving levels that have crashed. Evidence provided to the Lords Select Committee referred to fears expressed by debt agencies about the rise in queries concerning rent arrears, energy and water bills, telephone bills and council tax.
Then there is the impact of universal credit. As I have mentioned on numerous occasions inside and outside the House, we support UC’s aims of simplifying the benefit system, making transitions into work easier and, fundamentally, reducing child poverty. However, the Citizens Advice report “Universal Credit and Debt” showed that some aspects of UC risk causing or exacerbating personal debt problems. UC clients are more likely to have debt problems than those on legacy benefits. A quarter of the people that Citizens Advice helped with UC needed help with debt. UC clients are also struggling to pay off their debts. More than two in five debt clients on UC have no spare income to pay creditors.
Citizens Advice makes a number of recommendations, which are particularly pertinent in the context of the Bill. They include the need for more funding for free, impartial debt advice to meet existing increases in demand resulting from UC. In addition, Citizens Advice wants the Financial Conduct Authority actively to monitor the roll-out of UC. Has the Minister considered the impact of UC on personal debt, and its implications for the resourcing of the new SFGB? Taking up the Citizens Advice recommendations would alleviate some of the problems caused by UC. Fundamentally, as I have said, the Government must stop the roll-out of the programme and reverse the cuts to UC, which mean that it is failing to make work pay and failing the very people it is meant to help.
The SFGB will have to cope with an increasingly complex pensions sector. The growth of auto-enrolment brings more and more people within the scope of occupational pensions. The other major change has been the introduction of pension freedoms. In that context, we welcome the Government’s commitment in the other place to the delivery of the pensions dashboards. However, given the increasing issues that pension scheme members face—including those of British Steel, and now Carillion —in addition to a much tougher pension regulation framework, I want the Government to tackle the appalling abuse perpetrated by opportunistic financial scammers, who have targeted BSPS and Carillion pension members. I will say more on that later.
Mr Leslie
Does my hon. Friend agree that it would be useful to have a connection between the new financial guidance body and the Financial Conduct Authority? I slightly regret the fact that we are moving away from Treasury involvement in this whole issue. My hon. Friend may know that some of the products that people are investing in with asset managers and insurers, having got their pensions freedoms, are known as PRIIPs—packaged retail and insurance-based investment products. New regulations came out this month, but there is a risk of these products opening a whole new mis-selling scandal, because they are creating all sorts of wild projections about the amounts that could be earned. Does my hon. Friend agree that the guidance body needs to keep on top of this with the FCA?
Debbie Abrahams
My hon. Friend has made an absolutely key point. To go back to my urgent question, things are slipping through the net, and those links need to be tightened up. Again, this is something we need to explore in Committee.
As it stands, the SFGB will provide advice to the self-employed on their personal finances and debts only, and not on their business finances or debts. The Money Advice Trust, which helped more than 38,000 people last year, says that, for many self-employed people, there is simply no distinction between their personal and business finances. To exclude business finances and debts from the SFGB’s remit is a missed opportunity, particularly given the significant growth we have seen in self-employment in recent years. The self-employed as a group have also seen falling incomes since the recession. Will the Minister consider extending the SFGB’s remit to cover business finances and debts?
On the changes regarding claims management companies, we agree that the current arrangements regulating the industry are unsatisfactory. The current situation has been characterised by poor value for money, information imbalances, nuisance calls and texts, and the progression of speculative and fraudulent claims. We accept the proposition that there is a public interest in having an effective claims management market operating in the interest of consumers, as that can provide access to justice for those who are unwilling or unable to bring a claim for compensation.
Further, as the Carol Brady review asserts, a well-functioning CMC market can act as a check and balance on the conduct and the complaints-handling processes of individual businesses. We note that the Brady review considered that a move to the FCA would represent a step change. That seems the right decision, especially as 99% of turnover relates to financial services—PPI, packaged bank accounts or insurance.
Let me turn now to the content of the Bill. While we generally support the Bill, there are several aspects that we will look to strengthen, particularly in relation to clauses 4, 5, 25 and 28.
Gareth Thomas
I thank my hon. Friend for giving way again. I am fortunate enough to chair the Co-operative party, and one thing we are keen to encourage is the take-up of the services offered by financial co-operatives, such as credit unions. Would she be sympathetic to an amendment on Report from Co-op MPs urging the single financial guidance body actively to promote credit union services across the country?
Debbie Abrahams
Again, my hon. Friend makes a very interesting point, and I would look to work with him on the details of that to understand exactly what he wants to achieve.
I also want to talk about the need for a duty of care on financial service providers and a breathing space for those trying to manage their debt problems.
On clause 4, we welcome the Government’s commitment to ban cold calling, which is the leading driver of pension scams. The scope of the clause is still too narrow, and the clause is not nearly urgent enough. Every day that passes without a ban, people are being avoidably conned out of their life savings.
However, there are also scams that work against businesses. In the last four years, the Association of British Travel Agents has recorded a 520% increase in gastric illness complaints. As a result, hoteliers in the markets affected are now threatening significant price increases, and some are even considering withdrawing the all-inclusive product from UK holidaymakers entirely. ABTA has recently released shocking statistics showing that one in five people have been contacted about making a compensation claim for holiday sickness, with cold calling being the most common method of approach.
On clause 5(2), within 24 hours of the collapse of Carillion last week, adverts started to appear online encouraging people to cash in their pension pots. That reflects the experience of BSPS members. The Minister will have noted the evidence to the Work and Pensions Committee, before which the extent of pensions scamming was revealed. That involved some advisers travelling hundreds of miles in the hope of capturing high fees for each pension pot they succeeded in transferring. The Select Committee described retirement savings sharks reportedly circling around the British Steel pension scheme members, providing a “honeypot for scammers”. One steelworker is reported to have missed out on £200,000 of his pension transfer value after being advised, and as I have said, we are already seeing a similar targeting of Carillion pension members.
The law does not currently prohibit firms from acting as introducers, provided that they do not stray into providing services for which they require FCA authorisation. That applies to any non-regulated firm. Last year, the FCA received 8,612 reports of potential unauthorised activity in the United Kingdom. If the firms and/or individuals reported are within the remit of the FCA, it can investigate and take action, which ranges from publishing unauthorised firms’ and individuals’ warnings and taking down websites, to taking civil court action to stop activity and freeze assets, insolvency proceedings, and, in the most serious cases, criminal prosecution. Last year, the number of enforcement cases taken was 69. Given the current climate, it is clear that enforcement action needs to increase, but most of the funds that the FCA collects from penalties on financial services firms go directly to the Treasury. What consideration has the Minister given to removing the exemption of introducers from the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, and allowing the FCA to keep the financial penalties that it receives so that it can expand its enforcement work?
Free and impartial Pension Wise guidance is essential at times like this, and it is greatly valued by those who use it, but take-up is nowhere near high enough. Far too many people are currently making vital decisions in the dark, which puts them at greater risk of suffering irrevocable financial detriment through scams or choices that are contrary to their interests, such as transferring pensions to savings accounts. Those problems will only grow as people become more reliant on income from direct contribution pensions in retirement. The existing Pension Wise promotion regime of signposting by pension providers—who have no business interest in promoting the service—and advertising has proved insufficient.
We welcome the Government’s acceptance that people should be given more encouragement to take guidance, but we believe that there should be a stronger nudge. Although clause 5(2) is welcome, we think that it can be improved through exemptions to avoid unnecessary burdens and stronger core requirements to make taking guidance a true default option. While individuals could choose not to take free and impartial guidance before accessing their pension pots, that would no longer be the consequence of passivity: as with the highly successful automatic enrolment policy, people would have to actively opt out. Default guidance would promote shopping around, better-informed decision making and protection against scams. Combined with a ban on cold calling, it would represent a step forward in consumer protection in an era of pension freedoms. Will the Minister agree to introduce new provisions in Committee to impose an immediate ban on cold calling and to introduce default guidance to assist people accessing or seeking to transfer their pension assets, with strong penalties for advisers who wilfully and detrimentally scam pension members?
Clause 25 gives the FCA the power to impose a cap on the fees that claims management companies can charge for their services, and a duty to exercise that power in respect of financial services firms. The Government have also introduced an interim cap on the fees that CMCs can charge consumers in relation to payment protection insurance claims. However, that does not go far enough to protect consumers from paying disproportionately high fees for what is often very little work. The Ministry of Justice estimates that the average amount of commission charged to consumers by CMCs is 28%, plus VAT. The FCA estimates that the average payout for PPI mis-selling is around £1,700, which means that a CMC would, on average, charge a successful claimant £476 plus VAT. Although the proposed fee cap would reduce the amount that consumers must pay CMCs, it would still mean an average charge of £340 with VAT on top. If the Government want to take meaningful action to protect consumers from high fees, they should propose a solution that would allow them to keep 100% of PPI compensation.
The Government should require firms to pay CMC costs for PPI claims, capped at 20% plus VAT, when they are at fault and when the consumer has used a CMC rather than claimed directly. This measure would apply only for the interim period until the new FCA regulations came into force or until August 2019, the deadline for making PPI claims, whichever was the sooner. This would incentivise firms still paying compensation to proactively reach out and encourage consumers to make claims directly to them, and to allow that to be done easily. It would also protect consumers from paying high charges to CMCs.
We support the strengthening of the regulation of CMCs, but we look forward to a regulatory regime that better protects consumers from high charges, poor value for money and unacceptable behaviour on the part of far too many CMCs. We also welcome the improvements made during consideration of part 2 in the other place, notably clause 28, which introduces an interim cap on the fees that CMCs and law firms can charge for claims in respect of PPI. This is an important protection for consumers in the run-up to the FCA’s claims deadline of August 2019. Customers can claim directly from their PPI provider for free, but those who choose to enlist support should not have to face the fees currently being charged by some CMCs.
However, the clauses introduced by the Government at the urging of Baroness Meacher apply only to PPI claims, even though the Ministry of Justice’s original consultation considered other bulk claims by CMCs, notably in respect of packaged bank accounts. In the vast majority of cases, the pursuit of such claims does not require a significant amount of work, but in its response to the consultation, the MOJ merely asserted that
“analysis of the evidence received”
suggested that
“PBA claims should be grouped with other financial-services claims due to additional work needed on these types of claims.”
It is far from clear that CMCs undertake significant work or add significant value in submitting PBA claims on behalf of consumers. If the CMCs’ approach to PBA claims truly differs little, if at all, from their approach to PPI claims, the Bill should cap their charges in exactly the same way. If the Government cannot provide justification or act to protect customers from millions of pounds of excess charges for PBA claims before the FCA introduces its own rules a year or more from now, we will table amendments in Committee to achieve that. We ask the Government for a better justification of their decision not to apply the interim fee cap to PBA claims.
I shall move on to the breathing space scheme. An estimated 2.4 million children live in families in problem debt in England and Wales, and the FCA estimates that half the UK population is financially vulnerable. It is shocking that an estimated 600,000 families in England and Wales are spending more on overdue bills than they spend on food. A measure that would protect such families is a breathing space scheme. Such a proposal would introduce a legal freeze on interest and charges, collections and enforcement action to give people time and space to stabilise their finances and put in place an affordable and repayment-sustainable plan. Such a scheme, which has been championed by the Children’s Society, StepChange Debt Charity and many others, was included in our manifesto and that of the Conservatives, and I am delighted to see that, following pressure in the other place, a commitment is now on the face of the Bill. Yet again, however, the timescales for implementation are too slow.
I appreciate that the consultation on the breathing space scheme has now closed, but I want it to have certain fundamental tenets. First, it should include a legal freeze on interest and charges, collections and enforcement action. Secondly, as many debts as possible need to be included, especially debts to public bodies. Thirdly, there should be no gaps in protection between the initial breathing space period and the transition to a statutory debt management plan. Finally, the breathing space scheme needs to be implemented as quickly as possible. Again, I would be grateful for the Minister’s response to those points, either at the end of the debate or in writing to me.
I would now like to focus on an idea that received a great deal of support in the other place and that has been raised by Members here today—namely, a duty of care on financial service providers. That is not currently in the Bill, but we now have an important opportunity to discuss the support that banks provide to their vulnerable customers. Research from Macmillan Cancer Support, which was mentioned earlier, shows that four out of five people with cancer are affected financially by increased costs and loss of income following their diagnosis. As the Bill recognises, ensuring that people have access to the right help and advice is essential to stopping financial problems.
Justin Tomlinson (North Swindon) (Con)
On that point, will the hon. Lady join me in congratulating Nationwide Building Society, which has led the way by working with Macmillan to ensure that appropriate support is made available as soon as there is a diagnosis?
Debbie Abrahams
I congratulate Nationwide and all organisations that recognise that they have a duty of care to their customers. We need to put that duty of care on the face of the Bill, particularly for those who find themselves in vulnerable circumstances.
As providers of mortgages and other key financial commitments, banks and building societies have a huge influence—good or bad—on the financial wellbeing of many households. When the right support is put in place, that can lead to improved outcomes for customers, as we have just heard. However, that Macmillan research shows that problems still exist and that there is a lack of consistency in the support offered to people when they seek help.
With that in mind, will the Government support a revision of legislation to incorporate the recommendation made by the Lords Financial Exclusion Committee regarding a duty of care? The Committee concluded that the Government should amend the Financial Services and Markets Act 2000 to introduce a requirement for the FCA to make rules setting out a reasonable duty of care for financial services providers. I appreciate that any change as significant as that must be subject to proper consideration, and it is therefore welcome that the FCA has committed to publishing a discussion paper. However, the Government and the FCA have said this must wait until
“after the UK’s withdrawal from the EU”
becomes clear, but I do not think that we can wait, because people cannot wait. I therefore urge the Minister to look carefully at the issue and to bring forward suitable proposals in Committee.
In conclusion, we by and large support the Bill, but a number of areas can be strengthened significantly—for instance, the duty of care needs to be addressed on the face of the Bill—so I urge the Minister to act on those areas, and I look forward to his response.
Several hon. Members rose—
Mr Deputy Speaker (Sir Lindsay Hoyle)
Order. Before I call the next speaker, I want to suggest an informal time limit of between 10 and 12 minutes.
Chris Philp (Croydon South) (Con)
I will try to do a great deal better than 10 minutes to 12 minutes, Mr Deputy Speaker. It is a great pleasure to follow the thoughtful speech of the hon. Member for Oldham East and Saddleworth (Debbie Abrahams). I welcome the Bill and will of course be delighted to support it later on this evening, and I want to talk about part 2 and claims management companies.
The reason why I have taken an interest in claim management companies is that my wife and I were involved in a minor road traffic accident on the M5 a few years ago, while heading to Cornwall for a family holiday. For a year or so following that minor bump, I was plagued with calls to my mobile phone on an almost weekly basis by a claims management company. Goodness knows how it got my number. In each call, it essentially tried to persuade me to submit a fraudulent claim for whiplash. No matter how persistently I told the caller that my family and I suffered absolutely no injury and that we did not have even the slightest ache or pain, they would say, “Well, if you just tell us that your neck hurts a bit, we will get you £3,000.” They were extremely persistent, and I can imagine that if somebody was a bit short of cash, they might succumb to that kind of blandishment. I therefore made the topic something that I wanted to get involved in after being elected, and I have raised it several times in Westminster Hall and am delighted to be able to raise it again today.
The number of whiplash or soft tissue injury claims following minor road traffic accidents has increased by an astonishing 50% over the past few years. At the same time, the number of road traffic accidents has gone down by 30%, so the number of accidents that lead to a claim has increased stratospherically. If we compare the number of claims in this country with those in an equivalent European country, such as France or Germany, there are far more claims here than elsewhere in Europe.
As the hon. Member for Oldham East and Saddleworth mentioned, a similar phenomenon has recently started in relation to claims for gastric illness—tummy upsets—on holiday. I remind the House of my declaration in the Register of Members’ Financial Interests of a shareholding in a small holiday business, although not one that has had a significant problem in this area.
Since 2013, there has been a 568% increase in claims for tummy upsets on holiday. There have been some notorious cases, such as that of Deborah Briton and Paul Roberts, who a short time ago were respectively sentenced to nine months and 15 months in prison by Liverpool Crown court having rather foolishly tweeted and posted on Facebook about how wonderful their holiday was before trying to claim, at the behest of some claims management company, that the holiday had been ruined by gastric illness.
Such cases, in which claims management companies have incited the public essentially to commit fraud, are becoming all too common. My objection to the activities of such claims management companies is twofold. First, they are inciting otherwise law-abiding members of the public to commit fraud, which is clearly a morally corrosive phenomenon. Secondly, of course, the cost of all these compensation payments is ultimately borne by drivers through higher insurance premiums—some people estimate the total cost of that at an extra £2.5 billion—or by consumers through higher holiday costs.
It is consumers—our constituents—who end up bearing the cost of such activities, so I am pleased that the Bill will begin to take steps to sort it out. Why does this happen? It happens because there are enormous financial incentives for claims management companies to operate in this way, particularly due to the concept of one-way cost shifting whereby, unusually, even if the defendant—the holiday company or the car insurance company—successfully defends a case, it none the less has to pay the claimant’s legal costs. The legal costs for a fully contested case often run up to £10,000 or more, whereas settling a case often costs only £3,000 or £4,000, so the insurer or the holiday company sadly has a financial incentive to settle and the claims management company, knowing that, simply has to process the paperwork to collect very high fees.
Claims management companies are responding to a financial incentive that the current system has unfortunately created. The number of claims management companies mushroomed from 500 in 2006 to 3,300 in 2011. I am pleased to say that measures already taken have reduced the figure to 1,500, but that is still far too high and there is definitely more we need to do.
I welcome the fact that the Bill will transfer oversight responsibilities to the Financial Conduct Authority, and I certainly welcome the introduction of fee caps for claims management companies. We must be careful to draft those regulations to ensure that claims management companies cannot circumvent the cap. The cap refers to 20% or 25% of net recovery, and we need to ensure claims management companies cannot somehow extract any portion of the recovery by way of fixed charges levied upfront. We have to be careful about the detail of the wording because these companies are adept at circumventing Government attempts to restrict their activities.
Stephen Kerr (Stirling) (Con)
My hon. Friend is making a powerful speech on an important issue. He will understand how much Scottish Conservative Members support the Bill because, until now, in Scotland there has been no protection whatever for consumers in the face of this onslaught by claims management companies.
Chris Philp
I am shocked to learn that the Scottish Government have been so slow to take action when the Westminster Government have been so quick.
Neil Gray (Airdrie and Shotts) (SNP)
The hon. Gentleman will understand that this is a reserved matter, so the Scottish Government have no locus to act.
Chris Philp
I notice that my hon. Friend takes a different view from the hon. Member for Airdrie and Shotts (Neil Gray), and no doubt he will elaborate on that point if he speaks later in the debate.
Vicky Ford
I thank my hon. Friend for making this powerful speech. In addition to raising the cost of insurance for everybody else and encouraging people to commit fraud, does he agree that cold calling can often cause huge distress to the person on the other end of the phone, who is constantly reminded about an accident that they might wish to forget?
Chris Philp
My hon. Friend makes a good point. I consider myself a fairly robust individual, but the constant pestering by those companies was distressing, and if somebody is vulnerable in any way, I can imagine that it would be very distressing indeed.
That leads me to my next point in relation to the cold call ban contemplated under clause 4. I strongly welcome the clause’s inclusion, but its structure invites the new single regulatory authority to make a recommendation to the Secretary of State, who then, by regulation, has power to act. Given the pressing nature of the problem, will the Secretary of State consider a more direct route—that is, the Secretary of State having the power to ban cold calling in this area immediately, without needing to wait for a referral by the new regulatory authority? I see that the Secretary of State is listening to the point. I hope she will consider it, as Members on both sides of the House might welcome such an amendment as consideration of the Bill progresses.
There are other things that we need to do that are probably beyond the scope of the Bill but important none the less. In particular, the Government are consulting on the civil procedure rules and bringing overseas claims—holiday claims—within the scope of the fixed fee schedule. That would be an extremely welcome move, and I encourage the Ministry of Justice to expedite its response to that consultation, which is welcome.
In 2017, I had the pleasure of serving on the Committee that considered the Prisons and Courts Bill—I see the Minister recalls that—whose work was unfortunately interrupted by the general election. I believe that the Government plan to introduce a civil liability Bill in due course. Again, I encourage them to introduce that Bill as quickly as possible, because many important measures could be included in it that would assist in dealing with the problems to which I have referred, not least raising the threshold for the small claims track to £5,000, considering a ban on general damages in relation to low-value injuries and ensuring that the medical evidence standard for these various claims is made a little higher—for example, requiring someone actually to see an independent doctor face to face. The civil liabilities Bill could do a range of things once introduced.
Not wishing to stretch the elastic of your guidelines, Mr Deputy Speaker, I conclude by saying that this is a welcome Bill that will do a great deal to strengthen consumer protections. It is a great pleasure to speak in support of it on Second Reading.
Neil Gray (Airdrie and Shotts) (SNP)
May I say on behalf of those on the Scottish National party Benches what a pleasure it is to see you back in the Chair where you belong, Mr Deputy Speaker? Welcome back.
I am pleased to have the opportunity to speak for the SNP in this debate, and I should say at the outset that we broadly welcome the Bill’s aims and will not oppose its Second Reading.
By way of background and context, I should say that the Bill sets out in part 1 the proposal to merge three Government-sponsored guidance services—the Money Advice Service, the Pensions Advisory Service and Pension Wise—to create a new single financial guidance body. The UK Government hope that this will help to
“ensure that members of the public can access good-quality, free-to-client, impartial financial guidance and debt advice.”
The SFGB is expected to be set up and operational from late 2018, as predicted during the passage of the Bill through the House of Lords.
Part 2 will make changes to the regulation of claims management companies. CMCs provide advice and services to assist people in making compensation claims in various sectors, such as personal injury and financial products such as payment protection insurance.
The Government have expressed concern that
“there is evidence of malpractice”
in the industry. In March 2016, following an independent review, the Government said that they would change the regulatory system for CMCs. Under the Bill, the regulatory responsibility will pass from the Ministry of Justice to the Financial Conduct Authority.
Also under part 2, complaints handling will be transferred from the legal ombudsman to the Financial Ombudsman Service, and the FCA will be given the power to impose a cap on the fees that CMCs can charge for their services. Ahead of that, an interim cap on fees will apply to payment protection insurance claims.
The Bill also makes provision for the devolution of levy funding associated with debt advice provision. Powers over debt advice are, of course, already devolved to Scotland. I shall elaborate on all those elements during my speech.
On advice services, we welcome any measures that make the pensions or financial markets more accessible for people. There are aspects that we wish to query, and we hope to get some reassurances from the Minister in his response. First, I would like some detailed reassurances from the Minister that the amalgamation of three expert services into one will not dilute the overall service in any way, in terms of either output or quality. The Minister is shaking his head, but I hope he can provide some detailed reassurance as to how the Government will make sure of that. Whenever there is a merger of this sort, it normally results in a reduction of either specialism or capacity. I hope that he can assure us all that neither will happen. I also hope he will commit to significant investment in the new body to ensure that it is properly promoted and that awareness is therefore increased. Government and Opposition Members have already stressed the importance of that.
We need reassurances on funding. It appears that all funding discretion currently rests with the Treasury, so who will take the decision on the budget of the new single body? Who will be able to challenge the Treasury on any additional funding? It is clear that for the new body to work, it needs to be properly resourced by both the financial sector and the Government. I ask because we all—not least the Government, I am sure—hope that the Bill will do some of the work necessary to catch up on some of the problems with pension freedoms that we all warned about and that are now starting to happen.
According the FCA, more than a million defined-contribution pension pots have been accessed since George Osborne’s reforms were introduced. The FCA also says that it has become the new norm to access pension pots early. That is where our concern starts. Between October 2015 and September 2016, the number of non-advised drawdown sales was on the rise, and it is currently at 30% of drawdown sales, compared with 5% before the reforms. Some 63%—almost two thirds—of all annuity sales are now to consumers who have not received advice. Indeed, the FCA estimates that only around 20% of consumers who accessed a DC pension in the third quarter of 2016 had a Pension Wise appointment either by telephone or face to face. That is a huge concern that I am sure the Government share. Indeed, I know that it now concerns them, because they are trying to play catch-up on the issues with pension freedoms that we warned about when they were being introduced. I am not sure that the Bill adequately addresses those issues yet.
I am not sure that the Bill addresses those customers who do not make a decision upon retirement. We are seeing more people choosing just to draw down the pot and put it in the bank. With interest and inflation rates as they are, those decisions are clearly losing people money. But people are doing it because that is what they know and are comfortable with. Even to seek pensions advice or guidance is a daunting, complex and alien prospect to most people. I am keen to hear from the Minister about not only his expectation for increased usage of the new service, but how the Government plan to ensure that the service engages people who are put off talking about pensions at all. That will probably need to start with what they plan to call the organisation, because the “single financial guidance body” probably is not the most intriguing, approachable or marketable name.
I want a firm commitment from the UK Government that they will not in any way attempt in Committee to water down the amendment to clause 5, secured by the Opposition in the Lords, that requires scheme managers or trustees to check whether members have received any guidance. In fact, I wonder whether the Government wish to go a little further towards what some stakeholders feel might be more appropriate, which is automatic guidance with an opt-out system.
When most people are near retirement, they will encounter the pensions world and its lexicology and products for the first time. It is intimidating, which is why we see some people using pension freedoms to bung their pots in the bank. For them to get the most out of their investments, we need to make sure that people are properly guided to make not only a decision, but an informed decision that is of benefit to them. It is a high-stakes game: once an annuity is purchased, that is it—it cannot be reversed. We need to ensure that people have the confidence to take a decision, and that comes from being informed that taking no decision and hoarding cash may not be the best decision and that there is specialist help out there and it does not have to cost.
The Government also tabled a useful amendment to clause 2 in the Lords, which seeks to ensure that cognisance is taken of the needs of people in vulnerable circumstances. Perhaps that could be strengthened and clarified by including it in the clause 3 functions.
I would also appreciate it if we had a word from the Minister as to whether the UK Government plan to provide greater clarification on what guidance and paid-for advice will be in terms of the Bill. Providers and other stakeholders will appreciate that clarification.
Part 1 also covers action on cold calling. Clearly, we are delighted that the campaigning efforts on cold calling by the Scottish National party, the Scottish Government and my hon. Friend the Member for North Ayrshire and Arran (Patricia Gibson) have started to pay off. I congratulate her on this partial win, which should hopefully make a difference to people, particularly pensioners, getting bombarded by nuisance calls. Recent research from the Money Advice Service suggests that there could be as many as eight scam calls every second—the equivalent of 250 million calls a year. Citizens Advice has calculated that 10.9 million consumers have received unsolicited contact about pensions alone since April 2015. Perhaps the UK Government may wish to use the opportunity in clause 4 to go a bit further on cold calling and hold company bosses accountable, as suggested by my hon. Friend in her Bill 18 months ago.
Clause 9 appears to afford a lot of power to the Secretary of State to direct the exercise of the functions of the new body, stating that it must
“comply with directions given to it by the Secretary of State”.
I hope that the Minister will explain why the UK Government feel that that is a necessary provision and how it will not be abused.
On debt, I want to query something that the Secretary of State said at the Dispatch Box in her opening speech. If I picked her up correctly, I think she said that household debt was falling. If that is the case, I am sure that she would want to correct the record because, clearly, household debt is not falling. Standard & Poor’s came out with very important research at the back end of last year about its concern regarding UK rates of household debt. Perhaps that could be clarified in time either by the Minister or the Secretary of State.
Ronnie Cowan (Inverclyde) (SNP)
Very briefly, on the subject of clarification, does my hon. Friend agree that, under devolution legislation, financial and economic matters—fiscal, economic and monetary matters, including financial services—are specific reservations held here at Westminster?
Neil Gray
That clears up an earlier point of issue in a previous speech regarding where responsibility lies for the regulation in these areas. I thank my hon. Friend for his intervention. We are pleased that the Scottish Government have secured an improved allocation in terms of the proposed funding formula for devolved levy funding for debt advice provision. That improved allocation will ensure that Scotland’s share takes account of our adult population share and the levels of indebtedness in Scotland. As a result of those discussions, Scottish Government levy funding will increase from around £2.2 million to more than £4.7 million, according to estimates from the Scottish Government.
The Scottish Government have also obtained agreement on certain wider principles that shall apply in respect of the new body, in that it must take greater account of differences in the money and debt advice landscape in Scotland to ensure that available resources are pooled effectively, delivering a more holistic and joined-up advice landscape. It must also establish a committee with membership drawn from representatives from each of the devolved Administrations, thereby embedding the Scottish Government in its governance arrangements, providing the Scottish Government with influence and ensuring that collaborative working is achieved in practice across money and pensions guidance. It must also be capable of channelling funding in a way that best ensures effective oversight and co-ordination or delivery of debt advice, in the light of the devolution of levy funding.
Keith Brown MSP, the Cabinet Secretary for the Economy, Jobs and Fair Work, has met the chief executive and Scotland manager of the Money Advice Service as part of a series of Scottish Government stakeholder engagements, which are intended to help to ensure that there is a seamless transfer of debt advice responsibilities to the Scottish Government, and that the new body engages effectively and delivers for Scottish consumers from the outset.
I am grateful to StepChange for its briefing and for its questions to the Minister: will the Government agree on the importance of a certain implementation timeframe to ensure that organisations can plan and develop the relevant systems to deliver the breathing space scheme; will they consider amending the Bill to commit to a clearer target implementation date, for instance to have regulations in place by the end of 2019 so that the scheme can be launched by 2020; will they confirm their manifesto promise and commit to introducing statutory repayment plans as part of the proposed breathing space scheme; do they agree that the initial period of breathing space protection needs to be long enough for people to gain acceptance for a long-term solution to their debts; and will they consider allowing a regulated debt adviser to extend the initial protection where necessary?
Does the Minister agree that the breathing space scheme should cover all a person’s debts, including—this point has already been made—debts owed to the public sector? Does he agree that it would be unhelpful to the scheme’s success to have creditors outside the scheme undermining people’s ability to stabilise their finances? Could he also please clarify what powers will be conveyed under clause 21(7), which allows the Secretary of State to amend any provision made by an Act of Parliament, an Act of the Scottish Parliament, a Measure or Act of the National Assembly for Wales, or legislation of the Northern Ireland Assembly? That seems rather far reaching to me, so I would appreciate some guidance on the reasoning behind that provision.
With regard to part 2 of the Bill, which relates to claims management companies, I hope that the Minister can answer some queries and reassure us. Lloyds Banking Group has highlighted that, although a cap on the fees that CMCs can charge consumers on PPI claims is welcome, CMCs are bringing other types of claims on behalf of consumers that potentially require strengthened regulation—packaged bank accounts, for example, which are current accounts that come with a package of extra features, from mobile phone and travel insurance to better rates on overdrafts and loans. Have the Government looked widely at the claims being brought by CMCs, and can they provide an assurance that customers are not potentially being exploited through exorbitant fees for other types of claims?
I am also concerned that the Financial Conduct Authority should take ownership of this from the Ministry of Justice as quickly as possible, to ensure that people are not exploited in between times. We must bear in mind that, with a deadline for PPI claims set in the next 18 months, CMCs will be rather busy trying to muster business in that period. We want to ensure that we can protect vulnerable people as much as possible.
In conclusion, the Bill has the right intentions and moves us in the right direction. I have posed a number of questions, and if the Minister is unable to answer them directly this evening, I hope that he will follow them up in writing in plenty of time before the Bill goes into Committee. I am grateful to Just, the People’s Pension, Lloyds Banking Group, StepChange and others for their briefings for today’s debate. I look forward to maintaining close and constructive engagement with the Bill as it progresses to ensure that it guarantees consumer rights, offers proper support for those needing advice and protects people from those seeking to exploit them.
Michelle Donelan (Chippenham) (Con)
I am delighted to have this opportunity to speak in today’s debate. I am particularly passionate about the need to provide more support to help people out of debt, to give them that lifting hand. For that reason, I shall focus on part 1 of the Bill.
Debt creates a vicious cycle that leaves people unable to pay the bills and pushes them further into debt. It soon becomes a fast-moving, downward spiral that can leave people feeling isolated, alone and trapped, and it can create and exacerbate mental health problems, leading to family breakdown and even suicide. Like all hon. Members, I have heard constituents tell harrowing stories of how they ended up feeling that they could not get out of the situation they were in—stories that started with a small amount of debt that grew out of control. There is a strong relationship between debt and mental health, as a number of studies have shown, including a recent one from the University of Southampton. Debt is serious, complex and challenging in so many ways, which is why it requires a robust and comprehensive approach.
As has been discussed, the Bill creates a new, single financial guidance body that will replace the three existing public financial guidance providers. I echo the strong support that stakeholders have expressed for establishing a single body. It will improve access to free and impartial money guidance, pensions guidance and debt advice, enabling people to make informed decisions about their finances by offering a more co-ordinated and strategic approach. Most importantly, it will simplify the help on offer to people, because the current situation can be very confusing. For the first time, it will provide a statutory requirement to target help towards those most in need, particularly those in the most vulnerable circumstances. It will also remove the duplication of services and identify gaps in provision.
The levels of secured and unsecured debt in the UK are a problem. In the past few decades those levels have increased with the rise of the credit card and payday loan era. Debt is easy to access and easy to accrue. At quarter 3 in 2017, the total level of household debt in the UK was a staggering £1.9 trillion, according to the Office for National Statistics. As we heard in the House of Lords, part 1 will ensure
“that people have access to the information and guidance they need to make the important and effective financial decisions that we all have to make at some point in our lives.”—[Official Report, House of Lords, 7 July 2017; Vol. 783, c. 904.]
What is important, though, is implementation, so that people know that they have access to this free and impartial help and how to get it. Proactive promotion is key. I have met far too many constituents who are unsure of where to turn to and how to access the help that they need. The Bill seeks to rectify this, but it is important that there is proactive promotion. I would like to hear more from the Minister about the plans for that.
This includes starting financial education early, at school age. I was delighted when, in 2014, for the first time, the Government made financial literacy statutory as part of the curriculum for 11 to 16-year-olds. I am equally delighted that clause 2 outlines a key function of the SFGB as being to improve the provision of financial education for children and young people.
Justin Tomlinson
At the time, I was chair of the all-party parliamentary group on financial education for young people, and I was very grateful for my hon. Friend’s support in that campaign. I echo her comments. We live in a very complex society, with direct debits, standing orders and complicated marketing messages coming forward. Making sure that we equip people of all ages to make informed decisions is an absolute priority.
Michelle Donelan
I thank my hon. Friend for his intervention. I completely agree with his comments and commend him for the work that he did in this area.
After all, debt is more prominent among young people, with 71% of 25 to 34-year-olds having a credit card compared with only 20% of those aged 65 and over. It is time for this Bill, because the ease and availability of credit, over-lending, and the attendant consequences of problem debt are stark.
On Third Reading in the Lords, the Government amended the Bill to enable the introduction of a debt respite scheme in England, Wales and Northern Ireland. This was in the Conservative party manifesto, and it is crucial. It will offer breathing space to people who are trapped in debt—a ladder out of the hole they are stuck in—by stopping further interest, charges and enforcement action for a set period, and enabling a realistic repayment plan to be put in place. Budgeting advice is all well and good, but if the levels of interest and charges are compounding to an extent that people do not have the money to budget with, it is simply useless. That is why the debt respite scheme is so essential. It is crucial that it is offered and promoted effectively to help people in need.
This does, though, pose the question of how long the respite scheme would last for, which will be in the Secretary of State’s power. Charities in the sector are urging a six-month period. It is important that it is a meaningful amount of time that will allow people enough time to address their debt problems and get achievable plans in place. It is in everyone’s interests that it is not a mere six-week period. In fact, StepChange, the debt charity, says that its clients usually take six to 12 months to stabilise their finances. The debt respite scheme will particularly help families. One in five parents say that they have had problems in the past year with problem debt, whereas in Scotland, where there is already a respite scheme, only 10.9% of families said the same thing.
I believe that our role as parliamentarians is to open doors and create opportunities. However, opportunities are useless if people are unable to access them. The debt respite scheme will offer people the helping hand that they need to seize those opportunities and the help that will be available from the Bill. In addition, we need the current system to work with the Bill, actively referring people and taking a more proactive approach to debt.
Universal credit streamlines benefits, which can assist with debt management and making work pay, but we are still offering and giving budgeting loans to those in considerable debt. More work needs to be done to identify and to help people with chronic and severe debt problems. I would like a debt review to be done when people make applications for budgeting loans. This is similar to what StepChange does when it reviews how to help a person. If the applicant has severe problems with debt, they can be referred and given the help, information and advice they need, as well as offered the debt respite scheme, with an achievable repayment plan.
It is irresponsible to add to such people’s debt in the way we currently do, so I urge the Minister to consider the matter in the context of debt support and management, especially given the disproportionate link between debt and unemployment. I have seen far too many constituents crippled by debt and then given a budgeting loan on top, which eats into the amount of universal credit that they have to manage with. Such people do not come forward and offer information about their debt for fear of stigma, fear of losing benefits and concerns about the legitimacy of having so many bank overdrafts and credit card debts. They therefore do not get the help they need and, instead, we give them a budgeting loan, which further compounds their problems. Budgeting loans are an excellent way to help many people with short-term finance issues and start-up costs, but they are not right for those already swimming in debt, who are often the most vulnerable. Those are the people the Bill is designed to help.
In conclusion, debt is arguably the biggest challenge to social mobility in this country and it is time we had a more proactive response in giving support. That is why I support the Bill. It is in the interests of all of us to address debt: this is not just a personal problem, but a national one. In fact, StepChange estimates that the cost to the state and society of problem debt, on top of the personal cost, is about £8 million. Although I applaud the Government for the Bill and their appreciation of the need to tackle debt, I also ask for a much more proactive approach to its implementation to ensure that the Bill is as effective as it can be.
Yvonne Fovargue (Makerfield) (Lab)
It is a pleasure to follow the hon. Member for Chippenham (Michelle Donelan). Unsurprisingly, I will talk about debt later.
I welcome the thrust of the Bill. Consolidating the three bodies into one makes sense, but the new one must be well run. It may be a little churlish, but I would point out that the Money Advice Service has rightly been criticised over the years, not least in this place, for its attempts to duplicate the work undertaken by more experienced agencies that are better known to the public. It has spent an inordinate amount on a fancy website and on television adverts—£26 million in one year—which did little to raise its profile. After all, who apart from me remembers, “What would MA say?” in its adverts? I remember that only because I used to swear at the television when they came on.
The new body has to be leaner. The thrust of its role must be to facilitate the work of others. That is where the money should go: not on promoting itself—not on fancy adverts—but on facilitating the work of others that already have brand recognition. Frontline delivery should be key, and it should not duplicate existing services, but focus on filling the gaps using existing high-quality not-for-profit providers.
I am a little alarmed that the recent contract round included for-profit providers. I worked at a debt advice charity when A4E got contracts, and I remember what a disaster it was during those contracts. Given the recent privatisation of Carillion and the problems it has had, perhaps we should focus on not-for-profit agencies that have existed for a very long time. In fact, the 80th anniversary of Citizens Advice is coming up shortly. It has existed for over 70 years with very little funding, so it—we—can manage money.
Clause 3(10) makes it clear that the new body needs to “work with others” in carrying out its strategic function. I interpret this as meaning that it should take a collaborative approach, and I hope that that will be the case. Any standards put in place should be designed in conjunction with the relevant providers and other bodies, and designed around people’s needs—those of the people who use the service and of the people who deliver it—and what works in practice. I must say that quantity does not always equal quality and good outcomes for people using the service.
There should be different channels with different funding. People may sometimes want to start on one channel and move to another. Face-to-face access can be more important, but people sometimes need an initial contact. As I always say, it used to be a black joke in the citizens advice bureau where I worked that if someone walked in with a carrier bag with unopened bills, we would say, “Aha! That’s a debt client.” If such people cannot even open their bills, they are not going to go online.
The object of the single financial guidance body is to ensure that the public have access to good-quality, free and impartial financial guidance, pension advice and debt advice. That aim is fine, but if the new body is to work well, we must ensure that its objectives and functions are clear and comprehensive; that the governance and oversight structure, under the Department to which it is responsible, is robust; and that it does not stray into trying to raise awareness of itself and conduct its own research. I want the body to have a laser-like focus on commissioning high-quality, independent services that will help more people to avoid financial difficulty and debt.
Improvements were made in the Lords to the Bill as originally drafted, and I welcome them. For example, the consumer protection function is really vital, and I hope that the Government will not to remove the provision when the Bill goes into Committee. The same goes for cold calling. That amendment gives the new body the power to advise the Secretary of State to ban cold calling for pensions.
We have heard enough on both sides of the House to be able to say that such a ban should apply across the board. There is a strength of feeling in favour of saying that cold calling is not helping consumers or anyone else. I get cold calls asking whether I have had an accident, but I have not had an accident in my car—touch wood—for 25 years. When I had such a call last week, I got the name of the company and its telephone number, and I reported it to the Telephone Preference Service, but the TPS still could not find the company—it was a shell company—and that is not good enough.
To be fair, the Minister in the other place did listen, and on Third Reading the Government introduced their own amendment to add the objective that the new body should bear in mind
“the needs of people in vulnerable circumstances”.
That is a real move forward, but it would be good to link this more explicitly with the promotion of financial inclusion, and it is a real shame that that was missed. It is a real boon to have Ministers with responsibility for financial inclusion—they are a bit like buses: we wait for one, and then two come along at once—but there is a worry that something may fall through the cracks. I believe that the Lords Financial Exclusion Committee, which looked at this issue, was right to say that there should be a financial inclusion Minister who works across the board. How many Departments have been mentioned already today? We have heard about BEIS, DCMS, the Treasury, the DWP and the Ministry of Justice. We need somebody who can look at this across all Departments and have a proper financial inclusion strategy.
The Parliamentary Under-Secretary of State for Work and Pensions (Guy Opperman)
I merely make the point that my hon. Friend the Economic Secretary to the Treasury and I will be hosting the financial inclusion policy forum together. Surely the whole purpose of the response to the Financial Exclusion Committee’s report was to ensure joined-up Government by the two principal Departments holding other Departments’ feet to the fire, and I assure the hon. Lady that that is what we intend most fully to do.
Yvonne Fovargue
I am very pleased to hear that, but I think financial inclusion is so important on so many levels that it needs a Cabinet position, and having one Minister responsible for it would be really helpful.
I am pleased to hear about the breathing space, for which there is cross-party support. It is long overdue, and we need to ensure that it is up and running as soon as possible. We should not really wait for the creation of the financial guidance body as is proposed in the Bill, because that will be at an uncertain date and we need a timeframe now. After all, six in 10 people, while they are waiting for advice, take out more credit while they are not protected and are being chased by creditors, because it is very easy to promise something to the last person who rings them or knocks on the door.
We have to get the scheme details right, as has been said. It should not just act as a moratorium or a freeze. It should introduce a statutory repayment plan so that debtors are protected while they repay their debts, and the period needs to be long enough for the debt solution to be put in place after seeking advice. Six weeks is not long enough. Frankly, when somebody brings in all their debts, they often forget one. When people write to creditors, some reply immediately while others delay, thinking, “If we don’t bother, we can put a bit of pressure on.” Then the person finds another debt that they had forgotten about, so they have to write again and do another financial statement. Six months is the minimum amount of time to get everything back and to work out a proper financial statement that covers all creditors. Twelve months is probably reasonable, but there should be a minimum period and an option to extend. It should be a reward for those people who are doing the right thing and seeking debt advice.
The scheme needs to include all debt, including that owed to central and local government, which have the worst record on forbearance. In fact, the utility companies, which are often derided, are often better. On council tax arrears, bailiffs are called in far too early and far too often.
It is crucial that the Government get it right when replacing the Money Advice Service. Getting effective financial guidance to people early is key to improving household finances and economic security. We need a body that recognises that people often need help before they reach crisis point. Moreover, once they reach that crisis point, they need to be able to access debt advice quickly, and they need to go to the right body. It is after they have sought debt advice and have a financial statement that they will focus on budgeting for the future, so let us give them guidance after they have had debt advice, because that is when they will concentrate on household bills and what they will do in the future.
The scheme also has to recognise that it does not take a lot to push those on low income into financial difficulty and a spiral of debt. It only takes an income shock. It does not always have to be a big thing such as divorce, job loss or bereavement. It is often something simple such as the washing machine breaking down or expensive repairs to the car they need to get to work. A little resilience and savings would help to address such issues. I want a scheme that helps people save, and the new body could play its part in that. Yes, there is the savings gateway, but, frankly, that expects people to design their lives around the savings scheme, which will not work. People on a low income regularly have small income shocks and saving every month is not always feasible.
I am keen on the work of the Behavioural Insights Team and the interesting developments it has seen on how to save. For example, some supermarket bills say, “You have saved £2 by using this supermarket”, and that money could be put into a savings scheme. People have to be able to say, “This week I cannot or can afford to save.” A regular amount is not really possible in today’s climate.
The Bill has been improved in the Lords and I hope that it can be further improved in this place, to produce a Bill that makes a real difference to people—not just those on a low income, but anyone who receives an income shock, is having problems managing their finances or needs a bit of help budgeting. Financial education in schools is really important. It is important that we teach children how to deal with their finances, but when the washing machine breaks down, speed trumps any form of lessons, interest rates and so on, and that is why the companies say—we have seen the adverts—“I can get the money to you tomorrow.”
Ben Bradley (Mansfield) (Con)
It is a pleasure to follow the heartfelt advice of the hon. Member for Makerfield (Yvonne Fovargue). It is clear that the world of personal finance can be hard to navigate. Without consolidated guidance, anybody could run into difficulties. That is why I welcome the Bill and the certainty it will provide, replacing a complex array of support services for different areas with a simple process for seeking advice.
There have long been calls to consolidate the financial advice services currently available in the UK, and I regularly signpost constituents to those organisations. The problem, however, is that constituents’ problems are rarely simple, and an individual experiencing financial hardship because of issues with their pension may benefit from more holistic financial advice. A single and well-publicised point of access for financial advice would certainly be of huge benefit to my constituents and provide timely and professional assistance to people across the country who encounter difficulties. I look forward to a strong marketing strategy to promote the service to my constituents, ensuring that everybody is aware of the opportunity to get help. Without such a strategy to raise awareness, it will be a waste of time.
I welcome the news that the Government have consulted extensively on the measures, that they are widely supported and that we already have a framework for financial advice that is fit for purpose. StepChange has commented on how important that is for social justice and for supporting families, including many in Mansfield who are just about managing.
Having heard a number of horror stories about the mismanagement of financial claims, I am also pleased that there is now a simpler way of seeking support when an insurance or other claim fails to go to plan. This simpler form of financial assistance is key in educating service users and promoting a sustainable and resilient population. I hope that the measure is met with approval from not just my constituents but people across the country. It sends a clear message to the companies involved that individuals will be held accountable for their business practices, and to consumers that we are on their side.
Finally, cold calling is a particular blight for older people in Mansfield, with many elderly constituents describing to me a feeling of intimidation because of daily calls asking them to make a claim for an accident that they probably have not had, or because of unsolicited scams and financial advice that they do not want. I am delighted that clause 4 makes provision for the Secretary of State for Work and Pensions to ban cold calling, in effect putting those unscrupulous companies on notice and protecting vulnerable people. Like my hon. Friend the Member for Croydon South (Chris Philp), I too have been plagued by calls following a minor car accident, asking me to submit a false claim for whiplash—an injury that I never had. In fact, I could probably run through 20 or 30 numbers that I have saved on my mobile phone under “PPI” or “Car Crash Scam” to alert me not to answer calls from them. The impact of the high level of such fraudulent claims can only have a huge and detrimental effect on insurance premiums, preventing people, particularly young people, from being able to afford to drive, so it is absolutely right that we take action.
The Bill represents an opportunity for the Government to provide more support and easily accessible financial assistance to the public, and delivers on our manifesto commitment to offer respite from debt. It is a real step forward for millions who are struggling with debt or who are having problems making financial claims. That is more evidence, if it were needed, that this Government and the Conservative party are supporting vulnerable people and promoting financial security.
Stephen Lloyd (Eastbourne) (LD)
On behalf of my party, may I say that it is a pleasure to welcome you back to the Chair, Mr Deputy Speaker?
I support the Second Reading of this Bill because I support its key purpose of merging the Money Advice Service, the Pensions Advisory Service and Pension Wise into a new, single financial guidance body. The current landscape for free financial advice and guidance is unnecessarily complex, convoluted and often difficult to access, with several different agencies providing support. The Bill will, sensibly, improve the situation by creating a single, visible body, making it easier for people to find debt advice and consequently make more informed choices about their personal finances and pensions.
Another key reason why I support the Bill is that it transfers responsibility for regulating claims management companies, including PPI claims companies and the more dubious personal injury legal businesses, from the Ministry of Justice to the Financial Conduct Authority. I believe that the FCA, with its powers to cap the charges of claims management companies, will be a much tougher regulator than the Ministry of Justice has been.
The original version of this Bill when it was introduced in the other place was fundamentally flawed, but thanks to the Herculean efforts of Liberal Democrat peers Lord Sharkey and Baroness Kramer, along with some highly expert cross-party support, crucial amendments were made to it that have addressed many of those flaws. I pay tribute to my colleagues in the other place, as their amendments will benefit the consumer—the public—and that is what this Bill should be all about.
First, we tabled an amendment—to be frank, it is astonishing that this was not already part of the Bill—to ensure that one of the core objectives of the single financial guidance body will be to protect consumers. The SFGB will have to pass on evidence of malpractice to the FCA, so that perpetrators are properly investigated and punished. In my view, that is essential for the legislation’s whole premise to work properly and for it to receive the necessary confidence of the public.
Secondly, Liberal Democrat peers recognised that cold calling can be a real scourge, which has a negative impact on millions of people across the country, in some cases leading to severe financial distress and even ruin. Consequently, I am delighted that they succeeded in attaching an amendment to the Bill to give the Government the power to ban cold calling in specific sectors, if the SFGB concludes that it is harming consumers. That represents a positive game change for ordinary consumers in the cold calling industry and is long overdue. Ministers have also promised several concessions in this area to ensure that any ban is implemented faster. I am delighted that they will keep the amendment in the Bill, because its broadness in scope means that any financial services within the SFGB’s remit could face a ban.
We also ensured that pension companies must ask their customers whether they have received financial guidance before accessing or transferring their pension benefits. The FCA can then force companies to refer vulnerable customers for financial guidance, if they have not already received it. I was pleased that the Pensions Minister told the Work and Pensions Committee that he would not
“fundamentally amend anything that emerges from their Lordships”,
and I will hold him to that commitment.
Last but not least, Liberal Democrat peers worked closely with Labour peers and expert Cross Benchers to put the necessary pressure on the Government to introduce a breathing space scheme for people in severe financial distress—in other words, a limited debt moratorium to give someone affected the time to get debt advice and support. The amendment had been called for by leading charities in the sector, including StepChange and the Children’s Society, and by my right hon. Friend the Member for Twickenham (Sir Vince Cable), for quite some time, so it is good to see it in the Bill.
However, despite such a breathing space scheme being in the Conservative 2017 general election manifesto and already existing in Scotland, where it is a proven success, the Government tried to argue in the other place that such a scheme was not in the scope of the Bill. Frankly, that was a ridiculous position to take, but fortunately our joint pressure paid off and the Government conceded by introducing a clause giving Ministers the power to introduce a breathing space scheme. The consultation that Her Majesty’s Government launched on breathing space wrapped up last week, and I will be watching them closely to ensure that it is not kicked into the long grass like so many of their other promises. The 8.3 million UK citizens suffering from debt problems and the 2.4 million children living in families with problem debt simply cannot afford to wait or be ignored any longer.
The Bill is still not perfect. For example, although the single financial guidance body has an objective to promote financial awareness and education, it will have no statutory powers to do so. We believe that financial literacy must be taught to all age groups, not only in schools but in the workplace, and that there should be strong mechanisms to enforce that. Otherwise, one of the root causes of poor financial management and financial distress will remain unaddressed. We hope that the Government will think again and beef that up in the Bill. If they do not, the constant talking, discussing and complaining about the lack of financial literacy among many members of the public will never change, and we will be in the same place in 10 years’ time. The Bill presents the Government with the opportunity to finally address that properly. I urge the Minister to respond to that point.
None the less, the Bill is a clear improvement on the current situation, which is why I and my party will support its Second Reading. I hope that the Government recognise and appreciate the significant improvements that were made to the Bill in the other place by the Liberal Democrats and other parties, and that they will build on our amendments rather than fail to do so. To be honest, the public would deservedly be outraged if they did not do as they said.
Mrs Pauline Latham (Mid Derbyshire) (Con)
It is good to see you back in your place, Mr Deputy Speaker.
I welcome the Second Reading of the Bill. It is important that people have access to the right financial help and advice, which is essential to stop financial problems escalating. That is particularly pertinent when people are ill. When someone is diagnosed with a disease such as cancer—especially when the diagnosis is terminal—the financial implications are often the last thing on their mind. However, it can undoubtedly result in great difficulties and cause someone additional stress when they need normality, stability, dignity by being able to work and the ability to pay their bills.
Banks and building societies have an unrivalled ability to reach and support people affected by the financial impact of cancer and other health conditions and disabilities, particularly regarding mortgages and other significant financial commitments. However, recent research from Macmillan shows that more needs to be done to improve the support available and ensure that helping people with cancer and other vulnerable customers is at the heart of banks’ culture.
Today, I would like to reflect on the experiences of one of my constituents, Jacci Woodcock, who was diagnosed with terminal cancer a number of years ago. Despite a desire to stay in work, she was treated very badly by her former employer, SMD Textiles in Preston, Lancashire, and was pushed out of her job soon after her diagnosis, even though she had no time off during her chemo and her sales figures never suffered. Subsequently, Jacci has campaigned tirelessly for the Dying to Work campaign, which she began. It is a cross-party campaign for additional employment protection for terminally ill workers who are able to and want to work. I implore all colleagues in the House to support the campaign and encourage businesses in their constituencies to follow suit. Many very large businesses have already done so, and I would like to see employment law strengthened to help people like Jacci.
After leaving her job as a result of pressure exerted by her employer following her terminal diagnosis, Jacci could no longer afford her mortgage repayments. She was therefore faced with a further concern that her home would be repossessed—the home where she wishes to stay until she sadly dies. Jacci had a joint mortgage with her ex-partner, Mr Andrew Bradley, which they held with Santander. After Jacci’s diagnosis, Mr Bradley left Jacci and their home because he could not cope and, from October 2015, stopped paying the mortgage. He told Jacci that he thought she would be dead and wanted his equity from the house.
An official offer was presented to Mr Bradley to continue to pay the mortgage until her death, and then he could recover all the payments from her estate. Thankfully, in Jacci’s case, Santander dealt with the situation extremely well and a mutually agreeable conclusion was reached. When the situation was flagged up to the bank, it agreed to discontinue all collections and litigation activity relating to the mortgage. Jacci was therefore not required to make any more payments on the mortgage. It remained at the standard variable rate, repayable through equity from her home upon her death.
I was impressed by how understanding Santander was in handling Jacci’s case. It is a very large company and one might think that it would not be interested in one person’s problems. The process, however, was not straightforward, and the delay in reaching a satisfactory agreement was traumatic for Jacci when she was in a very vulnerable place. Red tape in such circumstances should be limited. Financial institutions should have a moral and legal duty to care. Policies need to be consistent in dealing with customers with a terminal diagnosis.
Macmillan’s research shows that people do not know what to expect from their bank. Just 11% of people with cancer tell their bank about their diagnosis. This needs to change so that banks and building societies can help their customers when they need it most. The introduction of a formal responsibility for banks and building societies towards terminally ill customers would give people the confidence to disclose their diagnosis. Customers should know they can trust their bank to act in their best interests during a time of distress. I hope that the Minister can give us some words of encouragement and that the Government will press organisations such as banks and building societies to be much more sympathetic towards people such as Jacci.
Emma Hardy (Kingston upon Hull West and Hessle) (Lab)
It is a pleasure to follow the hon. Member for Mid Derbyshire (Mrs Latham). I particularly welcome her comments about the Dying to Work campaign, which I am supporting in my constituency, too.
Crippling personal debt is a huge problem. The stress of not knowing what a letter contains and never being sure whether it is the bailiffs at the door can sour relationships, destroy families and make people ill. On this Government’s watch, household debt is now higher as a percentage of disposable income than at any time since 2008, and figures show that nearly 4,000 families in Hull live with problem debt. I therefore welcome the opportunity the Bill affords us to discuss such an important issue, and although it is a wide-ranging Bill, I will confine my contribution to clauses 7 and 8 on the statutory breathing space scheme.
Guy Opperman
I want gently to take issue with what the hon. Lady just said: the overall level of household debt is actually lower than it was in 2010 and 14 percentage points down in relation to quarter one of 2010, compared with quarter three of 2017. I am not sure therefore that her original comment was correct.
Emma Hardy
I do not mean that debt is higher as a proportion of income; I meant that it is higher as a percentage of disposable income, which the Minister will find it is.
The Government need to do three things with the scheme if they are properly to grant the breathing space people need. First, the scheme must be applicable to all relevant debts, including central and local government debt. To take one example, I recently met the organisation Every Child Leaving Care Matters, where I learned about the problems some care leavers face with things such as council tax obligations. After years of having these bills paid for them, they can often find themselves with mounting debt and without the support, including family support, that many of us here take for granted. That is why I was delighted when Labour-led Hull City Council announced recently that nearly 350 youngsters leaving the care system in the city would not have to pay council tax in Hull until they turned 21.
The scheme will be one of the first policies of its kind in the country when it starts next April and could mean that each of these people saves at least £900 a year. That is fantastic news for Hull but unfortunately not for the rest of my constituents in the East Riding of Yorkshire Council. We can end this unacceptable postcode lottery by supporting the Bill today. It is not just care leavers who are affected either—many people owe money to central and local government—and by ensuring that these debts are included in the breathing space scheme we can help care leavers and many others keep their heads above water.
Secondly, the scheme must make sure that the Government’s consultation, while thorough, is carried out as quickly as possible. There is a danger that the words,
“As soon as reasonably practicable”
in clause 8 will allow the Government to drag their feet in deciding whether to introduce this breathing space scheme. That must not be allowed to happen. The Secretary of State must act quickly to make sure that a scheme is put in place and that support is offered to those who need it now.
Thirdly, the scheme must ensure that the breathing space is long enough to provide time for families to stabilise their finances and that support is in place to allow them to pay their debts in a manageable way. It is no use holding back the creditors from the door for a randomly chosen six-week period if, at the end of those six weeks, the family can still not pay. If we are to set a breathing space, we must get the period right.
We must get this right. Not to do so would not be in the interests of our economy, which already struggles with high personal debt; it would not be in the interests of creditors, who, according to statistics from Scotland, collect more of what is owed to them when a payment plan is followed; and it would definitely not be in the interests of the many families in my constituency drowning in an ocean of personal debt. On clauses 7 and 8 at least, the Government find themselves in the rare position of enjoying cross-party support and with a rare opportunity to make my constituents’ lives a little easier. On their behalf, I ask the Minister and the Secretary of State to act quickly and, further to the points made by my hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams) from the Front Bench, to take on board my points and grasp the opportunity being offered to help so many people.
Jeremy Quin (Horsham) (Con)
It is a pleasure to follow the hon. Member for Kingston upon Hull West and Hessle (Emma Hardy). I was interested in what she had to say, particularly about care leavers, which is a subject I hope we will take up later.
Notwithstanding its many flaws, the market economy is the best means we have to improve the long-term living standards of our people. The pace of technological change, however, and the impact wrought have, for all their many improvements, given rise to real concern among consumers. We have moved rapidly from a pensions and savings environment that, for most, was relatively simple: a pension entitlement derived from the state or from an employer after many years—perhaps a lifetime—of continuous service; a relationship with a known bank manager in a local branch; and savings, where they existed, that perhaps focused on state provision such as national savings or premium bonds.
Instead, we have moved towards a system where choice is far wider. Returns are likely to be far better, but risks undoubtedly increase. This transformation has taken place at the same time as confidence and trust in financial service providers—I speak as a former company adviser—has rarely been lower. The products available can and will act in the interests of society and play a role in particular in meeting the needs of our expanding retired population, but we need to provide people with access to the tools and services they need to plan their financial future with confidence. Not enough people know how to manage their money effectively, and it is in all our interests that we help to bridge that gap. Above all, however, we have an obligation to ensure that those who are most in need of support and guidance receive it.
It is my privilege to be a member of the Financial Inclusion Commission, which has championed many of these issues, and I am delighted to welcome the Second Reading of the Bill, as indeed I did, in advance of its arriving in the House, in an Adjournment debate on financial inclusion at the end of last year. As a member of the Work and Pensions Committee, I enjoyed meeting the some of the existing providers: Pension Wise and the Money Advice Service and Pensions Advisory Service. These have given sterling service, and I am delighted to understand that the leaderships of all three organisations view the creation of a single body as the best means to ensure that those who are struggling can easily access free and impartial guidance to help them make more effective decisions about their pensions and seek advice on debt.
We have already heard a great deal this afternoon on the scale of the problem the Bill seeks to help address, and I will not repeat what has been said, but one fact we have not heard is that Citizens Advice has found that 13.5 million adults find managing money and making financial decisions challenging. People across the income spectrum lack good financial guidance and advice to make the right long-term decisions for old age. Increasing longevity only contributes further to this phenomenon. The fact that we have 8.5 million people auto-enrolled for a pension is good news indeed, but as a recent report from the Select Committee highlights, the fact that more people will be able to benefit from the pension freedoms the Government have introduced makes the availability of effective guidance all the more critical.
The creation of a single financial guidance body is being welcomed not only across the House but among charities and industry. At present, according to Which?, and as was alluded to earlier, only 36% of consumers use Government advisory bodies as an information source about their financial options. I hope that the creation of this body will help to increase uptake, particularly among those who have most to benefit. The Bill sets out the objective that guidance be available to those most in need of support. In the Adjournment debate, I raised issues faced by the disabled, lone parents and single pensioners, while my hon. Friend the Member for Mid Derbyshire (Mrs Latham) has just referred to the terminally ill. I hope that the Minister will agree that, as we measure the success of this body, we will scrutinise its ability to direct support to the hardest-to-reach people who need it most.
More broadly, I hope that the establishment of this body will serve as an important step towards a culture change and a situation where guidance is sought as a norm at key points in one’s life. Pension Wise was a significant step towards this goal, but given the importance of pension saving earlier in life, I am keen to see this service available to all, rather than restricted to the over-50s.
I appreciate that the terms of the body are yet to be specified, but I would be interested to hear the Minister’s view on the accessibility of pension guidance earlier in life. Unlike the hon. Member for Airdrie and Shotts (Neil Gray), who made a good contribution earlier, I was pleased to learn that the name of the body had not yet been announced. We will therefore not have a bunch of imposters setting up rival sites. I welcome the specific offence being established in the Bill. The last thing any of us would want is for those who are seeking help to find themselves victims of scams.
In any event, in common with the hon. Member for Makerfield (Yvonne Fovargue), I urge caution about too much reinvention of the wheel. Originally, the intention was for the single financial guidance body to be purely a commissioning body. We are all aware of trusted and well-established organisations in our own constituencies, such as Citizens Advice, at national level, and many more organisations at local level. In my case, that includes the Horsham Debt Advice Service. The new body will be most effective as an enabler, a director of resource and an upholder of standards. I trust that that is but the first of many steps to enhance individuals’ ability to manage their finances effectively, and I have sympathy with the points raised earlier about financial resilience and financial education.
I look forward in particular to the report on the pensions dashboard that, as I understand from the Secretary of State’s words at the Dispatch Box, will be produced in March. The dashboard will be of significant benefit to consumers and will help to drive cultural change in the industry and among savers. I know that I am not alone in thinking that, alongside the pensions dashboard, more visibility for other forms of saving would be advantageous.
Finally, I want to touch on the debt respite provisions that have been incorporated into the Bill. I welcome them, and I hope that the guidance body’s report and the Government action that follows will be accelerated as swiftly as possible, as the hon. Member for Kingston upon Hull West and Hessle has said, consistent with effective legislation. Although the provisions are useful and appropriate, they will not solve the problem of debt. The nature of the debt providers matters. I hope that I am allowed, as the chair of the all-party group on credit unions, to make a small plug in favour of credit unions. The amount that they lend has doubled since 2006, and they now have 1.3 million members across the country. That is to be welcomed. The more people save with and borrow from responsible providers, the better. For all who get into difficulty, a breathing space is a practical and essential measure. I commend the Bill to the House.
Ronnie Cowan (Inverclyde) (SNP)
I welcome the chance to speak in this debate. I will make a short speech on a topic that has been touched on by Members on both sides of the House. We seem to agree that the introduction of a duty of care for financial service providers would be a good thing. That is not currently in the Bill, but the Bill gives us a vital opportunity to take steps towards introducing such a duty of care and, in doing so, transforming the support that customers receive from their financial service providers.
As is recognised in the Bill, ensuring that people have access to the right help and advice as soon as possible is essential to stopping financial problems escalating. For people who are ill, or who are considered vulnerable in other ways, it becomes even more important. It is well known that being diagnosed with a health condition such as cancer can come with a huge and sudden financial impact. Research by Macmillan Cancer Support found that four out of five people with cancer are impacted financially by their diagnosis, which makes them, on average, £570 a month worse off. That impact, as one would expect, leaves many people struggling to keep up with their financial commitments.
Banks, building societies and other financial services providers are in a unique position to step in. They could offer short-term measures, such as flexibility on mortgage payments or interest freezes on credit cards and loans, as well as ensuring that customers are signposted early to financial help, which can help them to avoid problem debt. Some banks have made progress on that. For example, Lloyds and Nationwide have worked in partnership with Macmillan to deliver specialist support to customers who are affected by cancer. However, the overall picture is still mixed. Only one in nine people with cancer tell their bank about their diagnosis. Many people do not think that their bank can help them, or, worse, they worry that disclosing their diagnosis will have negative consequences. Of those who did tell their bank, nearly a quarter were dissatisfied with the support they received. That, to me, seems like a huge missed opportunity.
When someone is living with a long-term health condition such as cancer, the last thing they should be worrying about is money. But if people do not feel comfortable accessing support, or the support is not there when they try, their financial worries can quickly escalate. If financial service providers had a legal duty of care towards their customers, people would be given the confidence to disclose their diagnosis, knowing that they could trust their bank to act in their best interests.
For banks and other providers, that would mean being ready to respond to their customers’ needs, and designing the vital products and services that would help people focus on their health. Of course, the duty would not just help people with cancer. It would have wide-ranging benefits because it would ensure that the banking sector played its part in helping customers, particularly those who might be vulnerable, when they needed it most.
As Members may be aware, the Financial Conduct Authority has committed to publishing a discussion paper on the duty of care. Although that is welcome, I and many other Members have significant concerns about the timescale. The discussion paper will form part of the FCA’s handbook review, which will not take place until after the UK’s withdrawal from the EU is clear. What that timeframe means in reality is not yet clear. What we know is that a discussion paper would be only the start of a long process of consultation and legislation, so it could be many years before a duty of care came into effect. Meanwhile, during that time, nearly 1,000 people every day in the UK will receive the devastating news that they have cancer.
This is key. Often when we discuss such issues to do with financial regulation, the debates are technical and can feel removed from the general public. The duty of care is different. The public are starting to take a real interest in the issue, and those who see the terrible impact on people of conditions such as cancer are demanding that we take action. Take Miranda, a Macmillan nurse. In her role helping patients, she sees the financial impact of cancer at first hand. I want to share a couple of quotes from Miranda with the House:
“It’s enough to cope with the effects of the treatment and the psychological effects of the diagnosis, without having to worry about money as well”.
She continues:
“To relieve the pressure of not having to pay your mortgage for six months or so…will be a tremendous help to people.”
Supported by Macmillan, Miranda has written an open letter in support of a duty of care. It has been signed by nearly 20,000 people—that is 20,000 people who want action. They do not want to wait years for change. What would the Minister say to those people? How would he justify any delay to them?
Of course, we all appreciate that Brexit will have significant implications for the financial services industry and that they will need careful thought, but that is not a valid reason for delaying the duty of care. Action is needed now, so that future changes are built on the foundation that financial services firms have a duty of care to their customers.
I urge the Minister to listen to what is being said today and to commit to working with the FCA to deliver faster action on the duty of care. He should listen to the cross-party concerns that have been set out here and in the other place. He should listen to the numerous organisations that have supported the call for a duty of care, to the Lords Select Committee on Financial Exclusion, which recommended its introduction, and to the 20,000 people who have called on the Government to take action. I thank Macmillan Cancer Support for its parliamentary briefing, which has contributed in a big way to my speech. Finally, will the Minister meet representatives of Macmillan Cancer Support to discuss the introduction of a duty of care?
Paul Masterton (East Renfrewshire) (Con)
I am pleased to speak in support of this Bill, which is of real significance to my constituents, given the demography of East Renfrewshire. I refer Members to my entry in the Register of Members’ Financial Interests. Prior to coming into this place, I spent nine years as a specialist pensions advisory solicitor and I was a member of various fun organisations such as the Association of Pension Lawyers—it is, I assure Members, as exciting as it sounds.
Part 1 of the Bill creates a single financial guidance body to replace three existing services. It is a much-needed move to make public financial guidance more accessible and more integrated. The services offered by the Money Advice Service, the Pensions Advisory Service and Pension Wise are somewhat disjointed, and there is a lack of communication and co-ordination between the three services. That is why only 3% of Pension Wise users say that they first heard about the service from the Money Advice Service, for example. As we are talking about public financial guidance services, those figures should be much higher.
That is why it is important that the three services are replaced with one body. Instead of having to contact two or more services for different aspects of financial guidance, people will be able to access one integrated and holistic service. It is absolutely critical that people across the UK can access independent, impartial and high-quality financial guidance.
It should go without saying that the ultimate measure of a guidance service is whether the guidance it provides is useful. I would, therefore, like the single body to be subject to rigorous evaluations based on consumer outcomes, not just outputs, to ensure that it is fulfilling its role. Much of the anticipated success of the new SFGB assumes that the new body publicises itself effectively. According to Which? around two thirds of people are aware of each of the three existing bodies. It is crucial that the single financial guidance body quickly achieves and then surpasses those levels of awareness, so that as many people as possible can access its services. Linking in with the pensions dashboard to give users a prompt would be a simple step.
Pension freedom and choice was mentioned earlier in the debate. It has changed the pensions landscape, but while Pension Wise is sensible Government policy, it is predicated on individuals becoming engaged investors, so it does not mitigate risks for most people. Research by the Pensions and Lifetime Savings Association found that only 22% of individuals used the Pension Wise website. That is nowhere near good enough if we are serious about ensuring people are going to provide a sustainable retirement for themselves.
In its comprehensive Financial Lives survey, the FCA identified further detail on the shockingly low levels of guidance usage among key age groups, with only 7% of all 55 to 64-year-olds using the service in the last 12 months. Perhaps it is not surprising that the PLSA found that, of the 3 million individuals between the ages of 55 and 70 with defined-contribution pots not yet in payment, 300,000 had taken no action whatever. Of those who had, 15% had used the new freedom to take more than their 25% tax-free cash lump sum. When they took that cash, 20% spent it all—what is sometimes colloquially known as the Lamborghini option.
Freedom and choice is great. I like it, but it brings with it the inherent risk of life-destroying choices, and the role of the SFGB has to be to provide guidance to try to prevent people from making those mistakes. Individuals face really complex risks when selecting how to use their pension savings. The language, concepts and risks are all unfamiliar to most people. How we use our retirement funds is one of the most important decisions we will make in our lives, and impartial, independent support to help us to make an informed decision is absolutely vital. It is clear to me at least that the new SFGB is integral to the success of freedom and choice. It has to be the anchor in terms of accessing high-quality guidance, so that people can evaluate their options and make best use of what they have saved.
Given everything I saw and experienced before coming into this place, I remain hugely attracted to the principle of default guidance, mirroring the approach taken to auto-enrolment, with statutory opt-out provisions. Clause 5(2) could be strengthened, as was recommended by the Work and Pensions Committee. The Minister has made some positive noises about that, but if we are looking for something as close as possible to a silver bullet, default guidance is probably it.
I would also question precisely how the SFGB is going to work alongside the new pensions dashboard. The dashboard is long overdue. It is a tool that brings together an individual’s pension entitlements—state, workplace and personal—and it will be really widely used. However, I have a slight worry that providers will be, and indeed are, setting up their own branded variations.
Guy Opperman
In contemplating my hon. Friend’s outstanding speech, let me help him with a couple of points. The dashboard is being proceeded with, and I will be making a statement to the House before the end of March, giving an update on the process by which these things are taking place. I will address some of the other remarks in his speech at a later stage.
Paul Masterton
I thank the Minister for his intervention. On that basis, I will move on to clause 4 and pensions cold calling.
Losses from pension scams rose to £8 million in March last year, and over £40 million has been lost to pensions liberation—something I dealt with a lot in practice —with individuals being tempted to transfer out of generous final salary schemes to access their pension pot prior to age 55, with the 55% tax charge that came with that.
Though big steps have been taken, the scammers are clever, and their approaches are becoming more sophisticated. Citizens Advice believes that around 2.4 million 55 to 64-year-olds received unsolicited contact about their pension in the year after pension freedom and choice was introduced. A cold call ban will narrow the scope for scammers, but if we have a default guidance requirement, there is more chance of the individual being alerted, before they take the option to transfer, to the risk they are facing.
Other Members have been through clauses 7 and 8 in detail. Like all things, the debt arrangement scheme we have in Scotland is not perfect, but it is a good place to start, as I think the Government recognised in bringing forward the provisions they did on Third Reading in the other place. A statutory debt management plan is a good thing, not least because it should avoid insolvency.
Under Clause 11, arrangements are introduced for the funding of debt advice in Scotland, Wales and Northern Ireland. The delivery of debt advice will be devolved, but raising a levy to fund the provision of that advice is reserved. I do have some concerns here. While I completely understand the rationale for devolving debt advice, given the other advice and guidance services commissioned from Edinburgh, Cardiff and Belfast, I am not precisely clear how this is going to work in practice.
The functions of the new single body fall into two categories: the debt advice function, under which it will provide members of the public only in England with information and advice on debt; and the strategic debt function. That strategic function is UK-wide, so we will have a situation where the single body’s functions in relation to financial capability, money guidance and the strategic debt function are UK-wide, but the debt advice function is not. That debt advice function really does have to dovetail with the UK-wide elements of the SFGB, irrespective of its delivery by the devolved Administrations, if this is going to work. I am not entirely clear how we are going to ensure that that happens.
Clauses 10 and 11 require the SFGB to set and enforce standards across the debt advice partners it commissions, because debt services are predominantly provided by service providers, many of whom operate cross-border. However, with the procurement and provision of debt advice services devolved, that role sits not with the SFGB in Scotland, Wales or Northern Ireland, but with the devolved Administrations. As was pointed out by many bodies in the consultation, that could raise issues. Of course, the devolved Administrations may want to tailor services to meet particular requirements, but there really is a strong case for ensuring that standards are aligned, both for providers who operate cross-border and for UK consumers. I ask the Minister to outline how he intends to work with the devolved Administrations to ensure that the commissioning of debt advice services is joined up as far as possible to ensure we get the dovetailing I mentioned earlier.
I am conscious of time, so I will not go into part 2 in much detail, other than to say that I am pleased that the Scottish Government have changed their position from not wanting part 2 to extend to Scotland to agreeing that it should now extend to Scotland. That, combined with some of the measures going through the Scottish Parliament at the minute, particularly around no win, no fee solicitors, will make a big difference on some of the issues around claims management companies north of the border.
The Bill has two pillars, both of which are much needed. Although the provisions allowing for a single, integrated financial guidance service are not the end of the story, they are important advances. I am absolutely delighted to support the Bill, and I thank the Minister and his team for bringing it forward. This is a really difficult area, and he has grasped the nettle—or, as we are in Burns season, the thistle—and brought to this House legislation with real intent and purpose, which will, along with the Government’s other initiatives on pension saving, make huge positive changes to how people monitor and manage their finances.
Darren Jones (Bristol North West) (Lab)
I rise to speak specifically in favour of the amendments tabled in the other place in respect of the debt respite, or breathing space, scheme for those struggling with personal debt.
However, before I do, I wonder whether, in summing up, the Minister can clarify the to and fro we have had on whether consumer debt is increasing in this country. When I say “clarify”, I do not mean giving us a statistic that supports the Government’s answer, as against the statistic given by Opposition Members; I mean giving us a simple answer on whether consumer debt is higher or lower. My understanding from Bank of England and Office for Budget Responsibility data is that consumer credit—unsecured loans—is up by 19% since 2010. Car financing—a huge new area of secured personal debt—has added £30 billion in the same timeframe. Student debt under this Government has doubled to nearly £100 billion. In real terms, there has been a 7% increase since 2010 in consumer personal debt—the second highest figure in the G8 economies after that in Canada. Some clarification on that point would be welcome.
It is estimated that over 8 million adults in the UK struggle with problem personal debt—the issue we are debating today—resulting in bankruptcy or individual voluntary arrangements. Many people are in that situation because of unexpected life events, be that a job loss, an illness or a breakdown in relationships. The debt charity StepChange, which has been mentioned on multiple occasions in the debate, estimates that 60% of its clients were able to stabilise their financial position after a voluntary freezing of interest charges and enforcement action by their creditors, so it is clear that a breathing space scheme can make a real difference to the lives of people struggling with problem personal debt.
We must be honest: we have a problem with personal debt in this country. Although I welcome the Bill and the technical measures to try to solve some of the symptoms of personal debt, I want to take this opportunity to speak about some of its causes. We must remember why we are in this situation in the first place. Quite frankly, it is because we have seen the lowest level of wage payments as a percentage of GDP for decades. The flatlining of wages for many years—and, according to the Office for Budget Responsibility, potentially for the next 17 years—when compared with the increasing cost of living, pushes many hard-working people into the red.
That is not new in Britain, but it does show the difference that Government policy can make. I remember all too well when, in the 1980s, as a child growing up in Lawrence Weston—in what is now my constituency—I had to hide behind the curtains with my mum when the debt collector came to the door because we could not afford to repay the then high cost of personal debts provided by Provident, the Wonga of its day. That was a regular occurrence in my childhood. My parents were both in work. They were hard-working, law-abiding citizens who just wanted to do the best for our family. However, in the days before the introduction of the national minimum wage, the only source of support for a working-class family earning a mere couple of pounds per hour and with no one to call upon for financial help in times of trouble could be high-interest loan providers.
I remember asking myself then—as, sadly, I do now—why my mum and dad went to work every day, but did not have enough money to feed themselves as well as me. Why could we not afford my school uniform, or the school trip on which my friends were going? Most important, I remember seeing and feeling the stress that poverty induces. When there is a bailiff at the door, and red-ink printed letters in the letter box bearing more and more charges leading to spiralling debt repayments, it causes a type of anxiety and stress that I find hard to describe in words alone. As we discuss the Bill, let us not forget the additional harm caused to the British people when we do not solve the issue of personal debt in the first place, but merely provide technical measures to deal with the outcomes.
I am reminded of why I am so deeply committed and thankful to the Labour Government. They introduced the national minimum wage and invested in public services, and we should be proud of the number of children lifted out of poverty, including me. That has meant that I can stand here today to try to improve the lives of my constituents. It saddens me greatly, however, that—although I benefited from the policies of a Labour Government, which made such a difference to my family and to my prospects in life—we are here once again talking about the same issues. The sad truth is that, after a new lost generation of misguided austerity, we are now going backwards. On the day that Oxfam has revealed that 42 people have the same wealth as the 3.7 billion poorest in the world, we must take this opportunity to pause and ask why that is, and why we let it happen.
I am a centre-ground politician. I do not want to smash capitalism, but I do wish to fix it. If we are to do that, however, we must remember that it is for us—elected representatives of the British people in this democratic Parliament—to set the rules of the game. It is no excuse to talk of globalisation, multinational companies, tax jurisdictions outside the United Kingdom, and the accumulation of wealth in assets while wages become lower and lower. It is no excuse to stand here and say that those problems are too hard for us to fix as a nation—to say, “I would rather we were a member of the European Union, trying to fix them as part of a bloc of countries.”
I should like to see much more radical reform of the economy, but this is a good first step, and I welcome the Government’s commitment to it. In a digital world, the Provident man is no longer on the doorstep writing down in his grey book how much people have borrowed, how much they have paid back, and, when he comes back next week, how much they need to repay. An app on the phone can deliver the funds to someone’s bank account within hours. Access to such services and support is very important.
I thank the Economic Secretary for his detailed response to my letter about this issue. Like other Members who have spoken, I hope he now understands—notwithstanding clause 8(2), which says that the Secretary of State may merely consider whether a breathing space is necessary—that it is indeed necessary, and that the Government should work speedily to introduce it. In response to my letter, the Government made it clear that they were willing to listen to stakeholders in designing the “breathing space” scheme, and I welcome that. I hope that they will include all personal debts, not just some. I hope that they will take account of what has been said by Members such as my hon. Friend the Member for Makerfield (Yvonne Fovargue), who, on this issue, is a learned Member, and who suggested a minimum period of six months rather than six weeks.
I took issue with something that was said earlier by the Secretary of State, who is no longer in the Chamber. In her opening speech, she said that people needed access to mentoring, support and education about budgeting. I agree with that, but let me make this point: to suggest that people who find themselves in very stressful, and sometimes devastating, situations of personal debt because of their ineptitude is both patronising and offensive. [Hon. Members: “She did not say that.”] She did indeed.
I am reminded of an occasion when, during my election campaign, I visited a food bank in my constituency. I asked some people why they had ended up there. One of my constituents said that she had broken up with her partner and found herself in financial difficulties, and that that had driven her to come to the food bank. I will not name names, but she then told me that a Conservative Member of Parliament who had been in my constituency in the run-up to the election had written in an article for ConservativeHome that food bank users needed financial budget management skills. She broke down in tears as she told me that story, in front of her neighbours and her children in the food bank where she had wished never to find herself, because she had been told that she was there because of her lack of intelligence or ability.
The Secretary of State said that it was a core principle of this Conservative Government that the Bill empowered individuals by giving them the information that they needed. Let me make it clear that it is a core principle of the Labour party—and it will continue to be a core principle when we are in government—to empower individuals by paying them a decent wage for a decent day’s work, so that they can live as they wish to live.
I commend the Government on this technical Bill, which provides some good solutions to some of the problems that we face. I look forward to seeing the regulations that will bring a breathing space scheme into law as soon as possible. However, let us not forget what causes people to find themselves in this situation. Let us try to create an economy that works not just for the few, but for the many. Let us remind people like my constituents who become stuck, often through no fault of their own, that they are not alone, and that there are people in this place who are fighting for them and their future.
Richard Graham (Gloucester) (Con)
It is a pleasure to contribute to the debate. It is also a pleasure to follow the hon. Member for Bristol North West (Darren Jones), who spoke movingly about the importance of respite and the period for the repayment of debts. However, I regret the party-political tone of some elements of his speech. In my constituency in the city of Gloucester, which is not very far from his, 6,000 jobs in business were lost under the last Labour Government. Youth unemployment rose spectacularly, and living standards almost collapsed. The hon. Gentleman talked about a Government who look after the fortunes of the many and not the few. He should come and meet the 8,000 new apprentices in Gloucester, where youth unemployment has fallen by 85% over the last eight years.
The hon. Gentleman also accused my right hon. Friend the Secretary of State of describing people who went to food banks as suffering from ineptitude, and I believe that his remarks were completely out of order. I hope that, when he has had a chance to study the record, he will in due course at the very least withdraw that extremely personal comment, which was alarmingly in tune with something that the shadow Chancellor appeared to give air to when he referred warmly to those on his side of the House who wanted to “lynch” the new Secretary of State. I believe that all those remarks are totally out of keeping with the tone that we expect in the House.
Let me now turn to a matter on which there is cross-party consensus, namely the Bill’s Second Reading. The Bill has two parts, and I shall comment on each in turn. The first is clearly designed to rationalise three separate bodies offering Government-sponsored guidance services into a new single entity, the single financial guidance body—not the snappiest, most memorable name, but it marks an important moment in the consolidation of guidance.
I have direct experience of two of the three bodies that are being merged. The creation of Pension Wise was a very well-intentioned move by the Government, but there is no doubt that take-up has been much too low, and a different approach is therefore required. When I saw a Pension Wise adviser nearly two years ago, I was impressed by the quality of her advice. I do not think that that was a one-off experience, and I believe that those who have had the chance to access Pension Wise would agree.
I have also seen and heard the Pensions Advisory Service in action. The quality of its service and advice is powerful, and its model—like that of Citizens Advice—is one of recruiting volunteers with relevant sector experience. This represents good value for money for the taxpayer as well as giving the volunteers a great sense of purpose in giving something back. That is the secret of so much volunteering. I hope the Minister will reassure us today that that aspect of the Pensions Advisory Service model will be continued in the bigger world of the SFGB and, ideally, expanded.
The financial sector is a popular bogeyman, especially among Opposition Members, but I hope that those on both sides will join me in recognising and appreciating those who have given their time and knowledge voluntarily to the SFGB’s three predecessors, and in wishing the Economic Secretary to the Treasury, my hon. Friend the Member for Salisbury (John Glen), who is in his place, success in working with Her Majesty’s Treasury to set up the new body. The Pensions and Lifetime Savings Association has described this as absolutely integral to the success of pensions freedoms.
The Bill allows for a focus on the weak and vulnerable—something in which I know the Under-Secretary of State for Work and Pensions, my hon. Friend the Member for Hexham (Guy Opperman), strongly believes. I hope that he will say more about his definition of those terms and about how the SFGB will focus on them. Part of that will involve identification; part of it is about access.
I want to sound a note of caution on one aspect of the Bill, and my approach here is slightly different from that of the hon. Member for Bristol North West. I do not believe that we should be too constrictive about the guidance that will be given. Indeed, I differ gently from the otherwise excellent speech of my hon. Friend the Member for East Renfrewshire (Paul Masterton) on this point as well. We are at risk of assuming that people who wish to take money from their pension pots will spend it on things that might not benefit them or their families. At a time when levels of household debt are high, with a total of £1.9 trillion, there is a question mark over how their funds should be used. The levels are not as high as they were under the last Labour Government, when levels of household income indebtedness rose from 93% to 158%, but they are still too high.
The early evidence seen by the previous Work and Pensions Committee suggested that withdrawals were mostly being used to reduce family debts, which for most people makes good financial sense. Perhaps the Minister will update us on whether that trend is still broadly true. It was the reason why the Select Committee took the view in 2016 that we broadly supported the pension reforms, and it is also relevant to the FCA’s review of retirement outcomes, which will happen in the first half of this year, and to the proposed ban on cold calling.
There is another point to make on the savings levels of pensions. Under this Government, following the coalition’s introduction of auto-enrolment, which had cross-party support, the percentage of those working who are now saving for their retirement has risen to 78%. That is a huge step forward, but the Minister will also know that 13% of adults still have no savings. That statistic raises the question of how we can stimulate lower earners—those earning under £10,000 a year—to enter an auto-enrolment scheme, perhaps through enhanced incentives. I recognise that that is not an issue for this Bill; it is a matter for the White Paper that has been promised in the spring. It is, however, an issue relating to debt, pensions and savings and therefore part of the same general concern that we are discussing this evening. It is therefore related to the discussion on part 1 of the Bill, and anything the Minister can say to indicate that it is being closely considered will be welcome.
The second part of the Bill deals with enabling the Government to ban pension cold calling, which we all welcome. I know that the Opposition and the new Select Committee have reservations about the speed of Government action, and I hope that the Minister will reassure us that we will not have to wait until the autumn of 2020 for a decision on the introduction of such a ban. If, after three consultations and the upcoming FCA report, the Government decide that this is the right thing to do, surely we will be able to move faster. Dealing with claims management companies can be an emotional experience for many of our constituents. The proposal is to shift responsibility for them from the Ministry of Justice to the FCA and give the authority the power to impose a cap on the fees that CMCs can charge. I hope that it will vigorously implement that new power, and I suspect that that hope is widely shared.
The latter part of the second part of the Bill has been covered in some detail by several Members. It covers having a repayment plan and a period of respite to deal with accumulated debts. We know from the experience of our constituents that good debt advisers can help with these issues, and that their negotiations with creditors on extending repayment periods have made a huge difference to many people. So why not look at this more institutionally, in just the way that the Bill allows? That will be an excellent step forward, and I look forward to hearing more from the Minister on how that will be taken forward.
The Bill has been widely welcomed by charities and the financial sector, and it has cross-party support. That is a strong position to start from, and I strongly welcome the reforms. I hope that my hon. Friend the Under-Secretary of State for Work and Pensions will be able to shed some light on the questions that I have raised on the role of volunteers in the single financial guidance body; the identification of and approach to the weak and vulnerable; an analysis of what pension withdrawals are being used for; how we might expand the reach of auto-enrolment to increase the savings level in the nation; the introduction of a pensions dashboard, which he mentioned tantalisingly briefly; and an early decision on how and when to ban cold calling. These are all extremely important issues, and I believe that they offer the Government an opportunity to go yet further in helping many of our constituents, through the Bill’s twin aims of reducing scams and improving guidance in order to enable better financial decisions to be made.
Patricia Gibson (North Ayrshire and Arran) (SNP)
I am delighted to contribute to today’s debate. The Bill deals with a range of issues, but I want to focus on pensions. The pensions market is often complicated and confusing, so any moves to make it more accessible to consumers must of course be welcomed, although we on the Scottish National party Benches are still disappointed that the Government have not championed a fully independent pensions commission to look at all aspects of pensions. We want a pensions system that is fair for all, but the opportunity to achieve that has not been presented today. However, we will continue to argue for it.
We know that there is a challenge in addressing consumer confidence on pensions. Too many people feel that pensions, though important, are over-complicated, and that can create inertia and inaction. That can have a profound effect on pension outcomes, as the decisions that consumers make can have serious financial consequences for their future. The Bill offers a perfect opportunity to introduce a legal duty of care on financial institutions and to put the most vulnerable members of our communities at the heart of decisions and services that can be used to protect them. It is disappointing that that has not been enshrined in the Bill, but I am confident, given what I have heard today, that the Minister is paying close attention to that point.
We need to be sure that consumers have access to the best independent advice, especially those who are vulnerable. Pension matters are confusing and can be complicated. We need to be confident that, whatever decisions people make about their pensions, they are properly and independently informed. I wonder how many consumers are even aware of Pension Wise, which offers free independent advice on pensions. What more can the Government do to promote such services? I heard the Secretary of State talking earlier about the service’s reach being improved as it is amalgamated with other services, but sadly I did not hear any details about how that might happen. We have to remember that those most in need of independent financial and pension advice are often the hardest to reach.
The Financial Conduct Authority pointed out that consumers may be choosing to draw down their pension instead of shopping around for what may be a more appropriate pension product because they find choosing between the alternatives simply too challenging. The challenge for those of us trying to understand pensions and how to get the best deal has been complicated by the introduction of pension freedoms and new savings products. There is nothing wrong with introducing such freedoms to allow people more say and choice about financial options in retirement, but vital safeguards for older people who may choose to free up funds were missing or not prominent enough when such schemes were introduced. More work needs to be done to ensure that those who choose to free up funds get the financial advice about the long-term implications of making such choices that is correct for their particular circumstances, especially as so many of us can expect to live long lives in retirement. We need to be careful that we are not living longer simply to live in poverty and that the vulnerable are not easy prey for those who would take advantage.
Poor advice on pension decisions can lead to years or even decades of lost benefits and a much reduced quality of retirement. I understand that the aim of merging the current services into one is to create a more efficient service, but I want more detail on how that will be done in practice. What specific measures will be put in place to ensure that the new service will actively engage with people of pension age? Australian research into that issue shows that a substantial minority consume their pension pots quickly, with around 25% of people exhausting their pot by the age of 70 and 40% by 75. That really should give us pause for thought.
As we heard earlier, accessing pension pots early has become the new normal, but the FCA has expressed alarm that many who do so do not access independent, impartial advice. Indeed, only about 20% of those who accessed their pension pots in the third quarter of 2016 had a Pension Wise appointment, either by telephone or face to face. As for the other 80% who accessed their pension pots, one has to wonder what advice they received—if any. Did they get the best advice as they made that important decision? Were they vulnerable consumers? How can the interests of such people be best protected? I am sure that the Minister remembers the fallout from consumers taking out endowment mortgages because the advice they were being given was not always the most robust. We do not want to be looking back at this debate in 10 years’ time and saying the same about those who accessed their pensions early.
If we do not address the complexity and confusion around pension information and the difficulty of reaching some of the most vulnerable consumers—those who are arguably the most in need of robust independent advice—we shall only see younger generations feeling alienated from the whole concept of long-term saving for retirement. The SNP welcomes the fact that clause 2 includes a recognition of the need to bear in mind the needs of those in vulnerable circumstances, but I cannot impress it strongly enough on the Minister that we need more detail of how that will work in practice. What statutory weight will it be given? Much more detail is needed on how free independent pension advice can extend its reach, and I look forward to hearing from the Minister.
The Bill does seek to address the need to protect vulnerable consumers, but more robust measures are needed. We know that scam calls are a huge issue in our communities, with 10.9 million consumers receiving unsolicited contact about their pension since April 2015. I continue to wait for the UK Government to deliver on their promise to adopt into legislation my ten-minute rule Bill on unsolicited marketing calls. Despite enthusiastic initial support, the dates mooted for bringing it in— April 2017 and October 2017—have passed without incident or explanation from the Government despite my best efforts to elicit some kind of response via umpteen written questions, questions on the Floor of the House, a point of order, about half a dozen letters to the relevant Secretary of State, and other ingenious ways. Support for that Bill has clearly waned somewhat and that is a real cause for concern, especially given that I have heard warm support from Government Members for measures in that area.
The new plan to bring forward proposals to tackle cold calling must focus on director-level responsibility if any such measures are to have the required strength to deal with this blight on consumers. Such proposals ought not just to be about pensions—although they are a very important area—because all consumers in all industries and all sectors must be protected, and I am keen to hear whether that will be the case. I realise that not all areas are within the scope of the Bill or for the Minister to decide upon, but I know that he will take that point back to his colleagues with great enthusiasm. I am becoming increasingly impatient with the delays, as are my constituents, people across the UK and, I expect, Members on both sides of the House. So when I hear that action on unsolicited marketing will be taken in “early 2018”, if the Minister is being kind, he will understand my scepticism about yet another deadline and what this “action” will be. Will there be any measures to deal with director-level responsibility? If not, why not? Perhaps the Minister can address that in his closing remarks.
If we are banning cold calling to protect people’s pensions, that is an admission that cold calling is a problem. If it is problem with pensions, it is a problem for all consumers in all areas. We need to protect people, and cold calling causes fundamental problems. I am extremely disappointed with the shilly-shallying around extending the recognition of the need to protect people outwith the pensions sector. The UK Government committed to considering director-level responsibility, even going so far as to put it on their website for well over a year. It is therefore a bit curious that they have gone suspiciously quiet on that despite, as I say, my best efforts to use every means available to me in this House to elicit some kind of response.
For consumers who want to access their pension early and to do so based on sound advice, we need to ensure that they are making the correct decisions, and I say good luck to them. However, our concern must be for those who do not have access to robust independent advice that safeguards their long-term financial interests and who will find themselves in financial difficulties as result of poor advice or a lack of advice. I want the Minister to put some flesh on the bones of how the reach of financial advice will be extended, particularly to vulnerable consumers. I remind the Minister that there are thought to be around 800,000 people living with dementia in the UK. Even conservative estimates suggest that by 2030, that figure could be as high as 1.2 million. Their interests must be protected with demonstrably robust measures and a genuine duty of care. Policy making in this area must be mindful of and guided by that notion, and a new approach is essential to improve guidance usage among non-advised customers. The SNP sees the Bill as a positive step forward, but there is more to do, and a few minor legislative changes could save consumers now from many potential difficulties in the future.
Rachel Maclean (Redditch) (Con)
It is a great pleasure to follow the hon. Member for North Ayrshire and Arran (Patricia Gibson).
I rise to support the Bill. It is a key part of our Conservative philosophy to back responsible financial management, and the Bill contains measures to help individuals manage their finances responsibly, which is something we all support. It is important to acknowledge the great strides this Government have already made. As a small employer in my previous life, I saw the impact of auto-enrolment. The Government were very successful in encouraging people—particularly younger people, who often fail to save for their pension and their retirement—to take part in an auto-enrolment scheme. The statistics are positive. We now see 16.2 million people saving for their pension in that way, up from 10.7 million in 2010.
I have a few remarks and a couple of suggestions for the Minister, and I seek a few assurances. I promise that my speech will be short.
First, I have touched on my experience as an employer. Will the Minister consider the impact on small businesses? The hon. Member for Oldham East and Saddleworth (Debbie Abrahams) mentioned the self-employed. Small businesses and small employers have to think about the right auto-enrolment system for their staff and for themselves. Will the single financial guidance body have the remit to cover that issue for employers and employees?
Secondly, how will the new body seek to target advice at young people specifically? Young people are often at risk of poor financial planning and of falling prey to some of the worst debt issues. They are most likely to be at risk of being influenced by social media and of inadvertently falling into debt, sometimes because they are not engaged with the financial system.
We have heard much in this Chamber about students and student loans. When students consider their future, it is important that they get accurate advice on student loans. Unfortunately there are many myths out there in the public domain, and it is important that that misinformation is addressed so that students have accurate advice, outside the heat and light of the political spectrum, when undertaking that significant step to secure their future.
Will the body cover credit unions? I have a pertinent issue right now with a credit union in my constituency. Concerns are being raised about people who are dealing with credit unions and about how those people will seek advice.
Many people have mentioned cold calling, and I wish to add my voice. I am the daughter of an over-80-year-old dementia sufferer, and I have seen at first hand how many calls she receives. These companies are completely flouting the Telephone Preference Service regulations. There is no recourse for people in that situation to take action, and why should they have to? It is completely unfair that companies are preying on them.
Patricia Gibson
The hon. Lady correctly says that there is no recourse for people who are plagued by cold calls. Does she agree that cutting the problem off at source by having director-level responsibility would be a very effective way forward?
Rachel Maclean
I thank the hon. Lady for her intervention. She made some excellent points in her speech, and I hope the Minister will consider them. Getting this right so that we treat the most vulnerable in our society well is at the heart of what this Government are doing, and we need to go further in this Bill, as well as through other measures.
I urge the Minister to work closely with the Secretary of State for Education. We have seen the introduction of financial education in our schools, and the previous lack of financial education is part of the root cause of some of the issues we seek to address. We are seeing people getting into debt, sometimes through no fault of their own, simply because of their lack of financial education and their lack of capacity to manage their finances at an early age.
People are now so influenced by the world of social media, and it is all too easy for them to think that many of the positive things they see on social media could be within their grasp, if only they took out a loan or got into debt to afford holidays, clothes, cars or whatever it is—it can seem very easy to people. I call on the Minister to work with colleagues in the Department for Education to introduce education on financial responsibility at an early age so that people get into good habits early.
I finish by welcoming the measures in the Bill. At our surgeries we have all seen the suffering that getting into debt and a lack of advice can bring. I am glad that there will be advice and support for the people who need it most.
Laura Smith (Crewe and Nantwich) (Lab)
It is an honour to follow the hon. Member for Redditch (Rachel Maclean).
Even though my hon. Friend the Member for Bristol North West (Darren Jones) has left the Chamber, I thank him for his very honest speech. I, too, remember the anxiety that filled my childhood home when the Provident came knocking. Both my parents also worked. Perhaps the hon. Member for Gloucester (Richard Graham) could listen and learn from people who have experience of living through hardship, rather than moaning about something that is political being political—after all, I thought we were all politicians.
Laura Smith
No, sorry.
The town of Crewe, in my constituency, has in recent years been identified as one of the most indebted places in our country. The problem has not gone away. Last year, statistics published by the Money Advice Service suggested that average consumer debt per person in Crewe was more than 20% higher than in the rest of the UK, and we know the problem is permeating beyond the most deprived areas. Problem debt is creeping into every corner of our communities, and if the bubble bursts, the effects are likely to be profound and lasting.
That is why I want to talk about one aspect of the Bill: the clauses that enable the Government to introduce a debt respite scheme. With falling wages, the rising cost of living, housing problems, insecure work, childcare costs, welfare cuts and rampant inequality, no single Act of Parliament will fix all the underlying causes of rising household debt. At the same time, the people who voted for us literally cannot afford to wait for the Government to fix our broken economy. That is why I stood on a manifesto that promised to introduce a debt respite or breathing space scheme to help those working families who have been struggling to keep their heads above water. It is the provision to introduce such a scheme that makes the Bill such an important priority for my constituency.
The debt charity StepChange reports that 70% of its clients fell into debt because of an unexpected negative event, such as job loss, reduced income, illness or a relationship breakdown, and 60% of clients told the charity that their financial situation stabilised once creditors agreed to freeze further interest, charges and enforcement action. Without the protection of a statutory breathing space scheme, pressure to repay debts at an unaffordable rate and threats of enforcement can leave households cutting back on everyday essentials, such as food and heating, and falling further behind on bills.
This Bill, in itself, does not provide the solutions, but it does provide an opportunity for the Government to make a massive difference to the lives of many ordinary working people. How the debt respite scheme is set up is crucial. For example, the initial period must be long enough for people to seek debt advice and agree a long-term plan to resolve their debts. On top of that, regulated debt advisers should also be able to extend the period, where that is deemed necessary.
The Government’s proposal of a six-week initial period is nowhere near long enough. According to StepChange the evidence in Scotland, where a comparable scheme already exists, shows that on average it takes four months to activate a plan after the first debt advice session. In any case, the Government should also commit to reviewing the length of the initial period after the scheme is introduced, and to extending it if there is evidence to support doing so.
Statutory repayment plans must also be a feature of the scheme, with the flexibility to ensure that the most effective plan for each family’s circumstances can be put in place. There is no one-size-fits-all solution. A scheme that does not meet those needs will be a huge missed opportunity for the Government and could cost us all dearly in the not-so-distant future.
The link between debt and mental health is well established. Picture the parent who is filled with dread and anxiety every time they answer the phone or open an envelope. The Royal College of Psychiatrists tells us that half of adults with debts suffer with mental health problems, and the Children’s Society tells us that children living in families with problem debt are at greater risk of developing mental health problems later in life. Introducing an effective debt respite scheme not only makes good economic sense, but should feature as part of the Government’s mental health strategy.
I support the Bill as a step in the right direction, but a debt respite scheme is long overdue, so we need the Government to commit to a date and to ensure that the scheme is not a token gesture, but a genuine effort to protect working families from this growing problem in our society.
Eddie Hughes (Walsall North) (Con)
I believe protocol dictates that I should say that it is a pleasure to follow the hon. Member for Crewe and Nantwich (Laura Smith), but anyway.
Richard Graham
I am grateful to my hon. Friend for giving way as the hon. Member for Crewe and Nantwich (Laura Smith), having accused me of moaning, did not wish to do so. I simply say to her: I do not do moaning.
Eddie Hughes
And I have certainly not witnessed any—nothing but good grace from my hon. Friend in the past.
I want to touch briefly on the name of the single financial guidance body, when we get it. The hon. Member for Airdrie and Shotts (Neil Gray) was right to highlight this point, because what we call it is critical. My hon. Friend the Member for Mansfield (Ben Bradley) suggested that we will need a good marketing strategy to go with it because, let us face it, we have to reach out to a broad section of the population, from the very youngest to the very oldest. I want to discuss predominantly the youngest.
We cannot start too soon in engaging young people in financial business. I know that HSBC operates a school bank service where it goes into primary schools for seven to 12-year-olds to introduce them to the concept of banking and explains the different roles of people within the bank. It also explains how someone setting up their own business might go about obtaining a loan and funding that business.
Right from the earliest age, we should engage with young people. Why is that important? The Money Advice Service released a report this month following some qualitative and quantitative analysis during which it engaged with 470 young people. What did it find? It found that 61% of those young people felt that their lives would be better if they had better financial management skills, but 85% felt that they had not been given sufficient financial guidance when they were at school. That puts them in a precarious position because, all of a sudden as young adults, they are exposed to the opportunity of debt. Indeed, one of those taking part suggested that credit cards should be treated in the same way as cigarette and tobacco packets: there should be photos on a credit card that in some way convey the danger associated with them, because young people with access to cheap debt can easily get into difficult financial positions. That is not a question of ineptitude, as referred to by the hon. Member for Bristol North West (Darren Jones); it is just that if people have not had that financial education and training, they can find themselves in a difficult position.
For example, at the weekend I spoke to a young man of 26 in Walsall. He had been down in London and he somehow managed to get on the bus without the fact that he had used his card to pay for the ticket being recorded. When the passengers were checked, he was asked to get off the bus and prove that he had paid for his ticket. He could not do so. He was fined, I believe, £80 and given a short period to pay, otherwise the fine would double. He did not pay as he did not have the money at the time. He did not prioritise that debt, so he did not pay it. The fine increased to £180. By then, it was Christmas and he could not afford to pay, so he procrastinated further until the bailiffs were knocking on his mother’s door at the weekend, seeking £750 because he had not paid a £1.50 bus fare. Sometimes, it is not just that people do not have the money; they do not understand which debts must be prioritised to prevent further hardship down the line.
It is incredibly important that we increase the financial capability of everybody across the UK, from the very youngest, when they set out as young adults with access to credit cards, to the very oldest, who will be drawing down their pensions. They all need our support and this Government are on the side of them all.
Craig Mackinlay (South Thanet) (Con)
It is a true pleasure to follow my hon. Friend the Member for Walsall North (Eddie Hughes); I just have to shout that much louder to be as shiny as him.
On pensions, I want to continue along the lines set out by a couple of speakers, particularly my hon. Friend the Member for East Renfrewshire (Paul Masterton) and the hon. Member for North Ayrshire and Arran (Patricia Gibson). My background was similarly—I will not say dull, but to some it might appear so. I am still nominally in practice as a chartered accountant and chartered tax adviser, so I am most interested in the tax benefits of pensions as part of personal planning.
I also served on the Select Committee on Work and Pensions from July 2015 to May 2017, where I had the enormous pleasure of overlapping with the hon. Member for Oldham East and Saddleworth (Debbie Abrahams) before she was promoted. I am delighted that she supports the Bill receiving a Second Reading this evening.
I very much welcome the new oversight body—the single financial guidance body—which my hon. Friend the Member for Gloucester (Richard Graham) said had such a snappy title, but I think that we know what it will be there for. Previously, the advice has always been out there, but I agree that it has been fragmented and not part of the inculcated knowledge of the public that help is out there and it is free. I hope that the Bill will help.
On pensions, there have been two arms. The first is the Pensions Advisory Service, whose main focus I see as advice on what pensions are and their benefits, plus online tools describing the saving needed to estimate future retirement income. It serves a useful educational function. The second is Pension Wise, which I am more interested in. It gives advice on what to do when approaching pensionable age, which is becoming ever more important.
All this represents a real issue—a welcome issue—for an increasing number of people across the country as auto-enrolment plays more and more of a role. The Government website suggests that 10 million employees will be enrolled across close to 300,000 employers by 2020. I see that as one of the real success stories of this Government and it is supported across the Chamber by all parties. That represents a savings rate in the future of up to £17 billion per year, so we could be looking at many hundreds of billions of pounds likely to be saved over the decades to come.
I was particularly pleased to serve on the Committee that considered the Pension Schemes Act 2017, which laid the framework, at the right time, for master trusts. Beforehand, there was a weak statutory framework—just approval from Her Majesty’s Revenue and Customs for many schemes that I think had some dubious background. That has now gone, which is welcome.
What interests me about Pension Wise is what people will do with what is potentially their primary asset in life, their pension pot, as they approach older age. The average pension pot is £50,000—slightly more for men and less for women. There is an historical background to that, which I am sure will be put right as time goes by. The time of defined-benefit schemes is very much behind us, for obvious reasons—unknown liabilities for companies.
The pension freedoms of April 2015, however, were one of the best kept secrets of the 2014 Budget and they came as a surprise to me—I certainly did not see them coming. The freedom to take lump sums of 25% has been with us for a while, but people then gained complete flexibility over what to do with their defined-contribution pensions. They could also get rid of the traditional annuity purchase, or indeed could do nothing at all if that suited them.
With interest rates low, it has to be recognised that, although they are still right for some, the time of traditional annuities is perhaps over. With freedom, though, come dangers, including from scams. In this data age, it is not difficult to find out when anybody is approached the age of 55, and with that comes the potential danger that people will be preyed on by scammers.
This afternoon, I searched on Google for “pension advisory service”. I was disappointed that the official Government Pensions Advisory Service was only the fifth result. Ahead of it came four other services that were perhaps good, perhaps bad, or perhaps somewhat indifferent. I am pleased that Pension Wise is found favourable by 88% of those who have used it, but, as the hon. Member for Oldham East and Saddleworth said, few have used it—perhaps no more than 10% of those planning to retire. That does not mean that people are not seeking and accessing advice. Those with larger pots will undoubtedly go to their independent financial advisers to get proper independent advice on their options and what might be best for them.
I wish to put on record that, during my time on the Work and Pensions Committee, I raised the limitations and bureaucracy that the FCA requirements impose on IFAs and suggested lighter-touch regulations, so that IFAs who deal with smaller pension pots could advise on a “no liability to the adviser” basis. That way, those with smaller pots could at least get good professional advice, which must be infinitely better than none.
Clause 4, on the regulation of cold calling, is hugely welcome. Many Members have mentioned their experiences with PPI, banking scams, claims for flight delays—the list goes on and on. Because of that, there is a serious problem with databases, so the Information Commissioner needs to be rather more robust on that.
I hope that the Bill will mean that more people will become aware of their options, seek genuine advice and get wise to the scammers. Over the past few years, the Government have laid good foundations for pensions, as people are making greater provision for themselves. The Bill is welcome, coming at the right time to strengthen the available financial guidance framework, and I have no hesitation in supporting it.
Julian Knight (Solihull) (Con)
I shall keep my comments relatively brief, Madam Deputy Speaker, mainly because I have a chest infection and I do not think my voice will hold for too long.
The Government’s decision to move ahead with a much-needed overhaul of the financial guidance system is welcome. Likewise, it is important to put in place protections for pension savers. My hon. Friend the Member for East Renfrewshire (Paul Masterton) mentioned £8 million being lost to scamming in one month. That is just the tip of the iceberg, because that is just what is reported. Scamming is a serious and ongoing problem, so I really welcome the moves in place to help to alleviate it.
As a former personal finance journalist, I have seen at first hand the terrible consequences—not only financial but social and even medical—that can follow when people fall into problem debt or are preyed on by fraudsters. Bringing the various money advice services together will help to ensure joined-up support, and to make sure that fewer people fall through the cracks in the system.
The Bill represents welcome progress, but more needs to happen through the financial services and financial advice sectors. They need to step up to the plate. Unfortunately, in recent decades the market has not properly served what I call middle earners. It is right that this debate has focused on the most vulnerable, as the Minister said earlier and has said on other occasions. However, the financial advice wasteland that has been created serves our society very ill indeed.
Insurance and advice products used to be sold on a commission basis. Going back in time, we can remember the man from the Pru, who would effectively mass sell financial products. Companies had a clear incentive to cater to everybody. There are good reasons why we moved away from that system. As a young man, after leaving university, I worked at a now-defunct organisation called the Joseph Nelson group. As part of that job, I had to fill in client ledgers. I had no idea what their particular business was, but I noticed that, no matter whether they were in their 20s or their 80s, every client was being sold the same product. The thing that linked it all was the level of commission, which was many percentage points.
I saw at first hand organisations such as the David M Aaron group, which is also now defunct, selling swaps and other very risky investments to people to whom they should not have been sold. I have seen these high-cost, high-margin products being pushed on customers, regardless of their personal circumstances. As a personal finance journalist, I covered the implosion of Equitable Life, which saw thousands lose their life savings. It is not acceptable that a huge part of the population has subsequently been left without access to affordable advice.
Advisers have effectively migrated upwards to cover what they call high-net-worth clients. It can now be very expensive indeed to get good independent financial advice. The sector has a responsibility to step up and to find new ways to serve customers. Modern technology, from data-sifting algorithms to remote advisers, offers ways to provide personalised and accessible advice that were unimaginable when I was filling out hand-written ledgers at the Joseph Nelson group many years ago. We need more life-event advice, because the break-point of annuitisation no longer applies to most people.
The Bill is not an end in itself; it is a challenge to the financial services advice industry to do more. The huge increase in the number of self-employed people has profound implications for the personal finance landscape. For a sole trader, the line between personal and business finance is not nearly as clearcut as it is in larger, more traditional companies. Many self-employed people who fall into personal debt do so while trying to support their business. According to the Money Advice Trust, fully seven in 10 of its business debtline clients had taken out a personal loan and were using at least part of it to prop up their enterprise.
Finally, I wish to touch briefly on my work as chairman of the all-party group on financial education for young people. School offers an unparalleled opportunity to impart good habits and vital life skills to the next generation, but we still have a huge distance to travel to ensure that young people are properly equipped to navigate today’s fast-changing and complex financial landscape. The development of key skills and knowledge about money matters helps pupils and, indeed, their parents to make wise choices in later life, when innovations in financial technology and online consumer tools—not to mention the march towards a cashless society—will make previous experience and the advice of their elders an unreliable guide.
Jack Dromey (Birmingham, Erdington) (Lab)
A heavy duty falls on us in Parliament to ensure the security, dignity and financial wellbeing of the British people. On the one hand, we must help our citizens to realise opportunity, particularly with wise advice about planning for their retirement. On the other hand, we must avoid our citizens being taken advantage of in adversity. It is therefore key that we provide the ability to access high-quality advice that can be counted on, and that our citizens are not ripped off in the process. The hon. Member for South Thanet (Craig Mackinlay) was right when he said that it is also key that people know exactly where to turn, particularly in circumstances of adversity. My hon. Friend the Member for Makerfield (Yvonne Fovargue) was right when she said that it is crucial that advice is intelligible and accessible.
Sadly, history is littered with scandals and scams, including PPI and the all too often outrageous behaviour of claims management companies. Think of Carillion and the shameful scams, with the vultures—the introducers —who, on the backs of workers facing disaster, whether at Port Talbot or Carillion, move in and seek to take advantage of their vulnerability. Sometimes, extraordinary losses of up to £200,000 are incurred. For all my history I have fought for working people to be able to enjoy advice that they can count on. I brought together the group that formed the second community law centre in Britain a generation ago.
Earlier today, we had the urgent question on private sector pensions, and the Government were rightly held to account for their lamentable failure and the failure of governance in respect of Carillion. However, it would be absolutely churlish of me not to reflect on the fact that this is a welcome Bill, establishing the single financial guidance body and also the more effective regulation of claims management companies, including regulation under the auspices of the FCA. I was intrigued by the notion proposed by the hon. Member for Bromley and Chislehurst (Robert Neill) of fit and proper tests being applied to those who work for claims management companies—a powerful argument that we might return to in Committee.
It is a welcome Bill, which was strengthened in the Lords —particularly by Lord Sharkey and Baroness Drake—and informed by the Select Committee on Financial Inclusion and its deliberations. I must say that the Minister has been in genuine listening mode. He has a personal history of financial inclusion, including in his own constituency with the establishment of the Tynedale Community Bank. We support this important Bill, but we will seek to strengthen it further and to inject in it a sense of urgency.
May I turn now to some individual measures in the Bill? On the issue of funding more generally, the Government’s impact assessment says that a high proportion of people need help but are not currently getting it. One in five of those in debt receive advice. The Bill aims to bring together the pre-existing three bodies under one roof to give better and more efficient advice. However, if the Government are looking to make a financial saving, that would be wrong. There is growing demand for good financial guidance, and the Government should be looking to increase funding in that area, not to decrease it.
The new body must be adequately funded to fulfil the multiple roles that it will be tasked with carrying out. There were some very powerful contributions during the debate. We heard about the importance of effectiveness from the hon. Member for Chippenham (Michelle Donelan) and about the importance of high-quality advice, particularly for working people in dire straits, from my hon. Friend the Member for Bristol North West (Darren Jones). I will return to that point later.
I have these questions for the Minister. Does the Government expect to make savings from the merger, and, if they do, how much? Have the Government considered what resources the new body will need to identify and to support those who do not currently access advice or guidance? If the body is a success, there will be many more who will want to access it. How will the Government guarantee the adequate resources to ensure greater uptake of services?
Let me turn now to cold calling. The Government committed to banning cold calling in their 2017 manifesto and we did, too. Cold calling preys on some of the weakest in society, and particularly the elderly. I am not sure whether I was completely convinced by the argument of the hon. Member for Walsall North (Eddie Hughes) that, somehow, it is axiomatic that poor people are more likely to find it difficult to manage their finances. Actually, very substantially, my experience is the reverse.
There are 2.6 million cold calls made every month in the UK. What they do is put at risk those who are the recipients of those calls. The hon. Member for Croydon South (Chris Philp) was absolutely right when he pointed to the evidence from the Association of British Travel Agents. He said that, effectively, what was happening was that the public were being encouraged to commit a crime by reporting bogus illnesses, and he also mentioned the driving up of the cost of holidays. The Government have stated that they wish to ban cold calling, specifically calls and texts on pensions. The Bill is the perfect opportunity to put that into practice.
A prime example of the vulture-like nature of these companies has come in the tragic case of the collapse of Carillion. Those people who may have just lost their jobs and are unsure of how they will cope financially are being preyed on by those wishing to trick them into transferring their pension immediately, usually charging extortionate transfer fees. A similar practice was carried out after the massive redundancies at the steelworks in Port Talbot.
More generally, the evidence from Citizens Advice is powerful. Some 10.9 million consumers have received unsolicited contact about their pensions since 2015. It found that almost nine in 10 had difficulty in identifying the scams, not least because the scams are clever and constantly evolving. It rightly argued that a ban on pension cold calling is a crucial part of the consumer protection framework, which should help to reduce the disgraceful targeting of consumers
The Government must seek to put in place a ban on cold calling as soon as possible. They indicated in the other place that they would bring forward an amendment or new clause to introduce such a ban, and that it would not be linked to the establishment of the new body. Will the Minister do so, and, assuming that he does, what will it cover? Will he also listen to the powerful contributions in this debate from the hon. Members for Croydon South and for Gloucester (Richard Graham) and bring forward new provisions at Committee stage to put in place, in their words, an immediate ban on cold calling and to introduce default guidance to assist people accessing or seeking to transfer their pension assets?
Let me turn briefly to the self-employed. In its current guise, the SFGB will provide advice for the self-employed only on their personal finances and debts, not their business finances or debts. The Money Advice Trust, which helped more than 38,000 people last year, said that for many self-employed people there is simply no distinction between their personal and business finances. As the shadow Secretary of State said, to exclude business finances and debts from the SFGB’s remit is a missed opportunity, particularly given the significant growth in self-employment in recent years. Will the Government respond to the arguments that have been put, including by the National Federation of the Self-Employed and Small Businesses?
We heard a number of powerful contributions on default guidance during the debate. This is a key pillar of the Bill and moves to improve financial awareness for those looking to undertake transactions. Anyone wishing to transfer a pension must be automatically provided with financial guidance by a qualified independent expert. That should be given by default, and anyone not wishing to receive that guidance should have to sign a form stating specifically that they do not want to be given it. That would avoid the process whereby people are given the minimum amount of information possible to try to force them into transferring their pension. This would be of use to many workers who were let go by Carillion last week and who may be faced with the choice of transferring their pension, but who should, by default, have access to independent financial guidance to help them to make their decision.
What consideration has the Minister given to removing the exemption of “introducers” from the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 —a specific point on top of that to which I have already referred? A default guidance scheme guidance would be very helpful, but what else has he given consideration to on that front, and what consideration has he given to allowing the FCA to keep the financial penalties that it receives so that it can increase its enforcement work?
On the breathing space scheme, there is cross-party support, including from the other place. This is about granting a freeze on interest charges, fees and enforcement action for six weeks so that a person can receive guidance on the next steps that they can take to relieve the debt burden. UK household debt in 2017—I know that this was an issue of some contention during the debate, but the facts speak for themselves—reached £l,630 billion. Consumer credit has increased 17% since 2012, and UK household debt is now 140% of UK household disposable income. That is why it is all the more necessary now, with the sheer scale of the pressures being generated—this was very powerfully described by the hon. Member for Chippenham when she talked about the agony that is debt—that the Government, having committed to this in the past, act now at the next stages. The commitment is in the Bill, but the timescale for implementation is too slow. It is vital that the Government get it right and act quickly to have this measure in place as soon as possible. This is a vital change to lift the burden of debt from millions of people across the country, including those who may be suffering from mental health problems as a consequence. Therefore the Government need to act as quickly as possible.
As the shadow Secretary of State has made clear, we support the introduction of universal credit on its premise of simplifying the benefits system. However, a number of reports have shown that, in its current guise, it leads to increased personal debt, including rent arrears. Has the Minister considered the impact of universal credit on personal debt and the implications for resourcing the new body?
The Bill gives the FCA the power to cap fees for claims management companies when dealing with PPI claims. However, the proposed cap would limit the average fee to only £340 plus VAT, which is not much different from the current cap. The Government could ensure that firms that are at fault for PPI claims are charged the fee and that the consumer receives 100% of their compensation. Why are the Government not also prepared to act on the mis-selling of packaged bank accounts—bank accounts that charge a fee and are sold with added benefits—many of which were mis-sold over the past 15 years without sufficient information? Why have the Government not introduced a provision to cap fees for these claims in the Bill? The justification given thus far is unsatisfactory.
On the duty of care, I do not want to add in any detail to the powerful contributions made by the hon. Members for Mid Derbyshire (Mrs Latham), for North Ayrshire and Arran (Patricia Gibson) and for Gloucester. We have received a number of constituency letters about the amendment proposed by Macmillan. The Lords Financial Exclusion Committee has advised that the Bill should include a provision requiring the FCA to make rules setting out a reasonable duty of care for financial services providers. The evidence given is powerful, particularly from Macmillan, as four out of five people with cancer are affected financially by their diagnosis, as a result of increased costs and loss of income. The Government and the FCA have said that they must wait until after the UK’s withdrawal from the EU becomes clear. However, our strong view is that this issue should not wait any longer. I urge the Minister to consider it carefully and bring forward suitable proposals in Committee.
Financial inclusion is absolutely critical. Will the Secretary of State use this opportunity to address the scourge of financial exclusion in our society, including the proposal from the hon. Member for Eastbourne (Stephen Lloyd) that this should now be set out in statute? The pensions dashboard is a welcome proposal, but will the Secretary of State bring forward legislation to ensure that pension providers liaise with the scheme and give all savers a clearer picture of their savings?
In conclusion, there is a heavy duty on parliamentarians to ensure the security, dignity and financial wellbeing of our citizens, and that is all the more important in these tough times, seen at their most dramatic with the collapse of Carillion. There is substantial consensus on the Bill—we have adopted a constructive approach towards it—but it needs to be better and stronger and to act with greater urgency in the next stages.
The Parliamentary Under-Secretary of State for Work and Pensions (Guy Opperman)
It is a pleasure to reply to the debate on behalf of the Government. I thank the hon. Member for Birmingham, Erdington (Jack Dromey) for his kind comments. It is true that I set up a credit union and a community bank in Northumberland, which I am exceptionally proud of. As my hon. Friend the Member for Redditch (Rachel Maclean) and the hon. Member for Harrow West (Gareth Thomas) outlined, credit unions are a vital part of the financial makeup, and they will be covered by the single financial guidance body, as they are already by the Money Advice Service. There was a broad consensus in the other place, as there is in this place, that the Bill will address many of the issues that concern our constituents most deeply.
I have been delighted to listen to 21 speeches today, and to be invited to answer, by my counting, 119 separate questions, and to do so all in 10 minutes, so I will write to hon. Members if I do not manage to answer their questions this evening. I will of course write to the shadow Secretary of State on the individual matters she raised, and to the Scottish National party spokesman, the hon. Member for Airdrie and Shotts (Neil Gray). I make the fair point that the merger was sought by all three organisations concerned, and that funding to the devolved Administrations will most definitely not decrease; at the very least it will stay the same, but potentially it will go up.
I welcome all the speeches we heard today. It is hard to cherry-pick individual speeches, but my hon. Friend the Member for Chippenham (Michelle Donelan) made an outstanding contribution, showing her commitment to addressing problem debt. I can assure her that we will be proactive in this process. As she will be aware, the Bill was one of the first introduced by the new Government, having started its passage in the House of Lords. There was broad consensus in the other place that a single body is the best way forward, ensuring that people can easily access the free and impartial financial guidance they need to make effective decisions about pensions and money and to seek advice on debt.
The Government are genuinely passionate about the need to address financial exclusion. I am delighted that, as the Minister responsible for pensions and financial inclusion, I am taking the Bill forward, working hand in glove with my hon. Friend the Economic Secretary to the Treasury—we are very much co-ordinating a cross-Government approach to these issues. The Government are committed to providing people with access to the individual tools and services they need to plan their lives so that they feel included in society and avoid the unnecessary costs of financial exclusion.
I have had many dealings with the hon. Member for Makerfield (Yvonne Fovargue) on this issue, and I am delighted to be working with her on the Bill. I suspect that she will be on the Bill Committee, holding the Government to account but also taking forward these matters, which concern all of us on a cross-party basis. I utterly endorse her approach that the new body should have a laser-like focus on commissioning.
I was moved by the outstanding speech of my hon. Friend the Member for Mid Derbyshire (Mrs Latham), who offered a graphic illustration of the difficulties experienced by her constituent, Jacci. I endorse her comments. Having had cancer and recovered from it, I very much accept the points raised by Macmillan. However, there are provisions within existing legislation, and within the capabilities of the FCA—between the FCA’s principles of business and the work of Santander, which she rightly identified—that address these points and which really address the point about the duty of care.
We want people to be able to access the right guidance as a first step towards taking control of their finances. Part 1 of the Bill, which sets out the new body, will give people the opportunity to move in the right direction. It will continue to fund debt advice as well as to fund and evaluate financial capability programmes, including financial initiatives aimed at children. In this way, it will help people of all ages and backgrounds to manage their money better and make the most of the financial services and products available.
Part 2 of the Bill is equally important. It will enable the transfer of claims management regulations from the Ministry of Justice to the FCA, and it ensures that we have the transfer of complaints handling responsibility to the financial ombudsman and the introduction of new fee restrictions, with the 20% interim fee cap that many have outlined as the right way forward. We believe that these measures will genuinely tackle a range of conduct issues within the market, ensuring a tougher regulatory framework and increasing individual accountability.
My hon. Friend the Member for East Renfrewshire (Paul Masterton), in an outstanding speech—he keeps doing that—brought his professional, specialist knowledge to the debate, and I pay tribute to him for all the work he has done. Let me address the point that he and others have raised about the Work and Pensions Committee. We are certainly considering the Committee’s report in relation to clauses 4 and 5.
We support the need for default guidance for people wishing to take advantage of pensions freedoms. That is why the new body is specifically required to meet the Government’s guarantee to make free and impartial guidance available to those considering accessing their pension pots. The existing signposting regime already provides individuals with important information and encouragement to take advantage of guidance and advice before accessing a pension pot. However, the Government accept that there is merit in providing for people to receive a further nudge, and that this is the right direction of travel. To this end, my officials are reviewing the proposals put forward by the Select Committee, and we will respond to the House and to the Bill Committee in due course. On the pensions dashboard, we will respond to this House before the end of March. It is absolutely the case that we wish to take this forward.
The only discordant note in the entire debate was the speech by the hon. Member for Bristol North West (Darren Jones), who attacked my right hon. Friend the Secretary of State and sought to find out the current situation on debt. Households’ financial positions can be assessed by a number of criteria. However, the ratio of net wealth to income is at a record high, while debt interest as a proportion of income is at a record low—at 4.2% in quarter 3 of 2017 compared with 10% in quarter 1 of 2008. Total household debt as a proportion of income is down by 14 percentage points, comparing quarter 3 of 2017 and 2010, and further down compared with quarter 1 of 2008.
On breathing space, there is an endorsement from all parties that this is the right way forward. I entirely accept that there is still work to be done. However, I remind the House that there is also a statutory repayment plan, which was also in our manifesto. This Government made clear our support for breathing space in our manifesto and in the House of Lords.
With regard to the outstanding matters, a variety of points were brought before the House, and I will address them by writing to individual Members before the Committee sits.
We believe that this Bill is a sustainable legislative framework for public financial guidance. It will help to tackle a range of conduct issues within the claims management sector by ensuring a tougher regulatory framework that enhances consumer protection and professionalism. I thank all hon. Members for their contributions and look forward to the opportunity of further discussion as the Bill progresses. I commend the Bill to the House.
Question put and agreed to.
Bill accordingly read a Second time.
Financial Guidance and Claims Bill [Lords] (Programme)
Motion made, and Question put forthwith (Standing Order No. 83A(7)),
That the following provisions shall apply to the Financial Guidance and Claims Bill [Lords]:
Committal
(1) The Bill shall be committed to a Public Bill Committee.
Proceedings in Public Bill Committee
(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Tuesday 6 February 2018.
(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.
Proceedings on Consideration and up to and including Third Reading
(4) Proceedings on Consideration and any proceedings in legislative grand committee shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.
(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption that day.
(6) Standing Order No. 83B (programming sub-committees) shall not apply to proceedings on Consideration and Third Reading.
Other proceedings
(7) Any other proceedings on the Bill may be programmed.—(David Rutley.)
Question agreed to.
Financial Guidance and Claims Bill [Lords] (Money)
Queen’s recommendation signified.
Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),
That, for the purposes of any Act resulting from the Financial Guidance and Claims Bill [Lords], it is expedient to authorise the payment out of money provided by Parliament of:
(a) any expenditure incurred in consequence of the Act by the Secretary of State or the Treasury; and
(b) any increase attributable to the Act in the sums payable under any other Act out of money so provided.—(David Rutley.)
Question agreed to.
Financial Guidance and Claims Bill [Lords] (Ways and Means)
Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),
That, for the purposes of any Act resulting from the Financial Guidance and Claims Bill [Lords], it is expedient to authorise:
(1) the levying of charges under the Pension Schemes Act 1993 and the Pension Schemes (Northern Ireland) Act 1993 for the purpose of meeting expenditure relating to the single financial guidance body’s pensions guidance function;
(2) the levying of charges under the Financial Services and Markets Act 2000 for the purpose of meeting expenditure—
(a) incurred (or expected to be incurred) by the Secretary of State or the Treasury in connection with the single financial guidance body;
(b) incurred (or expected to be incurred) by the Scottish Ministers, Welsh Ministers or the Department for Communities in Northern Ireland in connection with the provision of information and advice on debt to members of the public in Scotland, Wales and Northern Ireland; and
(3) the payment of sums into the Consolidated Fund.—(David Rutley.)
Question agreed to.
Financial Guidance and Claims Bill [ Lords ] (First sitting)
Thursday 1st February 2018
(6 years, 9 months ago)
Public Bill CommitteesRead Full debate Financial Guidance and Claims Act 2018 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 1 February 2018 - (1 Feb 2018)
The Committee divided: - Ayes: 1 / Noes: 9 - Question accordingly negatived.
The Chair
Good morning. Before we begin line-by-line consideration, I have a few preliminary housekeeping announcements. Will Members please switch all electronic devices to silent? I notice some tea and coffee on the tables. I would be grateful if Members could please remove them and not bring them into the room. I will first call the Minister to move the programme motion agreed by the Programming Sub-Committee.
Ordered,
That—
(1) the Committee shall (in addition to its first meeting at 11.30 am on Thursday 1 February) meet—
(a) at 2.00 pm on Thursday 1 February;
(b) at 9.25 am and 2.00 pm on Tuesday 6 February;
(2) the proceedings shall be taken in the following order: Clause 1; Schedules 1 and 2; Clauses 2 to 20; Schedule 3; Clauses 21 to 24; Schedules 4 and 5; Clauses 25 to 31; new Clauses; new Schedules; remaining proceedings on the Bill;
(3) the proceedings shall (so far as not previously concluded) be brought to a conclusion at 5.00 pm on Tuesday 6 February.—(Guy Opperman.)
Resolved,
That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(Guy Opperman.)
The Chair
Mr Speaker has asked that we explain the procedure in more detail than used to be the case before we start our main proceedings.
We now begin line-by-line consideration of the Bill. The selection list for today is available in the room and on the Bill website. It shows how the selected amendments have been grouped together for debate. Amendments grouped together are generally on the same or a similar issue. The Member who has put their name to the lead amendment in a group is called first. Other Members are then free to catch my eye to speak on all or any of the amendments in the group. A Member may speak more than once in a single debate.
At the end of the debate on a group of amendments, I shall call the Member who moved the lead amendment again. Before they sit down, they will need to indicate whether they wish to withdraw the amendment or seek a decision. If any Member wishes to press any amendment or new clause in a group to a vote, they need to let me know. I shall work on the assumption that the Minister wishes to reach a decision on all Government amendments when we reach them.
Please note that decisions on amendments take place not in the order they are debated, but in the order they appear on the amendment paper. In other words, debate occurs according to the selection and grouping list; decisions are taken when we come to the clause that the amendment affects. Decisions on adding new clauses or schedules are taken towards the end of proceedings, but may be discussed earlier if grouped with other amendments.
I shall use my discretion to decide whether to allow separate stand part debates on individual clauses and schedules following the debates on relevant amendments. I hope that explanation is helpful to members of the Committee.
Clause 1
The single financial guidance body
The Parliamentary Under-Secretary of State for Work and Pensions (Guy Opperman)
I beg to move amendment 1, in clause 1, page 2, line 6, at end insert ‘and the devolved authorities.’
This amendment, together with amendment 18, will enable transfer schemes under Schedule 2 to transfer staff, property, rights and liabilities from the consumer financial education body to the devolved authorities. This may be necessary in view of the fact that the devolved authorities will be responsible for the provision of debt advice in their areas (see clause 15).
The Chair
With this it will be convenient to discuss the following:
Clause stand part.
Government amendment 18.
Guy Opperman
It is a pleasure to work under your chairmanship, Mr Stringer, and I welcome all colleagues to the Committee. I am grateful to those Members of the House of Lords who contributed to the Bill—it started in the other place—expanding and improving it in a significant and important way.
The Bill builds on a Government commitment to ensure that members of the public can access good-quality, free-to-clients and impartial financial guidance and debt advice. Those services are currently provided by a number of different organisations, including financial services firms, utilities and those in the charity sector. Government-sponsored pensions guidance, money guidance and debt advice is provided by the Money Advice Service, the Pensions Advisory Service and the Department for Work and Pensions under the Pension Wise banner.
There have been a multitude of reviews, Select Committee assessments, consultations and calls for evidence since 2015, by which we reached the state in 2017 when the Bill was introduced in this Parliament. Consequently, clause 1 establishes a new non-departmental public body, to be referred to in legislation as the single financial guidance body. The clause introduces schedule 1, which provides details of the proposed governance and accountability of the new body. The provisions within the schedule deal with, for example, the appointment of the chair, non-executive members, executive members and staff, the delegation of duties within the body, the constitution of the committees, and the statutory reporting and accounting procedures.
Clause 1 allows the Secretary of State to make regulations to replace the phrase “single financial guidance body” in legislation with the actual name of the body—the body will be named nearer to the time it becomes operational. The regulations that name the body will be created through a statutory instrument under the negative procedure, which is subject to annulment by either House of Parliament.
Clause 1 dissolves the consumer financial education body now known as the Money Advice Service. Schedule 2 allows the transfer of staff, property, rights and liabilities from the Pensions Advisory Service and Pension Wise—in effect from the Secretary of State to the new body. The schedule allows similar transfers from the Money Advice Service to the new body. I have met all three organisations and discussed the proposed merger with them. I can assure the House that all three are keen to merge, which is rare in Government mergers and should be applauded.
Amendments 1 and 18 are technical in nature and extend the power to make transfer schemes under schedule 2 to the devolved authority. Schedule 2 already allows the Secretary of State to transfer staff, property, rights and liabilities from the Money Advice Service to the new single financial guidance body. This is required to ensure continuity of provision, including on contracts held, and avoid disruption to services in the creation of the body. The devolved authorities will have responsibility for the provision of debt advice in their areas once the new body is established. Devolved authorities have been consulted on this and are very much in agreement. Amendment 1 therefore helps to avoid similar disruption to debt advice provision in the devolved authorities when the new body is established.
Jack Dromey (Birmingham, Erdington) (Lab)
It is an honour to serve under your chairmanship, Mr Stringer. Let me start by paying tribute to the three organisations that are being merged into one—the Money Advice Service, the Pensions Advisory Service and Pension Wise—for the work they have done over many years. The Minister is right that all three agree about the good sense of bringing them together into one body. Why? Because all three know from experience, and have advocated, that high-quality advice—independent, trustworthy and there when it is needed—is of the highest importance, particularly in circumstances of redundancy, death or divorce, when the financial consequences for the citizen can be very serious.
I will give some examples. In Port Talbot, the staff supervisor told Michelle Cracknell, the chief executive of the Pensions Advisory Service, that he was distraught that he had been badly advised on pensions and that the 20 others on his shift had followed his lead. He burst into tears when he said, “It’s not just the mistake that I’ve made; it’s the mistake that others have made following my example.” I remember a victim of domestic violence in my constituency saying, “I borrow to pay the debt, because I borrow to pay the debt, because I borrow to pay the debt.” That is the downward spiral into which citizens all too often fall at a time of crisis in their lives. A Kingstanding dustman said to me, “I’m an agency worker on a zero-hours contract and I would love to buy a house, because my wife is pregnant and we’re paying a fortune in rent.” He went on to say, “It’s not just that: because I’m on a zero-hours contract, I can’t plan. I keep getting into debt. I’ve had bad advice.”—he used stronger words than those—“Where do I turn?”
That is why we made it clear on Second Reading that this is a welcome Bill and a strong step in the right direction, and it has been strengthened by constructive debate in the other place. Our intention is to make a good Bill better still and to inject a sense of urgency into some of its proposals, because the dignity and financial wellbeing of our citizens, in opportunity or adversity, is of the highest importance.
We agree to the concept of the new organisation and support the direction of travel. We will seek to amend the Bill in certain key areas in order to strengthen it further, so that it delivers, particularly for those in desperate need and in circumstances in which there are still too many rogues taking advantage of the vulnerable. There is a joint determination across the House to ensure that nothing but the best is provided in the future for the British people. I am talking about high-quality advice that they can count on in all circumstances.
Mhairi Black (Paisley and Renfrewshire South) (SNP)
I echo much of what the hon. Member for Birmingham, Erdington has just said. I am very grateful, on a Thursday morning, that the Bill is not contentious—I do not know about anyone else here, but I am not in the mood for arguing. We have proper concerns about only three areas of the Bill. The first relates to how young people are involved and educated through it. The second question is whether we can clear up some of the difficulties between guidance and advice. The third and most important issue is dealing with clause 5, because what we have from the Government now is wholly inadequate. With that said, I look forward to having genuine discussions in Committee.
Guy Opperman
I am grateful to colleagues for their comments, which I endorse. I look forward to responding to the specific points. I accept and anticipate that there will be a legitimate discussion as to the appropriate way forward in respect of default pensions guidance, on which I know both Opposition Front Benchers wish to address the Committee. I thank them for their comments.
Amendment 1 agreed to.
Clause 1, as amended, ordered to stand part of the Bill.
The Chair
We now come to amendment 23 to schedule 1, with which we will consider the question that schedule 1 be the First schedule to the Bill.
Guy Opperman
No, it is your amendment 23, to schedule 1, in relation to the independence of the single financial guidance body.
Schedule 1
The single financial guidance body
Jack Dromey
I beg to move amendment 23, in schedule 1, page 27, line 9, at end insert—
“(3) The Secretary of State shall have regard to the desirability of ensuring that the single financial guidance body is as independent from Government as reasonably possible in determining its activities.”
This amendment will ensure that the single financial guidance body has the autonomy to fulfil its functions.
The Chair
With this it will be convenient to discuss the following:
That schedule 1 be the First schedule to the Bill.
Jack Dromey
My apologies, Mr Stringer, for getting things in the wrong order—having been dealing this week with the issue of Carillion, the problems at Jaguar Land Rover, and GKN, I have to say that it has been a rather hectic few days.
The purpose of the amendment is to ensure that the single financial guidance body has the autonomy to fulfil its functions. The new body will be a publicly funded, non-departmental public body, answerable to the Secretary of State. As such, it is imperative that it have the correct amount of autonomy from Government to ensure that it can fulfil all its functions effectively. The new body will be tasked with carrying out a number of very important and critical functions, including starting a new era of enhanced financial guidance and education. Those will best be fulfilled by an independent, autonomous body, free from Government interference. It should be free to make decisions that let it do the job for which Parliament has voted. It should not be subject to the whims of whichever Government are in power, and the political winds those whims can bring. It should be free, as is often said, to speak truth unto power, and all too often the uncomfortable needs to be said and done. The new body should not feel constrained in so doing.
The new body’s important functions include providing guidance to those who are making important financial decisions. The take-up of the services offered by Pension Wise, for instance, is extremely low. Of the 772,000 people who transferred some or all of their pension in 2017, only 66,000 had an appointment with Pension Wise, and an FCA survey found that only one in eight 55 to 64-year-olds who planned to retire in the next two years and who have a defined-contribution pension had used the Pension Wise service in a 12-month period.
The intention of all parties in the House is to have a new and effective organisation that ensures that in future we do not have that kind of problem of take-up by the citizen. We want to ensure that it is widely known that Pension Wise exists; that Pension Wise is vigorously advertising its purpose and function; and that, because we insist on independent advice being given, it is truly independent from Government.
I will just make one final point, which arises out of constructive discussions with the Minister. I am the first to recognise that there needs to be oversight and accountability. There must be oversight by, and accountability to, Parliament. Crucially, however, it would be inappropriate for the Government to interfere in the day-to-day conduct of the new organisation. It should be free to do its job and to do its job well, and therefore I hope that the Government will give the necessary assurances about it.
Yvonne Fovargue (Makerfield) (Lab)
Has my hon. Friend read Peter Wyman’s recent independent report on the debt advice landscape? He advocates that there should be somebody in charge of the whole debt landscape—almost a debt Tsar. That seems to be a really good idea, to maintain the independence of the debt landscape. Does my hon. Friend agree?
Jack Dromey
My hon. Friend, who is part of an honourable tradition of giving high-quality advice to people in times of need, particularly through citizens advice bureaux, is absolutely right. The evidence is damning; the need is apparent. It is now a question of how best that need is met. The new body is a step in the right direction, but it should not be the last word; it is the first “next step,” but it is an important step in the right direction.
Guy Opperman
I am grateful to colleagues for their comments. The Bill sets out absolutely clearly that the single financial guidance body will be at arm’s length from Government. That distance from Government means that the day-to-day decisions the new body makes will be independent, as they will be removed from Ministers and civil servants. Nevertheless, there is a sponsoring Minister, who remains answerable to Parliament for the activities of the new body, its effectiveness and its efficiency, including any failures, especially in the case of a body that receives public funds. It is important that there is a balance—I think all of us recognise that—between enabling the Department to fulfil its responsibilities to Parliament and to be accountable, and giving the new body the desired degree of independence.
Conferring functions on the new body involves a recognition that operational independence from Ministers in carrying out its functions is appropriate, and the new body will support delivery of the objectives of both the Treasury and the Department for Work and Pensions, to create a more effective system of publicly funded financial guidance and to give savers the confidence to save and access money in the future. The new body’s activities will be funded by a levy on the financial services industry and on pension schemes.
On Second Reading the hon. Member for Makerfield addressed one of the criticisms levelled at the Money Advice Service. All of us support what MAS is trying to do, its broad objective and the efforts it is making. However, one of the strong criticisms of it in its early years, which came from both the independent Farnish review and the Treasury Committee, which obviously operates on a cross-party basis, was that MAS lacked accountability and that the activities it delivered, and the money it was spending, could not be held to account by Parliament and the respective Minister.
The Farnish review, which is one of the reasons we are creating this body in the way we are, suggested that the Money Advice Service accountability regime was weak, and recommended that it be strengthened. The Treasury Committee expressed concerns that the Money Advice Service had moved its service away from its intended focus. I am certain that the hon. Member for Makerfield will be directing it to have a “laser-like focus”—the expression she used on Second Reading—on commissioning services, towards direct delivery and building up its brand name.
Lord knows, all Governments like to be held to account by Oppositions, and quite rightly too, but let us imagine that the single financial guidance body chose to do something that any Member of the Opposition or of the Government felt was inappropriate. The inability to hold that body to account and to hold a Minister to account would not be something the House would want. In the circumstances, it is appropriate that the responsible Minister is able to make representations, but it is very much a partnership system that needs to work well between the body and the Government, and there must be clarity about expectations and the approaches to accountability.
The correct way forward is to have a framework document setting out that particular method of working. That framework document approach, setting out the partnership so that there is due accountability to Parliament, while at the same time allowing the body to get on with the job that we all agree it should be doing, is well established and has been under successive Governments. In the circumstances, I believe that placing the requirement in legislation, as set out in amendment 23, is both unnecessary and undesirable, and I urge the hon. Gentleman to withdraw his amendment.
Jack Dromey
The Minister has said some helpful things, and he is absolutely right that it is about getting the right balance between accountability and operational independence. The proposal for a framework document is welcome. I simply ask that there is consultation on the nature of that framework document, including with stakeholders, at the appropriate stage.
On the establishment of the new body, the governance of it and precisely how that will be structured, we have heard what has been said thus far, but it will be important that we have high-quality and independent individuals engaged in the governance, including on a day-to-day basis.
On the basis of what I and the Minister have said, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Schedule 2
Transfer schemes under section 1
Amendment made: 18, in schedule 2, page 32, line 3, at end insert “and the devolved authorities.”—(Guy Opperman.)
See explanatory statement for amendment 1.
Schedule 2, as amended, agreed to.
Clause 2
Objectives
Mhairi Black
I beg to move amendment 37, in clause 2, page 2, line 19, leave out from “accordingly” to end of line 20 and insert—
“(da) to ensure the needs of people in vulnerable circumstances, including but not exclusively—
(i) those who suffer long-term sickness or disability,
(ii) carers,
(iii) those on low incomes, and
(iv) recipients of benefits,
are met and that resources are allocated in such a way as to allow specially trained advisers
and guidance to be made available to them.”
This amendment would require that specially trained advisers and guidance are made available to people in vulnerable circumstances and would provide an indicative list of what vulnerable circumstances might include.
The amendment came about because we were chuffed, when reading the Bill, to see that there was a mention of vulnerable people, especially given the nature of pensions and how much is at stake with them, but to be honest we felt that the wording was a little weak. I would like the wording tightened up to ensure that it is clear and means what I think it does. That is why we have suggested what we consider “vulnerable people” to mean, and it will be good to see whether the Government are happy to accept that.
We want to make sure that the new body is as accessible as possible for all people, regardless of their circumstances. Specially trained advisers and resources should make up part of that new body, so that people can have confidence and the ability to make the right decisions. I do not think that the amendment is that contentious; it just tidies up the Government’s wording.
Jack Dromey
I rise to support the proposition. We will deal with the issues of vulnerability and disability later in the Bill, but although it is true that not everyone who needs urgent and independent advice is necessarily in circumstances of vulnerability, the nature of the world of work and of the economy means that a lot of people’s backs are against the wall, especially after the high-profile collapses of late. We should make explicit what is implicit: the new body should proceed in the right way. I hope the Minister will give the assurance that everyone who turns to it will receive high-quality independent advice. A specific focus on support for the vulnerable is a legitimate objective.
Guy Opperman
I am keen to give assurance on that specific point. If the hon. Member for Paisley and Renfrewshire South will allow me, I will walk her through how we got to the situation where the Government chose to amend the Bill to add in the vulnerable circumstances clause that is the basis for her amendment. The Government take the view that the amendment is not necessary in the circumstances, and I will explain why.
The body’s activity towards the people who are most in need and in vulnerable circumstances has been the priority of all parties since the creation of the Bill. Vulnerable circumstances were not originally spelt out, but they were certainly spelt out on Second Reading in the House of Lords. There was extensive debate in the House of Lords on a cross-party basis with representations by Baroness Finlay, Baroness Coussins, Baroness Hollins and the Labour Lord, Lord McKenzie, about the need for clarity on access to financial guidance and awareness of financial services for people who find themselves in vulnerable circumstances.
The Government decided in the other place to state explicitly in clause 2(1)(d) that the body’s objectives include the need to support people in “vulnerable circumstances” when exercising its functions. An amendment was introduced to strengthen the objectives to ensure that the body’s
“information, guidance and advice is available to those most in need…bearing in mind in particular the needs of people in vulnerable circumstances”.
The Government’s amendment has created a statutory framework that will give clear direction to the new body to support people in those circumstances. That means that the body will be required to focus its efforts and resources on that area, and will look at the best ways to provide guidance to vulnerable people in different places.
A general principle of the Bill, which I will expand on in relation to this and other points, is that there is a danger of being overly prescriptive to a body that one is setting up with the specific purpose that it has the latitude to exercise the appropriate commissioning and employment of charities and organisations in particular places. Asking the body to have a generality of specially trained advisers and guidance risks being too prescriptive in the Bill. We want to ensure that the body has the latitude to take advantage of its expertise to find the best interventions and the best channels to address the needs of people in vulnerable circumstances now and in the future. That is not to say that the body itself may not choose to do exactly what the hon. Member for Paisley and Renfrewshire South has fairly set out, but that is for the body to do under the circumstances that it sees fit.
The risk outlined on Second Reading—I can see that I will have to refer to the hon. Member for Makerfield on several occasions—was the danger of duplication. Whether or not one feels that the Government or individual local authorities are providing appropriate services, other services are being provided, whether that is universal support or the visiting service, that support claimants with a face-to-face service and by offering to manage their claims. There is a duplication risk, which was the specific problem of the Money Advice Service in the past.
The general point is that we believe that it is wrong to be too prescriptive and to predefine a whole series of obligations, functions and capabilities of this organisation. That does not mean that we will not have a discussion going forward, nor that the body will not address these specific points, but I do not want to predefine and subdivide every single part. It should be left to the body to make those decisions as it goes forward. That does not in any way diminish the need for these things to be addressed, but I would not want that in the Bill. It is for the body, when it is fully formed, to address those points. In the circumstances, I invite the hon. Member for Paisley and Renfrewshire South to withdraw the amendment, having taken due note of the assurances that I have given.
Mhairi Black
I appreciate what the Minister says, but it is strange to say that the amendment is too prescriptive after talking about how important it is that the Bill has cross-party support and saying that it is about trying to bring about genuine change. I do not see what is contentious about fleshing out what vulnerable people means. The only downside that I can see to having the amendment in the Bill is the possibility of helping too many people. I appreciate that the Minister says that it is up to the body to decide, but that is where we will have to disagree, because I think that the purpose of the Bill is to ensure that people do not fall through the cracks anymore, so I would not be comfortable withdrawing the amendment.
Question put, That the amendment be made.
Jack Dromey
I beg to move amendment 24, in clause 2, page 2, line 32, at end insert—
“(4) In the case of members of the public who are self-employed “information, guidance and advice” also includes information and advice on business-related debt, in addition to personal debt.”
This amendment would extend the single financial guidance body’s remit to advise the self-employed on business finances and debts.
The Chair
With this it will be convenient to discuss amendment 25, in clause 2, page 2, line 32, at end insert—
“(4) In the case of members of the public who are self-employed—
(a) “financial matters” also includes information and advice on business-related debt, in addition to personal debt”, and
(b) “financial affairs” includes business-related financial affairs, in addition to personal financial affairs.”
This amendment would extend the single financial guidance body’s remit to advise the self-employed on business finances and debts.
Jack Dromey
Although self-employed people will be able to access the help of the new body for their personal finances, they will not be able to use it for their business finances. We have listened very carefully to the voice of the self-employed—on one hand organisations such as the Federation of Small Businesses, and on the other hand people I have spoken to in my own constituency, including taxi drivers and construction workers who are self-employed and, indeed, an individual who ran a fruit and veg shop in Erdington High Street and got into financial difficulties.
I have seen how self-employed people badly need advice and guidance, and there is all too often an overlap between their personal advice and guidance and that for the business in which they are engaged. That is why we say that evidence shows that, for the self-employed, the line between personal and business finances is usually blurred and can be very difficult to manage, particularly for those just setting out as self-employed people. The number of self-employed people is higher than ever before in our economy, so they need to be able to rely on the new body for advice and guidance when they need it.
Figures released last year suggest that the number of self-employed workers in the United Kingdom rose by 23%—from 3.8 million to 4.7 million—between 2007 and 2017. That represents a shift in the nature of the world of work and the way the British economy is working. Self-employed people now represent about 15% of the workforce, and 91% of businesses say they hire contractors. The majority of self-employed people are sole traders, and there is no legal distinction between them as individuals and as businesses. There were 3.4 million sole traders in 2017. The biggest increase in self-employed people was among women.
Although self-employment is a positive choice for most, there is a real problem with the conscription of some into reluctant self-employment. Either way, the average earnings of the self-employed are significantly lower than those of the employed. The figures vary—I would be the first to acknowledge that—but there has been growth in self-employment in higher-skilled, higher-paying areas, such as advertising, public administration and banking. Although some workers enjoy greater flexibility and control over their working patterns, self-employment can nevertheless have a negative impact on their access to finance.
As self-employment has increased, so has demand for advice about business-related debts. Last year, 36,421 people were helped by the business debt line run by the national charity the Money Advice Trust, which does outstanding work and gave us very good advice and guidance about the Bill. Demand for the debt line has increased from 24,000 in 2016 to 36,421. The Money Advice Trust says, and I think it is right, that it expects the rise in demand to continue.
The amendments would ensure that the SFGB provided self-employed people with information, advice and guidance about their business-related, not just their personal, debt and finances, with a focus on those who are most in need, in line with the body’s wider objectives. The amendments would apply to its debt advice and money guidance functions. As Lord Haskel said in the other place,
“the work of the SFGB should include the self-employed and micro-businesses, particularly at a time when the line between company employment and self-employment is becoming very blurred.”—[Official Report, House of Lords, 5 July 2017; Vol. 783, c. 933.]
Personal and business finances are closely intertwined for many self-employed people. Some 48% of self-employed people use a only personal current account for their business, and a further 17% use both a personal and a business account, according to the Financial Conduct Authority’s “Financial Lives” survey in 2017. The Money Advice Trust report, “The cost of doing business”, which is based on extended interviews with business debt line clients, found that almost seven in 10 of those who had taken out a personal loan were using it to prop up their business. Research by the University of Bristol’s personal finance research centre identified two key areas of overlap between business and personal finances: first, general living expenses, especially for those who live on their business premises; and, secondly, the use of personal credit to manage cash flow where necessary. Given the intertwining of business and personal finances for many self-employed people, if the SFGB does not offer information, advice and guidance on both, it will not be able to provide that growing section of the population with the support it needs.
I very much hope that the Minister will respond constructively to what we are saying and look at what might happen if the Government choose not to amend the Bill. I reserve my right to come back on that after hearing the Minister’s response.
Yvonne Fovargue
I want to make a short contribution about how the finances of the self-employed are muddied with their personal finances. I had a meeting recently with Amigo Loans, a guarantor loan provider. It said that an increasing part of its business is loaning to people in a personal capacity, although they know it is for business purposes. Is that a business debt or a personal one? The fact that it does not look at the business plan might make it a personal debt, although I do think it ought to be looking at the business plan. Is it a personal debt or a business debt for the guarantor who guarantees the debt? In a lot of cases, it is fairly unclear where the line lies. To have a firm demarcation line where no business debts are dealt with is probably detrimental.
Guy Opperman
I am grateful to colleagues for making this point, and I recognise that it is not a simple issue. To pretend that the dividing line is absolutely precise and clear would be naive and wrong. The hon. Member for Birmingham, Erdington and I discussed this issue yesterday. I will go away and consider the matter prior to Report and Third Reading. However, today I will oppose the amendment and I shall try to explain why. I will also explain why the Money Advice Service does not seek the change and answer some of the questions asked by the hon. Member for Makerfield.
The Money Advice Service provides a range of information and guidance, via webchat, telephone and online, specifically for the self-employed. That includes information and guidance on matters such as tax, national insurance, personal and business insurance, and guidance on the steps to consider when starting a new business. It also signposts to other free, impartial and expert services for self-employed people in respect of their business, including the Department for Business, Energy and Industrial Strategy’s business support helpline, the Money Advice Trust, which is funded and supported by the Government, and the comprehensive information on gov.uk.
Recognising the complex nature of a self-employed person’s finances, MAS also supports the provision of debt advice to self-employed people. This is a service that provides debt advice specifically for people who are self-employed. In relation to the Pensions Advisory Service and Pension Wise, pensions guidance is offered to everyone; those services are available to all, regardless of whether someone is self-employed.
When the single financial guidance body takes over the services, I see no reason why those services would not continue. There should be ongoing provision of that degree of support. We want the new body to continue the research and work that is already done by existing organisations, identify where there are gaps in financial guidance and debt advice provision, and look for ways to fill those gaps.
Through its strategic function, the body must develop a national strategy to improve the financial capability of members of the public and their ability to manage debt. To do that, it will work with a range of industry, charity, public sector and voluntary sector organisations to develop a strategy where they work together to address this problem and others in respect of people’s financial guidance and debt advice needs.
The single financial guidance body will not operate in a vacuum. As I alluded to earlier, there is online business advice, whether provided by Her Majesty’s Revenue and Customs or BEIS, and I would go further than that and give an example. The Start Up Loans Company helps people to get started in business. Self-evidently, it is funded by BEIS, and it works in partnership with the British Business Bank. It is a requirement of Start Up Loans Company finance partners to ensure that, as part of their service to the self-employed, they consider how someone could service any debts they have in respect of their business. They also do further signposting.
Craig Mackinlay (South Thanet) (Con)
On the question of what is a personal debt and what is a self-employment or business-type debt, if a self-employed person who is a sole trader—that is, unincorporated—takes on a loan for a van or something else, that by its very nature becomes a personal debt. That is the nature of being a sole trader. Complications may arise where that person, who to all other intents is self-employed, trades as a micro limited company. If, because of difficulties accessing credit through the limited company, that person decided to take a personal loan and then provide it as a director’s loan account to his or her own limited company, what status would that loan have? I imagine in law—
The Chair
Order. I remind the hon. Gentleman that interventions should be brief and to the point. I am happy to call him if he wants to make a speech, but he must keep his interventions a good deal shorter than that.
Craig Mackinlay
Thank you for that advice, Mr Stringer. This is of course a complicated area, which requires a little extra explanation. In that instance, the bank or credit provider would recognise that as a personal loan. I wonder whether that would be covered by the advice that may be available.
Guy Opperman
I recognise my hon. Friend’s expertise in such matters, and I thank him for his intervention. Support for self-employed people is covered by the Bill, because the self-employed are members of the public, in the way he outlined. Any personal business debt of a self-employed person is covered in respect of them being an individual member of the public.
I take my hon. Friend’s point about loans. I am delighted to say that I am not able to answer it right now, but I will definitely get back to him. In seriousness, we need to consider that point and work out whether there is any way of changing it and taking on board the views of the organisations that have practised in this area for some considerable time. I will certainly write to him with a specific answer and circulate that answer to all Committee members.
Jack Dromey
The hon. Member for South Thanet is absolutely right, and his examples about the complexity we face are fascinating. The Minister’s response has been helpful. The new service is welcome; there is a degree of confusion about exactly what it can do for the self-employed, but that has already been substantially clarified. We recognise the complexity the hon. Gentleman summed up so well, so if the issue of business advice—if I can use that as a shorthand term—is not addressed effectively at this stage of the Bill, it will have to be addressed at another stage. Even if we cannot make progress in Committee, the Minister’s undertaking to engage in discussions will be warmly welcomed by organisations such as the Money Advice Trust and the Federation of Small Businesses.
Guy Opperman
May I briefly clarify a point that I should have addressed in my response? I applaud the Money Advice Trust’s work, but in the briefing that it submitted to our Committee, it seeks broader business support, arguing that the single financial guidance body should address a host of other things and be available to small businesses more broadly—a mission creep that I would oppose. The MAT is a laudable charity and I respect entirely its good work, but that is a classic example of the mission creep that we want to avoid. Both the hon. Gentleman and I support the charity and its good works, but I believe that there is a limit to the assistance that the FSGB should give to that charity and its objectives.
Jack Dromey
It is legitimate mission creep. What is good about our exchange is that we recognise that making progress with the issues identified by the MAT and the hon. Member for South Thanet may be difficult in Committee, but we can move forward at a later stage. The Minister’s point is absolutely right, but no one is suggesting that we should duplicate the functions of other bodies. If we can move forward at a later stage, jointly engaging with the organisations that represent the self-employed and those who advise them, it will be welcomed both by the organisations concerned and by the self-employed who need that advice and guidance. On that basis, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Mhairi Black
I beg to move amendment 38, in clause 2, page 2, line 32, at end insert—
“(4) The single financial guidance body must, within three months of being established, define the following terms within the context of its objectives and functions—
(a) “information”,
(b) “guidance” and
(c) “advice”.”
This amendment would require the new body to define “information”, “guidance” and “advice” so that consumers are better able to understand which of the three would be most helpful to them.
Mhairi Black
The amendment is pretty straightforward and sensible. It would clarify the important differences between information, guidance and advice, which we know have a major impact on people’s decisions and how reliable they are if things go wrong. It is not often that parliamentarians admit ignorance, but before I became pensions spokesperson, I did not realise that there was any official difference between the three terms. I am a Member of Parliament and I have only recently found that out, so the Committee can imagine what it must be like for the general public. As long as the Government clarify the definitions of the three terms, I will be happy to withdraw the amendment.
Yvonne Fovargue
I support the hon. Lady’s request for definition of the terms, although I recognise that it is difficult not to stray into other areas. A further concern is that the information, guidance and advice need to be free and impartial. There are too many pensions providers that spend a lot of money—I heard of one spending £15 million—on ensuring their advice is compliant with all the FCA impartiality rules. As somebody said, if pension providers are spending £15 million on making their advice impartial, they must be expecting some return on their investment. That worries me—that people are gently steered towards a particular product if they go to a particular service.
I believe that some of the comparison websites that people use are not always impartial. If they take money for the top rankings, they are not providing a properly impartial service. People do not understand the differences between those comparison website that have paid-for rankings at the top and those that are completely impartial, based on objective criteria. Guidance on the types of investment can be different when it leads to a product sale, unlike when it is just helping a consumer through their options, completely free of any sales pitch.
Craig Tracey (North Warwickshire) (Con)
I declare an interest as chairman of the all-party parliamentary group on insurance and financial services. I welcome the Bill in general, and from my conversations with the insurance industry I know that it is very supportive of the Bill and of the establishment of the single financial guidance body as great step forward to having access to guidance at relevant points in life. Because of the welcome pension freedoms, that guidance has become more essential than ever before.
There is good practice in the industry already—for example, Aviva insurance is running its MOT at 50 scheme, on which the preliminary feedback has been very positive. The results show that getting advice made people far more engaged with their finances and more likely to plan for their retirement, and many went on to seek regulated advice. The crucial point that Aviva made was that by delivering the MOT at 50, people had time to change their plans, think realistically about the future to meet their retirement objectives.
I want the Minister to give clarification on three points. First, what will the Bill provide for consumers? From the APPG’s and my perspective, it should look at providing financial resilience, promoting early intervention to prepare for life events, and raising awareness of the benefits of protection products, which are particularly helpful for the self-employed—things such as income protection, critical illness and life insurance. In my experience as a broker, people generally only took those when it was too late and when they had had a bad experience. If we can help to advise people ahead of incidents, that would be really useful.
Secondly, could we have clarification on the timeline for implementing the SFGB and assurances that transitional agreements will provide certainty of access to guidance for consumers, and certainty for providers in relation to signposting arrangements? Thirdly, will the Minister set out how the new body will set standards to be approved by the FCA? The Bill says that that should happen, but it does not specify how it should be approached or how it intends to set out the strategy. Could the Minister provide some guidance on that? I appreciate that the answer to the third point might be quite detailed and I will be happy if we wants to write to me with the information. I look forward to his response.
Guy Opperman
To echo what the hon. Member for Birmingham, Erdington said, it has been a long week and I think we will all have situations where we start addressing particular clauses at the wrong time.
Guy Opperman
I hope not, too, but I have done so well thus far and it cannot last. I will try to address in their entirety the three specific points raised by the hon. Members for Paisley and Renfrewshire South and for Makerfield and by my hon. Friend the Member for North Warwickshire.
The first point is about whether the body itself will provide free and impartial advice and services. The shake of the head betrays the hon. Member for Makerfield. I draw her attention to clause 3, which I suggest she clearly has not read as much as she should have, because the House of Lords made sure that the provision was in the Bill. I accept that I am slightly straying off the subject of clause 2, but she will see that subsections (4), (5) and (6) of clause 3 set out that the function is to provide to members of the public free—
Mhairi Black
I understand the reference that the Minister makes to the functions described in clause 3, but the functions are meaningless so long as people do not understand what the difference is between information, guidance and advice.
Guy Opperman
I will come to the comprehension point in a second, if the hon. Lady will permit. I will deal with all three points.
After the legislation was suitably amended, debated, discussed and agreed with their lordships, it was specifically written into the Bill that the information, guidance and advice should be free and impartial. I take the point that the hon. Member for Makerfield raises, but I hope that she is reassured that that has been specifically written into the Bill, and is addressed there.
On the definition of terms, may I address the points made by the hon. Member for Paisley and Renfrewshire South that go to the fundamentals of her amendment? One of the key recommendations of the financial advice market review—sometimes known as FAMR—was to clarify the regulatory definition of financial advice. The Government consulted on revising the definition of regulated advice in the existing Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, so that regulated advice was based on a personal recommendation. That definition is in line with the EU definition set out in the markets in financial instruments directive 2004, catchily known as MFID. The Government agreed that revision, which came into force in early January 2018. We therefore suggest that introducing a new definition of advice in the Bill is unnecessary and potentially duplicative. It would cut across existing regulatory architecture, not just in respect of what the Bill is trying to do and the clients it covers, but across other aspects of the Treasury and dealings with the Financial Conduct Authority and industry and consumer groups. In addition, using legislation to establish definitions for those terms would not provide the flexibility in the future to adapt the definitions appropriately, if and when that needed to take place.
I also take issue with a number of points regarding the amendment. First, the three organisations that we are merging to form the single body do not seek the definitions that the hon. Member for Paisley and Renfrewshire South is seeking to persuade us of. Those organisations are a pretty good guide to what the Government are doing, because we have consulted at length, asked them what they want us to do, and they most definitely have not said, “Go away and define those individual points.” They want the degree of latitude to continue.
Secondly, the hon. Lady asked the body to do this within three months. To answer my hon. Friend the Member for North Warwickshire on timings, we hope that the body will be created—subject to the good will of the House and Her Majesty signing on the dotted line—between the end of October and the beginning of December. Asking the body to make, within three months of its creation, having merged three organisations, a definition that would probably apply across all financial sectors is, with respect, putting quite a big burden on the body. Also, it is not the appropriate organisation to do that. That should be done by the independent Financial Conduct Authority, suitably engaged in consultation with wider parties. We have done that in relation to advice; that is why we had the FAMR review. To be fair to the FCA, it took two years of long, hard struggle to come up with the specific definition that all parties were content with. I go back to the point that while those particular points are not sought by the individuals, I believe that it is not appropriate to give the definitions.
My hon. Friend the Member for North Warwickshire asked about timings. We will be up and running, with a fair wind, in winter 2018—but beware of Ministers who say when things will happen, and of course winter in parliamentary terms can stretch a long time. The standards by which the single financial guidance body will be judged are set out in clause 10, on which I am delighted to be addressing the Committee this afternoon, so I will not go into detail about the standards now but will ensure I set out a bit of detail in answer to that question when we debate clause 10, so bear with me. He also made a point about resilience and life events, which I will address briefly.
A simple point is made about resilience, as set out in clause 2 through the various objectives described, whether the consumer protection or the strategic function. It is also fundamentally set out in clause 3(9), which mentions
“financial capability of members of the public”.
One may use “resilience” or “capability”, but the words—without getting too much into definitions—are all but interchangeable and, in the circumstances, we believe that those provisions address capability and the points made by my hon. Friend.
Regarding preparation for life events, my hon. Friend is a passionate supporter, as am I, of the concept of the mid-life MOT, which has been pioneered by certain companies, including Aviva. As a Government, in particular the Department for Work and Pensions, we are looking at the idea of people, at different critical points of their life, the middle point in particular, assessing where they are in terms of finances, pensions, guidance and everything. That seems eminently sensible to us, and we encourage all private sector organisations to do it. We are formulating plans.
Yvonne Fovargue
But does the Minister agree that it is not only major life events that can cause a problem? In connection with financial resilience, we all know that it might be the broken washing machine that can cause a bump for people who do not have that amount of savings. On financial capability, does the Bill look at addressing the need for people to build up a small pot of savings?
Guy Opperman
The answer is yes. Capability is about the ability to deal with life events, whether the traditional ones such as marriage, birth of a child, retirement or the middle of one’s life generally, or—the hon. Lady is dead right—the washing machine or the car breaking down. There is formulated, as I am sure she is aware, things such as the sidecar proposal that is attached to auto-enrolment specifically to provide a savings pot to deal with life events, so that people are not affected by the sudden events involving £100 or £200 and so on. The Department is definitely working on such things, as we will seek to work with the single financial guidance body to ensure that it formulates those strategies. As the BBC puts it, there are other providers, such as Moneybox, Plum or—the name of the third one that I am particularly impressed by—Chip, which allow people to make small savings through day-to-day earnings and usage, giving them a pocket of savings to deal with things. We very much support all such organisations, and I utterly endorse the points made.
Mhairi Black
The logic behind the amendment is that right now we have hit a fork in the pensions road, because we are recognising that we might not be able to sustain a lot of the things in place now into the future. People are making decisions about their pensions when, to be frank, they do not have a clue about what they are doing, and they are ending up in horrendous situations because of a lack of understanding and of clarity. To me it seems perfectly reasonable to point out that those three terms, which may be used interchangeably in general conversation, in reality can have a massive impact on an individual.
The Government are promoting an ethos of educating and informing people, to ensure they make the right decision, and I do not see how the amendment waters that down in any sense. I know the Minister is saying that the body needs freedom, and so we cannot define terms as precisely as we would like, but that sounds like the Government are saying that we just have to trust the body’s good will. This is a Government Bill, so why not strengthen it where we can? In that spirit, I am happy to withdraw the amendment on the basis that my later amendments are given due consideration, and that the Minister takes on board what I said. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 2 ordered to stand part of the Bill.
Clause 3
Functions
Jack Dromey
I beg to move amendment 26, in clause 3, page 3, line 5, at end insert
“including by means of provision to the public of a pensions dashboard within the meaning of subsection (11).”
This amendment would require the single financial guidance body to provide for the public a pensions dashboard as part of its pension guidance function.
The Chair
With this it will be convenient to discuss the following:
Amendment 31, in clause 3, page 3, line 34, at end insert—
‘(11) In this section and section 5, “pensions dashboard” means a publicly available service where members of the public can securely view details of their state and other pensions savings.”
This amendment defines “pensions dashboard” for the purposes of Amendment 26 and 32.
Amendment 32, in clause 5, page 4, line 12, at end insert
“including by means of provision to the public of a pensions dashboard within the meaning of section 3(11).”
This amendment would require the single financial guidance body to provide for the public a pensions dashboard as part of its pension guidance function.
Jack Dromey
The lead amendment defines a pensions dashboard. It would require the single financial guidance body to provide for the public a pensions dashboard as part of its pension guidance function.
The idea of a pensions dashboard as a one-stop shop, enabling people to look at their pension scheme assets in one place, has been considered for a long time. We should have introduced one years ago. Many people across the country have very little idea of the value of their pension schemes—they may be in multiple schemes, and as a result they may have no idea what the returns might be. Pensions are a grey area for millions of people who believe they do not need to worry about it in the here and now, and that they will be able to deal with it when the time comes, but that is simply not the best or the most productive approach.
If someone has a solid awareness of the state their pension schemes, they have a much better insight into their future earnings after they retire, and they know whether they should put more—or perhaps, on occasion, less—money into their pension pot now. Crucially, this is about getting people to look forward and save for the future. A person moving jobs may have up to 11 small pension pots—that was the case for somebody I encountered recently—but perhaps only one provider has up-to-date details about them.
Government policy needs to be clear about whether and how the use of the dashboard can measurably reduce the small pots problem, and improve the position of savers whose funds are sitting in legacy products that offer poor value. We should introduce a pensions dashboard as a single public service dashboard overseen and hosted by the new single financial guidance body. It should be a safe viewing place, where an individual can see all the necessary information on their state and other pensions savings.
Although we did not press the amendment to a vote on Second Reading—indeed, depending on the Minister’s response, we may not do so today—we raised this issue because we urge the Government to look at making it a statutory duty, including for pension providers, to engage with the publicly owned dashboard, and thus to ensure that everyone has a complete picture of their pension situation when using it. The data should only be visible one way. Pension providers should not be able to see an individual’s pension dashboard. They must, however, be obliged to provide data towards it. If the direction of travel is in favour of a pensions dashboard—if that is common ground—the issue of what I describe as a duty to co-operate with the new mechanism is of the highest importance. If the dashboard is to be successful, all providers must release their data into it, although there still are some big, significant questions to be answered about governance, implementation and consumer protection —I would be the first to accept that—before the Government can move to compel all providers to provide the data that the industry is calling for.
Within the dashboard, there should be a pension finder service—an engine that sends out messages to search the records of all providers and schemes to see whether there is a match for the customer’s details. The engine would then collect that data to populate the consumer’s front-end viewing space.
The data of millions would be accessible through the dashboard, so I stress again: high standards, tough regulation and sound governance will be required to ensure that there is no abuse of a mechanism that is absolutely crucial to help people plan for the future. There are problems to be overcome, but a dashboard can make pensions guidance more effective. Individuals would have greater knowledge, which would improve the guidance conversation, with less time spent on working out what people have and more on giving the quality guidance that they need.
The direction of travel is common ground. We ask the Minister to brief the Committee on where the Government’s plans have reached, and I will respond accordingly.
Guy Opperman
I am delighted to have the opportunity to update the Committee on the pensions dashboard, which is a project I have very much taken to heart in the seven months I have had this job. I am massively committed to it. I endorse utterly the broad thrust of what the hon. Member for Birmingham, Erdington says. It is a groundbreaking project that will provide the holy grail of access to the variety of pension pots we have, in various shapes and forms, as we get older in life—state pension, private pensions or other types of pensions—on one accessible portal.
However, the proposal to launch the dashboard was taken only in autumn last year. The Department for Work and Pensions is undertaking a feasibility study, which will be finished in March. I propose to report to the House of Commons by written or oral statement before the end of this term. The objective, which is very ambitious, is to launch the dashboard in some shape or form by May 2019.
I resist the amendment on the simple basis that, although it is very possible that the single financial guidance body will ultimately run the dashboard, that simply cannot be said at the present stage. There are a considerable number of complexities with the dashboard: the retention of a huge amount of different types of data, whether from state pension data or private pensions; who has access to that data; who controls it; and whether that is something that should be done by the Government, as ultimately the most trusted provider—regardless of whether one trusts or does not trust any particular Government—or by a relatively independent quango such as the single financial guidance body. There is an issue about what body would take it forward and hold the data, and the extent to which the data is accessible, to whom and in what way. There is a lot of devil in the detail, but the objective is utterly clear.
The amendment seeks to put in the Bill that the single financial guidance body will be in charge of the pensions dashboard and will take it forward. This slightly goes to the earlier point from the hon. Member for Paisley and Renfrewshire South about three months. I would be nervous of saying to the single financial guidance body, which has a big job ahead of it, that it is being set up to merge these organisations, provide all these services, do all of the things we want it to do, and then say, “By the way, on top of that, you have to do the single most complex piece of administration of all aspects of all pensions straightaway within six months of your creation.” In my view, that would be a significant burden on that body at a very early stage. If it was a business, we would be asking, “Why deviate from the core purpose right now?”
It is possible that once the dashboard is up and running, the logical organisation to take it forward and run it would be the single financial guidance body, but I would be reluctant to commit to that in the Bill. I certainly do not want it to take that on right at the very start. I am happy to work with the hon. Member for Birmingham, Erdington and colleagues across the House as we go forward. I do not think there is a single naysayer to the project, but one should not underestimate its size or complexity.
For present purposes, I will resist the three amendments. I am happy to sit down with the hon. Gentleman and other Committee members and explain the issue in more detail, as I did when I appeared before my hon. Friend the Member for Brentwood and Ongar and his colleagues on the Work and Pensions Committee. The Chair of that Committee was very dubious about the likelihood of a dashboard coming into existence. He said that it would not happen during his lifetime, but I robustly assured him that it would. I hope that it will be up and running by May 2019, and that the body will advise it. I therefore respectfully resist the amendments.
Jack Dromey
I agree that this is a groundbreaking proposal. We have believed for some years that a pensions dashboard is essential, and there is common ground across the House that one should be introduced. We will not press the amendment to a vote, but we argue that such a dashboard should be part of the core purpose of the new SFGB.
What the Minister said is helpful. It is right that there is a feasibility study that includes investigation of the complexities, not least because, as I mentioned, on the one hand we want individuals to have access to high-quality advice and guidance, but on the other we have to protect data and ensure that individuals are not put at risk as a consequence of data leaks of one kind or another. I would be the first to recognise the complexity of that, and I welcome the fact that there will be a report in March.
Let me make two concluding points. We strongly believe that the SFGB is the best mechanism, but let us have that discussion at the next stage. I welcome what the Minister said about being prepared to sit down and talk that through at the next stage, including with the industry and stakeholders. All that is already happening, but it needs to be done in respect of the construction and final shape of the dashboard and precisely where it is located. I look forward to those discussions at the next stage and, on that basis, I beg to ask leave to withdraw the amendment.
Guy Opperman
With respect, Mr Stringer, I think you mean “amendments”. We are dealing with amendments 26, 31 and 32.
The Chair
I apologise for not using the plural. The Minister is absolutely right.
Amendment, by leave, withdrawn.
Jack Dromey
I beg to move amendment 27, in clause 3, page 3, line 27, after “develop” insert “deliver”.
This amendment would strengthen the SFGBs strategic function to support and co-ordinate a national strategy to a “develop and deliver” function.
The Chair
With this it will be convenient to discuss the following:
Amendment 29, in clause 3, page 3, line 31, at end insert—
“(d) financial guidance relevant to the modern labour market.”
This amendment creates a duty for the single financial guidance body to develop and co-ordinate a national strategy to improve financial guidance relevant to the modern labour market.
Amendment 39, in clause 3, page 3, line 31, at end insert—
“(d) the uptake of financial advice from the single financial guidance body by members of the public, and
(e) the understanding of pensions amongst those between the ages of 18 and 55.”
This amendment would add improving uptake of financial advice from the single financial guidance body, and improve understanding of pensions amongst people aged 18 to 55 to the requirements under the body’s strategic function.
Jack Dromey
These amendments deal with developing and delivering the function of the SFGB and with the notion of a national strategy to improve financial guidance relevant to the modern labour market.
Amendment 27 would strengthen the SFGB’s strategic function to support and co-ordinate a national strategy to what we call a “develop and deliver” function. We propose that the new body should not only play a part in developing and devising the national strategy for increased financial education and inclusion, but be tasked with delivering that function. As the primary body for advice and guidance on financial services, it will be best placed to deliver a scheme that seems to target a specific area of need—financial illiteracy—for many people in the United Kingdom.
As we have stated from the start, this is a two-topic Bill. The first concerns the establishment of a new arm’s length entity to replace the three existing publicly funded consumer bodies. The SFGB will have a strategic function to support and co-ordinate the development of a national strategy. The Bill’s stated aim, which we support, is to increase financial capability, reduce problem debt and improve public understanding of occupational and personal pensions. Especially given the appointment of a Minister for Financial Inclusion, the SFGB’s strategic function could be strengthened to a “develop and deliver” function, despite the fact that the body may have limited leverage in certain areas.
As stated in the Lords Committee on Financial Exclusion, a real strength of the Money Advice Service is its focus on what works and on gathering together an evidence hub. We do not want to see momentum lost—[Interruption.] I am confident, given Government Members’ reaction, that no one wants to see that work slip through our fingers; that would be a missed opportunity. The Committee concluded that
“it is important for the Government and service providers to continue to develop a greater knowledge of ‘what works’ when seeking to deliver increased financial capability.”
Sadly, there are many recent examples of vulnerable individuals who have been preyed upon by so-called introducers at a time when the state of their pension scheme has been in question—in particular, British Steel workers in Port Talbot and, more recently, Carillion workers. Earlier, I told hon. Members about a shift supervisor breaking down in tears because he made a wrong decision after receiving bad advice, and because 20 others on his shift had followed his bad advice. He said that he would never forgive himself. Introducers—vultures—pounce upon workers at a time when they are unsure about their future financial situation, and persuade them to transfer their pension savings to a different scheme that will lose them money and often attracts high fees. Such examples illustrate the need for a national strategy to improve the financial education available to the British public.
The admirable Michelle Cracknell, chief executive of the Pensions Advisory Service, makes the point that we have the green cross code—I am sure all hon. Members have seen it—to encourage the safe crossing of streets. It is inculcated in people’s minds and has been very effectively promoted. I went through it with my own kids. She says that, likewise—although not perhaps in the same way—we should encourage people to pause, think and get it right, particularly in circumstances of adversity. We should also help people plan for the future. Either way, that “Where do I turn?” is absolutely crucial. The new body will be a welcome step in the right direction, but we need to deliver a dynamic new body that works hard to create awareness.
The amendment would create a duty for the single financial guidance body to develop and co-ordinate a national strategy to improve financial guidance relevant to the modern labour market. Due to the increasingly fragmented and insecure nature of the contemporary labour market, many people are sadly perpetually in a precarious financial situation. I have seen that at first hand time and again in my constituency and in my former role at Unite the union. That group, now commonly known as the precariat, includes self-employed people, workers on zero-hours contracts, part-time workers, workers in the gig economy and those who are conscripted into bogus self-employment. I stress once again that I always draw a distinction between the admirable people—there are many—who want to work on a self-employed basis, and those who are given no alternative, including by employers such as Uber.
Due to the nature of their work and their hours, those people often find it difficult to access basic financial services. It can be hard for them to rent a home, to get a mortgage, to find home or contents insurance, and to access credit. That has contributed to record low levels of disposable income, alongside the longest wage stagnation in 150 years. Figures released last year suggest that the number of self-employed workers in the UK rose by 23% between 2007 and 2017, from 3.8 million to 4.7 million. Many of them are desperately in need of high-quality advice and guidance. What we are seeing is a shift in the nature of the world of work and the way that the British economy is working. The self-employed now represent 15% of the workforce and 91% of businesses. Although that can mean many enjoying greater flexibility and control over their working lives, it can have a negative impact on their access to finance.
A 2017 FCA report showed that consumers with no permanent address or who move regularly, which is often a characteristic of insecure employment, can regularly have problems opening bank accounts and accessing insurance and credit. That is a common situation for many people in the current labour market, particularly young people in metropolitan areas. Due to short-term tenancies and insecure working patterns, many people move on a regular basis. That can leave them open to problems accessing basic financial services and they may need guidance on the best way to go about that. The amendment proposes that the new body would need to devise its strategy and financial guidance taking into account the contemporary labour market and the challenges it delivers.
There is no question but that we have a rapidly changing labour market, with many badly in need of advice and support, as a consequence of patterns of employment. The Government have recognised the need for a focus on the issues about the modern labour market through the Matthew Taylor report. The amendment sits comfortably in the context of the overall scrutiny by the Government and Parliament on how we respond on what is permissible in the future in terms of patterns of employment, and how to, in the here and now, give support to people in insecure employment that time and again they so badly need.
The Chair
Just before I call the Government Whip, let me clarify my previous remarks about amendments being withdrawn. I was a little too eager to agree with the Minister. The question before us then was whether the amendment should be made. We were discussing two other amendments with that, but they were not for decision, so it was singular and not plural—I am just trying to be helpful, Minister.
Ordered, That the debate be now adjourned.—(Amanda Milling.)
United States Tariffs: Steel and Aluminium
Monday 12th March 2018
(6 years, 8 months ago)
Commons ChamberRead Full debate Financial Guidance and Claims Act 2018 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 12 March 2018 - (12 Mar 2018)
The Secretary of State for International Trade and President of the Board of Trade (Dr Liam Fox)
On Thursday 8 March, President Trump announced that the United States would impose a tariff of 25% on steel imports and a 10% tariff on aluminium imports after a period of 15 days, with the final day being 23 March. Canada and Mexico, with which the United States is renegotiating the North American Free Trade Agreement, have been exempted from the tariffs, subject to the successful conclusion of the NAFTA negotiations. For the products within the scope of the investigation, in 2017, the US accounted for 7% of UK steel exports and 3% of UK aluminium exports. In addition, the UK accounted for 1% of US steel imports and 0.1% of US aluminium imports in tonnage, at a value of £360 million and £29 million respectively. The President outlined that there is scope for further countries and certain products to be exempted from the tariffs.
From a UK perspective, as Members of this House know, the UK and the US are strong partners and allies, and the US-UK economic and security relationship is crucial. The US is our largest single-nation trading partner and accounts for a fifth of all exports, worth more than £100 billion a year. It is also the top destination for outward direct investment by the UK and the single biggest source of inward investment into the UK. We have a long-standing and special relationship with the US; however, that does not mean that if we disagree with something, we will not say so, and we do disagree with the US decision to implement tariffs on steel and aluminium imports based on national security considerations. Such unilateral trade measures have weak foundations in international law and are not consistent with the Department of Defence’s own judgment in an investigation that was conducted on the basis of national security.
There is undoubtedly a problem of overcapacity in the global steel market, but our strong view is that a global problem requires a global solution, not unilateral action. The UK has worked hard to address the issue of overcapacity. The Prime Minister called for a forum of G20 members to tackle this issue, which my right hon. Friend the Secretary of State for Business, Energy and Industrial Strategy attended in Berlin in November; the forum agreed comprehensive policy solutions. Most recently, the Prime Minister raised it during her visit to China, which is the world’s leading producer of steel and aluminium products. The UK will continue to work within the rules-based international trade system to tackle this problem.
Since the President asked the Department of Commerce to launch the investigation into the national security impact of steel and aluminium imports last April, the Government have made clear to the Administration on repeated occasions the potentially damaging impact of tariffs on the UK and the EU steel and aluminium industries. The Prime Minister has raised her concerns directly with President Trump. I have spoken on several occasions to the Commerce Secretary and to the US trade representative about the investigation, including this afternoon. I spoke again today to the director general of the World Trade Organisation, Roberto Azevêdo, and I regularly speak to the EU Trade Commissioner, Cecilia Malmström. Several of my Cabinet colleagues have raised this issue with their opposite numbers. The Government have worked closely with the EU as part of our unified response. In addition, I assure right hon. and hon. colleagues that we have been in regular contact with the UK steel and aluminium industry throughout. I spoke to Gareth Stace at the weekend and again this afternoon.
There are two routes to petition the US for exemptions from the tariffs. The first, overseen by the US trade representative, will exempt countries with which the US has a strong national security relationship and which agree alternative means to address the threat to US national security from the relevant imports. The second, overseen by the Department of Commerce, will evaluate product exemptions if it is deemed there is no domestic US alternative and there are national security considerations, but only after a request for exclusion is made by a directly affected party located in the United States.
The Department for Business, Energy and Industrial Strategy will be assisting UK industry in working with US customers to build their cases for the exemption of individual products. I will be travelling to Washington this week for face-to-face meetings with the US trade representative, Ambassador Lighthizer, and Commerce Secretary Wilbur Ross as well as leading members of Congress. I will be making the case for the UK as part of the EU. We have a strong defence and security co-operation relationship. As close allies in NATO, permanent members of the UN Security Council and nuclear powers, close co-operation between the UK and the US is vital to international peace and security.
As the House is aware, our current membership of the European Union means that the European Commission will be co-ordinating the EU response, and we have been clear that we will continue to adhere to the duty of sincere co-operation. The EU response is focused on three possible areas. First, the European Commission is preparing to introduce immediate duties on the US ahead of a World Trade Organisation dispute. The EU has shared a draft list of proposed items for duties and we expect it to publish this list early next week. Secondly, the EU can apply a safeguard measure of its own to protect the steel and aluminium industries from being damaged by an influx of exports to the EU caused by the displacing effect of US tariffs. Thirdly, the EU can pursue a dispute at the WTO. We are currently evaluating all aspects of these responses together.
We are clear that it is right to seek to defend our domestic industries from the direct and indirect impacts of the US tariffs, protecting both jobs and industrial capacity. We will also press for any response from the EU to be measured and proportionate. It is important that the UK and EU response works within the boundaries of the rules-based international trading system. Over the coming days, we will be working closely with British industry and the EU to seek swift clarification and mitigation. I commend this statement to the House.
Barry Gardiner (Brent North) (Lab)
I thank the Secretary of State for advance sight of his statement and for his telephone call over the weekend.
The world steel industry is on the verge of a crisis. In our domestic industry, 32,000 workers in the steel industry are facing an existential threat to their jobs. Many of those men and women are angry that it has taken the Secretary of State more than 10 days since President Trump’s initial announcement to come to this House and make a statement about the impact that this might have on their communities and what measures the Government are taking to protect their livelihoods. They expected better, and they had a right to do so, but I assure the Secretary of State that, for our part, the official Opposition will not seek to make this issue one of party political point scoring. Everyone in this House must work together. We will be constructively critical where we consider the Government can do better, but our fundamental position will be to work with the Government to achieve the best outcome for our steel communities, for our aluminium industry and for our wider economy.
The Secretary of State is correct that the fundamental cause of this crisis is overcapacity in the global market and a long-standing failure by Governments around the world to tackle dumping and unfair practices, but he should have acknowledged that this included his own Government. We have not forgotten that it was the Conservative Government in 2016 who sought to block EU plans to impose tougher tariffs on aggressive Chinese steel imports. Global over-supply has seen other countries dump their surplus—a surplus often created by actionable subsidies and lax enforcement of labour standards and workers’ rights—at less than market value.
Although the global situation has not been created by President Trump, the manner in which he has gone about trying to resolve its impact on US producers is fundamentally wrong and threatens to tip a very bad situation into a full-scale global trade crisis. The application of 25% tariffs on steel and 10% on aluminium imports into the United States is unjust and unjustifiable. The suggestion that such tariffs are necessary under section 232 to mitigate a threat to American national security is patently false. The US Secretary of Defence himself has publicly stated that US military requirements represent no more than 3% of US steel production and that the Department of Defence is able to acquire the steel and aluminium it needs for US national defence requirements. The UK steel industry has made it clear that the amount of UK steel exports to the United States military industrial complex is “very small indeed”.
The Secretary of State says that Trump’s tariffs have weak foundations in international law. In fact they have none. The truth is that the President is seeking to bully and threaten his trading partners to bring them weakened to the negotiating table. The temporary exemption for Canada and Mexico, making their position subject to a renegotiation of NAFTA that is favourable to the USA, is just one example. He is doing the same with the UK and Europe, where he wishes to reverse the US trade deficit.
Given that the Secretary of State accepts that the tariffs are unjustified, I ask him to consider that the two routes he outlined for petitioning for exemptions from them is to act as if they have a spurious legitimacy. This is precisely the trap that President Trump has set: “Negotiate with us and we will not bully you further.” In the part of Glasgow where I grew up, that was called a protection racket. If the Secretary of State does go down this route of trying to secure an exemption, will he give a commitment now to be totally transparent about any price that he has to pay and any assurances that he has to give to the US Administration in order to get it? It is reported that, following the Australian Foreign Minister's meeting with Rex Tillerson, these tariffs may not be applied to Australia. However, it has also been reported that Australia has had to concede to American demands for a bilateral security agreement, which would see Australia forced to commit to greater military spending. Will the Secretary of State also be clear about how any such attempt by the UK to secure an exemption sits with the duty of sincere co-operation, to which he rightly referred in his statement?
President Trump is imposing these tariffs on national security grounds precisely because, under WTO rules, this means that article 21 of the General Agreement on Tariffs and Trade would not apply. This specifically prevents member states of the WTO from demanding clarity on the grounds of such pronouncements and prevents them from commencing dispute proceedings or taking retaliatory action. The President is seeking to undermine the multilateral rules-based system of the WTO, to which he has long been opposed. He has said that he would welcome a trade war and thinks that America could win it. He cares nothing for the viability of UK producers who have respected the rules. He is treating them no differently from their competitors who have not. As the US market closes to our exports, countries that would otherwise export into the US will seek to divert their production to the UK, which will tend to undercut domestic producers here even further.
What action is the Secretary of State taking to defend against this trade divergence? He must recognise that our industry is particularly vulnerable because we have a Government who pride themselves on taking the weakest possible approach to remedying unfair practices by their adherence to the lesser duty rule. Both the Trade Bill and the Taxation (Cross-Border Trade) Bill currently going through Parliament were opposed by the Labour party precisely because they proposed to create what the Manufacturing Trade Remedies Alliance described as
“one of the weakest trade remedy regimes in the world.”
Will the Secretary of State say whether he will consider tabling Government amendments to strengthen both the statutory representation function of the Trade Remedies Authority and the powers available to it, in line with the amendments proposed by the Opposition in Committee?
The Secretary of State spoke of the retaliatory measures that the EU Commission is preparing. What assessment has his Department made of the legal rights to recourse under article 8 of the WTO agreement on safeguards and what representation has he made to the European Commission’s Directorate-General for Trade in relation to these measures? Is he persuaded that they would be lawful? Is he persuaded that they would be effective?
The Secretary of State is fond of painting international trade as a balance of consumer and producer interests. The fear of thousands of steel and aluminium workers in the UK is that he naturally leans too far in favour of lower prices for the consumer. He needs to prove to them that he will stand up for British industry, for their jobs and for their communities. They need confidence that he will tackle unfair practices that distort the market. If he does, he will have the Opposition’s full support.
Dr Fox
I am grateful to the hon. Gentleman for his co-operation over the weekend and for some of the constructive suggestions he made about how we might apply some further pressure to those US producers to enable them to seek exemptions for imports from the UK. He is right that there is overcapacity. The G20 global forum on steel excess capacity has made 28 recommendations. We now wait to see whether China will implement those recommendations, which is the key to sorting out the global overcapacity issue.
We have regularly said that we do not believe that section 232 was an appropriate vehicle for carrying out this investigation. Not only does the UK send some specifically high-end steel products into the United States that the US market is not necessarily able to provide for itself, so tariffs will apply an unavoidable increase in cost to American inputs, but we sell some specialist steel into the American military programme, making action taken against the United Kingdom on a national security ground quite an absurdity.
The hon. Gentleman is right to mention the sincere co-operation. I have made it very clear to the Commission that we continue to operate on that basis and that we will replicate the EU’s trade remedies systems as we leave the European Union. I remind him, though, that the Labour party voted against the setting up of the Trade Remedies Authority, not the issues that relate to its operation. That was a dangerous thing to do. However, it is right that we regard this as a national issue. There is no fundamental difference between us on the basis on which the section 232 investigation was conducted, nor on the options that we believe the European Union should take as a response.
John Redwood (Wokingham) (Con)
Will the Secretary of State stress to the EU that it is in our interests to try to take some of the tension out of this festering dispute, rather than to take it on to another height, given that the President is already talking about tariffs against German cars, for example? It is surely in our interests to get back to tariff-free or low-tariff business.
Dr Fox
The EU is taking countermeasures because the EU views section 232 itself as a safeguard. Any action that the United States were to take in response to that would be completely out of line with international trade law, as well as exacerbating an already tense situation.
Hannah Bardell (Livingston) (SNP)
This really is a blow to those right-wing, free-market Brexiteers who argue that the US will welcome a trade deal with open arms. Anyone looking at the somewhat unhinged tweets coming out of President Trump’s office will tell us otherwise. Given the Secretary of State’s nationality and where he was brought up, I am interested to know whether he has raised the matter specifically of Scottish steel and aluminium, and the steel industry’s impact on all nations of the UK. It was in 1992 that his Conservative Government closed Ravenscraig in Scotland, decimating 1,200 jobs and livelihoods, and it was the Scottish National party Government in Scotland who brought back into production the steelworks in Clydebridge and Dalzell and the aluminium smelter in Lochaber. We are fed up in Scotland with clearing up his Government’s mess and we do not want to have to do it again.
We know from recent reports in the press that the geographical indicators of products such as Scotch whisky could be under threat in a US-UK trade deal. The Secretary of State may have seen the article in The Scotsman last week suggesting that Scotch whisky is
“among the products that could carry a ‘Made in America’ tag after Brexit.”
It further said:
“US lobbyists are calling for the UK to drop geographical name protections after Brexit to allow supermarkets to import American copies.”
That would be outrageous.
Will the Secretary of State commit to protecting our valuable steel and aluminium industries and not to trading off our vital GIs for Scotch whisky in any trade deals? Given that a Tory Brexit would reduce UK GDP by 8% and put at risk some of our key exports, will he finally reconsider his approach to Brexit and admit that he was wrong in suggesting that leaving the EU single market and customs union could somehow be overcome by magical trade deals with the US and the EU that were going to be, in his words, the “easiest in human history”?
Dr Fox
It is not long since I remember the SNP being delighted at some of Mr Trump’s tweets, when he was having some of his relationships with the previous SNP leader.
We can best tackle this issue as a united United Kingdom in line with our European Union partners. The hon. Lady dares to raise the issue of GI. These matters are in the roll-over of the EU trade agreement for which we are trying to get continuity in our current Trade Bill and the customs Bill. She needs to understand that she actually voted against the roll-over of those Bills that would have given the very protections for which she is asking.
Julia Lopez (Hornchurch and Upminster) (Con)
In its condemnation of President Trump’s proposed steel tariff, the EU has implicitly accepted that it would be a similarly retrograde step to impose tariffs or engage in retaliatory measures with key trading partners. How will my right hon. Friend be using the President’s announcement to make the case for open frictionless trade with the EU post Brexit and to assert the UK’s position as a leading proponent of free trade in the 21st century?
Dr Fox
We are seeing the sort of problems that come from introducing protectionist measures. Tariffs will very seldom—for any length of time—successfully protect a domestic industry. They are likely to add cost to the inputs for that economy. In the United States, where 140,000 people are employed in the production of steel, there are also 6.5 million people in industries dependent on steel usage who will not be helped by an increase in the price. My hon. Friend makes a good point. We should all be recommitting ourselves to an open, liberal, global trading system, rather than considering impediments to it.
Mr Chris Leslie (Nottingham East) (Lab/Co-op)
If the Secretary of State wants to rebuff Donald Trump’s claim that these tariffs are for national security reasons, he need only look at the President’s tweet from six hours ago, in which he starts off down the avenue of saying, “Oh, what about European farming tariffs or manufacturing tariffs?” It is quite clear that the Secretary of State and the European Union should be able to drive a coach and horses through the national security nonsense that the American President is putting up. Will the Secretary of State at least see this as an opportunity for us to work with our partners in the European Union and to use the leverage that we have in that alliance of 500 million customers to ensure that the Americans cannot walk all over us?
Mr Deputy Speaker (Sir Lindsay Hoyle)
Order. A load of constituencies are affected. May I suggest that we have short answers and short questions, so that hon. Members can get in?
Iain Stewart (Milton Keynes South) (Con)
My right hon. Friend has rightly mentioned that many of the UK’s exports are very high value and specialised and that many of the supplies go to the United States military. Does he have an opinion at this stage whether the product exemption or the country exemption route offers the best hope for gaining an advantage for the United Kingdom?
Dr Fox
My hon. Friend asks a very good question, but it is difficult to answer until we can explore in greater detail with the US authorities exactly what the details will mean. In any case, whichever routes are the best to gain exemptions for the United Kingdom and the European Union are the ones that we want to follow.
Catherine West (Hornsey and Wood Green) (Lab)
What is the Secretary of State’s view on comments in the past 10 days regarding a tit-for-tat approach—for example, with peanut butter, cranberry juice and other products that are consumed here? Is this a good and sensible approach?
Dr Fox
The hon. Lady asks a good question. As I said, the EU intends to impose countermeasures under article 8 of the World Trade Organisation safeguards agreement, because it believes that section 232 itself is a safeguard. The EU is therefore entitled to respond to that. Let me say, though, that this constant upping of the ante regarding what may happen and what countermeasures may be taken is not a sensible way for us to approach global trade. If she is suggesting that it would be wise for everyone to keep the temperature down, I entirely agree—100%.
Mr Mark Prisk (Hertford and Stortford) (Con)
I welcome the Secretary of State’s statement in terms of its content and its tone. Free trade is about being free to trade within the agreed rules; it is not about a free-for-all. May I strongly encourage him to reiterate that message both to the United States and to China?
Dr Fox
I take every opportunity to do so. It is worth remembering that we have in the United States a number of those who very strongly agree with us, not least inside the American business lobby, many of whom may be harmed as a result of the measures that may be undertaken. We also have very strong and vocal allies in the US Congress, and I very much welcome them making their voices known in recent days.
Anna Turley (Redcar) (Lab/Co-op)
I would be very concerned if the Government were pinning all their hopes on an exemption either for the UK or for the European Union, because there will still be a substantial knock-on effect of further dumping on our shores by the countries that behave badly when they are shut out of the US. Has the Secretary of State done an impact assessment for the British steel industry on the knock-on effect of further global overcapacity as a result of these tariffs?
Dr Fox
We are working alongside the industry to look at that. My colleagues in the Department for Business, Energy and Industrial Strategy are engaged in that work. The hon. Lady knows that Skinningrove is a very good example of what I was discussing earlier. It is one of the areas where we make specialist steel that goes into the US programme, so the concept that we should be taken to task on a national security basis for providing the US with something that it needs for its own security programme does not make much sense.
Adam Afriyie (Windsor) (Con)
It seems to me that tariffs and protectionism fundamentally undermine the industries that they seek to protect. Can the Secretary of State confirm that it remains the British Government’s position that we are committed to world-wide free trade? Will he be seeking in some way to gain a bilateral opt-out from these tariffs as soon as we are able to do so?
Dr Fox
As I have said, we will work alongside the European Union because we have a duty of sincere co-operation for as long as we are members. I have often taken the view that it is strange that people should want us to obey the rules when we want them and not when we do not want them. We have a legal duty as EU members to fulfil this. We intend to do so, and we will work with our EU partners accordingly. As a country—this has been true under Governments of both colours—we have believed in free trade. We have been a global champion of free trade. Let us remember that free trade is the means by which we have taken 1 billion people out of abject poverty in a generation, and we as a country should be very proud that we have been in the lead in that.
Sir Vince Cable (Twickenham) (LD)
Can the Secretary of State give us some examples of how he has been able to use our close and special trading relationship with the United States to develop his vision of an open, liberal, multilateral trading system?
Dr Fox
As the right hon. Gentleman knows, we are unable to conduct an independent trade policy for as long as we are members of his beloved European Union. We have a trade working group with the United States. We are looking at short-term liberalisation. We are looking at the areas that we might look at in a future free trade agreement. We are looking at co-operation in the WTO when we leave. As he sits and looks, for some reason, very smug, he would do well to remember his comments from yesterday, which were as mean-spirited as they were wrong in substance.
Crispin Blunt (Reigate) (Con)
I congratulate my right hon. Friend on his answer to the right hon. Member for Twickenham (Sir Vince Cable).
My right hon. Friend says that when he goes to the United States, he will meet members of Congress. Will he continue to build the case with our Republican friends in Congress for the open, liberal trading system that we all support—on both sides of this House—to make sure that this can be delivered once we are out of the European Union?
Dr Fox
I would just correct my hon. Friend a little. We are not just talking to Republican members of Congress; there are very strong Democrat elements that are also in favour, and have long been in favour, of free trade. It is very important that in this country, in the United States and elsewhere, we work with like-minded people who believe in genuinely open, liberal global trade to achieve the ends that we have in common.
Jessica Morden (Newport East) (Lab)
The recovery that we have seen in our steel industry has been fragile. We are facing, as my hon. Friend the Member for Redcar (Anna Turley) said, not only the direct impact of tariffs on our exports but the indirect effects of other countries finding a home for displaced steel. The Government have been slow to act during the steel crisis in the recent past. Can the Secretary of State assure my steelworking constituents that the Government will do everything they can to fight for our industry at this time?
Dr Fox
As I made clear, the EU will impose countermeasures because it believes that what we are witnessing is a safeguard. We believe that that is not justified by the section 232 case on national security. We will, alongside the EU, take whatever measures are required to ensure that that is dealt with.
Michelle Donelan (Chippenham) (Con)
What steps is the Secretary of State’s Department taking to ensure that the UK can protect British businesses in all sectors from unfair trading practices once the UK leaves the EU?
Dr Fox
We touched on that earlier. We will do that by replicating the trade remedies measures that exist. To do it, however, we have to set up a Trade Remedies Authority under the Trade Bill that is currently going through the House. I hope that the Opposition parties will look again at their rather inexplicable decision to vote against the setting up of a Trade Remedies Authority.
Mr Deputy Speaker (Sir Lindsay Hoyle)
Unfortunately points of order come at the end of the statement.
Nic Dakin (Scunthorpe) (Lab)
In 2002, when the US Administration last did this, US economists estimated that it cost the US economy 200,000 jobs, and the Administration had to back down when the EU took them to the WTO. Will the Secretary of State reassure this House, and steelworkers in my constituency and elsewhere, that the UK will argue for the strongest possible safeguard measures within the EU’s response?
Dr Fox
We hope that we can persuade the United States of an EU exemption so that we do not need to go down this particular route. I hope that sense will prevail. The hon. Gentleman is quite right to raise the 2002 issue. At that point, there was a great deal of activity where an alliance between the free trade elements in Congress and the business community in the United States came together to change the mind of the Administration at that time. I hope that such a combination would be successful this time.
Paul Masterton (East Renfrewshire) (Con)
As we have heard, President Trump’s announcement has caused widespread concern within America itself. What steps will the Government be taking to exert pressure on President Trump not only from the outside, as part of the EU, but from the inside, in terms of the American political and trading establishments?
Dr Fox
As I have said, there is a great deal of opinion inside Congress, within both parties, that this is a mistaken route to take. In recent days, I have had discussions with, for example, Paul Ryan on this very subject. We should be trying to mobilise all the allies we can. I mentioned earlier the co-operation from the hon. Member for Brent North (Barry Gardiner). It is very important that we deal with this not just politically and through business, in that there is a role for the trade unions to play in talking to their opposite numbers in the United States where industries that are users of steel could potentially be damaged should the price of that steel rise as a result of tariffs. We can take a multi-layered approach to dealing with this issue, and we have a duty to use every one of the levers that we have.
Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op)
Diversionary dumping is also the crucial issue for steelworkers at the Celsa plant in my own constituency. Does the Secretary of State not find it ironic that he is talking about the importance of working together across the EU to put in place the safeguards that are so necessary while at the same time advocating pulling us away from that and swimming against the tide alone? When he is speaking to his US counterparts, will he remind them that every single US state lost jobs as a result of George W. Bush’s actions in 2002?
Dr Fox
As I have said, the EU can take counter measures on the basis that it believes that this is a safeguard. It could also make a safeguard of its own if it felt that a surge of displaced steel product was damaging our own market. I remind the hon. Gentleman that this is not just a dispute between the United States and the EU but involves all the countries in the world who are steel producers. The WTO is much bigger than the EU, and we will not be leaving the WTO as we are a founder member.
Mr Simon Clarke (Middlesbrough South and East Cleveland) (Con)
I thank the Secretary of State for referencing Skinningrove in his answer to the hon. Member for Redcar (Anna Turley), because, as he rightly says, there would be a serious threat to that plant as it produces very high-grade steel. Will he commit to all the necessary support for Skinningrove, especially given that the core products produced there for Caterpillar, an American firm, are not produced in the US market, and therefore pose no threat to US jobs?
Dr Fox
My hon. Friend makes an important point. The exports from Skinningrove to Caterpillar make up about 25% of the site’s output and he is right to say that US producers have poor capability in regard to this product. The application of tariffs is therefore likely to result in a rise in input costs, which would be to no one’s economic benefit.
Nick Thomas-Symonds (Torfaen) (Lab)
We all hope that these tariffs will not be imposed on 23 March, but if they are, what steps will the Government commit to taking in order to support steelmaking in this country and our steelmaking communities?
Dr Fox
That date, 23 March, is not quite the deadline that it might appear. My initial discussions with the US Department of Commerce and the Office of the United States Trade Representative have made it clear that the period of exemption will continue some way beyond the initial introduction. Clearly, if there are going to be exemptions for the EU or the UK, we would want to see them introduced as early as possible. We will continue to push for exemption on the basis that I have set out today.
Bob Stewart (Beckenham) (Con)
When my right hon. Friend travels to Washington later this week, will he be accompanied by representatives from Brussels? Obviously, we are still an EU member and cannot act unilaterally—yet.
Dr Fox
I do not require a babysitter from the EU on my visit to Washington. We are in continuous contact with Commissioner Malmström and her team, because this is an issue that affects us all. It would affect us whether we were in the European Union or not, however, because these actions are being taken not just against the EU but against all steel producers globally, all of whom will be equally affected.
David Hanson (Delyn) (Lab)
Did the Secretary of State, or for that matter the European Union, have advance knowledge of President Trump’s statement on 1 March? Either way, what does this say about future relationships with the President?
Robert Courts (Witney) (Con)
What representations has my right hon. Friend made to China with regard to tackling the global overcapacity of steel?
Dr Fox
As I have said, through the work that we are doing multilaterally, there are currently 28 outstanding recommendations that we expect China to apply. The Prime Minister raised this matter on her recent visit to China, and we are continuing the conversation. We understand China’s need for the production of aluminium and steel for export and for its domestic use, but if we are going to have a rules-based system, the rules need to be obeyed. They also need to be transparent, and we need to have sufficient information to determine whether the WTO rules are still effective.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
If faced with a trade war, what post-Brexit trade defence mechanisms would little Britain employ against the might of the US economy?
Mrs Kemi Badenoch (Saffron Walden) (Con)
As tariffs go, 25% is particularly high and could lead to all sorts of unforeseen consequences. Is there any evidence that there will be trade diversion to the UK as a result of the US imposition of 25% tariffs?
Chris Bryant (Rhondda) (Lab)
The Secretary of State jokes that it is not clear that anyone knew about the President’s announcement before he made it, but it is worse than that. Sometimes, it looks as though the President himself does not know what he is about to announce, even when he has started to announce it. All too often, it involves a tweet in search of a policy. Are not the really disturbing matters not only the growth of protectionism in America but the false promise that it offers to some of the poorest people in the United States, who in the end will not benefit one jot from it?
Dr Fox
The hon. Gentleman makes an even better point than he thinks he has—[Interruption.] Or, in his case, possibly not. In recent years, we have seen a worrying trend among G20 countries to impose protectionist measures. In 2010, we saw about 300 non-tariff barriers to trade being operated by the G20. By 2015, that figure had risen to around 1,200, so there has been a gradual move away from the concept of global free trade and a temptation for countries to impose non-tariff barriers. In addition to making the economic case, we should remember that those countries that have benefited from free trade should not be pulling up the drawbridge behind them and denying those benefits to developing countries.
Mr Philip Hollobone (Kettering) (Con)
Is China doing anything at all to help to cut the global oversupply of steel?
Kate Hoey (Vauxhall) (Lab)
Given what President Trump said during his election, none of us should really be surprised by this. If the Secretary of State does not manage to change the mind of the United States Government when he goes to Washington, and if they offer the United Kingdom an exemption, would that exemption come in from March 2019 or would it have to be subject to the almost ridiculous implementation period?
Rebecca Pow (Taunton Deane) (Con)
Close co-operation between the UK and the US is vital to international peace. One route to petitioning the US for exemptions to the proposed tariffs would be to demonstrate the strong link with national security. How confident is my right hon. Friend that we can make a strong case on those grounds?
Dr Fox
Of course we have a strong national security linkage through our relationship in the Security Council and through being nuclear powers in the world, but it is always worth reminding our US colleagues who was alongside them in Iraq and Afghanistan and in many of the other conflicts that the United States has been involved in. The United Kingdom has never been found wanting as a loyal and steadfast partner in our bilateral security and in global security more generally.
Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)
Seeking exemptions from the US steel tariffs will not in itself protect the UK’s steel industry from dumped diverted steel from the American market. Will the Secretary of State undertake to work with the EU to ensure that whatever measures are necessary to preserve the UK’s steel industry are taken, and to work with the WTO to establish a more rational anti-dumping regime internationally?
Dr Fox
That is what we in the WTO are for. Its purpose is to ensure that there is a rules-based system and that the rules are applied, and that when the rules are not applied, there is sufficient mitigation to help those countries that are affected. In all the things that the hon. Gentleman has just mentioned, that is where we regard our duty as lying.
Jack Brereton (Stoke-on-Trent South) (Con)
As the Secretary of State will know from visiting Goodwin International in my constituency, Britain is a world leader in the specialist precision engineering of steel products. This is important not only for our British industry but for supplying US defence with equipment. How can we ensure that the US recognises that fact, so that those vital British products can continue to be exported to the States?
Dr Fox
The US Department of Defence has made it quite clear that it fully understands the contribution that the United Kingdom makes. Its report made it clear that it did not believe the use of section 232 was the appropriate means of dealing with concerns about global overcapacity. I hope that the good sense of the Department of Defence will be diffused throughout Washington.
Lady Hermon (North Down) (Ind)
May I commend to the Secretary of State the experience of Bombardier? In recent months, it risked losing thousands of jobs because of unfairly imposed US tariffs of 300%. The winning formula for defeating that proposal—and having it unanimously thrown out in the US—involved a combination of trade unions, management, local MPs and Ministers right across the Government, along with the personal intervention of the Prime Minister when she spoke to President Trump at the Davos economic summit. That strategy worked for Bombardier, so may I commend it to the Secretary of State and suggest that it is repeated in order to protect the steel industry in the United Kingdom?
Dr Fox
We have had, as I said earlier, a wide range of contacts in a wide range of areas. The International Trade Commission was ultimately the vehicle that sorted out the Bombardier case, so there are still in the United States those elements of an independent, free trading policy that we can rely on, on occasions when they are needed. It was not just the politics ultimately, hard though we tried for Bombardier, but the American mechanism itself—the ITC—that has a lot to be commended for.
Kevin Foster (Torbay) (Con)
Today it is steel and aluminium. Tomorrow it could easily be the photonics industry, which Torbay businesses that sell to the United States are part of. On Commonwealth Day, will the Secretary of State reassure me that we are also talking with our allies within the Commonwealth about what we can do to defeat a policy that will be as negative for the United States and for them as it will be for us?
Dr Fox
I said in an earlier answer that the people who have the most to lose if we move away from a global concept of free trade are the world’s poorest. If we genuinely want people to be able to trade their way out of poverty, they can only do it in a genuinely free trading environment, and the more non-tariff barriers that advanced countries put up, the less chance they have of doing so. It is in everybody’s interests to pursue a global free trade policy. This country has always shown the way on that, and this Government will continue to show the way.
Mr Deputy Speaker (Sir Lindsay Hoyle)
Last but certainly not least, Dr David Drew.
Dr Drew
With regard to what the Secretary of State just said, will he do all he can to intercede with not just the US but the EU to make sure that agricultural products do not become part of a wider trade war? It is essential for the reasons he gave that less developed countries have continued access to all those markets.
Mr Deputy Speaker
The Financial Guidance and Claims Bill will not be taken today, so we will deal with the next statement, and the rest of business will be completed. After the next statement, we will take points of order.
Financial Guidance and Claims Bill [Lords]
Tuesday 24th April 2018
(6 years, 7 months ago)
Commons ChamberRead Full debate Financial Guidance and Claims Act 2018 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 24 April 2018 - (24 Apr 2018)
17:04 - The House divided: - Ayes: 255 / Noes: 293 - Question accordingly negatived.
17:20 - The House divided: - Ayes: 255 / Noes: 293 - Question accordingly negatived.
The Economic Secretary to the Treasury (John Glen)
I beg to move, That the clause be read a Second time.
Madam Deputy Speaker (Dame Rosie Winterton)
With this it will be convenient to discuss the following:
Government new clause 9—Unsolicited direct marketing: pensions (No. 2)—
‘(1) The Secretary of State may make regulations prohibiting unsolicited direct marketing relating to pensions.
(2) The regulations may—
(a) make provision about when a communication is to be, or is not to be, treated as unsolicited;
(b) make provision for exceptions to the prohibition;
(c) confer functions on the Information Commissioner and on OFCOM (including conferring a discretion);
(d) apply (with or without modifications) provisions of the data protection legislation or the Privacy and Electronic Communications (EC Directive) Regulations 2003 (S.I. 2003/2426) (including, in particular, provisions relating to enforcement).
(3) The regulations may—
(a) make different provision for different purposes;
(b) make different provision for different areas;
(c) make incidental, supplementary, consequential, transitional or saving provision.
(4) Regulations under this section are to be made by statutory instrument.
(5) A statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament.
(6) If before the end of June in any year the Secretary of State has not made regulations under this section (whether or not in that year), the Secretary of State must—
(a) publish a statement, by the end of July in that year, explaining why regulations have not been made and setting a timetable for making the regulations, and
(b) lay the statement before each House of Parliament.
(7) In this section, “OFCOM” means the Office of Communications established by section 1 of the Office of Communications Act 2002.”
This new clause inserts a new power for the Secretary of State to make regulations (subject to the affirmative procedure) banning unsolicited direct marketing relating to pensions. If the power is not exercised by June, the Secretary of State must explain to Parliament why not. This new clause would be inserted after Clause 24.
Amendment (a) to new clause 9, in subsection (1), leave out “may” and insert “must”.
Amendment (b) to new clause 9, in subsection (1), after “pensions” insert
“and prohibiting the use for commercial purposes of information obtained by means of such direct marketing”.
Amendment (c) to new clause 9, in subsection (2)(c), leave out “and on OFCOM” and insert
“, on Ofcom and on the Financial Conduct Authority”.
Amendment (d) to new clause 9, in subsection (2)(d), after “(S.I. 2003/2426)” insert
“or the Financial Services and Markets Act 2000”.
New clause 1—High-cost credit: advice to the Financial Conduct Authority—
“(1) In exercising its functions the single financial guidance body must have regard to the effect of high-cost credit card lending on consumer protection and must produce and publish an annual assessment of any consumer detriment.
(2) The assessment under subsection (1) shall in particular consider—
(a) what level of interest and fees constitute a high-cost credit card;
(b) information provided by high-cost credit card providers to customers, and whether such information allows customers to make informed financial decisions;
(c) the impact of high-cost credit lending on levels of personal debt,
as well as any other factors that the single financial guidance body considers relevant.
(3) If the single financial guidance body considers it to be necessary for consumer protection it must advise the Financial Conduct Authority to impose a limit on the cost of specified types of credit.”
This new clause would require the single financial guidance body to consider the effect of high-cost lending using credit cards on consumer protection and produce an annual assessment of any consumer detriment from such high-cost lending.
New clause 2—Specific requirements as to the pensions guidance function: mid life reviews—
“(1) As part of its pensions guidance and money guidance functions, the single financial guidance body must provide targeted information and guidance for members of the public from the age of 50 to help them make decisions on their financial affairs.
(2) In particular, the information and guidance in subsection (1) shall include information and guidance on—
(a) increasing pension contributions in preparation for retirement,
(b) saving money in preparation for retirement, and
(c) career development and the impact of career development on financial matters including preparation for retirement.”
This new clause provides for the single financial guidance body to provide guidance to members of the public over the age of 50, to prepare them for retirement. These “mid life reviews” would provide guidance on pensions, savings, and career development.
New clause 6—Regulatory principles to be applied in respect of claims management services—
“(1) The FCA may make recommendations to the Secretary of State on regulatory principles to be applied to claims management services.
(2) The matters on which the FCA may make recommendations include, in relation to claims management services—
(a) the duties of authorised persons to act honestly, fairly and professionally in accordance with the best interests of consumers;
(b) the duties of authorised persons to manage conflicts of interest fairly, both between themselves and their clients, and between clients;
(c) other duties of authorised persons related to a duty of care towards their clients.
(3) If the FCA recommends that regulatory principles be applied to claims management services, the Secretary of State may by regulations impose such principles.
(4) The power to make regulations under subsection (3) is exercisable by statutory instrument; and an instrument containing such regulations is subject to annulment in pursuance of a resolution of either House of Parliament.
(5) In this section, ‘authorised person’ has the same meaning as in the Financial Services and Markets Act 2000, and ‘authorised persons’ shall be construed accordingly.”
This new clause would allow the FCA to recommend that the Secretary of State introduces a duty of care which would require claims management services to act with the best interests of the customers in mind.
New clause 7—Assessment of public preparedness for income shocks—
“(1) As part of its strategic function, the single financial guidance body must from time to time publish an assessment of the ability of members of the public to plan for and address sudden reductions in income.
(2) An assessment under this section must consider the impact of the work of the single financial guidance body on the ability of members of the public to plan for and address sudden reductions in income.
(3) The Secretary of State must lay before the House of Commons any assessment conducted under this section as soon as practicable after its completion.”
New clause 8—Ban on unsolicited real-time direct approaches by, on behalf of, or for the benefit of companies carrying out claims management services and a ban on the use by claims management companies of data obtained by such methods—
“(1) The FCA must, as soon as they take responsibility for claim management companies, introduce bans on—
(a) unsolicited real-time direct approaches to members of the public carried out by whatever means, digital or otherwise, by, on behalf of, or for the benefit of companies carrying out claims management services or their agents or representatives, and
(a) the use for any purpose of any data by companies carrying out claims management services, their agents or representatives where they cannot demonstrate to the satisfaction of the FCA that this data does not arise from any unsolicited real-time direct approach to members of the public carried out by whatever means, digital or otherwise.
(2) The FCA must fix the appropriate penalties for breaches of subsection (1)(a) and (b) above.”
Amendment 31, in clause 2, page 2, line 17, at end insert—
“including information about the services offered by credit unions,”
This amendment adds to the objectives of the single financial guidance body the requirement to provide information about credit unions.
Amendment 39, page 2, line 23, leave out from “accordingly” to the end of line 24 and insert—
“(da) to ensure the needs of people in vulnerable circumstances, including but not exclusively—
(i) those who suffer long-term sickness or disability,
(ii) carers,
(iii) those on low incomes, and
(iv) recipients of benefits,
are met and that resources are allocated in such a way as to allow specially trained advisers and guidance to be made available to them,”
This amendment would require that specially trained advisers and guidance are made available to people in vulnerable circumstances and would provide an indicative list of what vulnerable circumstances should include.
Amendment 40, page 2, line 36, at end insert—
“(4) The single financial guidance body must ensure it communicates to consumers using its services the difference between—
(a) provision of information,
(b) provision of guidance,
(c) provision of advice.”
This amendment would require the new body to ensure that consumers are made aware of the differences between ‘information’, ‘guidance’ and ‘advice’ so that they can specify what type of services they require from the new body.
Amendment 4, page 3, line 5, in clause 3, at end insert—
“(c) advice to the Financial Conduct Authority on matters relating to high-cost credit”.
Amendment 41, page 3, line 16, at end insert—
“(6A) As part of its money guidance function, the single financial guidance body must make available financial guidance on the use of alternative sources of retirement income, including housing wealth, to enable members of the public to make fully informed decisions about pensions and retirement income.”
This amendment would place a duty on the single financial guidance body to make available guidance on alternative sources of retirement income, such as equity release. This will provide a pathway for members of the public to consider their wider assets, particularly their housing wealth, to make effective decisions about their retirement income.
Government amendment 10, page 3, line 17, leave out subsection (7) and insert—
‘(7) The consumer protection function is—
(a) to notify the FCA where, in the exercise of its other functions, the single financial guidance body becomes aware of practices carried out by FCA- regulated persons (within the meaning of section 139A of the Financial Services and Markets Act 2000) which it considers to be detrimental to consumers, and
(b) to consider the effect of unsolicited direct marketing on consumers of financial products and services, and, in particular—
(i) from time to time publish an assessment of whether unsolicited direct marketing is, or may be, having a detrimental effect on consumers, and
(ii) advise the Secretary of State whether to make regulations under section (Unsolicited direct marketing: other consumer financial products etc) (unsolicited direct marketing: other consumer financial products etc).”
This amendment makes changes to the consumer protection function to make it clearer exactly what it entails.
Amendment (a) to amendment 10, in paragraph (b)(i), leave out “from time to time” and insert
“at least once every two years”.
Amendment 34, page 3, line 34, at end insert—
“(aa) the capability of members of the public to plan for and address sudden reductions in income,”.
Amendment 1, page 3, line 39, at end insert—
“(11) In carrying out its strategic and other functions the single financial guidance body must make and publish an annual assessment of the level of different types of lending across the United Kingdom by district.
(12) The types of lending covered by the assessment in subsection (11) should include—
(a) high cost short term credit,
(b) hire purchase agreements,
(c) conditional sale agreements,
(d) open ended credit,
(e) other secured lending, and
(f) other unsecured lending.”
This amendment requires the single financial guidance body to carry out an annual assessment of the level of different types of lending in different geographical areas across the United Kingdom.
Government amendment 11.
Amendment 8, in clause 4, page 4, line 2, at end insert—
“(2A) The single financial guidance body must, within 12 months of the passing of this Act, advise the Secretary of State on how to most effectively implement bans on—
(a) cold-calling on behalf of, or for the benefit of companies carrying out claims management services or their agents or representatives, and
(b) the commercial use of any data by companies carrying out claims management services, their agents or representatives where they cannot demonstrate to the satisfaction of the Secretary of State that this data was not obtained by cold-calling.
(2B) In this section ‘claims management services’ has the same meaning as in section 419A of the Financial Services and Markets Act 2000.”
This amendment will require the Secretary of State to specifically ban cold-calling and the commercial use of data from cold-calling by claims management companies, in addition to any bans recommended by the single financial guidance body.
Amendment 9, page 4, line 4, leave out “may” and insert “must”.
This amendment will place a statutory duty on the Secretary of State to institute bans on cold-calling on receipt of advice to do so from the single financial guidance body.
Amendment 42, in clause 10, page 7, line 22, at end insert
“and to whether the standards are proportionate”.
Probing amendment. The SFGB’s standards setting powers also need to be matched with principles of good regulation, ensuring that conditions are proportionate to the benefits they are expected to bring. This would bring the Bill (impacting charities) into line standards setting and enforcement powers granted to other bodies (impacting firms) such as those granted to the FCA.
Government amendments 12, 43, 25, 44, 26 45 and 46.
Amendment 2, in schedule 3, page 45, line 8, at end insert—
17A (1) Section 165 (regulators’ power to require information: authorised persons etc) is amended as follows.
(2) In subsection (4) after paragraph (b) insert—
(c) in relation to the exercise by the FCA of the powers conferred by subsections (1) and (3), information and documents reasonably required by the single financial guidance body in connection with the exercise by the body of its functions as set out in section 3 of the Financial Guidance and Claims Act 2018.”
This amendment extends the FCA’s power to require information from authorised persons to include information required by the single financial guidance body for carrying out its functions.
Government amendments 47, 48, 28 and 29.
John Glen
It is a great pleasure finally—for the third time of asking, I believe—to have the opportunity to start the Bill’s Report stage. I want to make a positive start to proceedings by covering new clauses 4 and 9, which will allow us to protect consumers from harmful cold calls by enabling us to lay before the House regulations to ban pensions cold calling and introduce bans for other forms of cold calling, if we consider it appropriate to do so.
As I have said previously, I want to ban pensions cold calling as soon as possible, given the profoundly damaging impact that pension scams can have on people’s lives. I have listened to the recommendations of the Work and Pensions Committee, which published a report before the turn of the year on preventing pension scams, as well as to the passionate calls that have been made across the House and in the other place to ban pensions cold calling. I am pleased to present new clause 9, which builds on and improves the clause proposed by the Committee. The Government’s new clause has a wide scope, which means that we can ban all pensions-related calls. Crucially, we do not need to wait for advice from the guidance body before we implement a ban, so we can make good on our commitment to ban pensions cold calling quickly. I hope that the fact that I will have to lay a statement before both Houses if we have not laid regulations before Parliament by June will reassure hon. Members on that point.
I turn to new clause 4. It is clear to me that, too often, significant consumer detriment arises because of cold calling. If we find evidence that people are experiencing detriment as a result of cold calling regarding consumer financial products, we will not hesitate to use this power to protect consumers.
I am pleased to be able to confirm the final part of our approach to protect consumers from cold calling by means of amendment 10. The amendment expands and improves on the consumer protection function. It gives the body powers to publish regular assessments of consumer detriment resulting from cold calling, and to advise the Secretary of State on where further bans should be implemented. The change clarifies the consumer protection function and gives the body a clear mandate to support the Government in preventing harm that results from cold calling. In fact, the Bill has been agenda-setting in relation to cold calling. The amendments that we are discussing will give the Government new powers to ban cold calling in some of the areas that are the most pressing when it comes to protecting consumers.
Neil Gray (Airdrie and Shotts) (SNP)
I thank the Minister for giving way and commend him for the action that he has taken—I am very supportive of it. He has made a good case for banning cold calling in the pensions industry and some other financial industries. The clear case for doing so has been well made, but why will the Government not go further and ban cold calling outright?
John Glen
I have tried to make it clear that when we are setting up a new body, it is important that we take time to reflect on the evidence and that we take action in consultation with and alongside that body. I acknowledge the widespread concern that exists in other areas, and I think that the action we are taking gets the balance right when it comes to getting the evidence together and moving as quickly as possible when the case has been made.
The amendments that I have outlined are additional to the amendment that was made in Committee to introduce a ban on claims management cold calling, which will cover calls about claims on matters ranging from mis-sold payment protection insurance to holiday sickness and car accidents. That means that calls about PPI, whether we have been in a car accident or whether we were sick on holiday—we are all familiar with such calls—will be banned unless prior consent has been given to receiving them.
Having ensured that we can tackle cold calling effectively, we plan to remove the existing clause 4 by means of amendment 11. Amendments 12, 25, 26, 28, 29, 45 and 46 are minor and consequential to these changes. In particular, amendment 45 commences new clause 9 on Royal Assent to ensure that there is no unnecessary delay in making regulations, and amendments 44, 47 and 48 prepare the Bill for the new data protection legislation.
Jack Dromey (Birmingham, Erdington) (Lab)
I wish to address the issues of pensions cold calling in new clause 9, wider cold calling in amendments 8 and 9, and the duty of care in new clause 6.
Let me start by saying what this Bill is about. In Committee, we heard the story of the Port Talbot shift supervisor who broke down and wept uncontrollably when he met the Pensions Advisory Service. He described how he had been conned into going down the wrong path on his pension, losing tens of thousands of pounds as a consequence. The reason why he wept, he said, was that all 20 on his shift followed his lead, and therefore they, like him, now faced a much bleaker future than would otherwise have been the case.
Pension cold calling is a blight on people up and down the UK. As the Minister has said, we all know the feeling of answering the phone to a number that we do not recognise and hearing that familiar phrase, “We believe that you have been in a car accident.” Indeed, I was heading over to one of the Bill Committee sittings when I received such a call, not having had one for some years. Someone said that they understood that I had been in a car accident. I said that, yes, I had been in an accident 38 years ago, and it was because somebody had run into the back of me. Since then, I have had two subsequent annoying cold calls, yet mine is but a minor problem. The more significant one is the 11 million pensioners who are targeted annually by cold callers. Fraudsters are making 250 million calls a year, which is equivalent to eight every second.
As the Minister knows, we have approached the cold-calling element of this Bill on a four-pronged basis: first, banning pensions cold calling; secondly, pushing for a total ban now on cold calling for claims management companies, thereby tackling the scourge of unsolicited claims head on; thirdly, banning the use of information obtained through cold calling; and, fourthly, ensuring that the strongest possible sanctions are put on those who break the ban, which means that they are struck off.
The Government’s commitment to ban pensions cold calling from June is a necessary and wholly welcome step. May I make the point—such points are not often made in the House—that the Under-Secretary of State for Work and Pensions, the hon. Member for Hexham (Guy Opperman), and the Economic Secretary to the Treasury have engaged with us, the wider community and the pensions industry? Their approach has been constructive. Together, we have come a very long way, but I hope that they will go just that little bit further. Our amendments would tighten the provisions around the ban and ensure that it is fit for purpose. The dual additions of making it an offence to use the information obtained through cold calling and conferring functions on to the Financial Conduct Authority would mean that the ban could be much tighter and more effective.
Although the original clause means that the “introducers” who tend to commit a lot of cold calling in cases such as the British Steel scandal would not be restricted, as they are not covered by the FCA, our amendment would restrict them. The move to ban the use of the information means that those firms which provide financial services and are covered by the FCA will be banned from using the information that the “introducers” gather. This slight shifting of the ban is designed to strengthen it further, as the FCA has much stronger powers than the Information Commissioner’s Office and can strike off members who contravene the rules. We therefore hope that Ministers will reflect further on this.
I now move on to cold calling more widely. A crucial issue on which the Minister has touched is the speed with which we now act. It is not only pensions where cold calling has a negative impact. There are many other industries that have been blighted by cold calling that creates serious consequences for innocent consumers. It is common for claims management companies to try to harvest cases for road traffic accidents and holiday sickness. Unfortunately, and extraordinarily, the UK has become the world leader for holiday sickness claims. The Association of British Travel Agents said that there were about 35,000 claims of holiday sickness in 2016, which represents a 500% rise since 2013. One in five Britons—19%, or around 9.5million people—has been approached about making a compensation claim for holiday sickness. Statistics from just one tour operator, in July and August, show that there were 750,000 travelling British customers, 800,000 Germans and 375,000 Scandinavians. The Scandinavians lodged 39 claims for holiday sickness and the Germans filed 114. The Brits put in just under 4,000 claims.
Alex Sobel (Leeds North West) (Lab/Co-op)
My hon. Friend referred to Jet2, which is headquartered in my constituency and has raised this issue with me on many occasions. It says that these vexatious claims are increasing the cost of flights and holidays for the rest of us. Is it not true that closing this loophole will effectively mean that we can all enjoy a holiday at a much more reasonable price?
Jack Dromey
My hon. Friend is absolutely right. When a reputable company such as Jet2 makes the point that the consequence of this practice might be price increases and a reluctance among some hoteliers to enter into agreements, it is clear that innocent holidaymakers will pay the price.
It is not just travel companies that are suffering due to the large number of cold calls. Around 51 million personal injury-related calls and texts are sent by regulated claims management companies each year. The Association of Personal Injury Lawyers has long called for a ban on personal injury cold calls from CMCs, especially as solicitors themselves are already banned from cold calling. Ironically, only recently, the Justice Secretary said that there would be a “forthcoming ban on cold calling” when discussing personal injury claims. If the Justice Secretary believes that there is a forthcoming ban, why do we not act now and include it in this Bill? As Lord Sharkey said in the other place, the ban is necessary to deal with the “omnipresent” menace of cold calls. Baroness Altmann has said:
“People need protection from this nuisance now. They shouldn’t have to wait still more years for a ban....Direct approaches to people on their mobiles or home phones should have no place in the modern world of business.”
The Government, in the public interest, must accept the amendment to ban cold calls when this Bill passes.
Ruth George (High Peak) (Lab)
My hon. Friend makes an excellent argument for banning such cold calls. Does he agree that the banning of cold calling by claims management companies for personal injury claims would be a far more effective method of reducing costs for insurance and personal injury than the Government’s proposals, which are currently being considered in the other place, to limit the injury compensation due to innocent victims, as well as to those who are not innocent?
Jack Dromey
My hon. Friend is absolutely right. There are legal consequences for those who make unlawful claims, but there are also business consequences, which in this case knock on to the legal profession and its work. Looking at it from every angle, this is a menace that we need to bring to an end; the question is how soon we can do so.
We hope that the Government will accept our proposals, not least because the Conservative party said at the 2017 general election that it would
“consider a ban on companies cold calling people”.
This is the Government’s chance to keep at least that manifesto promise while protecting the public at the same time.
It is deeply welcome that the Government have taken the powers to ban cold calling for pensions. They have also indicated their support—indeed, the Minister did so earlier—for a wider ban, which our amendment calls for. We are not calling for a blanket ban, which the Minister believes could impinge on non-contentious issues such as doctor-patient calls. The situation is different when such an established relationship exists. We are talking about commercial companies that are pursuing a commercial advantage. All claims management companies should be banned from cold calling, so we urge the Government to set out in the Bill that they will stop the scourge of cold calls by claims management companies.
New clause 6—this is the only other provision to which I will speak—would introduce a duty of care by requiring claims management services to act in the best interests of customers, not least those who find themselves in a vulnerable situation. Due to the scope of the Bill, the new clause relates only to claims management services. However, although this change would be important, we believe that a duty of care is required across all financial service providers. Many consumers are forced to deal with financial providers when they are at their most vulnerable. Such people can include those who have been diagnosed with serious illnesses, including cancer. At present, the Financial Services and Markets Act 2000 requires that the FCA must have regard to
“the general principle that consumers should take responsibility for their decisions”.
Frankly, that is not good enough.
The Financial Services Consumer Panel told the Lords Financial Exclusion Committee that consumers could reasonably be expected to take responsibility for their decisions only if firms had exercised a duty of care towards them. It suggested that such a duty would oblige financial services providers to avoid conflicts of interest and act in the best interests of their customers. The panel proposed amending the law to require the FCA to make rules on a duty of care, arguing that the introduction of such a duty would lead to a much-needed cultural change in the banking sector and the financial sector more generally.
Let us look at just one example. The charity Macmillan Cancer Support has said that people affected by cancer tell it that they experience barriers to getting the support that they need from the banking sector. By 2020, one in two people will have cancer at some point in their lives. Four in five people with cancer are £570 a month worse off on average as a result of their diagnosis. For example, Christine was first diagnosed with cancer in 2009, but is still feeling the financial effects today. She said:
“The financial fall-out of cancer was huge—I went into my overdraft and had to take out a loan to pay it off. When I found out that my credit rating had suffered, it seemed unfair because I was trying my best to get back into work and to have money coming in…For people like me who want to go on living and working, it’s about having that short-term support and understanding. What would have been great was if I’d been able to have an honest conversation with my bank”.
A specific requirement therefore needs to be explicitly stated to ensure that all financial institutions do their best by the most vulnerable people in society. The strong evidence that has been presented by Macmillan clearly shows that a universal duty of care is required across financial services providers.
In the light of examples in which the principle of treating customers fairly is clearly failing customers, how has the FCA reassured Ministers that the current regulatory provisions are sufficient? Can the Minister provide further details on when the discussion paper to which he referred will be brought forward? I know that he is seized of the problem and wants progress to be made at the next stages. That is crucial and, once again, we want to get on with it, because we need to tackle the real problem that has been identified. What assurances can the Minister give that action will be taken to ensure the timely introduction of the duty of care following the outcome of the FCA’s consultation paper?
We strongly support amendments tabled by a number of hon. Members, led by my hon. Friend the Member for Harrow West (Gareth Thomas), that would ensure that banks and financial institutions take proper account of local and regional need, and do not let down local people, as is all too often the case now.
Crispin Blunt (Reigate) (Con)
I will speak to amendment 41, which is in my name. My amendment is intended to make a point to the Minister, and I am utterly certain that I will get the assurance that I need in order to do nothing more than discuss it now.
I welcome the introduction of a single financial guidance body, as it should result in a simpler, smarter and smoother experience for the user, helping them to make informed financial decisions. However, we ought to use the opportunity of this Bill not only to ensure that we get the guidance bodies all in one place; we also need to recognise the different types of finance or retirement income that need to be signposted. Financial decision making can be complex, often requiring advice and support, particularly during events such as buying a first home, on retirement or following a bereavement.
I tabled this amendment because people ought to consider their finances in the round. In other words, all liquid and illiquid assets—cash and property—should be considered together. My amendment follows the lead of the noble Lady Greengross in the other place, asking the Government to ensure that this new guidance body highlights the full range of options available, so that its users get the best possible advice to help them to make informed choices about their finances and their futures.
The report published last month by the Housing, Communities and Local Government Committee describes equity release as one of the key tools available to those predominantly in later life. It ensures that older householders are able to pay for care costs or home improvements to give them the option to stay in the homes in which they have built lives and brought up their families. Equity release means that our constituents aged 55 and over who might be asset rich but cash poor can have the option of staying in their own homes by accessing the wealth that they have accrued in that home.
The Equity Release Council published a research paper last April called “Equity Release Rebooted”, in which it estimated that the average value of a defined contribution pension in 2012 to 2014 was £30,200, while over-55s in England possess approximately £1.8 trillion in housing wealth and more than 80% of over-65s own a home. For many, if not most people coming towards the position of making a decision about their retirement, their property is much their greatest asset. It must therefore be sensible for equity release to be signposted and to form at least part of any discussion about funding retirement and later life.
Alex Cunningham (Stockton North) (Lab)
I agree with what the hon. Gentleman is saying. Does he not think, therefore, that there is considerable merit in new clause 2, which promotes the idea of specific guidance for people in mid-life so that they get proper and clear advice on some of the decisions that they may have to make?
Crispin Blunt
I am sure that there is enormous merit in new clause 2, and I hope that the hon. Gentleman has the opportunity to make the case further. There is obviously a common theme of making sure that people have the information about all their assets to enable them to make the best possible decision. We must make sure, in setting up the body in this Bill, that we do not have to come back to this later on because, in practice, we are not delivering the best advice to people about all the assets with which they have to plan.
The pensions advice allowance allows people to withdraw £500, tax-free, from their pension pots to pay for financial advice on their retirement, including on housing wealth, but some people will be unwilling or unable to use this facility. It is incumbent on the single financial guidance body to provide free, impartial guidance and to ensure that this encompasses housing wealth. It is likely that any signposting requirement would push consumers towards the Equity Release Council, the industry body for the equity release sector. Members of the Equity Release Council are committed to product standards and consumer safeguards.
Stephen Lloyd (Eastbourne) (LD)
The hon. Gentleman is making a salient point. Given that the range of interest rates for a number of companies that offer equity release is really quite considerable, does he agree that one of the advantages of the advice going through an independent body is that those who are offering better and lower interest rates for consumers are more likely to receive custom?
Crispin Blunt
I am grateful to the hon. Gentleman, and I agree. He will note the very distinguished role that his predecessor played in the whole business of promoting equity release. It ought to be a really major option given the construction of people’s resources and where they sit on the scale of property ownership in the UK. We need to be clear about how important an asset it is and how important it is to make sure that this industry has the opportunity to give the best possible service to people in their life plans.
Consumers must obtain qualified financial and independent legal advice before they confirm their decision to go ahead and purchase any equity release product. Guarantees include the right to remain in the property for life or until moving into long-term care. Another key safeguard provided by members of the Equity Release Council is the “no negative equity” guarantee, whereby the repayment of the loan is never greater than the value of the home.
A major reason why the single financial guidance body signpost should include housing wealth is the growth in the equity release sector. Homeowners released £3 billion worth of equity in 2017, with 37,000 new customers signing up for equity release products for the first time.
Mark Tami (Alyn and Deeside) (Lab)
The hon. Gentleman keeps saying that this is about releasing equity. What people are actually doing is borrowing against the perceived wealth of the property.
Crispin Blunt
They are not borrowing against the perceived wealth of the property—it is the actual wealth of the property. If someone is in a position of planning for their retirement and they do not have an adequate pension pot, and given the scale of the imbalance between people’s assets in property as opposed to the pension provision they have made, it is obvious that, in making the assessments for their retirement, they should consider accessing the wealth they have accrued that is in their home.
With 37,000 customers signing up for equity release products for the first time in 2017, the number of these products has also risen enormously over the last decade—by 225%—and 78 product options with the necessary range of flexibilities are now available. This can only improve and grow as the industry develops. Consumers utilise equity release for various reasons, such as paying off a mortgage, making adaptations to the home, boosting retirement income, or as a means of providing deposits to children and grandchildren to enable them to take their first step on the housing ladder. Equity release can help in meeting some of the challenges in social care and in housing.
We should be more ambitious, ensuring that the new body signposts solutions such as equity release to all those we represent who might really benefit from unlocking the main source of their wealth overall, which will be the equity in their home. I look forward to hearing from the Minister how we are going to make a reality of that in practice through the guidance.
Neil Gray
I rise to speak to amendments 39 and 40, which are in my name. I want to say at the outset that while Scottish National party Members have felt the need to bring back some elements from Committee, we do on the whole welcome and support the Bill. We just want to see some improvements, which we hope will help to protect consumers and those accessing financial products. It is a shame that on the third attempt to consider the Bill we may still not get time to consider the second group of amendments, and in particular those tabled by the right hon. Member for Birkenhead (Frank Field), which we are keen to consider. However, I will proceed as quickly as possible so that we might get to the second group in good time.
First, amendment 39 would require that specially trained advisers and guidance are made available to people in vulnerable circumstances and would provide an indicative list of what “vulnerable circumstances” should include. It is positive that the Government decided to amend the Bill in the House of Lords to include a reference to the needs of vulnerable people within the functions of the new single financial guidance body. However, we feel that the Government should go further.
The amended version of the clause remains a little weak with regard to the inclusion of vulnerable people. Our amendment would make things more explicit and strengthen that objective by providing more detail as to who may fall into this remit, using the term “people in vulnerable circumstances”, which we think is more appropriate. The circumstances illustrated in our amendment can have a significant impact on people’s finances and long-term savings plans.
People in difficult financial circumstances may be more likely to use new pension freedoms, at a cost to their long-term pensions saving. Attractive as the pension freedoms may sound, it is clear that the Government have not put in place adequate safeguards for older people who are opting to free up funds, to ensure they will not end up in a desperate financial situation later. Those with less money are more vulnerable to economic shocks in their personal circumstances, as well as being potentially more vulnerable to scammers who give misleading or false advice for a fee, as we heard from the shadow Minister, the hon. Member for Birmingham, Erdington (Jack Dromey).
Being a carer or disabled can incur extra lifestyle costs. We want to ensure that the new body is as accessible as possible for all people, regardless of their circumstances. Specially trained advisers and resources must make up part of the new body, so that people can have confidence in its ability to support people in vulnerable circumstances.
The Minister said in Committee that our amendment was too prescriptive, but that does not really stand up. There is plenty in the Bill that is prescriptive and detailed. The new financial guidance body will be looking to the content of the Bill to understand what its objective and remit are. We are simply ensuring that the new body is absolutely clear that catering for those who find themselves in vulnerable circumstances should be a significant part of its remit. The wording of clause 2 makes that sound like an afterthought. That is an important discussion to be had alongside the duty of care, which I will come to later.
Amendment 40 would require the new body to ensure that consumers are made aware of the differences between information, guidance and advice, so that they can specify what type of services they require from it. In Committee, my hon. Friend the Member for Paisley and Renfrewshire South (Mhairi Black) tabled an amendment that would require the new financial guidance body to define the meaning of those services. The Minister said that that would potentially duplicate available definitions set out in regulations, but he also seemed to think that we asked for a definition because it would be useful for the body itself. That was not our purpose. Our purpose was to ensure that consumers themselves understand what services they have access to. We are tabling this amendment with tweaked wording to make it clear that we are asking that the new financial guidance body communicates clearly what services it provides people with and what they can access.
Guidance, information and advice are very different things. People expecting advice on what route to take may be disappointed to receive various information only. Likewise, there may be issues around exactly what the body is allowed to advise and to what extent it is able to advise on options available. Through this amendment, we are simply highlighting how important it is to ensure that users understand what they are getting.
Government new clauses 4 and 9 give the Secretary of State power to ban cold calling related to pensions and other consumer financial products. The Government have also tabled amendments to bring forward commencement of those clauses. The SNP and the Scottish Government have campaigned hard on cold calling, so we are pleased to see those provisions in the Bill. It is a positive step that the Government have tabled amendments 45 and 46, which will speed up the process for putting in place the necessary regulations for banning cold calling. It is clear that consumers want action now.
On the Government’s amendments, there is a concern that the Government are treating claims management companies’ cold calling and pensions or financial products cold calling differently. In Committee, the Government introduced clause 34, banning cold calling for CMCs unless the consumer has given their consent. With the two amendments on pensions and financial advice cold calling, the Secretary of State is giving herself a get-out clause, to shirk responsibility for taking action. Cold calling is cold calling. Consumers simply do not want to be bothered by nuisance calls, as we have already heard from the hon. Member for Stirling (Stephen Kerr) and my hon. Friend the Member for North Ayrshire and Arran (Patricia Gibson). Creating a complex framework around which providers are allowed to make these calls, on what types of product, under what circumstances, is over-complicating a very simple issue. People just want it to stop.
Will the Secretary of State, or the Minister who responds to the debate, explain why they think the need to ban CMCs’ cold calling is greater than the need to ban pensions or financial products cold calling? Tough action needs to be taken on this; otherwise, we risk creating loopholes that will allow cold callers to continue to operate.
I want to mention the duty of care amendment: new clause 6, tabled by Members on the Labour Front Bench. My colleagues spoke about it in detail on Second Reading, particularly my hon. Friend the Member for Inverclyde (Ronnie Cowan), who sadly cannot be here today to speak on it again. Applying a duty of care to CMCs would be a positive step in ensuring that such companies remain accountable for their actions if they cause harm to consumers.
Ideally, all financial institutions should have the best interests of vulnerable consumers at the heart of their conduct, but we all know that that is not always the case, and the fact that the Financial Conduct Authority has agreed to bring forward a discussion paper on duty of care is really positive. Macmillan has campaigned tirelessly on this issue, and I thank its staff for the briefings that we received ahead of these debates. We hope that the Secretary of State and Ministers will give serious thought to this idea, as well as to our amendment on vulnerable persons, which ensures that the single financial guidance body expressly allocates resources for specialist support for people in vulnerable circumstances.
The SNP has long called for and campaigned for action on cold calling. Indeed, it was the subject of a ten-minute rule Bill proposed by my hon. Friend the Member for North Ayrshire and Arran. We welcome the fact that there is to be progress in this regard, but this area of the Bill is becoming a bit of a guddle. That is why we would obviously prefer to see powers over this area devolved to the Scottish Parliament, so that we could take more robust action, such as was suggested by the Scottish Government’s action plan on nuisance calls. Indeed, the Scottish Government Cabinet Secretary for the Economy, Jobs and Fair Work, Keith Brown, has written to the UK Government many times, asking for them to take a tougher line on nuisance calls.
Nuisance callers blight our society and cause significant distress, particularly to the elderly and vulnerable people. Such harassment is unacceptable and must be stopped. Hopefully, in the time we have available, we will take the opportunity to make some necessary improvements to the Bill.
Craig Mackinlay (South Thanet) (Con)
I shall restrict my observations to pensions cold calling and unsolicited marketing thereon.
Last year, I was pleased to play a part in the scrutiny of the Pension Schemes Act 2017. It was timely legislation to ensure that pension savers were adequately protected as they saved, during the working period of their life, by the regulation of master trusts, which had previously been rather worryingly lightly regulated—insufficiently so, when for many, their pension will be their primary asset in life.
I am pleased that this Bill will bring together the Pensions Advisory Service and Pension Wise into a single financial guidance body, under the control of the FCA. I am further pleased to support the Government’s amendments, especially new clauses 4 and 9. It is right that the new clauses in the name of the Government allow the making of regulations to prevent cold calling and the sending of unsolicited direct marketing materials relating to pension savers. That is further strengthened in Government amendment 10.
At the core of what we shall hear in the House this afternoon is whether “may” should become “must”. That is at the core of an amendment tabled by the hon. Member for Eastbourne (Stephen Lloyd) and Willingdon —amendment (a) to Government new clause 9. There is a case for healthy competition. That usually results in lower charges, and that can be—can be—good for consumers. It would be a draconian measure to ban advertising, to entirely ban direct marketing, because that could be banning choice. It is often good advice for pension savers who have accumulated a pension pot to move to a provider who may provide a better pension, perhaps at a lower cost, with lower charges. That decision now rests with pension providers. If they do not act sensibly, that “may” in Government new clause 9 will, in certain circumstances, become a “will.” That is an important power.
Alex Cunningham
The hon. Gentleman talks about a total pot in the trillions, but for the vast majority of people, particularly part-time workers, their pot, although better than nothing, will be relatively small. Does he agree that several groups are still excluded from auto-enrolment, and that the Government need to do something to bring them in?
Craig Mackinlay
I thank the hon. Gentleman for that contribution. There is a wide debate—I have taken part in it—about whether the self-employed are playing a full role in getting pension provision. I think that there are measures that could be taken, perhaps using the national insurance system, to provide them with greater certainty. The primary purpose of the Bill is to ensure greater financial understanding among the general population. They need to know where to turn at the right time. I have confidence that the single financial guidance body will achieve just that.
I close with a suggestion that is probably best directed to the Financial Secretary to the Treasury. It has some relevance to the honest proposals put forward by the hon. Member for Birmingham, Erdington (Jack Dromey) on mid-life reviews. Employees, as they work through their working lives, obviously have an employer. Employers are very well aware—possibly more than anybody else—of when an employee is approaching retirement. I am sure that most responsible employers will be keen to help. I recommend that the Secretary of State discuss amendments to the Income Tax (Earnings and Pensions) Act 2003 to allow employers to pay for advice, outside of any benefit-in-kind tax charge, so that advice can be provided to employees and paid for tax-free. That would extend a benefit-in-kind exemption similar to what we see when advice relating to settlement agreements, or payment for CV writing and recruitment advice upon redundancy, is duly paid for by an employer tax-free.
In my view, the Bill is fit for purpose and I very much support it.
Frank Field (Birkenhead) (Lab)
I wish to speak to amendments (b), (c) and (d) to new clause 9, which stand in my name. As the House might know, they arise from the work that the Work and Pensions Committee did on miners’ pensions. For most people, decisions about moving pension capital are made towards the end of their lives, but miners had to decide where they should safely put their pension savings as a result of the change in the ownership of their industry.
Given the warning from the hon. Member for Airdrie and Shotts (Neil Gray) that we may not get on to the second set of amendments, I should mention that I have some amendments in that group to raise with the pensions Minister. Perhaps I may address two points to the Economic Secretary, but first I thank both Ministers for the way they have engaged with the Work and Pensions Committee for our report and in our meetings. We are immensely grateful to them. On some issues, I have joined my Front-Bench spokesmen because we have been pushing the same measures and interests.
I wish to raise two points that I hope the Economic Secretary will say will be added to the Bill. First, not only should cold calling become unlawful, but any information that arises from it should not be used for commercial purposes—that is, in respect of pension savings. Secondly, would it not be sensible to use the opportunity presented by this Bill to add the Financial Conduct Authority to the list of bodies in the Government’s policing arm to counter activities that unlawfully undermine people’s pension savings by trying to persuade them to move their assets in one way or another?
In the interests of getting on to the second set of amendments, I conclude my comments.
Jack Brereton (Stoke-on-Trent South) (Con)
I am pleased to be called to speak in this debate, Madam Deputy Speaker, because the issues are of particular interest to me as a member of the Work and Pensions Committee. I want to reflect on some of the evidence the Committee has heard in its inquiry into pension freedoms and choice, as it relates to some of the changes proposed in the Bill.
While I am extremely supportive of the work the Government have done to increase the freedom of our constituents in respect of their pension savings, it has undoubtedly created new challenges that must be addressed. I am pleased that the Bill has been brought forward as an opportunity to address them. The first challenge is advice. It was apparent from our sessions on the British Steel pension fund that those who find themselves needing to switch often struggle to get the advice they need. There were mixed experiences, with some people receiving very good local advice and others receiving very bad advice or none at all.
Jack Brereton
That issue certainly came up in our evidence. Those who saw our evidence sessions will know that there was quite a significant grilling of the FCA.
Those experiences show that some irrational decisions—often described as “emotional” decisions—were made in the moment. Sadly, those short-term decisions were not the best investment decisions for the longer term. Unfortunately, this vulnerability—the vulnerability of immediacy or a form of panic, one might say—allowed predatory vulture companies to take advantage of an emotionally charged situation, with people reinvesting their pension pots without the full, impartial advice that is needed. Those vultures exploited scheme holders, framing what they were doing as giving impartial advice, when it was nothing of the sort. Many people felt that they were not fully informed of the consequences of the complex investment decisions they were having to make.
The accessibility of free independent advice in such situations has, in some cases, been woefully limited. More generally, the often perplexing nature of pensions leaves many people making decisions about their investments that are not necessarily in their best interests. Evidence presented to the Select Committee by the Association of British Insurers from the FCA’s “Financial Advice Market Review: Baseline report” suggests that not even one in 10 UK adults—just 6%—had received regulated financial advice. Worryingly, 25% of people who needed advice about their finances did not access it.
There are a number of reasons why our constituents are not accessing the advice they need, but what has been demonstrated is that not enough people are currently accessing the free independent advice that is available. The Association of British Insurers suggested that although 44% of people who are approaching retirement had access to some sort of advice, only 10% used the Pensions Advisory Service and only 7% used Pension Wise. The lack of clear advice combined with confusion about who to trust for independent advice has made it too challenging for those making investment decisions. Not enough people are getting the advice that they need to make properly informed judgments.
Secondly, we also found that very limited numbers of people are making the active decision to shop around and switch providers. Often, the tendency of those changing schemes is to stick to the same provider, so switching—active consumerism—is another challenge. There are, of course, a number of reasons why people might find it difficult to switch providers, not least the lack of good information and advice about the choices available, as I just related. It is also a major barrier to consumer activity, so I am pleased that part of the Bill proposes to create a single guidance body. That will make it much clearer for our constituents to see where they can turn for the right advice to make informed decisions and manage their finances for the future.
Alex Burghart (Brentwood and Ongar) (Con)
My hon. Friend is giving an important speech. Some of the evidence that we received on the Work and Pensions Committee was from Citizens Advice, which suggested that 97% of the pension scams that had taken place in one year originated from unsolicited calls. Does he think that the measures that the Government are bringing forward in the Bill will go some way to combating that?
Jack Brereton
I thank my hon. Friend for that point; I agree that it is critical that we take action to stop cold calls, and I am about to come on to some of those points.
This change will also ensure that the advice that is available is joined-up and better suited to our constituents’ needs, ensuring that decisions are not made in isolation, but with consideration to the wider implications of investment decisions on an individual’s overall finances. Measures in the Bill will also ensure that people receive the appropriate advice as a matter of course and that they should opt out if they do not wish to receive such advice. I also hope that the commitment made by the Government and the industry to develop a pensions dashboard will be delivered, making it easier for our constituents to have access to the information that they need about their pension savings to make suitable decisions.
Thirdly, the Committee heard about the increasing number of pension scams that are being reported, with more people being actively deceived into making investments that are not in their best interests. It was suggested that many rogue companies are using cold calling to target people and to get them to invest without full thought of whether it is the right and best decision for them. I am sure that many right hon. and hon. Members have, like me, been contacted by constituents who have been continually badgered by cold calling. It is a real issue in Stoke-on-Trent South and I am sure that it is a challenge in other areas, too. Many of the people targeted by cold calling are elderly or vulnerable and are taken advantage of by those seeking to cheat our constituents out of their hard-earned life savings.
Michelle Donelan (Chippenham) (Con)
Does my hon. Friend agree that although the pension freedoms that were introduced in 2015 were a fantastic opportunity for our constituents, they have led to an increase in rogue scammers and cold calling? That is why new clauses 9 and 4 are so important for the Bill.
Jack Brereton
I absolutely agree. That is why it is so important that this legislation is passed and that the Government have proposed these amendments. I am pleased that the Government have put measures in the Bill to ban the use of unsolicited marketing on pensions and financial products and services. It is a significant step towards preventing future abuses.
Of course, this legislation can never stop all scams being attempted—we cannot legislate away those who have nothing but contempt for legislation—but it does send a clear message not just to those conducting this behaviour, but to those who are at risk of being conned. By raising awareness of the challenge of scams, the Government can make more people wary of them. This will mean that those who are targeted can have the confidence that whenever they are cold-called by people trying to offer this sort of advice about their pensions or information about their investments, the calls are not legitimate but in fact illegal, and they should put the phone down. The Government are taking a balanced approach, acting if necessary to target where cold calling is most prolific and most damaging, such as in the area of pensions and financial products and services.
Stella Creasy (Walthamstow) (Lab/Co-op)
I am delighted that we have finally got our time to debate the Bill; some people in Parliament might not be, but I believe that consumer protection is one of the most important things we can do in this place, because it speaks to the incremental unfairness that people face in life that individuals cannot face on their own but which together as a society we can tackle. In that sense, I rise to support amendments very much in that vein, and one of their common themes is that they come from Co-operative as well as Labour MPs. The co-op movement was founded on the values of consumer activism so I want to put on the record my support for amendments 31, 1 and 2, which my hon. Friend the Member for Harrow West (Gareth Thomas) will be speaking to later. I also want to get onto the next group, which are in the name of my other Co-op colleague, my hon. Friend the Member for Liverpool, Wavertree (Luciana Berger), amendments 5, 6 and 7 on mental health and debt.
In particular, however, in speaking to my new clause 1 and amendment 4, on the FCA’s potential role in tackling the impact of high-cost credit on our society, I want to repeat my Cassandra impression on debt. The Bill is about the fair treatment of consumers. I urge the Minister and the Government, in my Cassandra-like way, to learn the lessons of the payday lending industry. I do not need to tell any Member that the nation is drowning in debt, as we all have seen in our constituency surgeries. We owe more as individuals than do the Government: total household debt in June 2016 was £1.23 trillion, which is more than the Government’s national debt.
Average UK unsecured debt is now £14,000 and will be £19,000 by the end of the Parliament. The number of people who have gone bankrupt in the last year has soared to its highest level since the financial crisis. The reasons are not rocket science: there is simply too much month at the end of their money. Research now shows that economic insecurity has become the new normal for at least 70% of the UK’s working population, who the RSA has described as “chronically broke” and that 32% of the UK’s workers—people who are earning a wage—have less than 500 quid in savings and 41% have less than a grand. It is little wonder that a third are desperately concerned about debt.
Unemployment rates might still be dropping, but we all know that the cost of living has not dropped, and personal debt has filled the vacuum. So, too, has that insecurity, with 1 million on zero-hours contracts and nearly 2 million people in temporary work—and that is even before we get on to those in self-employment. In my constituency, 15% of people are self-employed. These are people who cannot predict their incomes. It is little wonder that the high-cost credit industry has been preying on these people.
One in 10 UK adults say their incomes change significantly from month to month, and almost half say they have experienced at least one monthly drop in income, with the average monthly drop being £385. Who of us could afford to lose that much from our monthly budget without there being consequences? Nearly half those people were self-employed or in that insecure work, which makes budgeting, on which much of the Bill depends, so difficult, and more than half said that one reason they experienced problems was an unexpected expense—a quarter had had two unexpected expenses.
The costs that people face when the washing machine breaks down or the landlord puts the rent up cannot be planned for, but they are all too frequently an everyday part of life. It is little wonder that nearly 6 million households now spend more than 60% of their income on essential outgoings. They have little flexibility in their budgets to begin with, so when those unexpected costs come, of course they turn to borrowing.
We know that that is not the case for everyone. We know that there are very wealthy people whose incomes are about five times as much as those of the people in the bottom half of our income stratosphere. That is what the new clause and the amendment are about. There are people who can manage borrowing well within their budgets, but the reality of modern-day Britain is that there are many more people for whom borrowing in itself becomes the problem. We know that 25% of the UK’s lowest-income households are struggling with debt and experiencing that “chronically broke” feeling. It is little wonder that it causes so many mental health challenges.
It is not the traditional demons to which people who are struggling are now turning. We did make progress on payday lending—the so-called legal loan sharks—but that industry does not go away; it simply mutates. It simply finds new ways in which to prey on those people. The new clause and the amendment are about credit cards. I would wager that most Members have one credit card, if not two, in their pockets. Many of us may also have had that conversation with constituents who have come to us when they are about to be evicted because they cannot pay their rent and are behind with their costs. When we ask them, “Do you have any debt?” they say, “No.” When we ask, “Have you a credit card?” they say, “Of course.” Because credit cards are so ubiquitous in our society, we do not think of the danger that they can be.
That is why I tabled the new clause and the amendment. As the Minister knows, I am frustrated with the Financial Conduct Authority, which has been looking into credit cards but does not see the risk. This is where I become Cassandra, because the risk is all too obvious. Of course there are people for whom credit cards work well, but we know that a significant chunk of the British population are in persistent debt and that their credit cards are an integral part of that debt. They are paying about £2.50 in interest and charges for each £1 of their borrowing that they repay. That matters, because we stopped it happening in the payday lending industry by introducing a cap.
My simple question to the Minister is this. Why do we want to protect one group of consumers from that kind of persistent debt, but fail to learn the lessons when it comes to other types of product? The issue is not whether the credit involves a payday loan or a credit card; it is the credit itself, and the cost of the credit. I hope to convince the Minister of that.
When we look into consumer debt, we can already see just how damaging credit cards have been. At the end of 2016, consumer credit debt amounted to £236 billion, which is about 15% of total household debt, but it accounts for half the interest payments that are made each year. When the FCA conducted a survey of credit card debt, it found that 19% of consumers—one in five—paid just the interest rather than the repayment charges. What could be called “zombie debtors” had 5.1 million accounts. On average, it would take them more than 10 years to pay off their debt. They are stuck in debt because of their credit cards. Little wonder that 40% of adults say they sometimes struggle to make it to payday, and a third of them say that it is because they are making credit card repayments. Debt is breeding difficulty, and difficulty is breeding more debt for them and their communities.
Luciana Berger (Liverpool, Wavertree) (Lab/Co-op)
I thank my hon. Friend for making such an impassioned speech about such a serious issue. I am sure that there are Members in all parts of the House who meet constituents in their surgeries and hear about their credit card debts, involving not just one card but, in some cases, two, three, four, five, six, seven or eight. It is the people with the most debt who are preyed on by those who give them access to additional cards, which only add to their burden.
Stella Creasy
My hon. Friend is absolutely right. It is no surprise that she has done so much work on the link between debt and mental health issues.
We are already seeing in the credit card industry the same patterns that we saw in the payday lending industry. If we are honest, we must admit that it took us too long, as a House, to act in respect of that industry. So many of us saw people in our constituency surgeries who were losing their homes and people who were massively in debt because they had become stuck in payday loans that they were using to pay for basics such as rent and food. But when we did act, what a difference it made. Bringing in a cap on the cost of credit has led to an 86% reduction in the number of people going to citizens advice bureaux with problems caused by payday lending. So one question for us is what the consequences will be if we do not act on credit card lenders. The Minister may say to me that the credit card industry is completely different from the payday loan industry—that is what he said when we had an Adjournment debate about this—so let me try to convince him that the two are intertwined.
I see in my local community, as other Members may have seen, companies such as Vanquis, Aqua and Capital One—indeed, Vanquis is owned by Provident, which is a doorstep lending company—offering credit to people who have bad credit histories and driving them into the same level of debt as payday loans did. Indeed, the FCA’s data shows exactly that, which is why it is such a mystery to me that it does not choose to learn the lessons from the payday lending industry and act accordingly.
Someone who has an Aqua credit card with a monthly interest rate of 3.992%, has borrowed £1,000 and is only paying the minimum monthly payment will pay £480 in interest by the end of the first year. By the end of the second year, the figure will be nearly £1,000—as much as they borrowed, which is the cap that we have put on payday lending. By the end of the third year, bearing in mind that a big group of consumers get stuck in this way for 10 years, they will have paid back double what they owed. Such companies are targeting our communities in much the same way as the payday lending industry did. They are targeting people with insecure incomes, because they have seen a new market. As I said, this industry does not go away; it just mutates.
Citizens Advice’s recent research about insecure income shows us just how much of a problem there is. People with high levels of income volatility are also five times as likely as others to have accessed this form of high-cost credit to meet the essentials—to put food on their table, to put petrol in their car to get to work and to pay their rent. Those are not costs that they can cut back on but the costs of everyday living. People with volatile incomes are also more likely to be paying fees and charges on cards, as well as overdraft fees.
That is why it is frustrating that, from the get-go, the FCA ruled out capping the cost of credit on credit cards and so learning the lesson from payday lending. It thinks the answer is to ask people to pay back money earlier, as if they have the spare cash to do that. It is not a fair fight for individual consumers against credit card companies, just as it was not a fair fight against payday loan companies. That is why we should intervene to set a fair market and learn the lessons about capping.
My new clause 1 does something simple: it asks the new financial guidance and claims body to step in, because the FCA is not doing its job and looking after the interests of consumers. It is not recognising, as Cassandra does, the risk that is coming and acting to avoid it. It says that persistent debt is when somebody pays 100% in interest and charges on top of the amount to be repaid, but it is not applying its own rule to credit cards even though we have seen how effective it has been in the case of payday lending.
I ask the Economic Secretary to show the leadership that this issue needs and that I believe the House would support. If he says today that he will take a strong hand with the FCA and not let it wait years and years, watching our constituents get into consistent debt with credit cards, logbook loans or any other form of high-cost credit, he will have my backing. I have tabled my amendment and new clause to give him the opportunity to tell us that he gets it. The House does not want to wait another five or six years watching our constituents get into debt, as we did with payday lending. I am sure the Government would not want to be forced to cap the cost of credit, as we had to force them in that case, and I am sure that he is proud of the difference that capping the cost of credit for payday lending has made to millions of consumers in this country.
FCA data shows us that millions of credit card owners need our help and protection now, which is why I have tabled the new clause and amendment. I believe that there will be support for them, but I want to give the Economic Secretary the opportunity to do what I know he wants to do, which is to ensure that we do not leave it so long this time. I look forward to hearing what he says, and I hope that other Members will support my call, because frankly, there are too many people in our constituencies who need and deserve nothing less.
Craig Tracey (North Warwickshire) (Con)
First, I should like to declare an interest as the current chair of the all-party parliamentary group on insurance and financial services. I welcome the Bill, because it will tackle some of the important issues that my constituents talk about. It includes a commitment to ban cold calling relating to pensions and to the creation of a single financial guidance body—an SFGB. I know that this approach also has the broad support of the insurance and financial services industry, but it is important that the SFGB should work with all stakeholders to fulfil its objective and of course ensure good consumer outcomes. With the Bill, we have an excellent opportunity to improve financial resilience by promoting early intervention to help to prepare people for income shocks and life events. These preparations include planning ahead for care and understanding the benefits of protection products such as income protection insurance, critical illness insurance and life insurance.
There is a lot in the Bill that I could talk about, but given the time constraints, I want specifically to speak against new clause 8, which seeks to put a duty on the Financial Conduct Authority to ban unsolicited direct approaches by claims management services. I agree with the Government that the Information Commissioner’s Office is best placed to implement any ban and that existing legislation means that data gained illegally is already restricted. However, I agree that there is an urgent need for reform relating to claims management companies.
Previously, there have been calls for the FCA to assume responsibility for CMCs, so the fact that the Government have taken action on this is to be warmly welcomed. The Association of British Insurers has stated:
“Confirmation of tougher regulation of claims management companies cannot come soon enough for people who are plagued by unsolicited calls and texts. Disreputable firms are fuelling a compensation culture that contributes to higher insurance costs for many.”
Last year alone, there was a total of 752 authorised personal injury CMCs, more than in any other claims sector, including PPI. Measures in the Bill will go some way towards tackling bad practice in the personal injury claims market, which has been costly for insurance companies, put up premiums for consumers and frequently delivered outcomes in which claimants’ interests were not put first.
Added to some of the measures in the forthcoming Civil Liability Bill, such as tackling the high frequency of whiplash claims, this Bill will help to ensure the success of the Government’s wider efforts to tackle these problem areas. It is therefore encouraging that the insurance industry has expressed confidence in the FCA’s more robust regulatory regime and its ability to properly oversee these firms, citing two significant benefits, both of which will play a vital role in addressing the problems associated with this sector.
First, a strong regime based on understanding the business models of individual CMCs will prevent firms that do not offer good value to consumers from operating. Secondly, personal accountability for senior managers of CMCs will ensure that when a firm struck off, its directors cannot simply resurface as a new CMC, as is currently happening. It is anticipated that, as a result of this change, consumers will be given more information about the services that CMCs offer and more transparency about the fee structure. It is therefore important that the improved regulation of CMCs should be implemented alongside the personal injury reform proposed in the Civil Liability Bill. It can only be good news for consumers when their interests are put above all others.
As I have said, this is an excellent Bill, but I would like to propose a couple of areas in which I think it could be strengthened, and I ask the Minister to take them into consideration when summing up. First, it would be useful if he clarified the exact scope of the services that the SFGB will provide for consumers. There is a great opportunity to look at how the Department for Work and Pensions could work with the financial services industry to make guidance a recognised norm and to look at ways to support interventions that could improve the retirement process, such as the introduction of a mid-life MOT.
Secondly, will the Minister provide a timeline for the introduction of the FSGB and tell us when the FCA will assume responsibility for CMCs? Swift action is necessary, particularly in relation to CMCs, given the drastic spike in claims relating to gastric illnesses by people who have been on holiday. It is no coincidence that this surge has coincided with CMCs preparing for the deadline for bringing PPI claims and the introduction of measures to tackle whiplash claim frequency.
The Opposition amendments to this part of the Bill are unnecessary. The Government are committed to banning cold calling in relation to pensions and by CMCs. Moreover, they and the SFGB will keep cold calling under review. If the Minister will give consideration in his summing up to the points I have made, I will have no hesitation in supporting the Government through the Bill’s remaining stages.
Gareth Thomas (Harrow West) (Lab/Co-op)
I rise to speak to the three amendments in my name. According to a recent Bank of England survey, the average level of household debt, excluding mortgages, is £8,000. While everybody should be able to access basic debt advice, people on low incomes with much higher levels of debt, at higher rates of interest, clearly need significant support. Unlike in the United States, it is difficult to work out with any certainty where such people are living in the UK, beyond relying on an individual to approach their local citizens advice bureau or another advice service.
At present, the new financial guidance body will not have access to data to allow for a detailed mapping of debt at a local level. Indeed, it will not have access to a full picture of the activity of banks and other lenders in our communities. There is no requirement on banks, payday lenders and other financial services providers to be fully transparent about the services in each of our constituencies—specifically where they lend, what rate they lend at, and the types of loan that they offer. Were that data available to public bodies, it would allow for the accurate mapping of who is lending and what is being loaned. Banks and other lenders do hold such data down to postcode level, and such data are released in the United States. Many British lenders that are active in the US are used to releasing that information, which allows public bodies to map the activities of banks and other lenders.
My amendments 1 and 2 would allow the single financial guidance body to facilitate the release of that information by lenders in an anonymised form so that we could know where debt is concentrated and what types of credit are used in different areas. That would allow for better, more strategic responses to the household debt crisis with which the House is familiar. The data would help to inform where to target the debt advice funding that the SFGB will dispense, encourage more engagement between mainstream lenders, and allow the community finance sector to scale up the provision of affordable credit in areas where there are specific problems. Indeed, such data would reveal market gaps and the communities excluded from mainstream credit.
Fair access to financial goods and services is a basic requirement for full engagement in modern society, but Thamesmead, an estate of 55,000 people in south-east London, has not been home to a mainstream bank branch for a long while. Charities report anecdotally that high-cost credit lenders such as doorstep or payday lenders are very active. More and more bank branches are being closed by the big banks, which is leaving whole communities, some in the poorest areas of our country, without a single mainstream bank branch. Thamesmead is not an isolated example.
At the same time, rumours persist that the big banks want to pull the plug on free cash machines. Which? has reported that over 200 communities in Britain already have poor ATM provision or no cash machines at all. The combination of a lack of access to cash machines and to mainstream bank branches could create the space for a much bigger increase in the activities of high-cost credit companies, doorstep or payday lenders or, worst of all, illegal loan sharks, as a response to the needs of people in such communities for short-term loans. We need to know where the other Thamesmeads are across the country so that charities, community banks and credit unions can be supported by the financial guidance body and other statutory bodies to target financial exclusion in such areas by signposting people to responsible financial providers.
In 2015, when considering this specific problem, the Financial Inclusion Commission, which was set up by the Government, argued for a much wider level of data disclosure to develop a greater understanding of the problem. It said specifically:
“If lenders were required to disclose data by postcode on credit applications and rejections, policymakers would be better able to understand the scale and shape of the low income credit gap.”
Since the financial crisis, banks and other lenders have withdrawn from higher-risk lending and raised the threshold for accessing mainstream credit. In turn, this has restricted the credit available to those with low credit scores, leaving them at the mercy of higher-cost lenders to bridge their income gap. Surely part of the long-term solution to the household debt crisis is to make it easier for low-cost credit providers and other alternatives.
It is true, as Ministers have previously suggested in Committee and in a letter to me, that there are other sources of data on debt. The Office for National Statistics and the Bank of England publish data on lending, but only at UK level—the data is not broken down by constituency or by area. StepChange, too, publishes some data on lending, as does the Money Advice Service, but the Minister might not be aware that it publishes only estimates of the number of people who are over-indebted.
I would not dream of criticising the Money Advice Service, but its data on lending does not go anywhere like far enough to meet the recommendations of the Financial Inclusion Commission. The Money Advice Service does not routinely collect information about the extent of debt problems at the most local level. Its last significant report was back in March 2016, and it set out estimates of the number of over-indebted households down to local authority level, not postcode level, which is what we need. The Money Advice Service data are estimates based on survey work, not actual individuals who take out loans.
I should be clear that some lending data is already released. The coalition Government, to their credit, required the British Bankers Association, which is now UK Finance, and the Council of Mortgage Lenders voluntarily to publish some data by postcode, primarily to try to tackle the challenges that small businesses were facing when accessing credit.
There are problems with the data. For example, it does not include high-cost, short-term credit—payday lenders. Additionally, it does not disclose lending levels or rates at postcode level. Some details of loan applications and credit providers’ registers are not released either, so a full picture of the level of lending at a postcode level has not yet been able to emerge.
At the moment, the data is released voluntarily. Legal underpinning is needed so that more statutory bodies working in this field can more easily negotiate improvements in data. Specifically in this context, for example, the single financial guidance body should be able better to negotiate the release of the data that it needs.
I say this gently to the Economic Secretary, who will be very helpful to me tomorrow, but efforts to re-engage the Treasury in getting UK Finance to improve the usefulness of the data its members release have not had much success recently. At the very least, I hope he will be willing to join me in meeting national groups operating in this field to hear their concerns about the data, and perhaps he might be willing to use his leverage to get at least small improvements in that area.
In the United States, the Community Reinvestment Act means that banks and other lenders have to report what they are lending, where to and at what rate. The disclosure requirements are critical as they enable independent, informed assessments of what the banks are doing. Crucially, they keep the banks honest. Before the CRA, access to credit was scarce in deprived areas, and that lack of access contributed to and prolonged the decline and deprivation in such communities.
Gareth Snell (Stoke-on-Trent Central) (Lab/Co-op)
My hon. Friend makes an excellent point, but does he agree that the disclosure of such data would highlight the hotspots in communities such as the ones that we represent, and would therefore allow the Department for Work and Pensions to put in the necessary resources so that jobcentres and other advice bureaux can act as a preventive measure so that we do not see more of our constituents with little chance of getting out of the vicious circle of high-cost borrowing?
Gareth Thomas
My hon. Friend makes a good point.
In the United States, federal banking regulators regularly assess how banks are meeting local credit needs. Their assessments affect the way in which the banks are allowed to expand, merge, do acquisitions and so on. Banks can get credits towards their assessments if they invest in community banks or credit unions. Not surprisingly, both the community banking movement and the credit union movement are in even better health in the US than they are here.
Santander, HSBC and Barclays all operate in the United States, where they release far more data on lending, down to postcode level, than they do here. So surely the questions for this House are: why are they not willing to do that here, too; and, as I believe, should they be forced to do so? Last October, Santander announced an $11 billion, five-year settlement on lending and community development in eastern parts of the United States, which is the market in which it operates. That represented a 50% increase in its Community Reinvestment Act-related activity. No such equivalent increase has been announced here in the UK. The Community Reinvestment Act has cross-party support in the US, being backed by Republicans and Democrats alike, including for its data disclosure requirements. If Ministers are not prepared to accept my amendments, I would wish, with your permission, Madam Deputy Speaker, to press amendment 1 to a Division. These amendments are not onerous. Banks and other lenders record this data, and although a little work would be needed so that the information could be released in a useful format, a similar system works particularly well in the United States. In turn, the disclosure of lending details could help the single financial guidance body to make more effective choices.
I shall deal briefly with amendment 31. One key challenge for the single financial guidance body will be, as we all know, to help those who need loans, for whatever reason, to access the cheapest products—those offered by credit unions fall into that category. Surely the SFGB should be mapping where credit unions exist and what further action can be taken to promote the take-up of their services by those who are most in need. Credit unions have very low administration costs. They simply do not have the megabucks of a major bank or a payday lender’s marketing department, so many of those who most need the support that credit unions can offer are often unaware of the services they provide. Surely another challenge for the House is to work out how we help credit unions to make more information available about the products on offer. I know that Ministers are sympathetic to efforts to expand the credit union sector, so I ask them to give specific attention to thinking about what further steps can be taken to help the credit union movement to expand and to support the SFGB in achieving that aim.
Julian Knight (Solihull) (Con)
I refer Members to my entry in the Register of Members’ Financial Interests. I completely agree with what the hon. Gentleman says about credit unions. Does he agree that one key aspect of trying to promote them is improving their professionalism, IT and this information, and using the potential for workplace credit unions? Should we not try to bring this through the workplace and payroll?
Gareth Thomas
I agree with that point, which is why it has been encouraging over the past 10 to 15 years to see Departments beginning to do their bit to encourage the workplace take-up of credit unions. I hope the Economic Secretary may be able to tell me that Her Majesty’s Revenue and Customs will follow this trend soon, but the point about trying to increase professionalism is well made. Again, it would be good to hear commitments from Ministers that some of the problems that credit unions face due to poor regulation by the Financial Conduct Authority will be dealt with.
Gareth Snell
I apologise for intervening again, Madam Deputy Speaker. I was a director of a credit union in Staffordshire, but unfortunately it went under because the regulation from the FCA simply meant that it became unviable, because the authority did not understand the operating model. I therefore very much agree that the FCA has a big role to play, along with the Government, in making sure that credit unions are sustainable, because they offer a hope for constituents who would otherwise use high-cost lending.
Gareth Thomas
My hon. Friend amplifies the point I was making. One last point to make is that there is a need for legislative change to allow credit unions, in particular, to offer loans for cars and—
Madam Deputy Speaker (Mrs Eleanor Laing)
Order. Before the hon. Gentleman comes to his last point, there seems to be a lack of understanding generally in the Chamber about what happens at this stage in a Bill. I cannot put a time limit on speeches; this is Report stage. We have two groups of amendments to go through, and we have until 6 o’clock. Many questions have been asked, and Members will expect the Minister to have some time to answer them.
If we go on as we have done for the last two hours, there will be no debate on the second group of amendments. It will not be up to me to explain to the hon. Member for Liverpool, Wavertree (Luciana Berger) why she does not get to make her speech on her amendment in the next group. Every minute that people take in this House takes away from another colleague. Of course, there are people who prefer to hear the sound of their own voice, who only want to hear their own arguments and who will not give time for others, but I am warning now that if speeches take more than three minutes, we will get to a stage whereby the second group of amendments will not be heard. I cannot stop the hon. Member for Harrow West (Gareth Thomas) finishing his speech—he can take as long as he likes, as far as the Chair is concerned—but I am sure that he will have a view to helping his colleagues.
Stephen Lloyd
You make a salient point, Madam Deputy Speaker. I have been sitting here for two hours, so I agreed with a lot of what you said.
I am glad that we are finally concluding our consideration of the Bill. I rise to speak to amendment (a) to new clause 9, as well to new clause 7, amendment (a) to amendment 10 and amendment 34. The Liberal Democrats welcome the amendments that the Government have tabled, but we believe that they do not go far enough.
The Bill as introduced in the other place had three major flaws. First, the single financial guidance body had no explicit function to protect consumers. Secondly, the Government missed an opportunity to ban cold calling by claims management companies, as they had promised to do in their manifesto. The ban should also have extended to other financial products. Thirdly, there were no safeguards to ensure that people received financial guidance before they accessed or transferred their pension benefits.
I pay tribute to my Liberal Democrat colleague in the other place, Lord Sharkey, whose amendments to the Bill paved the way for the concessions that we have today. I know that he and others from across the political divide have been lobbying Ministers intensely behind the scenes. It would have been nice if the concessions had come earlier in the proceedings, but there we go.
My support for the concessions is not absolute. In particular, under clause 34, claims management companies must act as though all UK phone numbers are registered with the Telephone Preference Service. As the House will be aware, however, the TPS has proven to be somewhat ineffectual. The Information Commissioner’s Office received more than 11,000 reports of cold calls from people on the TPS register last year. We believe that the Financial Conduct Authority has more teeth to enforce a ban on cold calling by claims management companies. For that reason, we support new clause 8, which would put Lord Sharkey’s amendments back into the Bill. The other amendments to new clause 9 would have a similar effect, allowing the FCA to police the ban on pensions cold calling.
Government new clause 9 allows Ministers to ban pensions cold calling and, if they do not, they must lay a statement before Parliament each year. Although I would love to name and shame Ministers every year until a ban comes into effect, I would rather that they just got on with it. Amendment (a) to the new clause would make it a legal requirement for the Government to ban cold calling, rather than just an optional extra.
New clause 4 allows the Government to ban cold calling in relation to any other financial services product after receiving advice from the SFGB. I welcome the amendment, but Lord Sharkey and I are worried that the SFGB’s duty to report on cold calling “from time to time” is too weak. I have tabled amendment (a) to amendment 10 to ask the SFGB to publish its report on cold calling at least every two years. This duty should not fall quietly by the wayside.
I also encourage the Government to accept amendment (b) to new clause 9, which was tabled by the right hon. Member for Birkenhead (Frank Field). As my colleague, Lord Sharkey, pointed out in the other place, a ban on cold calling must also include a ban on the commercial use of data obtained by cold calling. This gives the Information Commissioner two bites at the cherry to punish companies flouting the ban.
I now turn to the two amendments that I tabled on income shocks. They would require the SFGB to improve the capability of the public to plan for sudden reductions in income. The issue was brought to my attention by the former Pensions Minister, Professor Steve Webb, and the Chartered Insurance Institute, to which I am very grateful. Too many people are unprepared for a sudden fall in income. The 2015 financial capability survey found that 26% of working-age adults have no savings to fall back on and that a further 29% have less than £1,000 saved. There are many reasons why income shocks could occur. Money Advice Service research from 2016 found that nearly three in four households receive an unexpected bill every year. One third of households have had to make an unexpected car repair or replacement, at a cost of £1,300 on average.
The “Improving Lives” Green Paper revealed that 1.8 million employees have a long-term sickness absence of four weeks or more in a year, yet statutory sick pay is worth less than three hours’ work a day on the national living wage. This problem is made worse because, as the FCA has noted, people with serious illnesses often have poor access to financial services, particularly insurance.
Amendments considered in the other place also touched on this issue. In response, the Government said that public preparedness for income shocks would be an aspect of the money guidance function. Although I welcome that commitment, I would like the Minister to go further. The Bill contains no specific direction for the body to improve preparedness for income shocks or any mechanism to measure the progress of the body in this regard.
The SFGB’s focus will be pulled in every direction. How will the Government convey to the SFGB the strategic priorities for the coming year, and how will Parliament and the public be able to scrutinise and evaluate that work? The Government have finally listened to the arguments made on these Benches and in the other place. I thank them for doing so, but they must now go the distance. They must take robust action to end the scourge of cold calling and protect millions of vulnerable people from sudden income shocks.
Steve McCabe (Birmingham, Selly Oak) (Lab)
I apologise for missing the earlier part of the proceedings; I was chairing a debate in Westminster Hall.
I want briefly to voice my support for amendments 8 and 9, to which I have added my name, and also for new clause 8, in my name, which effectively repeats amendment 42 as proposed by Lord Sharkey in the other place. As Members will know, that amendment was withdrawn on the solid understanding of a promise by the Minister in the Lords who said that her officials were working through the detail of a ban on cold calling. She went on to say that the Government would bring forward amendments to this House to implement that ban. Plainly, they have not done so.
I am not quite sure why the Government have backtracked on what seemed to be such an obvious and solid promise. It might have seemed that focusing on the role of the Information Commissioner and Ofcom was the easy option, but, with all due respect to the hon. Member for North Warwickshire (Craig Tracey), the kind of cold calling that innocent people are being subjected to every day is actually a cold, calculated business strategy; it is not only an issue about the misuse of personal data, important though that may be.
This Bill is supposed to be designed to ensure that people are protected and that the financial decisions that they make are taken after careful consideration and access to independent guidance. Why on earth are the Government reneging on their promise to eliminate cold calling for commercial purposes, the aim of which is to bounce people into decision making and deny them the time for proper, careful consideration and access to good guidance? New clauses 3 and 4 simply will not do the trick. People may well see them as a deception—an attempt by the Government to fool people into thinking that they are taking action when they are not really doing so at all. Everyone knows that it is a complete nuisance and underhand practice designed to entrap consumers.
Alex Sobel
I am here to support the amendments in the names of my hon. Friends the Members for Walthamstow (Stella Creasy) and for Harrow West (Gareth Thomas), which are complementary. I have also put my name to amendments 1, 2 and 31 in the name of my hon. Friend the Member for Harrow West.
Why do the poorest in our society have to pay more for the same services as the wealthiest? Why do they have to pay more for the same gas and electricity? Why do they have to pay more interest for the same loans? Why is credit more difficult to access and at much higher interest for the poorest in society? The structure of our society is such that growing inequality is in-built, because those with capital can further accrue it through cheap finance and lower costs, while those without capital cannot pursue their dreams through the high costs and limited availability of debt finance. Today we have an opportunity to make a small step in reversing that trend, casting light on the practices of high-cost credit providers and enshrining the duty to ensure that information about credit unions is provided by the single financial guidance body. The very mission of credit unions is to provide low-cost finance to people who are deemed high risk by traditional institutions, and they are owned by their own members.
Martin Luther King said:
“it is obvious that if a man is to redeem his spiritual and moral ‘lag,’ he must go all out to bridge the social and economic gulf between the ‘haves’ and ‘have not’s’ of the world. Poverty is one of the most urgent items on the agenda of modern life.”
Today we have the opportunity to pass these most excellent amendments and make a step towards bridging that social and economic gulf, not just because it makes sense in terms of financial justice, but on a spiritual and moral level.
The United States acted 40 years ago on the spiritual and moral lag that Dr King talked about, by introducing the Community Reinvestment Act. The Act was established to ensure that banking needs were met and monitored in low-income neighbourhoods, which had seen a retreat of traditional banking services and rising interest—a situation that we have faced in this country for far too long. My hon. Friend the Member for Harrow West gave an excellent explanation of the Community Reinvestment Act, so I will not repeat it. The banks in America have responded to the Community Reinvestment Act by establishing plans to service those communities and ensure that their services are not restricted. Banks in the US with community investment plans not only commit capital at affordable rates for loans, but invest in community development.
The amendments are needed before we can implement a community reinvestment Act. Without the disclosure of financial data and a statutory duty to promote credit unions, we cannot achieve community reinvestment by the large banks. The amendments are a necessary but insufficient precursor to getting real financial justice for communities that struggle to access affordable credit, but today we can make the first step to ensuring financial justice and legislating for a full community reinvestment Act. I hope that the Treasury Bench takes on board these excellent amendments and responds to them in kind.
Alex Cunningham
I want to speak briefly to new clause 2. While I am sure, Madam Deputy Speaker, that you have many years to go before you reach your own mid-life point, I am sure you will understand that we could all use a bit of advice at times—even though those of us with six decades or so behind us think it our duty to pass on pearls of wisdom to the younger generation.
There is plenty of talk about young people and their finances—about how they can manage their cash and get on the property ladder, which is of course impossible for many these days. This Bill does something to help young people, and I am pleased about that, but what it fails to do is help those in the mid-life stage—people who may have saved a bit, joined a pension scheme, or bought an ISA or two. More importantly, it does nothing to help those who have done none of those things and simply do not know who or where to turn to when planning their later life.
Although some excellent initiatives have passed through this House, such as Labour’s policy of auto-enrolment into workplace pensions, there have been a number of failures, not least around the issue of ’50s-born women and their state pension age, which was extended by the Tory-Lib Dem coalition by several years, condemning many such people to poverty when they should have been enjoying retirement. We could have hoped that the experience of thousands of women left facing difficulty and uncertainty would act as a salutary lesson to everyone else that they cannot really depend on Governments to deliver the security they need in retirement, but need to find ways to make provision for themselves.
People are now looking at their expected pension provision, if they have any, and then panicking about how they are going to afford to live when they retire, or are faced with the reality that they will have to work beyond retirement age in order to make ends meet. We also have people who have lived their lives just getting by—who have never been able to buy their own home and now do not know how they will afford their rent once they retire. Uncertainty is very much the name of the game in the 21st century, so we have a responsibility in Parliament to make provision to ensure that everyone, whether they can afford it or not, is able to work out how they will live when they are no longer receiving a wage. This new clause to provide targeted information to people from the age of 50 delivers that.
We all know that people can now expect to have several jobs throughout their career, and redundancy, zero-hours contracts and insecure work are clouds hanging over millions of people every day. Some people in their 50s find that they need to retrain for another role, but many do not know where to begin or where to get to the facts. This body, backed by the right promotional campaigns, including multimedia, could be a lifeline for those who ignore their money problems. I am, however, concerned about the capacity of the new body. We need to guarantee that it can expand if we are to reach many more people with guidance. I am yet to be convinced that that capacity will be there. I hope that the Minister will say something about how it can expand. I also hope that he can extend its services to provide the mid-life advice that people need.
Yvonne Fovargue (Makerfield) (Lab)
I, too, want to support my hon. Friends the Members for Walthamstow (Stella Creasy) and for Harrow West (Gareth Thomas). I hope that the FCA will look speedily at the total cap on the rent-to-own sector, with its inflated prices for goods and roll-up charges.
I am pleased that the Bill aims to ensure that members of the public can access good-quality, free-to-client impartial financial guidance, pensions advice and debt advice. Clauses 10 and 11, which relate to my amendment 42, require the single financial guidance body to set and enforce standards across the debt advice partners it commissions. I think that everyone agrees that the body will have to have regard to standards of practice for the organisations it commissions, but the respective roles of the single financial guidance body and the FCA should not create uncertainty. There may have to be additional requirements for organisations that it commissions.
However, an independent report to the Debt Advice Steering Group run by the Money Advice Service says that the quality assurance process for the larger debt advice charities should be authorised by the FCA. The concern is that any such new and additional requirements from the single financial guidance body should not replicate the requirements faced by the debt advice organisations from their regulator, the FCA. Having had a contract from the Legal Aid Board where we had three auditors in at one time, I was tempted just to throw the files into the middle of the room and say “Fight over them.” The auditing ought to be in the same capacity, and it should be done under one audit that covers all if there are the same requirements.
The body’s standard-setting powers also need to be matched with principles of good regulation, and conditions ought to be proportionate to the benefits they will bring. Amendment 42 would make that plain. Ensuring that the new body’s standard-setting powers have regard to proportionality would smooth its functioning, guarantee assurance and stop the uncertainty as to whether the FCA or the single financial guidance body has primacy.
Ellie Reeves (Lewisham West and Penge) (Lab)
I want to speak to amendments 8 and 9, which, unlike new clause 4, would lead to an outright ban on cold calling by claims management companies.
Claims management companies make and send around 51 million personal injury-related calls and texts each year. Such calls are not only a nuisance; they exploit vulnerable people. It is worth reiterating that solicitors are already banned from cold calling in personal injury claims, but the fact that claims management companies are not risks bringing the sector into disrepute. Cold calling can generate the false perception that obtaining compensation is easy, even where there is no injury. It can put pressure on people to pursue unmeritorious or, at the worst, fraudulent claims, which they otherwise may not do. It may never have been someone’s intention to make a claim, but if they receive a text promising them thousands of pounds, it might seem very tempting.
There is an important context. The Government are proposing to reform compensation rules for whiplash claims and to increase the small claims limit in road traffic accidents from £1,000 to £5,000, and in public liability and employers’ liability claims from £1,000 to £2,000. The Government say that that is to cut down on fraudulent claims and to bring down insurance premiums. However, many, including myself, are concerned that that will have a significant impact on access to justice, with people not being able to access proper legal advice in such claims.
Ruth George
Does my hon. Friend agree that a total ban on cold calling, including from claims management companies, would be a much more proportionate response to insurance industry claims of fraud within claims management, and that that should be looked at before any action that will impact on innocent victims of road traffic accidents and employer injuries?
Ellie Reeves
I absolutely agree. Surely a better solution to this issue is to have an outright ban on cold calling in personal injury claims by claims management companies, which is exactly what amendments 8 and 9 would do.
New clause 4 gives the single financial guidance body the ability to advise the Government if it considers a ban on cold calling by CMCs to be necessary. If the Government receive such advice, the Bill gives the Secretary of State the power to impose such a ban. However, the Bill does not compel the single financial guidance body to give such advice in relation to cold calling; nor are the Government required to act if they receive advice.
Although the Government have promised decisive action from the outset, I am concerned that the Bill is filled with ifs, buts and maybes and still falls far short of a ban on cold calling. Amendment 8 would commit the single financial guidance body to advise on how best to implement a ban within 12 months of the Bill being passed, and amendment 9 would require the Government to act outright and impose the ban. A ban on cold calling commands support from over two thirds of the population. We must respond to that and strengthen the Bill by agreeing to amendments 8 and 9, to see through a complete and necessary ban on cold calling.
John Glen
I am acutely conscious of the need not only to get on to the second group of amendments but to respond to the amendments in the first group. I will do my best to address all of them, and I will give myself five minutes to do so.
I will start with new clause 7 and amendment 34, tabled by the hon. Member for Eastbourne (Stephen Lloyd). The body is already expected to develop a national strategy to improve people’s financial capability, including ensuring that consumers improve their financial resilience, so the Government believe that the amendments are not necessary.
Jack Dromey
In the spirit of being able to get on to the next group, we welcome the ban on pension cold calling. We have sought to extend that ban to all cold calling. If the Minister is prepared to have discussions at the next stages, and before the Bill concludes its passage through Parliament, we would be prepared not to oppose Government amendment 11 or to move our amendments 8 and 9.
Frank Field
If the Minister’s optimism is misplaced on not accepting the amendments that I spoke to on behalf of the Select Committee, will he consider moving to secondary legislation?
John Glen
I thank the right hon. Gentleman for his remarks. I always listen very carefully to what he says. We have made provision for additional bans to take place very quickly, and if my optimism is misplaced, I would expect the body to act. I will continue to have a deep dialogue with the right hon. Gentleman on these matters.
Question put and agreed to.
New clause 4 accordingly read a Second time, and added to the Bill.
New Clause 9
Unsolicited direct marketing: pensions (No. 2)
‘(1) The Secretary of State may make regulations prohibiting unsolicited direct marketing relating to pensions.
(2) The regulations may—
(a) make provision about when a communication is to be, or is not to be, treated as unsolicited;
(b) make provision for exceptions to the prohibition;
(c) confer functions on the Information Commissioner and on OFCOM (including conferring a discretion);
(d) apply (with or without modifications) provisions of the data protection legislation or the Privacy and Electronic Communications (EC Directive) Regulations 2003 (S.I. 2003/2426) (including, in particular, provisions relating to enforcement).
(3) The regulations may—
(a) make different provision for different purposes;
(b) make different provision for different areas;
(c) make incidental, supplementary, consequential, transitional or saving provision.
(4) Regulations under this section are to be made by statutory instrument.
(5) A statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament.
(6) If before the end of June in any year the Secretary of State has not made regulations under this section (whether or not in that year), the Secretary of State must—
(a) publish a statement, by the end of July in that year, explaining why regulations have not been made and setting a timetable for making the regulations, and
(b) lay the statement before each House of Parliament.
(7) In this section, “OFCOM” means the Office of Communications established by section 1 of the Office of Communications Act 2002.’—(Guy Opperman.)
This new clause inserts a new power for the Secretary of State to make regulations (subject to the affirmative procedure) banning unsolicited direct marketing relating to pensions. If the power is not exercised by June, the Secretary of State must explain to Parliament why not. This new clause would be inserted after Clause 24.
Brought up, read the First and Second time, and added to the Bill.
Clause 2
Objectives
Amendment proposed: 39, page 2, line 23, leave out from “accordingly” to the end of line 24 and insert—
“(da) to ensure the needs of people in vulnerable circumstances, including but not exclusively—
(i) those who suffer long-term sickness or disability,
(ii) carers,
(iii) those on low incomes, and
(iv) recipients of benefits,
are met and that resources are allocated in such a way as to allow specially trained advisers and guidance to be made available to them,”.—(Neil Gray.)
This amendment would require that specially trained advisers and guidance are made available to people in vulnerable circumstances and would provide an indicative list of what vulnerable circumstances should include.
Question put, That the amendment be made.
Luciana Berger
I beg to move amendment 5, page 5, line 37, at end insert—
“(ia) how it will specifically provide protections and help to individuals in receipt of mental health crisis services, including NHS mental health crisis services;
(ib) which other mental health treatment services should be considered mental health crisis services for the purposes of this Act.”
Madam Deputy Speaker (Dame Rosie Winterton)
With this it will be convenient to discuss the following:
Amendment 3, page 5, line 39, at end insert—
(iiia) the application of the scheme for duration of a person’s stay in hospital or under the care of a crisis team in their local community”
This amendment will ensure that people who are staying in hospital or under the care of a crisis team in their local community will be protected by the Debt Respite Scheme once it is established.
Amendment 30, in clause 8, page 6, line 15, at end insert
“and must do so before 1 January 2020.”
This amendment commits the Secretary of State to implement a debt respite scheme by the end of next year.
Amendment 6, page 6, line 16, at end insert—
“(3A) A debt respite scheme established by regulations under this section must, specifically, provide protection and help to individuals in receipt of mental health crisis services as well as any other types of individual provided for by regulations under this section.
(3B) The regulations must define which services should be considered “mental health crisis services” for the purpose of this Act in addition to the definition in section 25 of this Act.
(3C) A debt respite scheme established by regulations under this section shall be accessible to individuals in receipt of mental health crisis services irrespective of whether those individuals have accessed debt advice.”
Government amendment 13, in clause 19, page 14, line 40, leave out from beginning to end of line 8 on page 15 and insert—
“(1B) As part of the application process, the trustees or managers must ensure that—
(a) the member or survivor is referred to appropriate pensions guidance, and
(b) the member or survivor is provided with an explanation of the nature and purpose of such guidance.
(1C) Before proceeding with the application, the trustees or managers must ensure that the member or survivor has either received appropriate pensions guidance or has opted out of receiving such guidance.”
This amendment will enable FCA rules to require trustees of a personal pension scheme who receive an application from a member to access or transfer their pension to refer them to SFGB guidance and explain its nature and purpose (or ensure that another person, such as the SFGB, does so) and will prevent them from proceeding unless the member confirms that they have received guidance or do not want it.
Amendment (a) to amendment 13, after “is referred to appropriate” insert “independent and impartial”.
Amendment (b) to amendment 13, after “has either received appropriate” insert “independent and impartial”.
Amendment (c) to amendment 13, in subsection (1C), leave out from “appropriate pensions guidance or” to end and insert
“has indicated to the provider of appropriate independent and impartial pensions guidance the desire to opt out of receiving such guidance.”
Amendments (a), (b) and (c) to amendment 13 specify on the face of the Bill that the provider of the appropriate pensions guidance should be independent and impartial, and that any desire to opt-out of guidance must be indicated to this independent and impartial guidance provider.
Government amendment 14.
Government amendment 15, page 15, line 14, at end insert—
“( ) make further provision about how, and to whom, a member or survivor may indicate that they have received or opted out of receiving appropriate pensions guidance for the purposes of subsection (1C);”.
This amendment expressly envisages the rules making provision about how the opt-out (or confirmation of receipt of guidance) mentioned in the new subsection (1C) inserted by Amendment 13 must be expressed in order to be effective.
Amendment (a) to amendment 15, leave out from “received” to end and insert
“appropriate independent and impartial pensions guidance, or have indicated to the provider of this guidance that they wish to opt out, for the purposes of subsection (1C);”.
Government amendment 16.
Government amendment 17, in clause 20, page 16, line 10, leave out from beginning to end of line 23 and insert—
“(2) As part of the application process, the trustees or managers must ensure that—
(a) the beneficiary is referred to appropriate pensions guidance, and
(b) the beneficiary is provided with an explanation of the nature and purpose of such guidance.
(3) Before proceeding with the application, the trustees or managers must ensure that the beneficiary has either received appropriate pensions guidance or has opted out of receiving such guidance.”
This amendment makes equivalent changes to Clause 20(2), which relates to occupational pension schemes in Great Britain, to the changes made by Amendment 13 for personal pension schemes.
Amendment (a) to amendment 17, after “is referred to appropriate” insert “independent and impartial”.
Amendment (b) to amendment 17, after “has either received appropriate” insert “independent and impartial”.
Amendment (c) to amendment 17, in subsection (3), leave out from “appropriate pensions guidance or” to end and insert
“has indicated to the provider of appropriate independent and impartial pensions guidance the desire to opt out of receiving such guidance.”
Amendments (a), (b) and (c) to Amendment 17 specify on the face of the Bill that the provider of the appropriate pensions guidance should be independent and impartial, and that any desire to opt-out of guidance must be indicated to this independent and impartial guidance provider.
Government amendment 18.
Government amendment 19, page 16, line 29, at end insert—
“( ) make further provision about how, and to whom, a beneficiary may indicate that they have received or opted out of receiving appropriate pensions guidance for the purposes of subsection (3);”.
This amendment is the equivalent to Amendment 15 for occupational pension schemes in Great Britain.
Amendment (a) to amendment 19, leave out from “received” to end and insert
“appropriate independent and impartial pensions guidance, or have indicated to the provider of this guidance that they wish to opt out, for the purposes of subsection (3);”.
Government amendment 20.
Government amendment 21, page 17, line 27, leave out from beginning to end of line 40 and insert—
“(2) As part of the application process, the trustees or managers must ensure that—
(a) the beneficiary is referred to appropriate pensions guidance, and
(b) the beneficiary is provided with an explanation of the nature and purpose of such guidance.
(3) Before proceeding with the application, the trustees or managers must ensure that the beneficiary has either received appropriate pensions guidance or has opted out of receiving such guidance.”
This amendment makes equivalent changes to Amendments 13 and 17 for occupational pension schemes in Northern Ireland.
Amendment (a) to amendment 21, after “is referred to appropriate” insert “independent and impartial”.
Amendment (b) to amendment 21, after “has either received appropriate” insert “independent and impartial”.
Amendment (c) to amendment 21, in subsection (3), leave out from “appropriate pensions guidance or” to “or has opted out” and insert
“has indicated to the provider of appropriate independent and impartial pensions guidance the desire to opt out”.
Government amendment 22.
Government amendment 23, page 17, line 46, at end insert—
“( ) make further provision about how, and to whom, a beneficiary may indicate that they have received or opted out of receiving appropriate pensions guidance for the purposes of subsection (3);”.
This amendment is the equivalent to Amendments 15 and 19 for occupational pension schemes in Northern Ireland.
Amendment (a) to amendment 23, leave out from “received” to end and insert
“appropriate independent and impartial pensions guidance, or have indicated to the provider of this guidance that they wish to opt out, for the purposes of subsection (3);”.
Government amendment 24.
Government motion to transfer clause 22.
Amendment 7, in clause 25, page 21, line 9, at end insert—
“‘NHS Mental health crisis services’ means services provided by NHS England, NHS Wales, or Health and Social Care in Northern Ireland in order to treat acute crises in mental health, whether arising from either acute or chronic mental health conditions.”
Amendment 37, in schedule 1, page 38, line 4, at end insert—
“3A (1) The term of office of a person appointed as chair under paragraph 2(1)(a) must not begin before—
(a) the person has, in connection with the appointment, appeared before the Work and Pensions Committee of the House of Commons, or
(b) (if earlier) the end of the period of 3 months beginning with the day on which the appointment is made.
(2) Sub-paragraph (1) does not apply if the person is appointed as chair on an acting basis, pending a further appointment being made.
(3) The reference to the Work and Pensions Committee of the House of Commons—
(a) if the name of that Committee is changed, is a reference to that Committee by its new name, and
(b) if the functions of that Committee (or substantially corresponding functions) become functions of a different Committee of the House of Commons, is to be treated as a reference to the Committee by which the functions are exercisable.
(4) Any question arising under sub-paragraph (3) is to be determined by the Speaker of the House of Commons.”
This amendment would require the chair of the single financial guidance body to attend a pre-appointment hearing with the Work and Pensions Committee of the House of Commons before starting their appointment. If no such hearing is held within three months, the appointment can also begin.
Amendment 38, page 38, line 41, at end insert:
“6A (1) The term of office of a person appointed as chief executive under paragraph 6(1)(a) must not begin before—
(a) the person has, in connection with the appointment, appeared before the Work and Pensions Committee of the House of Commons, or
(b) (if earlier) the end of the period of 3 months beginning with the day on which the appointment is made.
(2) Sub-paragraph (1) does not apply if the person is appointed as chief executive on an acting basis, pending a further appointment being made.
(3) The reference to the Work and Pensions Committee of the House of Commons—
(a) if the name of that Committee is changed, is a reference to that Committee by its new name, and
(b) if the functions of that Committee (or substantially corresponding functions) become functions of a different Committee of the House of Commons, is to be treated as a reference to the Committee by which the functions are exercisable.
(4) Any question arising under sub-paragraph (3) is to be determined by the Speaker of the House of Commons.”
This amendment would require the chief executive of the single financial guidance body to attend a pre-appointment hearing with the Work and Pensions Committee of the House of Commons before starting their appointment. If no such hearing is held within three months, the appointment can also begin.
Luciana Berger
I shall speak to amendments 5, 6 and 7. I am incredibly grateful to colleagues on both sides of the House for the constructive negotiations and discussions that have taken place to enable this group of amendments be discussed on the Floor of the House this evening. Their purpose is to extend the debt respite scheme set out in clauses 7 and 8 to people in receipt of NHS mental health crisis services. I am incredibly grateful to the large number of MPs—81, in fact—on both sides of the House who are supporting the amendments. It has also been a real privilege to work with the Money and Mental Health Policy Institute, together with colleagues from all parties, to put the amendments together.
Last year’s Conservative party manifesto contained a commitment to introduce a breathing space. The Government have since brought forward this Bill and launched a consultation into how a breathing space initiative would work in practice. This included proposals for a possible trigger point for accessing support, with the initial suggestion that a breathing space should be available only to a person seeking regulated debt advice. I very much welcome the spirit of the Government’s breathing space initiative, but I am concerned that it does little to protect the thousands of people in mental health crisis who are too unwell to physically go and seek such debt advice or to pick up the phone to make that call.
According to research by the Money and Mental Health Policy Institute, up to 23,000 people in England alone struggled with problem debt while they were hospitalised as a result of their mental health last year. Those people are likely to be receiving calls, texts and letters from their banks, local authorities and other creditors at a time of acute distress, and they are at risk of falling into further financial difficulty as a result of increased fees and charges—[Interruption.]
Madam Deputy Speaker (Dame Rosie Winterton)
Order. Some hon. Members are leaving the Chamber, and there is quite a lot of chatter. It would be good to be able to listen to the hon. Member for Liverpool, Wavertree (Luciana Berger).
Luciana Berger
I am grateful to you, Madam Deputy Speaker.
I am concerned about the charges that those people will face, and about the drop in their income from the loss of wages and benefits that people could experience as a result of being in in-patient care or crisis care in the community. Thousands more in the devolved nations, and those who are receiving mental health crisis support in the community, will be in a similar position. The additional anxiety and stress that those people experience as a result of those financial pressures not only threaten to undermine their recovery but make it much less likely that they will be able to repay their debts. The requirement for people in that situation to seek advice before they can benefit from a breathing space creates a barrier, and that barrier must be removed if the new scheme is to fulfil its purpose of protecting the most vulnerable customers.
Amendment 5 represents the first step towards rectifying this issue. It ensures that when the Secretary of State seeks advice from the new single financial guidance body on the establishment of a debt respite scheme, it will include advice on specifically how the scheme will protect recipients of mental health crisis services, and information on which services should be considered to be mental health crisis services. We propose that this should include psychiatric in-patient facilities and community crisis teams. Amendment 6 takes this further by ensuring that the regulations to establish the debt respite scheme specifically provide protection and help to individuals in receipt of mental health crisis services, irrespective of whether those individuals have formally accessed debt advice. Amendment 7 would provide the baseline definition of an NHS mental health crisis service.
Targeting these interventions towards people with mental health problems will have far-reaching positive consequences. People experiencing mental health problems are significantly more likely to be in financial difficulty than the rest of the population, and half the people in problem debt are also experiencing mental ill health. The number of people receiving NHS crisis care services is also likely to be relatively small, and a high proportion—at least a quarter—are likely to be in financial difficulty. Furthermore, people experiencing a mental health crisis are likely to experience problems with their cognitive and psychological functioning as a direct consequence of their illness and are therefore highly unlikely to be able to seek debt advice and access breathing space through regulated debt advice.
How will the system work in practice? We suggest that a person entering the care of a psychiatric in-patient facility or crisis team in the community would be supported to access breathing space if appropriate. That could take the form of a certificate or a stamped-and-dated letter confirming that the service user is in receipt of mental health support during a crisis and should have breathing space applied. Many clinical mental health professionals are currently fighting fires before they can help their patients with their mental health. They are writing to creditors, calling bailiffs and completing reams of financial paperwork, and the changes that I am proposing would simplify things for those professionals, allowing them to focus on their day job. It would also reduce demand on mental health services, as research shows that people who are not in problem debt are much more likely to recovery more quickly and less likely to experience mental health problems in the future.
It is important to acknowledge that the proposed changes would not apply in Scotland, which already has a debt arrangement scheme that would require separate legislation to amend. However, we hope that the successful implementation of our proposals could provide the case for similar reforms in Scotland.
John Glen
In the interests of time and to allow others to speak, I just wanted to confirm that the Government recognise the motives and the wide degree of support behind the proposals and the particular issues for people experiencing a mental health crisis. We will commit to ensuring that people receiving NHS treatment for a mental health crisis, either at a psychiatric in-patient setting or in the community, will be provided with an alternative mechanism to access the breathing space scheme. We will see that that is developed concurrently with the main breathing space scheme.
Luciana Berger
I am incredibly grateful to the Minister. What he has just shared with the House has been missing until now and will make a tangible difference to at least 23,000 people a year. I am grateful for the commitment that he has made. I was going to say in conclusion that amendments 5, 6 and 7 would prevent tens of thousands of people experiencing a mental health crisis from missing out on the protections that breathing space has to offer, which I welcome, because they are too ill to seek debt advice, so I again welcome what the Minister said, because it is critical that that most vulnerable group is not ignored.
Yesterday, the hon. Member for Plymouth, Moor View (Johnny Mercer), Martin Lewis of Money Saving Expert and I joined two people with lived experience, Lee and Susan, to hand in a petition of over 10,000 people who support the campaign. This is a truly cross-party effort, and the right hon. Member for North Norfolk (Norman Lamb) and I have campaigned long and hard. Mental health does not discriminate, and one day one of us in this Chamber could need to access a scheme such as breathing space. It could make a difference for any one of us. I am grateful that the Government have acknowledged the need to ensure that the scheme reaches everyone who needs it, particularly the most vulnerable, and tackles and addresses the impacts of mental health and debt, and I again welcome what the Minister has committed to this afternoon.
John Glen
Being mindful of the need to allow others to speak, I rise to discuss Government amendments 13 to 24. Clauses 19 and 20, which were added by the Government in Committee, aim to build on the Work and Pensions Committee’s proposals by putting them into a workable legal framework, ensuring mirroring provisions for UK occupational pension schemes. Discussions with stakeholders and Members of both Houses have informed amendments 13 to 24. If amended, clauses 19 and 20 would place new duties on managers and trustees of all defined contribution pension schemes when an individual seeks to access or transfer their pension pot.
Frank Field
We may not get a chance to discuss the amendments supported by the Work and Pensions Committee, so will the Minister give the same undertaking that he will introduce secondary legislation if our worries prove valid?
John Glen
The spirit that has run through the House during the passage of the Bill necessitates continued dialogue, and I can certainly give the right hon. Gentleman that undertaking.
I make it clear that when an individual seeks to access or transfer their pension pot, the duties will ensure that they are referred to Pension Wise guidance and that they receive an explanation of the nature and purpose of that guidance. Before proceeding with an application, subject to any exceptions, schemes must ensure that individuals have either received Pension Wise guidance or have opted out. Rules and regulations can specify how and to whom an individual must confirm that they are opting out, which allows for the opt-out process to be separated from schemes. Rules and regulations will set out the detail of the opt-out process, based on evidence of what helps people take up Pension Wise guidance.
These Government amendments lay the foundation for an effective final nudge towards guidance and will allow us to test what works best before implementation and to update the approach in future. They strike the right balance with what is set out in primary legislation, with rules and regulations providing suitable flexibility.
In the interests of time, and to be fair to everyone else, I will now sit down.
Norman Lamb (North Norfolk) (LD)
It has been good to join the hon. Members for Liverpool, Wavertree (Luciana Berger) and for Plymouth, Moor View (Johnny Mercer), and many others, in tabling our amendments. I very much welcome the Minister’s response.
People often get into a vicious circle, with mental ill health leading them into debt because they neglect vital things and the pressure of those debts intensifying their mental ill health. Kenny Johnston, an inspiring man who set up the charity Clasp and who walked out of darkness to build solidarity for people experiencing mental ill health and suicidal ideation, went through eight years of battle with a bank on mortgage arrears that were started by mental ill health, resulting in two suicide attempts—there was constant pressure on him over that eight-year period. This measure will make a difference. It will help, and it is good the Government have been prepared to listen.
It is important to understand that this is not a panacea. I encourage the Minister also to recognise that there are very many people beyond the scope of clauses 19 and 20, such as people in in-patient care and people supported in the community, who are still experiencing mental ill health and who may end up at risk of suicide because of debt. It is important to get the message out and to establish proper processes in companies, particularly financial services companies, to treat people with mental ill health in an appropriate way in order to protect vulnerable citizens.
Legislation is already in place. The Equality Act 2010 contains a duty to consider reasonable adjustments for people who suffer from a disability, which can include mental ill health, and it is important that we spread best practice much further. I welcome the measure, but it is a start and we need to do much more to protect people’s lives.
George Freeman (Mid Norfolk) (Con)
Given the shortness of time, I will be brief. I thank the Minister and congratulate him on providing the House with what we were looking for this afternoon. I congratulate the hon. Member for Liverpool, Wavertree (Luciana Berger), my hon. Friend the Member for Plymouth, Moor View (Johnny Mercer), the right hon. Member for North Norfolk (Norman Lamb), the Breathing Space campaign and the 80-odd colleagues on both sides of the House who have supported the proposal.
I thank the Minister and the Government for signalling what many people in the House and across the country hugely welcome: an appetite for cross-party working in pursuit of looking after the most vulnerable in society, in the spirit of the Prime Minister’s mission when she arrived in No. 10 two years ago. This will send a signal that we are serious.
Secondly, I echo the comments made by my neighbour, the right hon. Member for North Norfolk (Norman Lamb), about the importance of understanding the vicious cycle of mental health and debt, and the way in which the two are so often implicated here. Recent figures from ComRes have shown that 56% of people in work say that payday struggles are their biggest anxiety. Often that anxiety can lead to further complications in terms of depression, which can lead to mental health problems, which in turn can undermine their ability to earn and work. That often leads into a cycle that makes both the indebtedness and the mental health suffering worse, as I know from my own experience. Sixty years ago, my father won the Grand National and 10 years later he suffered a life collapse from a combination of indebtedness, bankruptcy, mental health issues and head injuries, which in those days were not well treated. It is a sign of how far we have come as a society and as a politics that we now talk about these issues so much more openly and we offer so much more help.
I shall close with my third point, which relates to the importance of that taboo. So many people in our society still suffer in silence from debt, which knows no boundaries and is no respecter of class, political affiliation or geography. People who may appear at ease and prosperous—and often those who appear most that way—are struggling in misery behind the scenes and compounding that misery through their inability to feel confident enough to talk about it. That is why, along with the co-chair of the all-party group on inclusive growth, the right hon. Member for Birmingham, Hodge Hill (Liam Byrne), we are working on a small campaign this summer with StepChange, the Money Advice Service, the Financial Conduct Authority and Martin Lewis called “Share not Shame” to encourage people to talk more openly about their indebtedness issues and to seek the help that is available. Many people in this country are paying far too much for debt that could be provided at a minimum—at a fraction of the price—and their debts could be rescheduled in a way that takes the pressure and shame from them. I welcome warmly the undertaking the Minister has given today and congratulate those Members who have led the campaign on this, which will signal across the country that this Parliament is taking their interests very seriously.
Yvonne Fovargue
I rise to speak to my amendment 30, which would improve the timeframe for the breathing space, ensuring its introduction by the end of 2019. That would provide greater certainty, because the current timeframe centres on the establishment of the SFGB, which is potentially moveable. I have proposed a realistic target, allowing sufficient time for the necessary preparation work. I am assured of that by the debt advice providers themselves; they say it gives enough time to plan and develop the new systems to deliver the new protections to all.
Let us not forget that debt often pushes people into a mental health crisis and that debt and depression necessitate people visiting the doctors’ surgery. They are suffering depression, but it is not that; it is the debts that are depressing them. The breathing space and statutory debt repayment plans, properly set up, will give people time and space to get debt advice, stabilise their finances through periods of temporary difficulty and put in place a long-term sustainable solution to their debts. That is not just of benefit to the individual; it benefits the creditors as well, because they know they will be getting their money back, in a fair way, over a fair period of time.
I hope that the Minister will also confirm some details of how the breathing space scheme will work. As I have said on a number of occasions, it is essential that the length of time involved is sufficient to ensure that people are not put back into the harmful uncertainty of unmanageable debt before they have that long-term plan in place. Six weeks has been mentioned, and such a period may help some people, but I have said many times that three months is probably more realistic. I have mentioned how long it takes to get people to come in and deal with the debts, with the need to open carrier bags full of envelopes that people have not had the courage to open. If we are going to start with six weeks, provision must be made for extensions to be made to that; it cannot just finish at six weeks, as it often takes longer than that to get an appointment.
I would like to see this scheme cover all relevant debts, including benefit debts, council tax debts and debts owed to central or local government. If creditors are excluded, they will be able to put the unhelpful pressure on the debtors, which will reduce the scheme’s viability and effectiveness. This has to stop creditors across the board making unaffordable repayment demands. For example, claimants on universal credit can have 40% of their benefit withheld to pay off third-party creditors, with another 40% going on paying back benefit advances—that is 80% of the money. That leaves them with 20% of what is considered the minimum amount required to live on, and that is simply unaffordable.
There is widespread unfair pressure from Government creditors. As StepChange says, bailiffs are often the first port of call rather than a last resort. Clients rate the DWP, HMRC and councils far worse than other creditors—far worse than payday lenders—for treating them unfairly. The Government should adhere to best practice, and I hope that the Minister will agree that it is in all our interests to ensure that no vulnerable people are put into a position where they are unable to pay off their debts.
Johnny Mercer (Plymouth, Moor View) (Con)
I rise to speak in support of amendment 5, which is in my name and those of the hon. Members for Liverpool, Wavertree (Luciana Berger), and for North Norfolk (Norman Lamb), as well as many others across the House.
We in this place often talk a very good game when it comes to mental health, and serious progress has been made in taking the agenda forward over the last few years thanks to colleagues from across the House. When it comes to parity of physical and mental health, however, small details in policy matter. The amendment concerns one such detail, and I am delighted by what the Minister has said today about bringing that into reality for some of our most vulnerable constituents. It was a manifesto commitment of the Government to introduce a breathing space scheme, whereby people who suffer from problem debt are given a fixed period without fees, charges, interest or collection. The consultation is out at the moment, and I support the proposal very much, but there is a gap in provision for those who suffer from mental health crises—those who are too unwell either to manage their finances alone or seek debt advice, and so would not be able to access this scheme.
As we have heard, last year that situation affected up to 23,000 of our most vulnerable constituents, who were hospitalised for poor mental health while struggling with debt. That does not account for those who were in a similar position while receiving mental health crisis support in the community. The link between debt and poor mental health is indisputable; it is a marriage made in hell. I pay tribute to the work of Martin Lewis in bringing together the Money and Mental Health Policy Institute, which has shone a torch on the relationship between debt and mental health. That relationship is often hidden away in some of the darker recesses of our communities, but it makes some of our most vulnerable constituents’ lives hell.
Tens of thousands of people in this country are trapped in a spiral of escalating debts and worsening mental health. Some receive court summons while they are in hospital. I know somebody who faced demands on their doorstep the day they were released following their recovery from an illness. Some people have missed bill payments while hospitalised for mental health conditions, and escalating fees and charges have led some to attempt suicide directly after contact from bailiffs.
The ask of this amendment is very clear: for the Minister to look at extending the current breathing space scheme to apply to anyone who accesses psychiatric in-patient care. We must commit ourselves ever harder to parity of esteem, as I have said. For those who have a short period of acute mental illness—who suffer panic attacks and cannot open the post, call the bank or even think coherently—going to a debt counsellor to call a halt to things is just impossible. The commitment that we seek today, and that we have got from the Minister, is important because it means that people can look to those in NHS crisis teams for advice and space in the breathing space scheme.
I thank the Minister for his willingness to listen to our concerns. The campaign has been a good one. It has involved all Members of this House and shown what can happen when those from all parts of the House work together. I come back to what I said at the beginning. We often talk a very good game—I was delighted that parity of mental health and physical health was made a manifesto commitment in 2015—but sometimes big words have to be matched by calibrated and careful actions. This is one such area, and I am delighted that the Minister has decided that he is going to work on it. I look forward to working with him and the policy institute to make that a reality for tens of thousands of people up and down the country.
Luciana Berger
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 18
Disclosure of information
Amendments made: 12, page 14, line 17, after “where” insert “—
(i) the disclosure is for the purpose of enabling or facilitating the exercise of the consumer protection function, or
(ii) ”
This amendment is consequential upon Amendment 10, which makes changes to the consumer protection function, including requiring the SFGB to pass information to the FCA in certain circumstances. This amendment ensures that disclosure of information in these circumstances is protected by subsection (7) of Clause 18.
Amendment 43, page 14, line 26, leave out “Data Protection Act 1998” and insert “data protection legislation”—(John Glen.)
This amendment changes the reference to the Data Protection Act 1998 to a reference to the “data protection legislation” (as defined in Clause 25 as amended by Amendment 44) to reflect the changes to data protection legislation that are to be made by the Data Protection Bill.
Clause 19
Personal pension schemes: requirements to recommend guidance etc
Amendments made: 13, page 14, line 40, leave out from beginning to end of line 8 on page 15 and insert—
‘(1B) As part of the application process, the trustees or managers must ensure that—
(a) the member or survivor is referred to appropriate pensions guidance, and
(b) the member or survivor is provided with an explanation of the nature and purpose of such guidance.
(1C) Before proceeding with the application, the trustees or managers must ensure that the member or survivor has either received appropriate pensions guidance or has opted out of receiving such guidance.”
This amendment will enable FCA rules to require trustees of a personal pension scheme who receive an application from a member to access or transfer their pension to refer them to SFGB guidance and explain its nature and purpose (or ensure that another person, such as the SFGB, does so) and will prevent them from proceeding unless the member confirms that they have received guidance or do not want it.
Amendment 14, page 15, line 10, leave out from “guidance” to end of line 11.
This amendment (and Amendment 13) removes references to independent financial advice from Clause 19, so that it refers only to pensions guidance given by the SFGB in pursuance of Clause 5 of the Bill.
Amendment 15, page 15, line 14, at end insert—
“() make further provision about how, and to whom, a member or survivor may indicate that they have received or opted out of receiving appropriate pensions guidance for the purposes of subsection (1C);”
This amendment expressly envisages the rules making provision about how the opt-out (or confirmation of receipt of guidance) mentioned in the new subsection (1C) inserted by Amendment 13 must be expressed in order to be effective.
Amendment 16, page 15, leave out line 17 and insert—
“communication that is made for the purposes of complying with the duty in subsection (1C)”. —(John Glen.)
This amendment is consequential on the changes to the duties on trustees made by Amendment 13.
Clause 20
Occupational pension schemes: requirements to recommend guidance etc
Amendments made: 17, page 16, line 10, leave out from beginning to end of line 23 and insert—
‘(2) As part of the application process, the trustees or managers must ensure that—
(a) the beneficiary is referred to appropriate pensions guidance, and
(b) the beneficiary is provided with an explanation of the nature and purpose of such guidance.
(3) Before proceeding with the application, the trustees or managers must ensure that the beneficiary has either received appropriate pensions guidance or has opted out of receiving such guidance.”
This amendment makes equivalent changes to Clause 20(2), which relates to occupational pension schemes in Great Britain, to the changes made by Amendment 13 for personal pension schemes.
Amendment 18, page 16, line 25, leave out from “guidance” to end of line 26.
This amendment is the equivalent to Amendment 14 for occupational pension schemes in Great Britain.
Amendment 19, page 16, line 29, at end insert—
“() make further provision about how, and to whom, a beneficiary may indicate that they have received or opted out of receiving appropriate pensions guidance for the purposes of subsection (3);”
This amendment is the equivalent to Amendment 15 for occupational pension schemes in Great Britain.
Amendment 20, page 16, line 31, leave out from second “a” to end of line 32 and insert “communication that is made for the purposes of complying with the duty in subsection (3)”.
This amendment is the equivalent to Amendment 16 for occupational pension schemes in Great Britain.
Amendment 21, page 17, line 27, leave out from beginning to end of line 40 and insert—
‘(2) As part of the application process, the trustees or managers must ensure that—
(a) the beneficiary is referred to appropriate pensions guidance, and
(b) the beneficiary is provided with an explanation of the nature and purpose of such guidance.
(3) Before proceeding with the application, the trustees or managers must ensure that the beneficiary has either received appropriate pensions guidance or has opted out of receiving such guidance.”
This amendment makes equivalent changes to Amendments 13 and 17 for occupational pension schemes in Northern Ireland.
Amendment 22, page 17, line 42, leave out from “guidance” to end of line 43.
This amendment is the equivalent to Amendments 14 and 18 for occupational pension schemes in Northern Ireland.
Amendment 23, page 17, line 46, at end insert—
“() make further provision about how, and to whom, a beneficiary may indicate that they have received or opted out of receiving appropriate pensions guidance for the purposes of subsection (3);”
This amendment is the equivalent to Amendments 15 and 19 for occupational pension schemes in Northern Ireland.
Amendment 24, page 18, line 2, leave out from second “a” to end of line 3 and insert—
“communication that is made for the purposes of complying with the duty in subsection (3)”. —(John Glen.)
This amendment is the equivalent to Amendments 16 and 20 for occupational pension schemes in Northern Ireland.
Ordered,
That Clause 22 be transferred to the beginning of line 1 on page 21.—(John Glen.)
This is a drafting change to reorder some of the existing clauses in the Bill to provide a more logical order following the insertion of NC3 and NC4.
Clause 25
Interpretation of Part 1
Amendments made: 25, page 21, line 2, at end insert—
“the ‘consumer protection function’ has the meaning given in section 3(7);”
This amendment inserts a definition of “the consumer protection function” into the interpretation clause, which will be necessary following the amendment to Clause 18 made by Amendment 12, which refers to the consumer protection function.
Amendment 44, page 21, line 2, at end insert—
“the ‘data protection legislation’ has the same meaning as in the Data
Protection Act 2018 (see section 3 of that Act);”
This amendment inserts a definition of the “data protection legislation” which is a term now used in Clause 18 (see Amendment 43) and the new clause inserted by NC9, to reflect the changes to be made to the law in this area by the Data Protection Bill.
Amendment 26, page 21, line 7, at end insert—
“‘direct marketing’ means the communication (by whatever means) of advertising or marketing material which is directed to particular individuals;” .—(John Glen.)
This amendment inserts a definition of “direct marketing” into the interpretation clause (using the definition in data protection legislation), which is a term used in the consumer protection function (see Amendment 10) and in NC3 and NC4.
Clause 36
Commencement
Amendments made: 45, page 35, line 6, at end insert—
“() section (Unsolicited direct marketing: pensions);”
This amendment amends the commencement clause so that the new clause on unsolicited direct marketing relating to pensions (inserted by NC9) would come into force on Royal Assent.
Amendment 46, page 35, line 25, after “Sections” insert—
“(Unsolicited direct marketing: other consumer financial products etc) and”.—(John Glen.)
This amendment amends the commencement clause so that the new clause on unsolicited direct marketing relating to consumer financial products other than pensions would come into force automatically two months after Royal Assent.
Schedule 4
regulation of Claims Management Services: Transfer Schemes
Amendments made: 47, page 47, line 17, at end insert—
“‘the data protection legislation’ has the same meaning as in the Data
Protection Act 2018 (see section 3 of that Act);”
This amendment inserts a definition of “the data protection legislation”, which is a term now used in paragraph 19 of this Schedule (as amended by Amendment 48) to reflect the changes made by the Data Protection Bill.
Amendment 48, page 49, line 32, leave out “Data Protection Act 1998” and insert “data protection legislation”.—(John Glen.)
This amendment changes the reference to the Data Protection Act 1998 to a reference to the “data protection legislation” to reflect the changes to data protection legislation that are to be made by the Data Protection Bill.
Title
Amendments made: 28, line 2 leave out “cold-calling and”.
This amendment, together with Amendment 29, amends the long title in consequence of NC3 and NC4.
Amendment 29, line 3 at end insert—
“to provide a power to make regulations prohibiting unsolicited direct marketing in relation to pensions and other consumer financial products and services;”.—(John Glen.)
See explanatory statement for amendment 28.
Madam Deputy Speaker (Dame Rosie Winterton)
I will now suspend the House briefly in order to make a decision about certification. The Division bells will be rung two minutes before the House resumes.
Madam Deputy Speaker (Dame Rosie Winterton)
I can now inform the House that I have completed certification of the Bill, as required by the Standing Order. Clauses 29 and 31 of, and schedule 4 to, the Bill, as amended, relate exclusively to England and Wales and are within legislative competence. Copies of the final certificate will be made available in the Vote Office and on the parliamentary website.
Under Standing Order No. 83M, a consent motion is therefore required for the Bill to proceed. Copies of the motion are now available. Does the Minister intend to move the consent motion?
The Parliamentary Under-Secretary of State for Work and Pensions (Guy Opperman)
indicated assent.
The House forthwith resolved itself into the Legislative Grand Committee (England and Wales) (Standing Order No. 83M).
[Dame Rosie Winterton in the Chair]
The Second Deputy Chairman of Ways and Means (Dame Rosie Winterton)
I remind hon. Members that, if there is a Division, only Members representing constituencies in England and Wales may vote. As the knife has fallen, there can be no debate. I call the Minister to move the consent motion.
Motion made, and Question put forthwith (Programme Order, 22 January, and Standing Order No. 83M(5)),
That the Committee consents to the following certified clauses of, and schedules to, the Financial Guidance and Claims Bill [Lords]—
Clauses and schedules certified under Standing Order No. 83L(2) as relating exclusively to England and Wales and being within devolved legislative competence
Clauses 29 and 31 of the Bill as amended in Public Bill Committee (Bill 160), and Schedule 4 to the Bill as amended on Consideration—(Guy Opperman.)
Question agreed to.
The occupant of the Chair left the Chair to report the decision of the Committee (Standing Order No. 83M(6)).
The Deputy Speaker resumed the Chair; decision reported.
Third Reading
Pete Wishart (Perth and North Perthshire) (SNP)
On a point of order, Madam Deputy Speaker. I am grateful to you for all the onerous contributions that you had to make to provide certification, but what can be done to ensure that the huge numbers of English Members who wish to speak in the English Legislative Grand Committee get their opportunity to do so? This is Dave’s legacy, for goodness’ sake. English votes for English laws was supposed to be the most important issue possible. It seems that, once again, English Members have been totally denied their opportunity. Is not this just the greatest waste of time that this House has to endure?
Madam Deputy Speaker (Dame Rosie Winterton)
That is not a point of order. If the hon. Gentleman wishes to speak on Third Reading, he is able to do so.
The Secretary of State for Work and Pensions (Ms Esther McVey)
I beg to move, That the Bill be now read the Third time.
This Bill is an important piece of legislation. When it started its journey in the other place in June last year, my noble colleague Baroness Buscombe told peers that it would create a framework that would ensure that people have access to the information and guidance they need to make the important and effective financial decisions that we all have to make at some point in our lives. It will also enable the transfer of claims management regulation from the Ministry of Justice to the Financial Conduct Authority, to ensure that there is a tougher regulatory framework and that people have access to high-quality claims handling services.
Alberto Costa (South Leicestershire) (Con)
I thank my right hon. Friend for giving way so early in her speech. Does she agree that it is important that the Financial Conduct Authority and the Financial Ombudsman Service are properly equipped to take on the additional powers proposed?
Ms McVey
I do indeed. We need to have bodies that have teeth, that are able to do this and that we can have faith in. My hon. Friend makes a very good point.
The Bill has delivered on what we said it would, but it now does so much more. The inclusion of a ban on pensions cold-calling, the commitment to introduce a debt respite scheme and the ban on claims management companies cold-calling, as well as the amendment on pensions guidance, all strengthen the Bill. I welcome and appreciate the collaborative spirit that the Bill has engendered across both Houses and the hard work that officials have done. There has been a broad consensus. That is positive, and it has helped so many people in so many different ways.
In the other place, we listened carefully to the thoughtful views of those who engaged in the debates. We appreciate, in particular, the input of Lord Stevenson, Lord McKenzie, Lord Sharkey, Baroness Drake, Baroness Kramer and others who have helped us to craft the clauses on debt respite, cold-calling, pensions guidance and consumer protection. There were some very constructive and helpful debates on other issues that helped us to ensure that the FCA will have regard to the needs of consumers when setting the single financial guidance body’s standards, to strengthen offences on impersonating the new body, to extend the claims management provisions to Scotland and—thanks to the tireless work of Baroness Meacher—to introduce an interim fee cap in respect of PPI claims. To quote Lord McKenzie on Third Reading:
“These changes have come about because, broadly, we have had a shared analysis of what the Bill could achieve”.—[Official Report, House of Lords, 21 November 2017; Vol. 787, c. 106.]
There have been many positive contributions in this House as well. We heard some excellent speeches on Second Reading from Members on both sides of the House. I remember, for example, the powerful speech by my hon. Friend the Member for Chippenham (Michelle Donelan) about debt arguably being one of the biggest challenges to social mobility and, as Conservative Members particularly support social mobility, how important it is to be able to give this financial support. I still recall the very strong contributions from the hon. Member for Makerfield (Yvonne Fovargue) on the proposed debt respite scheme and from my hon. Friend the Member for Mid Derbyshire (Mrs Latham), who recounted the hardships faced by her constituents.
We have listened to what hon. Members said in respect of pensions cold-calling and default pensions guidance. I would like to put on record again our thanks to the Work and Pensions Committee for its report highlighting some of these issues. I thank the Select Committee, peers and hon. Members in this House for the way in which all sides have worked collaboratively and constructively on these issues. We have been able to accept a number of the Committee’s recommendations. I am sure that all hon. Members will agree that, with its help, we have made huge progress in these areas. I look forward to continuing co-operation when we bring forward regulations on these matters later this year.
We have also listened to what was said in respect of cold-calling from claims management companies. In Committee, we tabled amendments to ban cold-calling in relation to claims management services unless prior consent has been given. This honours a commitment that we made in the other place. We believe that these changes—along with our commitment to keep under review, and potentially ban, other areas of unsolicited direct marketing in relation to consumer financial products —demonstrate our commitment to tackling unsolicited marketing calls. The Information Commissioner’s Office, which enforces restrictions on unsolicited electronic direct mailing, has the power to fine offenders up to £500,000. In 2017, the ICO issued 29 civil monetary penalties totalling £2.83 million.
In Committee, we also tabled amendments to the claims management clauses. We are now placing a duty on the Law Society of England and Wales to cap fees in relation to financial services claims management activity, as well as introducing a power for the Law Society of Scotland to restrict fee charges for this activity, to ensure that consumers are protected no matter which type of claims management service provider they use, whether it is regulated by the legal service regulators or by the FCA.
This Bill deals with important and fundamental issues not just to this House but to the many hundreds of thousands of people who will benefit from the services of a new single financial guidance body—particularly those who are struggling with debt.
I am pleased to be able to confirm again today for the hon. Member for Liverpool, Wavertree (Luciana Berger), the right hon. Member for North Norfolk (Norman Lamb) and my hon. Friend the Member for Plymouth, Moor View (Johnny Mercer) that the Government recognise the importance of providing a suitable mechanism to access breathing space for people experiencing a mental health crisis. We understand that people in the midst of a mental health crisis are likely to be too unwell to access the breathing space scheme through a regulated debt advice provider. We commit to ensure that people receiving NHS treatment for a mental health crisis, in either a psychiatric in-patient setting or the community, are provided with a suitable alternative mechanism to access the breathing space scheme and benefit from the protections it will provide. That provision will be developed concurrently with the main breathing space scheme.
In respect of claims management companies, the Bill sends out a clear message that we are on the side of the public, providing a stronger framework to ensure that individuals are accountable for the actions of their businesses. While recognising that many claims management companies do good work to support people to claim compensation, we have sent a clear message that we will tackle malpractice where it exists, such as nuisance calls and the encouragement of fraudulent claims. I commend the Bill to the House.
Jack Dromey
Why does this Bill matter? It matters because of that Port Talbot shift supervisor who said he would never, ever forgive himself, having made a mistake and been conned into being sold short on his pension, with all 20 on his shift following his lead. It matters for the single mum in my constituency who had been a victim of domestic violence and had continuously to borrow to pay off her debt. As she said to me, “I borrowed to pay the debt because I borrowed to pay the debt because I borrowed to pay the debt.” It matters to Christine, who was first diagnosed with cancer in 2009 but is still feeling the financial effects today—in debt, pursued constantly for it and her bank oblivious to her condition.
The Bill will help to end scams. It will help to ensure that rogues who are exploiting in particular the vulnerable and undercutting the reputable have no place in the market in future. This is a good Bill. It was strengthened in the other place and then in Committee. It establishes the single financial guidance body, which is a strong step in the right direction.
The Bill has also seen progress today. Progress was previously made on issues of immense importance, in particular pensions cold-calling. It is deeply welcome that the Government have listened to the strong representations made across the House on breathing space and recognise the particular problems of those suffering from mental ill health. The new body will promote greater understanding and help people to plan their finances and retirement.
There is still further progress to be made. We will engage with the Government following our earlier exchanges, because of our very strong view that the time has come to stop all cold-calling for commercial purposes by claims management companies. There is very important progress yet to be made.
The Government have constructively engaged and sent some welcome signals. They have talked about the next stage of the process. The sooner we can get there, the better. I would like to thank a number of people. While there were rather robust exchanges over GKN earlier on in the Chamber, I have to praise both the Under-Secretary of State for Work and Pensions, the hon. Member for Hexham (Guy Opperman), and the Economic Secretary to the Treasury for their helpful, constructive and collaborative approach.
I would like to thank the Work and Pensions Committee for its characteristically first-class intervention and advice, and in particular its Chair, my right hon. Friend the Member for Birkenhead (Frank Field). The Committee can take particular credit for the progress made on the ban on pensions cold-calling.
I would like to thank all colleagues in this place who tabled amendments and contributed to the various debates that took place.
I thank the Members of the other place for the contributions that they made, again across party—particularly, but not exclusively, Lords Sharkey, Altmann, McKenzie of Luton and Drake. I thank also the Commons Clerks and other staff who worked so hard with us to shape the Bill and to take it through Parliament. All those parties and organisations have contributed to the passage of the Bill with their wisdom and many topics of interest.
I thank those organisations and individuals who passed on their research or sometimes heartbreaking stories, which brought home to us the Bill’s importance. I often say that I believe we need a story to tell the stories, and we have heard so many stories—sometimes tragic ones—throughout the Bill’s passage. It is for people like them that we are all here, and I hope that the Bill will help them in the next stages, and as we move forward, making further progress, ensuring that it benefits all, but especially the most vulnerable in our society.
In conclusion, I have something to say to that steel shift supervisor who wept uncontrollably about the consequences of what he had done and the effect on others who followed his lead. We say to him and all those whose stories were told throughout the Bill’s passage that sometimes nothing can be done to put right the wrong that they suffered in the past, but in their own way, by telling their stories, making their contribution, they have helped to bring into being a very important body—the single financial guidance body—that will ensure that never, ever again are others treated as they were.
Crispin Blunt
I echo the compliments that the hon. Member for Birmingham, Erdington (Jack Dromey), the shadow Minister paid to the Work and Pensions Committee and its Chair and to the two Ministers who have done most of the legwork on the Bill. The Under-Secretary of State for Work and Pensions, my hon. Friend the Member for Hexham (Guy Opperman), and my hon. Friend the Economic Secretary to the Treasury have been exemplary in their handling of the Bill, as appears to be universally recognised. I would say to the shadow Minister that this is an immensely important Bill. It is very important for all the people we represent, building on the huge change that we made in giving people freedom around their pensions, and therefore there is a need to ensure that it is underpinned by proper advice and guidance.
I represent a number of financial firms in my constituency. I used to represent Legal & General, which was the biggest employer in my constituency, but it has had the impertinence to move out of Kingswood and go elsewhere. It is one of its rivals whose interests I defend. The pension freedoms that we announced in the Budget some time ago were a major challenge to two companies in my constituency—Just Retirement and Partnership. As one of my friends who worked at one of those companies said, “We have just a slight problem now, as the Government are not mandating that everybody must buy our product as an annuity. They now have options over their future.”
Those two companies were insurgents in the financial services market. Just Retirement specialises in the issue of equity release, which I addressed in the debate on the first group of amendments, trying to ensure that there is proper access to advice on people’s property as part of their asset structure in planning for retirement. Partnership specialised in identifying groups of annuitants with a shorter life expectancy, who therefore would be able to get a greater rate of return out of their pension investment. As people who had been saving with the big boys, such as Legal & General, moved into taking their pensions, they needed proper advice and guidance about the products that were available in the market.
I listened very carefully to the exchange between the Chair of the Select Committee and the Minister around the issue of the independence and impartiality of the advice that people will have access to. This will be the test that I apply to the Bill: people who are saving with a big player such as Legal & General must not be captured, in a sense, by simply not being exercised enough to seek independent advice in order properly to understand what options are available to them, and suborned as it were into continuing with the existing provider without understanding the options available to them. That is why the independence and impartiality, and the encouragement that people will get to seek that advice, is the test that needs to be set for whether this legislation will do the job, making them savvier about their pensions and the options available to them in retirement.
These matters are incredibly important to almost everyone in the course of their lives, when they come to make the big decisions about financial provision in retirement. I will be looking at this legislation, and at the undertakings that have been given, so that if it does not deliver what we hope it will, we can revisit it and ensure that people can access advice.
The Bill builds on the huge opportunities that we have given people to spend their own money in pursuit of their own priorities, while of course ensuring that they make sensible provision for their retirement, on the basis of advice and as informed consumers. That will take them away from being comfortable simply to be prisoners of their own big provider, without understanding the options available to them. We have given people their freedom and I hope that the Bill will ensure that they can use it in an informed way. That is a huge change, and one that I warmly support.
Neil Gray
It is a pleasure to follow the hon. Member for Reigate (Crispin Blunt) and I wish to echo much of what he has said. Much of what the Bill does is try to protect consumers from some of the unintended consequences of pension freedoms. We welcome the Bill.
I want to use the few minutes available to me to echo some of the thanks that have been offered by the Minister and the shadow Minister to all those involved, including the Clerks and the House staff. I thank my hon. Friend the Member for Paisley and Renfrewshire South (Mhairi Black), who served on the Public Bill Committee, and Emily Cunningham, who diligently provided support as part of the Scottish National party’s research team. I thank the Under-Secretary of State for Work and Pensions, the hon. Member for Hexham (Guy Opperman), and the Economic Secretary to the Treasury, the hon. Member for Salisbury (John Glen), for their dialogue—we got there in the end. There were some issues along the way, not least the delays in getting to this point, but we are where we are. I thank the Work and Pensions Committee and its Chair, the right hon. Member for Birkenhead (Frank Field), for their diligence in bringing issues to the fore. I also thank the stakeholders who provided expert advice and briefings throughout our deliberations.
We on the SNP Benches remain concerned about some aspects of the Bill, and we have all articulated that—the hon. Member for Reigate has just done so. We remain concerned about the opt-out from pension guidance and about cold calling. We will watch closely for the developments that the Government have promised as the Bill is signed into law.
Ruth George
I will not detain the House for long. In a long afternoon of debate on financial guidance and cold calling since the ten-minute rule Bill introduced by the hon. Member for Stirling (Stephen Kerr), we have heard how important it is that so many people receive support and proper independent financial guidance. I welcome the work that has been done on both sides of the House, by Front Benchers and Back Benchers. As a member of the Work and Pensions Committee, I am glad that we have been able to contribute to the work that has gone into the Bill. I hope that Ministers will continue to listen to the arguments as they develop the Bill further when it returns to the other place.
We have heard in recent hours about people suffering from mental health problems. They are more vulnerable to people seeking to take their money, whether through cold calling and doorstep selling. As we have heard, mental health problems can be exacerbated by debt. I hope that the Government will consider widening the definitions of debt and of mental health crisis. I have constituents in High Peak who, unfortunately, even at a time of crisis and having attempted suicide, are unable to access mental health crisis support—in-bed support is not available, and there is even a waiting list for support in the community. I therefore hope that the Government will have as wide a definition as possible of people either receiving crisis care or on the waiting list to receive crisis care—I am sorry to say that there are waiting lists for crisis care. The definition should be extended to all debt.
Recently, I asked some parliamentary questions about the level of debt being recovered under universal credit and was sorry to hear that about 6% of current full-service claimants are paying 40% of their universal credit payments to cover third-party debts, leaving them with just 60% of a universal credit payment, which is already lower for many recipients than legacy benefits. Those people have already seen cuts and this is leaving them with even less to pay their debts.
As we heard from my hon. Friend the Member for Walthamstow (Stella Creasy), companies that provide consumer credit can be ruthless in hounding their customers and often contribute to mental health difficulties. In this era of rising household debt, we have nearly £200 million of consumer credit. Independent financial guidance and support are needed more than ever. I urge the Government to ensure that as many people as possible can access it.
Question put and agreed to.
Bill accordingly read the Third time and passed, with amendments.
Financial Guidance and Claims Bill [HL]
Tuesday 1st May 2018
(6 years, 6 months ago)
Lords ChamberRead Full debate Financial Guidance and Claims Act 2018 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 97-I Marshalled list for consideration of Commons amendments (PDF, 67KB) - (30 Apr 2018)
Baroness Buscombe
That this House do agree with the Commons in their Amendment 1.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Buscombe) (Con)
My Lords, throughout the passage of this Bill, the importance of increasing the number of people taking Pension Wise guidance has been debated and recognised on all sides. We all want people to make more informed decisions and to make it the norm to use Pension Wise before accessing their pension.
Amendments 4, 7, 8 and 36 place new duties on managers and trustees of all defined contribution pension schemes. They build on proposals put forward by noble Lords who introduced an amendment seeking to give those accessing pension flexibilities a stronger, last-minute nudge towards Pension Wise. They also draw on the proposals put forward subsequently by the Work and Pensions Select Committee in another place to require that people should have to make an active decision to opt out, rather than be able to opt out passively.
I want to stress that the guidance given under these amendments can be provided only by the single financial guidance body. This is by virtue of the interaction between Clauses 3 and 5 and Amendments 7 and 8. Subsection (7) of the new clause inserted by Amendment 7 and subsection (6) of the new clause inserted by Amendment 8 define the pensions guidance referred to in the amendments as the information or guidance provided in pursuance of Clause 5. This clause requires the new body, as part of its free and impartial pensions guidance function in Clause 3, to deliver what we know as Pension Wise guidance.
Throughout this process, discussions with Members of both Houses and key stakeholders brought out two core issues. The first was that any requirements should be based on the presumption that people have not already accessed Pension Wise guidance. The second was that, if people are to opt out of accessing such guidance, it might be desirable for that opt-out decision to be made and communicated to a body other than their own pension scheme. These amendments to the Bill provide a workable way to achieve the consensus position that was reached in those discussions. When an individual seeks to access or transfer their pension pot, these duties will ensure that members are referred to Pension Wise guidance, that members receive an explanation of the nature and purpose of that guidance, and that before proceeding with an application, subject to any exceptions, schemes must ensure that members have either received Pension Wise guidance or have explicitly opted out.
Rules and regulations must specify how, and to whom, the member must confirm that they are opting out. This allows for the opt-out process to be separated from schemes. Rules and regulations will set out the detail of the opt-out process based on evidence of what helps people take up Pension Wise guidance. This approach is completely aligned with the Select Committee in another place. The committee recommended that the details of how an individual could expressly turn down the opportunity to receive guidance should be set out in FCA rules following public consultation.
It is important that new requirements introduced in this area are operationally deliverable for schemes and the new guidance body. Detailed rules and regulations should be based on evidence of what delivers the outcome we all want: more people taking up Pension Wise guidance and a robust opt-out process. These amendments provide scope to test what works best and to update the approach as the pensions landscape, technology and the needs of the users change. This might be through direct hand-off of the member from the scheme to Pension Wise, including for the purpose of conducting an opt-out process, or through providers booking Pension Wise appointments for their members.
Further, these clauses also require the FCA, the Secretary of State and the new body to work together to develop and deliver these new requirements. As is customary, before making the rules and regulations the FCA and the Secretary of State will need to consult, providing the proper opportunity for public scrutiny of proposals before they are commenced.
Baroness Drake (Lab)
My Lords, I recognise that the constructive engagement of the Ministers with Members in the House of Commons and noble Lords in this House has resulted in beneficial amendments to the Bill and enthused people about the creation of the new financial guidance body. I accept that we need to move on and let the department get on with building the new body and delivering all the grand things that we want it to achieve. I thank the Minister and the Bill team for the access that was afforded to me personally to raise matters on the Bill.
I welcome the Minister’s clarification that the reference to pension guidance in Amendments 7 and 8 is defined by reference to Section 5 in the Bill, on the new body’s pension guidance function, which itself is a subset of Section 3, which requires that guidance to be free and impartial. I think there was some misunderstanding and it is very helpful that that clarity of link between the sections has been made clear.
If I may make one final observation, a well-founded consensus on matters of high principle supported by legislation can sometimes be undermined in the implementation. Everyone agrees that referring people by default nudging to impartial guidance before they access their pension savings is an integral part of protecting consumers and enabling them to make more informed decisions. However, there are anxieties that the FCA and the Secretary of State, in setting the rules for the process, should not give administrative control to the providers particularly of the opt-out process, given that the providers will not be impartial because they have a direct interest in retaining the consumer as a customer for their product. So any reassurance from the Minister that the Government recognise this concern, and intend that the rules for nudging and defaulting people into impartial guidance will be designed in such a way as to prevent providers from manipulating the process to undermine the referral to guidance, would be welcome.
Baroness Altmann (Con)
My Lords, I am grateful to the Minister and officials for their work on the Bill, but significant flaws remain, including a point on which I hope the Minister will be able to offer reassurance relating to pensions guidance.
Along with the noble Lords, Lord Sharkey and Lord McKenzie, Members of this House voted by 283 to 201 in October to add an amendment creating provisions for savers to be defaulted to impartial, independent guidance if they have not already received guidance or regulated advice before they decide when, whether or how to access their pensions. The purpose of those provisions was to address the consistently low take-up level of pensions guidance by harnessing the potent force of inertia.
The amendment passed by this House was supported because there is a wealth of evidence suggesting that people are ill-equipped to make key decisions without such impartial, independent professional support. That was specifically the intention behind setting up the Pension Wise service when the pension freedoms were introduced. I hasten to add that I congratulate the Government once again on introducing those pension freedoms—I think that that was the right thing to do—but fewer than one in 10 are making use of this guidance, despite the fact that so many need it.
At Second Reading in the other place in February, I was pleased to hear assurances from the Pensions Minister that the new clauses would be strengthened—albeit by some fine-tuning. The same assurances were given in evidence to the Work and Pensions Select Committee, yet the Commons amendments show that the promised fine-tuning seems to have been somewhat inadequately applied.
Instead of being strengthened, the default guidance provisions added by noble Lords have been replaced with clauses that merely require pension providers to refer savers to guidance if they have not yet done so. This introduces no new requirement for providers beyond what is already required by FCA rules. The new clauses also leave open the possibility that savers may opt out of guidance by their scheme provider. The FCA’s consumer panel believes that this is inadequate, the noble Baroness, Lady Drake, just expressed similar concerns, and I should be grateful if my noble friend could reassure the House that there will be a separate and impartial opt-out process. There are significant reasons to fear that consumers may not otherwise receive the assistance that they desperately need.
If providers have an interest in not sending people to the guidance service and finding ways in which they can encourage them to call their own helpline or take advantage of their own services, the concerns expressed by Age UK, the Financial Services Consumer Panel and by noble Lords when the Bill was originally passed will, unfortunately, be borne out.
This may seem a small point, but a great deal depends on it for millions of savers. As the Work and Pensions Select Committee pointed out, providers do not usually benefit if there are higher rates of guidance take-up—indeed, it may be to their detriment—so they may well try to find ways round and an opt-out process that is not impartial and, perhaps, take advantage of customers in that way. Therefore, I would be grateful if my noble friend was able to offer reassurances about the opt-out process. I welcome the idea of default guidance, but I hope that regulations will be a lot stronger than the current legislation seems to suggest.
Lord McKenzie of Luton (Lab)
My Lords, we are happy to support the Government on this group of amendments. Amendments 7 and 8 in particular are very important, relating as they do to pensions guidance. Amendment 7 relates to personal pension schemes, Amendment 8 is a parallel one relating to occupational schemes, and there is a further subset of provisions relating to occupational schemes in Northern Ireland.
Our earlier deliberations and those of the other place had a strong focus on consumer protection, recognised this afternoon, on pressing back against pension scams and on the risks that can arise from an imbalance in information. These issues have been heightened in significance since the advent of pensions freedom, and we are wholly supportive of the requirement on the FCA to make rules which require trustees, managers and stakeholders, when liquidating and transferring entitlements, to refer members to appropriate guidance provided by the SFGB or its delivery partners to ensure that effective explanations and/or opting-out processes are in place.
Amendments 1 and 35, which we support, enable transfer schemes under Schedule 2 to transfer staff rights properly from the Consumer Financial Education Body to SFGB and devolved authorities. It would be relevant if devolved authorities became responsible for provision of debt advice in their area. This facilitates the devolved authorities being responsible for the debt advice in their area. As the Minister explained on introducing the Bill into your Lordships’ House, the devolved authorities currently deliver a broad range of guidance services. By transferring responsibility for debt advice, there will be opportunities for joining up the commissioning of services—and we obviously support this.
As has been evidenced from the earlier discussion on this item, there has been discussion about whether the clauses are robust enough in enabling impartial advice. We know the view of the noble Baroness, Lady Altmann. It seemed to me that the Minister had dealt with this; a note provided by the Minister would appear to put that matter to rest—in particular, about the need to look at the interaction between Clauses 3 and 5. I think that my noble friend Lady Drake touched on that matter. New subsection (7) in Amendment 7 and new subsection (6) in Amendment 8 define the pensions guidance referred to in the amendments as the “information or guidance” provided in pursuance of Clause 5 of the Bill. That clause requires the new body, as part of its “free and impartial” pensions guidance functions in Clause 3, to deliver what we know as Pension Wise guidance. That seems to address the very real concern that the noble Baroness, Lady Altmann, raised.
We enter the final straight on this important Bill, and we might reflect just briefly on the journey that we have made and the changes that have occurred, with yet more to follow this afternoon. This is an important measure, encompassing as it does the creation of a single financial guidance body and its reach to cover pensions guidance, debt advice, money guidance and consumer protection functions. It is charged with developing a national strategy to improve financial capability. It further deals with the regulation of claims management services, in particular to challenge fraudulent practices and excessive charging.
Some important changes have been made to the Bill, especially in your Lordships’ House, and this can be attributed to the open-book approach of the Minister in particular, for which we thank her, as well as the engagement cross party of your Lordships around the House. Key matters now include the duty of care for the FCA, and the breathing space scheme—a very important provision. My noble friend Lord Stevenson was heavily involved in that, of course. Then there is the prohibition on cold-calling for pensions and CMCs, with enabling legislation to cover other financial products; the interim fee cap for PFI claims management; default guidance for pensions; the extension of CMC regulation to Scotland; and much more. I hope that we will have the opportunity finally to thank the Minister and her colleagues in due course, but is right that we reflect on the journey that we have made so far in the Bill.
Lord Flight (Con)
My Lords, I support these amendments. I put on record the fact that, in the largest area of pensions saving, occupational schemes, participants typically do not seek advice but allow their savings to go into the default fund, which typically may have taken up as much as 90% of the total savings. There is nothing wrong with that, and default funds are generally constructed very sensibly for long-term pension fund investment. However, it is the area where most money ends up and where individual beneficiaries do not really take decisions themselves.
Baroness Buscombe
I thank all noble Lords who have taken part in this brief debate, and in particular the noble Lord, Lord McKenzie, for his very warm words of support for these amendments and for the Bill, and for the way in which we have worked collaboratively and have, collectively, improved the Bill. We have sought to do so with care not to impose requirements where they are not necessary or where they could box the new body into a corner in terms of its ability to be flexible. Default guidance is an example of an area where we want to be extremely careful. That is why so much time and care has been taken to make sure that we have come to a situation where we are managing that balance sufficiently.
I absolutely understand the concerns of the noble Baroness, Lady Drake, in relation to the scheme being free and impartial. To reassure her, and my noble friend Lady Altmann, I will refer back to a part of my speaking note where I made it absolutely clear that that is the case and stressed that the guidance given under these amendments, as the noble Lord, Lord McKenzie, said,
“can only be provided by the single financial guidance body. This is by virtue of the interaction between Clauses 3 and 5, and Amendments 7 and 8. Subsection (7) of Amendment 7 and subsection (6) of Amendment 8 define the pensions guidance referred to in the amendments as the information or guidance provided in pursuance of Clause 5 of the Bill”.
This sounds rather convoluted, but I reassure noble Lords that it actually creates clarity.
I fear that my noble friend Lady Altmann is looking for mandatory guidance, but we simply do not believe that that is right. As the Work and Pensions Select Committee in another place observed in its report, Clause 5(2) does not require individuals to participate in or expressly turn down guidance before being granted access to their pension pot. Opting out could be passive for a significant proportion of people. It also risks making routine transactions, and those in which the individual has already taken advice, unnecessarily cumbersome. Further, the clauses which relate to the rules and regulations that will be developed require the FCA, the Secretary of State and the new body to work together —this is very important—to develop these new requirements. Respecting the concerns of my noble friend Lady Altmann, we are talking about a strong final nudge. As is customary, before making the rules and regulations the FCA and the Secretary of State will need to consult, providing the proper opportunity for public scrutiny of proposals before they are commenced.
My noble friend referred to a vote that took place on default guidance. However, it is important to stress that it did not reference mandating the guidance. All our research, including talking to stakeholders, shows—
Baroness Altmann
I thank my noble friend for giving way. I am not in favour of mandatory guidance: I have always supported the idea of default guidance.
Baroness Buscombe
On that basis, I hope that I have—at least to some degree—reassured noble Lords that we have found the right balance, having worked very closely with all noble Lords and the Select Committee in another place to ensure that we hit the right mark in developing default guidance.
Baroness Buscombe
That this House do agree with the Commons in their Amendment 2.
“(7) The consumer protection function is—
(a) to notify the FCA where, in the exercise of its other functions, the single financial guidance body becomes aware of practices carried out by FCA- regulated persons (within the meaning of section 139A of the Financial Services and Markets Act 2000) which it considers to be detrimental to consumers, and
(b) to consider the effect of unsolicited direct marketing on consumers of financial products and services, and, in particular—
(i) from time to time publish an assessment of whether unsolicited direct marketing is, or may be, having a detrimental effect on consumers, and
(ii) advise the Secretary of State whether to make regulations under section (Unsolicited direct marketing: other consumer financial products etc) (unsolicited direct marketing: other consumer financial products etc).”
Baroness Buscombe
My Lords, let me now turn to the Government’s action to further protect consumers from harmful cold calls. This Bill has been agenda-setting in relation to cold calling, as well as in respect of our close co-operation across the House on this important issue. I have been delighted to engage closely with the noble Lords, Lord McKenzie and Lord Sharkey, on these important issues.
The measures introduced in the other place enable us to restrict pensions and claims management cold calls—two of the most pressing areas of need for consumers—and to bring forward measures that enable the Government to keep the issue under review and act further in relation to consumer financial products when it would be appropriate. Indeed, I was delighted to hear that in the other place, the honourable Member for Birmingham Erdington described our commitment to ban pensions cold calling as a “wholly welcome step”, and the honourable Member for Eastbourne noted that the Liberal Democrats “welcome the amendments” that the Government have made on these issues.
Let me turn to our specific amendments. Amendments 10 and 11 allow us to protect consumers from harmful cold calls by enabling us to lay regulations to ban pension cold calling, and to introduce bans for other forms of cold calling if we consider it appropriate. Amendment 10 builds on the proposed approach of the Commons Work and Pensions Select Committee to banning pensions cold calling. The new clause enables us to ban pensions cold calling both quickly and effectively. Our proposed ban has a wide scope, meaning that we can ban all pension-related calls. Crucially, unlike the existing Clause 4, we do not need to wait for advice from the new body before laying a ban. Let me be absolutely clear that we are going to make regulations to ban pensions cold calling as soon as possible. This is a commitment we have made repeatedly. We know the detriment that pensions cold calling can cause and we are going to protect consumers. Indeed, I hope noble Lords are further reassured on this point by the fact that the Economic Secretary to the Treasury will have to lay a Statement before both Houses if we have not made regulations by the end of June 2018.
Turning to Amendment 11, it is clear to the Government that too often significant consumer detriment arises because of cold calling. If the Government, supported by the new body, find that there is evidence that people are experiencing detriment as a result of cold calling on consumer financial products, we will not hesitate to use this power to take action to protect consumers.
I am now pleased to be able to confirm the final part of our approach to protect consumers from cold calling when speaking to Amendment 2. The amendment expands and improves the consumer protection function, and gives the new body powers to publish assessments of consumer detriment resulting from cold calling on a regular basis, and advise the Secretary of State on where further bans should be implemented. The body’s core purpose is to provide high-quality support on all money matters, so we believe that specifying that the body must complete a two-yearly review would not be the correct use of its resources. Instead, the Government expect the body to be flexible and responsive to emerging issues, and we expect it to report promptly as and when such evidence of detriment is available. I, alongside Ministers in the other place, will work closely with the body to ensure that consumers are firmly protected from nuisance calls.
Alongside these changes, we also introduce Amendment 5, which strengthens the information-sharing provision in the Bill with respect to the consumer protection function.
Having replicated much of the existing Clause 4, but in a more effective way that helps to better protect consumers, we are committed to removing the existing Clause 4 through Amendment 3. I beg to move.
Motion on Amendment 2A (as an amendment to Amendment 2)
Lord Sharkey (LD)
My Lords, my amendment to Commons Amendment 2 deals with the issue of cold calling spoken to by the Minister a moment ago. Your Lordships will recall that as the Bill has progressed, we have discussed cold calling extensively. There was almost universal acknowledgement of widespread abuse, of invitation to commit fraud and of an unwarranted and all too frequent intrusion into people’s lives. I will not rehearse at this late stage all the details of the evils inflicted on us all, and particularly on the elderly and the vulnerable, by unscrupulous cold calling. The House clearly recognised an omnipresent when it saw one: we voted decisively to address the problem via this Bill.
In the Bill we sent to the Commons, we included, as the Minister has said, a provision to oblige the SFGB to,
“have regard to the effect of cold-calling on consumer protection”,
and to,
“make and publish an annual assessment of any consumer detriment”.
We also required the SFGB, where it found consumer detriment, to advise the Secretary of State,
“to institute bans on … cold-calling and the commercial use of any data obtained by … cold-calling”.
The Bill now comes back to us slightly modified and in many ways improved, but in one critical way, significantly weakened. Amendment 2(7)(b) requires the SFGB,
“to consider the effect of unsolicited direct marketing on consumers of financial products and services, and … from time to time to publish an assessment of whether unsolicited direct marketing is, or may be, having a detrimental effect on consumers”.
The final part of the Government’s amendment obliges the SFGB to advise the Secretary of State to “make regulations” to remedy any defect.
There are two very significant differences between this and the original formulation. The latter cut off the revenue chain for cold callers operating from outside the UK by banning the use of data obtained unlawfully. This is absent from Amendment 2. I will return to this issue later when I discuss Government Amendment 10 and, in passing, Amendment 21. Here, I want only to deal with the Government’s use of the words “from time to time”—words which the Minister herself has highlighted. The full text states that the SFGB,
“from time to time … publish an assessment of whether unsolicited direct marketing is, or may be, having a detrimental effect on consumers”.
The question here is: what is the force of the phrase “from time to time”? What obligation does it really put upon the SFGB? What would count as “from time to time”? For example, would once in five years satisfy? Would once every 10 years satisfy? This is an extremely weak requirement, so vague as to have no force at all. The phrase “from time to time” does not in practice place any definable obligation on the SFGB. This is not only unsatisfactory; it is also not what this House voted for. We voted for an annual assessment.
There may of course be arguments—the Minister has deployed some of them—against annual assessments: for example, that, in its first year of existence, the SFGB may well have other very urgent priorities. I understand that, and that is why my proposed amendment simply adds the words,
“and not less than once every two years”.
This seems to me a moderate response that is necessary to prevent a vital part of our agreed curbs on cold calling being rendered ineffective by Amendment 2. I very much look forward to the Minister’s response.
The Minister told us several times during the Bill’s progress through our House—with real passion—that she abhorred cold calling. I hope that she can find a way to reassure us that the Government’s proposed amendment does in fact have meaning and force. Of course, she could do that by accepting Amendment 2A.
The Earl of Kinnoull (CB)
My Lords, I will comment briefly on Amendments 2A and 10A. I very much congratulate the noble Lord, Lord Sharkey, on putting them down and on making such a clear presentation of them, and I will not add very much to what he had to say.
I was looking at something that I pointed out to the House at an earlier stage in respect of the size of the asset of private pensions in Britain, when I referred the House to the Office for National Statistics report, one chapter of which is on private pension wealth. The median for someone between the age of 55 and 64 who has a private pension is to have a pot of £145,000. To put that in perspective, the average value of a house in Britain in June last year was £220,000, and Savills said that it thought that 48% of the house was financed by debt. That means that for an average person in Britain, the pot of pension is huge, and of the same order, as the value of their home. This makes it an incredibly juicy target for the bad guys.
That is why it is very important—I strongly suggest it is why people voted for the amendments when they did—that a belt-and-braces approach must be taken to frustrate the wicked designs of the bad guys. I very much hope that the Minister will be able to say that the Government will support these two amendments.
Baroness Altmann
My Lords, I support Amendment 10A and I hope that my noble friend will be able to accept it. Of course I welcome the Bill and the concept of a ban on cold calling but I fear, as we have expressed and the noble Lord, Lord Sharkey, in particular has pointed out, that unless we ban the use of any leads that have been obtained from cold calling we will not protect consumers.
What is cold calling? It is unsolicited, direct marketing. Companies try to approach potential customers to entice them into buying products that in most cases end up being scams and on which those customers often end up losing significant sums of money.
The legislation tends to focus on this issue from the perspective of protecting people’s information and data, but this issue of banning cold calling needs urgently to be considered from a customer perspective as one of business selling practices. That is very different from the concept of protecting someone’s data. Even if there were consent in some way to cold calling, the practice that is currently prevalent—whether from overseas or within the UK—tends not to be calling people whose numbers have been found by invading their data privacy. Very often, it is random number calling from an automated device or merely trawling through telephone directories. Even those people who sign up to the Telephone Preference Service receive cold calls.
Cold calling is effectively already banned, but what the Bill seeks to do, what noble Lords were trying to do and what this amendment would help to achieve would be more than that, because we will never effectively stop someone trying to call people. However, if we ban the business reasons for which they do so we will properly protect consumers. That leads on to my plea to my noble friend to consider this from the point of view of the selling process and the customer buying process. If we ensure that the regulators in charge of the sales process do not permit the use of data that has been obtained from an unsolicited call, in any form, as we have already done for mortgages, that would be much more likely to ensure the kind of protection that I know my noble friend and the Government wish to achieve.
I thank David Hickson from the Fair Telecoms Campaign. He has tirelessly attempted to help people understand why these things are so important. The ICO is of course responsible for enforcing compliance with data protection legislation but the regulation of business practices is undertaken by the specialist regulators. In the case of pensions, it is the FCA or the Pensions Regulator. Indeed, the FCA already prohibits unsolicited direct marketing of mortgage products. The SRA prohibits unsolicited direct marketing of claims management services by solicitors, so it is possible to stop. I urge my noble friend to consider and respond to these concerns when she makes her closing remarks.
Lord McKenzie of Luton
My Lords, I start by acknowledging the role played by the noble Lord, Lord Sharkey, in our deliberations—particularly on cold calling, which he has been focused on. I am not sure that we are meant to, under the rules, but I also welcome the Minister from the other place, who is with us and hoping not to get the Bill back for another round of ping-pong. We will see.
The consumer protection function of the single financial guidance body is part of the armoury to build a case for banning cold calling and unsolicited direct marketing for consumer financial products. It adds to the abolition of cold calling for pensions and CMCs that is now in the Bill. As sent back from the Commons, the Bill requires the SFGB to consider the impact of unsolicited direct marketing on consumers, publish from time to time an assessment of whether such activity has a detrimental effect on consumers and advise the Secretary of State whether to make regulations under the cold calling provisions of the Bill.
The amendment in the name of the noble Lord, Lord Sharkey, seeks to add a requirement for the SFGB to additionally publish an assessment,
“not less than once every two years”.
Given where we are in the process, I frankly doubt that this requirement would add value. Surely the key is to have flexible arrangements so that the body can respond to emerging issues and report expeditiously as and when evidence of detriment is available. If the noble Lord’s concern is that the SFGB will somehow let this function lie fallow, I am sure that the Minister can put something on the record in her response.
Amendment 10A—also in the name of the noble Lord, Lord Sharkey—seeks to ban,
“the use by any person of data obtained in contravention of the prohibition”,
of cold calling for pensions and,
“determine the penalties for any such contravention”.
A further amendment seeks a parallel prohibition on data from cold calling for claims management services. It is understood that through measures in this Bill—which will be complemented by existing and forthcoming data protection legislation—where personal data is obtained through an unlawful cold call, further use of that data would be contrary to the Data Protection Act 1998. I understand that fines for such abuse are about to be raised significantly. Through the general data protection regulation and the Data Protection Bill going through Parliament, these matters will be addressed and prohibited. The issue is important and it is certainly important that we hear from the Minister on the second amendment of the noble Lord, Lord Sharkey.
Baroness Buscombe
My Lords, I thank all noble Lords who have taken part in this brief debate. I thank the noble Lord, Lord Sharkey, for his amendments, which give us an opportunity to reiterate some of the assurances that I hope I have already made, both through the passage of the Bill and about where we go now. It is a pleasure to echo the words of the noble Lord, Lord McKenzie: although we appreciate the sentiments of the noble Lord, Lord Sharkey, and understand where he is coming from, the Government expect—I stress this—the body to be flexible and responsive to emerging issues. We expect it to report promptly as and when evidence of consumer detriment in relation to cold calling is available. Our concern is that as soon as one says, “It’s every year” or “It’s every two years”, the situation in departments and bodies such as the new one can so easily become a box-ticking exercise. We do not want it to be that. We want to be sure that the body will be able to respond as issues emerge, particularly real evidence of consumer detriment. Having been through the process of the Bill and talked to all those currently working in the three existing bodies that will be transferred shortly into the one single financial guidance body, I have great trust that the level of expertise and experience we will be able to transfer to the new body is such that they will have a strong eye on this. I assure noble Lords that there is strong feeling in support of what we seek to do both in your Lordships’ House and way beyond. We have listened to noble Lords on these issues and we will act firmly to protect consumers where appropriate.
Lord Sharkey
I thank the Minister for that response. I should say at this point that it has been a pleasure to work with her and her team throughout the lifetime of the Bill. I agree with her assessment and that of the noble Lord, Lord McKenzie, that we have made significant progress on improving the Bill as it has been before this House and the other place.
I am reassured by what the Minister said. I remain slightly sceptical about whether “from time to time” has the kind of force that she suggests—but she suggested it so forcefully that I feel able to be reassured. I am slightly—but only slightly—less reassured about the prohibition on international cold calling. I was worried when I heard Nigeria listed as one of the co-operating countries in the new universal ban on cold calling. It does not appear to be working quite as well as we might have expected. However, I take the Minister’s point about the new regulations that will enable us to clamp down.
I will finish by emphasising a point made by the noble Baroness, Lady Altmann. We need a kind of sales approach to this. We need to make certain that the regulator focuses on the people selling products to examine whether they have legitimately got their leads. That seems to be the key thing that the regulator needs to do. I wonder whether the ICO is equipped to do that; it certainly has no history of doing it and it needs to proceed on a rather fast learning curve. I beg leave to withdraw the amendment.
Baroness Buscombe
That this House do agree with the Commons in their Amendments 3 to 5.
(i) the disclosure is for the purpose of enabling or facilitating the exercise of the consumer protection function, or
(ii) ”
Baroness Buscombe
That this House do agree with the Commons in their Amendment 6.
Baroness Buscombe
My Lords, this group contains a number of technical and consequential amendments necessary to enable the other government amendments to operate as intended.
I will start with Amendments 6, 37 and 38, which relate to changing references to the Data Protection Act 1998 to a reference to “data protection legislation”. These amendments prepare the Bill for the forthcoming data protection legislation currently before Parliament.
Amendments 9, 22, 25, 31, 32, 39, 40 and 41 make minor drafting changes to both clauses and consequential amendments. Amendment 12 inserts a reference to the “consumer protection function” introduced in Amendment 2. It also references the change in definition to the new data protection legislation that I mentioned earlier. Amendment 13 aligns our definition of direct marketing with the existing data protection legislation that I mentioned.
Amendments 14 and 15 are small and consequential amendments, extending the FCA’s financial promotions regime to claims management activity. They also bring claims management activity into line with the amendments already made in the Bill to Section 21 of the Financial Services and Markets Act 2000, which covers restrictions on financial promotions.
Amendment 23 inserts a new subsection (3A) into Clause 29, “Extent”, so that amendments to the Pension Schemes Act 1993 proposed by Amendment 8 extend only to England, Wales and Scotland. It also provides that the corresponding power in Amendment 8 for the Department for Communities to make regulations will extend to Northern Ireland.
Amendments 24, 26, 27, 28, 29, 30, 33 and 34 make consequential changes to both the extent and commencement clauses. They amend Clause 30 to ensure that the pensions cold calling ban comes into force on Royal Assent so there is no unnecessary delay to making regulations.
Amendments 42 and 43 make changes to the Long Title of the Bill to ensure that it correctly reflects the changes in respect of unsolicited direct marketing. Finally, Amendment 34 removes the privilege amendment inserted previously by your Lordships’ House. I beg to move.
Baroness Buscombe
That this House do agree with the Commons in their Amendments 7 to 9.
“Personal pension schemes: requirements to refer members to guidance etc
(1) Section 137FB of the Financial Services and Markets Act 2000 (FCA general rules: disclosure of information about the availability of pensions guidance) is amended as follows.
(2) After subsection (1), insert—
“(1A) The FCA must also make general rules requiring the trustees or managers of a relevant pension scheme to take the steps mentioned in subsections (1B) and (1C) in relation to an application from a member or survivor—
(a) to transfer any rights accrued under the scheme, or
(b) to start receiving benefits provided by the scheme.
(1B) As part of the application process, the trustees or managers must ensure that—
(a) the member or survivor is referred to appropriate pensions guidance, and
(b) the member or survivor is provided with an explanation of the nature and purpose of such guidance.
(1C) Before proceeding with the application, the trustees or managers must ensure that the member or survivor has either received appropriate pensions guidance or has opted out of receiving such guidance.
(1D) The rules may—
(a) specify what constitutes appropriate pensions guidance;
(b) make further provision about how the trustees or managers must comply with the duties in subsections (1B) and (1C) (such as provision about methods of communication and time limits);
(c) make further provision about how, and to whom, a member or survivor may indicate that they have received or opted out of receiving appropriate pensions guidance for the purposes of subsection (1C);
(d) specify what the duties of the trustees or managers are in the situation where a member or survivor does not respond to a communication that is made for the purposes of complying with the duty in subsection (1C);
(e) provide for exceptions to the duties in subsections (1B) and
(1C) in specified cases.”
(3) In subsection (2), for “this section” substitute “subsection (1)”. (4) After subsection (2) insert—
“(2A) Before the FCA publishes a draft of any rules to be made by virtue of subsection (1A), it must consult—
(a) the Secretary of State, and
(b) the single financial guidance body.”
(5) In subsection (3), for “the rules” substitute “rules to be made by virtue of subsection (1)”.
(6) After subsection (3) insert—
“(3A) In determining what provision to include in rules to be made by virtue of subsection (1A), the FCA must have regard to any regulations that are for the time being in force under section 113B of the Pension Schemes Act 1993 (occupational pension schemes: requirements to refer members to guidance etc).”
(7) In subsection (4), for the definition of “pensions guidance” substitute— ““pensions guidance” means information or guidance provided by any person in pursuance of the requirements mentioned in section
5 of the Financial Guidance and Claims Act 2018 (information etc about flexible benefits under pension schemes);”.”
“Occupational pension schemes: requirements to refer members to guidance etc
(1) The Pension Schemes Act 1993 is amended as set out in subsections (2) to (5).
(2) After section 113A insert—
“113B Occupational pension schemes: requirements to refer members to guidance etc
(1) The Secretary of State must make regulations requiring the trustees or managers of an occupational pension scheme to take the steps mentioned in subsections (2) and (3) in relation to an application from a relevant beneficiary—
(a) to transfer any rights accrued under the scheme, or
(b) to start receiving benefits provided by the scheme.
(2) As part of the application process, the trustees or managers must ensure that—
(a) the beneficiary is referred to appropriate pensions guidance, and
(b) the beneficiary is provided with an explanation of the nature and purpose of such guidance.
(3) Before proceeding with the application, the trustees or managers must ensure that the beneficiary has either received appropriate pensions guidance or has opted out of receiving such guidance.
(4) The regulations may—
(a) specify what constitutes appropriate pensions guidance;
(b) make further provision about how the trustees or managers must comply with the duties in subsections (2) and (3) (such as provision about methods of communication and time limits);
(c) make further provision about how, and to whom, a beneficiary may indicate that they have received or opted out of receiving appropriate pensions guidance for the purposes of subsection (3);
(d) specify what the duties of the trustees or managers are in the situation where a beneficiary does not respond to a communication that is made for the purposes of complying with the duty in subsection (3);
(e) provide for exceptions to the duties in subsections (2) and
(3) in specified cases;
(f) provide for the Secretary of State or another prescribed person to issue guidance for the purposes of this section, to which trustees or managers must have regard in complying with their duties under the regulations.
(5) In determining what provision to include in the regulations, the Secretary of State must have regard to any rules that are for the time being in force under section 137FB(1A) of the Financial Services and Markets Act 2000.
(6) In this section—
“relevant beneficiary”, in relation to a pension scheme, means—
(a) a member of the scheme, or
(b) another person of a prescribed description, who has a right or entitlement to flexible benefits under the scheme;
“flexible benefits” has the meaning given by section 74 of the Pension Schemes Act 2015;
“pensions guidance” means information or guidance provided by any person in pursuance of the requirements mentioned in section 5 of the Financial Guidance and Claims Act 2018 (information etc about flexible benefits under pension schemes).”
(3) In section 115 (powers as respects failure to comply with information requirements), in subsection (1), after “113” insert “, 113B”.
(4) In section 182(5) (power of Treasury to direct that regulation-making powers are exercisable only in conjunction with them), after “except” insert “regulations under section 113B or”.
(5) In section 185(2) (consultations about other regulations: exceptions), after paragraph (c) insert—
“(ca) regulations under section 113B; or”.
(6) The Pension Schemes (Northern Ireland) Act 1993 is amended as set out in subsections (7) to (9).
(7) After section 109A insert—
“109B Occupational pension schemes: requirements to refer members to guidance etc
(1) The Department must make regulations requiring the trustees or managers of an occupational pension scheme to take the steps mentioned in subsections (2) and (3) in relation to an application from a relevant beneficiary—
(a) to transfer any rights accrued under the scheme, or
(b) to start receiving benefits provided by the scheme.
(2) As part of the application process, the trustees or managers must ensure that—
(a) the beneficiary is referred to appropriate pensions guidance, and
(b) the beneficiary is provided with an explanation of the nature and purpose of such guidance.
(3) Before proceeding with the application, the trustees or managers must ensure that the beneficiary has either received appropriate pensions guidance or has opted out of receiving such guidance.
(4) The regulations may—
(a) specify what constitutes appropriate pensions guidance;
(b) make further provision about how the trustees or managers must comply with the duties in subsections (2) and (3) (such as provision about methods of communication and time limits);
(c) make further provision about how, and to whom, a beneficiary may indicate that they have received or opted out of receiving appropriate pensions guidance for the purposes of subsection (3);
(d) specify what the duties of the trustees or managers are in the situation where a beneficiary does not respond to a communication that is made for the purposes of complying with the duty in subsection (3);
(e) provide for exceptions to the duties in subsections (2) and
(3) in specified cases;
(f) provide for the Department or another prescribed person to issue guidance for the purposes of this section, to which trustees or managers must have regard in complying with their duties under the regulations.
(5) In determining what provision to include in the regulations, the Department must have regard to any rules that are for the time being in force under section 137FB(1A) of the Financial Services and Markets Act 2000.
(6) In this section—
“relevant beneficiary”, in relation to a pension scheme, means—
(a) a member of the scheme, or
(b) another person of a prescribed description,
who has a right or entitlement to flexible benefits under the scheme;
“flexible benefits” has the meaning given by section 74 of the Pension Schemes Act 2015;
“pensions guidance” means information or guidance provided by any person in pursuance of the requirements mentioned in section 5 of the Financial Guidance and Claims Act 2018 (information etc about flexible benefits under pension schemes).”
(8) In section 111 (powers as respects failure to comply with information requirements), in subsection (1), after “109” insert “or 109B”.
(9) In section 177(6) (power of Department of Finance to direct that regulation- making powers are exercisable only in conjunction with them), after “except” insert “regulations under section 109B or”.”
Baroness Buscombe
That this House do agree with the Commons in their Amendment 10.
“Unsolicited direct marketing: pensions
(1) The Secretary of State may make regulations prohibiting unsolicited direct marketing relating to pensions.
(2) The regulations may—
(a) make provision about when a communication is to be, or is not to be, treated as unsolicited;
(b) make provision for exceptions to the prohibition;
(c) confer functions on the Information Commissioner and on OFCOM (including conferring a discretion);
(d) apply (with or without modifications) provisions of the data protection legislation or the Privacy and Electronic Communications (EC Directive) Regulations 2003 (S.I. 2003/2426) (including, in particular, provisions relating to enforcement).
(3) The regulations may—
(a) make different provision for different purposes; (b) make different provision for different areas;
(c) make incidental, supplementary, consequential, transitional or saving provision.
(4) Regulations under this section are to be made by statutory instrument.
(5) A statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament.
(6) If before the end of June in any year the Secretary of State has not made regulations under this section (whether or not in that year), the Secretary of State must—
(a) publish a statement, by the end of July in that year, explaining why regulations have not been made and setting a timetable for making the regulations, and
(b) lay the statement before each House of Parliament.
(7) In this section, “OFCOM” means the Office of Communications established by section 1 of the Office of Communications Act 2002.”
Baroness Buscombe
That this House do agree with the Commons in their Amendments 11 to 15.
“Unsolicited direct marketing: other consumer financial products etc
(1) The Secretary of State must keep under review whether a prohibition on unsolicited direct marketing in relation to consumer financial products and services other than pensions would be appropriate.
(2) If the Secretary of State considers that such a prohibition would be appropriate, the Secretary of State may make regulations applying regulations made under section (Unsolicited direct marketing: pensions) to other consumer financial products and services (with or without modifications).
(3) In considering whether to make such regulations, the Secretary of State must take into account any advice received from the single financial guidance body under section 3(7)(b)(ii) (consumer protection function: advice on effect on consumers of unsolicited direct marketing).
(4) The regulations may—
(a) make different provision for different purposes; (b) make different provision for different areas;
(c) make incidental, supplementary, consequential, transitional or saving provision.
(5) Regulations under this section are to be made by statutory instrument.
(6) A statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament.”
“the “consumer protection function” has the meaning given in section 3(7);
“the data protection legislation” has the same meaning as in the Data Protection Act 2018 (see section 3 of that Act);”
““direct marketing” means the communication (by whatever means) of advertising or marketing material which is directed to particular individuals;”
“( ) In section 1H (interpretation provisions for FCA’s objectives)—
(a) in subsection (2), at the end of paragraph (c) insert “or to engage in claims management activity”;
(b) in subsection (8), at the appropriate place insert—
““engage in claims management activity” has the meaning given in section 21;”.”
“( ) In section 137R (financial promotion rules)—
(a) in subsection (1), omit the “or” at the end of paragraph (a) and after that paragraph insert—
“(aa) to engage in claims management activity, or”;
(b) in subsection (6), for “has” substitute “and “engage in claims management activity” have”.”
Baroness Buscombe
That this House do agree with the Commons in their Amendments 16 to 20.
(c) so far as relevant for the purposes of section (PPI claims: interim restriction on charges imposed by legal practitioners after transfer of regulation to FCA), to be read as referring to any service which is a relevant claims management activity (within the meaning given by subsection (5) of that section).”
“PPI claims: interim restriction on charges imposed by legal practitioners after transfer of regulation to FCA
(1) A legal practitioner—
(a) must not charge a claimant, for a service which is a relevant claims management activity provided in connection with the claimant’s PPI claim, an amount which exceeds the fee cap for the claim, and
(b) must not enter into an agreement that provides for the payment by a claimant, for a service which is a relevant claims management activity provided in connection with the claimant’s PPI claim, of charges which would breach, or are capable of breaching, the prohibition in paragraph (a).
(2) Subsections (2) to (5) and (7) of section 27 apply for the purposes of the prohibitions in subsection (1) as they apply for the purposes of the prohibitions in section 27(1) but as if—
(a) references in those subsections to “regulated claims management services” were references to “relevant claims management activity” and references to “regulated persons” were references to “legal practitioners”, and
(b) the first entry in columns 1 and 2 of the table in subsection (5) were omitted.
(3) Subsection (1) applies as follows—
(a) the prohibition in subsection (1)(a) applies only to charges imposed by a legal practitioner under an agreement entered into during the period—
(i) beginning with the first day of the second interim period
(within the meaning given by section 28(6)), and
(ii) ending with the end date for that practitioner, and
(b) the prohibition in subsection (1)(b) applies only to agreements entered into by a legal practitioner during that period.
(4) For the purposes of subsection (3), the end date is—
(a) for a legal practitioner for whom the relevant regulator is the Law Society of England and Wales, the day before the coming into force of the first rule made by the Law Society of England and Wales under section (Legal services regulators’ rules: charges for claims management services) that applies to, or to any description of, PPI claims, and
(b) for any other legal practitioner, 29 April 2020.
(5) In this section “relevant claims management activity”—
(a) does not include any reserved legal activities of the kind mentioned in section 12(1)(a) or (b) of the Legal Services Act 2007 (exercise of a right of audience or the conduct of litigation), but
(b) otherwise, means activity of a kind specified in an order under section 22(1B) of the Financial Services and Markets Act 2000 (regulated activities: claims management services), disregarding any exemption in that order for activities carried on by, through, or at the direction of, a legal practitioner.”
“Legal services regulators’ rules: charges for claims management services
(1) The Law Society of England and Wales, the General Council of the Bar and the Chartered Institute of Legal Executives may make rules prohibiting regulated persons from—
(a) entering into a specified relevant claims management agreement that provides for the payment by a person of specified charges, and
(b) imposing specified charges on a person in connection with the provision of a service which is, or which is provided in connection with, a specified relevant claims management activity.
(2) The Law Society of England and Wales must exercise that power to make rules in relation to all relevant claims management agreements, and all relevant claims management activities, which concern claims in relation to financial products or services.
(3) The Law Society of Scotland may make rules prohibiting regulated persons from—
(a) entering into a relevant claims management agreement concerning a claim in relation to a financial product or service that provides for the payment by a person of specified charges, and
(b) imposing specified charges on a person in connection with the provision of a service which is, or which is provided in connection with, a relevant claims management activity concerning a claim in relation to a financial product or service.
(4) Rules under this section may make provision securing that for the purposes of the prohibition referred to in subsection (1)(a) or (3)(a) charges payable under a relevant claims management agreement are to be treated as including charges payable under an agreement treated by the rules as being connected with the relevant claims management agreement.
(5) In this section “regulated persons” means—
(a) in relation to the Law Society of England and Wales—
(i) persons who, or licensable bodies which, are authorised by the Law Society to carry on a reserved legal activity,
(ii) European lawyers registered with the Law Society under the European Communities (Lawyer’s Practice) Regulations 2000 (S.I. 2000/1119), and
(iii) foreign lawyers registered with the Law Society under section 89 of the Courts and Legal Services Act 1990;
(b) in relation to the Law Society of Scotland, Scottish legal practitioners;
(c) in relation to the General Council of the Bar—
(i) persons who, or licensable bodies which, are authorised by the General Council to carry on a reserved legal activity, and
(ii) European lawyers registered with the General Council under the European Communities (Lawyer’s Practice) Regulations 2000;
(d) in relation to the Chartered Institute of Legal Executives, persons authorised by the Institute to carry on a reserved legal activity.
(6) The rules must be made with a view to securing an appropriate degree of protection against excessive charges for the provision of a service which is, or which is provided in connection with, a relevant claims management activity.
(7) The rules may specify charges by reference to charges of a specified class or description, or by reference to charges which exceed, or are capable of exceeding, a specified amount.
(8) The rules may not specify—
(a) charges for a reserved legal activity within the meaning of the Legal Services Act 2007 (see section 12 of that Act);
(b) charges imposed in respect of—
(i) the exercise of a right of audience by a Scottish legal practitioner;
(ii) the conduct of litigation by a Scottish legal practitioner.
(9) In subsection (8)(b)—
“conduct of litigation” means—
(a) the bringing of proceedings before any court in Scotland;
(b) the commencement, prosecution and defence of such proceedings;
(c) the performance of any ancillary functions in relation to such proceedings;
“right of audience” means the right to appear before and address a court in Scotland, including the right to call and examine witnesses.
(10) In relation to an agreement entered into, or charge imposed, in contravention of the rules, the rules may (amongst other things)—
(a) provide for the agreement, or obligation to pay the charge, to be unenforceable or unenforceable to a specified extent;
(b) provide for the recovery of amounts paid under the agreement or obligation;
(c) provide for the payment of compensation for any losses incurred as a result of paying amounts under the agreement or obligation.
(11) For the purposes of this section—
“relevant claims management activity” means activity of a kind specified in an order under section 22(1B) of the Financial Services and Markets Act 2000 (regulated activities: claims management services), disregarding any exemption in that order for activities carried on by, through, or at the direction of, a legal practitioner;
“relevant claims management agreement” means an agreement, the entering into or performance of which by either party is a relevant claims management activity;
“Scottish legal practitioner” means—
(a) a person qualified to practise as a solicitor in accordance with section 4 of the Solicitors (Scotland) Act 1980;
(b) European lawyers registered with the Law Society of Scotland under the European Communities (Lawyer’s Practice) (Scotland) Regulations 2000 (S.S.I. 2000/121);
(c) foreign lawyers registered with the Law Society of Scotland under section 60A of the Solicitors (Scotland) Act 1980;
(d) an incorporated practice within the meaning given by section 34(1A)(c) of the Solicitors (Scotland) Act 1980;
(e) a licensed legal services provider within the meaning of Part
2 of the Legal Services (Scotland) Act 2010 (see section 47 of that Act) that provides, or offers to provide, legal services under a licence issued by the Law Society of Scotland;
“specified” means specified in the rules, but “specified amount” means an amount specified in or determined in accordance with the rules.
(12) This section does not limit any power of the Law Society of England and Wales, the Law Society of Scotland, the General Council of the Bar or the Chartered Institute of Legal Executives existing apart from this section to make rules.”
“Extension of power of the Law Society of Scotland to make rules
(1) The Treasury may by regulations amend section (Legal services regulators’ rules: charges for claims management services) for the purpose of extending the power in subsection (3) of that section so as to apply to—
(a) all relevant claims management agreements; (b) all relevant claims management activity;
(c) any description of relevant claims management agreement; (d) any description of relevant claims management activity.
(2) The Treasury must obtain the consent of the Scottish Ministers before making regulations under subsection (1).
(3) Regulations under this section—
(a) are to be made by statutory instrument;
(b) may make incidental, supplemental or consequential provision.
(4) A statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.”
Baroness Buscombe
My Lords, Amendment 19 places a duty on the Law Society of England and Wales to cap fees in relation to financial services claims management activity, as well as giving a power to the Law Society of Scotland to restrict fees charged for this activity. It also gives a power for some legal services regulators in England and Wales to restrict fees charged for broader claims management services. Alongside this, Amendment 20 gives the Treasury a power to extend the Law Society of Scotland’s fee capping power to broader activity in future.
Amendments 16, 17 and 18 ensure that the interim fee cap provisions, introduced as a concessionary amendment in your Lordships’ House, work together with the fee capping powers for legal regulators. Taken alongside the fee restriction powers for the FCA that we have already agreed should form part of the Bill, these provisions will ensure that consumers are protected, no matter which type of claims management service provider they use, and whether it is regulated by the legal service regulators or by the FCA.
They will also ensure that the relevant regulators are able to adapt to any future changes in the market and that there is continuity of coverage for the interim fee cap throughout the transfer of regulation. Indeed, the honourable Member in another place Jack Dromey MP put it well when he said:
“The clauses are sensible because they go beyond claims management companies. … Of course it is about not only CMCs, but legal service providers”.—[Official Report, Commons, Financial Guidance and Claims Bill Committee, 6/2/18; col. 95.]
I hope that noble Lords will agree with this sentiment and will accept Amendments 16 to 20, as made in the other place. I beg to move.
Lord McKenzie of Luton
My Lords, if my honourable friend Jack Dromey is happy with these, I have to be as well.
Baroness Buscombe
That this House do agree with the Commons in their Amendment 21.
“Cold calling about claims management services
(1) The Privacy and Electronic Communications (EC Directive) Regulations 2003 (S.I. 2003/2426) are amended as follows.
(2) In regulation 21 (calls for direct marketing purposes), after paragraph (5) insert—
“(6) Paragraph (1) does not apply to a case falling within regulation 21A.”
(3) After regulation 21 insert—
“21A Calls for direct marketing of claims management services
(1) A person must not use, or instigate the use of, a public electronic communications service to make unsolicited calls for the purposes of direct marketing in relation to claims management services except in the circumstances referred to in paragraph (2).
(2) Those circumstances are where the called line is that of a subscriber who has previously notified the caller that for the time being the subscriber consents to such calls being made by, or at the instigation of, the caller on that line.
(3) A subscriber must not permit the subscriber’s line to be used in contravention of paragraph (1).
(4) In this regulation, “claims management services” means the following services in relation to the making of a claim—
(a) advice;
(b) financial services or assistance;
(c) acting on behalf of, or representing, a person;
(d) the referral or introduction of one person to another; (e) the making of inquiries.
(5) In paragraph (4), “claim” means a claim for compensation, restitution, repayment or any other remedy or relief in respect of loss or damage or in respect of an obligation, whether the claim is made or could be made—
(a) by way of legal proceedings,
(b) in accordance with a scheme of regulation (whether voluntary or compulsory), or
(c) in pursuance of a voluntary undertaking.”
(4) In regulation 24 (information to be provided for the purposes of regulations 19 to 21)—
(a) in the heading, for “, 20 and 21” substitute “to 21A”; (b) in paragraph (1)(b), after “21” insert “or 21A”.”
Baroness Buscombe
My Lords, Amendment 21 implements the commitment I made to your Lordships’ House that the Government would table an amendment restricting cold calls made in relation to claims management services. We are all aware that calls about claims management services are not just a source of irritation; for the most vulnerable in our society, being bombarded by these nuisance calls can be highly distressing.
The Government have already taken forward a number of measures to tackle this issue, but debates in your Lordships’ House clearly demonstrated that more action was needed. That is why the Government tabled Amendment 21, which will insert a provision into the Privacy and Electronic Communications (EC Directive) Regulations—the regulations which govern unsolicited direct marketing calls—to ban such calls in relation to claims management services, unless prior consent has been given. This amendment takes the onus away from the individual to opt out of such calls being made to them and puts the responsibility back on the organisation to do its due diligence before making such calls. As I have mentioned previously, there are complexities in legislating in this area, including issues relating to EU frameworks. But I am confident that the amendment will have the effect of making unwanted calls about claims management services unlawful.
Concerns were also raised in your Lordships’ House about the commercial use of illegally obtained data, and I have been having further discussions with the noble Lord, Lord McKenzie, on this issue. The measures in the Bill will be complemented by existing and forthcoming data protection legislation. Where personal data is obtained through an unlawful cold call, the further use of that data—for example, to make further calls in the future—would be contrary to the Data Protection Act. The ICO can issue fines of up to £500,000 for breaches of the Data Protection Act, although this will be raised significantly—to approximately £17 million or 4% of a company’s turnover—through the forthcoming general data protection regulation and the Data Protection Bill that is currently going through Parliament.
Overall, we believe that Amendment 21 is another robust proposal to add to our package of measures to tackle unsolicited marketing calls, and one that will be gratefully received by consumers across the UK.
As we have heard, Amendment 21A, tabled by the noble Lord, Lord Sharkey, seeks to prevent the use of data obtained by illegal calls. I completely agree with the sentiment behind this amendment and, as I said, government Amendment 21 on cold calling will be complemented by data protection legislation, which includes requirements for data to be processed fairly and in accordance with the law. I repeat the assurances I gave earlier, that where personal data is obtained through an unlawful cold call, the further use of that data—for example, to make further calls in the future—would be contrary to the Data Protection Act 1998. I therefore encourage the noble Lord, Lord Sharkey, not to move his amendment, and I beg to move the Motion on Amendment 21.
Baroness Altmann
My Lords, before the Bill passes into law, I would just like to welcome the Bill, as well as the debt respite scheme and the help for those with unsecured debt. It includes some very important measures. I thank my noble friend the Minister and the Bill team for all the hard work they have done on these measures. I thank the noble Lords, Lord Stevenson, Lord McKenzie and Lord Sharkey, the noble Baronesses, Lady Drake and Lady Kramer, and the noble Earl, Lord Kinnoull, who have all been so instrumental in getting this through. On this particular amendment, I am most grateful to my noble friend the Minister for listening to the concerns expressed in this House.
The Earl of Kinnoull
My Lords, I can be even briefer, but I want to thank particularly the Minister for living up to her commitment because, having read through the comprehensive Amendment 21, it does precisely that and I thank her.
Baroness Buscombe
I once again thank very much all noble Lords who have taken part in the many debates in your Lordships’ House on the Bill. We have come a long way and there has been huge consensus. We have improved the Bill, along with our honourable friends in another place, and I hope that all noble Lords can wish it well. In particular, on the future of the new body, I hope that we will know its name soon so that we can start calling it something in our future debates on this subject.
Lord McKenzie of Luton
My Lords, if it is time to say our thank yous, I will add mine to those of all noble Lords who have participated in these debates. There have been robust exchanges on what was initially quite a narrow Bill, but its coverage has been expanded, quite appropriately. I certainly thank the Bill team. I know that, on our side, we have probably put them through some misery with our questions from time to time, but when we have had the opportunity to touch base in that way, it has been really helpful to the passage of the Bill in this place. I wish the Bill well on its passage into legislation.
Lord Sharkey
I associate myself with the comments of the noble Lord, Lord McKenzie, and the other noble Lords who have spoken. Not only has the Bill been significantly improved but, oddly, I think we have managed to enjoy the process as we have gone through it—perhaps it is not odd at all. I thank the Minister and her officials.
Baroness Buscombe
That this House do agree with the Commons in their Amendments 22 to 43.
“(3A) In section (Occupational pension schemes: requirements to refer members to guidance etc)—
(a) subsections (1) to (5) extend to England and Wales and Scotland; (b) subsections (6) to (9) extend to Northern Ireland.
(3B) Paragraph 25 of Schedule 3 extends to England and Wales and Scotland.”
“(4) Part 2, other than the provisions mentioned in subsections (5) and (5A), extends to England and Wales and Scotland.
(5) The following provisions extend to England and Wales— (a) section 24(12) and Schedule 4;
(b) section 27;
(c) section (PPI claims: interim restriction on charges imposed by legal practitioners after transfer of regulation to FCA).
(5A) Section (Cold calling about claims management services) extends to England and Wales, Scotland and Northern Ireland.”
“( ) This Part extends to England and Wales, Scotland and Northern Ireland.”
“( ) section (Unsolicited direct marketing: pensions);”
“(1A) Subsections (6) to (9) of section (Occupational pension schemes: requirements to refer members to guidance etc) come into force on a day appointed by order made by the Department for Communities in Northern Ireland.
(1B) An order under subsection (1A) may make—
(a) transitional, transitory and saving provision in connection with the coming into force of any provision in section (Occupational pension schemes: requirements to refer members to guidance etc)(6) to (9);
(b) incidental and supplementary provision, and
(c) different provision for different purposes,
and the power to make such an order is exercisable by statutory rule for the purposes of the Statutory Rules (Northern Ireland) Order 1979 (S.I. 1979/1573 (N.I. 12)).”
(ii) section (Cold calling about claims management services)”
“( ) The Treasury must obtain the consent of the Lord Chancellor before making regulations under subsection (3) or (5) in relation to section (Legal services regulators’ rules: charges for claims management services).”
““the data protection legislation” has the same meaning as in the Data Protection Act 2018 (see section 3 of that Act);”
“1A A person falls within this paragraph if the person—
(a) is or at any time was authorised under section 5(1)(a) of the Compensation Act 2006 (provision of regulated claims management services), or
(b) is, or at any time was, providing services in Scotland which the person would be, or would have been, prohibited from providing in England and Wales by section 4(1) of the Compensation Act 2006 unless authorised under section 5(1)(a) of that Act.
1B A person falls within this paragraph if the person—
(a) is authorised under section 5(1)(a) of the Compensation Act 2006 (provision of regulated claims management services), or
(b) is providing services in Scotland which the person would be prohibited from providing in England and Wales by section 4(1) of the Compensation Act 2006 unless authorised under section
5(1)(a) of that Act.”
Royal Assent
Thursday 10th May 2018
(6 years, 6 months ago)
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