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, 5 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, 3 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 joine