Lord Newby (LD)
My Lords, I thank the noble Lord, Lord Stevenson, for raising this important issue. As outgoing chair of StepChange, he is particularly well placed to do that. As part of my preparation for today’s debate, I looked at the StepChange website and was very impressed at the ease with which I would be able to use it if I needed debt advice. However, I am also very aware, as the noble Baroness, Lady Coussins, pointed out, that many people want face-to-face advice. I will turn later to telephone and online advice. The work that Citizens Advice and the Money Advice Trust do in terms of debt advice is most impressive.
The review that is the subject of today’s debate was established by the Government to ensure that consumers’ needs were being adequately met. It was charged with two things: first, assessing how effectively and efficiently the Money Advice Service is meeting the need for consumer education and advice; and, secondly, recommending any changes to MAS’s role, approach and delivery models that would enable it better to meet this need. The review was led by Christine Farnish and I would like to take this opportunity to thank her and her team for all of their efforts.
The review explores how MAS can improve the quality, reach and cost effectiveness of the debt advice it funds. It also raises important questions about how MAS ensures consumers have access to good quality and trustworthy tools and information to help them manage their money and understand financial products, including with regard to the strategic role that MAS should seek to play in influencing others who provide information and advice to consumers.
As the noble Lord pointed out, the Government have received the report and are currently considering it. They have decided, sensibly I think, that they will publish their response when they publish the report. They are well along the way to being able to do that, although I am sorry that they were unable to do it in time for today. They will publish the report and their response in the coming weeks.
The noble Lord, Lord Stevenson, asked about the Government’s response more generally to the TSC report but HMT has already responded to this report in the form of a letter from the former FST, Sajid Javid, which was published. This response accepted the central recommendation, which was to undertake an independent review. The noble Lord also raised the spectre of the review recommending the abolition of MAS. The Government asked Christine Farnish to look at how MAS could improve its work rather than whether it should be abolished. The Government believe that MAS has important ongoing functions to play in helping individuals improve their financial confidence and resilience.
On the broad approach which the Government have taken in this area, we believe that everyone, regardless of circumstance, should have access to money and debt advice. That is crucial because helping individuals to improve their financial confidence and resilience also gives wider social and economic benefits and helps to ensure that retail financial markets are well functioning and competitive.
MAS was set up to give people the support they need to manage their money well. Since 2012, it has also had a statutory responsibility for co-ordinating the provision of debt advice. It is now the largest single funder of free debt advice in the UK and has made significant progress in improving the effectiveness and efficiency of debt advice since being given these responsibilities by government. Giving MAS statutory responsibility for debt advice, funding and co-ordination has put the funding arrangements for free debt advice on a far more sustainable footing. From the coming financial year, this funding base will expand to include firms authorised by the FCA for consumer credit activities, including payday lenders. The Government are keen to see the funding base broaden further to reflect that debt problems are caused by a number of factors, including falling behind on bills as well as falling behind on repayments.
In ensuring debt advice is able to reach as many people as possible, the Government recognise the importance of consumers being able to access advice through the most appropriate channel, be it online, face-to-face or by telephone. The noble Baroness, Lady Coussins, raised an interesting point in this respect. From the Government’s point of view, the more that people can access debt advice and, indeed, advice more generally, online and by phone is welcome for two reasons. First, it is easier for them because there is more flexibility about how they do it, and secondly, it is better for the Government in many ways because people accessing advice online is much more cost-effective. If everybody were doing that instead of needing face-to-face advice, it would save the Government a lot of money, which they are always keen to do. Having looked at the website, the challenge is that there will be many people who have pretty chaotic financial circumstances and will need face-to-face advice to get to the end point. We are offering three strands of advice—online, telephone and face-to-face—on pension flexibility that we are about to introduce and it will be interesting to see how that breaks down. There we are giving people an equal opportunity to use any of those strands and that might help inform how we look at providing debt advice and other forms of advice. One of the challenges we have at the moment is trying to work out what that split is going to be, but until we start, we do not know.
The Government also believe it is essential that the right options and incentives are available to consumers to encourage them to deal with their debts. For example, the Government share the interest in the idea of giving consumers in debt repayment plans a breathing space from interest and charges and are actively considering what further steps might be taken in this area.
As well as being able and encouraged to access free debt advice, consumers must have the assurance that the organisation and advisers they engage with are operating to the highest standards. That is why we agreed with not-for-profit debt advisers that they should be regulated by the Financial Conduct Authority and be held to the same conduct standards as for debt management firms in order to maintain the confidence of clients. However, the Government have also ensured that the new FCA regulatory regime subjects not-for-profit debt advice providers to proportionate regulatory burdens, including placing them in the lower cost limited permission regime, to encourage the supply of free debt advice that meets consumers’ needs.
The noble Lord, Lord Stevenson, raised the importance of encouraging people to have rainy-day savings. I agree with him on that. One of the challenges is to ensure that a range of products is easily available for people, particularly those on low incomes. We are seeing two big developments. One is credit unions. We are now in the happy position of there being almost a bidding war between the political parties about how many more million members they want credit unions to have by 2020, which is very healthy for credit unions. Credit unions are expanding and, more importantly, are expanding the range of products they have available, not least so that young people who want to be able to do the maximum number of financial transactions online or on their phone will increasingly be able to do that via credit unions. Secondly, the main banks’ agreement last December about a basic bank account with more features than was previously the case is another helpful way to get more people into a position where it is easier for them to save.
The noble Baroness, Lady Coussins, and the right reverend Prelate raised the big issue of the appropriate level of debt. They share a concern that personal debt is now rising to pre-crisis levels or going beyond it. What we have seen, as the right reverend Prelate said, is a complete change in attitude towards debt from that of my parents’ generation, who grew up in an environment where the Great Depression meant that people were in severe financial difficulties because there was not always a very effective state safety net and there was therefore a huge incentive for people on modest means to save modest amounts for a rainy day—and they did. That incentive has gone, to a certain extent. My children and their friends have a completely different view of debt from the one I have, and a very, very different view from that of my parents. How we strike a balance is a big challenge.
Working in schools is definitely very important, as the right reverend Prelate said. This Government have introduced financial literacy into the secondary curriculum but, as he says, primary schools are potentially—and actually—more important. That is why the work that is just starting, such as LifeSavers, is very important. It is also important not just that we get credit unions into schools but that we encourage building societies and banks to go into schools and get children saving at a young age. If you get them saving in a structured way at a very young age, they are much more likely to save later on.
I am out of time. This is a very important issue. The report and the Government’s response will be published shortly. We will have the opportunity to debate it then. In the mean time, I am very grateful to the noble Lord for raising the issue today.