Financial Guidance and Claims Bill [HL]
Wednesday 5th July 2017
(7 years, 4 months ago)
Lords ChamberFinancial Guidance and Claims Act 2018 View all Financial Guidance and Claims Act 2018 Debates 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.