Financial Guidance and Claims Bill [HL]
Wednesday 6th September 2017
(7 years, 2 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 Amendment Paper: HL Bill 1-II Second marshalled list for Committee (PDF, 108KB) - (4 Sep 2017)
Lord McKenzie of Luton
“( ) financial inclusion,”
Lord McKenzie of Luton (Lab)
My Lords, I shall also speak to our other amendments in this group, namely Amendments 22, 25 and 39. Amendment 19 adds “financial inclusion” as one of the matters which the national strategy should specifically seek to improve. Amendment 22 sets out a range of factors which the SFGB must address as part of this national strategy. Amendment 39 offers definitions of financial inclusion and financial exclusion for this purpose. Amendment 25 takes us back to issues of financial education, which we discussed at the end of our previous Committee day.
As will be readily identified, these amendments draw heavily on the recommendations of the House of Lords Select Committee on Financial Exclusion. We acknowledge that the Government have already dealt with one of its recommendations—that there should be a clearly designated Minister for Financial Inclusion, and we support this. However, this opens the way for other recommendations of the Select Committee report to be taken forward, two in particular. These are that the Government should lead and set a clear strategy to improve financial inclusion in the UK as one aspect of a wider strategy to tackle exclusion, and that there should be an annual progress report submitted to Parliament. A Minister should have lead responsibility, but work is needed across government. The role of the SFGB in these circumstances would be to support the production of the annual report in conjunction with the devolved Administrations. This is exactly what Amendment 22 provides. However, if the Government were not minded to proceed with leading on a strategy and routine reporting, how will they take these matters forward? Can the Minister say more about when the Government will respond to the totality of the Select Committee’s report, and set out in particular what they see as their role in tackling financial exclusion and promoting financial inclusion?
As the report sets out, the precise use of the terms “financial exclusion” and “financial inclusion” has varied over the years, but we warmed to the approach adopted by the Select Committee, which we have set down in Amendment 39. This might be broadly characterised as financial exclusion representing the problem and financial inclusion the solution—that is, what we should seek to achieve.
One of the objectives of the SFGB is that it must have regard to improving the ability of members of the public to make informed financial decisions. Those who struggle to do so face the risks of financial exclusion, such as the inability to access what might be considered everyday financial products and services. As we know, such individuals can face significant barriers to engagement in modern society. Hence Amendment 22 requires the SFGB, as part of its role in developing a national strategy, to work widely with financial institutions and technology companies to support hard-to-reach groups in accessing financial support and products online.
At the same time as internet banking is growing, causing more financial services to move online, we are experiencing a programme of significant bank closures: 53% of UK bank branches closed between 1989 and 2016. It is suggested that this is a particular problem for older age groups who, we are told, place a high value on face-to-face contact, tend to be more reliant on cash and experience challenges in travelling, and one-third of people over 80 either have never used a cash machine or prefer to avoid them. Some of the high-street banks are responding to this by helping to develop the digital skills of their customers, and there is an obvious role for the SFGB in encouraging and promoting this.
Exclusion is not only a consequence of the digital challenge. The House of Lords committee heard about the difficulties for some, such as those without a passport or driving licence, in meeting rigorous requirements for bank accounts. These matters particularly affect the homeless, ex-offenders and migrants, to name but a few. Amendment 22 also highlights some of the financial exclusion issues which affect those suffering with mental health conditions. The report describes how certain behaviours, such as,
“disengaging … from contact with creditors and financial services providers”,
lead to the build-up of debt and problems with credit ratings, and that,
“excessive spending during manic episodes”,
can also lead to the build-up of debt. It is important, therefore, that arrangements include “control options” for customers.
However, as recent events demonstrate, the existence of control options does not guarantee provider compliance. One especially disturbing issue reported on by the Select Committee is the communication strategy pursued by some online retailers. This involves potentially “predatory behaviour” in the early hours of the morning, when lonely and isolated individuals are at their most vulnerable. This is a matter for the Government, the SFGB and others to be concerned about. Is the Minister satisfied with the current state of regulation and its implementation in this regard?
Finally, Amendment 22 calls for a review of the impact of the Welfare Reform Act 2012 on financial inclusion. While it calls for an annual review, we accept that it might better call for, as did the committee,
“a detailed, comprehensive cumulative impact study of how changes in social security policy resulting from the Welfare Reform Act 2012 might have adversely affected financial wellbeing and inclusion”.
Other organisations have tried, such as the IFS and the CPAG. A recent analysis by the latter showed that under universal credit and child benefit changes since 2013, families and children have lost more than any other group, with cuts far outweighing the increased support for childcare costs. Compared with the original design of universal credit, the average family with three children will be more than £2,500 a year worse off. The point is that the changes to universal credit will be heavily poverty-producing and lack of money is a feature of financial exclusion. While an annual review to monitor changes is helpful, the cumulative effect of all components of the changes to social security shows how mean-spirited and counterproductive they have been.
Baroness Coussins (CB)
My Lords, I support the amendments in this group, particularly Amendments 19 and 22. I remind the Committee of my interest as president of the Money Advice Trust, the national charity.
These amendments have been tabled by the noble Lord, Lord McKenzie, and therefore carry a great deal of weight given his recent experience as a member of the Financial Exclusion Committee. I was pleased to see the Government follow that committee’s recommendation for a dedicated Minister for Pensions and Financial Inclusion, creating this additional ministerial brief within the DWP. That is a very welcome step.
Amendments 19 and 22 offer an opportunity for building further on that, by expanding the remit of the single financial guidance body’s strategic function to include improving financial inclusion. The amendments in effect implement several of the Financial Exclusion Committee’s other recommendations, which have particular relevance to the objectives that the Bill sets out for the new body. The ministerial brief for financial inclusion within the DWP, together with that department’s role in relation to the new body, seems a perfect alignment of policy. With the right resourcing, the new body’s objectives and its expertise could equip it very well to lead on financial inclusion, so I hope very much that the Minister will be able to respond positively to these amendments.
The Earl of Listowel (CB)
My Lords, I offer my support for these amendments in considering the particular needs of young people in care and leaving care. Most young people leaving care do so by the age of 18—many are still under that age—and they have to run their financial lives. There is a duty on the local authority to provide support but many of them are plunged, too early in their lives, into the sorts of responsibilities that such education would help them to deal with more effectively. Half of children from run-of-the-mill families are still with their parents up to the age of 20, so I can see particular benefit from these amendments for vulnerable young people who may have to look after themselves very early in their lives.
Baroness Finlay of Llandaff (CB)
My Lords, first, I declare my interest as chair of the National Mental Capacity Forum. I join in the comments of my noble friends Lady Coussins and Lord Listowel in welcoming the spirit of these amendments. Perhaps I may flag up, as I would be glad to have it on the record, that these amendments may not go far enough for those who have difficulty with financial issues.
Capacity impairments are related not only to mental ill-health. They may be related to frailty and there may be fluctuating mental capacity. For a group of people with communication difficulties, since banks are closing and local branches are no longer there, there is no one with whom they can communicate. If they have speech difficulties, they certainly cannot communicate well over the phone. They may have a mobility tremor, for example, which makes it difficult for them to use the internet without assistance, yet they may want to manage their affairs with a degree of privacy, which they can do in a face-to-face consultation with somebody in a bank.
In addition to impaired capacity and disability issues, there is another difficulty we increasingly see, particularly among the older population: coercion, which may be from other family members and a form of elder abuse. It can be very subtle indeed. I had a meeting this morning with Building Societies Association representatives, who are certainly detecting coercion in face-to-face encounters. But I also asked them whether there is any evidence of detecting coercion in the online systems that are in place. There is none, which becomes worrying. Although this group is right on the borderline of impaired capacity, they are inhibited from exercising their capacity because they are frightened of being intimidated by others.
Another group of concern is those with addictive behaviours such as the hypomania the noble Lord, Lord McKenzie, referred to in his opening remarks. For example, people may have a gambling addiction—a very defined addiction—and be increasingly enticed into spending more or doing a great deal of shopping during the night, when they are hypomanic. The control options on accounts should really be strengthened, so that someone can put them on but not have the ability to take them off themselves without a consultative delay period. The problem is that when they are hypomanic, they think it very reasonable to spend or gamble massively, but later they realise they did not have the capacity to do so. I hope the Government will look very favourably on these amendments and that when we come back on Report, they might even consider extending them a bit further.
Baroness Kramer (LD)
My Lords, if I may join in the general chorus, the concern that these amendments express—that the single financial guidance body is not directed to look at the issue of financial exclusion—is a serious lost opportunity. This body primarily directs channels of communication to all kinds of people about how to manage their money, whether that is in time of crisis or to maximise the opportunity for a good pension in old age, for example. As a result, it is in contact with people and is therefore aware of them in a way that, for example, a formal regulator such as the FCA can never be. Not to try to tackle the very individual and human complexities of financial exclusion seems a lost opportunity, given the palette of opportunity being created by the structure of the body. Financial exclusion matters greatly. We all know about growing inequality within our society and how it undermines the progress we wish to make. The contribution this body could make in this arena could help tip the balance in the direction in which we all hope to go.
Baroness Hollins (CB)
I add my support, but I wish to take this a little further. Older people are not the only members of the public who rely on easy access to cash in order to manage their daily budgets. People are now being required to use chip and pin instead of a cheque to obtain cash in a bank, which is not possible in a post office. The risk of chip and pin for many vulnerable people who have limited capacity is that it opens them to exploitation. They are more at risk of scams and other kinds of financial exploitation. It is just putting some more vulnerable people at risk. This is a wonderful opportunity to address the risk that many people now being encouraged and empowered to live more independently in the community could lose some of that independence.
Viscount Trenchard (Con)
My Lords, I well understand the objectives of the noble Lord, Lord McKenzie, and I have the greatest respect for what he is trying to achieve and for other noble Lords who have supported these amendments. However, we need to be careful not to make the legislation too complicated. I am not quite sure that I really understand the difference. The noble Lord is trying to include the need to provide information on financial capability. He is talking about financial inclusion and financial exclusion. The Bill already includes the need to have regard to financial capability. I am not quite sure that financial capability is the best way to describe what is meant. I think it is intended to mean financial literacy or financial awareness. Financial capability implies having financial assets. I therefore find it a little confusing. We have financial capability in the Bill anyway, which I do not think is perfect, and are now talking about adding financial inclusion and financial exclusion. The noble Lord’s definition of financial exclusion in Amendment 39 includes reluctance to seek appropriate advice. I do not fully understand why, if somebody is reluctant to seek the advice or guidance that sensible people tell him he should seek, that means he should be regarded as being financially excluded.
Lord Kirkwood of Kirkhope (LD)
My Lords, I am happy to follow the noble Viscount, Lord Trenchard. His point is understandable but it is more easily understood in the context of the ad hoc committee’s report on financial exclusion. We have had some response to that, already adverted to by the noble Baroness, Lady Coussins, and it is a great leap forward to have a Minister to whom we can now address some of these issues. But as the noble Lord, Lord McKenzie, was saying, what is missing is an overall strategy into which the differences he was trying to analyse can fit more comfortably. Absent a strategy, the Committee is perfectly entitled to try to make what it can of this important Bill—which is an important part, although not the whole, of the strategy—in order to expand the envelope as much as we can. These amendments do that. The speeches we have heard so far from colleagues support that, and I support these amendments.
Lord Young of Cookham (Con)
My Lords, the co-pilot is in charge of this leg of the legislative journey, and I apologise in advance for any turbulence. I thank the noble Lord, Lord McKenzie, for tabling these amendments and for the way he argued in support of them. As I listened to some of the contributions, it struck me that during this debate we have identified gaps in existing provision. One of the things we want the new body to do is to identify those gaps and then fill them. I will come back to this issue later on in dealing with some of the specific points that have been raised. I am grateful for the contributions that have been made and I will try so far as I can to address them.
Clause 2 sets out the functions and objectives of the new body, including the role of the strategic function. In designing these functions, we have set the parameters so that the body has a clear remit to focus its efforts while at the same time ensuring that the scope is sufficiently wide so that it can respond to changing needs and circumstances in meeting that remit.
I begin with Amendments 19 and 39, which seek to integrate financial inclusion within the new body’s strategic function and to set out in statute a definition of financial inclusion and exclusion, the case made by the noble Lord, Lord McKenzie. As my noble friend mentioned at Second Reading, we take the issue of financial exclusion seriously. The Government are grateful for the work of the ad hoc Select Committee on Financial Exclusion in highlighting this important issue. I am all too aware of the appetite of noble Lords to read the Government’s response, and I recognise that the general election held this year and subsequent ministerial changes have, unfortunately, pushed back that response, which will be published shortly. None the less I am grateful for the comments from the noble Lord, Lord Kirkwood, and the noble Baroness, Lady Coussins, about the appointment of my honourable friend Guy Opperman as a Minister with responsibilities in his department.
I cannot anticipate the Government’s final response, but in the meantime I want to be as helpful as I can to the noble Lord, Lord McKenzie, and others by outlining our understanding of the term “financial inclusion”. I begin by picking up the point identified by my noble friend Lord Trenchard in looking at issues of definition. To quote the World Bank:
“Financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs—transactions, payments, savings, credit and insurance—delivered in a responsible and sustainable way”.
That is an internationally accepted definition of financial inclusion. When we consider that definition, it follows that the Government’s policy regarding financial inclusion must be focused on ensuring that there is an adequate and appropriate supply of useful and affordable financial services and products. The Government therefore work closely with the industry regulator, the Financial Conduct Authority, to ensure that appropriate action is taken when the market fails to supply services and products. The noble Baroness, Lady Coussins, mentioned bank closures, which is an example of where the market has failed to supply what particular customers want. In passing, I note that in many parts of the country the Post Office is stepping up to the plate, and one should not underestimate its contribution.
On the matter of “financial capability”, the term refers to the ability of the public to manage their money well, including the ability of members of the public to engage with services and products made available by the financial services sector. So there are two different concepts—capability and, as I shall refer to in a moment, the supply of services. Of course there is little value in ensuring an appropriate supply of useful and affordable financial services and products if people do not have the ability to actually use them. That is where financial capability comes in. It is the role of the single financial guidance body to improve the ability of the public to manage their money so that they have the skills, knowledge, motivation and confidence to fully use the financial products and services on offer.
Against the background of those definitions, the concern that we have about these amendments is that the reference to “financial inclusion” would fundamentally change the nature of the new body from an information and guidance body to more of a regulator with specific powers to intervene in the financial services market. At the moment the Treasury and the FCA have responsibility and the relevant powers to intervene when the financial services market fails to supply affordable products and services. Against that background, the attempt in the amendments to give the body a remit over financial inclusion risks duplication and confusion.
I think noble Lords will be aware of the FCA’s work in the area of financial inclusion. It is of the utmost importance that this progress is not impeded by unnecessary confusion over the role of different public bodies. Indeed, the FCA’s competition objective states that it may have regard to,
“the ease with which consumers who may wish to use”,
financial,
“services, including consumers in areas affected by social or economic deprivation, can access them”.
The FCA takes those objectives very seriously and has undertaken a number of pieces of work in recent years—
Baroness Kramer
Perhaps there is a slight misunderstanding here. The FCA certainly sees its role as regulating appropriately those financial services that exist, but where a gap exists, it takes no responsibility for filling it. Many in this House have had a long dispute with both the Treasury and the FCA about that, because the gap never gets closed. I draw that to the Minister’s attention, because often those who are not close to this matter assume that it has that role.
Lord Young of Cookham
My initial response is that if the gap is indeed not closed, it is one of the objectives of the FCA to address that. I was just quoting that it has to have regard to,
“the ease with which consumers who may wish to use”,
financial,
“services, including consumers in areas affected by social or economic deprivation, can access them”.
If it is not responding and ensuring access, that is a case not for giving that responsibility to another body but for holding the FCA to account to get it to discharge the responsibilities that we have given it.
The FCA takes its objectives very seriously, and has undertaken several pieces of work in recent years to increase access and protect consumers, including a report on consumer vulnerability in February 2015. To give one example, in June this year, the FCA published a call for input on access to insurance, following a broader report on access to financial services that it published in May last year. The call for input seeks views on the challenges that firms face in providing travel insurance for consumers who have or have had cancer and the reason for pricing differentiations in quoted premiums.
I look forward to seeing that work develop, and I encourage all relevant stakeholders to provide responses to the call for input. It is important work and, in response to the noble Baroness, is an example of the sort of project to promote financial inclusion that the FCA can conduct in its role as industry regulator.
Against that background, I urge the noble Lord, Lord McKenzie, to withdraw Amendment 19 and not to press Amendment 39. I am grateful for the opportunity to address the important topic of financial inclusion, to which I am sure we shall return, but, as I said a moment ago, the Government are concerned that the amendment could create confusion between the roles of the FCA, on the one hand, and of the SFGB, on the other.
I turn to Amendment 25, which makes provision for the new body to advise the Secretary of State on the role of Ofsted and the primary school curriculum. I am aware that the Lords’ Select Committee on Financial Exclusion made a similar recommendation on the role of Ofsted and the primary school curriculum in its recent report. We will of course respond to each recommendation in due course and give them the close attention that they deserve but, for the time being, I just comment that the Government believe that this amendment could cause confusion about the remit of the new body with regard to the school curriculum.
As was stated earlier, the new body will have a role to help co-ordinate and support initiatives delivered by charities and other parties which are designed to improve the financial education of children and young people. It will be able to identify gaps in provision, identify best practice, and work with schools to understand how they are delivering financial education, in which lessons that is taking place, and explore further the barriers to school involvement. The Government are clear, however, that the school curriculum and monitoring of school performance is a matter for the Department for Education in England and those of the devolved nations.
In practice, this means that the body will be able to undertake activities to help schools to provide financial education. For example, the body will be able to undertake activities such as funding the project undertaken by the Money Advice Service and the Education Endowment Foundation to run a trial of Young Enterprise’s Maths in Context programme. Some 12,000 pupils in 130 English schools will take part in the trial, testing whether teaching maths in real-world contexts improves young people’s financial capability and attainment in GCSE maths exams.
Lord McKenzie of Luton
My Lords, I thank all noble Lords who have spoken on these amendments. With the exception of the noble Viscount, Lord Trenchard, who had some equivocation about them, and the Minister himself, all were in support and I am grateful for that. The Minister has given a very long, very full reply and I will certainly need to take Hansard away and have a read of that, but I would like to pick up one or two points. He referred to the evaluation already in place for universal credit and the welfare reform. What evaluation specifically has focused on the impact of these welfare changes—or social security changes—on the build-up of debt and on the relationship with preponderance of debt? I ask this particularly because there are a number of instances identified in the report where there is clearly a correlation between the social security provisions and debt. The issues around the seven-day waiting period is a simple example. There are issues around the payment of rent—a monthly payment for some. There are also issues around council tax support. That support has changed and is delegated to local authorities at a time when their budgets are being slashed. We will discuss the nature of debt shortly. One of the issues flowing from that is the changing nature of debt. For example, utility bills and council tax bills are featuring more prominently in debt. I believe that at least part of that is a direct consequence of the system that the Government have put in place.
The Minister was concerned about the definition of financial inclusion or capability and said that the amendments could introduce confusion into the standard international definition. Leaving aside the precise semantics, what does he see as the Government’s role in all this? What are they going to do to improve financial capability—if that is the terminology he prefers—or financial inclusion to help people make better use of financial services and banking so that they can play a wider role in everyday life? That is what this is about at the end of the day. What will the Government do? What is on the Minister’s agenda? How will that be shared across Governments given that the report talks about needing to join up these services? I believe that a financial inclusion task force used to do some of this work but the coalition Government abolished it a few years back. This issue features as one of the strong recommendations in the report. Leaving aside terminology, these issues are not joined up at the moment and they need to be.
The noble Baroness, Lady Kramer, rightly pressed the Minister on the extent of the FCA’s role when there is a gap—namely, precisely what it should be doing in these circumstances. I need to read the record but there seemed to be a dispute over the extent to which the Minister’s assertions were correct in that regard.
A number of other points were made, including that of post offices filling the gap when banks close. However, I think there is some way to go before that happens. It is right to say that post offices are becoming more alert to these situations but I do not think that they are anything like clear substitutes for banks.
I thank the noble Baroness, Lady Coussins, for agreeing about the importance of financial inclusion—or whatever term we use—being an integral part of the strategy we adopt. That must be right. The noble Earl, Lord Listowel, mentioned the importance of this area to young people. The noble Baroness, Lady Finlay, rightly expanded the range of circumstances about which we should be concerned. I think the Minister said that nothing in the Bill prevents action being taken in relation to fluctuating mental health and disability issues and issues around coercion. Incidentally, the noble Viscount, Lord Trenchard, talked about people’s reluctance to seek advice. I would have thought a clear case of that would be where it is available but they might feel intimidated—actually intimidated or intimidated by the environment.
The noble Baroness, Lady Finlay, touched on the important issue of gambling. There is quite a chilling paragraph or two in that report about online providers deliberately targeting vulnerable people at two or three o’clock in the morning, when they are most susceptible to spending and making their commitments.
The noble Baroness, Lady Hollins, supported the amendment and referred to the challenges of chip and pin. A statistic in the report says that one-third of people aged 80 or over have never used a cash machine or would not want to. That is quite a frightening level of disconnect.
We have been at this for quite a long time but it is an important subject. I propose to take the Minister’s response away, and we may return to it on some basis at a later stage. In the meantime, however, I beg leave to withdraw the amendment.
Baroness Drake
“( ) The single financial guidance body must produce a report advising the Secretary of State on how government departments might best assess the impact on financial inclusion, financial capability and household debt of any proposals for a change to public expenditure, administration or policy. ( ) The report must be published within the period of 12 months beginning with the day on which this Act is passed.”
Baroness Drake (Lab)
My Lords, we all know that the UK faces a series of systemic challenges, which drives the need for the new financial guidance body as part of the armoury of response. Within the population there are persistently low levels of financial capability, rising indebtedness, falling financial resilience, and poor understanding of pensions and other complex financial products. The financial capability challenge is not restricted to the squeezed and financially struggling; it goes up the income value chain. The Money Advice Service figures, on a range of measures, reveal that the picture has got worse since 2005. The growth of these problems has many roots, but they are compounded by inefficiencies in the financial services market, such as the poverty premium paid by the poor to access credit; the asymmetry of knowledge and understanding of products and services, which disadvantages consumers across the income range; and geographic and digital access barriers.
I shall scope the scale of the national challenge. ONS statistics reveal that the proportion of disposable income that goes into savings has fallen to a record low. Wages have been weak for much of the period since 2008, and the Bank of England’s chief economist has observed that the structural factors contributing to weakening wages are unlikely to reverse any time soon. Household debt is rising. Recent Bank of England figures reveal £200 billion owed in consumer credit, excluding mortgages, and the biggest surge in the number of customers missing loan repayments and default rates on credit card overdrafts since 2008. Figures for unsecured loans and car finance are even worse, and some 3 million people are struggling with severe debt.
The Lords Select Committee report on financial exclusion sets out clearly the multiple causes of exclusion and its effect on different groups of society, compounded by the barriers that the low-incomed, elderly and disabled face in accessing financial services. Auto-enrolment has seen the rise of defined contribution workplace pension savings as a mass market, involving some 16 million workers, their savings expected to reach £1.7 trillion by 2030. The largest increase in workplace pension participation rates has been for those earning between £10,000 and £20,000. That is all good news on pension savings but over time, as more workers save into defined contribution schemes, the financial capability challenge gets greater. In future, individuals will bear more risk than previous generations of pensioners, yet many are ill equipped to manage those risks and make complex decisions. Many accessing defined contribution pension pots today have other main sources of retirement income, such as a defined benefit pension. That will not be true for future generations.
The financial resilience of the public has weakened. A growing sense of unfairness and heightened insecurity across both low and moderately incomed households is eliciting behavioural responses. The Bill gives the financial guidance body a strategic function to co-ordinate the development of a national strategy on financial capability and managing debt. However, that remit cannot displace the need for government leadership and overall co-ordination. The lessons of the past confirm that substantial funding of national financial capability programmes does not deliver the step change needed in the absence of government ownership and drive.
The new body will be an executive non-departmental public body—a delivery arm of government. One has to be realistic about how far its authority and resources can reach. It will have a demanding focus on delivering front-line support for millions of people. The new body can map, measure and identify problems, and it can provide insight, give guidance and support a national strategy, but it cannot manage the process of government—it will have neither the means nor the resources.
Public policy in many areas can be looked at through the lens of financial inclusion and capability, such as taxation, welfare, education, the regulation of markets, health and transport. The whole tanker of government has to be moved to mainstream consideration of the problem and to get departments to assess how their policies, administration and expenditure impact the financial capability of the UK population. Indeed, the Prime Minister herself observed in January that the Government needed to,
“recalibrate how we approach policy development to ensure that everything we do … helps to give those who are just getting by a fair chance—while still helping those who are most disadvantaged ... they need a government that will make the system work for them”.
An important way in which the new body can discharge its function to support a national strategy is to give it a remit to produce a report advising the Secretary of State on how government departments might best assess the impact on financial inclusion, capability and household debt of any proposal for a change to public expenditure, administration or policy. The concept is not novel—impact assessments are already required from departments on a range of matters, such as regulatory burden or equalities. There are impact assessment toolkits in use; the NAO audits their quality and effectiveness.
This amendment gives a new ingredient by placing a requirement on the guidance body to deploy its expertise and report to the Government on how departments might best assess the impact of their actions on financial capability and household debt. Giving the new body a duty to produce such a report, to which the Government will need to respond, will contribute to achieving greater government ownership and engagement in delivering a national strategy.
I return to the theme of my opening comments. The UK faces a series of systemic challenges which require a shift in the nature of government engagement—something on which I think the Prime Minister and I agree. Without the formal discipline of government mainstreaming and assessing the impact of public policy, a national strategy on financial capability and household debt will not deliver the desired outcomes. Just giving a large budget to an NDPB is not going to do it. The Government have to buy in to mainstreaming and delivering a strategy to meet these challenges. I beg to move.
The Earl of Listowel
I support Amendment 24, to which I have added my name, and I hope that the Minister will find it helpful. I am particularly concerned about parents and children involved in indebtedness and the pressure on families that arises from that—something that we discussed during the first day in Committee. At a time of crisis, when Governments have to make very difficult decisions, they often seem to make short-term decisions that can have a long-term, adverse impact on society, particularly on families. There are many routes to productivity or failure to be productive, but family dysfunction is a core basis of the failure to produce productive citizens.
More and more evidence is becoming clear that if children—even those up to the age of 25—experience adverse circumstances or difficult relationships within the family, particularly during the pregnancy or immediately after birth, their ability to do well at school, make and keep relationships, and have good physical and mental health well into adult life is impaired. This is a helpful amendment to give us a bit more breathing space and think more about the decisions that we as parliamentarians come to in the heat of very difficult economic circumstances, and about what impact they have on the long-term success and productivity of our society.
I visited Germany earlier this year and was impressed to learn that none of the shops is open on Sundays. It is not permitted for businesses to send emails after 8 pm at night. It is a cultural norm not to work beyond 6 pm in the evening. It is seen as inefficient to do so. Germans seem to have a far better work/life balance than us and are renowned to be more productive than we are. I am sure that there are many more factors to take into consideration, but under pressure and in the heat of the moment, with the short-term decisions that seem so important, perhaps we lose sight of the fundamentals.
I give credit to the Government for recognising the fundamental importance of family life and the significant investment that they have made in supporting couple relationships. The high levels of employment that the Government have achieved have reinforced couple relationships. Professor Melhuish makes clear that high levels of employment tend to conduce to less family breakdown. These are complicated matters, but a report of this kind could give us space to step back and think about the implications of the decisions that we are feeling pressed to make at the moment, particularly what impact they may have on families and the ability of our children to thrive in the future. I hope that the Minister can give a sympathetic response to this amendment.
Lord Stevenson of Balmacara (Lab)
My Lords, I support the amendment introduced forcefully by my noble friend Lady Drake. I am not sure who is responding from the other side—whether it will be a transatlantic journey or just a short hop—but I am sure that it will be entertaining nonetheless. I have three points to make and I hope that the Minister will be able to fit them into the very brief swoop around the skies that he is about to make.
The amendment tries to flesh out a little more of our earlier discussion. In so doing, it makes this point: there needs to be a body that has responsibility for assessing many of the activities that either advertently or inadvertently are made by government at all levels, whether regional or national, and by other bodies involved in the space that we are talking about—people’s lives and their capabilities to cope with the financing of them. The method chosen by my noble friend in her proposal, supported by the noble Earl, Lord Listowel, is to think about how other policies initiated by government as a whole need to be measured and impacted.
My noble friend mentioned the impact assessment. I have the impact statement for this very Bill. Those who have read it—and I have—can see that, as well as the broader discussions about the intricacies of the costs of this provision, there are statements around the impact of the measures that we are discussing on competition, innovation, the wider economy, equality, the environment, and social and sustainable development. This is not new ground, in terms of what the Government have to do to assess that the proposals they are bringing forward for legislation are properly considered.
I have reflected a little on what was said in our earlier debate this evening. The noble Lord made a point in relation to trying to sort out the impact that it could have been alleged was being made on the SFGB, as opposed to the FCA or indeed the Government. It would be sorted if more work were done by those preparing policies across the range of government activities in the manner specified in this amendment. Therefore, I commend it to him.
Lord Young of Cookham
My Lords, I will try to reflect the German work/life balance referred to by the noble Earl, Lord Listowel, by sitting down well before six o’clock. I am grateful to the noble Baroness for introducing her amendment, and as I do so often, I found myself in agreement with nearly all of her analysis of some of the challenges out there: the fall in the savings ratio and the need for a holistic approach to these challenges. I also agree with what the noble Earl said about the problems faced by young families. Where I parted company with the noble Baroness was when she sought to place this extensive new duty on the single financial guidance body. Basically, what her amendment does is to require the new body to produce a report within its first year advising the Secretary of State on how government departments might best assess the impacts of any changes in public expenditure, administration or policy on financial inclusion, financial capability and household debt.
I have a lot of sympathy with the intent behind the amendment. I agree with much of what the noble Lord, Lord Stevenson, has just said about the need to stand back and take a holistic approach to the issue, and of course the Government do not want to do anything that would have an adverse impact on financial inclusion, financial capability or household debt through any of the policies that they pursue. However, I have real difficulty with the point that the noble Baroness is trying to make here, and I do not think that the amendment is either necessary or appropriate.
As I implied a moment ago, the scope of the report proposed in the amendment is very far reaching indeed. The definition of,
“public expenditure, administration or policy”,
is very broad. I have to ask the noble Baroness whether she will compel the body to produce a report for the Secretary of State which considers how to assess the impact if, for example, the Chancellor chooses to adjust expenditure on infrastructure, defence or healthcare. I am really worried that the amendment could overstretch this body’s resources in its first year and expand its remit far beyond that which was originally envisaged. In its first year the body is going to have to prioritise resources into bringing together three disparate bodies, identifying gaps in the market, as we heard earlier, and building on its primary task. If we start going down this road, I see a real risk of diverting resources away from the front line of providing services, bringing together and co-ordinating the functions of the three pre-existing bodies, and from front-line delivery.
The second point is one that has already been touched on. Ministers already review a range of issues when they assess new policies. The financial impacts on individuals and families are considered as a normal part of policy-making, and as noble Lords know, impact assessments are also produced to accompany legislation. I am not convinced that this broad requirement is in keeping with the body’s strategic function of working with others to support the co-ordination and development of strategies to improve people’s financial capability, their ability to manage debt, and the provision of financial education for children and young people. This function is about identifying the most important issues and possible interventions in financial capability, personal debt management and financial education for children and young people working through others.
In response to the point made by the noble Lord, Lord McKenzie, in winding up the last debate and in part response to the issues raised in this debate, a lot will become clearer as to where the Government are coming from on this when we publish our response to the ad hoc Select Committee. The noble Lord, Lord McKenzie, asked me where the Government are coming from, and given the number of recommendations made by the ad hoc Select Committee, I think that that is the right place to reply.
On government leadership, we take the issues of capability and inclusion very seriously, and perhaps I may reiterate my comments about government leadership. In addition, the Secretary of State can request guidance or advice from the new body under Clause 2(2), which will help co-ordination between the Government and the body. I am grateful to the noble Baroness for giving me the opportunity to put the Government’s view on this important issue on the record and to underline our concerns about the potential diversion of resources if we go down this particular route.
Lord McKenzie of Luton
May I receive a bit of clarification on the Government’s response to the House of Lords Select Committee? I think the Minister said that it would be soon, but can he give us an assurance that we will receive it before we get to Report? We are going to have a little gap after next week. I hope that that will be enough time for the Government to respond.
Lord Young of Cookham
I would love to give a direct and helpful response to the noble Lord’s very reasonable question. It would be irresponsible of me so to do. There are a lot of government departments involved in this. I cannot give an exact timetable at the Dispatch Box today, but I will make some inquiries and see whether we can shed some light on a publication date perhaps later in our proceedings.
I think I was at the end my peroration, imploring the noble Baroness, Lady Drake, to withdraw her amendment.
Baroness Drake
I thank the Minister for his reply. I totally disagree with most of what he said. I thoroughly agreed with the bit where he agreed with my analysis— it was just the bit about the amendment not being practical. This will be neither onerous nor expensive, which is really his only argument against it. This is not saying to map every problem that contributes to financial capability or financial exclusion, but to give a report that sets out in the methodology how best to make an impact assessment across government departments when they are pursuing their policy.
This is not novel; it is a methodology and a discipline that operates in a range of areas. A huge amount of work has already been done. A national strategy has already been created by the work of the Money Advice Service—there is already its capability survey. It has mapped the problem. I was rereading it over the weekend. There is no need to reinvent the wheel. A lot of that work exists and it is an organisation that is going into the new organisation. The Bill already gives to the new financial guidance body responsibility for co-ordinating and developing a national strategy. The Government have already given it the heavyweight bit, which is to co-ordinate and develop the national strategy, but ensuring that that strategy is effective and delivered—ensuring that the whole machinery of government is responsive to the challenge—is a methodological challenge in terms of what I am proposing on how you assess the impact so you can take it into account.
I do not accept that it is expensive or onerous. It is a challenge of how one guides departments to make those impact assessments. There is plenty of advice and guidance from the NAO, other government departments and other bodies that have given guidance to the Government on how to make impact assessments. If there is such a resistance to making impact assessments, how is the Prime Minister to meet her commitment? If she wants to make the Government function better she has to stand back, look at the problem and make an assessment. All I am saying here is that simply giving a budget to an NDPB and saying, “Get on with developing and co-ordinating a strategy; we as a Government have now discharged our function”, is not sufficient. The whole machinery of government has to be told that when it comes up with its actions or policies that it has to assess the impact it will have on capability and debt. The Government will go on to make their policies, but they have to put a discipline in. Just handing over the more labour-intensive bit to the NDPB, not the least labour-intensive bits that I am suggesting, will not get good outcomes for the country.
I reject the premise of the Minister’s argument that it will be very expensive and labour intensive to do. A lot of the groundwork has already been done by the MAS. None the less, I beg leave to withdraw my amendment.
Lord McKenzie of Luton
“( ) As part of undertaking its strategic function to improve the financial capability of members of the public, the single financial guidance body must carry out research on a periodic basis, in collaboration with other bodies with an interest in debt issues, to determine—(a) the level of unmanageable debt across England, Wales, Scotland and Northern Ireland,(b) the causes of unmanageable debt, and(c) ways to prevent unmanageable debt.”
Lord McKenzie of Luton
My Lords, in moving Amendment 26 I will speak also to Amendment 40. These amendments concern unmanageable debt, which we seek to define in Amendment 40—with some trepidation given my last attempt to define something. Amendment 26 would require the SFGB to carry out research from time to time relating to unmanageable debt and to do so in collaboration with other bodies with an interest in debt issues. The focus of the research should be to determine levels of such debt across the whole of the UK, the causes and the ways to prevent it.
Unmanageable debt is defined to recognise those situations where individuals are not routinely able to, or heading for circumstances where they will not routinely be able to, meet their financial commitments when they fall due. Research into such matters would not be new, but it is of particular relevance given the levels of unsecured personal debt in the UK. Citizens Advice reports that unsecured debt, after falling from its peak in 2008, is now growing faster than incomes and faster than secured debt. It cites an OBR forecast that levels of unsecured debt will return to pre-crisis levels by the end of the decade. These have implications for the individuals and families concerned, as well as the aggregate impact on the national economy. Citizens Advice research shows that unmanageable debt is unevenly distributed, taken as a measure of unsecured debt equivalent to six months or more of a person’s income but taking into account savings. Not surprisingly, those in the lowest income group are three and a half times more likely than the highest fifth to have unmanageable debt, those who are 20 to 29 years old are twice as likely as those who are 30 to 39 years old, and private renters are twice as likely as those with a mortgage.
Amendment 26 would require not only that the level of unmanageable debt be recognised but that the causes of the debt and ways to prevent it be determined. That is a more challenging requirement but would reflect changing circumstances over time. Evidence given by the Money Advice Trust to the House of Lords Select Committee was to the effect that, 10 years ago, the problems reported by 69% of callers to its National Debtline were to do with loans, overdrafts or credit cards, but that this percentage has fallen significantly to 42%. However, the service has seen a dramatic 140% rise in calls concerning household debts such as rent arrears, energy and water bills, telephone bills and, as we have discussed, council tax. This analysis was echoed by others, including StepChange.
We discussed in a previous amendment consequences of the abolition of council tax benefit and the detrimental effect that this has had on council tax debts. Another feature highlighted was the impact of the tax collection practices of different local authorities and how this could impact debts generally. We are, of course, coming on to discuss the importance of a breathing space. It has been suggested that the loss of debt advice and benefit advice services, particularly those funded by local authorities, has exacerbated the problem.
In seeking to bring research to bear on ways of preventing unmanageable debt we also need to focus on the wider consequences of individuals and families living with unmanageable debt, including family breakdown and poor physical and mental health, as well as on the fundamental issue underlying much of this—low and erratic pay. Research is not only about looking back. The Money Advice Service, together with CACI, published research on the design of a model to estimate the probability of an individual being overindebted. It concluded that the overindebted population is younger and more likely to rent and have children; feels the impact of macroeconomic changes more significantly; and is more exposed to changes in the welfare system. Unsurprisingly, they claim that, together with partners, this research will enable services for overindebted people to be provided earlier to help resolve crises and support them to stay out of debt in the longer term. We know that debt advice can be effective. Research can assist in channelling that advice in the most effective and efficient way. I beg to move.
Lord Sharkey (LD)
I have a small additional question arising from Amendment 26. As things stand, I understand that the kind of research that it calls for is already undertaken by the MAS and forms the basis of the budget requests made by the MAS and of the distribution of funds coming through the MAS. If this research is not to be done I am curious about how budget requests will be made and how funds will be distributed across the regions.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Buscombe) (Con)
My Lords, I thank the noble Lord, Lord McKenzie, for tabling these amendments. Amendment 26 relates to the strategic function of the body and would add a requirement for the new body to conduct research on levels of unmanageable debt across England, Wales, Scotland and Northern Ireland, the causes of unmanageable debt and ways to prevent it. Amendment 40 then seeks to provide a definition of unmanageable debt. It is right that this House takes great interest in seeking to understand the causes of debt and how the Government can best help those who are struggling. I thank noble Lords again for their important contributions on this matter at Second Reading, in the meetings we have conducted since and in their amendments. I have given them a great deal of thought. I assure noble Lords that the Government take problem debt very seriously.
We understand, as the noble Lord, Lord McKenzie, has said, that the cost of living can sometimes become too great and that problem debt can be hard to escape and can compound family breakdown, worklessness, stress and mental health issues. The Government are committed to supporting those who are struggling with their finances and, as we have previously outlined, work is ongoing on this area. Indeed, during the Recess I paid a visit to the Money Advice Service to see for myself some of the work that it is doing in this regard, particularly the different areas of research it is carrying out. I also take this opportunity to acknowledge the work that Citizens Advice is doing in this area, and particularly the report they published last week, Stuck in Debt, which highlights the problems faced by many. The report highlights the risk of people taking on debt that they cannot repay and clearly shows the impact of unaffordable debt.
The strategic function of the single financial guidance body will be critical. It will give the new body the ability to work with others in the financial services industry, the devolved authorities and the public and voluntary sectors to identify the most pressing issues and possible interventions in financial capability, personal debt management and financial education for children and young people. I understand the very worthwhile aims of this amendment; however we do not believe that it is necessary to specifically reference one area of research in legislation. Clause 2(3) enables the body to conduct research on,
“anything that is conducive or incidental to the exercise of its functions”,
so it could conduct research into anything that noble Lords have raised this afternoon, for example. Furthermore, the body will, under its strategic function, be expected to work with stakeholders across the financial services industry, the devolved Administrations and the public and voluntary sectors to share and pool research evidence and knowledge among each other to inform the national strategy on financial capability.
Let us not forget that the whole purpose of this new body is to improve the financial capability of the public, through both its delivery and strategic functions. In order to deliver its objectives and functions effectively, this body, like any other delivery organisation, will need to conduct research to understand the issues it is addressing, test and learn new approaches to determine what works and continuously improve the services it is providing. I would find it hard to believe that this body would not conduct research on the very issues that the noble Lord has raised. The question here is not whether the body should conduct research on this and other matters—the Government are clear that, of course, it should. The question is, is it necessary to have it defined in primary legislation?
There are several topics that the body may wish to look into, but I am concerned that specifying just one could risk limiting its ability to look widely and strategically at issues across the whole sector. It must also have regard to emerging issues in the future. Amendment 40 seeks to provide a definition of the unmanageable debt levels that the body would be tasked with researching under Amendment 26. The noble Lord’s amendment undoubtedly highlights some of the key characteristics displayed by those who are struggling with their finances, such as being able to make only minimum repayments on outstanding credit commitments, difficulty in paying for essentials and a reliance on credit. The question here is not whether the Government agree with this definition; it is about whether this should be defined in legislation. As I have already explained, the Government believe that the new body should have the ability to choose the specific topics it researches in relation to its functions, and that these should not be specified in legislation.
Should the new body choose to research the causes and effect of unmanageable debt, it should also have the ability to define what it is researching. Although I understand the intention behind the definition suggested in the noble Lord’s amendment, defining unmanageable debt in legislation could unintentionally limit the scope of the body’s research. It is envisaged that the body will continue to support the aim of reducing problem debt, and this is clear in Clause 2(7)(b), which states that part of the strategic function is to improve,
“the ability of members of the public to manage debt”.
As I have said, the Money Advice Service and others already conduct significant amounts of research into the causes of overindebtedness. They are doing a great deal of work at the moment on how to support the aim of reducing problem debt in the first place. Indeed, I had an extensive discussion about how to do this in a much more strategic way; I think it was the chair of MAS who said that if someone falls off their horse, it is not just a case of looking at how they get back on it; it is how they learn to ride. It is about people’s whole approach, from an early age, to managing their finances. We envisage that the fantastic work the organisation is carrying out in research will be transferred and will extend and continue through to the new body, so I cannot quite accept the premise of the question asked by the noble Lord, Lord Sharkey, that if the money is not spent on research, how is the budget assessed. If that were the case, it would go to the core issue of whether the body is functioning: a crucial part of its function is to ensure that the body is looking at and thinking about how to improve people’s ability to manage their finances through life.
I know that a particular focus of research at the moment is to do with people’s attitudes; not just how they manage their debt in the short term, but their whole attitude to money and how they manage it going forward. I have various pamphlets here and I found it incredibly encouraging to learn about what we are doing for young children, going through to the elderly. Of course, as always there is lots more to do but the whole tenor of my response is that we should not restrain or constrain this body by tying it down, by listing or being too prescriptive in primary legislation. I hope that, after considering the points I have raised, the noble Lord will withdraw the amendment.
Lord McKenzie of Luton
My Lords, I thank the Minister for that sympathetic reply and for the detail contained in it. The thing I am struggling to understand is why, simply because the Government have particularised an approach in the Bill, that precludes any other approach to research or indeed any other type of debt to be the subject of that research. But this is probably not the time to pursue that in great detail. I simply do not see why the amendment cannot be accepted without impairing the argument the Minister has made for how she sees research and the importance of it. Unless she wants to say anything more, I beg leave to withdraw the amendment.
Baroness Drake
“( ) to improve the ability of members of the public to plan for and address sudden variations in income,”
Baroness Drake
My Lords, Amendment 27 adds an objective for the new guidance body,
“to improve the ability of members of the public to plan for and address sudden variations in income”.
Clause 2 sets out that the new body’s money guidance function is to provide,
“information and guidance … to enhance people’s … ability to manage their own financial affairs”,
but the effective exercising of that function must involve improving people’s ability to manage income shock and strengthening households’ financial resilience. Improving resilience includes assisting households both to manage better once in the grip of a financial crisis or debt and to anticipate and protect against financial crisis or shock through a savings buffer, insurance buffer or some other means. Prevention and cure for households in financial difficulty are both within the remit of the financial guidance body and both require attention.
Evidence of weakening financial resilience within the UK population is abundant. Eight out of 10 people have little or no savings to pay an unexpected bill of £300. The Money Advice Service’s Milestones & Millstones report in 2015 showed that 3.3 million people face an income shock each year. The work, health and disability Green Paper, Improving Lives, reveals that each year almost 2 million people suffer a prolonged sickness absence from work caused by cancer, accident or other major illness, which usually leads to a sudden and significant fall in household income; and 1 million experience divorce, separation or death of a partner, again, often leading to a substantial fall in household income.
Many people lack the financial resilience to weather such a storm and consequently any children they have will also be bruised and buffeted. According to the Children’s Society, financial shocks leading to problem debt have a significant impact on children’s well-being, with many struggling with school and suffering anxiety or depression as a result of enforcement action by creditors. A recent report by Aviva, Protecting Our Families, suggests that three in 10 UK adults have seen their finances hit as a result of temporary or permanent leave from work due to ill health, a cancer diagnosis or death within the family; 31% of adults took forced leave from work, of which 77%—12 million people—saw their income drop by an average of 24%. The Aviva report also reveals that 27% of parents with dependent children have suffered a health crisis, with 91% of these suffering financially. They are quite stark figures. I was quite surprised at the volume when I started to drill down into this.
At Second Reading we heard from the noble Lord, Lord Holmes of Richmond, that by 2020 50% of us will have had or will experience a cancer episode in our lifetime, yet only one in 10 will tell their bank or building society that they have a cancer diagnosis. The noble Lord recounted the experience of John—mid-40s, mortgage, diagnosis of cancer—who can get no engagement from the financial services providers to help him manage through this financial crisis. This experience is consistent with the FCA’s observation in its Occasional Paper 17, Access to Financial Services in the UK, which specifically identified the poor access, particularly to insurance, that people who have experienced serious illness suffer. It cites the statistic that 2.5 million people living with and after cancer—forecast to rise to 4 million by 2030—would find themselves in the non-standard category for a financial services “imperfect customer”. It went on to define what that meant but I think the House is quite capable of determining what a phrase like that means. Lynda Thomas, chief executive of Macmillan Cancer Support, observed:
“Every day, I see people, and I hear of people, whose finances have been really badly hit because of their cancer diagnosis. What our frontline experience shows us is that people affected by cancer find it really, really difficult to access ... all insurance products”.
Lord Sharkey
My Lords, I shall speak to Amendment 27A in this group. This amendment makes a very small change to Clause 2(8)(b), which sets out the objectives of the SFGB. The second objective currently reads,
“to support the provision of information, guidance and advice in areas where it is lacking”.
We agree with this objective, but we feel that it does not go far enough. It is good to support the provision of information, guidance and advice, but it is surely better also to support the use of this information, guidance and advice. Provision is necessary, but it is not sufficient. Provision without use risks wasting time, money, effort and opportunity. This amendment reworks that paragraph by adding “and use”, so that it would read: “to support the provision and use of information, guidance and advice in areas where it is lacking”.
I can illustrate the point by talking briefly about Pension Wise. The service provided by Pension Wise is excellent: 94% of users said they were likely to recommend the service to others; 91% were either very or fairly satisfied by their experience; and 85% said that Pension Wise helped to improve their understanding a great deal or a fair amount. But the problem is that the level of take-up of this excellent service is very low. Research published in June by the Treasury and the FCA suggested that just 7% of eligible pension savers planning to retire in the next two years received guidance from Pension Wise.
Low take-up, both of public and private advice and guidance, would not necessarily be a cause for concern if UK pension savers were generally engaged and well-informed, but they are not—the opposite is the case. Financial capability in the UK, as we have been hearing this afternoon and this evening, is poor. The Financial Advice Market Review baseline report found that just 27% described themselves as capable of sorting out their own finances, and 34% of those who had purchased a financial product later regretted the decision.
Specifically, there is a problem with the levels of knowledge and awareness about pensions and retirement. The International Longevity Centre UK, under the aegis of the noble Baroness, Lady Greengross, who is not in her place at the moment, has published extensive research on consumers’ understanding of retirement planning. In 2015, only half of those with a DC pension said that they understood, either quite well or very well, what an annuity is. Only 3% said they understood what income draw-down was.
There is not just a lack of understanding; there are also dangerous misunderstandings. July’s PLSA survey found that over half of DC pension savers incorrectly believed draw-down products offered a guaranteed income in retirement. Perhaps worse, 25% believed draw-down carried no investment risk at all. This illustrates that the need for guidance and advice is clear. More accurately, the need for people actually to use guidance and advice is clear and pressing.
This is the problem that Amendment 27A sets out to address. The amendment requires the SFGB to have the objective of promoting the use of guidance and advice, not just the provision of guidance and advice. This is a simple but vital change, and I hope the Minister will be able to agree to it.
Lord Stevenson of Balmacara
My Lords, I support the amendments in the names of my noble friend Lady Drake and the noble Lord, Lord Sharkey. The noble Lord’s rather graphic descriptions make it very clear that there is a bit of a problem here in terms of how one ensures that any body—not just the new body we are talking about today—is able to get someone to do something which they clearly are not willing to do, and how to engage with, and learn from, the experience of taking out the loans, or preparing for the retirements which they are going to encounter later in their lives. I suspect that the Government will come back and say that, while the wording is admirable and something that they could support, they are not quite sure how it could ever be measured, or whether “use” is in fact the right term here, because getting people to the point where they recognise that they have a problem is not the same as getting them to do anything about it.
When I was working at the StepChange Debt Charity, one theme that we developed in my time there was that there was a sense in which those who had responsibility for activity in this area relied on generic, rather than specific, advertising or advocacy of another form. We took the view that was not where action was likely to be most profitable. What worked was this: when you had someone going through a really serious incident, sad and difficult though that was, the learning that took place as a result of that process was so incredible and so obvious that it was almost worth going through the process. We all have similar experiences with our own friends and family. It is only when reality sinks in, that the credit card bills do not get magically paid by themselves and that the bank is not going to continue to provide the money-tree support that it has done in the past, that you have to learn how the world actually works and what you are going to do about it. I wish the noble Lord, Lord Sharkey, well with his amendment, but I think it probably needs a bit more work before we have got the right balance between knowledge and understanding, in terms of information, guidance and advice, and the practical learning that can come from actually operating in that world.
On my noble friend Lady Drake’s amendment, which we definitely support, in some senses our debates this evening have run the slight danger of demonising debt as a feature of our society today, whereas most of us need to borrow money at some points in our lives. For many people, it is an affordable way to make large purchases or to balance competing financial priorities. The problem is when one does not plan for or anticipate, but then experiences, unexpected events. We have had examples given, and the numbers or statistics are incredible. A recent report published a month or so ago gave two headline figures, which I will focus on rather than go into the detail. In Britain today, almost 2 million people a year suffer an illness of such length that they are absent from work such that, as a result, their income is reduced. That is a very large number of people. Another 2 million people experience job losses or loss of overtime or condition pay in other ways. In terms of the overall working population of about 23 million or 24 million, nearly 4 million—almost one-sixth—are affected by that. In a sense, it is not surprising that we are having problems in this area, and it is something that we need to think about.
On the question whether income shocks are sufficiently important to require changes to the Bill as currently drafted, it will be interesting to get a response. I think that this issue has had less attention than it needs, and the amendment plays back into the points made by my noble friend Lady Drake about the impact on other persons who would otherwise not be affected, such as young people, those in care and those who are dependent on those who are affected. The amendment also brings back all the points that we have been hearing about in terms of mental health, those who suffer from disability and vulnerability in other ways, and those who are preyed on by others who wish to make them do things that they do not want to do. It brings together a number of the issues we have been talking about this evening and focuses on the need to have some sort of balance and arrangement.
Finally, the amendment also picks up the point about whether the market could provide, if left on its own and not subject to any exert or constraint. With respect to the noble Lord the Minister—our aviator for this evening—I think he is being incredibly naive about this. The noble Baroness, Lady Kramer, is absolutely right. The competition imperative imposed on the FCA drives out the possibility that there is any agency around, not in central government, which could provide the changes that are necessary in order to provide these services. Left to their own, financial services will never come up with that. Financial services, without any imperative to take into account a duty of care, or fiduciary duty as we call it, will never see it as their responsibility to bring forward the insurance, the payment protection and other issues that are so necessary to try and underpin not just the income shock issue but the broader issue as well. Therefore, to rely on a simple transparency and information flow as being the way to do that is just naive.
Take the example—I have used this before, but I make no apologies for doing so again—of the payday loans scandal that this House had so much to do with, with notable contributions from all sides of the House, including the most reverend Primate the Archbishop of Canterbury. We took the view that the existence of those who were offering payday loans was on such a scale that action needed to be taken. The Government initially resisted that completely, saying that what we needed was more transparency, but the final result was that action was taken. That action was based on what the FCA could do, and it is defective. What the FCA said to us, in essence, was that its vision of cleaning up the payday loans scandal was to create a fairer market in which there were fewer operators, but that they would operate efficiently at a reasonable profit margin and be well capitalised. At its best effort, at the end of the day that did not stop loans of more than 1,000% APR from populating this market. Recent research from the StepChange Debt Charity, which I had the honour to chair until a few years ago, shows that nearly 20% of people still rely on high-cost credit, including payday loans, to pay their basic end-of-month bills. This is outrageous, and I do not think that the market works to the benefit of consumers.
We will need to come back to a lot of the issues raised today by my noble friend Lady Drake and others, but it is really important that the Government get a grip on this.
Baroness Buscombe
My Lords, perhaps I may address Amendment 27, in the name of the noble Baroness, Lady Drake, and Amendment 27A, in the name of the noble Lord, Lord Sharkey. The first of these amendments seeks to include an additional objective for the single financial guidance body, which is,
“to improve the ability of members of the public to plan for and address sudden variations in income”.
The second amendment would amend the body’s second objective so that the body must support the provision “and use” of information, guidance and advice in areas where it is lacking.
I thank the noble Baroness and the noble Lord for their contributions on the important topic of financial capability during Second Reading, and during the first day of Committee before the summer break. For instance, I agree with the noble Baroness that many people in the UK need help with boosting their financial resilience. People need to know how to plan for and address sudden variations in income, and she gave a number of very pertinent examples.
The Money Advice Service is involved in some important work in this area. In developing its financial capability strategy, MAS supports the work of a wide range of organisations across the public, private and voluntary sectors. As I have said, the strategy looks to address not just people’s skills and knowledge around money management but the attitudes and motivations that can hold them back. As I stressed on a previous amendment, I believe that that is truly important in this exercise.
To take an example, some of MAS’s “What Works” projects targeting young adults are focused on helping them adjust to the income shocks and financial implications brought about by the life transitions they experience, as they move between welfare and work and/or further and higher education. For example, MAS is funding a project with The Mix, a leading national digital youth agency and helpline, to explore how we can engage young adults with money guidance as they make such life transitions between post-school education and the labour market. MAS’s research shows that this work is vital. Almost one-third of UK adults have experienced a serious financial shock in the past five years, such as losing their job or being unable to work due to injury.
The noble Baroness, Lady Drake, specifically referenced cancer. In line with its objectives to focus its efforts on the most in need, the body should, as part of its money guidance function, provide support for those who fall into financial difficulty as a result of cancer. More broadly, as part of its objective to increase the financial capability of members of the public, the body should help to build individuals’ ability to deal with such income shocks.
We also know that there is a gap between the number of people experiencing unexpected events and those who have a plan in place to safeguard their finances. Research, again by the Money Advice Service, shows that three-quarters of households receive an unexpected bill every year but that 26% of working-age adults have no savings to fall back on, while a further 29% have less than £1,000 saved. That is why we have provided that the new body should have the money guidance function, giving it a duty to provide information and guidance designed to enhance people’s understanding and knowledge of financial matters, and their ability to manage their own financial affairs. The Government would therefore expect that the duty proposed by the noble Baroness’s amendment—
“to improve the ability of members of the public to plan for and address sudden variations in income”—
would inherently be addressed by the money guidance function.
The MAS research that I previously referenced is a clear example of the type of work that the new body would be expected to carry out under its money guidance function. Clearly, enhancing people’s understanding and knowledge of financial matters must include both expected events, such as retirement, and the more unexpected, negative income shocks caused by events such as a job loss. This also includes financial education initiatives aimed at children.
In the same vein, I reassure the noble Lord, Lord Sharkey, that the body will support members of the public to use information, guidance and advice under its current statutory functions and objectives. This is because the ability to use information, guidance and advice is at the heart of building financial capability and, therefore, already provided for within the body’s statutory objectives. To be more specific, the provision of help to support members of the public use information is implicit in the money guidance function and the body’s first objective, both of which are designed to enhance people’s understanding of financial matters and their ability to manage financial affairs generally. My view is that the objectives set out in the Bill, alongside the money guidance function and the strategic function, already allow the body to support people so that they are better able to deal with income shocks and to use information, guidance and advice.
Given a number of things that noble Lords have said this evening, it is important to add to this debate some of the initiatives that the Government themselves, and government creditors, have in the support systems that are in place for those struggling to repay their debts. We have to look at this in the round, and departments have taken steps to ensure that they collect debt in a responsible way. For example, HMRC can put what we call a time to pay arrangement—TTP—in place, which enables a debtor to pay the debt in affordable instalments over time. These arrangements are entered into on a case-by-case basis and tailored to the ability of the customer to pay, taking into account their circumstances.
As another example, the Department for Work and Pensions will always look to introduce a sustainable repayment plan that is bespoke to the individual’s circumstances. Its existing approach includes the provision of breaks in debt repayments or reductions in the rate of repayment for individuals who are experiencing hardship. There are a number of other examples, but as a final one the DWP has also established personal budgeting support for universal credit, which aims to prepare all claimants for the financial changes that universal credit brings. The need for budgeting support is assessed for all claimants at the start of the claim and support can be requested at any time. I include these initiatives at this stage because it is important to recognise that we are creating a framework for this body to work within and develop, using its skills and expertise.
We are grateful for these debates because to have noble Lords stress, and explain in Hansard, their concerns with regard to the kind of work that this body should undertake will, I am sure, be enormously helpful in the development of its strategic functions. On that basis, I hope that the noble Baroness, having heard this explanation, will withdraw her amendment.
Baroness Drake
I thank the Minister for her sympathetic reply. Sadly, the path of life does not always run smoothly. Illness, bereavement, divorce and unemployment can intervene and be quite devastating in their impact. The market can be very reluctant to deal with people in those vulnerable situations. This is something that the FCA observed in its recent paper on access to financial services. It recognised that its remit does not allow it alone to deal with this situation in the market, for the very reasons that the noble Baroness, Lady Kramer, observed, and that addressing these issues needs a wider approach.
The main purpose of my amendment was to highlight the need for the guidance function to help people address the need to plan ahead and anticipate the preventive approach as much as the curative approach. I thank the Minister for her reply, and I beg leave to withdraw the amendment.
Lord Stevenson of Balmacara
My Lords, I can be relatively brief because I have heard both noble Lords who have spoken for the Government express their concern that in some of the amendments we have already discussed, we are overloading the new body to such an extent that it will become diverted from its main purpose. This amendment is in that vein, so I am sure it will commend itself. Indeed, it may be our first hint that the Government are listening and willing to work with us on these matters—we have not had much success until now—to ensure that resources available not just as a result of efficiency savings, but because of a conscious decision on behalf of the management of the new body, mean that front-line activities and services are what counts. In recent years, some of the work of MAS in its current and previous incarnations, has been criticised, however unjustifiably, in that the money was not spent well.
Before I finish what I promise will be a very short speech, I wish to flag up that we have not really had a chance, so far, to discuss in any detail the implications of the new financing arrangements for the new body which are embedded in the Bill. At this stage, I do not think we have a particular concern that would be addressed by an amendment, but I hope that at some point, at the Dispatch Box or perhaps by letter, we could have some information on the Government’s assessment of the changes being made. Noble Lords will be aware that the Bill changes the fundamental arrangements under which the current MAS is funded. At present, MAS is an independent body which is related to the FCA, to the extent that its business plan is reviewed—I am summarising to make the point—and the funding required for the year is agreed; it is then levied directly from the companies in scope to the FCA and passed directly from the FCA to MAS. In future, the Treasury will inform the FCA of the moneys it judges will be required by the single financial guidance body. The FCA will raise a levy on the companies under the present arrangements, but that money will not go to the new financial body directly but back to the Treasury, which will adjust the DWP’s baseline RAB grant for the year in order to allow it to make a grant to the single financial guidance body. That raises all sort of questions about why the Government decided to do this. We had an offline discussion about this but we did not get satisfactory answers, so I would like this detail.
I speculate—I know it is wrong to do so in the circumstances of this debate—and I worry about the implications of things such as Barnett. Since this is now a tax on financial companies being paid into the Consolidated Fund, then being paid across to DWP, in effect, and then being issued to a non-departmental body, we are talking about public expenditure to be recorded in the books as such, and there will be requirements in the national regions for their funding to be increased pro rata. I wonder about that. Is it really the most efficient way of doing this? I am sure there will be an argument on that.
My worry is that companies will be concerned that the funding they are used to paying to the FCA will be added to by what is in effect a tax on business. There is an issue about how that is managed in making sure that information gets out correctly. For those who are currently funded by those very same companies by direct application or through some system such as the fair share agreement, there is obviously a worry that the new funding mechanisms will impose an additional strain on companies that might not wish to continue to fund at the present level. I am sure there are good reasons why the Government have decided to go down this route, but I do not think I have heard them properly and I would be grateful if today or in the near future we can get some information on that. I am speaking from the perspective of my former chairmanship of StepChange, but this affects other bodies such as Citizens Advice, the Money Advice Trust and Christians Against Poverty. As a result of the Barnett implications, the situations in Scotland and Northern Ireland are going to be considerably more complex than is set out in the Bill.
Baroness Buscombe
My Lords, I shall cut straight to the quick, as they say, with the noble Lord, Lord Stevenson, and say that I will be very happy to discuss the issue of expenditure in detail. It is covered in Clauses 8 to 10, which I think we will be covering on day three in Committee. That said, I want to address this amendment in full and in so doing will be touching on the issue of expenditure, in broad terms, in the provision of services and so on.
I thank the noble Lord for tabling this amendment. Amendment 31 proposes that, as part of its objective to ensure that information, guidance and advice be provided in the clearest and most cost-effective way, the single financial guidance body prioritise the allocation of its resources to front-line delivery services. As the noble Lord noted at Second Reading, we need to learn lessons from our experience when the Money Advice Service was set up. One of those lessons is to ensure that this body has a clear focus on front-line services and that delivery of those services should be its priority. The legislation places a duty on the body to have regard to a range of objectives in exercising its functions. The objectives as they stand collectively prioritise the body’s activities on meeting customer needs and working collaboratively with other financial guidance and debt advice providers to meet those needs.
In restructuring the public financial guidance landscape and creating the single financial guidance body, the Government want to provide a more joined-up, customer-focused approach to the delivery of public financial guidance. In the Government’s response to the consultation on creating a single financial guidance body, we were clear that:
“By rationalising the provision of services, the government expects there to be long term operational efficiencies that will mean more funding can be channelled to front line delivery of debt advice, money and pensions guidance”.
The new body will need to harness the opportunities created by bringing the three existing services together and be innovative about how resources generated by rationalisation can be utilised to best effect in delivering better services to the public.
We do not want the body to spend unwarranted sums on, for example, untargeted marketing. The Government were clear on this in our consultation response. Instead, we want the body to link up with industry, the voluntary and public sectors and the devolved authorities to promote its services in a targeted and value-for-money way.
However, this does not mean that the single financial guidance body should not look to devote resources to investing in other activities where to do so would be in the interests of its customers. For example, in discussing previous amendments, we have already been talking about investing in research that builds an evidence base on matters such as what type of front-line interventions have the highest impact for customers. This sort of activity will help the body design and target its front-line services more effectively.
We want the body to keep pace with developments in people’s financial guidance and debt advice needs. We want it to evolve and adapt in line with technological advances, so that its services continuously improve. I do not think any of us want the body to stagnate and fail to deliver what people need. Requiring the body to prioritise its allocation of resources to front-line services could do that.
Clause 2 sets a framework within which we want the single financial guidance body to use its expertise, skills and knowledge and to have the flexibility to design its services so that they meet the financial guidance needs of UK citizens now and in the future. We should also remember that the body has a strategic function to work with others to support and co-ordinate the development of a national strategy that will aim to improve the financial capability of members of the public, their ability to manage debt and the provision of financial education to children and young people.
This is not a front-line delivery service, but it is a critical function, and the body will need to allocate resources to it. The strategic function of the body will bring together the body, the financial services industry, the public and voluntary sectors, and the devolved authorities to develop joined-up plans and activities that are more likely to deliver improvements in financial capability than activities undertaken by each party individually. I hope the noble Lord, Lord Kirkwood, heard what I just said. We very much take on board that it is really important that we involve, as far as we can, devolved authorities in this and work with them. Debt advice is separate, of course, but it is very important that we all work together on guidance, for example.
I do understand the concerns of the noble Lord, Lord Stevenson. It will be important that the governance and accountability arrangements for the body are transparent and robust. It is important to keep in the forefront of our minds that, as a statutory non-departmental public body, it will be accountable to Parliament for its activities, and the Department for Work and Pensions will be the sponsoring department.
Key elements of the body’s accountability and governance arrangements are set out in the Bill, including the requirement to prepare a statement of accounts in respect of each financial year, which must be laid before Parliament. It must also inform Parliament of its activities and expenditure through an annual report that must be published. Here, I reference the question previously posed by the noble Lord, Lord Sharkey, about what happens if certain money is not spent. This should all become clear in its annual report.
The relationship between the single financial guidance body and the Department for Work and Pensions will be set out in a published framework document that will follow the principles in the Cabinet Office’s Partnerships between Departments and Arm’s-Length Bodies: Code of Good Practice and Her Majesty’s Treasury’s Managing Public Money. The framework document will also provide further details of the governance arrangements under which the body will operate, including requirements for preparing, securing approval for and publishing its corporate and annual business plans.
The single financial guidance body will deliver guidance which supports the policy of both Her Majesty’s Treasury and the Department for Work and Pensions. Although the Department for Work and Pensions will be the sponsor department, both the DWP and Her Majesty’s Treasury have responsibility for ensuring the body receives the support it needs to deliver its statutory functions in an effective and efficient manner that meets the needs of citizens.
As I said at the beginning of this debate, we will go into further detail on the funding at a later stage of Committee. On that basis, I urge the noble Lord, Lord Stevenson, to withdraw his amendment.
Lord Stevenson of Balmacara
I thank the Minister very much for that full and considered response. I look forward to the discussion and wait to be enlightened as to the intricacies of international and national funding across the various parts of the United Kingdom that will come together to cement the changes that have been made.
On the broader question about efficiency and effectiveness and the objectives, can I just check one point? A simple nod will suffice. Given that the body is likely to be judged to be an NDPB—because that is an objective test after the body has been set up, not something that one can assert beforehand—and given the nature of its relationship to its sponsoring department, will it in fact both be audited by and subject to periodic review by the National Audit Office? I did not get a nod—maybe we will need more information. But I get the sense that that is correct, and will be happy with a later response on that.
At some point we might also have a discussion about the role of Parliament in this, which would be helpful. Clearly, the PAC will look very closely at the NAO, but it is often necessary to make sure that the DWP Select Committee is also engaged, because Parliament’s role is most effective, as already referred to, through committee work. With that, I beg leave to withdraw the amendment.
“( ) The single financial guidance body should seek to ensure that all communications with individual members of the public about their services are clear as to whether they are receiving advice or guidance, as defined in this section.”
Lord Stevenson of Balmacara
My Lords, I will also speak to Amendments 34, 36 and 37. I am afraid this is quite a wide-ranging group, so I may have to put a little time into each of the amendments. We are pointing in slightly different directions here, but there is a common theme, so it is useful to have them together in one group.
We start with our old, standard question about what is advice and what is guidance. The Government are beginning to get themselves into rather bad habits here, if I might be so rude as to suggest that more thinking needs to be done. I am not sure whether other Members of the Committee will also have had the background note to all Peers on defining advice and guidance that I got at 3.46 pm this afternoon. I have not had time to look at it. It was circulated from the Government Whips’ Office. It is quite helpful, and I have been reading it in the interstices of the debate today but, obviously not wishing to miss a word from either of the Ministers or from others participating, I have not been able to focus on it entirely. However, although I look forward to what the Minister may say in response, if I judge it correctly it repeats, in essence, the wording that she used at Second Reading and in earlier stages of Committee on the difference between advice and guidance. I accept that that is probably as far as we are going to get on this, as it is a three-page document and has quite a lot of detail in it, but I am sure that others present—I am not looking at anyone in particular—might wish to come in on this point later, or indeed on later amendments.
I mention this because Amendment 33 is again probing the definitions of advice and guidance. There is not much point in going into this in any detail other than to say that we now have more information, which may allow us to get a little further down the line on this. If I am right, the advice now being given is that there are quasi-statutory and statutory definitions which will take us down the road of defining financial advice as an activity that involves a personal recommendation to an individual about a particular course of action, rather than the provision of information about a range of options that may be available to them; and that guidance is generally understood to be any service to support clients making investments that is not advice. That presumably needs to be interpreted for the wider range, with an additional comment on what the definition of debt advice is, which is different to the guidance functions delivered and involves activity specifically regulated by the FCA. I will use those as the basis for the further remarks I will make tonight.
Amendment 34 would ensure that if a member of the public comes to the new body seeking advice from two or more different functions of the body, they will be able to access it if needed, as opposed to only one function. The intention here is that catching someone as they come into the system means that they stay in the system until the advice or guidance that they want is resolved. I think we all agree that that is important, but it is more obvious in the breach than in the observance. The technology has not always been as good at picking up as we might wish.
The word that is often used in these circumstances is “hot-keying”; in other words, once you have someone on the phone or through a computer system who is engaging with you in the process of trying to resolve their problem regarding any one of the issues that have been dealt with by the SFGB, you do not lose them until you are at least in progress or on a programme—that is, you are informing them or if possible, if it requires more than that, making sure that they stick with it until such time as it is resolved. The amendment is meant to strengthen the arrangements to ensure that we get to the point where we have a seamless approach, however many bodies are involved and however many different operations are required to provide the information, advice and guidance sought.
Baroness Altmann (Con)
My Lords, I support the amendments. As a passenger behind my noble pilots, I thank the Minister for the helpful letter she sent to me about the issue of guidance versus advice. As the noble Lord, Lord Stevenson, rightly said, we seem to be back to this old chestnut, and I am very pleased that he has tabled his amendment. Perhaps my noble friend has rather missed the point in so far as there is an important element of confusion among the public, which will extend over into the new body if we choose not to address it in the Bill, over what constitutes guidance and what constitutes advice, particularly in the context of debt. This also goes to the point made by the noble Baroness, Lady Kramer, about gaps as far as FCA coverage is concerned.
This financial guidance body is meant to offer holistic services—the point of Amendment 34 is, rightly, to suggest that if someone needs one element of the financial guidance body, they should be able to be passed straight to another to help them with their particular issues—but the new body sits in the middle of the confusion between the word “advice” and the word “guidance” as they apply elsewhere. In particular, the FCA, the department and the Government have not recognised that the existence of auto-enrolment fundamentally changes the position of individuals when they approach the new body. If someone needs advice on their debt, as defined in the current FCA regulations, it is impossible to take account of whether they should or should not opt out of a workplace pension. That is really important in helping people improve their financial circumstances and deal with their financial position.
I beg my noble friends on the Front Bench to take this opportunity to explore once again the issue of guidance versus advice from the point of view of individuals who need to use the service. It will be important for the new body to help people understand what service they will be getting when they come for help, but it is also important that whoever is helping the public has the best possible chance of ensuring that they will understand what is going on. If someone is trying to reschedule their debts and work out a repayment plan, which would be called debt advice, they may ask what they should do about their pension, but the person they are speaking to cannot tell them. That person can send them back to the pensions section, but they also cannot tell them whether to opt out, they will tell them that they need advice, and the person will say, “I have just had advice on my debts”, but they will say, “No, that is different from advice on your pension”. Over time, this will keep coming back and confuse the public.
I support Amendments 33 and 34, and think that we need to consider the matter in a wider context. I support the idea in Amendment 36 that we need to work collaboratively. The service must work with the financial services industry, charities and the voluntary sector. Perhaps we should also consider asking the new body to work with employers. The more one considers the situation around the country, the more one sees that the workplace could be an ideal conduit to promote the service, not only to deliver financial education and debt management, in some cases, but to signpost people to the new service.
I am struck by some further figures which, if I may, I add to the debate this evening: 17 million working-age Britons have less than £100 in savings; debt has risen by 25% since 2014; 33% of employees say that debt worries impact on their work—so employers clearly have an interest in helping. Those figures come from a company called SalaryFinance, which helps employees consolidate and manage their debt more cheaply and is making strides as a social business working with employers. Finally, the Money and Mental Health Policy Institute states that people with debt problems are twice as likely to suffer from a major depression. Employers could well make good use of this financial guidance body and perhaps incorporate it into workplace intranets. For the self-employed, we could work with other networks and organisations to ensure that this body is promoted. That takes us back to Amendment 27A, tabled by the noble Lord, Lord Sharkey, to encourage people to use the service rather than just to ensure that it is available.
I support the amendments and hope that the Government will consider them carefully.
Baroness Kramer
I will say just a sentence or two, because the noble Baroness, Lady Altmann, has put the case so well. I hope that the Government will take it away to consider it. One of the underlying flaws in the Bill is that it takes a Victorian view that there are people who have debts, who are struggling to deal with them, and others who have investments and need to work out how to maximise them. In this day and age, they are the same people dealing with, from their perspective, a single pot of money which they have in various places or have various issues with. If this is not cleared up in the Bill, the noble Baroness is exactly right to say that we undermine the benefits that the service can bring. It needs to be brought into the modern era. It is good to have a nice legal definition— I should like the MiFID definition, which is in the letter; that makes a great deal of sense—but, as the noble Baroness, Lady Altmann, put so clearly, that does not deal with the perspective of the consumer: where do they stand, what do they need and what on earth is this service providing?
Lord Kirkwood of Kirkhope
I did not intend to contribute to this debate, but it is a very important issue. The note, which I also received at 3.46 pm this afternoon via the Whips Office despatch, misses the important point about auto-enrolment. That is causing the most concern. The noble Baroness, Lady Altmann, clearly explained how that changes the circumstances. The Government need to continue to work on this. I am not an expert, but, speaking for myself, I would want to test this in the Division Lobby if they cannot come up with a more rational response to the amendment of the noble Lord, Lord McKenzie, and the arguments of the noble Baroness, Lady Altmann.
Baroness Buscombe
My Lords, I thank all noble Lords for their contributions to this debate, particularly the noble Lord, Lord Stevenson, for introducing Amendments 33, 34, 36 and 37. Straightaway, I apologise that the all-Peers note arrived at only 3.40-something this afternoon.
Lord Stevenson of Balmacara
According to those with better intelligence than I in the use of electronic devices, it was actually circulated at 10 o’clock but, because it was circulated to our Whips Office, which took a dim view of it, it did not get around until 3.49 pm.
Baroness Buscombe
I am very grateful to the noble Lord, who has mitigated the situation. Even so, it is very last-minute, and let us put the blame at my door as the Minister responsible. It is important that we try to address this to the best of our ability.
I can assure all noble Lords that we have spent a considerable amount of time this summer, when perhaps I should have been on the beach, discussing this issue with different people in the industry along with MAS and TPAS. What I hear from consumers and those involved on a day-to-day basis is a very different tale from what I hear from noble Lords this evening. The public have the ability to understand the difference between advice and guidance, but we need to convince noble Lords of that—I appreciate that.
I thank noble Lords for the opportunity to clarify the important issues raised by these amendments. I begin by discussing Amendments 33 and 34, which concern guidance and advice; I will then move on to Amendments 36 and 37, which concern collaboration with the financial services industry and the devolved Administrations. Amendment 33 would add an objective for the body to ensure that at every stage of communicating with members of the public about its services, people are clear whether they are receiving guidance or advice. It will, of course, be important that members of the public are aware whether they are receiving financial guidance or financial advice. We discussed the distinction between guidance and advice in some depth in July, and I believe our conversation has highlighted the importance of clarity in this issue. Indeed, we have taken on board the points made by noble Lords, and I have had a number of meetings with officials, who have worked on a detailed information paper, which I hoped would be helpful.
In the meantime, I do not think that the amendment as drafted is appropriate or necessary. We fully appreciate the risk that members of the public may receive guidance, take it as advice and then go on to make financial decisions when they ought to seek further assistance. However, I can reassure noble Lords that there are already appropriate measures in place to mitigate that type of risk. In fact, I can quote the exact wording currently given to customers by the Pensions Advisory Service and Pension Wise on this matter. In the case of TPAS, clients who ring the helpline will hear a message telling them that it does not provide regulated financial advice and that its service provides generic information and personalised guidance on occupational and private pension-related matters.
As Michelle Cracknell, the chief executive of TPAS, said to me:
“We give a simple disclosure: ‘We cannot tell you what to do’”.
She also said that, as debt advice is defined as a regulated activity, it would be confusing to describe it as anything else in the Bill. She has made that point very strongly, as have others in the industry. When I was sitting with an incredibly experienced, thoughtful and helpful group of people working at TPAS, giving advice to people and working through their systems on the web and on the telephone, I was hugely impressed. They have not had one problem in 34 years with people being confused or complaining about thinking that they were receiving guidance when they were actually receiving advice. It has never been a problem. So we are getting a different story outside, with the user, and we must not underestimate the public, who have the ability to understand the difference between advice and guidance. The whole purpose of this body is to provide a more seamless customer journey so that people can obtain guidance and advice without there being a problem.
Baroness Altmann
I apologise to my noble friend for intervening, but this is a really important issue. The points she makes are absolutely correct and I do not disagree with them—and nor, I think, would noble Lords around the House—but they are beside the point. When we have a new body it is designed to be holistic. At the moment, Pension Wise deals with pensions, so people will not be confused, and the Money Advice Service, or debt advice, deals with debt. We are trying in this Bill, apparently, to bring everything under one roof. The big change that will not have been relevant over the past 30 years or so, is with auto-enrolment, when people come to the new, holistic single body with a debt problem and need someone to help them with their pension, but the person trying to rescale their debts cannot take that into account. It may well be that we have alighted on a problem that extends to the FCA and the regulatory system—that perhaps the FCA is not concerned enough, in the new environment whereby next year or the year after any worker earning more than £10,000 a year will be in a workplace pension, and debt advice needs to be able to consider the question of whether that person should opt out of the workplace pension. Currently, it cannot do so. It could do, but at the moment there is this regulatory hole.
Baroness Buscombe
I thank my noble friend for her intervention. Perhaps I am not making it clear that it is not necessarily one person who will be able to give guidance and advice in one session. The point, notwithstanding that it is becoming one body, is that we do not expect a situation in which someone receives all that information from one individual. When someone is in problem debt, for example, and worried about bailiffs, the initial outcome of the debt advice session has to be on stabilising the situation. That may be followed with more in-depth support to understand the root causes of the debt problem and how to address them. It may involve bringing in people who have different types of expertise, depending on the person’s needs. We do not expect that because it is one body—bringing three bodies together—it will necessarily be the same person in one session who gives advice and guidance. As I have learned this summer through visiting these bodies, different people have different kinds of expertise. We want it to be as seamless as possible and provide a more seamless customer journey, but it will not be perfect, given that advice is regulated and guidance is not. However, as there is time pressure on your Lordships’ House, I shall take this issue away and talk again with my noble friend, and the noble Lord, Lord Stevenson, and others to see if we can find a solution to it.
As I was saying, in my experience of talking to those dealing with this matter on a day-to-day basis, they have every expectation that the new body will be able to cope perfectly well with the definitions as they are. As noble Lords will see from the note that we sent out this morning, there could be some serious confusion and regulatory issues if we changed definitions, so we have to take that into account as well. So it is a tough one.
These processes are robust, and we will ensure to the best of our ability that they are carried forward to the equivalent services offered by the new body. In fact, as I said, the Pensions Advisory Service has not received a complaint from a customer that he or she has received regulated advice. We have to make sure that processes are in place to protect consumers who might take guidance for advice in this new body. Those objectives are not specific requirements to do X, Y or Z, but broad, overarching principles and aims to which the body must have regard while exercising its functions. The objectives guide the body in the exercise of its functions; they should not provide a to-do list for the body.
Amendment 34 would alter the wording of the Bill to add a new objective that would require the new body to signpost appropriately to each of the body’s functions if people need multiple kinds of help. As I have said, the Government agree with the intent behind this amendment. We recognise that members of the public will have overlapping issues which require a mix of advice and guidance relating to debt, money and pensions. The body will be well placed to deliver this seamless service, including through warm handovers and signposting to the different functions it offers. This will be central to ensuring that members of the public receive the personalised, holistic support they need. It is important to remember that one of the key aims of bringing together the functions of the Money Advice Service, the Pensions Advisory Service, and Pension Wise is to improve the co-ordination of these services.
However, while we agree with the sentiment of the amendment, I do not think that it is required. I have already explained the purpose of the statutory objectives and we expect the body to signpost members of the public to the most appropriate source of help in order to provide a joined-up and holistic service. Having met some of these wonderfully skilled people who have many years of experience in the financial services industry and already operate in this sphere, I can only assume—because of their brilliant expertise and the way that they handle the public and the advice and guidance that they are able to offer—that they will achieve this. The current objectives enable the body to do just that. Indeed, for the reasons given, I believe that Amendment 34 is, with respect, rather narrow and inappropriate to include within the broader objectives specified within the primary legislation.
Lord Stevenson of Balmacara
I am very grateful to the noble Baroness, Lady Altmann, and the noble Lord, Lord Kirkwood, for their support and for opening up the debate, in particular on Amendment 33. I thought that the Minster made a bit of a Freudian slip there, because she wanted me not to press Amendments 34, 36 and 37 and then realised that she should have included Amendment 33. In fact, I do not think that is what she meant—she means that we need a further discussion on this.
There is a really important issue that we want to sort out. The current regulatory phraseology may fit the legal requirements of the current situation but, as the noble Baroness, Lady Altmann, said, the game’s a bogey—that is a Scottish expression. It is no longer as it was; we are in a different world now with auto-enrolment and all the ways in which technologies are coming forward. Fintech is the word on everybody’s lips in the sector. We need to think harder about future-proofing the current legislation. At its heart, sadly, this problem is probably of the Government’s own making. Had they decided to stick with the two-body solution, we would probably not have had this problem, because we could then have had different regulatory structures for debt and for pensions or other activities. Because they have been bolted together, however, the issue is not going to go away.
If we are to have an integrated, warm-key, hot-key, all-singing, all-dancing issue, we need to face up to it and be very clear about it. It may be true that the people the Minister talked to did not have difficulties with this, but I can tell her that, out there in the country, people do not follow you when you start talking about regulated and non-regulated advice. In the regulated pensions area, if it is possible that regulated pensions advisers cannot tell people what to do, but it is also possible that regulated debt advisers can tell them what to do—it happens—then we have a problem and we need to resolve it. If we are to be seamless, why settle for less than that? We should get it right but, with that, I beg leave to withdraw the amendment.