Financial Guidance and Claims Bill [HL]
Monday 11th 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-IV Fourth marshalled list for Committee (PDF, 77KB) - (11 Sep 2017)
Lord McKenzie of Luton
“( ) Guidance issued by the Secretary of State under subsection (1) is to be made by statutory instrument subject to annulment in pursuance of a resolution of either House of Parliament.”
Lord McKenzie of Luton (Lab)
My Lords, I will also speak to Amendment 48. Clause 5 says:
“The Secretary of State may issue guidance and give directions to the single financial guidance body about the exercise of its functions … The Secretary of State must publish any directions that are given to the single financial guidance body … The single financial guidance body must have regard to guidance, and comply with directions, given to it by the Secretary of State”.
Amendment 48, which is where we started, requires the Secretary of State to publish any guidance issued as well as directions. This guidance is, as we have heard, not discretionary, and the SFGB must have regard to it. The Delegated Powers and Regulatory Reform Committee, however, in its first report of the 2017-19 Session, takes the view that a parliamentary scrutiny process should apply to these provisions. It considers the negative procedure an appropriate level of scrutiny, hence Amendment 47A; that is what the amendment requires. Obviously, such a procedure would appear to encompass the guidance being published in any event. I beg to move.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Buscombe) (Con)
My Lords, I thank the noble Lord, Lord McKenzie, for tabling these amendments to Clause 5, which provides for the Secretary of State to issue guidance and directions to the single financial guidance body about the exercise of its functions. It requires the body to comply with any directions and have regard to any guidance, and requires the Secretary of State to publish any directions.
Amendment 47A would require any guidance to be made by statutory instrument subject to annulment in pursuance of a resolution of either House of Parliament. Amendment 48 would place an obligation on the Secretary of State to publish any guidance.
Clause 5 facilitates a sensible working relationship between the body and the sponsoring Minister. It allows the body flexibility and independence in managing its business but balances this with a recognition of Ministers’ responsibilities to Parliament. Conferring functions on an arm’s-length body involves recognition that operational independence from Ministers in carrying out those functions is appropriate. Nevertheless, the sponsoring Minister remains answerable to Parliament for the activities of the body, including any failures.
I believe we are in agreement that creating the body is the right thing to do. I also agree with the comment of the noble Lord, Lord Stevenson, at Second Reading that it is important that we learn from the experiences with the Money Advice Service about what worked and what did not work successfully. One issue highlighted by the independent Farnish review of the MAS in 2015 was that the MAS’s formal accountability regime needed to be strengthened. The review concluded that it was not possible for any party, including the FCA and HM Treasury, to hold the MAS fully to account, either for the way it discharged its role or for the money it spent.
In setting up the single financial guidance body, it is therefore important that a balance is struck between enabling the sponsoring Minister to fulfil his responsibilities and giving the body the desired degree of independence. An arm’s-length body needs to have a degree of autonomy in order to deliver effectively but it also needs to have a good and constructive relationship with its sponsoring department. Arm’s-length bodies represent an extension of the department’s delivery, so it is important that we think about a department and its arm’s-length bodies as a total delivery system. Building trust between the department and the new body—this is critical to the point—will be essential in enabling the right balance to be struck between the body’s autonomy and the Government’s accountability.
In drafting Clause 5, and the Bill more widely, we have sought to provide a legislative framework that allows the body flexibility and independence to make the most of expertise and innovation in managing its business, and to balance that within the context of it being a public body. The single financial guidance body will be a non-departmental public body, responsible for supporting the delivery of government policy.
Clause 5 provides for the Secretary of State to give guidance to the body and requires it to have regard to that guidance in exercising its functions. Amendment 47A would require regulations to be made by statutory instrument, subject to annulment, in pursuance of a resolution of either House of Parliament. I consider that this would represent a degree of scrutiny unwarranted by the non-binding nature of the guidance in question.
Guidance provided by the Secretary of State to the arm’s-length body could cover myriad topics. Guidance could also be sought by the body; it is not necessarily just given. The relationship between an arm’s-length body and its sponsoring Minister and department is critical to the successful delivery of its functions. As in all professional relationships, whether between a sponsoring Minister and an arm’s-length body or a board and its executive team, being able to seek and give guidance in a straightforward and candid way will be important.
Having regard to guidance does not mean that the body must act on that guidance. For example, in commissioning or contracting services, the single financial guidance body may seek guidance concerning government procurement rules or the interpretation of those rules. Guidance may also be given or sought by the body to inform business planning. For example, where government develops a new policy that could affect the services it provides, the body will need guidance to enable it to prepare for potential change. Noble Lords will recall that the Pension Wise guidance service went live at the same time as the pension freedoms were introduced. This required considerable advance planning and service design.
In all those circumstances, it would be disproportionate to expect a statutory instrument to be drafted and for Parliament to scrutinise it. Also, the Secretary of State publishing guidance would not be consistent with the informal nature of much of the guidance that may be given. It would inhibit the critical relationship between the sponsoring Minister and the body supporting the delivery of government policy, and it could deter the body from seeking guidance, or the Minister giving guidance when it would be more sensible to do so. Further, a requirement to publish a guidance could lead to a position where the body feels obliged to respond publicly should it not act on the guidance, or feels under undue pressure to follow the guidance provided regardless whether it makes sense or is appropriate in the circumstances.
Lord McKenzie of Luton
My Lords, I thank the Minister for that reply. I am a little surprised at the position the Government have taken on this. We all agree about the need for balance and flexibility in the arrangements—that is important—but the Government have written into the Bill provisions that give the Secretary of State the opportunity to issue directions and for there to be guidance. The Minister said the guidance is not binding. I accept that it is not technically binding but the provision is clear that a single financial guidance body must have regard to it. There is a strong imperative for the body to do that unless, presumably, there are exceptional circumstances.
Even if the Minister is not happy with the recommendation of the Delegated Powers and Regulatory Reform Committee that the negative procedure should be attached to this, the Government are setting their face against the guidance being published as well. That is an unduly restrictive approach. The report of the Delegated Powers and Regulatory Reform Committee is very clear. It states:
“There is a clear distinction between guidance that the recipient is free to disregard and guidance to which the recipient must have regard and must follow. People required by statute to have regard to guidance will normally be expected to follow the guidance unless they have cogent reasons for not doing so”.
The Government have not taken that into account in their very restrictive response.
There is no point in ranging over this point more extensively at the moment. However, I am surprised and we will return to this on Report. In the meantime, I beg leave to withdraw the amendment.
Lord Stevenson of Balmacara (Lab)
My Lords, in moving Amendment 49 I shall speak also to Amendments 54 and 55 in this group. I am grateful to the noble Baroness, Lady Meacher, for adding her name to the first of those amendments.
The amendments continue the debate we have had about standards and seek to draw out a response. In that sense they are probing amendments and I do not expect them to be accepted as they stand. They are probing in the sense that they are trying to draw out more clearly what standard setting will involve. As has been mentioned, Clause 6 states simply:
“The single financial guidance body must from time to time set standards to be complied with”,
but does not specify what the standards are. Are they about dress codes or eating habits? Presumably they relate to the more detailed work of how it deals with its customers. I would hope that it is the latter but that does not exclude the former. A word of comfort from the Dispatch Box might ease troubled concerns outside.
The underlying problem is that for many of the bodies to which the standard setting will apply there is an existing regulatory framework operated by the FCA and therefore we are in danger of seeing dual regulatory powers. This is not just a trivial point about bureaucracy. In a recent report from the StepChange Debt Charity, in which I have already declared my interest, the chairman points out that the arrangement under which it receives its regulatory authority from the FCA has added 7% to the charity’s costs. This is a body with a £20 million turnover so it is a significant sum for getting itself ready, and rightly so, to be regulated by a body. To think that more of the money that StepChange raises for charitable purposes will have to be spent on satisfying another regulatory body would seem to be unusually onerous.
To be clear on what we would like the Government to say on this point, there is a case for something to be said at the Dispatch Box which makes it clear that the SFGB’s currently broad and largely unconstrained regulatory powers should be moderated by some sort of framework. We propose in our amendment that the regulation should be specifically addressed to a commissioning framework, because certainly in the debt space the intention is that the bodies concerned will be commissioned to provide particular services which the single body thinks should be available. We have taken wording from other legislation which suggests that the commissioning framework should be based on the competencies of the provider against which it will satisfy itself when it commissions and procures services. That would give a route in towards the thinking here.
When we are talking about charities, we are also talking about those that are regulated separately by the charities regulator on certain aspects of their work. Again it is important to recognise that additional and triple regulation would be unnecessary.
The powers will come mainly from the FCA. Once more, it would be helpful if the Minister could respond to the likelihood of that. There is only one comparable situation at the moment where the FCA regulates bodies operating in the debt space, and indeed it has just completed a full review of a number of them. At the same time it has been asked to look at the current rules as they affect the Money Advice Service. When the authority did that, it said that it would not review or comment on the particular requirements of MAS—here I give a sense of its comments—because it felt that its standards were sufficiently high to encompass anything that would be involved in MAS and relating to the bodies that it funded. Again, what that would mean in practice is a little uncertain and perhaps the Minister will think about whether it will be necessary to get a better specification from the FCA, which perhaps could be done through correspondence, of the type of regulatory framework it thought it would be looking for from the SFGB, at which levels there would be any overlap, and in what sense any additional work would be needed. In short, we are looking for legislation that is concise and focused along with a broader statement of practice prior to the passing of the Bill which would give us more detail on how the body will operate in practice and the impact and burdens on those bodies it commissions. I beg to move.
The Lord Speaker (Lord Fowler)
My Lords, I should inform the Committee that if this amendment is agreed to, I cannot call Amendment 50 by reason of pre-emption.
Lord Deben (Con)
My Lords, I point the House to my declaration of interests. I want to underline something that the noble Lord has just said about the danger of having conflicting areas of advice.
I am sure that my noble friend will be able to explain this, but it is already true in the financial services industry, and elsewhere, that often there are serious conflicts between the decisions being handed down, for example by the Financial Services Authority, the way that such decisions are interpreted by the ombudsman and the way that things come together. That is now a major incubus on the best companies in the field; therefore it is crucial for us to know in advance that what is being done here will not be yet another different series of things that people have to bring together. That is not to defend anybody who is doing wrong or to excuse people who have not bothered, but merely to say that the better the firm, the more important it is for it to be clear what governance it should be concerned with, what guidance means, and ensure that the opportunities for contradictions are eliminated before we start.
The Earl of Kinnoull (CB)
My Lords, I rise briefly to speak to Amendment 56, which is in my name. I note that the clause on setting standards, which is only 11 lines long, has eight amendments. That underlines its importance.
The origins of Amendment 56 are my concerns with the behaviour of the Financial Conduct Authority; I have been regulated by it and its predecessors for the whole of my commercial career. I realise that the single financial guidance body will only be a client organisation of it, but I am concerned about FCA ethos leaking down to the SFGB.
Perhaps I should explain further. When a regulated client rings up the FCA with a specific question, asking for help in the interpretation of its rules, the FCA, in my direct experience, simply says, “We can’t give you any help in interpreting those rules”. That is quite unlike regulators in other jurisdictions in other places—I originally wrote down “competitor regulators”. That is very unhelpful, but while it is unhelpful in the financial services world, firms are usually big enough to afford advice from big firms of solicitors. Here we are often dealing with very small charities that do not have access to £1,000 per hour for Allen & Overy, so it is important that the SFGB offers that advice.
It has been said to me that there is a big problem concerning resourcing. I think that that is quite a difficult position to maintain. First, other similar regulators in other jurisdictions do not perceive those resourcing problems. In fact, most of the questions that come up, such as on a drafting issue, do so repeatedly and the same question will be asked by many of those being regulated. Secondly, just thinking about one particular bit of FCA regulation because I know about it—the regulation of insurance brokers—the FCA and those that are being regulated bear the cost of that regulation, which is more than twice as expensive as Ireland, Bermuda and Hong Kong. That multiple is far bigger than for France and Germany. I do not therefore think that good regulation has to be expensive.
The amendment is aimed at trying to ensure that that sort of behaviour is not replicated and that the SFGB remains friendly and helpful in interpreting the regulations that it will impose on those that it regulates.
Baroness Altmann (Con)
My Lords, I add my support to Amendment 56. It is important that if those who are involved in the actions that will be part of the new body want to know and to clarify what their duties are, there is clear direction for them. I share the concerns that a number of financial companies have offered to me: they want to abide by the regulations, yet when they ask the FCA, “If I do this, would that be compliant?” the response often is, “If you do it and we don’t like it, we’ll see you in court”, which really is not very helpful.
Baroness Buscombe
I thank noble Lords for their scrutiny of Clause 6, which requires the body to set standards from time to time for the delivery of its information, guidance and advice services. It also requires the body to obtain the FCA’s approval prior to finalising the standards and to publish the standards. I understand that there has been concern among the debt advice sector that the body’s standards will apply to all debt advice providers. I reassure the Committee, and others, that the single financial guidance body is not a regulator. These standards will apply only to the body itself and its delivery partners.
I turn first to Amendments 49 and 54, tabled by the noble Lord, Lord Stevenson, which set out an alternative to setting standards for service delivery. Amendment 49 would require the body to publish a commissioning framework against which it would test the competence of service providers when delegating any of its functions. Amendment 54 would require the body to consult on this framework and to obtain the approval of the FCA.
The setting and publication of standards, and their monitoring and enforcement, provided for in Clause 7, are designed to give assurance to members of the public that the information, guidance and advice services provided by the body meet robust criteria. These standards will apply only to the body itself when it is delivering these services directly, and to any delivery partner organisations it engages to deliver these services on its behalf.
The noble Lord proposes to replace the requirement for the body to set standards with a commissioning framework, but there is a difference between these two. The proposed commissioning framework would only set out requirements that the body’s delivery partners must meet to enable bidders for contracts or grants to understand what the expectations were. The standards will set out the requirements that both the delivery partners and the body itself must meet. The standards will play an important role in enabling members of the public to have confidence in the services provided by or on behalf of the body, and both could not and should not be replaced by the proposed commissioning framework.
When contracts are above a certain value, the body will be required to comply with the Public Contracts Regulations 2015, the regulations that govern public procurement, including the requirement to advertise its requirements and undertake a competitive tendering exercise. Where the size of the contract is below the thresholds cited in the regulations or where the body will be making grant arrangements, we would expect it to follow similar principles.
If the body decides to delegate any of its guidance or advice functions and procure services from other providers, we would expect it to publish its requirements, including any technical requirements, with adequate time for delivery partners to prepare their propositions. It is unnecessary to be specific about this in legislation, as we would expect the new body to build on the good practice of existing organisations. For example, the MAS already has a commissioning framework for debt advice.
Amendments 50 and 55, tabled by the noble Lords, Lord McKenzie and Lord Stevenson, would require the single financial guidance body to consult on the standards. The body will be able to set different standards for different types of information, guidance and debt advice. One size will not fit all. For example, standards for an online service such as the body’s website would of necessity differ from standards for a face-to-face guidance appointment. In addition, the body may need to develop standards if new services come online or if the nature of the service provision changes. We would expect the body continuously to review its service standards. This will be important to the body’s board in ensuring that its services remain customer focused.
In developing and updating the standards, we would expect the body to work closely with a range of stakeholders, including delivery partners—large and small; I stress that to the noble Earl, Lord Kinnoull—devolved authorities and consumer representatives, to ensure that the standards it sets are robust, cover a range of qualitative and quantitative measures and can be properly monitored. The noble Lord, Lord Stevenson, asked how the body would set its standards and what they might be, and about the consultation with the FCA. We would expect the standards broadly to cover delivering the guidance, advice and information, professional standards, communications systems and controls, complaints management and content of the guidance session.
Prior to anything being published, the body is required to gain the approval of the FCA. The FCA will add value by providing independent scrutiny, and the standards will benefit from the FCA’s expertise in relation to financial services and the debt advice sector, and its experience in setting the standards for Pension Wise. Having the input of the FCA will also ensure that the body’s standards complement the FCA’s debt advice authorisation process. As my noble friend Lord Deben has stressed, it is important that there be clarity.
Should the body consider it valuable to conduct a consultation exercise before setting or revising its standards, it could do so. However, I do not consider it necessary or proportionate to require in legislation that the body undertake a formal consultation process, particularly as this would apply even to very minor revisions of the standards.
Amendments 51 and 52, tabled by my noble friend Lady Altmann, return to the debate on earlier amendments to Clauses 2 and 4. There, I made the case that “debt advice” is the appropriate term to use in the functions of the body. I have also written to my noble friend with further explanation of the terminology used in the Bill. The Government believe that it remains the right term here. I apologise for going over old ground with these arguments, but I want to do justice to my noble friend’s amendments.
First, “debt advice” reflects a broader set of activities than “debt counselling”, and this broader set is what the new body will have a duty to deliver. Secondly, similar to independent financial advice, debt advice is an activity regulated by the FCA. Using the term “counselling” may mislead customers who are actually receiving regulated advice. I hope that this is a further response to my noble friend Lord Deben. It is particularly important that we do not confuse customers by introducing other terminology. We should be very clear here on the vital service this body will provide. It will fund and co-ordinate—
Lord Deben
I thank my noble friend for referring to me. I do not want her to believe that I do not agree with my noble friend Lady Altmann. The fact is that we have had far too much trouble in the past with the word “advice” being used wrongly. “Advice” should be used only when it consists of somebody who is on your side and giving you advice personally and individually. That is not what we are talking about here; “counselling” or some other word should be used. I hope the Minister will not include me in her supporters on this particular point. This is really serious and we ought to think again.
Baroness Buscombe
I hear what my noble friend is saying. I hope he read in Hansard what I set out in detail on day 2 of Committee and what I wrote to all noble Lords. I commit here to spend more time between Committee and Report trying to persuade noble Lords of the reasons why we feel it right to stick with the current terminology regarding the difference between debt advice and guidance, not least because this is already set out in regulations, at the FCA and so on. We are very keen to avoid confusion or duplication. We also very much take on board the experience and expertise we have heard from those who have given this guidance and debt advice for more than 30 years. They said they had never had a problem with this. However, I hear what my noble friend said and can see that I must do more to persuade some, though not all, noble Lords—there is great support for what the Government are trying to do. I can only stress the number of consultations we had prior to introducing the Bill to ensure that we are doing the right thing to the best of our ability, particularly in our focus on the consumer.
Most people who access debt advice have lived with debt problems for more than a year before doing so. They may be facing up to something they have avoided for a long time. They seek help because they do not know what to do. They turn to services such as the Money Advice Trust, Citizens Advice and StepChange, which are all MAS delivery partners, for urgent help with getting out of their immediate crisis. Although there is a clear difference between debt advice and the advice given by independent financial advisers to those lucky enough to have some extra money to pay for it, the advice given by debt advice is still regulated by the FCA.
Debt advisers help people identify the steps they need to take, recommend a course of action, represent people at court facing repossession and, crucially, build their clients’ confidence to deal with their creditors themselves. Under FCA rules, these excellent advisers are required to make it clear that they are giving a customer regulated advice. These individuals need help to work through their problems. They want advice on how to get out of the situation. The labels we use to describe the service on offer must reflect the way these customers use and understand the service. For these reasons, I maintain that debt advice is the most appropriate term to use.
Amendment 53, tabled by the noble Lord, Lord McKenzie, would require that the standards include measures of outcomes for members of the public as well as measures of outputs for the body and its delivery partners. The noble Lord raises an important issue but I do not agree that attaching this requirement to the standards is the right approach. I reassure the noble Lord that assessing the body’s success in improving the ability of members of the public to make informed financial decisions will be very important for both Her Majesty’s Treasury and the Department for Work and Pensions.
The Committee discussed during debate on Clause 1 the business planning process for the single financial guidance body. Part of that process will be for the body to agree a range of key performance indicators with Her Majesty’s Treasury and the DWP. These will be set out in the body’s corporate strategy and business plans. The corporate strategy and business plans will be published, and will include how the indicators will be measured. It is too soon to set out exactly what the performance indicators will be for the body but, as an example, Pension Wise is testing its customers’ knowledge of the pensions freedoms and comparing it with that of a group of non-users of its service. This research seeks to ascertain what difference Pension Wise is making to people’s understanding of their options under the pension freedoms. This evaluation is also recording customers’ intentions shortly after their Pension Wise appointment and any actions they have taken about three months after their appointment.
Lord Stevenson of Balmacara
I thank the Minister for a very full response. There were points where I felt she was in a bit of a hole and continuing to dig, and we may well have to come back to them. They were largely in response to the rather sharp questions posed by the noble Lord, Lord Deben, on which I do not think we have reached the end of the journey. We will need to come back to this.
It was very nice to see support from the noble Earl, Lord Kinnoull, and the noble Baroness, Lady Altmann, on different aspects of the same thing. As the noble Earl said, the fact that we have eight amendments in this group and a few more in the next on this area shows that this part of the Bill is not as well baked as some of the rest of it. There are areas that we have some concerns about, but I will read what was said in Hansard and we can perhaps pick up some of the points in correspondence before we come back on Report.
I wonder, however, whether we are not in a bit of a car crash—a hard word to use. I do not think the Bill has quite taken the trick here on a number of the issues that have surfaced. First, we have a body called the FCA which has responsibility for overseeing operations in the financial services area, but its remit, as we have pointed out on a number of occasions, has a different focus from that which we expect for the SFGB. With its overriding responsibility for making sure that markets are fair and that competitive markets are operating in those areas, it is not right for the Minister to say that the FCA can be relied on to have regard to the position of consumers. Indeed, our debate last Wednesday on amendments on exactly this point, which were supported right around the Committee, pointed out a number of glaring exceptions to the feeling that all was all right in this world in relation to those who are generally called vulnerable customers. These range across those not included in any financial arrangements at the moment, whether by desire, function or mental or physical disability. These people who do not currently participate, cannot currently participate and are not finding the services and opportunities for participating that they would expect to find will not be served if the end result of this operation is the FCA’s mode of operating and not what we currently have, which is much more consumer-led. We shall have to come back to that.
On what the standards are doing and how they are operating, enough has been said in Committee to feel that there is a bit of uncertainty about exactly what is being done here. In pensions, where there is direct provision, the standards are internal and operating, but they will not be the same in the debt space, where very expert bodies, which, as the Minister said, have been doing this work for some 30 years, will not take it kindly if some new body, although it has a history as a previous organisation, starts setting standards without consultation and without some sort of specification. I hope the wording is sufficient to take that point.
If we are in a situation where all the services are to be done under existing regulations, does that imply that bodies not currently in the UK might also have to be offered the chance to bid for these services? Presumably this will be done under the EU procurement directives. Is that right? Will the Minister respond to me on that point, not necessarily today, but perhaps in writing? It changes the ball game if we are talking not about Citizens Advice but about a body with a similar but different name and perhaps the German republic offering to operate it because it is able to fulfil a document that has been prepared to elicit bids at an appropriate price. We might be heading for a bit of trouble.
Finally, there is advice and counselling. I am on a bit of a journey here, I confess. I was more firmly in favour of leaving things as they are when I started my work on this Bill than I am now. I am beginning to think there is a problem here because I do not think the consumer is with us in the way the Bill is being drafted. I do not think a consumer has the same expectation about the words “information”, “advice” and “counselling” as is displayed in the Bill, and I appeal to Ministers to use the time between now and Report to reflect quite hard on this. We have to be where the consumer is. If we are saying that there ought to be a body that can deal with people’s genuine need for information, advice or counselling about their financial situation—and I agree with that—we should not set preconditions about how, in what manner and under what regulatory framework that information, guidance and advice is to be delivered. There may be necessary constraints on what can be said, but it is important that we try to align this more closely with people’s motivations when they come forward. That is the first point.
The second point is that this body will not be the success that we all hope it will be if it cannot give the information that is being sought promptly and efficiently to the person making the request. We have already established that that will be difficult in the pensions area from day one, but we also expressed our hope, at Second Reading and subsequently in amendments, that it would be looked at very closely and, indeed, that the pensions dashboard would be under the ownership and control of that body.
Baroness Buscombe
It is very helpful that the noble Lord, Lord Stevenson, is giving such a full reply, but perhaps I may ask one question. He made a very interesting point in day two in Committee, saying that the whole problem of debt advice and guidance would have been resolved if we had gone down the path of having two separate bodies, one giving guidance and one giving advice. Is he therefore suggesting that if there were one single financial guidance body, we should expect that one person would have the expertise—for the convenience, in a sense, of the customer—to give all kinds of guidance and advice to one person, so that they would not have to be directed to other people to talk about specific issues?
Lord Stevenson of Balmacara
That is a very good question. I think the answer is that yes, I am saying that; but I am also saying that it is probably impossible. I want to unpick that slightly. It would be fantastic if somebody approaching a body—let us call it the single financial body—primarily for debt advice also had embedded in their series of questions about their unmanageable debts the possibility of going in, or not going in, to an auto-enrolment situation for pensions, or has equity in a house that could be released which might resolve those things. At the moment, there is no way in which any one person could answer those questions effectively and efficiently. I think we all hope that that is where we will be at some point in the future, perhaps with much more use of automation and expert systems which would be able to take a person down a much longer and richer journey on these issues. If we build in barriers now to say, “Oh no, that’s guidance, not advice. We’re not going to go that way—we’re not even going to build a design or even think about how we might do that”, we will build in problems for ourselves further down the line.
We have a bit of time before the Bill goes to its next stages. I think I am asking whether we can use that time constructively to try to get really certain in our mind that, even if it is not the perfect solution, we are progressing with the right approach to this. As I said at the beginning of this little section, I had started on the basis that debt advice was straightforward and I understood it, and I was confident that I knew that because I had worked in the area. I am now not so sure. I have a feeling that we need a broader, higher-level definition that takes us a bit further down that route, where we think about things in terms of perhaps what is paid for and what is not paid for—anything which involves the offering up of clients’ money to be held in trust for them would need a completely different level of care and scrutiny and everything else.
Even with the simpler questions, such as whether people should join a new pension scheme or take money off an existing pension scheme—which will be real to the person asking them, although they may not be aware of the regulatory and other functions behind them—we might be making a terrible mistake. I am sorry to cast problems in what has already been a well-worked-through field—I know that a lot of this stuff has been discussed and debated ad nauseam and we should know better than this going forward—but my feeling is that we might have not quite got there yet, and we need a bit more help.
Baroness Buscombe
Before, I hope, the noble Lord withdraws his amendment, I should say that between last week and this week we in the department have constantly visited this issue, and we continue to do so. I do not want to test the patience of the Committee but I have further information on how this might work. I confirm that we will have meetings for all interested Peers so that we can discuss this in more detail between now and Report.
Lord Stevenson of Balmacara
I am grateful to the Minister for that. I think that those meetings will be helpful and useful. In the meantime, I beg leave to withdraw the amendment.
“(1) The single financial guidance body must monitor and report on its own and SFGB delivery partners’ compliance with the commissioning framework.”
Lord Stevenson of Balmacara
My Lords, this amendment is really the second half of the debate that we have just been having so I think we can skip quite a lot of the introductory part and get straight to the main point. The focus in the amendment in my name—I think other issues will be raised by the noble Baroness, Lady Kramer, and the noble Lord, Lord Sharkey, regarding their amendments, as they bear on the matter in a slightly different way—is Clause 7(2)(b), which states:
“The FCA must, at least once in every three years, carry out a review of … how the single financial guidance body is monitoring and enforcing the standards”.
I have searched reasonably hard through the documentation and I cannot find out what that enforcement is. At the heart of my amendment is a probe—actually, a direct question—to find out what the enforcement would be. Is this in relation to commissioned services being given some sort of penalty? Are fines to be involved? Is it going to involve reporting them to the FCA for a rap on the wrist or worse by some disciplinary body that the FCA might have? We do not know about that and I do not think we understand it. The sensibility is right—there is no point in having standards and asking that they be informed if you cannot do something if they are not informed—but we need a bit more detail before we can take what is in the Bill as being the right approach to this.
In Amendment 59, which I am speaking to but not moving at this stage, the assumption is made that some movement has taken place on earlier amendments and that the SFGB is doing the process of commissioning through a set of standards and a framework. That amendment has been withdrawn so it does not apply, but I still think the sensibility is right. If we are going to ask for reviews, they should be in relation to a specific issue. As it stands, Amendment 59 would give a slightly more flexible framework for that than every three years because it would relate to the success or otherwise of a judgment made by the SFGB on whether or not the work it is doing was going well, and therefore it would have a bit more teeth. I beg to move.
Lord Sharkey (LD)
My Lords, I will speak very briefly to Amendments 58, 60 and 61, tabled by my noble friend Lady Kramer and me. We agree with the Bill’s requirement in Clause 7(1) that the SFGB must monitor its own compliance with standards and that of its delivery partners. However, we feel that the results of this monitoring should be in the public domain; in fact, it would be extraordinary if they were not. Our Amendment 58 would rectify what seems to be an omission. It says simply that the SFGB must produce and place in the public domain an annual report of its assessment of its own, and its delivery partners’, compliance with the standards. We hope that this is completely uncontroversial and the Minister will feel able to accept the amendment.
Amendment 60 is equally simple and straightforward. In Clause 7, dealing with the monitoring and enforcement of standards, and in subsection (3), the Bill lists those to whom the FCA must provide a report on its review of whether the standards continue to be appropriate and how the SFGB is monitoring and enforcing those standards.
The Bill specifies that the FCA must provide its report to the SFGB and to the Secretary of State, but there is no mention of Parliament and we think there should be. Parliament will have set up the SFGB. It is a matter of transparency and accountability that Parliament should also have sight of the FCA’s report. Our amendment simply adds Parliament to the list of those to whom the FCA must provide its report.
In Clause 7(4), the Bill provides that the FCA’s report may contain recommendations to the SFGB. But that is it—the Bill does not say what should happen when the SFGB is in receipt of these recommendations. Clearly, something should happen and it should happen in public. Our Amendment 61 provides for this. It simply says that when the SFGB is in receipt of recommendations in an FCA report on its review, the SFGB must then publish a substantive response within three months to any recommendations made by the FCA.
The changes proposed, I hope, in all three amendments are completely uncontroversial. They are nothing more than an application of the principles of transparency and accountability to this new public body. We hope that the Minister will see their merits and feel able to accept them.
Viscount Trenchard (Con)
My Lords, I have some sympathy with the amendment moved by the noble Lord, Lord Stevenson, which reflects the concerns expressed by StepChange. I understand that the SFGB is to carry out its commissioning function by setting standards for advice, whereas I think the Bill casts the body in the role of a kind of second regulator. That is also made clear by the amendments of the noble Lord, Lord Sharkey, which deal with the same thing. I worry whether the SFGB will become too like the FCA in terms of its culture. I had understood that it would set the standards which would enable the right partners to be commissioned, but if it has too many powers to act as a regulator, I am concerned that it will become more like the FCA and less sympathetic to consumer concerns.
Baroness Meacher (CB)
My Lords, I have added my name to this amendment; I simply want to express my strong support for it, and to endorse the comments made by the noble Lord, Lord Stevenson. I apologise to the Committee because I was unable to be in the Chamber for the debate on the previous group of amendments where again, I had added my name. The debate was important and I hope that we will come back to it on Report.
Baroness Buscombe
My Lords, I thank noble Lords for Amendments 57 to 61. Clause 7 requires the single financial guidance body to monitor and ensure compliance with its standards. It requires the Financial Conduct Authority to periodically review the standards, and how the body is monitoring and enforcing those standards. After completing its review, the FCA is required to provide a report for the single financial guidance body and the Secretary of State. Once again, I reassure the Committee that the standards will not apply to all debt advice providers. These standards will apply only to the body itself and its delivery partners.
First, I shall address the Amendments 57 and 59, tabled by the noble Lord, Lord Stevenson. I have made the argument previously that the framework set out in Clauses 6 and 7—for the body to set and monitor compliance with quality standards—is the right mechanism for assuring the quality of the services provided by or on behalf of the body. I refer the noble Lord to our discussion on Clause 6, where we discussed the proposed commissioning framework for the procurement of services. There I made the point that it was unnecessary specifically to require the body to publish a commissioning framework, since we would already expect the new body to publish its requirements and expectations, with adequate time for prospective delivery partners to prepare their propositions. I also pointed out that, when contracts are above a certain value, the body will be required to comply with the public contracts regulations, including the requirements to advertise its requirements and undertake a competitive tendering exercise. We hope that those expectations and requirements on the body meet the spirit of the noble Lord’s amendments.
The noble Lord’s proposed commissioning framework would also have replaced the requirement on the body to set and monitor compliance with quality standards. I made the argument that the standards actually play a different role to a commissioning framework, in that they will assure the quality of the services provided by the body and its delivery partners. The standards therefore play the crucial role of enabling members of the public to have confidence in the services that they receive.
I disagree with my noble friend Lord Trenchard that there is a concern about the possibility of the culture of the FCA becoming similar to the culture of the body—or maybe that would be a good thing. The body would not necessarily be influenced by the culture of the FCA, because it has a statutory duty to put the consumer first, as I said under the last set of amendments.
Lord Stevenson of Balmacara
I am sorry to interrupt, but I think that we have had this debate before. It is not right to say that the primary purpose of the FCA is to give the consumer pride of place. That is not what it says in the statute. We had endless discussions about this when this was going through the House, and the Government were adamant that it was an economic regulator and that the main focus had to be on the efficiency of the markets that it served. I think that the noble Baroness, Lady Kramer, made the same point on Wednesday. I understand why the Minister would want to say that, and I am sure from discussions with the FCA that it has regard to consumers and their interests—but there is no consumer representative on the board of the FCA. It has a consumer panel, but it is not allowed to have a main position. I think that there is a representative with an Australian background on the board who has some expertise in consumer affairs, but that is not the same thing as building in from the bottom and ensuring throughout the work of the FCA that it focuses on the consumer, which is the impression that the Minister gives.
Baroness Buscombe
I hear what the noble Lord says, but the FCA has a statutory objective to protect consumers. It is clear that the culture of the body will be different, not least because its focus will be to provide a customer-focused service. I hope that that is helpful.
I turn to Amendments 58, 60 and 61, tabled by the noble Baroness, Lady Kramer, and the noble Lord, Lord Sharkey. These would require the single financial guidance body to produce and publish annually a report of its assessment on compliance with the standards; the FCA to additionally lay a copy of its periodic report on the body’s standards and monitoring framework in Parliament; and the body to publish a substantive response to any recommendations made by the FCA in its report within three months of the FCA providing the body with the report. I agree that it is vital to ensure that the public are confident that the body delivers consistent good-quality information, guidance and advice either itself, or through its delivery partners.
Lord Stevenson of Balmacara
I thank the Minister for her very full reply, which I look forward to reading in detail in Hansard; we will consider what she has said. The noble Viscount, Lord Trenchard, made a rather good point on a common theme which we need to come back to. Two regulators doubling up—having a second one—is a worry, and we need to make sure that the statute reflects the difference between the two, if there is to be one. He is right to make that point. I thank the noble Baroness, Lady Meacher, for her support. We anticipated it when discussing a previous amendment, when she was not present, so her name is recorded in Hansard in that regard.
What I am missing from the long response—I mean that in a positive sense; I welcome a long response—is a sense of what enforcement there is in practice. I would be grateful if the Minister wrote to me about that. It is important for people hoping to engage with the SFGB that they should understand what they are going into. The relevant word is in the Bill.
I return to the difference between the FCA and the SFGB in terms of consumers. I am grateful to my noble friend Lord McKenzie for providing me with the evidence submitted by the Financial Conduct Authority to the Lords committee dealing with financial inclusion, which stated that when considering what degree of protection for consumers may be appropriate, the FCA must have regard to, among other things, the differing degrees of experience and expertise of different consumers. Therefore, we are not talking about a single response. We are also required to have regard to the general principle that consumers should take responsibility for their decisions. That is hardly putting consumers at the very forefront of the decisions. The FCA recognised that consumers can do this only if they have access to appropriate financial services that meet their changing needs, and that under its objective to secure an appropriate degree of protection for consumers, regard must be had to consumers’ need for timely provision of information and advice that is accurate and fit for purpose. In other words, this is entirely about market-facing competition and efficiency, not those in vulnerable circumstances. In the interim, I beg leave to withdraw the amendment.
Baroness Drake
“Offence of falsely claiming to be giving guidance and advice on behalf of the single financial guidance body
(1) It is an offence for a person who is not giving pensions guidance, money guidance or debt advice on behalf of the single financial guidance body—(a) to describe themselves (in whatever terms) as a person who is doing so, or(b) to behave, or otherwise hold themselves out, in a manner which indicates (or which is reasonably likely to be understood as indicating) that they are doing so.(2) In proceedings for an offence under this section, it is a defence for the accused to show that the accused took all reasonable precautions and exercised all due diligence to avoid committing the offence.(3) A person guilty of an offence under this section is liable on summary conviction—(a) in England and Wales, to imprisonment for a term not exceeding 51 weeks or a fine, or both;(b) in Scotland, to imprisonment for a term not exceeding 12 months or a fine not exceeding level 5 on the standard scale, or both;(c) in Northern Ireland, to imprisonment for a term not exceeding six months or a fine not exceeding level 5 on the standard scale, or both.”
Baroness Drake (Lab)
My Lords, Amendment 62 seeks to make it a criminal offence for a person to mimic, impersonate or behave in a way which indicates that they are giving advice and guidance on behalf of the single financial guidance body when they not in fact giving guidance on its behalf and are not authorised to do so. This is not a novel proposal. Under existing legislation, it is a criminal offence to impersonate Pension Wise. This provision would not stop every organisation seeking to use or mimic government initiative statements to give credibility to their approach to attract members of the public, but it would be a powerful deterrent. A deterrent is definitely needed because the human cost of receiving fraudulent, wrong, conflicted or partial guidance from organisations or persons who win people’s trust by misleading them into believing they are acting under an authorised government initiative can be just dreadful, leading to irreversible financial losses, life-changing losses, debt and more.
Those vulnerable to the activities of the misleading, mimicking guidance operators are not only the struggling, the stretched and those with more basic levels of numeracy and literacy, although their needs are very important; in the context of finances, those individuals who are vulnerable and at risk go up the income chain as consumers deal with products and services that can be diverse, complex and rapidly changing. Those with retirement savings, for example, are usually people who have typically had good and sustained periods of employment over their working life and have usually compulsorily or voluntarily set aside money aside for their later life. These impersonators can be ingenious in their hunt to claim fresh victims, as a recent press release from the Pensions Regulator demonstrated when it warned that,
“rogue pension websites that are carrying anti-scam messages to try to trick consumers into believing that they are legitimate businesses”.
Some even imply they are regulated by carrying warning messages designed to prevent people falling victim to scams. These imitators are using material owned by the regulators or other government initiatives to impersonate and mislead the public. Therefore, in this instance, a mechanism designed to protect consumers is now used to dupe them.
The deterrent of criminal proceedings is needed not only to protect the public and the integrity of the services of the new financial guidance body but to protect the legacy names of its predecessor bodies, such as Pension Wise and the Pensions Advisory Service, names which the public will continue to recollect for some time before they recognise and internalise the name of the new body. It must be a criminal act to mimic not only the new brand but any of the existing brands that will move into the new single financial guidance body.
The Government thought it necessary to make an explicit criminal offence to imitate Pension Wise but no provision is contained in the Bill for it to be an offence to mimic the new financial guidance body. At Second Reading the Minister commented that there was no need for such a criminal offence provision in the Bill, as:
“The brand and service offer of the new body will be protected by existing stringent criminal offences under fraud and copyright laws”.—[Official Report, 5/7/17; col. 946.]
However, that view was not considered sufficient to protect the public from operators imitating Pension Wise—such imitation was made a specific criminal offence. I remain concerned that the absence of a specific provision to make it a criminal offence to mimic the new financial guidance body is a weakness in the Bill. Why was it considered appropriate to create a specific criminal offence of imitating Pension Wise rather than relying on existing fraud and copyright laws? Which existing legislation would ensure that any form of imitation of the new financial guidance body was a criminal offence, and why is that not referenced in the Bill? How will the Government ensure that imitating any of the existing brands that will move into the new single financial guidance body, including Pension Wise, will continue to be a criminal offence? I beg to move.
Baroness Kramer (LD)
My Lords, I strongly support the amendment moved by the noble Baroness, Lady Drake. This is an area where we need belt and braces—every mechanism that we can to make the new body and the services that it will deliver resistant to the scammers, who are ingenious beyond the capacity that most of us find credible, until we experience or hear about a scam ourselves.
In many cases, when people seek advice or guidance over an important matter in their lives, they turn to an organisation in which they have built trust over many years, where they have a whole series of experience and where they have neighbours and friends who share that experience. From that, they can be quite informed in choosing to whom they turn. However, that tends not to be true in the kind of issues that this body will deal with. People who are under debt pressure often panic when they finally reach the moment when they feel they must turn to somebody. It makes them particularly open to scammers, who will do things such as charging them, taking commission and exploiting their vulnerability at that moment. In the area of pensions people are exceedingly confused and, again, are hesitant to turn to names that they might know or which are well established for fear that they will meet a sales opportunity. Therefore, someone who sets themselves up as providing impartial advice suddenly becomes productive. Again, they have no testing mechanism due to previous experience of that body.
Therefore, in supporting the noble Baroness, Lady Drake, on this amendment, we very much seek belt-and-braces protection for consumers, recognising that people are increasingly vulnerable to scamming, particularly with modern instruments such as the internet. The Government need to be motivated to make sure that real and significant protection is in place.
Baroness Altmann
My Lords, I too support the thrust of this amendment moved by the noble Baroness, Lady Drake, and the remarks of the noble Baroness, Lady Kramer. I hope my noble friends on the Front Bench will take seriously the efforts being made around the House to improve protection for consumers. I whole- heartedly support the aims of the Bill and I congratulate my noble friends on bringing it before the Committee, but adding to it measures such as this would very much strengthen protection for the public.
Lord McKenzie of Luton
My Lords, I support my noble friend, who has drawn a strong parallel with the experience of Pension Wise, with which she was heavily involved. She made the point that it is not only those who might be termed traditionally vulnerable people who are at risk from the ingenuity of impersonators but those who might be more sophisticated.
I should like to make a brief reference to paragraph 17 of the memorandum that the DWP sent to the Delegated Powers Committee. It says:
“Deferring the announcement of the name will also help protect the new body’s brand and reduce the likelihood of the setting up of ‘imposter’ websites as a means of deceiving and defrauding the public. Imposter websites could put members of the public at risk”,
and,
“were an issue when the Pension Wise brand was launched”.
If they were at risk before the naming of the body, what will give strong protection once the body is named? That seems to be the thrust of my noble friend’s amendment, which I support.
Lord Young of Cookham (Con)
My Lords, the co-pilot is back. I thank the noble Baroness, Lady Drake, for tabling this amendment, which would make it a criminal offence to falsely claim to be giving pensions guidance, money guidance or debt advice on behalf of the single financial guidance body. She set out very clearly the devastating impact that misleading or criminal advice can have on people’s lives. Both she and the noble Baroness, Lady Kramer, identified the ingenuity and adaptability employed by scammers and fraudsters to con people.
I was very interested in this amendment and made inquiries to see who would be caught by it. Clearly, people who claimed to give advice on behalf of the SFGB, or whatever it is called, would be caught but, as it stands, I understand that it would not cover someone pretending to give advice on behalf of a delivery partner. The noble Baroness may like to think about that.
Protecting people from financial fraud and scams is important, and I say to my noble friend Lady Altmann that the Government take it very seriously. Anyone who has served in another place will have seen at first hand the devastating impact that this can have on people’s lives. We will come on to cold calling when we reach Clauses 16 and 17.
Ensuring that people have confidence in the financial guidance and debt advice provided by, or on behalf of, the SFGB will be central to its success and to the success of other government policies to improve people’s financial well-being. This is a matter that we have explored in depth with the existing service providers—the MAS, TPAS and Pension Wise. As the noble Baroness said when she moved her amendment, of those three, only guidance provided under the Pension Wise banner is covered by a specific measure making it an offence to falsely claim to give such guidance. The MAS and TPAS rely on existing criminal offences.
In response to the speeches made, we have considered very carefully whether to go down the Pension Wise route and create a new, bespoke offence to cover all the single guidance body’s guidance and advice services. We have weighed up whether there is evidence to suggest that a bespoke offence would have any greater effect than existing criminal offences, taking into account that the Pension Wise offence has never been used in a prosecution.
There are already criminal offences that would cover imitation of the new body; again, the noble Baroness referred to these. For example, if an individual was misled by someone dishonestly claiming to give guidance or advice on behalf of the body with the intention of causing financial loss, this would amount to an offence. In England, Wales and Northern Ireland a person could be prosecuted under Sections 1 and 2 of the Fraud Act, and in Scotland such conduct would likely amount to the common-law offence of fraud.
In addition, under the Consumer Protection from Unfair Trading Regulations 2008, Regulation 9 makes it an offence to advertise or market a service in a manner that deceives or is likely to deceive the average member of the public. If that advertising or marketing causes or is likely to cause an average person to take a decision they would not have taken otherwise, again, this is an offence. This would make it a criminal act, for example, for scammers to use the logo of the new body.
Offences under the Fraud Act are subject to a maximum term of imprisonment of 10 years and offences under the Consumer Protection from Unfair Trading Regulations carry a maximum term of imprisonment of two years. As a deterrent, both maximum terms are significantly greater than the maximum 12 months envisaged by the amendment.
For these reasons, and having listened to the arguments, our assessment is that there are already existing offences which will provide for the single financial guidance body to take action against people claiming fraudulently to be delivering its services or using the body’s brand and reputation to mislead members of the public. Where people seek to scam and defraud by falsely claiming to be acting on behalf of the body, they will be liable to prosecution under existing offences, leading to the possibility of a custodial sentence. We believe that the protections in existing offences are sufficient and I therefore urge the noble Baroness to withdraw her amendment.
Baroness Drake
I thank the Minister for his response. I am not sure all my questions were answered, particularly on how to protect from the mimicking of existing bodies that go into the organisation, while they still have credibility, until the new body’s name becomes absorbed by the public. However, in responding to his points, I borrow the phrase of the noble Baroness, Lady Kramer: the Bill needs to be belt-and-braces in terms of it being a criminal offence to mimic this body.
The new body’s guidance will influence people’s decision-making—that is why it is being set up. It recognises a market failure and many consumers who would use the guidance service could be at risk if they go in the wrong direction and to an organisation which is mimicking it. I note the Minister’s point that my amendment would not cover all the circumstances of the criminal offence, but the fact that my amendment could be improved is not a reason for not having explicitly in the Bill a provision that expressly says it is a criminal offence to mimic this body.
There are two strands to my argument: first, it should be expressly in the Bill that it is a criminal offence to mimic, impersonate or imitate the service of the single financial guidance body; and, secondly, there must be some reference to the legislation under which that would be an offence. A Bill would normally refer to the legislation or spell out specifically new legal provisions about the criminal offence. At the moment, however, the Bill is silent on the issue. That is a gap in the Bill. I beg leave to withdraw the amendment.
Baroness Drake
“FCA: requirement to signpost to the single financial guidance body for pension guidance, money guidance and debt advice
(1) The Financial Services and Markets Act 2000 is amended as follows.(2) After section 137FBB insert—“137FD FCA general rules: requirement to signpost to the single financial guidance body for pension guidance, money guidance and debt advice(1) The FCA must make general rules requiring information about the availability of pensions guidance, money guidance and debt advice from the single financial guidance body to be given by relevant organisations to any category of individuals who may benefit.(2) Before the FCA publishes a draft of any rules to be made by virtue of this section, it must consult—(a) the Secretary of State;(b) the Treasury; and(c) the single financial guidance body.””
Baroness Drake
My Lords, Amendment 63 places a requirement on the FCA to make rules requiring information about the availability of advice and guidance from the new body to be given by relevant organisations to individuals who would benefit from it—otherwise referred to as signposting.
If the new body is to deliver on its function to increase people’s ability to manage their financial affairs, there needs to be public use of the guidance. It has to have extensive reach. Experience shows that simply relying on high levels of marketing expenditure is not a cost-effective way of engaging with the public, although from time to time there may be a good reason for running a focused bespoke campaign and, in certain defined circumstances, there is a role for compulsory referral to the guidance service.
Two effective levers for driving public use—they are not exclusive but they are effective—are achieving high levels of public trust by delivering a service which has a spreading reputation for impartiality and efficiency, and the relevant organisations such as market providers and other key bodies actively signposting those who would benefit from it to the guidance available. Evidence of the public need for guidance has been well rehearsed in this Chamber. Research by the Money Advice Service reveals that across a range of measures, financial capability and resilience has got worse over the past 12 years, and other reputable data sources confirm this. Effective signposting will improve the public use of guidance and, in some circumstances, address the known barriers put in place by some providers who are reluctant to see their customers accessing impartial guidance for fear that it increases the risk that they will not buy a product or a service from them. Effective signposting means not just compliance but organisations actively promoting the guidance service.
The Government expect the FCA to review its rules on signposting, but that leaves room for ambiguity, argument and yet more consultation. This amendment would remove any ambiguity and would put into the Bill a requirement on the FCA to set rules to secure the effective signposting to guidance for those most likely to benefit from it. On pensions guidance there is currently a legal requirement on providers to signpost to Pension Wise. DWP figures show that of the people who use Pension Wise, 58% heard about it from their provider and only 8% from advertising. The take-up of Pension Wise has been modest, but I suspect that that is in part because some providers have not actively signposted and in part because, in the first year of pensions freedom, those accessing pots would have included many for whom their DC or AVC pot would not have been a significant part of their retirement income. That will change over time as DC savings become more dominant. The use of guidance will increase, as indeed the Pension Wise figures are increasing.
Signposting to TPAS dispute services is captured in various occupational, personal and local government pension scheme regulations—some 12 sets in all, I think. My amendment would strengthen the FCA duty to set rules on signposting across the financial guidance space. Signposting needs to happen at the right point for those who would benefit from it and be actively supported by providers and other relevant organisations. The ABI has worked with the existing guidance bodies on signposting, such as on the template for Pension Wise, with the result that more people hear about the service through that route. They have indicated that they want to work with the FCA and DWP to improve communications and promote the use of Pension Wise as the norm.
But there is no unanimity of view in the industry. Some providers set up guidance units as part of their own commercial proposition and not all will want to actively signpost customers to impartial and independent guidance which could impact on their own company sales and customer retention. It is estimated that, by 2030, workplace defined contribution schemes will hold £1.7 trillion, five times the £340 billion held in 2015. As DC savings become the new norm, the need to support consumers will increase. The FCA’s recent Retirement Outcomes Review Interim Report scopes the problem well, observing that pension freedoms have made retirement decisions much more complex than ever before, and that consumers can struggle to understand their options and to think through the implications, leading to decisions which may not be best for them. They can choose the “path of least resistance” on drawdown and stay within the walled garden of their existing provider without shopping around. Some 94% of non-advised drawdown sales were made to existing customers. Some consumers cannot, or will not, engage with these decisions. Not all of them will take advice because of its cost and availability— a market gap.
Baroness Buscombe
My Lords, I very much thank the noble Baroness, Lady Drake, for her amendment. I agree with much of what she said, but her amendment would amend the Financial Services and Markets Act 2000 to require the Financial Conduct Authority to create a new rule. That would require all relevant firms regulated by the FCA to signpost their customers to the new single financial body.
The noble Baroness outlined her concerns on the matter on Second Reading. She said:
“There should be a requirement on the industry and relevant players to clearly signpost the services of the new body to the public”.—[Official Report, 5/7/17; col. 919.]
The Government agree with the noble Baroness that signposting has an important role to play in helping to improve public access to guidance. A key challenge for the body will be promoting its services in an effective and efficient way to ensure that those who need support can easily access it.
The new body will need to think creatively about how it works with the financial services industry, the devolved Administrations, and the public and voluntary sectors to target and promote the services it offers. The FCA is clearly a key player in this. Both the Government and the FCA are determined to help members of the public to take advantage of the financial guidance available to them. We envisage that signposting by authorised firms will be a crucial way of encouraging people to engage with the new body.
I should note that the FCA already has some measures in place to ensure that firms promote the Money Advice Service’s guidance offering. To take one example, consumer credit firms cannot communicate a financial promotion with relation to high-cost short-term credit without a risk warning that points consumers to the Money Advice Service. However, the Government believe that the FCA should review its current rules and expand them where necessary. The creation of the new body provides an excellent opportunity for such an exercise to be conducted. Indeed, the Government’s response to the most recent consultation noted that they expect the FCA to review these rules in the light of the creation of the new body so that individuals are signposted to the body by industry at moments when they are most likely to benefit from guidance. I am pleased to say that the FCA has now committed to updating its current measures and, where appropriate, will look into creating new rules to increase uptake of the new body’s services.
I will offer a couple of further examples of current FCA rules that I hope in some way respond to the noble Baroness’s concerns. For example, if the customer falls into arrears on a regulated mortgage contract, a mortgage firm must provide a customer with a Money Advice Service information sheet called Problems Paying Your Mortgage in 15 days. In its first communication with a customer a debt management firm must inform customers that free debt counselling, debt adjusting and provision of credit information services is available and that the customer can find out more by contacting the Money Advice Service. Also, a debt management firm must provide a link on its website to the Money Advice Service’s debt advice locator tool.
In the light of the FCA’s commitment to review its rules, create new rules and increase uptake of the new body’s services, I do not believe that legislation is required to achieve the worthy aims set out in the noble Baroness’s amendment. I am grateful to her for giving me the opportunity to put on record the Government’s view on this very important matter. Having done so, I hope that she will be prepared to withdraw her amendment.
Baroness Drake
I thank the Minister for her reply. My amendment does not seek to set down in detail what the FCA’s rule should be or specifically cover, or whether it should require signposting in every instance. The driver is that there should be signposting where those individuals would benefit from guidance. That is obviously a judgment to be made in the circumstances that would apply.
Although the Government expect the FCA to review its signposting rules, a review is a review—that is what it is. There will be lots of discussions and consultation. Not everybody in the industry will support active signposting. Putting the duty on the FCA in the Bill removes any ambiguity about the fact that, to get the public to engage with the guidance service, there has to be an effective system of active signposting by providers and organisations relevant to the service. It is a simple proposition: the new guidance body will fail in its strategic objectives if it does not get public use of the service it provides. It would be a wonderful Rolls-Royce service; it is just nobody would be using it. We know in many instances that the behaviour of the provider defines the consumer experience. There is merit in putting in the Bill that the FCA has a duty to come up with signposting rules that will ensure that those who benefit the most from guidance will be actively and effectively signposted. I beg leave to withdraw my amendment.
Lord Stevenson of Balmacara
My Lords, I shall speak also to Amendments 65 and 66. They bear on the financing arrangements for the new single financial guidance body. We have talked about how the money is to be raised and the change from the current arrangements, with a move away from a straight levy system within the financial sector to an arrangement whereby money goes to the Government and into the Consolidated Fund before being paid out in grants.
The amendments are not meant to be taken word for word, but probe the way in which the case for this funding is built up. Amendment 64 would make sure that the single financial body did not underestimate the amount of money it would require by virtue of not having sufficient information to hand about the costs that it would be likely to have to meet given the aspirations for it. An earlier amendment referred to assessing this on the basis of the likely number of those in need of financial advice being the main element in building up the funding envelope. Obviously, there is difficulty in trying to assess that. This amendment adds a little more in terms of the consultation and guidance.
It would be to the advantage of the Bill if it provided for a little more accountability for the funding received. We set out in the amendments the specifics, which may well be covered by other points that the Minister may raise when she responds. At the moment, there is nothing very much in Bill about monitoring the use of the funding and making sure that the information gathered is published, particularly for Parliament, so that due scrutiny can take place.
Amendment 66 deals with how funding is to be established for the national regions. There is nothing exceptional in what is being said in terms of the mechanics—I am sure that the Bill is drafted with due concern for the proprieties involved. A number of the bodies that will be in partnership with the SFGB, or funded by it, already operate in Scotland, Wales and Northern Ireland and offer direct services themselves. If the Treasury is to get information on that, as is specified in Clause 11(1), it will need information which it is not clear that it will be able to get—or, if it is, I have not spotted it—on the costs and expenses of the existing bodies operating existing services in Scotland, Wales and Northern Ireland and how that matches what the devolved Parliaments think should be spent there. There is a lacuna there on which I look forward to hearing a response. I beg to move.
Lord Young of Cookham
My Lords, it is the co-pilot again. I thank the noble Lord for tabling these amendments to Clauses 8 and 11. Clause 8 provides for the Secretary of State to give financial assistance to the single financial guidance body; Clauses 9 and 10 provide for those expenses to be recovered respectively from the levy on pension schemes and through the financial services levy.
At Second Reading and in earlier Committee debates, the noble Lord has questioned this funding framework and the money trail, suggesting that it represents a fundamental change in the way in which things are done currently and that it would radically alter the way in which people operate, particularly in respect of the services provided by MAS. I am not sure that the changes are that fundamental, but, in any case, we think that they are both necessary and beneficial.
One criticism of MAS made by the Farnish review was that it lacked accountability for the activities it delivered and the money spent. As the noble Lord suggested, we need to learn lessons from our experience with MAS. These funding clauses provide a basis for strong accountability and governance arrangements. We want the body to have a clear focus on undertaking its statutory functions. As happens now with the existing organisations, the body will prepare an annual business plan setting out its planned activities and the associated budget required to deliver its proposals. That plan will be discussed and agreed with the DWP.
Lord Stevenson of Balmacara
I am very grateful to Minister in his capacity as co-pilot, first for the ministerial looping of the loop to allow him to correct the earlier misstatement about the role of reserves in NDPBs. We were concerned about that issue and we would have come back to it, so I am grateful to have the clarification that in certain circumstances—although he did not disclose them—it is possible for NDPBs to hold reserves. That accords with our experience.
Flying has lots of problems and hazards, and one is undoubtedly fog. The Minister did well when he was soaring high on some of the more general points, and I am very grateful to him for his full responses on the way the funding will operate. When they are read in Hansard they will be as clear as daylight at midday, and I will be very happy with them, but two things occur to me. First, we still have not had a response to a point raised earlier—not explicitly in today’s debate, but it is still part of it—about the way the financing system has been constructed. While many of the companies that will receive the benefits of better advice, more financial inclusion, less financial exclusion and all that goes with that will be funding the SFGB, which will be operating many of the services, not all the companies will. I am thinking particularly about the utility companies, which we have discussed already, for which substantial work is done to help their customers who get into debt problems. I know directly of a number of such cases. I do not want to overegg the case, but increasingly, other organisations such as HMRC, DWP and local authorities are involved in trying to sort out debt problems and do not currently contribute to the way that is funded. The levy system is a clean and efficient way of doing it, and I understand all the points made by the Minister, but it misses out a sort of “polluter pays” principle, and it might have been rather more satisfying had we been able to include that. Individual organisations and companies receive funding from other bodies involved in debt advice and other money guidance operations, but not all of them, and a little more pressure and help from the Government on this would have been helpful.
My second point in this general whinge on fog is that I am not sure whether we got to the bottom of where UK national bodies operating in Scotland, Wales or Northern Ireland—whether or not based in Scotland, Wales or Northern Ireland—are going to get their funding from. If Scottish Ministers, for example, are shortly—is that the same as “soon”?—going to agree a system in which funding for debt advice operating in Scotland is to be funded through the Scottish block grant, does that mean that funding will not be available to UK national bodies such as the Money Advice Trust, which operates in Scotland but is currently funded from England? It is probably too complicated an issue to get an answer to at the Dispatch Box, so I would be very grateful if the Minister wrote to me. There is logic in trying to align geography with the funding settlement. But it would be perverse if, as a result of the good and effective work done by StepChange, which runs an office in Glasgow and in Wales and has a franchise arrangement in Northern Ireland, it was unable to be funded and had to be shut down or taken over by somebody else. I am sure that is not the intention, but it is an implication of what is being said.
The situation in Scotland is relatively well developed: there are good systems operating there, a long history of funding from the Scottish Government and local authorities for good debt advice, and good education and training for the advisers. I am sure that will continue and that the Scottish Government, who have always been in the lead on this, will want to see it continue. However, I hope it will not be at the expense, for instance, of work directly funded by MAS and the organisations themselves in Scotland in recent years.
Lord Young of Cookham
I have some in-flight refuelling. We are working with the devolved authorities on a final agreement and will write with more detail once discussions with the devolved authorities are completed.
Lord Stevenson of Balmacara
Gosh—that was worth waiting for! I look forward to any information that can be provided on a more direct basis, preferably soon, but I think we have covered enough ground there.
Finally, some good points were made about the need for flexible funding solutions when there are crises, and I would like to read those in Hansard. This is very recent history, so it will be in the forefront of the minds of the bodies concerned. When the FCA was going through an accreditation process regarding debt management companies, it became fairly clear that about 50% of them were going to go out of business, leaving many people with debt management plans paid for through these commercial companies, but which those companies were going to withdraw from. MAS was able to organise substantial additional funding to all the bodies concerned to cope with that. That would not neatly fit into an annual financial cycle, so it is important that we have flexibility at the edges. I am completely open to that being done by government grant or by the holding of reserves, but it is important that it be built into the systems. However, as long as that point has been taken, and I gather it has been, I beg leave to withdraw the amendment.
Baroness Drake
“12_ For section 3S (the consumer financial education body) substitute— “3S Duty of the FCA in respect of the single financial guidance bodyIn discharging its duty to approve standards set by the single financial guidance body under section 6(2) of the Financial Guidance and Claims Act 2017, the FCA will act in the interests of consumers and promote financial inclusion.””
Baroness Drake
My Lords, Clause 6 requires the single financial guidance body to set and publish the standards that it will meet in the provision of information, guidance and debt advice. It is specifically required to obtain the approval of the FCA to those standards. Clause 7 requires that every three years the FCA must review whether those standards are appropriate, review how they are being monitored and enforced, and make recommendations. Amendment 68 would place a requirement on the FCA that, when discharging its duty to approve these standards, it will act in the interests of consumers and promote financial inclusion. The intention of the amendment is to strengthen the remit of the FCA, in this instance, to act in the consumer’s interests.
The single financial guidance body is an organisation whose function is expressly to support individual members of the public. Its objectives are to improve individuals’ financial capability and their ability to make informed decisions and to manage debt. Problems of access undermine the general principle that consumers should take responsibility for their own decisions. People cannot reasonably exercise that responsibility if they struggle to understand the nature, processes, terms and conditions of products and services.
The financial guidance body standards have to be approved by the FCA, whose remit is different—its remit is to ensure well-functioning competitive markets. If there is a gap in the market, the FCA often does not have the power to fill it, and if there is a market failure it seeks to address it by improving competition, even though in many instances the weakness of the consumer buy-side market forces cannot exert the necessary force to achieve a well-functioning market in parts of the financial services industry. The FCA acknowledged in its Retirement Outcomes Review Interim Report that competition is not working well for consumers who do not seek advice; it has concerns about whether a competitive market can develop in future; and consumers can struggle with the complexity of decisions. This echoes the view of the OFT, in its 2013 report on workplace pensions, that the buy side there was one of the weakest that it had ever encountered.
Competition will not always be an effective way to overcome access problems; the very creation of the financial body is a recognition of that fact. As for the wider market, in its paper on Access to Financial Services in the UK, the FCA observed that,
“left to the market, some consumers will be unable to access the products or services they want or at a price they are willing or able to pay”.
The market can go only so far in addressing the various financial needs of people.
The FCA is an economic regulator with a statutory objective to secure an appropriate degree of protection for consumers of financial services, which is largely focused on the provision of information and disclosure, given the general principle that consumers should take responsibility for their decisions and providers should give consumers a level of care that is appropriate, having regard to the capabilities of the consumer. However, the FCA does not have a specific objective or duty relating to consumers’ access to financial services or financial inclusion. The extent of the FCA toolkit in assisting vulnerable customers can appear uncertain.
The single financial guidance body, by comparison, is created to focus expressly on the needs of the public and the consumer, to improve their financial capability to make informed decisions. It is given the power in Clause 2(3) to do anything that is conducive to the exercise of its function.
So there is clearly a potential for tension between the remit of the FCA, when it considers whether to authorise the guidance body standards, and the aspirations of the guidance body on how to support the public when setting those standards. The objectives of the FCA and the financial guidance body need to be aligned when the standards for the provision of service by the new body are set and approved. That is the purpose of my amendment, which would give the FCA the duty to act in the consumer’s interest when authorising those standards.
The standards are a matter for the new body when it is set up. I do not seek to debate what the standards should be, but as a way of illustrating my point I could speculate on matters where tensions could arise: the qualitative standards for the guidance and how far guiders can go in their role in enhancing individuals’ ability to manage their financial affairs and make informed decisions; the guidance output given to the customer; standards for determining when the provision of guidance and debt advice are considered lacking such that the new body has a locus; the consumer’s journey, including how they get the guidance; the ability of vulnerable customers to access financial guidance; and the extent of active promotion of the financial guidance service by relevant organisations.
The answers to the questions of what the standards should be on these and other matters may be different depending on whether they are looked at wholly through the lens of the individual—the consumer’s interest—or from the perspective of a competitive, well-functioning market. The FCA and the new financial guidance body should look at these standards through the same lens, that of the consumer’s interest. That is what my amendment seeks to do. I beg to move.
Baroness Kramer
My Lords, I will speak in support of this very important amendment moved by the noble Baroness, Lady Drake. Much of the difficulty in the conversations we have had around this Bill has come over the role and obligations of the FCA. If the Minister or her officials care to look at the FCA website, they will understand that consumer protection is very much interpreted in the realm of preventing mis-selling and preventing scams; it is not a broader protection of the consumer in the way that some might interpret that language—for example, to make sure that the consumer has successful routes to navigate financial services.
I can give the Minister one simple example of which she will be aware. Many of us around this Committee—and, indeed, probably the Minister herself—believe that a breathing space scheme would be very advantageous in helping people to move through debt management to restore their finances. However, the FCA cannot mandate such a thing. It cannot act, as it were, to protect the consumer even though one might consider, if using just the English language, that such an action would be captured by the words “consumer protection”.
In the same way, on the issue of access the FCA can try and act so that a banking institution, for example, does not put up barriers that would discriminate or set itself up in such a way that people could not get on to the relevant website to access the service, but that is not access as in, “What financial services do members of the public require, and are those kinds of services being provided by the financial service sector and industry?”. So it cannot gap-fill. Actually, it is quite unusual to have an arrangement where such gap-filling is not possible. For example, in the United States, that may be done indirectly through things such as the Community Reinvestment Act, so there are paths by which that kind of back-filling can be pursued by the regulator.
I hope very much that the Government will understand that, in terms of providing advice and guidance, the FCA in looking at the standards that have been set cannot operate within the usual realm of an economic regulator of essentially promoting market efficiency or market fairness, which is its fundamental and underlying approach and responsibility. That is why the inclusion of language that talks about acting in the interests of consumers and about promoting financial inclusion is very appropriate when the FCA is now engaged in something that steps outside its traditional, typical overarching role.
Baroness Altmann
My Lords, I too support the amendment moved by the noble Baroness, Lady Drake. It is an important amendment, and it would be most welcome if my noble friend would seriously consider extending the protection for consumers that this Bill is rightly aiming to achieve. I echo the comments of the noble Baronesses, Lady Drake and Lady Kramer, in terms of focusing on the FCA promoting the interests of consumer protection, perhaps in new ways from what has happened in the past.
Lord McKenzie of Luton
My Lords, like other noble Lords who have spoken, I speak in support of my noble friend’s amendment. As ever, my noble friend has been very concise and focused on this key issue about how we can get the FCA in these arrangements to be seen to act in the interest of consumers and financial inclusion. There is a tension between the FCA as a regulator of the market and what we seek through this Bill—an improvement in financial capability and for guidance to be given to people so that they can make better-informed financial judgments.
Baroness Buscombe
My Lords, there is much agreement around the House about this issue. I am hoping to persuade noble Lords that, while absolutely agreeing in principle, I believe that it is unnecessary to have this provision in the Bill.
I thank the noble Baroness for her amendment, which would impose a legislative requirement on the Financial Conduct Authority to act in the interests of consumers and to promote financial inclusion while discharging its duty to approve standards set by the single financial guidance body under Clause 6(2). We have discussed the setting and publication of standards and the monitoring and enforcement of those standards in our useful debate on Clauses 6 and 7. The standards are designed to provide ongoing assurance to members of the public about the quality of the services provided by the new body. Those standards will apply to the body itself when delivering its services directly, and to any delivery partner organisations that it engages to deliver services on its behalf.
We have already covered the role of the FCA in the standards-setting process. The FCA will add value by providing useful independent scrutiny, and the standards will benefit from the FCA’s expertise in relation to the debt advice sector and its experience in setting the standards for Pension Wise. We are confident that the FCA will, of course, act in the interests of consumers throughout this process; as noble Lords may know, the FCA already has a statutory objective to secure appropriate protection for consumers.
On the topic of financial inclusion, I am aware that the statutory objectives of the FCA were of some debate during the Lords ad hoc Select Committee on Financial Exclusion. One of the committee’s recommendations included giving the FCA a new objective to promote financial inclusion. As the current amendment touches on the subject, I observe that the FCA has already taken several steps to promote financial inclusion. Access to financial services is already written into its competition objective, which states that the FCA may have regard to,
“the ease with which consumers who may wish to use”,
financial,
“services, including consumers in areas affected by social or economic deprivation, can access them”.
Indeed, noble Lords will be aware of the good work that the FCA has done to promote financial inclusion through its occasional papers on vulnerability and access, as well as through its work to promote financial technology. To take one example, the FCA’s TechSprint events have brought together teams from the technology industry and across financial services to develop ideas and proof of concepts. The first of these events focused on identifying potential solutions to improve financial inclusion and access to financial services. In light of that work, I do not believe it necessary to amend the FCA’s objectives or specify financial inclusion in the context of the body’s standards. Indeed, I have provided definitions of financial inclusion and capability on other occasions, as has my co-pilot, and I hope that these definitions have convinced noble Lords that it would be unhelpful to connect financial inclusion to the new body within legislation.
In relation to the previous amendment I made reference to the fact that the FCA has committed to creating new rules on access, to increase uptake of the new body’s services. The new body will be focused on financial capability, and the standards are very much focused on the body’s ability to deliver high-quality guidance, information and advice that will help members of the public to make informed financial decisions. To be clear, the standards do not concern financial inclusion, which is about the supply of useful and affordable financial services and products by the financial services industry.
In response to my noble friend Lady Altmann, I absolutely agree that the focus for the FCA in terms of the new body has to be protection in new ways of the interests of consumers. In our negotiations and discussions with the FCA, we feel very much that that is the way forward. It is correct that the FCA has a number of objectives, of which consumer protection is only one. Given the strength of the debate, I shall of course consider this fully between now and Report. It is important that maybe we think about this a little further, in terms of the relationship between the FCA and the new body, because clearly it raises concern across your Lordships’ House.
It is important to note that the FCA has a lot of relevant expertise in setting the framework for the financial advice provided to consumers and setting standards for the Pension Wise service—just two examples. However, given the strength of the debate, if noble Lords are supportive, it would be sensible for us to have the opportunity to consider the matter between now and Report. Perhaps we could have another meeting with all interested Members to discuss this very important issue. The relationship between the two bodies will focus on the consumer, and I am working hard to persuade noble Lords that that will work—but, clearly, they feel that there is more to be done and more reassurance to be given. I am very happy to be able to do that before Report. I hope on that basis that the noble Baroness will withdraw her amendment.
Baroness Drake
I thank the Minister. I am very pleased that she has agreed to consider the matter further before Report. I stress that this is not a criticism of the FCA but a recognition that the creation of the financial guidance body is in part to deal with market failure. Consumers cannot exercise their influence; if the authoriser has to look at functioning markets, but the person seeking the authorisation exists solely to be a consumer champion, there is a dysfunctionality in how standards are assessed and how efficient that guidance body can be in fulfilling its remit. However, I shall not labour the point, because the Minister has very kindly agreed to consider the matter before Report. I beg leave to withdraw my amendment.
Baroness Altmann
Baroness Altmann
My Lords, Amendment 69 seeks to remove Clause 33, which proposes to cancel legislation, passed by Parliament only last year, which ensures that the pensions guidance body can help members of the public who have bought annuities they neither want nor need, perhaps having been forced to in the environment which existed before the pension freedoms were introduced. Section 2 of the Bank of England and Financial Services Act 2016 amends Section 333A of the Financial Services and Markets Act 2000 and extends the definition of pensions guidance, expanding the scope of Pension Wise so that pensioners who are able to sell their annuity income can access free, impartial guidance before they make this irreversible decision. Since May last year, when the Act was passed, the Government have unexpectedly announced that they have changed their mind and no longer intended to allow people—who had been assured that they would be able to sell unwanted annuities from April 2017—to do so. This decision will obviously have disappointed many of those people, but I accept that Ministers believed it was right.
However, there are two important reasons why it is unwise and unnecessary to revoke the legislation that was enacted just last year. If we retain authorisation for Pension Wise or the new single financial guidance body and the FCA to facilitate mandatory guidance for people who may, in future, be allowed to sell their unwanted annuities, we will not need to take up precious primary legislative time to introduce the measure once more—that has already been done. We do not need to explicitly remove this measure; it can either be considered redundant or, in so far as it relates to something that already exists but is little known, it could be of use to many members of the public.
No further regulations have yet been laid in this connection. However, it is important that the single financial guidance body and the FCA should still have a remit to inform or guide the public on selling an unwanted annuity. The particular reason is that it is already possible for people to sell their existing annuities if they are under £10,000. Although the Government changed their mind on anyone’s overall ability to sell an unwanted annuity, there is the ability—which is not widely known—for people to sell one valued at under £10,000. It is surely important for the single financial guidance body or Pension Wise still to be involved in this area and ensure that there is public information and guidance about the risks of such a sale. I beg to move.
Baroness Kramer
My Lords, I support the noble Baroness, Lady Altmann, on this. Given that we have loosened up pension provision very widely, and recognised people’s ability to make decisions about their future, I have never understood the Government’s decision on taking away the right to sell an unwanted annuity. There are many reasons why this might be the right and appropriate decision for people in some circumstances. People may be facing large mortgages on which, for historic reasons, they are paying very high interest rates and which could be wiped out, to their overall financial benefit, if they could access their annuity. I could understand it if the Government thought that necessary safeguards should be added. In that case, the answer is to add those safeguards. For example, people could be required to access guidance at the very least, or there could be a much stronger recommendation that they access advice under these circumstances. To choose this vehicle, when this issue has been paid very little attention and focus, seems like an under-the-radar change to something absolutely fundamental. I support the amendment.
Lord McKenzie of Luton
We are less than happy with the amendment. The noble Baroness, Lady Altmann, will know that my noble friend Lady Drake and I looked at the issue of the secondary annuity market some while ago, and we paid her a visit in Caxton House when she had another role. At the time, our conclusion was that there is a lot of hassle, expense and complexity in the prospect of selling annuities into a secondary market and there simply have to be other priorities at the current time. If we were to proceed with it, there would need to be full legislation, properly debated. We understand that, in other respects, there is room for legislation in due course that could be applied to the secondary annuity market.
To illustrate some of the complexity, the players in the secondary market would need to include: individual annuity holders; beneficiaries and dependants; purchasers of rights of an annuity under a specific regulated activity; further regulated activities or providers buying back annuities; regulated intermediaries; EFAs providing mandatory, regulated advice; and authorised entities to check that annuity holders have received financial advice, to name but a few. This is a very complex area and we should let it rest where the Government have recently decided it should be. There are complexities and costs. The big risk is an asymmetry of understanding of how the market would work. Other complex issues are pension sharing on divorce and the impact of these arrangements on people in receipt of benefits and social care. It is a minefield: the Government have looked at it, we have looked at it, we are not happy and it should not be resurrected at this time. There have to be greater priorities in the pensions field.
Baroness Buscombe
My Lords, my noble friend Lady Altmann has moved Amendment 69, which intends to retain the section of the Bank of England and Financial Services Act 2016 which amended FiSMA to allow Pension Wise to offer guidance to consumers wishing to make changes to the payment of their annuity. Pension Wise was set up with the very specific remit of delivering guidance to help people make decisions on their options following the introduction of the pension freedoms. The Pension Wise remit was subsequently extended to include guidance to people who needed help in considering selling their annuity. This would have supported the Government’s proposals at the time to extend the pension freedoms to those who have already purchased an annuity. The Government decided in October 2016 not to proceed with this proposal because of concerns around consumer detriment.
The new body the Government propose to create in this Bill will inherit the guidance guarantee that Pension Wise provided but will also be able to help with guidance on any pension matters. Therefore, this amendment is not needed. I am particularly grateful to the noble Lord, Lord McKenzie; we entirely agree with the Opposition’s view of these proposals, which would allow those who have already purchased an annuity to sell the income they receive for a lump sum. Following extensive engagement with industry, consumer groups and financial regulators, the Government decided they would not continue with these proposals. Indeed, through discussions with stakeholders it had become clear that, while many annuity providers were willing to allow customers to sell their annuities, it is likely that there would be insufficient buyers to create a competitive market.
In September 2016, Money Observer reported a survey of 10 annuity providers, in which only one firm said it would purchase annuities issued by others and six ruled themselves out. This corresponded with government findings of a lack of interest from potential purchasers of annuities. This could have led to consumers receiving poor value for their annuity income streams and suffering higher costs in the sales process. The Government estimated that only 5% of annuity holders would have opted to sell their annuity and, although some people have been disappointed, consumer protection is a top priority for the Government. As the noble Lord, Lord McKenzie, said, priorities have to be thought through and this was not considered a key priority. Although some people have been disappointed, it would not be acceptable to allow a market to develop that could produce poor outcomes for consumers. I therefore encourage my noble friend Lady Altmann to withdraw her amendment.
Baroness Altmann
My Lords, I thank my noble friend for her response and thank the noble Baroness, Lady Kramer, for her support. This is about consumer protection. Of course, I respect the Government’s decision not to approve a secondary annuities market at this point. However, that does not address the fact that there are people out there with annuities worth £10,000 or less who are able to sell them, whether or not there is a market. They are particularly at risk, presumably, of obtaining very poor value. It is not clear to me why we need explicitly to undo legislation that is already in place to ensure that the financial guidance body can at least help people who might want to sell an annuity understand what the risks are. If the new body no longer has any requirement to inform or guide people on this issue, we still leave those consumers high and dry. As the legislation is already in place, it seems rather strange that the Government explicitly want to repeal it. They could just leave it on the statute book and make sure that there is adequate information as part of the new pensions guidance framework.
Baroness Buscombe
My noble friend referenced the possibility of making the legislation redundant in some way. With respect, that is very problematic. The Government have made it clear that they do not believe it makes sense to mandate guidance on a market that no longer exists, and that therefore it is far better to revoke the legislation. However, the broad remit of pensions and money guidance gives the body the option of guidance on this if it is appropriate.
Baroness Altmann
I thank my noble friend. The legislation says that Pension Wise should enable pensioners who are able to sell their annuity income to access free impartial guidance, and some can do so. However, I am reassured to hear that the new pensions guidance body will still be able to carry and promote information and guidance for the public on this matter. I beg leave to withdraw my amendment.
Lord McKenzie of Luton
“( ) When exercising the powers granted by subsection (1), the Secretary of State must adhere to the procedures set out in section 11 (procedure) of the Public Bodies Act 2011.”
Lord McKenzie of Luton
Clause 14 enables the Secretary of State by affirmative resolution to dissolve the SFGB. The background to this, including the Henry VIII power that it includes, is set out in the Government’s memorandum to the Delegated Powers and Regulatory Reform Committee. That memorandum points out:
“This power will allow the Secretary of State to dissolve the single financial guidance body. The Bill does not provide for a fixed lifetime for the new single financial guidance body. This clause is therefore in line with the Cabinet Office guidance relating to setting up new arm’s-length bodies, which states that:
‘The legislation setting up a new Public Body should contain powers to permit winding up at a later date and for finalising and auditing the closing accounts, if a fixed lifetime is not established at the outset. Departmental legal advisers would need to be involved in this process. Difficulties have occurred in past cases where sponsor Departments have not been able to wind up statutory bodies when their work has been completed due to problems in securing a Parliamentary slot to amend the primary founding legislation. The bodies therefore continue to exist as legal entities even though there is no longer a requirement for them’.
If there is ever a need to dissolve this body, it will be essential to have a range of options and sufficient flexibility to be able to transfer functions, property rights and assets without recourse to primary legislation. This is the point made by the Cabinet Office’s guidance”.
That is all well and good but, as the Delegated Powers and Regulatory Reform Committee points out:
“Although the new single financial guidance body will be created by Parliament, clause 14 allows Ministers by affirmative-procedure regulations to abolish the body and transfer its functions to any other person. The normal principle is that what Parliament has created, Parliament alone should dissolve. In this case, the Minister: does not have to be satisfied as to anything before deciding to abolish the body, does not have to consult, does not have to conduct a formal review, and does not have to wait a certain time before seeing whether the new body works well.
Where Parliament has previously legislated to abolish public bodies it has provided procedural safeguards. Under the Public Bodies Act 2011, a Minister proposing to abolish a public body must consult the body concerned and others affected by the proposal; he then has to allow 12 weeks for responses. The Minister has to lay before Parliament a detailed explanatory document. A committee of either House of Parliament may require an enhanced affirmative procedure and the power to abolish is time-limited. None of these procedural safeguards is included in the current Bill.
The power to abolish the body and transfer its functions to any other person is a very broad power. For example, it is important that the guidance is independent of any commercial interests. However the power to transfer functions to another body is, on its face, unlimited.
The Committee raised similar concerns in its report on the Enterprise Bill, 9th Report of Session 2015-16, where the power was to abolish the Small Business Commissioner by statutory instrument. In response, the Government acknowledged the Committee’s concerns and tabled amendments that made the abolition of the Commissioner dependent on a 12-week consultation, the laying before Parliament of an explanatory document in addition to draft regulations”.
We support the recommendations of the Delegated Powers and Regulatory Reform Committee, which is what this amendment does. We take the view that it is inappropriate for the Bill to confer on Ministers a power to abolish the single financial guidance body. It is all the more unsatisfactory because the power is unaccompanied by the sorts of procedural safeguards found in the Public Bodies Act 2011 and the Enterprise Act 2016. This is exactly what this amendment is about and it seems to me pretty straightforward. Should the Government set their face against this, the noble Lord, Lord Sharkey, has an alternative proposition that the clause do not stand part of the Bill. We would be minded to support that as an alternative. I beg to move.
Lord Sharkey
My Lords, Clause 14 is pretty surprising. It runs entirely counter to normal practice and to the provisions of other Acts of Parliament and is careless of the need for proper scrutiny by Parliament. I entirely support the amendment of the noble Lord, Lord McKenzie. Your Lordships’ Delegated Powers and Regulatory Reform Committee commented on Clause 14 in some detail in its first report of the current Session.
As Clause 14 stands and as the DPRR Committee and the noble Lord, Lord McKenzie, have explained, the Minister does not have to be satisfied as to anything at all before abolishing it, consult anyone at all, have to conduct a formal review or have to wait a certain time to see if the new body is working well or at all. This is all at odds with the provisions of the Public Bodies Act 2011, as well as smacking of hubris and a cavalier disregard for parliamentary authority.
Baroness Buscombe
My Lords, first, I thank the noble Lord, Lord McKenzie, for tabling this amendment.
The purpose of Clause 14 is to provide for the single financial guidance body to be dissolved and for its functions, property, rights or liabilities to be transferred to the Secretary of State or another body. It provides for wind-up to be effected through affirmative regulations that must be debated and approved by both Houses of Parliament.
We believe that this provision is a pragmatic measure. It seeks to ensure—should it ever be necessary—that there is a smooth transition of the delivery of government-sponsored debt advice, pensions and money guidance from the single financial guidance body to another body or the Secretary of State. I appreciate that as we are here today debating the establishment of the single financial guidance body, it may be difficult to envisage that at some point in the future we may need to revisit again how we deliver government-sponsored financial guidance. Yet, just as we are now looking to meet the needs of members of the public by bringing together three separate services into this body, we may find there is a case to join up financial guidance with other services in the future. This clause would facilitate a smoother transition should we need to transfer the functions, assets and employees of the body to another.
The ambition behind this clause—should it ever need to be used—is to facilitate a more flexible approach to transition that would deliver the best outcomes for members of the public who need financial guidance. There would be no need to find a primary vehicle to transfer functions and to wind up the body. It would provide the opportunity for Parliament to respond more quickly should it be more appropriate for public financial guidance to be delivered by another body. It will be important, should this clause need to take effect, that the service to consumers is not compromised.
Where a Bill does not provide a fixed lifetime for a public body, Cabinet Office guidance states that departments should consider whether legislation should contain powers to permit winding up at a later date and for finalising and auditing the closing accounts. However, I assure noble Lords that this power does not take away Parliament’s ability to scrutinise or reject any proposals. Regulations would be required to dissolve the body, following the affirmative procedure, giving both Houses the opportunity to debate the proposals and—if they see fit—to reject them.
Before taking the decision to repeal the legislation for the Money Advice Service and Pension Wise and establish the new body, the Government consulted three times over a period of two years. We have chosen not to go down the same route as the Public Bodies Act or the Enterprise Act, which were referred to by noble Lords, but I assure noble Lords that in taking this power to wind up the new body by affirmative regulations we were not suggesting that consultation would not happen or that it would not be necessary. We would, of course, want to involve stakeholders and the public in the decision to dissolve the body in the same way that we have involved them in the development of these provisions.
Baroness Kramer
So often in this House I have heard Ministers argue that it is totally inappropriate for Members of this House to support a fatal Motion to a statutory instrument, yet the Minister is here arguing the rights and appropriateness of this House to do just that. I find it somewhat confusing that there is one message on these issues when it appears to suit the Government’s purpose and a completely different message on an occasion such as this.
Baroness Buscombe
I reject what the noble Baroness says. For example, with regard to banning cold calling in pension scams we are finding it extraordinarily difficult to find a primary opportunity to introduce that legislation. Here, there is no question of hubris, recklessness or carelessness on the part of government. We are trying to enable a smoother transition if, following consultation some time in the future, it is felt necessary to have a fundamental change to the current body, for whatever reason. At the moment I cannot foresee it, but it could happen.
Lord Tyler (LD)
I serve on the Delegated Powers and Regulatory Reform Committee, whose report has been referred to. Is the Minister saying that the committee has this wrong? Is she saying that there is a precedent for this attempt to shortcut the normal procedure or that it would somehow or other be more convenient for the Government to ignore the precedents that have been referred to by my noble friend Lord Sharkey? I do not quite understand where the Government are on this.
Baroness Buscombe
Far from it; we are not ignoring Parliament—indeed, we have listened to the committee that the noble Lord sits on—but we do not always have to accept what the committee proposes. It is important that we listen, but no—we do not always have to accept what the committee proposes. We propose instead that there should be affirmative regulations, with consultation, that would allow a smooth transition if in future we found ourselves in a situation where it was decided that there should be a fundamental change to the make-up of this body. For example, Pension Wise was set up only a few years ago. However, since then it has been decided that it would be far more effective, efficient and supportive of the consumer if we were to have one single body, following considerable consultation both with the public and with stakeholders to ensure that the Government are reflecting the wish of the consumer.
Baroness Kramer
I must question the Minister on this. Is she saying that she wishes that she was in a position to be able to introduce the Bill, in effect, as a regulation rather than as a Bill, and that the Government are frustrated that at present they have three bodies, consider that one body would be better, and that in future they wish such decisions to be made through not primary but secondary legislation?
Baroness Buscombe
The noble Lord’s amendment seeks to add safeguards to the winding-up provision by mandating the Secretary of State to undertake procedures set out in Section 11 of the Public Bodies Act before the wind-up can take effect. The power in the clause would mean that the draft regulations would be subject to the affirmative procedure where both Houses of Parliament would have to approve a Motion before the regulations could take effect.
Further, as I have indicated, I can see no reason why—should it ever be necessary—the Government would not consult prior to taking any action to dissolve the body. This would be contrary to the open and transparent culture that we are all committed to. However, as I noted earlier, I have some sympathy with the noble Lord’s intentions on consultation and, in the light of the committee’s comments on this clause, as well as the debate, I will consider further whether there is anything more that we can do to meet any concerns that have been raised. I therefore urge the noble Lord, Lord McKenzie, to withdraw his amendment.
Lord McKenzie of Luton
My Lords, I am grateful to the Minister for that. It was a long time coming but we must be grateful for small mercies.
This is an important point and very valid matters were pressed on the Minister, which I hope will help the Government to take this issue back and think again. It seems to me that a proper process is necessary here. As we have argued and as has been argued today, the affirmative process is not sufficient. We know that we cannot vote against it or vote to amend it. The noble Baroness said that it would be accompanied by a consultation. That is fine and we can put that on the record but, as I understand it, it is not mandatory under the processes. There are very important issues here, which the Delegated Powers Committee focused on, concerning a complete lack of knowledge about to whom transfers might be made. Also, important issues of conflict of interest lie at the heart of what the Bill is trying to achieve.
However, I shall quit while I am ahead. I am grateful to the Minister for taking this matter back and I hope that we will revisit it in a positive frame in due course.