Financial Services Bill

(Limited Text - Ministerial Extracts only)

Committee stage & Lords Hansard
Wednesday 3rd March 2021 Grand Committee

[The Minister of State, Cabinet Office (Lord True) (Con)]

My Lords, this has been an extremely detailed and thoughtful debate. I will try to answer as many points as I can in the time available, which I fear will be quite Parkinsonian and extend in line with the notes I have received. I am grateful for the general tenor of the debate; I think all of us in this House agree that there are profound problems here which we collectively, across parties, are seeking to address. I am grateful for that.

I will briefly explain the Government’s position before turning to the amendments. Obviously, the Government want to incentivise more of the people who could benefit from it to access professional debt advice, and access it sooner. To this end, we are introducing a debt respite scheme, as many noble Lords have said. The first part is the breathing space, which begins on 4 May, and the second part is the statutory debt repayment plan. The SDRP will be a new debt solution for people in problem debt and will provide a revised long-term agreement between the debtor and their creditors on the amount owed and a manageable timetable over which it has to be repaid. It is intended that during their plan, debtors will be protected from most credit enforcement action and from certain interest and charges on debts in the plan.

My noble friend Lady Morgan asked whether bailiffs can be sent in during a moratorium or SDRP. During a moratorium, a court or tribunal must not instruct a bailiff to take action. It is intended that, during an SDRP, enforcement action would also be paused.

These amendments seek to require the Government to include certain features in the debt respite scheme, including specific requirements relating to breathing space. Amendments 52 and 67, which many noble Lords have spoken to, seek to set a deadline of 1 May 2024 for the SDRP to be implemented. Similarly, Amendment 68 would require the Government to publish a timetable, with a requirement for the scheme to take on clients before the end of 2024.

I am sympathetic to the intention behind these amendments and am grateful for the chance to address the timing of the SDRP and for the discussions we have been able to have and the genuine and positive engagement with noble Lords prior to this stage and—who knows?—afterwards. The consultation response published in June 2019 set out areas that required further policy work and consultation. Given the challenges and complexity involved, the Government continue to work closely with the debt advice sector, creditors and regulators to make sure that the policy can be implemented successfully and that everyone involved has time to prepare. Setting a hard deadline for the SDRP risks tying all our stakeholders’ hands unnecessarily and arbitrarily limiting the time they have available to prepare properly.

I can nevertheless assure noble Lords that the Government are committed to implementing the SDRP in a timely manner. To that end, detailed regulations establishing the SDRP are currently being drafted and will be consulted on as soon as possible after this Bill receives Royal Assent. This process will ensure that the SDRP is not rushed and is developed to a high standard that can effectively support the individuals who will use it, as well as those who will operate it.

As my noble friend Lord Holmes of Richmond said, the noble Baroness, Lady Coussins, put her case most elegantly. Although a bad dancer myself, my wife would tell the Committee that it is much more congenial to dance to elegant music. I can say that the May 2024 date is consistent with the Government’s planning assumptions, although, for the reasons I have given, they do not agree that setting a specific date in primary legislation is an appropriate or practical way of ensuring this. The amendments as drafted would prevent the Government making further regulations on the whole of the debt respite scheme after that date; this would be undesirable, as it would prevent the Government acting to amend the scheme in future—for example, in response to feedback.

The noble Baroness also asked when universal credit debt will be brought in to the scheme. UC overpayments will be included in the breathing space scheme from day one. UC advances, which the noble Baroness asked about, will be included in the scheme, on a phased basis, as soon as possible, as will third-party deductions. This does, however, require significant IT changes, but I assure the noble Baroness that the Government recognise the importance of including all UC debts as soon as possible. I hope that, having heard the debate, noble Lords will accept that we will reflect on what further clarity might be offered on a timetable, short of a statutory tie, and that what I have said on this will be reassuring.

Amendment 53 would expressly enable the regulations to cover the provision of debt advice. I assure my noble friend Lord Holmes that this is possible under the existing powers. It is already built in to the breathing space and is intended to be built in to the SDRP parts of the scheme. Indeed, the scheme cannot work without professional debt advice provision and the Government are aware of its importance. Amendments 56, 57 and 58, in the name of my noble friend Lord Lucas, affect the debt advice provider in breathing space, including extending the 60-day period of respite in breathing space, varying the time in which the debt adviser must conduct a midway review, or allowing the debt adviser to exclude certain debts from the scheme.

Amendments 61, 62 and 65 focus on the creditor, including the possibility of regulations being made which vary the time creditors have to comply with notifications, among other implications. The Financial Guidance and Claims Act 2018 delegated the detail of the debt respite scheme to secondary regulations, thus providing the Government with broad powers to design the scheme and implement it, rather than specifying implementation decisions in primary legislation. The Government have already set out their approach to the debt respite scheme as a whole in their response in June 2019, following the consultation they carried out. The policy aims to strike a fine balance between the interests of the debtor, debt advice provider and creditor. That was recognised in the speech by my noble friend Lord Lucas. My noble friend asked if joint debts would be included. Joint debts can be included in a moratorium, even if only one party seeks it. However, the other party’s other debts are unaffected. A moratorium applies to a debt, not a debtor.

Many of the aspects covered by these amendments are already factored in to the scheme design and, should the Government wish to make further changes to the breathing space regulations in future, they would not require these amendments to be made in order to do it. We will be glad to exchange further information with my noble friend Lord Lucas to reassure him further. He may ask whether, if the Government can already do these things, they will commit to do them. I assure noble Lords that the Government listen with respect and intend this scheme to be successful and useful. As I have already set out, there is still significant policy work to do on the SDRP, which is why the Government have committed to publishing draft regulations and consulting on them as soon as possible. With less than three months to go until the start of the breathing space scheme, it is important to have certainty and stability in the requirements to allow everyone affected to make the appropriate preparations. The matters which noble Lords have raised in their amendments will be kept under very close review.

Amendments 54 and 59 suggest changes to the Financial Guidance and Claims Act that would allow the Government to include specific provisions to the debt respite scheme. I assure noble Lords that Section 7 of that Act, as amended by Clause 34 of this Bill, will contain powers to allow the Government to include such measures as are suggested in this amendment. I recognise that Amendment 54, in the name of the noble Lord, Lord Stevenson, is intended to suggest certain design features for the SDRP. I will attempt to reassure noble Lords on the points raised, but not exclusively. As with my response to my noble friend Lord Lucas, we would certainly accept the noble Lord’s invitation to write to clarify further.

Amendment 54 seeks to require that debt advice providers be authorised by the FCA. It is envisaged, as set out in our response, that only debt advice providers with appropriate FCA authorisation will be able to offer an SDRP, unless they are a local authority which offers money advice and is exempt from FCA authorisation. This would mirror what has been legislated for in the Breathing Space scheme in secondary legislation. The noble Lord, Lord Stevenson, asked for further clarity on this point—on which local authorities will be able to start Breathing Space. It applies only to those local authorities that offer debt counselling to residents. It is intended that those same debt advisers will be able to offer SDRPs when they are implemented.

Amendment 54 also suggests that only authorised charities or not-for-profit organisations should be allowed to become payment distributors. The 2019 consultation response explained that either debt advice agencies with FCA permissions for handling client money or the Insolvency Service should act as payment distributors. If commercial debt advice agencies do this, it is intended that they will be entitled only to the same percentage of monthly payments available to other types of payment distributor in the scheme. It is intended that they will not be able to charge debtors any fees for delivering any other aspect of the SDRP. Powers to determine a reasonable level for the charges in the scheme, to require debts owed to the Government and other public bodies and service providers to be included, and to protect against enforcement action by court-appointed enforcement agents, are already provided for in the clause we are debating.

Amendment 59 suggests the introduction of penalties for creditor non-compliance. Section 7 of the Financial Guidance and Claims Act already provides powers to impose consequences on creditors, so this amendment is unnecessary. I repeat that the Government have committed to publishing draft regulations and consulting on them as soon as possible after the Bill receives Royal Assent. That consultation will offer all those who are interested in the SDRP, including noble Lords, to consider the proposals and offer their feedback on the Government’s design for the scheme, ensuring that it is fit for purpose.

My noble friend Lady Morgan asked how the scheme would be funded. The Government intend for the administrative costs of the scheme to be funded by deducting an amount from debtors’ repayments. The funding model aims to ensure that it remains sustainable to operate for debt advice agencies while providing fairness to creditors—but I acknowledge that the noble Lord, Lord Stevenson, probed a little further on that.

Turning to reviews, which are the subject of Amendments 60, 69 and 70, I can confirm that the Government are already committed to carrying out full and proper evaluations of both the Breathing Space scheme and SDRP after their commencement and will keep the matters raised by noble Lords under review. The Government are already required by law to carry out a review of Breathing Space within five years of its commencement. I can confirm that the Government are happy to continue to engage with my noble friend Lord Lucas on this issue to ensure that the views of stakeholders are heard. On Amendment 60 in particular, the Government continue to work closely with the Money and Pensions Service, the Financial Conduct Authority and other stakeholders to monitor personal finances, including financial resilience and the impact of debt on individuals.

On Amendments 63 and 64, my noble friend Lord Lucas asked whether the scheme was ready to go. His amendments would not permit regulations to commence until certain aspects of the Insolvency Service and court system’s IT services had been delivered. The Treasury understands that the Insolvency Service and Courts Service are on track to deliver the necessary functionality for debt advisers and creditors to comply with Breathing Space. Officials have engaged extensively with a broad range of creditors to ensure that they understand their obligations under the scheme and are making any necessary IT systems changes. Guidance for debt advisers and creditors was published in December 2020 to assist with that process, and the Money and Pensions Service is delivering training for debt advisers this month.

The start date for this scheme—4 May 2021—was set in regulations and agreed by both Houses last year, and the Government consider that implementing the Breathing Space scheme on time is a priority. Delaying implementation of a scheme that is due to start in less than three months would be unnecessary, unhelpful and harmful to debtors, who desperately need the relief this scheme offers, as all noble Lords have agreed.

--- Later in debate ---

[Lord True (Con)]

My Lords, we have already spoken at some length about the statutory debt repayment plan, so I will restrict my remarks to the amendment in front of us. Amendment 55 would require regulations to include a provision that would mean debts that have been sold by one creditor to another are subject to a fair debt write-down when they are included within an individual’s SDRP. Both my noble friend Lady Noakes and the noble Baroness, Lady Kramer, illustrated, from their position of great experience in these areas, some of the important issues that would need to be considered in an intervention of the kind proposed. The noble Lord, Lord Stevenson of Balmacara, made the same point from a slightly different perspective.

As its name suggests, the SDRP is intended to support the repayment of debts in full, over a manageable timeframe. The policy is not intended to provide debt relief, but a fair and sustainable way to improve debtors’ finances and returns to creditors. Other statutory debt solutions, such as debt relief orders, offer debt relief to people for whom repayment is not a realistic prospect. The Government recently launched a consultation on raising the financial threshold criteria for individuals entering a debt relief order.

The noble Baroness’s amendment would apply to debts which have been sold on, and not to other qualifying debts. The Government do not agree that it is necessary or desirable to treat these debts, or the people who owe them, differently from other debts and debtors in the scheme whose debts have not been sold on. People entering an SDRP will be in financial difficulties regardless of who the debts are owed to, and they all deserve fair and equitable treatment. I can, however, reassure the noble Baroness that, as per the 2019 consultation response, accrual of most interest, fees and charges will be prevented during a SDRP, so the amount of a person’s debt should not increase while they are repaying, regardless of who the debt is owned by or sold to in that period.

This amendment would also require any outstanding amounts owed in respect of sold-on debts to be treated as if fully discharged at the end of an SDRP. As the SDRP supports debtors to repay debts in full, it is not envisaged that there will be any outstanding amount left to pay at the end of a completed SDRP. Including such provision would be contrary to the policy intent of the Bill and to the broader arguments put forward by noble Lords in the course of this brief discussion, so I hope that the noble Baroness will feel able to withdraw her amendment.

[Baroness Bennett of Manor Castle (GP) [V]]

My Lords, I thank all noble Lords who have contributed to this debate, particularly those who have supported Amendment 55. I particularly thank the right reverend Prelate the Bishop of St Albans, who painted a powerful picture of the impact of what we now know was the early stages of the pandemic, as set out in the churches’ Reset the Debt report. He spoke movingly about the increase in demand at food banks and church food pantries, which have been essential in helping so many households through. However, the food bank does not pay the gas bill or the council tax demand.

The right reverend Prelate stressed, as we would expect, the strong moral case for this fair debt write-off—who better to do so? The noble Baroness, Lady McIntosh of Pickering, highlighted the pressure of council tax being felt by so many households. Of course, council tax is funding essential services as budgets are being squeezed by slashed funding from Westminster. I should perhaps declare at this point that I am a vice-president of the Local Government Association. I also thank the noble Baroness for stressing the issue of zero-hours contracts, which affect so many households.

I strongly thank the noble Lord, Lord Davies of Brixton, for making a powerful argument for something much larger than this, as I said at the start, modest proposal; for making the parallel with the bank write-offs of 2007-08; and for calling for consideration of a more wide-ranging debt jubilee. That is why I went to a number of NGOs and campaign groups with a proposal; they came back to me with this, saying that it could and should be practically delivered right now. The noble Lord also made a useful point about the macroeconomic impacts and the sheer drag of debt.

As for the contribution of the noble Baroness, Lady Noakes, I am sure that we will find something to agree on one day, but I thank her for her thoughtful exploration and exposition of the detail. I am not sure, looking at the clock on my computer, that this is the ideal time in the evening to go through her worked example in detail, but I will point out that what is proposed here is not retrospective. In fact, I do not think we even have the power to do such a thing. The price of the debt purchased in the future would reflect the legal change and so would still allow a profit to be made. I also think, given that the secondary debt market is currently paying less than 10 pence in the pound, that her example reflects little understanding of the practical reality of the lives of many in society and in many communities. Perhaps she is thinking more in the range of the market of Greensill Bank, which we have seen collapse today.

I very much agree with what the noble Lord, Lord Stevenson of Balmacara, said on the need for a broader debate on debt, reflecting also what the noble Lord, Lord Davies, said. I do not agree that we should not act now: we are in an emergency situation and, as the discussion on the previous group highlighted, we need to give some certainty and hope. Given the noble Lord’s reflections on how people are appalled and horrified to find themselves in this situation, I thank him for sharing those experiences.

On the remarks of the noble Baroness, Lady Kramer —I will take a look at them in Hansard to ensure that I understood them clearly—there may be some misunderstanding at their heart. Being in debt in the secondary market is not about creating a situation where extra charges can be laid. We are not talking about people going out to borrow money. We are talking about council tax bills, and gas and electricity charges.

The noble Lord, Lord Tunnicliffe, said that we really need broader debates on these issues. Indeed, I said in my introduction that I expect to come back to them many times in the coming years. At the moment, we have had a useful debate; I take on board the noble Lord’s suggestion of a general debate. Perhaps those on the Front Benches, who have much more access to such occasions, would consider originating such a debate. My action at the moment is obvious.

Again, I thank everyone who has contributed here today and everyone who has contributed to this discussion outside this Committee. For the moment, I beg leave to withdraw the amendment, but I reserve the right to consider bringing it back. I invite any noble Lords who are interested in working with me on this matter to approach me.