Financial Services Bill

Baroness Bennett of Manor Castle Excerpts

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

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

My Lords, it is a pleasure to follow the noble Lord, Lord Rooker, and I very much agree with his view on freeports. These are entirely the wrong direction of travel, opening up the UK even further to corruption and fraud. I also agree with him about the need to help small companies. They face an extremely un-level playing field of heavy enforcement, while they do not have the same options—happily—for tax dodging, fraud and corruption as the large ones have and, all too often, exercise.

I commend the noble Lord, Lord Eatwell, for his hugely powerful speech. I will use social media to ensure that it gets as wide a circulation as possible. I offer the Green group’s support for Amendments 49 and 50. I disagree with the words of the noble Lord on only one point. He asks what is going wrong. I would say that this is not a failure of design; it is not things going wrong from intention. This is what our financial sector has been designed to do and has refined its practices for over centuries. We have been robbing the world blind for centuries.

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Moved by

[Baroness Bennett of Manor Castle]

55: Clause 34, page 40, line 30, at end insert—
“(4B) The regulations must also include the following as part of the scheme—(a) provision to ensure that any debts appearing on a repayment plan, which have either—(i) been sold by originating lenders to debt purchasing companies prior to the debtor entering the scheme, or(ii) been sold by originating lenders to debt purchasing companies whilst the debtor is in the scheme,are subject to what is to be known as a “fair debt write-down”; (b) that the level of the fair debt write-down must be calculated by the amount paid by the debt purchasing company for the debt plus no more than twenty per cent of the value of the debt;(c) that no more than the amount calculated under paragraph (b) may be collected in respect of any debts to which a fair debt write-down applies throughout the course of the debt repayment plan; and(d) that at the end of an individual’s debt repayment plan, any outstanding amount in respect of debts to which a fair debt write-down has applied is unenforceable against the debtor and must be treated as if fully discharged by virtue of section 251I of the Insolvency Act 1986 (discharge from qualifying debts).”Member’s explanatory statement
This amendment seeks to ensure that debts which have been sold by originating lenders on the secondary debt market are written down to a fair level.

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

My Lords, I beg to move Amendment 55, which appears in my name and has attracted the most welcome support of the right reverend Prelate the Bishop of St Albans. I thank all noble Lords who have put their names down to speak in this group.

The amendment is modest in scope but highly practical in action. It addresses actions that could greatly improve the lives of people who desperately need that boost, as the noble Lord, Lord Tunnicliffe, said in summing up the previous debate. It also relates to Clause 34, but I think it makes a large enough difference to the plans that it needs to be considered alone, as useful and helpful as many proposals in the previous group were. It brings in a concept of debt write-off or debt write-down—something that I suspect will become part of many debates in your Lordships’ House in the coming years.

We were talking in the first group of amendments about flows of billions of pounds, Russian moguls and massive lumps of cash. Here we are talking about the lives of people for whom a 50p cup of tea in the local café is a luxury, for whom the disintegration of a long-nursed pair of shoes is a crisis. In the previous group many speakers referred to how Covid has made millions of debtors’ lives much harder, but this is not —or at least not just—an emergency pandemic measure.

If we look back a decade ago, debt often arose because of a sudden crisis, such as a car breaking down or a washing machine failing to start, or sometimes because the siren call of the payday lender or predatory credit card provider had proved irresistible. However, over the past decade, for hundreds of thousands of households, the persistent inadequacy of income, in most cases income coming through work with added benefits, has still not been enough, week after week, month after month, year after year, to meet basic needs. Debts have built up: essential debts such as council tax, and gas and electricity bills, even when resort to a food bank provided some brief moment of relief. For millions of Britons, finance—we are taking about the Financial Services Bill—means being trapped and overindebted. That is the situation of one in five adults, more than 8 million people, according to the Financial Conduct Authority. Even if we were to suddenly miraculously snap our fingers and lift the minimum wage to the real living wage and ensure that benefits met the level needed to pay essential bills—a very loud snap indeed—there would still be a huge mound of debt remaining.

I pay tribute to the Centre for Responsible Credit, which has done extensive work on this amendment and from which I think noble Lords will have received a briefing. This is not a political amendment but very much a practical one to address an issue that I hope the Committee will allow me to explain at a little length. In the debate on the last amendment, we were introduced to the Government’s debt respite scheme, which is intended to provide people who seek debt advice respite from enforcement proceedings for 60 days. Clause 34 creates an additional statutory debt repayment plan, a formal plan with creditors to repay all debts over a manageable period with protection from the bailiffs in the meantime. Crucially, that timeframe will generally be seven years, although it may be up to 10.

To set the scene for why we need this amendment, why we need a fair debt write-down, I will explain the other three means by which unpayable debt can be dealt with. Perhaps the best known is bankruptcy, which is reserved for debtors with significant assets that need to be liquidated and the proceeds distributed among creditors. Generally, the debts are discharged in full after one year. Next in terms of debt scale are individual voluntary arrangements, which were originally intended to allow home owners with significant levels of surplus income, after taking account of essential outgoings, to retain their home and secure a partial debt write-off. Resolution is generally achieved over five to six years. Remember, the idea is that people will still stay in their home. At the bottom of the income scale are debt relief orders. These were brought in 2009 for low-income, low-asset debtors, who see their debt discharged after one year. Access is by approved debt advisers but, to be eligible, conditions are tight.

However, many people fall in the middle, between IVAs and debt relief orders, and increasing numbers of IVAs are failing. There is a significant number of reports of them being mis-sold. Changes to debt orders are planned to enable them to encompass more people, but many will still fall in the gap between these two groups. Significant numbers of people are likely to be taking out statutory debt repayment plans, but as currently constituted there are problems. People are being assessed to see if they can repay the entirety of their debts over up to 10 years, based on a calculation of surplus income using the standard financial statement spending guidelines provided by the Money and Pensions Service. During the period of the plan, any increased income will be directed towards repayment of creditors, trapping people and actively discouraging them from taking up any opportunities that might, with a different plan, improve their circumstances. I also note that we have a transparency problem here with the standard financial statement not being in the public domain due to the Money and Pensions Service licensing terms. In summary, though, the key issue is that people under SDRPs are being trapped for up to 10 years, and certainly seven years, and locked into circumstances for at least double—and, potentially, 10 times—the length of other schemes.

I turn now to question of the debts and the companies that hold them. A large portion of these debts have already been written off by the originating lenders and sold on the secondary debt market. In 2018, the Financial Times reported that more than half the money being collected through debt management plans had been sold on in the secondary market. A presentation by the chair of the Credit Services Association in 2019 indicated that, in the preceding year, the total value of debt purchased by such firms was more than £55 billion. According to the 2019 annual report of one of the main debt purchasing firms, Cabot Credit Management Group Ltd, the average long-term purchase price for the debt averages 9p in the pound. So we have a potential 10-year debt repayment period, with 10 years of dragging fear, worry and poverty, and an industry that has purchased the right to impose that weight for less than 10% of the cost of the face value of the debts.

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[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.

Amendment 55 withdrawn.