Money Advice Service

Baroness Coussins Excerpts

Thursday 12th March 2015 Lords Chamber

[Baroness Coussins (CB)]

My Lords, I am grateful to the noble Lord, Lord Stevenson of Balmacara, for securing this debate, and I congratulate him on his appointment as a financial inclusion commissioner. I must also declare an interest, as it is my pleasure to serve as president of the Money Advice Trust, the charity that runs National Debtline and Business Debtline. Some of the trust’s excellent work is funded, directly or indirectly, by the Money Advice Service.

As a strong supporter of free debt advice, I have been awaiting the outcome of the Farnish review with great interest and I, too, would welcome some clarity from the Minister on when the review and the Government’s response will be published. We might have had a much longer speakers list for the debate today if the review had already been in the public domain, and I regret that this is not the case.

It would be surprising if the review did not make a strong case for free debt advice and the benefits that it brings to debtors, creditors and society as a whole. This free advice is currently available through a whole range of channels. National Debtline and Business Debtline offer telephone and online advice, as does StepChange. An excellent face-to-face service is also available from local citizens advice bureaux and other locally based charities. The case for the value of free debt advice is clear—and “free”, of course, is the operative word here.

There is of course a large commercial debt management industry that charges for debt advice and debt management services. The bottom line is that these fee-charging companies are charging their clients high fees for a service that is available free from debt charities, which can be trusted to give the best, independent advice for each individual case. I hope that the Farnish review not only makes the case for independent, free advice but places this in the context of the need to promote free services over and above those of the fee-paying debt management companies to which all too many consumers currently turn.

The Money Advice Service also plays an important role in the co-ordination of debt advice, and I hope that the Farnish review will make the case that more consumers would benefit from telephone and online advice. I would certainly welcome this shift, but I must emphasise that this would not be to detract from the work of face-to-face advisers: far from it. A shift towards telephone and online advice would, in my view, help to preserve face-to-face advice for those who really need it.

While there is a useful role for the Money Advice Service to play in that level of co-ordination in the debt advice sector, we should also recognise the close partnership working that is already under way, in particular between the Money Advice Trust, Citizens Advice and StepChange. This partnership working increasingly extends to other organisations outside the debt advice space in recognition of the need for these services to be available to people in financial difficulty at the point of need in a wide range of venues and situations.

The Money Advice Trust, for example, is currently working with the Church of England to develop a resource to help parishioners raise awareness of free debt advice in their communities and to signpost these services where appropriate. We have also embarked upon an innovative partnership with Turn2us to link online debt and benefits advice through its “My Money Steps” tool, and we are exploring the potential for working more closely with food banks to make sure that people in financial difficulty receive the advice they need. We need to encourage the development of these new ways of working, and further innovations in this sector.

Money Advice Service research in 2013 showed that 8.8 million people in the UK are over-indebted. More recent trends show that consumer credit lending is expanding significantly, and the Office for Budget Responsibility predicts that the UK’s household debt to income ratio, which as I understand it is an aggregate measure of how much debt households have taken on relative to their incomes, is set to rise from 146% to 184% by 2020. This is significantly higher than its pre-crisis peak of 169% in 2008.

Furthermore, while expectations of a rise in interest rates continue to recede further into the future, we must none the less consider the impact on households with mortgages when it does eventually occur. Indeed, research last year by the Money Advice Trust and the Building Societies Association showed that 27% of mortgage payers are likely to fall into financial difficulty when interest rates rise. Many will fall into unmanageable debt as a result. Taking all these factors into account, it is clear that demand for debt advice is likely to rise in the future.

Noble Lords will be aware that the question of the appropriate level and allocation of the Money Advice Service’s budget is a central issue that the review has sought to address. The level of expenditure on some areas of the service’s work has of course met with controversy in the past. But if savings in some areas are to be made as a result of the review, I would strongly urge that consideration be given to a corresponding increase in the funding that is available to the service, but specifically for commissioning free debt advice services. Given the clear indications of future rising demand that I have described, an increase in funding for front-line free debt advice services would be a very welcome outcome of the review.