Front-loaded Child Benefit Bill [HL]

Baroness Sherlock Excerpts

Friday 2nd December 2022 Lords Chamber

[Baroness Berridge (Con)]

My Lords, with the leave of the House, I will speak to Amendments 1 and 3 in the name of my noble friend Lord Farmer, who is unavoidably detained today. I thank the noble Baroness, Lady Sherlock, for helpful discussions and advance notice of the specific questions that her amendments seek to address. I hope that we can make the most of our Committee on this Bill. I am also grateful for the letter from the Exchequer Secretary to the Treasury outlining various concerns around this proposal.

Amendment 1 seeks to address the legislative difficulties that the Treasury has highlighted, as it would simply leave out the words “on a sliding scale”, which introduced unworkable complexity into the Bill and would potentially require HMRC to make very regular changes to the child benefit rates available to claimants. As the Treasury said, this would be challenging to operationalise and potentially expensive for taxpayers. This amendment would also hopefully answer some of the concerns raised by the noble Baroness, Lady Sherlock, around adding complexity for parents into the child benefit system.

With Amendment 1, the Front-loaded Child Benefit Bill would be deliberately simple and merely provide the legislative lever or framework around which the Government can then build detailed policy. They would of course be aided in this respect by the many respected think tanks that have published reports providing solutions to the cost of living crisis that we know is facing many families, going beyond giving money and aiming to help improve choice and encourage responsibility.

My noble friend Lord Farmer explained at Second Reading that the rationale is to increase choice for parents in how they manage childcare in the early years. We have all benefited from the research and information about the importance of those early years and the foundations that are laid at that time. During those first two or three years, many parents would like to care for their children themselves but face a considerable and increasingly insurmountable sacrifice of income to do so. Receiving the same flat rate of child benefit throughout childhood no longer fits with the financial realities of many families.

Interestingly, since the Second Reading debate in October, other think tanks such as Civitas have proposed a family support benefit, which would roll out £16 billion of government child benefit and childcare expenditure into a front-loaded payment. In August, the Policy Exchange think tank made a similar recommendation for what it termed a “baby boost” allowance for parents of children aged two and under, which would double child benefit and be funded by reallocating the significant underspend on tax-free childcare. It is that kind of thinking that this Bill is part of in terms of renewing the financial framework for families in the early years. Those costed proposals are important, because one criticism of the Bill was the upfront additional burden on His Majesty’s Treasury from a higher rate in the early years, even if the measure was ultimately cost-neutral, as there could be a correspondingly lower rate in later childhood. This reform of child benefit would be part of a much-needed redesign of financial support.

I heard at Second Reading what other noble Lords said around the expense of teenagers. No one is pretending that that is not also an expensive time, but parents are usually much less restricted in terms of the hours that they can work when their children are at school and childcare is much easier. That is also reflected in the fact that the Government give disadvantaged two year-olds, three year-olds and four year-olds all the hours that they do, usually free. Additionally, the age at which the benefit might taper off would be an age at which certain children find that they want to add to the family household income themselves.

There are advantages to this front-loaded child benefit being part of what we see as a greater overhaul of the system of financial support. However, that aspect of any new passage would need primary legislation, which is why this Bill has been brought forward. With the removal of the sliding scale, it is hopefully a very simple framework into which any Government could fit any detailed policy proposals.

Amendment 3 would insert a new clause to enable the Secretary of State to set different rates at which parents could choose to be paid in the early years and later in childhood. Importantly, that amendment would put all the policy implementation detail into the hands of Ministers to craft, so that it can be more easily changed as circumstances change than if it was in primary legislation. This would enable the front-loaded child benefit to be part of a suite of reforms benefiting parents in the early years. The second amendment makes that important change: it would no longer be up to parents to request a particular proportion, but the Government would set within the framework, for example, what proportion could be drawn down and within what age range of the children, et cetera.

As originally drafted, the Bill would have allowed the child benefit claimant to request the front-loaded payments without details of what the new rates would be and how they could be discounted in a child’s later life. That was not my noble friend’s intention, so that change in who has control would come through Amendment 3, and the delegated powers would be with the Government to develop the front-loaded system.

Briefly, I believe there is one point that the noble Baroness has raised which is not covered by the amendments. It is her query about why the Bill includes “without prejudice” in Clause 1(1B). The only reason that bit is there is as kitchen-sink legislation, just to make sure. Obviously, the provision referred to means that child benefit can never be lowered. We wanted to make it crystal clear now that even if you ended up with a group of parents claiming flat rate for the entirety of a child’s life, and then a group doing front-loaded plus decrease, none of those rates could be lowered. We are just kitchen-sinking it to make sure it does not provide any wiggle room for a future Government to say, “We’re raising child benefit, but those discounted years and the old years do not get the same percentage increase.” That is why the provision is there; it is without prejudice to that, so it would mean there could be no change to that fundamental principle—basically, that child benefit never goes down.

I hope that has clarified those questions for the noble Baroness and I beg to move.

[Baroness Sherlock (Lab)]

My Lords, I thank the noble Baroness, Lady Berridge, for standing in for the noble Lord, Lord Farmer, and introducing the amendments in his name. I shall speak to Amendments 2, 4 and 5 in my name. Having suggested to the usual channels that we have a single group, I will cover everything in one speech, so it may be slightly longer than normal. These are all probing amendments, which I have tabled simply to allow us to explore how the proposal to front-load child benefit would work. I would like to look at three sets of issues.

First off, there is the value of child benefit paid up front. At Second Reading, the noble Lord, Lord Farmer, argued—and the noble Baroness, Lady Berridge, agreed—that the aim of the Bill is to direct more money to parents in the early years to allow them to make different choices. For that to work, it would need to be enough to make a difference but that is going to be quite hard. Child Poverty Action Group research shows that last year the additional basic cost of a child from birth to age 18 was over £76,000 for a couple family, of which child benefit covers about 22%. If you add in housing and childcare costs, the figure rises to over £160,000. The figure for single-parent families is higher still, so how much extra could they get?

Amendment 3 would leave the framing of options to the Government, as we have heard, so my first question is therefore for the Minister. Could the child benefit computer cope with the level of complexity this would introduce? It is a long time since I was a Treasury spad, but my memories of it are such that it made me wonder: when Ministers decided to withdraw child benefit from higher-rate taxpayers, was there perhaps a reason they used the tax system, rather than deciding to means-test it in the more conventional way?

I ask the noble Baroness, Lady Berridge: would the Bill as amended allow Ministers to choose any combination of sums? Could a choice be to have 95% of lifetime child benefit in year 1 and the other 5% over the rest of a child’s childhood, or vice versa? More likely, I imagine, is the Policy Exchange model, to which the noble Lord, Lord Farmer, referred at Second Reading. That proposed that half the total entitlement to child benefit should be available during the first three years of a child’s life, and the other half spread over the remaining years of entitlement.

The Bill provides, and the noble Baroness has confirmed, that the intent is that the amount payable over a child’s life would be the same, whichever path was chosen. My Amendment 2 says that it should be the same in real terms, which is there to allow me to ask the noble Baroness, Lady Berridge: is it the intention that front-loaded child benefit would be paid at nominal value—in other words, at today’s child benefit rates—or would some account be taken of the impact of inflation and change in purchasing power over the years?

Because I am sad, I did some back-of-the-envelope calculations, using the example of a family with two children who took the Policy Exchange model at the start of this financial year. I confess that I made the children twins to make the sums easier. If the money is paid out at nominal value—that is, today’s child benefit rates—I estimate that the total amount paid over 16 years would be £30,160.

Pensions Advice

Baroness Sherlock Excerpts

Wednesday 23rd July 2014 Lords Chamber

[Lord Newby]

My Lords, the key thing is that people get guidance from a trusted source. There will be a commonality of approach. The FCA is producing very detailed technical guidance, which everybody providing the personalised guidance will provide. I recommend that the noble Lord looks at the FCA consultation document that came out earlier in the week, which explains how it is going to do that. There is a danger that we are so concerned that things might not work that we never innovate.

[Baroness Sherlock (Lab)]

My Lords, I remind the House of my interest in the Financial Ombudsman Service board. In the Budget, the Chancellor announced that everybody would get,

“free, impartial, face-to-face advice”.—[Official Report, Commons, 19/3/14; col. 793.]

on their retirement options. Now we learn that it will be guidance, not advice, and that face-to-face could mean online or over the phone. Will the Minister please tell the House how many people in 2015-16 will actually get face-to-face guidance? Will he reassure the House that that commitment will not be watered down any more? People coming up to retirement need advice they can trust.

[Lord Newby]

My Lords, the difference between guidance and advice is simply that within the financial services sector advice is a regulated activity which, as the noble Baroness knows, requires those who offer it to have gone through a significant process. This is a different level of advice. As far as face-to-face advice is concerned, the Treasury has undertaken a considerable amount of consultation. Many people have said that they would much prefer, in the first instance at least, to get their advice online or to do it on the phone. We have said, however, that any individual who wishes to have face-to-face advice will have it, and they will. It is simply that not everybody wants it that way.

Pensions

Baroness Sherlock Excerpts

Thursday 26th June 2014 Lords Chamber

[Lord Newby]

My Lords, the Association of British Insurers has produced a detailed response to the consultation that we are undertaking. Within that, it has underlined its commitment to help customers understand their options and enable them to make good decisions. I think that for many people, when the word “pension” is mentioned, a mist descends; so demystifying pensions is a big challenge already. That is why we are devoting £20 million over the next couple of years to getting the new guidance system up and running.

[Baroness Sherlock (Lab)]

My Lords, the mist may not be entirely accidental. I remind the House of my interest as the independent director of the Financial Ombudsman Service. The Telegraph reported on 13 June that officials are getting ready to tell more than 1 million people in their late 50s and early 60s that they will not get the full amount of the single new “flat-rate” state pension. The Pensions Minister, Steve Webb, told the Telegraph:

“I think I may have been guilty of oversimplifying the new flat rate state pension ... But as soon as you caveat this type of thing people switch off”.

Will we have the opportunity to scrutinise the communication plan for this scheme to make sure that more mist does not descend in future?

[Lord Newby]

My Lords, the provisions relating to the guidance will be in the pension scheme Bill when it comes before your Lordships’ House. I am sure that there will be plenty of opportunity to debate those provisions at great length, to which we on this side look forward.

Welfare Benefits Up-rating Bill

Baroness Sherlock Excerpts

Tuesday 19th March 2013 Lords Chamber

[The Lord Bishop of Ripon and Leeds]

My Lords, I will also speak to the other amendments in this group. Amendments 2 and 8 are paving amendments for a new clause to protect child benefits and child tax credits from the effects of this Bill. The substantive amendment to which they refer is Amendment 11. This follows extensive discussion in Committee, and is designed to halt the disproportionately negative effects of the Bill on children and their welfare. Amendments 13, 14 and 15 are consequential, and no doubt the noble Baroness, Lady Meacher, will speak to her Amendment 14A.

The Bill affects 30% of all households. Of those with dependent children, it affects 87%. Of lone-parent households, it affects 95%. Conspicuously, 11.5 million children suffer as a result of this Bill. This is in addition to the effects that our austerity measures have already had on children. In 2012, the Institute for Fiscal Studies estimated that there would indeed be a reduction of 0.9% in real-terms income for all households from 2010 to 2016. For a couple with two children, that fall will already, without this Bill, be 4.2%: equivalent to a fall of £215 per year for a couple without children, or £1,250 for a couple with two children. This Bill adds to that discrepancy, and it is that which cannot be fair.

It is true that we need particular concern for those in or on the verge of poverty. This Bill fails that test, too. For the poorest 20% of households, the IFS estimates to which I have referred suggest that the reduction in income is 7% from 2010 to 2016. In addition, 60% of the Bill’s savings come from those in the poorest third of our population, and 3% from those in the richest third. This will mean that, on the Government’s estimates, 200,000 more children will be in poverty, half of them in working families.

That in itself must make us pause to see what other ways there are to make the £0.9 billion savings which the child-related parts of this Bill are designed to produce in 2015-16. It is not for us today to declare what those alternatives should be. However, they do exist. Whether through reducing tax reliefs on pension contributions for the wealthy, or through introducing national insurance contributions on employer pension contributions, there are a number of different ways in which we could explore raising this money, which would not affect children in the ways in which this Bill does. We need to find a way for the burden of our fiscal challenges, so well described in the previous debate, to fall on those who, like me and many Members of this House, can afford to meet it, rather on than those who cannot. The noble Lord, Lord Newby, spoke in Committee of the importance of reviving the economy for the benefit of the future. That is absolutely right, but not at the expense of children’s needs now.

The major thrust of these amendments is to defend the nine out of 10 children in this country who are affected by the Bill. This effect is cumulative; it comes on top of the reductions already made. It has been argued that since many people are currently seeing wage increases of only 1%, benefits should also rise by only 1%. However, this Bill is an additional blow for those with children whose wages have increased by only 1%. Not only are their wages declining but, by this Bill, provision for their children will decline, too. These benefits affect those in work just as much as those who are not in work. None of the benefits referred to in these amendments is an out-of-work benefit. This is a transfer of the burden from all of us to those with children, and that increased burden on children cannot be right.

I continue to be particularly concerned at the continued gradual erosion of child benefit. The 1% cap comes after three years of the freezing of child benefit, so it is a cap on a figure that has already been reduced. From 2011 to 2015, the increase in child benefit will be 2%, rather than the estimated 16% of CPI over that period. Therefore, a couple with three children with one earner, such as a corporal in the Army, will lose £552 a year by 2015. A couple—one a childminder, let us say, earning £240 a week and the other a postal worker on £395 a week—with two children will lose £3.51 a week by 2015.

Child benefit has long been a crucial part of the support for families in our culture. That is particularly so for those on low wages. For very many families, child benefit is explicitly set aside to provide for children. Parents will struggle by making savings on their own lifestyle, sometimes even by going without meals themselves, but they will ensure that the child benefit that they receive is spent on their children. We owe it to the next generation to ensure that this element of our society, our children, is not disadvantaged, and certainly not disadvantaged by so much more than households without children.

In addition, child benefit plays a particular role in support of those in work because it acts as an earnings disregard in the calculation of housing and council tax benefits. Any reduction in child benefit is therefore a disincentive to returning to work. For a two-child family in work, on a low income and living in rented accommodation, the cut between 2010 and 2015 is not only the £4.80 a week in child benefit but an extra £4.10 in lost benefits. This working family on a low income therefore loses almost £9 a week.

I need to refer briefly to the third element in this package, that of the lower disability addition of universal credit. That is already being reduced from its current £57 a week to £28 a week under universal credit. Now it will be reduced further by this Bill. It seems extraordinary to reduce a benefit before it has even come into effect, especially when it provides for the needs of disabled children and their extra financial demands. These children need our support so they can live full and creative lives, and therefore benefit not just themselves but all of us. Children already contribute more than their fair share to our austerity burden. This Bill adds to their burden. I hope that we shall at least remove this extra pressure on them by accepting this amendment. I beg to move.

[Baroness Sherlock]

My Lords, I thank the right reverend Prelate the Bishop of Ripon and Leeds for introducing this amendment. I also congratulate him on continuing to press his concerns in this area after failing to receive any comfort at earlier stages of the Bill. I congratulate the Lords spiritual in general for being willing to stand up for what they believe, despite the inevitable volley of artillery that came their way the moment they dared to raise their heads above the cathedral parapet. It may be that we have them to thank for the extended interest in welfare benefits, which is much more than we see normally. I am delighted to see it.

As we have heard, this amendment would remove a number of children’s benefits and credits from the scope of the Bill. Since we on these Benches wish to remove all benefits and tax credits from the scope of the Bill, we are pleased to support it. We have heard at different points in the passage of this Bill that it has a disproportionate impact on families and children. The Government’s impact assessment shows that two-thirds of households affected are families with children. We also know that the Bill will have a direct effect on child poverty in Britain. Ministers have previously announced—as the right reverend Prelate noted—that this Bill alone will put a further 200,000 children into relative poverty.

In Committee, I asked the Minister to tell the Committee what the impact would be on the three other poverty measures in the Child Poverty Act. I got nothing back at all. Now the Child Poverty Action Group has dragged some information from the Government by means of the Freedom of Information Act—although it should not have had to use a FOI request to get it. I would have hoped the Minister could have told us the information when I asked for it in Committee. The Government have not yet offered a narrative assessment even of measures, for example, of material deprivation. However, they were forced to admit what would happen to the number of children in absolute poverty. In response to that FOI request, the DWP admitted for the first time that it estimates that around 200,000 more children in Britain will be pushed into absolute poverty by this uprating policy.

This is a shocking figure, which reveals the depth of what is wrong with this policy. It also removes the Government’s defence that the problem is with the relative poverty measure, rather than with the impact on children themselves. On the back of those figures, some new analysis for the Child Poverty Action Group by Landman Economics found that an increase of 600,000 children in absolute poverty is likely between 2010 and 2015, and that is net of any improvements as a result of universal credit.

As we have heard at many stages of this Bill, too many parents go without to ensure that they can heat their homes and feed and clothe their children. As the costs of food and energy have soared, more parents spend more of their money on these basic costs. Yet vital support that they depend upon is being cut in real terms in order to hand a tax cut to the very richest. It is not only the Church of England that has come out against these priorities; Archbishop Peter Smith, vice-president of the Catholic Bishops’ Conference of England and Wales stated:

“It is unjustifiable that the poorest children, who often have no other safety net, will be left bearing the brunt of economic difficulties as a result of significant real-term cuts to social security”.

The archbishop noted something that many of us know: that like many other charities across the country, Catholic agencies supporting parents find themselves ever more confronted with parents unable to afford even basic essentials, such as healthy meals or warm clothes for their children. That would be exacerbated by this Bill.

The real shame is that so many of those families have no alternative way of reducing that problem. Most victims of this Bill are working families. The parents are already doing the right thing; they are out working. One of the real disappointments about the debates we have had is the failure to acknowledge that, far from this being something that penalises only people who are not working, it is in fact the very same people who have had below-inflation or no pay increases and who have struggled repeatedly to get out, get work and get hours, who are hit by these cuts to tax and benefit support.

The Bill is a completely inappropriate way to address the uprating of essential state support for families. We already have perfectly good mechanisms to uprate annually in the light of inflation and prevailing economic conditions. These are poor choices for the Government to be making. The families who will be hit are not responsible for the failure of the Government to get the economy growing again. They are just doing their best to manage in difficult times, but the Government are planning to cut the value of the help that they get from the state to fund a tax cut for people earning £1 million a year. We should not be doing this, and we on these Benches are pleased and proud to support the amendment.

Welfare Benefits Up-rating Bill

Baroness Sherlock Excerpts

Monday 11th February 2013 Lords Chamber

[Baroness Sherlock]

My Lords, this has been an extraordinary debate. I hope that someone gives the proceedings to the Prime Minister to read. With it, they could give him a DVD of his pre-election appearance on the “Andrew Marr Show” in 2010 when he told the nation that he wanted to,

“take the whole country with me. I don't want to leave anyone behind. The test of a good society is you look after the elderly, the frail, the vulnerable, the poorest in our society. And that test is even more important in difficult times, when difficult decisions have to be taken, than it is in better times”.

We have heard many compelling arguments today against this Bill but I suggest that that statement from the right honourable David Cameron is one of the best. How far this Government have come from the days when its leader promised to protect the most vulnerable families in financially difficult times. Perhaps coalition has not tempered him after all.

My noble friend Lord McKenzie destroyed the case for this Bill in his powerful opening speech and many noble Lords have backed him up since then. Precious few speakers have disagreed with him. The noble Lord, Lord Bates, did his best, as did the noble Lord, Lord Sheikh, and they both stressed the need for fairness as cuts were being made. Coincidentally, that point was also made by the Chancellor of the Exchequer, George Osborne, when he introduced the Autumn Statement on 5 December 2012 when this Bill was announced. He spoke of the need to find savings in a way that was fair. He said that we need,

“to have a welfare system that is fair to the working people who pay for it”.—[Official Report, Commons, 5/12/12; col. 877.]

Just in case the point was not clear, the Guardian reports the Chancellor telling the “Today” programme:

“It is unfair that people listening to this programme going out to work see the neighbour next door with the blinds down because they are on benefits”.

So there we have it: this Bill is intended to penalise the workless in order to be fair to working people. What we have heard today has exposed that statement as being as misleading as it is disgraceful. We are not in a position where the country is populated by workshy people, living in houses where they claim £80,000 in housing benefit a year. The noble Baroness, Lady Gardner of Parkes, may want to know that in fact the limit for housing benefit is £400 a week.

As many noble Lords have noted, contrary to what the Government would have us believe, this Bill leaves behind some of the hardest-working members of our society; 68% of those hit are in work. The Bill will take an average of £165 a year from the pockets of 7 million working households. The Autumn Statement means that the real income of a one-earner working family is set to fall by £534 a year on average in 2015-16. That is without the average £14 a week in bedroom tax coming over the horizon for a third of social sector tenants, or the loss of council tax benefit of at least £5 a week for poor families.

The noble Lord, Lord German, said it is better to take small sums from a large number of people. They may be small sums to some people but I warrant that £10 a week will be sorely missed in those households. The Government’s whole argument about the need to incentivise and reward work is, as the right reverend Prelate the Bishop of Ripon and Leeds said, smoke. In fact I would go further than that. It is really music hall smoke and mirrors—the old-fashioned kind, where you direct the spotlight at the unemployed man in the front row while the accomplice goes round the back and picks the pockets of 40,000 soldiers, 300,000 nurses, 150,000 teachers, 510,000 shop assistants and more than 1 million administrators. This really is playing politics with the lives of hard-pressed families.

What really will be the effects of the Bill? We have heard only too clearly in the moving descriptions of the impact on the most vulnerable from the noble Lord, Lord Adebowale, and in the account from the noble Lord, Lord Best, of the problems being caused to so many low-income and middle-income families by the changes to housing support. According to Crisis, there has been a 22% increase in the number of people approaching their local authority as homeless in the past two years. Rough sleeping rose by 23% last year in England. The changes already made, and those coming through universal credit, have aggravated the problems caused by the serious shortage of affordable accommodation, as described by my noble friend Lord Whitty. This Bill will play its part by pushing low-income families further into a series of impossible choices. This point was made clearly by my noble friend Lord Touhig in a very comprehensive and powerful speech. Should they pay for food or heating; pay the bills or the rent?

Once again, as we heard from my noble friends Lady Donaghy and Lady Lister, there will be a disproportionate impact on women and children. Recent House of Commons Library research has shown that changes to tax and benefits in the Autumn Statement will hit women four times as hard. Of the £1.065 billion from new direct tax, tax credit and benefit changes in 2014-15 that the Library analysed in the Autumn Statement, an estimated 81%—£867 million—will come from women. This Bill is a key culprit. The list of benefits to be hit even includes statutory maternity pay. I do not think that we would have guessed that from the Chancellor’s description of the Bill’s rationale. I suppose that if I were about to give birth I might well have my blinds drawn at 8 am, but I do not think that was quite what the Chancellor had in mind.

It is not just mothers but children who are being hit. The right reverend Prelate the Bishop of Leicester, in a very powerful and impressive speech, reminded us that we are now in the shocking situation of being on course, according to the IFS and CPAG, to see a million more children in relative poverty by 2020. If the noble Lord, Lord German, thinks this poverty measure favours his Government, I would hate to think what would happen to child poverty with one that did not. I would be grateful if the Minister would tell the House how the Bill fits with section 14 of the coalition agreement, which states:

“We will maintain the goal of ending child poverty in the UK by 2020”.

Given the points made on this by my noble friends Lady Lister and Lady Massey of Darwen, what measures do the Government propose to bring forward to compensate for the effects of the Bill?

We have heard lots of figures today but if we remember no other statistic, let us remember this one from the Children’s Society: 11.5 million children will be adversely affected by the Bill. We heard very descriptively from my noble friend Lady Massey of Darwen about the risks posed to children. As Save the Children noted, the Bill will render parents less able to afford the basics in the short term, and will seriously limit the life chances of their children in the long term.

We also heard very powerful arguments from the noble Baroness, Lady Grey-Thompson, the noble Lord, Lord Low, the right reverend Prelate the Bishop of Ripon and Leeds, my noble friend Lord Macdonald of Tradeston, and others, about the impact of the Bill on disabled people. The Disability Benefits Consortium states that since the emergency Budget of 2010, disabled people have suffered a £500 million drop in their income. The Government tried originally to claim that they were protecting disabled people by exempting some benefits for disabled people and carers from the reduced uprating. Mr Osborne said in the Autumn Statement debate:

“We will support the vulnerable, so carers’ benefits and disability benefits, including disability elements of tax credits, will be increased in line with inflation”.—[Official Report, Commons, 5/12/12; col. 879.]

The truth was expressed succinctly by Richard Hawkes, the chief executive of Scope, who said:

“This bill doesn’t protect disabled people. In fact, it cuts support for the many disabled people who are looking for work”.

I think that the Minister has some explaining to do.

We are entitled to judge the Government by their own criteria. Has the Prime Minister passed his own test of creating a good society that does not leave behind the poorest in difficult times? When we are debating a Bill which, as my noble friend Lord McKenzie pointed out, means the unemployed will see their JSA rise by 71 pence a week while 8,000 people get an average tax cut of £2,000 per week, noble Lords may judge for themselves. Has the Chancellor passed his own test about being fair to working people? I think we know the answer to that, as well. In the Bill those working people are being asked to pay the price not only of the Government’s indefensible priorities but of the failure of their economic policy.

I was glad that the Minister acknowledged that unemployment is still a problem. The money this Bill will save will be about the same as the increase in social security spending resulting from the forecast rise in unemployment just between the Budget last year and the Autumn Statement. The pain will be felt by millions of households who are already close to the edge. The noble Lord, Lord German, asked us all where we would get the money from. As my noble friend Lady Hollis pointed out in her extraordinarily compelling speech, at heart the issue is simple. The Government have a choice and are choosing to cut payments to struggling households in order to fund a £3 billion tax cut for the highest earners in the country. I look forward to hearing the Minister defend that choice.

Financial Services Bill

Baroness Sherlock Excerpts

Monday 15th October 2012 Lords Chamber

[Lord Flight]

My Lords, the series of amendments in my name are among those from Amendments 187E to 187T, and are all concerned with the interaction between the Financial Ombudsman Service and the new regulatory bodies under the new order set out in the Bill. I start by saying that I have been extremely impressed with the success of the Financial Ombudsman Service and the work that it has done. When it was set up, I was slightly concerned that its brief went beyond the law, but it has established a very successful record.

I shall go through these amendments. Amendment 187E seeks to require the Financial Ombudsman Service to exercise its functions in a way that is consistent with the FCA’s strategic and operational objectives, and with its regulatory principles—on the same sort of basis on which the Legal Services Ombudsman is subject to a high-level requirement to operate within the regulatory framework for legal services.

Amendments 187F through to 187L reflect some reservations about the new requirement on the FOS to publish reports of all its determinations. While supporting transparency in key FOS decisions, these amendments are designed to focus on more purposeful disclosures, which would be more beneficial for consumers and firms than the necessity to publish all decisions. A more balanced and focused approach to the legislation should give the FOS the statutory option, rather than the statutory obligation, to publish its determinations. This option should be balanced by safeguards for a firm to challenge publications which it considers inappropriate.

Amendment 187N seeks to make the FCA responsible for responding to regulatory issues with wider implications arising from complaints, while Amendment 187P seeks to require the FCA to conduct strategic high-level oversight of the Financial Ombudsman Service to ensure that it operates in a way that is consistent with the FCA’s objectives. In particular, to strengthen the accountability of the FOS the FCA should conduct regular reviews of its overall operations, policies and procedures. This would not and should not compromise the operational independence of the ombudsman when adjudicating on individual cases.

Amendment 187Q seeks to set out that the FCA should set out a clear process for decision-making on cases requiring regulatory or legal clarification. Amendment 187S intends that the FCA, not the FOS, should make the scheme rules. The legislation should more clearly define a fair and reasonable test, and the ombudsman should be required to take into account the FCA’s objectives, laws and regulations in force at the time of the complaint. Finally, Amendment 187T would require the FOS to be obliged to consult stakeholders before it issues guidance or technical notes about its procedures and its approach to handling common categories of cases.

[Baroness Sherlock]

In addressing this group of amendments, I remind the House of my declared interest as the senior independent director of the Financial Ombudsman Service. I hope that the House will bear with me while I go through the many amendments of the noble Lord, Lord Flight, beginning with Amendment 187E. I am concerned that this amendment would begin to compromise the independence of the ombudsman service. The ombudsman’s responsibility is to resolve complaints informally and promptly by considering what is fair and reasonable in respect of each individual complaint. That role is very different and distinct from that of the regulator and it feels important to all concerned that the two are kept distinct.

In making decisions, the ombudsman is already required by the rules to take into account a series of things: the law and regulations, the regulator’s rules, the guidance and standards, the codes of practice, and good industry practice at the time. In that way it is for the regulator to interpret its objectives and for the ombudsman to reflect this interpretation by taking into account the rules and guidance which the regulator publishes. I therefore do not think that this change is necessary, but I will go further and say that it potentially risks the unintended consequence of requiring the ombudsman to interpret the regulatory objectives of the FCA directly. Given that the nature of those proposed regulatory objectives is very wide—going, for example, up to the competition objective—it does not seem to me desirable that the ombudsman service should be put into the position of having to interpret them.

Those comments relate also to Amendment 187P, which seeks to change the relationship between the ombudsman service and the FCA in a way that again risks undermining the model of an independent ombudsman service. The ombudsman should clearly be accountable, and I welcome the provisions already in the Bill to strengthen that accountability: for example, by making formal requirements which the ombudsman has already undertaken voluntarily. The ombudsman will, for example, become subject to audit by the National Audit Office—something that it has embraced by going ahead early and voluntarily asking the NAO to come in and do an audit. However, to move to a compulsory annual review on top would involve significant diversion of effort, both by the FCA and the ombudsman service.

Related issues emerge in Amendment 187S, which would give the regulator the power to decide not just which complaints the ombudsman should decide, as now, but how the ombudsman should go about doing this, which would undermine the operational independence of the ombudsman service as an alternative to the courts. The regulator already determines the jurisdiction of the ombudsman—that is, which complaints can be considered—but the ombudsman service makes its own rules, which set out how it will deal with cases. Those are its own internal procedures, covering, for example, criteria for dismissing cases, evidential requirements, delegation by ombudsmen, rules about case fees and any costs rules. The ombudsman service is required by FiSMA to consult those likely to be affected and to have regard to any representations made by them. The rules are, of course, already subject to approval by the FSA and will be by the FCA, but deciding how to resolve cases is a crucial feature of the ombudsman’s independence, and that must be retained.

A slew of amendments, Amendments 187F to 187L—the noble Lord, Lord Flight, has been prolific—relate to the publication of ombudsman decisions. I am concerned that their effect would be to undermine the main advantage of the publication of decisions, which, it seems to me, is to share a fuller picture—a complete picture, indeed—of the cases the ombudsman deals with and his approach to resolving them. As drafted, the Bill provides a very clear obligation on the ombudsman to publish decisions unless there are very good reasons not to do so. That clarity is very welcome. The ombudsman has talked to stakeholders about how he might go about doing something such as this should Parliament decide to go down that road. Many stakeholders were very supportive of the proposed approach to publish all decisions. In my view, transparency has benefits for all involved; it can help to increase the accountability of the ombudsman, but it can also mean that cases that could be wasteful may be diverted right at the outset.

Amendment 187N also causes me concern for a different reason; it might risk challenging the work of the ombudsman to provide a prompt as well as an informal resolution of complaints, which is an important safety net for consumers. If the aim of the amendment—perhaps the noble Lord, Lord Flight, could clarify this—is to enable the regulator to deal with issues that have wider implications, it is unnecessary because the regulator is already able to do this by using Section 404 powers under FiSMA to impose a redress scheme which the ombudsman is required to follow. Of course, all the FiSMA organisations work well together anyway. The ombudsman regularly meets the FSA, the OFT and the compensation service to discuss emerging issues that could develop into risks, and wider implications can thereby be tackled. Actually, many cases could have wider implications, so if the legislation says that any case with wider implications means that all similar cases should be put on hold, that could be of significant detriment to consumers by introducing potentially massive delays into the system.

--- Later in debate ---

[Baroness Kramer]

My Lords, I suspect that everyone in this House has been plagued by the various attempts by the claims industry to get us to pass over all kinds of personal details. That worries me. Anecdotally, I have heard reports of people who responded positively to one of these messages and handed over their credit card details. They then found themselves being charged without realising that they were getting themselves into that situation. We have talked to various institutions, many of which say that half the claims presented to them are from people who have never had any relationship with them whatever. It was entirely a fishing expedition. At a time when we want our banks to focus on appropriate lending to individuals and small businesses, which they are all struggling to do effectively, to have the complete distraction and cost associated with keeping this abusive industry afloat is surely unacceptable to all of us.

[Baroness Sherlock]

I support in particular the comment made by my noble friend Lord Kennedy at the end of his contribution. He asked the Minister whether he would meet with my noble friend and other interested Members to consider if not this then what other action can and should be taken. I think that the House would be particularly interested to hear the Minister’s response on that.

It seems quite obvious that as a market the CMC sector simply is not working. Not only are significant numbers of people being pressured essentially into doing things which they do not want to do, but there appears to be no price competition in the market at all. All the evidence shows that consumers are just as likely to use a claims management company which charges 40% as one that charges 15% of any money that they might get back. Many simply are not aware that they could do it for themselves for free by going directly to the ombudsman.

If the Minister is not minded to go in that direction, will he tell the House two things? First, what would the Government be able to do very soon that would have a significant impact on targeting in particular the minority of claims management companies that are behaving very badly? Secondly, will he at least agree to meet interested Peers to discuss that matter very soon?

[Lord Newby]

My Lords, I share the concerns behind the amendment about the activities of CMCs in relation to financial services products. Like all noble Lords, I have been approached by them with the most spurious and ridiculous arguments about why I should give them details about my financial affairs in return for some often unspecified benefit. We start off by sharing that concern.

I would be more sympathetic to the amendment if I did not think that the Government were already doing something about it. I am very happy to meet noble Lords who would like to discuss the matter, along with colleagues from MoJ, to see what might be done to expedite effective action. But I do not think that it is necessary or appropriate to expect the FOS to step in as a quasi-regulator and make its own conduct rules. The role of the FOS should be to act as an independent dispute resolution service and not to act as a quasi-regulator of CMCs. It is just the wrong organisation to do that.

As I have said, I am sympathetic to what the noble Lord is seeking to achieve and I give an undertaking to set up a meeting to discuss it further. On that basis, I hope that the noble Lord can withdraw his amendment.

Financial Services Bill

Baroness Sherlock Excerpts

Monday 8th October 2012 Lords Chamber

[Lord Stevenson of Balmacara]

My Lords, I declare an interest as chair of the Consumer Credit Counselling Service, a leading debt advice and debt provision charity. Currently, Clause 6 extends the scope of FiSMA by including credit information services. They are already regulated under the Consumer Credit Act 1974, but an amendment is needed to bring them into FiSMA. Clause 6 also changes the current definition of credit contracts to include both unsecured and secured loans, and other forms of credit, and includes hire agreements as a regulated activity.

Our Amendment 147L seeks to include debt adjustment and debt management services in the Bill. This issue has already been raised several times during the passage of the Bill, and we will return to it on subsequent Committee days. The Government have given reassurances that the existing text allows debt management to be included and that they intend it to be included. Perhaps the Minister will confirm this again when he comes to respond. However, this is a permissive approach and we feel that it might not be sufficient in this case. There is a case for debt management to be mentioned in the Bill, and I will run over one or two points in support of that.

The UK’s free, independent debt advice and charity sector helps to ensure that clients pay less and are able to repay their debts more quickly compared to those clients who choose a fee-charging route. Recent figures on this are illustrative. A fee-charging company will typically involve total payments of about £35,900 on a £30,000 debt, including up-front fees and a monthly administration charge. It will therefore take nearly 10 years to wipe out the debt. On the other hand, a debt charity will repay the full amount of £30,000 in full, with no additional charges made to the client, in just over eight years.

Now, the OFT has recently looked at the practices of debt management companies in this area in relation to the guidance that it already issues. It regards misleading advertising by fee chargers as the most significant area of non-compliance with its guidance. In its 2010 review of the sector, it highlighted the fact that many firms claim their services to be free when they are patently not free. We believe that regulation is urgently needed here so that there is transparency about charges. At the same time, we also think that there should be an obligation for fee-charging services to inform potential clients of the availability of free advice services. This, again, is mentioned in the OFT’s debt management guidance; it is not thought to be widely adhered to.

The practice of charging up-front fees itself supports a business model that has pernicious consequences for people trying to repay their debts. Fees undermine the capacity of borrowers to make repayments and, as I have tried to show, that extends the timescales. Advice provided by fee-charging companies is inevitably—and, I suppose, naturally—skewed towards debt management plans and individual voluntary arrangements that generate a revenue stream for those companies. As a result, people struggling with debt often end up with the wrong solution.

The Government have proposed a DMP protocol setting out what all parties can expect from a debt management plan, and the hope is that this will ensure that debtors are treated more consistently, both by creditors and by fee-charging DMP providers. However, progress on this seems to have stalled. In any case, it is no real substitute for the strong regulation that this sector now needs.

Amendment 147M would add claim management regulation to the scope of the FCA. No one—in this House, particularly—will have failed to notice the growth in CMCs recently, particularly those touting for business in relation to financial services, such as claims for mis-sold PPI in particular. I have never taken out PPI, but ironically I had a text just before I came into the Chamber this afternoon explaining that I was missing out on £2,737, which was waiting for me simply by return through a text service. Indeed, I have had several phone calls in the past week or two.

It might just be a temporary phenomenon, and existing arrangements might well be the same, but I have my doubts. The problems that are often reported to us are aggressive or illegal marketing practices such as cold calling and unsolicited text marketing; persuading people to divulge their payment card details and then using this to take unauthorised payments for service; and failing to inform people that a claim might actually be settled on a non-cash basis, where there is an offset against a remainder debt, leaving that person with no money to pay the fees that are going to be charged.

Claims management companies are not currently unregulated; they are already covered by the claims management regulator, which is part of the Ministry of Justice. There is a statutory scheme set out in the Compensation Act 2006, and regulations and rules are made under this. Quite apart from the need to question why this area is being retained within government when we are actually setting up a new regulatory structure, there is also a question about why the Ministry of Justice has not been able to get on top of the problems that I mentioned earlier. The claims management regulator within the MoJ is actually currently consulting on current practices, but there is a long way to go.

While it may be possible for these issues to be dealt with, possibly through an order such as the regulated activities order, quite serious points continue to operate to the detriment of the consumers who are involved in this area. Bringing the CMCs, as with the debt management companies, under the supervision of the FCA is surely the right way forward. I beg to move.

[Baroness Sherlock]

I will ask a couple of questions on Amendment 147M, and in doing so I remind the House of my registered interest as a senior independent director of the Financial Ombudsman Service. I am grateful to my noble friend for raising the question of claims management companies and their regulation, something that we have come to in this House once or twice in recent months.

The problem is significant. I ask two questions, one of my noble friend and one of the Minister. Can my noble friend reflect on what would happen if and when claims management companies might move on from their current obsession with the financial services sector? As he has, I have certainly received many texts. At the moment, claims management companies are focusing on financial services, primarily because of the widespread mis-selling of payment protection insurance that has created significant consumer detriment. Therefore, there is a significant problem at the moment, and that is what they are focusing on.

However, in the past the companies have focused, for example, on people who have—or fancy that they might have—sustained personal injuries such as whiplash in car accidents. In future, they might move on to other areas. I wonder, therefore, whether we could reflect on what the best way might be to regulate this industry when in fact the target could move. It is the activity itself that needs regulation, rather than necessarily the sector.

This highlights the particular problem that we have: that the activity of claims management companies—particularly the bad activity of the minority that are doing the kind of things described by my noble friend—needs addressing. In this I wonder whether the Minister could help us out. Could he tell the House very quickly what steps the Government are taking to improve the regulation of CMCs? For as long as this activity remains within the Ministry of Justice, can he assure the House that adequate resources and powers will be made available to those doing this job to redress the kind of unpleasant practices and considerable detriment that has been created on top of the original detriment that has been done?

--- Later in debate ---

[Lord Sassoon]

My Lords, my comments on Amendments 147L and 147M will be brief, because we discussed both issues in some depth in earlier sessions of the Committee. Amendment 147L seeks to enable the activities of debt adjusting and debt management to be regulated under the Financial Services and Markets Act. I can reassure the Committee on this point. The effect of Amendment 147L is already achieved by Clause 6, which enables all activities currently regulated by the Office of Fair Trading under the Consumer Credit Act to be transferred to the FCA under FSMA. I hope that is a very clear answer and the direct reassurance for which the noble Lord, Lord Stevenson of Balmacara, was asking.

I will not be quite as brief on Amendment 147M; this continues to be an important area even though we have discussed it before. The amendment seeks to add the services provided by claims management companies to the list of matters that can be regulated under FSMA. I set out in some detail in a past session of the Committee why I do not believe that the activities of claims management companies should be regulated by the FCA. The key point is that claims management companies are not financial services firms. Yes, it is correct that a substantial proportion of their activity at the moment relates to financial services, but—as the noble Baroness, Lady Sherlock, has pointed out—they may move their focus of attention back to, or on to, something quite different in the future. However, that does not alter the fact that they focus on financial services at the moment. It does not alter the fact that they have no place in the scope of a regulator concerned with financial services and only financial services, which is what we are talking about here.

I agree, of course, with the noble Lord, Lord Stevenson of Balmacara, that there are a lot of detrimental practices in the sector that need to be tackled. I reiterate that work that is already under way to strengthen the existing regime for the regulation of claims management companies. Before the summer, I flagged that the claims management unit at the Ministry of Justice was doing work to strengthen the conduct of rules governing the sector. That work is proceeding apace and further steps are being taken. I will take back the noble Baroness’s comment about resources but I have no evidence that this work is being hampered by inadequate resources.

[Baroness Sherlock]

I am very grateful to the Minister. If the barrier is not resources, will he advise the Committee of what he thinks it is? If there is no problem, is he satisfied with the regulation at present?

[Lord Sassoon]

I am not satisfied with the conduct in the industry, which is why in August, since we last debated these matters, as the noble Baroness I am sure is aware, the Ministry of Justice announced that, from April 2013, claims management companies will be banned from offering financial rewards or similar benefits as an inducement to make a claim. I understand why there are concerns but, since we last discussed these matters, there has been significant progress.

As has already been noted in this debate, proposals have been consulted on to tighten the conduct rules with which all claims management companies must comply as a condition of their licence. The consultation closed on 3 October and the responses are now being considered. Again, the target date for implementation is April 2013. Also from 2013, the Government intend to extend the Legal Ombudsman’s jurisdiction to provide an independent complaints and redress service for clients dissatisfied with the service provided to them by the claims management companies with which they have contracted.

I believe that significant and important work is going on, and that that is the right approach. I hope I have been clear on why I cannot support proposals to make the FCA responsible for claims management regulation, which applies as much now as it will in future. The Government will therefore not be including the activities of claims management companies in the enabling provisions in Clause 6. With reassurance on the first amendment and the explanation of all the work going on more generally, I hope that the noble Lord will feel able to withdraw his amendment.

Child Trust Fund

Baroness Sherlock Excerpts

Monday 28th February 2011 Lords Chamber

[Lord Low of Dalston]

My Lords—

[Baroness Sherlock]

My Lords—

[Noble Lords]

Cross-Bench.

Comprehensive Spending Review

Baroness Sherlock Excerpts

Monday 1st November 2010 Lords Chamber

[Baroness Sherlock]

My Lords, I wish to focus on the impact of the spending review on families with children. Having looked through the measures, I have three broad concerns. First, it seems quite clear that the measures taken together have a disproportionate effect on families with children. There are £7 billion cuts in welfare spending in the spending review, on top of the previous £11 billion in the Budget. The charity Family Action, which works with some of the poorest families in this country, has calculated that there are 21 separate welfare cuts affecting working families. The IFS has pointed out that one key effect of the CSR is to refocus benefit spending away from families with children. That cannot be reasonable. Even the proposal to withdraw child benefit from a fairly random selection of higher-rate taxpayers is, in effect, not a redistribution from rich to poor but a movement of resources away from some families with children to society as a whole. Once again, a group of families with children is bearing the cost.

Secondly, the measures appear to add complexity and to get in the way of helping working families, as my noble friend Lady Hollis has so ably pointed out. Some of the cuts affect only families with one or more parents in work, such as the changes to working tax credit. I am particularly concerned about the decision to reduce the amount of childcare help that working families receive. That could cost up to £1,500 a year for a family. I spent some years running a charity that works with single parents. We ran schemes that helped single parents into work and I learnt two things: first, that most single parents want to work if they can find a job that they can combine with looking after children; and, secondly, that many of them live right on the edge financially. Every single penny is counted. A rise of 50p an hour in the cost of childcare can prove disastrous. Parents, who may find themselves £1,500 a year worse off in relation to childcare, could find that they simply cannot afford to pay the nursery or pay the childminder. If the childcare falls apart, so does the job. If we want lone parents to work, we have to make that possible for them.

This comes on top of the measures in the Budget that include something that sounds very technical, as my noble friend Lady Hollis has pointed out: a disregard of £2,500 in working tax credit for in-year falls in income. As the Minister will realise, this may sound technical but the results can be quite significant. Let us suppose that a mother loses a cleaning job or her husband's hours in his factory are cut and the family loses £2,400 a year in wages. This change will mean that their tax credits cannot be recalculated to take account of that fall in income. They could lose £975 a year from that one measure alone compared with the tax credits that they should be getting. That is not supporting work.

On complexity, there is also the proposal to localise and cut the funding for council tax benefit. The assumption seems to be that council tax benefit will be replaced in April 2013 by grants to local authorities, which can choose the best way of using the money to try to provide rebates for council tax bills. The budget will be £500 million a year less, so clearly poorer families will lose out, but it also means that we will end up with 100-plus local authorities deciding the best way in their authority to rebate council tax. As the IFS has pointed out, that goes directly against the principles behind the Government’s universal credit; it goes directly against a single national policy, against clarity and against simplicity. As the IFS points out, it also creates a postcode lottery in which some local authorities may choose to use the money to persuade low-income families to live somewhere else. Therefore, it fails both the fairness test and the complexity test.

Finally, I am concerned about the measures that could hit the very poorest families. Poor families with children will be disproportionately hit by many of the housing measures that the Government have proposed. The measures to cap benefits must surely affect mostly large families who live in high-rent areas, often because that is where the jobs are. Even the flat-rate measures will strike terror into the heart of families more than others. My noble friend Lord Knight of Weymouth referred to the proposal to cut 10 per cent from the housing benefit of people who have been on JSA for more than a year. I truly cannot understand what that measure is designed to achieve. It obviously cannot assume that your rent goes down if you are on the dole for a year; and it cannot presumably be to motivate you to look for a job because the JSA already does that. If you do not look for a job, your benefits can be sanctioned. If you are offered a suitable job and you do not take it, your benefits can be stopped altogether. It cannot be to motivate you to do that. What, then, can it be for? I simply do not understand it. Is it simply a punishment for having failed to find a job? Do the Government believe that it is impossible not to find a job? If the Minister thinks that, I would be very happy to take him to parts of County Durham where I could demonstrate only too readily that that is not the case.

What would be the effect of that? If you have been out of work for a year, you have probably already exhausted all your savings; you have probably already been round all your friends and family and anyone else in your network who has money, many of whom will be in a similar position in some areas. So what do you do? If, at that point, your housing benefit is cut by 10 per cent, even if that were only £15 a week, that could be an enormous amount of your disposable income. Frankly, it might as well be £1,500 a week for all the difficulty you will have in finding it. What would that do to a family with children? You are out of work, your housing benefit has been cut and your landlord will not randomly reduce the rent for those who happen to have been on JSA for more than 12 months, so you cannot make the rent and at some point your arrears build up and you are likely to be evicted. Then we have a homeless family. How is public policy advanced in any way? Even if we simply wanted to make it likely for them to get back into work, how would they do that? What are the consequences for the children? I simply cannot understand what this policy is designed to achieve.

We all accept that there must be some pain as we try to lift our country out of this global recession, but we all agree that it must be done fairly. I suggest that fairness requires two things, and I hope that the Minister will take careful note of these. First, fairness requires—a phrase I think he likes—that those with the broadest shoulders should bear most of the burden. Sadly, the IFS has already proved that the CSR is clearly regressive and that that is not happening. Fairness also requires that the most vulnerable, those with the least ability to cope, should be protected from the worst effects of the cuts that we must all bear. How could poor families with children be anything other than in that category?