Credit Unions

Lord McFall of Alcluith Excerpts

Thursday 13th December 2012 Lords Chamber

[Lord McFall of Alcluith]

My Lords, it is a pleasure to participate in the debate today and in particular to congratulate my noble friend Lord Kennedy on initiating it and, as has been mentioned previously, his continuing work to emphasise this particular issue.

As a member of the Parliamentary Commission on Banking Standards, I and my colleague in the other place, John Thurso, visited Edinburgh last week to take evidence from credit unions, Citizens Advice and money advice services. The question in our minds was: how can we have a banking system that serves the whole of society, especially low-income and unbanked people who are not presently covered, and is there a duty on society and institutions to ensure that everyone participates fully in that society? We have moved from a banking system in which only a fraction of the population had bank accounts to a situation where people need a bank account even to receive state benefits. The banking system is now central to everything that goes on in society. Consequently, the treatment of ordinary citizens by banks—not simply the corporate context—is pivotal to adapting the present system to serve the modern needs of society.

It is a fact that those financially excluded are now also socially excluded. That is where credit unions come in. Mention has been made of the feasibility study done by the DWP in May 2012, a good piece of work which found that the total market for modern banking services for low-income people could be as high as 7 million, with 1.4 million in society presently unbanked. Credit unions are ideally placed to help meet this demand and serve that additional 1.4 million people.

Of course, as has been mentioned, consumers trust credit unions to provide their financial services. That is in contrast to what is happening at the moment with the major financial institutions. The motto of the City is: “My word is my bond”. A MORI poll conducted six months or a year ago in the City found that 80% of those who worked there did not recognise that that was the motto, so something has become disengaged. An anchor has slipped somewhere on that and we need that diversity. At the moment we have five or six major financial institutions—banks—in the United Kingdom worth 450% of the country’s GDP. Not only is that uncompetitive but it does not serve the financial stability interests of the country. That diversity is important.

One problem with credit unions, which was mentioned to us last week, is that they are seen as a poor man’s—or woman’s—bank. That is not so on one level, where they have an advantage and strength in offering services to people whom mainstream banks do not presently serve. But on another level, if credit unions are to grow and become fully established as a potent force, they need to attract the full spectrum of savers—from the low-income to the high-income people. The potential for growth in that area is extensive.

Presently, there are good competitive deals existing in the credit union movement. It was pointed out to us that if a credit union can hold interest at 12.7% APR—which is a target that they all try to achieve—for loans of up to £3,000, those rates are among the best in the market. Glasgow Credit Union, the biggest credit union in Britain, at the moment has a £3,000 loan over 36 months at 12.9%. That is better than any loan from any commercial banking organisation. So there are good things going on at community level at the moment. However, the number of credit unions that can offer current accounts and mortgages total only 24 out of the more than 400 in the UK. Thirty-six thousand people have current accounts. Again, only the four biggest credit unions do mortgages. That is a drop in the ocean and gives an illustration of the opportunity.

If the target of an additional 1 million members is to be reached in the next seven years, credit unions need to be attractive to people of all incomes. Talking of that, the new Moderator of the Church of Scotland, the Right Reverend Albert Bogle, was down in Westminster a couple of weeks ago. He invited me to dinner because I had been on the Church of Scotland’s economic commission looking at the future of the economic circumstances in Scotland. We suggested that following that economic commission, and following the Moderator’s interest, it would be good to think of developing something like a Church of Scotland-wide credit union for the whole of Scotland, because in the Church of Scotland you have high-income earners and low-income earners. It is an ideal establishment for that. I have encouraged the new Moderator to talk to the Scottish Government and the DWP so that we can get that going.

Mention was made earlier of the Irish experience. If we look at the experience in Ireland going back to the 1950s, it was the church there, particularly the Catholic Church, that encouraged members on higher incomes to save so that they could embrace members who needed to borrow, and do so at more affordable and ethical rates. The coverage of credit unions in Britain is 1%, while the coverage of credit unions on the whole island of Ireland, comprising the Republic of Ireland and Northern Ireland, is reaching 30%. So there is a good example for us to follow in that particular area.

The message for today is that credit unions are not the poor man’s or woman’s bank; they are everyone’s bank. I am proud to have been influential in my own area when I was a Member of Parliament in establishing a credit union in Dumbarton, particularly ensuring the common bond. My wife and I were founding members.

I also had the Dalmuir Credit Union in my constituency, which was started by one woman, the late Rose Dorman. It now serves more than 6,000 members and is one of the most flourishing credit unions, but it was down to her social entrepreneurship. There are many Rose Dormans up and down the land. So faithful was she to the credit union movement that when she was dying in St Margaret’s hospice, she called me in to visit her to tell me that the then Treasury consultation paper on credit unions was flawed and she wanted me to do something about it—and we did listen to her in part on that.

What has been suggested this morning came up in evidence last week in Edinburgh, that a major step forward to make credit unions more widely available would be that partnership with the Post Office network. We have been informed that that could indeed be possible if technology could be put in place and if funding was made available by the DWP from the credit union expansion project.

It is important here to emphasise points that have been made earlier. There is a complementary role between banks and credit unions, not just a competitive role—one that is in the interests of both entities: a strong mutual sector, a strong credit union sector and a strong commercial sector learning from the best of each other and thereby helping to serve the interests of consumers in society.

Already there has been some recognition from banks that credit unions have a part to play. For example, the Co-op Bank provides, on a commercial basis, back-office facilities for current accounts; the Clydesdale Bank provides back-office facilities for debit cards; Barclays, the Co-op and Santander post events and provide research for credit unions. The Co-op Bank in particular has seen a host of new business in the past 12 months, as my noble friend Lord Graham has mentioned. That is down to its ethical policy.

We cannot leave this debate without touching on those two words: culture and ethics—culture meaning behaviour and ethics meaning how we resolve the many conflicts of interest in financial services. As one former bank chief executive said to me when I was examining the financial crisis, “It is as if too often people had given up asking if something was the right thing to do and focused only on whether it was legal”.

If we are to build a market that is efficient and fair, non-market values have to underpin it. I refer to Adam Smith, professor of moral theology in 1759 at my alma mater Glasgow University, from which I was proud to receive an honorary doctorate a few years ago. In his writings, Adam Smith was convinced of the necessity of a well functioning market economy, but not of its sufficiency. In The Theory of Moral Sentiments, published in 1759, he argued that while prudence was,

“of all virtues that which is most helpful to the individual … humanity, justice, generosity, and public spirit, are the qualities most useful to others”.

He was also deeply concerned at the inequality and poverty that might remain in an otherwise successful market economy. Today we are witnessing those very issues of widening inequality and deepening poverty. Smith’s comments are as relevant today as they were when they were written more than 250 years ago.

Financial inclusion, diversity in the banking model, reinvigorating mutuality and the establishment of a new ethical framework and culture are urgent. The credit union movement is integral to these initiatives. It deserves our support not only on these market considerations but on those non-market sentiments and qualities of justice and public spirit, alluded to previously, which they execute on a modest yet ambitious daily basis up and down the land.

The right reverend Prelate the Bishop of Durham said the credit union has a distinctive purpose and nature. It is that distinctive purpose and nature that will be beneficial to the financial services industry and to the wider consumer—and one which we must take seriously today, move the debate on, turn things into reality, and make it a big player in financial services in the United Kingdom.

Youth Unemployment

Lord McFall of Alcluith Excerpts

Thursday 14th June 2012 Lords Chamber

[Lord McFall of Alcluith]

My Lords, I am privileged to participate in this debate. I congratulate my noble friend Lord Adonis on his compelling and lucid exposition of the problem and the way forward. As my noble friend Lord Giddens said, this is a complex problem, and we have to see it in the wider context of inequality and global unemployment. According to ILO figures, there are 75 million unemployed people aged between 18 and 25. The first thing the Government should do is to look again at growth. That has been missing from this agenda, and it is very important that we look at it.

There have been recessions in the 1980s, the 1990s and now. After each recession, youth unemployment went up, but since this recession youth unemployment—those without work and not in education—has increased by 232,000. Mention has been made of the Labour Government’s target to eliminate child poverty by 2020. That was not fully achieved, but the figures today show that 900,000 young people have been taken out of poverty. That is a cause for some celebration, but there is much to do. I suggest that the Government copy the Labour Government’s 2020 target for child poverty by having a similar target for youth unemployment. The first priority should be to reduce it to pre-recession levels using jobcentres. The Labour Government used jobcentres, when they were revamped, very well to get people into employment. Establishing a youth employment and skills service would be very important in that area.

The Government need to be mindful of the welfare cuts of £2 billion that took place on Good Friday this year. There has been talk of an extra £10 billion of welfare cuts. It is very important that the Minister says that that will not happen, because the cuts that have taken place have already affected low-income families and people looking for jobs. Today’s Daily Telegraph reports the Secretary of State for Work and Pensions saying: “Get a job, IDS tells parents on dole; Working at least 35 hours a week is only way to lift children out of poverty”. We agree, so we are looking for government proposals to see how that is done. The overriding message today has to be that it is not the private sector that is going to do this. We are facing massive deleveraging. As the noble Lord, Lord Giddens, said, this recession is going to take many years to sort out. We are talking about a decade or more, so a government initiative and an active welfare state are very important.

The Government could illustrate their commitment on that by ensuring that each government department—indeed, each government Minister—has a number of such young people. If the Prime Minister were seen coming out of Downing Street into his car with a couple of young unemployed people behind him, it would send a powerful visual message that the Government were taking this issue very seriously. A Minister for Young People, particularly unemployed young people, is very important.

Education has been mentioned. Education is the way forward. I left school at 15 or 16. My second chance came by going back to night school, then to further education and then to university. For me, that was the pathway forward. It was my salvation. We cannot emphasise enough the need for education. The suggestions that have been made to the Minister today should be taken very seriously. We should use further education colleges, particularly in the technical skills areas and local areas, to foster that extra employment for young people. Above all, the economy needs to be rebalanced. There is a growing north-south divide. I know that from representing an area where employment has consistently been relatively high. I suggest that there are still lessons to be learnt from the Mittelstand in Germany and from the Fraunhofer Institute about how they integrate manufacturing and education. A lot could be made of that issue.

We are establishing a forgotten and invisible generation, particularly those without skills or qualifications. I saw that when I was a deputy head teacher in the 1970s in Glasgow. I was put in charge of a truancy unit, as it was called, for children who did not come to school. They were demotivated at such an early age. They were alienated, and it was very difficult to get them to engage. The message is that we should not give up. We need a more intensive approach in education. My noble friend Lord Adonis made a number of very valuable suggestions on education, which I think the Minister has taken on.

As a former teacher, I have also seen the long-term effects when young people leave school alienated and disillusioned. It has been my sad experience to meet some former pupils 10 or more years later. They have a partner or a wife and children, but when you ask them about their job, they say they have never had one. Between 18 and 25 are the precious six or seven years. Experience and statistics show that if we do not get young people at that time, we have possibly lost them for life. That is the message that we have to address today. The overriding question is how we address the insecurity in society. As the right reverend Prelate said, our generation feels that the next generation will not have the same chances. I suggest that economic progress and social stability go hand in hand and, if we do not tackle youth unemployment with vigour, we are destroying the future not only for young people in this generation but for all in society.

Youth Unemployment

Lord McFall of Alcluith Excerpts

Tuesday 14th February 2012 Lords Chamber

[Lord Freud]

My Lords, we are making it a statutory duty to ensure that schools take up their responsibility to provide careers advice, so that it is supplied at the point it should be, right where it is best received. Existing provision has been much too patchy.

[Lord McFall of Alcluith]

My Lords, the International Labour Organisation has said that youth unemployment is facing the greatest crisis in a generation. The global crisis has added to youth unemployment here. As someone who taught in the Glasgow area in the 1980s, I saw young people leave school and met them 10 years later when they had partners and children, but they did not have a job. Is it not a crying social and economic shame that we do not do more for young people at this stage to ensure that they adapt to the workplace and play a full role in society?

[Lord Freud]

My Lords, a point that I have made here in the past is that we have had a structural issue with youth unemployment for more than a decade, The number of youngsters inactive or unemployed has been growing steadily, right through to the end of the longest boom that we have ever had. My view—and the Government’s view—is that the best way to tackle that is to make sure that youngsters have education that gets them fit for the workplace. That is why this Government have taken on in toto all of Professor Wolf’s recommendations, because they deal with these core issues.

Pensions: Occupational Pensions

Lord McFall of Alcluith Excerpts

Wednesday 1st February 2012 Lords Chamber

Asked by

[Lord McFall of Alcluith]

To ask Her Majesty’s Government what steps they are taking to reinvigorate occupational pensions.

[Lord Shutt of Greetland]

My Lords, before the debate is introduced, I hope I may make the normal point that it is a timed debate. Apart from the mover and the responder, other noble Lords are limited to six minutes. The monitor is dark now but when it shows six, the six minutes are up.

[Lord McFall of Alcluith]

My Lords, I am delighted to introduce this debate on occupational pensions. Last year I was asked by the National Association of Pension Funds to set up a working party looking at occupational pensions. When the report was published, I mentioned that a golden sunset of pensions was giving way to a bleak dawn. Many millions of people will face poverty in retirement—some absolute poverty. That is the inauspicious background to this debate. People are saving less and less and there is less and less trust in the pensions system. In fact, the NAPF confidence index is presently at minus six—the lowest it has ever been since its inception.

I want to look at the issue of risk. The flight from defined benefit to defined contribution schemes means that all the risk is on the saver. In effect, the saver is often left to navigate through a pensions minefield which would puzzle the brain of Albert Einstein. The consumer is short-changed and the voice of that consumer is missing. We need to ensure that that voice and that presence is centre stage in pension provision. In the flight from defined benefits to defined contributions, it strikes me that it is not just the risk which has shifted from the employer to the employee but that the onus is on the employee—the individual—to make critical decisions about their pension which they are ill equipped to do. It is a fiendishly complex matter and they need help and reassurance from scheme trustees who promote good governance. We need good, strong, independent governance. That is central to good member outcomes. We can achieve that good governance only if we have an environment which is conducive to achieving that, and if we have proper structures. We need schemes which are of a sufficient size to enable them to reap the benefits of scale and produce low charges to ensure that we get good governance and high-quality communication.

At present, there are 54,000 separate DC schemes operated by tiny employers in this country. With the average worker now changing job 11 times, we see the proliferation of these tiny pension pots with no portability. These have two critical disadvantages. First, they lack the scale efficiencies of larger ones and have inadequate governance, and, secondly, they tend to deliver worse outcomes at higher costs. There are no compensating benefits whatever.

The Pensions Minister, Steve Webb, has put out a challenge on red tape, as he calls it. That is a welcome opportunity to reinvigorate the pensions landscape, not just by eliminating regulation but by ensuring that we have better and more appropriate regulation. The environment for employers should be one whereby they offer decent workplace pensions with a minimum fuss, while ensuring that members’ benefits are protected. A key area for government consideration is over the risk-sharing between employer and employee. The Government need to ensure that employers who want to assume some risk are incentivised to do so. The questions that need consideration are: how should the Government support and reinvigorate multiemployer- wide schemes? In what ways can they fiscally encourage employers and reward them for taking on some of the risks?

The third aspect is auto-enrolment and NEST. This is welcome because it has the potential to encourage between 5 million and 9 million people to save for retirement in addition to those who have not saved previously—largely those on a low income. First, the Government have to look at the state offering and establish a firm foundation for saving. It will not be worth while for people to save if that firm foundation is not in place. Secondly, I have a simple message for the Government: remove the shackles from NEST. Take the messages that its chief executive Tim Jones and chairman Lawrence Churchill gave to the DWP Select Committee a few months ago. The cap and transfer-in rule are preventing the best outcome for institutional savers and government. The rule stops consolidation of existing pension provision for employers into NEST, and the cap ensures that employers have to run more than one scheme—one for the lower paid and another for higher earners—if they choose NEST.

Lawrence Churchill’s remarks to the committee were telling. He said that 40 per cent of the lower paid are engaged by large employers, so already 40 per cent of those whom he called “our market” will not use NEST because of the restrictions. By impeding the volume of business for longer, the Government’s loan will take longer to be repaid. It is therefore wise for the Government to remove that contribution cap. By doing so, NEST would need £100 million less in taxpayers’ money. It should be remembered that the shackles were imposed because of a 2005 political settlement. Removing the restrictions would ensure efficient organisation, and auto-enrolment would incentivise industry to lower costs and charges.

On the issue of costs and charges, disclosure is inconsistent among schemes and providers. In fact, what is consistent is the opacity of disclosure. We need transparency on the cash impact on pension pots. I welcome the code of conduct that NAPF has established as a result of my committee’s proposals. Let us keep in mind that a 2 per cent fee over the lifetime of a pension, which is not out of line, swallows up 50 per cent of an individual’s pension pot. My message to the Government is: do not wait and see the impact on high charges; use regulatory powers to apply stakeholder charge-capped schemes that are eligible for auto-enrolment.

The UK has the largest annuities market globally—450,000 were purchased in 2009 with a total value of £11 billion, and that will increase in the years ahead. Research since 1957 indicates that for each year of life expectancy, annuity rates have fallen by 0.56 percentage points. What does that translate into? An individual with a £100,000 pension pot in 1957 could have secured a pension of £11,000. In 2009, a similar pot could have secured a pension of £6,200 and, in 2010, £5,200. As the Minister knows, the rates offered can also vary by more than 25 per cent for a similar individual and annuity type. Shopping around should therefore be the default position, and there is a long way to go in that area. The reason that it should be the default position is that it would allow more flexibility for the changing spending patterns in old age.

The issue of Europe has been brought to me through lobbying. Lobbying by companies is very relevant because of the negotiations on Solvency II. The Government have to be vigilant here because if we do not get the right outcome, we will see the death of defined benefit schemes in the United Kingdom.

Lastly, on stability, the pensions cycle is between 40 and 50 years. The political cycle is between four and five years. We are out of sync. Since 1996, there have been more than 800 changes to pensions legislation and regulation—the equivalent of one change per week. I say to the Minister that that does not add stability. What we need to do is think about taking the politics out of pensions. A standing advisory body on, say, longevity and state pension ages, would be a good start, but we need a pension policy that is stable, for the long term and based on political consensus. I therefore suggested in our report, and suggest again to the Minister, that an independent standing commission on pensions should be established to ensure that the interests of the saver are centre-stage for the long term. If we work together in harmony on these proposals, perhaps we can assist in averting a bleak dawn for pensioners in the future.

Universal Credit

Lord McFall of Alcluith Excerpts

Wednesday 21st December 2011 Lords Chamber

[Lord Freud]

Yes, my Lords, simplifying the process, the RTI pilots will start in April next year with a group of 300 volunteer software developers, employers and pension providers. In the autumn of next year, we will have integration testing, with a view to having the full migration of everyone from April 2013 to October 2013.

[Lord McFall of Alcluith]

My Lords, can I bring to the Minister’s attention the Cabinet Office document, Major Project Approval and Assurance Guidance? Paragraph C.15 says that the assessors designate projects as either “noteworthy and positive” or “noteworthy and cause for concern”. Under which category does universal credit come? Can the Minister place copies of these designations in the House of Lords Library so that we can trace these issues and save the taxpayer many billions of pounds, as we could have done in the case of HMRC over the past few days?

[Lord Freud]

My Lords, basically our categorisation in the latest plan is that urgent actions are still required. We are tending towards the problems appearing to be manageable with the actions in hand. That is the position that we are in, which will probably be no surprise at this stage in the project.

Poverty

Lord McFall of Alcluith Excerpts

Thursday 22nd July 2010 Lords Chamber

[Lord McFall of Alcluith]

My Lords, it is a deep privilege for me to be a Member of this House, and particularly to be making my maiden speech today. Since my introduction, I have found nothing but a welcoming atmosphere and encouragement from all sides of the House, and I would like to put on the record my thanks to all the staff of the House—the Doorkeepers, the Library staff, the catering staff and others—for their care and attention both of me and my family, especially on the day of my introduction. I would also like to thank my sponsors, my noble friends Lord Graham of Edmonton and Lord Myners. My noble friend Lord Graham is an old friend. He entertained my children over 30 years ago and he met them again. I think they were better able to understand his humour as a result of the passage of time.

I have long admired the intellectual rigour and broad expert nature of debates in this House. My interest goes back to the days when I was an opposition Front-Bench spokesman in the other place. I made it a feature to read the Lords’ Hansard to better perform and educate me in my role. I hope that it did that, and I am now delighted to have a ringside seat at these debates.

I was privileged to represent West Dunbartonshire for 23 years, and I was born and bred in Dumbarton, as was my wife, Joan. The noble Lord, Lord Watson, asked where Alcluith is. It is the Gaelic name for Dumbarton and goes back to the dark ages of the fifth century. I was unable to obtain the name “Dumbarton”, so Alcluith was the name I focused on. Alcluith literally means “the rock on the Clyde”. The rock refers to Dumbarton castle, which is associated with historical figures such as Robert the Bruce and the infant Mary, Queen of Scots before she was taken to France for her safety. Merlin is supposed to have stayed there, too. The earliest reference to Alcluith is recorded in a letter from St Patrick to King Ceretic of Alcluith in which he complains about the raids the Britons were making on his Irish converts. I can tell noble Lords that complaints and warring factions are still a feature of my area, and over the years I have been asked to mediate in them, but that is part of a healthy society. The primary school I attended was named St Patrick’s, as was my secondary school. In fact, my first teaching post was in St Patrick’s secondary school. As one of my friends said the other day, “John, if Alcluith is good enough for St Patrick, then it’s good enough for you”. I take the point well.

The other part of the name refers to the River Clyde, which has dominated my area because it has been a site of shipbuilding dating back to the days of Robert the Bruce when he set up shipbuilding on the River Leven and the River Clyde. The area has an historic industrial heritage, with shipyards lining the Clyde. As far back as 1963, there were 33 shipyards on the Clyde. In my area, we had the mooring where the “Cutty Sark” was built, and we had the “QE2”, for which I was privileged to represent the Clydebank area, and the former John Brown’s shipyard. In my home town of Dumbarton we had Denny’s shipyard, which closed in the 1960s but which was able to develop the hovercraft. So there is a proud shipbuilding history in the area, and I have been privileged to chair two regeneration companies in my constituency, Clydebank Re-built and the Strathleven Regeneration Company, both of which are dealing with the consequences of our industrial heritage and hoping to formulate a new age. I have included the Strathleven Regeneration Company in my interests in this House, and I also declare an interest, which is recorded in the register of interests, in a company that has aspirations to be a bank.

I come from having nine wonderfully privileged years chairing the Treasury Select Committee in the other place. Latterly, times were hugely uncertain and worrying. They have been challenging for our country and its citizens. One of the achievements of which I am most proud is that in the teeth of very divisive debate between the political parties as to the source and responsibility for the crisis, the Treasury committee kept its focus and delivered unanimous reports throughout the period which, in the words of the then Chancellor and the Governor of the Bank of England, pioneered the way forward for restructuring the financial sector. That resulted in reform in the UK that has not been seen in other major countries.

This week, the Treasury committee came out with its report on the June 2010 Budget. It is pertinent to the debate today because it warns of the increasing risk that Britain will slide back into recession, and of the coming austerity hurting the poor disproportionately. Robert Chote, the distinguished head of the Institute for Fiscal Studies, gave evidence to the committee that the Budget is regressive, contradicting what the Treasury said, which was that it was progressive. Robert Chote pointed out that when you dig deeper, you find that the Chancellor’s statements have been focused only on the next two years, to 2012-13, but beyond that, experts say that the cuts in housing benefit, disability living allowance and the in-year changes to tax credits will hit the poorer half of households harder than they will the rich. The Chancellor is on record as saying that the Budget will not increase poverty according to measured child poverty targets over the next two years, but given that many welfare cuts will not take effect until after 2012-13, one can understand the concerns of experts and groups such as Save the Children and the Child Poverty Action Group about the future, particularly for poorer people.

The Chancellor has made promises that have to be set against the provisions in the Child Poverty Act 2010, which will guide him. The Government have signed up to this Act and, as previous speakers in the debate have said, it makes meeting the 2020 target of eradicating child poverty legally binding. The 2010 Act has four targets. An assurance has been given by the Chancellor on what he declares is “measured child poverty”, but that is limited to a two-year timeframe. No assurances have been given on the other three targets set out in the Act. If this Budget is indeed to be worthy of the description “progressive”, it demands detailed and continuous scrutiny in order that the Government’s ambitious rhetoric and their solemn legislative undertakings serve the interests of all, but especially the poorer and most needy members of our society.