Financial Guidance and Claims Bill [HL]

Lord McKenzie of Luton Excerpts

Committee: 3rd sitting (Hansard): House of Lords
Monday 11th September 2017 Lords Chamber

Moved by

[Lord McKenzie of Luton]

47A: Clause 5, page 4, line 16, at end insert—
“( ) Guidance issued by the Secretary of State under subsection (1) is to be made by statutory instrument subject to annulment in pursuance of a resolution of either House of Parliament.”

[Lord McKenzie of Luton (Lab)]

My Lords, I will also speak to Amendment 48. Clause 5 says:

“The Secretary of State may issue guidance and give directions to the single financial guidance body about the exercise of its functions … The Secretary of State must publish any directions that are given to the single financial guidance body … The single financial guidance body must have regard to guidance, and comply with directions, given to it by the Secretary of State”.


Amendment 48, which is where we started, requires the Secretary of State to publish any guidance issued as well as directions. This guidance is, as we have heard, not discretionary, and the SFGB must have regard to it. The Delegated Powers and Regulatory Reform Committee, however, in its first report of the 2017-19 Session, takes the view that a parliamentary scrutiny process should apply to these provisions. It considers the negative procedure an appropriate level of scrutiny, hence Amendment 47A; that is what the amendment requires. Obviously, such a procedure would appear to encompass the guidance being published in any event. I beg to move.

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Buscombe) (Con)]

My Lords, I thank the noble Lord, Lord McKenzie, for tabling these amendments to Clause 5, which provides for the Secretary of State to issue guidance and directions to the single financial guidance body about the exercise of its functions. It requires the body to comply with any directions and have regard to any guidance, and requires the Secretary of State to publish any directions.

Amendment 47A would require any guidance to be made by statutory instrument subject to annulment in pursuance of a resolution of either House of Parliament. Amendment 48 would place an obligation on the Secretary of State to publish any guidance.

Clause 5 facilitates a sensible working relationship between the body and the sponsoring Minister. It allows the body flexibility and independence in managing its business but balances this with a recognition of Ministers’ responsibilities to Parliament. Conferring functions on an arm’s-length body involves recognition that operational independence from Ministers in carrying out those functions is appropriate. Nevertheless, the sponsoring Minister remains answerable to Parliament for the activities of the body, including any failures.

I believe we are in agreement that creating the body is the right thing to do. I also agree with the comment of the noble Lord, Lord Stevenson, at Second Reading that it is important that we learn from the experiences with the Money Advice Service about what worked and what did not work successfully. One issue highlighted by the independent Farnish review of the MAS in 2015 was that the MAS’s formal accountability regime needed to be strengthened. The review concluded that it was not possible for any party, including the FCA and HM Treasury, to hold the MAS fully to account, either for the way it discharged its role or for the money it spent.

In setting up the single financial guidance body, it is therefore important that a balance is struck between enabling the sponsoring Minister to fulfil his responsibilities and giving the body the desired degree of independence. An arm’s-length body needs to have a degree of autonomy in order to deliver effectively but it also needs to have a good and constructive relationship with its sponsoring department. Arm’s-length bodies represent an extension of the department’s delivery, so it is important that we think about a department and its arm’s-length bodies as a total delivery system. Building trust between the department and the new body—this is critical to the point—will be essential in enabling the right balance to be struck between the body’s autonomy and the Government’s accountability.

In drafting Clause 5, and the Bill more widely, we have sought to provide a legislative framework that allows the body flexibility and independence to make the most of expertise and innovation in managing its business, and to balance that within the context of it being a public body. The single financial guidance body will be a non-departmental public body, responsible for supporting the delivery of government policy.

Clause 5 provides for the Secretary of State to give guidance to the body and requires it to have regard to that guidance in exercising its functions. Amendment 47A would require regulations to be made by statutory instrument, subject to annulment, in pursuance of a resolution of either House of Parliament. I consider that this would represent a degree of scrutiny unwarranted by the non-binding nature of the guidance in question.

Guidance provided by the Secretary of State to the arm’s-length body could cover myriad topics. Guidance could also be sought by the body; it is not necessarily just given. The relationship between an arm’s-length body and its sponsoring Minister and department is critical to the successful delivery of its functions. As in all professional relationships, whether between a sponsoring Minister and an arm’s-length body or a board and its executive team, being able to seek and give guidance in a straightforward and candid way will be important.

Having regard to guidance does not mean that the body must act on that guidance. For example, in commissioning or contracting services, the single financial guidance body may seek guidance concerning government procurement rules or the interpretation of those rules. Guidance may also be given or sought by the body to inform business planning. For example, where government develops a new policy that could affect the services it provides, the body will need guidance to enable it to prepare for potential change. Noble Lords will recall that the Pension Wise guidance service went live at the same time as the pension freedoms were introduced. This required considerable advance planning and service design.

In all those circumstances, it would be disproportionate to expect a statutory instrument to be drafted and for Parliament to scrutinise it. Also, the Secretary of State publishing guidance would not be consistent with the informal nature of much of the guidance that may be given. It would inhibit the critical relationship between the sponsoring Minister and the body supporting the delivery of government policy, and it could deter the body from seeking guidance, or the Minister giving guidance when it would be more sensible to do so. Further, a requirement to publish a guidance could lead to a position where the body feels obliged to respond publicly should it not act on the guidance, or feels under undue pressure to follow the guidance provided regardless whether it makes sense or is appropriate in the circumstances.

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On the basis of that long, full explanation—for which I make no apology—I urge the noble Lord to withdraw his amendment.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for that reply. I am a little surprised at the position the Government have taken on this. We all agree about the need for balance and flexibility in the arrangements—that is important—but the Government have written into the Bill provisions that give the Secretary of State the opportunity to issue directions and for there to be guidance. The Minister said the guidance is not binding. I accept that it is not technically binding but the provision is clear that a single financial guidance body must have regard to it. There is a strong imperative for the body to do that unless, presumably, there are exceptional circumstances.

Even if the Minister is not happy with the recommendation of the Delegated Powers and Regulatory Reform Committee that the negative procedure should be attached to this, the Government are setting their face against the guidance being published as well. That is an unduly restrictive approach. The report of the Delegated Powers and Regulatory Reform Committee is very clear. It states:

“There is a clear distinction between guidance that the recipient is free to disregard and guidance to which the recipient must have regard and must follow. People required by statute to have regard to guidance will normally be expected to follow the guidance unless they have cogent reasons for not doing so”.


The Government have not taken that into account in their very restrictive response.

There is no point in ranging over this point more extensively at the moment. However, I am surprised and we will return to this on Report. In the meantime, I beg leave to withdraw the amendment.

Amendment 47A withdrawn.

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[Baroness Altmann]

My Lords, I too support the thrust of this amendment moved by the noble Baroness, Lady Drake, and the remarks of the noble Baroness, Lady Kramer. I hope my noble friends on the Front Bench will take seriously the efforts being made around the House to improve protection for consumers. I whole- heartedly support the aims of the Bill and I congratulate my noble friends on bringing it before the Committee, but adding to it measures such as this would very much strengthen protection for the public.

[Lord McKenzie of Luton]

My Lords, I support my noble friend, who has drawn a strong parallel with the experience of Pension Wise, with which she was heavily involved. She made the point that it is not only those who might be termed traditionally vulnerable people who are at risk from the ingenuity of impersonators but those who might be more sophisticated.

I should like to make a brief reference to paragraph 17 of the memorandum that the DWP sent to the Delegated Powers Committee. It says:

“Deferring the announcement of the name will also help protect the new body’s brand and reduce the likelihood of the setting up of ‘imposter’ websites as a means of deceiving and defrauding the public. Imposter websites could put members of the public at risk”,


and,

“were an issue when the Pension Wise brand was launched”.

If they were at risk before the naming of the body, what will give strong protection once the body is named? That seems to be the thrust of my noble friend’s amendment, which I support.

[Lord Young of Cookham (Con)]

My Lords, the co-pilot is back. I thank the noble Baroness, Lady Drake, for tabling this amendment, which would make it a criminal offence to falsely claim to be giving pensions guidance, money guidance or debt advice on behalf of the single financial guidance body. She set out very clearly the devastating impact that misleading or criminal advice can have on people’s lives. Both she and the noble Baroness, Lady Kramer, identified the ingenuity and adaptability employed by scammers and fraudsters to con people.

I was very interested in this amendment and made inquiries to see who would be caught by it. Clearly, people who claimed to give advice on behalf of the SFGB, or whatever it is called, would be caught but, as it stands, I understand that it would not cover someone pretending to give advice on behalf of a delivery partner. The noble Baroness may like to think about that.

Protecting people from financial fraud and scams is important, and I say to my noble friend Lady Altmann that the Government take it very seriously. Anyone who has served in another place will have seen at first hand the devastating impact that this can have on people’s lives. We will come on to cold calling when we reach Clauses 16 and 17.

Ensuring that people have confidence in the financial guidance and debt advice provided by, or on behalf of, the SFGB will be central to its success and to the success of other government policies to improve people’s financial well-being. This is a matter that we have explored in depth with the existing service providers—the MAS, TPAS and Pension Wise. As the noble Baroness said when she moved her amendment, of those three, only guidance provided under the Pension Wise banner is covered by a specific measure making it an offence to falsely claim to give such guidance. The MAS and TPAS rely on existing criminal offences.

In response to the speeches made, we have considered very carefully whether to go down the Pension Wise route and create a new, bespoke offence to cover all the single guidance body’s guidance and advice services. We have weighed up whether there is evidence to suggest that a bespoke offence would have any greater effect than existing criminal offences, taking into account that the Pension Wise offence has never been used in a prosecution.

There are already criminal offences that would cover imitation of the new body; again, the noble Baroness referred to these. For example, if an individual was misled by someone dishonestly claiming to give guidance or advice on behalf of the body with the intention of causing financial loss, this would amount to an offence. In England, Wales and Northern Ireland a person could be prosecuted under Sections 1 and 2 of the Fraud Act, and in Scotland such conduct would likely amount to the common-law offence of fraud.

In addition, under the Consumer Protection from Unfair Trading Regulations 2008, Regulation 9 makes it an offence to advertise or market a service in a manner that deceives or is likely to deceive the average member of the public. If that advertising or marketing causes or is likely to cause an average person to take a decision they would not have taken otherwise, again, this is an offence. This would make it a criminal act, for example, for scammers to use the logo of the new body.

Offences under the Fraud Act are subject to a maximum term of imprisonment of 10 years and offences under the Consumer Protection from Unfair Trading Regulations carry a maximum term of imprisonment of two years. As a deterrent, both maximum terms are significantly greater than the maximum 12 months envisaged by the amendment.

For these reasons, and having listened to the arguments, our assessment is that there are already existing offences which will provide for the single financial guidance body to take action against people claiming fraudulently to be delivering its services or using the body’s brand and reputation to mislead members of the public. Where people seek to scam and defraud by falsely claiming to be acting on behalf of the body, they will be liable to prosecution under existing offences, leading to the possibility of a custodial sentence. We believe that the protections in existing offences are sufficient and I therefore urge the noble Baroness to withdraw her amendment.

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[Baroness Altmann]

My Lords, I too support the amendment moved by the noble Baroness, Lady Drake. It is an important amendment, and it would be most welcome if my noble friend would seriously consider extending the protection for consumers that this Bill is rightly aiming to achieve. I echo the comments of the noble Baronesses, Lady Drake and Lady Kramer, in terms of focusing on the FCA promoting the interests of consumer protection, perhaps in new ways from what has happened in the past.

[Lord McKenzie of Luton]

My Lords, like other noble Lords who have spoken, I speak in support of my noble friend’s amendment. As ever, my noble friend has been very concise and focused on this key issue about how we can get the FCA in these arrangements to be seen to act in the interest of consumers and financial inclusion. There is a tension between the FCA as a regulator of the market and what we seek through this Bill—an improvement in financial capability and for guidance to be given to people so that they can make better-informed financial judgments.

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[Lord McKenzie of Luton]

We are less than happy with the amendment. The noble Baroness, Lady Altmann, will know that my noble friend Lady Drake and I looked at the issue of the secondary annuity market some while ago, and we paid her a visit in Caxton House when she had another role. At the time, our conclusion was that there is a lot of hassle, expense and complexity in the prospect of selling annuities into a secondary market and there simply have to be other priorities at the current time. If we were to proceed with it, there would need to be full legislation, properly debated. We understand that, in other respects, there is room for legislation in due course that could be applied to the secondary annuity market.

To illustrate some of the complexity, the players in the secondary market would need to include: individual annuity holders; beneficiaries and dependants; purchasers of rights of an annuity under a specific regulated activity; further regulated activities or providers buying back annuities; regulated intermediaries; EFAs providing mandatory, regulated advice; and authorised entities to check that annuity holders have received financial advice, to name but a few. This is a very complex area and we should let it rest where the Government have recently decided it should be. There are complexities and costs. The big risk is an asymmetry of understanding of how the market would work. Other complex issues are pension sharing on divorce and the impact of these arrangements on people in receipt of benefits and social care. It is a minefield: the Government have looked at it, we have looked at it, we are not happy and it should not be resurrected at this time. There have to be greater priorities in the pensions field.

[Baroness Buscombe]

My Lords, my noble friend Lady Altmann has moved Amendment 69, which intends to retain the section of the Bank of England and Financial Services Act 2016 which amended FiSMA to allow Pension Wise to offer guidance to consumers wishing to make changes to the payment of their annuity. Pension Wise was set up with the very specific remit of delivering guidance to help people make decisions on their options following the introduction of the pension freedoms. The Pension Wise remit was subsequently extended to include guidance to people who needed help in considering selling their annuity. This would have supported the Government’s proposals at the time to extend the pension freedoms to those who have already purchased an annuity. The Government decided in October 2016 not to proceed with this proposal because of concerns around consumer detriment.

The new body the Government propose to create in this Bill will inherit the guidance guarantee that Pension Wise provided but will also be able to help with guidance on any pension matters. Therefore, this amendment is not needed. I am particularly grateful to the noble Lord, Lord McKenzie; we entirely agree with the Opposition’s view of these proposals, which would allow those who have already purchased an annuity to sell the income they receive for a lump sum. Following extensive engagement with industry, consumer groups and financial regulators, the Government decided they would not continue with these proposals. Indeed, through discussions with stakeholders it had become clear that, while many annuity providers were willing to allow customers to sell their annuities, it is likely that there would be insufficient buyers to create a competitive market.

In September 2016, Money Observer reported a survey of 10 annuity providers, in which only one firm said it would purchase annuities issued by others and six ruled themselves out. This corresponded with government findings of a lack of interest from potential purchasers of annuities. This could have led to consumers receiving poor value for their annuity income streams and suffering higher costs in the sales process. The Government estimated that only 5% of annuity holders would have opted to sell their annuity and, although some people have been disappointed, consumer protection is a top priority for the Government. As the noble Lord, Lord McKenzie, said, priorities have to be thought through and this was not considered a key priority. Although some people have been disappointed, it would not be acceptable to allow a market to develop that could produce poor outcomes for consumers. I therefore encourage my noble friend Lady Altmann to withdraw her amendment.

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Moved by

[Lord McKenzie of Luton]

69ZA: Clause 14, page 11, line 1, leave out subsection 6 and insert—
“( ) When exercising the powers granted by subsection (1), the Secretary of State must adhere to the procedures set out in section 11 (procedure) of the Public Bodies Act 2011.”

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[Lord McKenzie of Luton]

Clause 14 enables the Secretary of State by affirmative resolution to dissolve the SFGB. The background to this, including the Henry VIII power that it includes, is set out in the Government’s memorandum to the Delegated Powers and Regulatory Reform Committee. That memorandum points out:

“This power will allow the Secretary of State to dissolve the single financial guidance body. The Bill does not provide for a fixed lifetime for the new single financial guidance body. This clause is therefore in line with the Cabinet Office guidance relating to setting up new arm’s-length bodies, which states that:


‘The legislation setting up a new Public Body should contain powers to permit winding up at a later date and for finalising and auditing the closing accounts, if a fixed lifetime is not established at the outset. Departmental legal advisers would need to be involved in this process. Difficulties have occurred in past cases where sponsor Departments have not been able to wind up statutory bodies when their work has been completed due to problems in securing a Parliamentary slot to amend the primary founding legislation. The bodies therefore continue to exist as legal entities even though there is no longer a requirement for them’.


If there is ever a need to dissolve this body, it will be essential to have a range of options and sufficient flexibility to be able to transfer functions, property rights and assets without recourse to primary legislation. This is the point made by the Cabinet Office’s guidance”.


That is all well and good but, as the Delegated Powers and Regulatory Reform Committee points out:

“Although the new single financial guidance body will be created by Parliament, clause 14 allows Ministers by affirmative-procedure regulations to abolish the body and transfer its functions to any other person. The normal principle is that what Parliament has created, Parliament alone should dissolve. In this case, the Minister: does not have to be satisfied as to anything before deciding to abolish the body, does not have to consult, does not have to conduct a formal review, and does not have to wait a certain time before seeing whether the new body works well.


Where Parliament has previously legislated to abolish public bodies it has provided procedural safeguards. Under the Public Bodies Act 2011, a Minister proposing to abolish a public body must consult the body concerned and others affected by the proposal; he then has to allow 12 weeks for responses. The Minister has to lay before Parliament a detailed explanatory document. A committee of either House of Parliament may require an enhanced affirmative procedure and the power to abolish is time-limited. None of these procedural safeguards is included in the current Bill.


The power to abolish the body and transfer its functions to any other person is a very broad power. For example, it is important that the guidance is independent of any commercial interests. However the power to transfer functions to another body is, on its face, unlimited.


The Committee raised similar concerns in its report on the Enterprise Bill, 9th Report of Session 2015-16, where the power was to abolish the Small Business Commissioner by statutory instrument. In response, the Government acknowledged the Committee’s concerns and tabled amendments that made the abolition of the Commissioner dependent on a 12-week consultation, the laying before Parliament of an explanatory document in addition to draft regulations”.


We support the recommendations of the Delegated Powers and Regulatory Reform Committee, which is what this amendment does. We take the view that it is inappropriate for the Bill to confer on Ministers a power to abolish the single financial guidance body. It is all the more unsatisfactory because the power is unaccompanied by the sorts of procedural safeguards found in the Public Bodies Act 2011 and the Enterprise Act 2016. This is exactly what this amendment is about and it seems to me pretty straightforward. Should the Government set their face against this, the noble Lord, Lord Sharkey, has an alternative proposition that the clause do not stand part of the Bill. We would be minded to support that as an alternative. I beg to move.

[Lord Sharkey]

My Lords, Clause 14 is pretty surprising. It runs entirely counter to normal practice and to the provisions of other Acts of Parliament and is careless of the need for proper scrutiny by Parliament. I entirely support the amendment of the noble Lord, Lord McKenzie. Your Lordships’ Delegated Powers and Regulatory Reform Committee commented on Clause 14 in some detail in its first report of the current Session.

As Clause 14 stands and as the DPRR Committee and the noble Lord, Lord McKenzie, have explained, the Minister does not have to be satisfied as to anything at all before abolishing it, consult anyone at all, have to conduct a formal review or have to wait a certain time to see if the new body is working well or at all. This is all at odds with the provisions of the Public Bodies Act 2011, as well as smacking of hubris and a cavalier disregard for parliamentary authority.

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[Baroness Buscombe]

The noble Lord’s amendment seeks to add safeguards to the winding-up provision by mandating the Secretary of State to undertake procedures set out in Section 11 of the Public Bodies Act before the wind-up can take effect. The power in the clause would mean that the draft regulations would be subject to the affirmative procedure where both Houses of Parliament would have to approve a Motion before the regulations could take effect.

Further, as I have indicated, I can see no reason why—should it ever be necessary—the Government would not consult prior to taking any action to dissolve the body. This would be contrary to the open and transparent culture that we are all committed to. However, as I noted earlier, I have some sympathy with the noble Lord’s intentions on consultation and, in the light of the committee’s comments on this clause, as well as the debate, I will consider further whether there is anything more that we can do to meet any concerns that have been raised. I therefore urge the noble Lord, Lord McKenzie, to withdraw his amendment.

[Lord McKenzie of Luton]

My Lords, I am grateful to the Minister for that. It was a long time coming but we must be grateful for small mercies.

This is an important point and very valid matters were pressed on the Minister, which I hope will help the Government to take this issue back and think again. It seems to me that a proper process is necessary here. As we have argued and as has been argued today, the affirmative process is not sufficient. We know that we cannot vote against it or vote to amend it. The noble Baroness said that it would be accompanied by a consultation. That is fine and we can put that on the record but, as I understand it, it is not mandatory under the processes. There are very important issues here, which the Delegated Powers Committee focused on, concerning a complete lack of knowledge about to whom transfers might be made. Also, important issues of conflict of interest lie at the heart of what the Bill is trying to achieve.

However, I shall quit while I am ahead. I am grateful to the Minister for taking this matter back and I hope that we will revisit it in a positive frame in due course.

Amendment 69ZA withdrawn.