Financial Services Bill

Debate between Lord Sharkey and Lord Stevenson of Balmacara

Report stage
Wednesday 14th April 2021 Lords Chamber

[Lord Sharkey (LD) [V]]

Thank you. I think I was talking about Amendment 21 being prescriptive; it sets out exactly what must be done and by whom.

It has two sections. The first reduces the currently usurious SVR paid by mortgage prisoners by capping it at two percentage points above the bank rate. This is what, in the end, Martin Lewis thought was necessary. He said:

“Yet in lieu of anything else, I believe for those on closed-book mortgages it is a good stopgap while other detailed solutions are worked up, and I’m very happy the All-Party Parliamentary Group on mortgage prisoners is pushing it.”


He also said:

“This would provide immediate emergency relief to those most at risk of financial ruin … No one should underestimate the threat to wellbeing and even lives if this doesn’t happen, and happen soon.”


This is all necessary, but not sufficient. SVRs are not the normal basis for mortgages, as I have already mentioned. What is needed is access to fixed-rate mortgages, as provided by normal active lenders to 90% of mortgagees. The second part of Amendment 21 sets out how that is to be done.

This is, of course, all very prescriptive, and we understand the Government’s reluctance to write such details into the Bill. That is why we have also tabled Amendment 37B. This amendment takes a simpler and non-prescriptive approach. It places the obligation to fix the problem squarely on those who caused it—the Treasury. It is explicitly fuelled by the overwhelming and undeniable moral responsibility that the Treasury has for the terrible situation in which mortgage prisoners have long found themselves. The amendment sets out what must be achieved to relieve mortgage prisoners, by whom and by when, but it does not say how. It leaves that entirely for the Government to work out.

Amendments 21 and 37B give the Government a clear choice. Amendment 21 prescribes a detailed method of solution; Amendment 37B says what the Government must achieve but leaves the mechanism to them. The Government caused the mortgage prisoner problem, which has caused and continues to cause much suffering to many families. I hope that the Government will recognise their moral responsibility and adopt Amendment 21 or Amendment 37B.

This has all gone on much too long, and it has caused, and continues to cause, far too much misery and desperation. If the Minister is not able to adopt either amendment, or give equivalent assurances, I will test the opinion of the House. I beg to move Amendment 21.

[Lord Stevenson of Balmacara (Lab) [V]]

My Lords, I speak in support of the amendments just proposed by the noble Lord, Lord Sharkey, which I have signed. One’s heart goes out to him—it must be very difficult to make a speech of this complexity and passion with all these breaks. Despite the technical difficulties, however, he has made the case for action very well, and as co-chair of the all-party parliamentary group on these issues he is very well briefed on the situation faced by these fellow citizens of ours, and the extra costs that they face. It is indeed a very difficult situation, and one hears a lot of despair when one talks to these people.

I am sure that when he responds the Minister will, as the noble Lord, Lord Sharkey, hinted, dwell at length on the numbers of this group in various categories. There is of course a debate on how the prisoners can be split up—I think that the only thing that we agree on is that the total is probably about 250,000. As with the noble Lord, Lord Sharkey, however, my argument is not about the numbers. Simply put, it is clear that a significant number of people, through no fault of their own, cannot exercise the choices about their mortgage that the rest of us can. While some would argue that this is the direct fault of the Government, I think that someone needs to take responsibility for providing a fair outcome for those who are in a position to take advantage of it.

As the noble Lord, Lord Sharkey, says, this group of amendments offers two options: one that focuses on what the FCA might do within the parameters set by the Bill and another—37B, a late amendment that we drafted for Report—that suggests that the Treasury might wish to take powers to act in the way that is most suitable for it. Both have merits, in their ways. As the noble Lord, Lord Sharkey, said, they have detailed implications that need to be followed through carefully. My preference would be for Amendment 37B, for the very good reasons set out by the noble Lord, Lord Sharkey. If, as he said he might, the noble Lord decides to test the opinion of the House, we will support him.

Financial Services Bill

Debate between Lord Sharkey and Lord Stevenson of Balmacara

Report stage
Wednesday 24th March 2021 Lords Chamber

[Lord Stevenson of Balmacara (Lab) [V]]

My Lords, Amendment 1 is in my name and that of my noble friend Lord Eatwell. I thank the noble Lord, Lord Sharkey, and the noble Baroness, Lady Bennett of Manor Castle, for adding their cross-party support on this important issue and look forward to their contributions to the debate. I also thank the noble Baroness, Lady Penn, the Deputy Leader of the House, the noble Earl, Lord Howe, the noble Lord, Lord True, and their officials for making time to discuss this issue after Committee, which has helped us considerably and shed some light on the complex set of consultations that the FCA and the Treasury itself are conducting over the next few months, all of which are happening, of course, during the pandemic and at a time of significant change in duties and responsibilities in all quarters.

In his excellent speech in Committee, my noble friend Lord Eatwell set out the case for the introduction of a duty of consumer care to be placed on financial services providers, which he argued would strengthen the FCA’s consumer protection objective and introduce requirements to ensure that firms operating in the financial sector should not profit from exploiting a consumer’s vulnerability, behavioural biases or constrained choices. I can do little better than rehearse his main points again. Markets in financial products sold to individuals, households and small businesses are seriously inefficient, mainly because of asymmetric information, as the seller of the product typically knows much more about the risks involved in making a particular investment or other financial transaction than does the consumer.

Secondly, given that the FCA’s strategic objective is about promoting competition in the market, thereby improving consumer outcomes, it can either regulate each individual financial product to ensure that the consumer is probably informed, or it could adopt the principle enshrined in Amendment 1 and make general rules, including the power to introduce a duty of care owed by authorised persons to their consumers. The case for a duty of care for consumers was argued very strongly at the time the current regulatory structure was set up; indeed, I was present in many of those debates. But, absent primary legislation or changes to it, the FCA has, perforce, adopted the first option and attempted to deal with each consumer detriment issue as it arises. However, by its own admission, this has not gone very well. From its consultation entitled, Our Future Approach to Consumers in 2017, through to the feedback statement published in April 2019, the FCA has wrestled with the issue of duty of care and is still wrestling today, with a review scheduled to start, we understand, in May 2021.

My noble friend’s case was that the status quo is failing and a new approach is urgently required for two main reasons. First, new products are always coming on to the market, which means that the FCA is always playing catch-up to introduce new rules and has to take time for appropriate consultation and so on to deal with the new threats to consumers. The rush to get a handle on “buy now, pay later” products in this legislation speaks volumes about that approach. Secondly, financial products are now available with one click via the internet, with all that that implies about the failure of the conventional approaches of “know your customer” and the need for careful concern about going through the paperwork and understanding the terms and conditions of what you may be signing up to. In short, fintech, with all the benefits it can bring—well argued by the noble Lord, Lord Holmes— signals the end of the current FCA regulation as we know it. The case for a duty of care approach is unanswerable.

Amendment 1 provides the FCA with the means to end its failure to meet its consumer protection duty through dogged adherence to a failing competition objective. The enactment of the power to introduce a duty of care for consumers would rightly place responsibility for ensuring that markets function well firmly on the shoulders of those who have the information required to attain that goal. If the FCA has the power to introduce a duty of care for consumers, it could finally begin to live up to its strategic objective.

Far too many consumers are being treated inappropriately, whether by the mis-selling of products, by the denial of rights or by obstruction of responses to complaints and so on. If the Government wish to improve on the consumer protections previously enshrined in EU legislation, the introduction of a duty of care on consumers is a safe and sure way forward. It is a way to ensure that markets function well for the benefit of the consumer, as it should be.

I am sure that, in responding to this debate, the noble Baroness, Lady Penn, will try to persuade us that there is no need for this amendment, as future consultations to be carried out by the FCA and the Treasury will cover all these points in detail and so all will be well. Indeed, either or both of these exercises may require primary legislation—that is quite likely—and we will be back again in a few months’ time debating the same issues all over again, when the Treasury has decided on its responses to the consultations and brings forward legislation to implement another generation of regulatory frameworks. I put it to the Government that, while the wording of the amendment may not be perfect, the intent—particularly the wording of subsection (2),

“that firms should not be profiting from exploiting a consumer’s vulnerability, behavioural biases or constrained choices”—

is worth holding on to and action should be taken now. I give notice that, in the absence of a positive response today, I am minded to test the opinion of the House on the amendment. However, if the Minister is prepared to commit to bring this back at Third Reading, with an agreed wording, we could work with her to settle this issue. I beg to move.

[Lord Sharkey (LD) [V]]

It is a pleasure to follow the noble Lord, Lord Stevenson of Balmacara, and to support this amendment. The noble Lord has made a strong and compelling case for both parts of the amendment. The case for and against a duty of care was discussed extensively in Grand Committee and I do not propose to revisit the arguments in detail.

In his speech in Grand Committee, the noble Lord, Lord Davies of Brixton, made a simple but important point:

“The truth is that the industry has a systemic tendency to malfeasance.”—[Official Report, 22/2/21; col. GC 112.]


I listed in Committee some of the many serious instances of malfeasance over the last couple of decades—I am sure that they are familiar to us all—which amply demonstrate the truth of the observation made by the noble Lord, Lord Davies. There can be no doubt that the temptation to malfeasance and the opportunities for malfeasance grow, and are deeply rooted, in the huge inequality of arms. The noble Lord, Lord Eatwell, emphasised that in Committee, as the noble Lord, Lord Stevenson, has just noted. There can be no doubt either that the culture within parts of the financial services industry is, to say the least, not oriented to serving the best interests of consumers. John Lanchester has graphically described the industry as treating its customers as “an extractive resource”. All this is true in an industry that is highly regulated. This inevitably leads to the conclusion that the regulatory regime is obviously and severely deficient.

The FCA has consulted on the duty of care at least eight times in the last five years and is about to do so again, starting in May, apparently. It is not clear, given the Treasury’s current consultation on the FSFRF, why we need two consultations covering the same ground. I know that some respondents to the HMT consultation have already proposed a new duty of best interest or duty of care. There is no reason to suppose that this new, and much delayed, FCA consultation will come up with anything more than equivocation, fence-sitting or long grass, if its previous efforts are anything to go by. Last time round, the FCA found that most respondents considered levels of consumer harm to be high and that change was needed to protect consumers. None of the financial services respondents wanted a duty of care, but 92% of consumers did, in a popular survey commissioned by the FCA’s own consumer panel.

The industry resists a duty of care for obvious reasons of self-interest, sometimes presented as a concern that such a duty would increase costs ultimately to the consumer. This does not say much for our financial services’ belief in competition, nor does it acknowledge the fact that, for example, PPI was sold at a commission rate of 87% or that the industry has had to find the funds to pay over £50 billion in redress for PPI alone.

Financial Services Bill

Debate between Lord Sharkey and Lord Stevenson of Balmacara

Committee stage
Wednesday 10th March 2021 Grand Committee

[Lord Stevenson of Balmacara (Lab) [V]]

My Lords, financial regulation has to ensure that consumers are well protected. It is with this principle in mind that I move the amendment in my name. I thank the noble Lords, Lord Sharkey and Lord Holmes of Richmond, for their support. We have also had an aperitif, in the sense that Amendment 127 in the name of the noble Lord has already been debated in an earlier group, although its main focus is aligned with the amendments in this group and I look forward to his comments.

The recent report of the UK Mortgage Prisoners group referred to by the noble Lord, Lord Holmes of Richmond, when he spoke on the earlier group of amendments, is graphic and shocking. It makes the case that the Government need to come forward promptly with a fair deal for the 250,000 or so mortgage prisoners who have been stuck for some 10 years paying higher interest rates than they needed to. The All-Party Parliamentary Group on Mortgage Prisoners has kept this issue alive, having been contacted by hundreds of mortgage prisoners who describe the worry and stress that comes from being trapped as they are. This is a shameful episode.

I am grateful to the Economic Secretary to the Treasury for meeting my noble friend Lord Tunnicliffe, myself and others last month. The Economic Secretary told us that he has a keen interest in settling this matter. He explained that there are difficulties including moral hazard, which means that it is not easy to sort. However, while the issue continues, considerable injustice is occurring. The Government may well be right to say that the SVRs currently paid by mortgage prisoners are only a little higher on average than the SVRs of other lenders but, particularly during the pandemic, small differences matter. In any case, the assertion that the Government make that the differences are rather minor does not ring true in the light of the report from the all-party group. Its case studies, which include nurses, teachers, members of the Armed Forces and small business people, suggest that, for all those who are trapped and struggling with the consequences of the Government’s decisions when money is tight and margins matter, these things need to be sorted.

Surely the true comparison is that if mortgage prisoners were with an active lender and of course up to date with their payments, they would have access to a range of products to transfer to, which would give them a lower fixed rate for their mortgages. In the other place when this issue was discussed, the savings available were said to be in the order of £5,000 a year. That is not an inconsiderable sum. Why are these people being singled out for this penalty?

The problem also seems to be the inability to access the best market-matching deals, compounded by the fact that the prison effect is reinforced by the inability to prevent mortgages being sold off to so-called vulture funds, which are often unregulated. This matter has been left unresolved for far too long. The inability to seek out new deals and to limit costs is causing stress, and in some cases has caused families to lose their homes. As the Government have been involved throughout this process, is it too much to ask them to explain what the plan is, and what the timetable for resolving the incarceration of these prisoners will be?

In its recent report, UK Mortgage Prisoners says that it has put the record straight on what it calls a “Government made scandal”. It is for the Government to defend themselves on that charge. UK Mortgage Prisoners complains that the Government have “effectively ignored the issue” and that, where the FCA has intervened, it has done so in a limited and ineffective manner. Its asks seem very simple: an immediate cap on SVRs for closed mortgages; introducing a tailored mortgage product for those affected; giving credit to prisoners who have for a decade or more made overpayments; stopping penalty charges for any excess arrears; and adjusting credit ratings going forward. Those are five simple steps for 250,000 people whose lives have quite simply been blighted.

[Lord Sharkey (LD) [V]]

My Lords, I declare an interest as co-chair of the APPG on Mortgage Prisoners. Mortgage prisoners exist almost entirely because the Treasury made a terrible mistake when it sold the first tranche of former Northern Rock and B&B mortgages to an unregulated American vulture fund called Cerberus. Cerberus is the name of the multi-headed dog that in Greek mythology sits at the entrance to the gates of hell. That is not an inappropriate name, in view of what happened next.

Three things are needed to rescue mortgage prisoners. The first is to reduce immediately to comparable market rates the SVRs that they pay. The second is to make sure that transfers to much less expensive fixed-rate deals are properly available to them. The third is to make sure that new classes of mortgage prisoners cannot be created in the future.

Amendment 99, moved by the noble Lord, Lord Stevenson, to which I have added my name, deals with the first of those things. My Amendments 116 and 117 deal with the second and third. Amendment 99, as he has so clearly and forcefully explained, would protect the thousands of mortgage prisoners stuck paying high standard variable rates. It would introduce a cap on the standard variable rates paid by customers of inactive lenders and unregulated entities. That would provide immediate relief for thousands of mortgage prisoners, and could give space for longer-term solutions to be found. It would help mortgage prisoners who took out loans with a fully FCA-regulated high-street bank which were then sold on to vulture funds.

Money-saving expert and consumer champion Martin Lewis supports this proposal, and on Monday he released a statement saying:

“While the government chose to bail out the banks in the financial crisis, it has never bailed out the banks’ customers who were victims of that collapse. Mortgage prisoners have been left paying obscene interest rates for over a decade through no fault of their own. They have been completely trapped in their mortgages and unable to escape the financial misery it causes … Coupled with the devastating impact of the pandemic on people’s finances, urgent action is needed to prevent the situation from becoming catastrophic. The independent LSE report I funded has a cogent argument as to why an SVR cap isn’t a balanced long-term solution. Yet in lieu of anything else, I believe for those on closed-book mortgages it is a good stopgap while other detailed solutions are worked up, and I’m very happy the All-Party Parliamentary Group on mortgage prisoners is pushing it. This would provide immediate emergency relief for those most at risk of financial ruin. No one should underestimate the threat to wellbeing and even lives if this doesn’t happen, and happen soon.”


The Government will no doubt say that some mortgage prisoners are already paying rates lower than 3.5%, so rates do not need to be capped. But those sold on by the Government to vulture funds like Cerberus are paying high rates. In the package sold by the Government containing more than 66,000 mortgage loans, 52% were paying rates between 4.5% and 5%, and 37% were paying rates of over 5%, when the mortgages were securitised.

The Government could have set strict conditions when selling the mortgages on the interest rates which could be charged. But when they sold £16 billion of mortgages to Tulip and Cerberus, they imposed only a 12-month restriction on increases to the standard variable rate. These have long since expired and the chief executive of Tulip Mortgages told the Treasury Select Committee that the firm now had

“complete discretion to set the interest rate policy.”

On the sale to Heliodor, the Government claimed that the organisation which bought the loans would be required to set their standard variable rates by reference to the SVR charged by a

“basket of 15 active lenders”.

But when you read the details of the securitisation agreements for the mortgage loans sold, you will find that, actually, the Government have required the SVR to be set only at the level of the third highest of the 15 active lenders. This is absolutely critical, as the third highest SVR is actually 4.49%. The lowest SVR among those 15 active lenders is 3.35%, and the average SVR weighted by market share is 3.72%.

The latest and final sale of the Treasury-held mortgages was announced in February. The book was sold to Davidson Kempner Partners and Citibank, with funding by PIMCO. The Government said that the SVR was going to be charged by reference, again, to a basket of 15 active lenders, but there are no details about how this will work in practice. If it reflects the practice in earlier sales, it will not actually provide any protection to customers. The Government will also say that the FCA has changed the affordability test to enable mortgage prisoners to switch to a different lender. But the progress has been very slow, with only a very small number of lenders willing to use these new flexibilities.

The cap on the SVR proposed by this amendment would provide immediate relief to mortgage prisoners who have been overpaying for the past 13 years. It would protect all mortgage prisoners, including those who are unable to switch. It would give time for other solutions to help mortgage prisoners to be developed. The SVR cap would apply only to mortgages owned by inactive lenders and unregulated entities. It would have no impact on active lenders competing to attract customers.

The cap is supported by the campaign group UK Mortgage Prisoners, as the noble Lord, Lord Stevenson, said. Members of the group have stated that this amendment is the difference between feeding their children and themselves or continuing to rely on food banks. The Government created the problem of mortgage prisoners and it is their moral responsibility to rescue them from the significant detriment that many still face. I urge the Government to accept the amendment in the name of the noble Lord, Lord Stevenson.

I now turn to Amendment 116, which would extend access to fixed interest rates to all mortgage prisoners, enabling them to gain control and certainty over their monthly mortgage payments. When the time came for the nationalised Northern Rock and B&B mortgages to be sold by the Government back to the private sector, they could have pursued an approach which ensured that these customers were in fact protected. They could have sold them to active lenders or secured a commitment from purchasers to offer these new customers new deals.

The risk to these customers was identified. In January 2016, the noble Lord, Lord McFall, wrote to the Treasury, UK Asset Resolution and the FCA to say that the customers affected by these sales should be protected, offered a fair deal and given access to fixed rates. UKAR responded that, by returning these mortgages to the private sector,

“the option to be offered new deals, extra lending and fixed rates should become available”.

But this requirement was not written into the contract when mortgages were sold to funds such as Cerberus, with the BBC reporting that UKAR is now claiming to have been “misled” by Cerberus.

A UKAR spokesman told BBC “Panorama” that Cerberus had the ability to lend to the former Northern Rock customers and that UKAR believed that it intended to do so. They said:

“The reply to Lord McFall sent on behalf of the UKAR board of directors was based on information presented to UKAR and the board had no reason to disbelieve this at that time.”


At the very best, this is evidence of catastrophic incompetence. At worst, it is evidence that UKAR heartlessly pursued profit over care for mortgage customers.

Consumer champion Martin Lewis lays responsibility for the treatment of mortgage prisoners squarely with the Government. He said that the Government

“have sold these loans to professional debt buyers who do not offer mortgages and left these people in these types of mortgages, which have been too expensive, crippled their finances and destroyed their wellbeing.”

Breathing Space Scheme: Consultation Response

Debate between Lord Sharkey and Lord Stevenson of Balmacara

Wednesday 19th June 2019 Lords Chamber

[Lord Stevenson of Balmacara (Lab)]

My Lords, I declare my previous interest as a former chair of StepChange, the debt charity. I thank the Minister for repeating this Statement, and I am very happy to hear what he had to say. I have campaigned for both these changes in policy for a number of years, and it is astonishing to hear them being announced today. What on earth will I do with my time?

The Minister will recall the discussions we had during the passage of the Financial Guidance and Claims Bill when he was the co-pilot, as he described it. We worked closely with the Government to try to get a breathing space scheme into scope. We did not succeed then, and the worry was that although these two measures were in the Conservative Party manifesto, they might, like so many other good and necessary policies in recent years, fall under the Brexit behemoth, but here we are. I welcome the excellent progress made on this issue.

I was interested to hear that the Minister making the announcement in the other place revealed that this is an issue close to his heart. I think everyone who has seen at first hand the hardship that problem debt can cause realises that it places a heavy burden on households and can lead to family breakdown, stress and mental health issues. It was good to hear the Government accept that it is wrong to assume that overindebtedness is simply a product of feckless people taking out too much credit. Many hard-working families struggle to meet essential bills and can end up owing money to multiple creditors in the public and private sectors. My experience in StepChange was that the majority of the 500,000 or so people who contacted the charity each year had successfully managed their finances for many years before illness or another unexpected factor tipped them into unmanageable debt, which they desperately wanted to repay.

With this announcement today, the Government have taken a significant step which will do a huge amount to encourage people to seek the free professional advice they need timeously when problem debt occurs. The combination of the breathing space and the statutory debt recovery scheme will support those who have the capacity to repay their debts but lack the knowledge and expertise to deal with their multiple creditors. It will allow them to do so in a way that will repay much more to creditors and in a shorter time. This system has worked for many years in Scotland, and it is good to see that pioneering approach being extended to England and Wales, and hopefully to Northern Ireland in due course.

The detail of the government response has only just gone up on the website and there is a lot to take in, but I would like to make a few points. I worry that the breathing space period of 60 days may not be long enough in practice, and I am sure that this will be something we will need to come back to, but I think the best thing is to begin with that length and review it in the light of experience. It is good that the protections include the freezing of further default interest, charges and enforcement action once somebody has taken the first step of seeking debt advice. We are delighted that government debt will be included in both schemes. In particular, this should give some protection to many people against the rather aggressive action that is sometimes taken by bailiffs collecting council tax arrears.

The introduction of a special version of the breathing space for people experiencing a mental health crisis is most welcome. It is good that there is not going to be a public register, with all that that might bring in terms of unsolicited approaches to those on it from unscrupulous third parties. I think the Government have taken the right decision about a private register. We are sad that we will not see the breathing space scheme until 2020 and will not see the statutory debt management recovery scheme until 2021 or later, but I hope that HMT will do what it can to expedite both schemes. We certainly stand ready to help if that is required.

I have some reservations about the suggested level of the statutory fair share element in the SDRP. The current scheme agreed with large creditors is much higher than the 9% suggested in the Treasury’s response. However, I am aware that there is a broader discussion on comprehensive debt advice funding being worked on by the new Money and Pensions Service.

I will conclude by discussing two other issues. Unmanageable personal debt is a by-product of many factors, but most are linked to the health of the economy. Lack of affordable credit, slow wage growth, growth in zero-hours contracts and changes brought in by the gig economy all play a part. In addition, it is incontestable that the introduction of universal credit is causing strain and stress here. While this new policy is welcome—and it is—other issues need to be addressed. Does the Minister agree?

Finally, while it is true that the Government have acted to correct abuses in the consumer credit market, high-interest loans are still being made to people who cannot afford to repay them. Banks are not averse to making punitive charges for temporary overdrafts. Guarantor loans are a current concern, and it is a matter of considerable regret that the Government have not taken action to outlaw logbook loans. In relation to the latter, will the Minister agree to meet me to discuss how we might progress the Law Commission draft Bill on goods mortgages, which would inter alia have the effect of repealing the Victorian legislation that gives rise to these bans?

[Lord Sharkey (LD)]

My Lords, I thank the Minister for repeating the Statement. We on these Benches very much welcome the introduction of the breathing space and the statutory debt repayment schemes, although we do have a few questions about execution.

To debtors, this reform may seem to have been quite a long time coming: I can recall discussions in Parliament in 2015, as well as outside long before that. The proposal was, of course, included in the Conservative Party’s 2017 manifesto. Many people and organisations have played a part in getting us to this stage. I particularly want to mention StepChange and the noble Lord, Lord Stevenson of Balmacara. The critical point in getting the Government to do something arose during the passage through this House of what is now the Financial Guidance and Claims Act 2018. The amendment to the Bill by the noble Lord, Lord Stevenson, about breathing space now appears as Section 6 of the Act. This section encouraged and enabled the Government to do what they have announced today.

Turning to the schemes themselves, we are pleased that the Government have in most cases followed the advice they were given in the consultation—which seemed to be a model of its kind, unlike some of the other consultations that the Minister and I have had to discuss in this Chamber. We believe that the eligibility criteria for the breathing space scheme are broadly right, although we have doubts about the restriction to only once in 12 months. We encourage the Government to think again about this and—as they say they are minded to—to include provision for joint debts to qualify for inclusion in the scheme.

We are also happy to see that local and central government debts are to be included in the new scheme and very pleased to see the inclusion of small sole-trader debts, which we think is a vital element. We especially welcome the unlimited extension and repeated entry to the scheme for those in mental health crisis.

The Government’s very helpful consultation and policy response paper does qualify the inclusion of universal credit advances and third-party deductions from universal credit. The document is very vague about the timing of their eventual inclusion. I ask the Minister to give the House a little more detail and encourage him to speed up the process of including these two elements.

When it comes to which ongoing bills should be paid during the breathing space, I think that the Government have it about right in giving debt advice agencies the discretion over whether to remove people who do not keep up specified ongoing payments from the scheme.

Debt and debt repayment continue to be severe problems for millions of people in this country. As the Minister noted, the Money and Pensions Service has estimated that around 9 million people are overburdened with debt. We also now know that real incomes have started to fall again.

The Government’s proposals are a significant step forward in addressing problem debt, and we welcome them. However, we are disappointed with the timetable for the introduction of these measures. Early 2021 seems a very long way off—probably an intolerably long way off if you have unmanageable debt. All the Government’s proposed measures can be introduced by SI. Parliament is not currently overpressed with business. Why can we not use some of that time to bring forward the implementation date?

Financial Guidance and Claims Bill [HL]

Debate between Lord Sharkey and Lord Stevenson of Balmacara

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

[Lord Stevenson of Balmacara]

My Lords, this amendment is really the second half of the debate that we have just been having so I think we can skip quite a lot of the introductory part and get straight to the main point. The focus in the amendment in my name—I think other issues will be raised by the noble Baroness, Lady Kramer, and the noble Lord, Lord Sharkey, regarding their amendments, as they bear on the matter in a slightly different way—is Clause 7(2)(b), which states:

“The FCA must, at least once in every three years, carry out a review of … how the single financial guidance body is monitoring and enforcing the standards”.


I have searched reasonably hard through the documentation and I cannot find out what that enforcement is. At the heart of my amendment is a probe—actually, a direct question—to find out what the enforcement would be. Is this in relation to commissioned services being given some sort of penalty? Are fines to be involved? Is it going to involve reporting them to the FCA for a rap on the wrist or worse by some disciplinary body that the FCA might have? We do not know about that and I do not think we understand it. The sensibility is right—there is no point in having standards and asking that they be informed if you cannot do something if they are not informed—but we need a bit more detail before we can take what is in the Bill as being the right approach to this.

In Amendment 59, which I am speaking to but not moving at this stage, the assumption is made that some movement has taken place on earlier amendments and that the SFGB is doing the process of commissioning through a set of standards and a framework. That amendment has been withdrawn so it does not apply, but I still think the sensibility is right. If we are going to ask for reviews, they should be in relation to a specific issue. As it stands, Amendment 59 would give a slightly more flexible framework for that than every three years because it would relate to the success or otherwise of a judgment made by the SFGB on whether or not the work it is doing was going well, and therefore it would have a bit more teeth. I beg to move.

[Lord Sharkey (LD)]

My Lords, I will speak very briefly to Amendments 58, 60 and 61, tabled by my noble friend Lady Kramer and me. We agree with the Bill’s requirement in Clause 7(1) that the SFGB must monitor its own compliance with standards and that of its delivery partners. However, we feel that the results of this monitoring should be in the public domain; in fact, it would be extraordinary if they were not. Our Amendment 58 would rectify what seems to be an omission. It says simply that the SFGB must produce and place in the public domain an annual report of its assessment of its own, and its delivery partners’, compliance with the standards. We hope that this is completely uncontroversial and the Minister will feel able to accept the amendment.

Amendment 60 is equally simple and straightforward. In Clause 7, dealing with the monitoring and enforcement of standards, and in subsection (3), the Bill lists those to whom the FCA must provide a report on its review of whether the standards continue to be appropriate and how the SFGB is monitoring and enforcing those standards.

The Bill specifies that the FCA must provide its report to the SFGB and to the Secretary of State, but there is no mention of Parliament and we think there should be. Parliament will have set up the SFGB. It is a matter of transparency and accountability that Parliament should also have sight of the FCA’s report. Our amendment simply adds Parliament to the list of those to whom the FCA must provide its report.

In Clause 7(4), the Bill provides that the FCA’s report may contain recommendations to the SFGB. But that is it—the Bill does not say what should happen when the SFGB is in receipt of these recommendations. Clearly, something should happen and it should happen in public. Our Amendment 61 provides for this. It simply says that when the SFGB is in receipt of recommendations in an FCA report on its review, the SFGB must then publish a substantive response within three months to any recommendations made by the FCA.

The changes proposed, I hope, in all three amendments are completely uncontroversial. They are nothing more than an application of the principles of transparency and accountability to this new public body. We hope that the Minister will see their merits and feel able to accept them.

Financial Guidance and Claims Bill [HL]

Debate between Lord Sharkey and Lord Stevenson of Balmacara

Committee: 2nd sitting (Hansard): House of Lords
Wednesday 6th September 2017 Lords Chamber

[Lord Sharkey]

My Lords, I shall speak to Amendment 27A in this group. This amendment makes a very small change to Clause 2(8)(b), which sets out the objectives of the SFGB. The second objective currently reads,

“to support the provision of information, guidance and advice in areas where it is lacking”.


We agree with this objective, but we feel that it does not go far enough. It is good to support the provision of information, guidance and advice, but it is surely better also to support the use of this information, guidance and advice. Provision is necessary, but it is not sufficient. Provision without use risks wasting time, money, effort and opportunity. This amendment reworks that paragraph by adding “and use”, so that it would read: “to support the provision and use of information, guidance and advice in areas where it is lacking”.

I can illustrate the point by talking briefly about Pension Wise. The service provided by Pension Wise is excellent: 94% of users said they were likely to recommend the service to others; 91% were either very or fairly satisfied by their experience; and 85% said that Pension Wise helped to improve their understanding a great deal or a fair amount. But the problem is that the level of take-up of this excellent service is very low. Research published in June by the Treasury and the FCA suggested that just 7% of eligible pension savers planning to retire in the next two years received guidance from Pension Wise.

Low take-up, both of public and private advice and guidance, would not necessarily be a cause for concern if UK pension savers were generally engaged and well-informed, but they are not—the opposite is the case. Financial capability in the UK, as we have been hearing this afternoon and this evening, is poor. The Financial Advice Market Review baseline report found that just 27% described themselves as capable of sorting out their own finances, and 34% of those who had purchased a financial product later regretted the decision.

Specifically, there is a problem with the levels of knowledge and awareness about pensions and retirement. The International Longevity Centre UK, under the aegis of the noble Baroness, Lady Greengross, who is not in her place at the moment, has published extensive research on consumers’ understanding of retirement planning. In 2015, only half of those with a DC pension said that they understood, either quite well or very well, what an annuity is. Only 3% said they understood what income draw-down was.

There is not just a lack of understanding; there are also dangerous misunderstandings. July’s PLSA survey found that over half of DC pension savers incorrectly believed draw-down products offered a guaranteed income in retirement. Perhaps worse, 25% believed draw-down carried no investment risk at all. This illustrates that the need for guidance and advice is clear. More accurately, the need for people actually to use guidance and advice is clear and pressing.

This is the problem that Amendment 27A sets out to address. The amendment requires the SFGB to have the objective of promoting the use of guidance and advice, not just the provision of guidance and advice. This is a simple but vital change, and I hope the Minister will be able to agree to it.

[Lord Stevenson of Balmacara]

My Lords, I support the amendments in the names of my noble friend Lady Drake and the noble Lord, Lord Sharkey. The noble Lord’s rather graphic descriptions make it very clear that there is a bit of a problem here in terms of how one ensures that any body—not just the new body we are talking about today—is able to get someone to do something which they clearly are not willing to do, and how to engage with, and learn from, the experience of taking out the loans, or preparing for the retirements which they are going to encounter later in their lives. I suspect that the Government will come back and say that, while the wording is admirable and something that they could support, they are not quite sure how it could ever be measured, or whether “use” is in fact the right term here, because getting people to the point where they recognise that they have a problem is not the same as getting them to do anything about it.

When I was working at the StepChange Debt Charity, one theme that we developed in my time there was that there was a sense in which those who had responsibility for activity in this area relied on generic, rather than specific, advertising or advocacy of another form. We took the view that was not where action was likely to be most profitable. What worked was this: when you had someone going through a really serious incident, sad and difficult though that was, the learning that took place as a result of that process was so incredible and so obvious that it was almost worth going through the process. We all have similar experiences with our own friends and family. It is only when reality sinks in, that the credit card bills do not get magically paid by themselves and that the bank is not going to continue to provide the money-tree support that it has done in the past, that you have to learn how the world actually works and what you are going to do about it. I wish the noble Lord, Lord Sharkey, well with his amendment, but I think it probably needs a bit more work before we have got the right balance between knowledge and understanding, in terms of information, guidance and advice, and the practical learning that can come from actually operating in that world.

On my noble friend Lady Drake’s amendment, which we definitely support, in some senses our debates this evening have run the slight danger of demonising debt as a feature of our society today, whereas most of us need to borrow money at some points in our lives. For many people, it is an affordable way to make large purchases or to balance competing financial priorities. The problem is when one does not plan for or anticipate, but then experiences, unexpected events. We have had examples given, and the numbers or statistics are incredible. A recent report published a month or so ago gave two headline figures, which I will focus on rather than go into the detail. In Britain today, almost 2 million people a year suffer an illness of such length that they are absent from work such that, as a result, their income is reduced. That is a very large number of people. Another 2 million people experience job losses or loss of overtime or condition pay in other ways. In terms of the overall working population of about 23 million or 24 million, nearly 4 million—almost one-sixth—are affected by that. In a sense, it is not surprising that we are having problems in this area, and it is something that we need to think about.

On the question whether income shocks are sufficiently important to require changes to the Bill as currently drafted, it will be interesting to get a response. I think that this issue has had less attention than it needs, and the amendment plays back into the points made by my noble friend Lady Drake about the impact on other persons who would otherwise not be affected, such as young people, those in care and those who are dependent on those who are affected. The amendment also brings back all the points that we have been hearing about in terms of mental health, those who suffer from disability and vulnerability in other ways, and those who are preyed on by others who wish to make them do things that they do not want to do. It brings together a number of the issues we have been talking about this evening and focuses on the need to have some sort of balance and arrangement.

Finally, the amendment also picks up the point about whether the market could provide, if left on its own and not subject to any exert or constraint. With respect to the noble Lord the Minister—our aviator for this evening—I think he is being incredibly naive about this. The noble Baroness, Lady Kramer, is absolutely right. The competition imperative imposed on the FCA drives out the possibility that there is any agency around, not in central government, which could provide the changes that are necessary in order to provide these services. Left to their own, financial services will never come up with that. Financial services, without any imperative to take into account a duty of care, or fiduciary duty as we call it, will never see it as their responsibility to bring forward the insurance, the payment protection and other issues that are so necessary to try and underpin not just the income shock issue but the broader issue as well. Therefore, to rely on a simple transparency and information flow as being the way to do that is just naive.

Take the example—I have used this before, but I make no apologies for doing so again—of the payday loans scandal that this House had so much to do with, with notable contributions from all sides of the House, including the most reverend Primate the Archbishop of Canterbury. We took the view that the existence of those who were offering payday loans was on such a scale that action needed to be taken. The Government initially resisted that completely, saying that what we needed was more transparency, but the final result was that action was taken. That action was based on what the FCA could do, and it is defective. What the FCA said to us, in essence, was that its vision of cleaning up the payday loans scandal was to create a fairer market in which there were fewer operators, but that they would operate efficiently at a reasonable profit margin and be well capitalised. At its best effort, at the end of the day that did not stop loans of more than 1,000% APR from populating this market. Recent research from the StepChange Debt Charity, which I had the honour to chair until a few years ago, shows that nearly 20% of people still rely on high-cost credit, including payday loans, to pay their basic end-of-month bills. This is outrageous, and I do not think that the market works to the benefit of consumers.

We will need to come back to a lot of the issues raised today by my noble friend Lady Drake and others, but it is really important that the Government get a grip on this.

Higher Education and Research Bill

Debate between Lord Sharkey and Lord Stevenson of Balmacara

Report: 4th sitting (Hansard): House of Lords
Wednesday 15th March 2017 Lords Chamber

[Lord Sharkey]

My Lords, I will speak to Amendments 177A and 178A. Amendment 177A in my name and that of my noble friend Lord Willis of Knaresborough returns to the subject of the ability of research councils to enter into funding partnerships. We discussed this extensively in Committee. We had two key questions. The first was, under UKRI, would there be any additional requirements above those already existing for research councils in forming these partnerships? The second question was, are there circumstances in which such partnerships would require explicit prior approval from UKRI?

The Minister addressed the partnership issue in his letter to us all of 8 February. He acknowledged that the councils currently engage in many partnerships, nationally and internationally, to significant effect. He quoted from a letter that Sir John Kingman had written to me in which he had said:

“The individual councils of UKRI will of course have delegated autonomy and authority to agree these arrangements within their areas of expertise”.


This was helpful but did not quite seem to answer our two questions explicitly.

I explored this further in a subsequent meeting with the Minister and his officials. The essence of our discussion was over the meaning in practice of “delegated autonomy and authority”. In particular, I was anxious to have an explicit answer to the two questions. I thought that it would be helpful for everyone involved, especially the councils, to have maximum clarity. What differences, if any, would the councils see under the new regime when it came to forming partnerships? Amendment 177A allows the Government to answer these questions and to put the matter beyond doubt.

Amendment 178A is in my name and that of my noble friend Lord Willis of Knaresborough, who regrets that he cannot be present today, having urgent family business to attend to. As with Amendment 177A, this amendment looks for clarity and confirmation from the Minister. The context is set out in the letter of 8 February that the noble Lord, Lord Prior, sent to us all. On the penultimate page, the Minister addresses the concerns of the noble and learned Lord, Lord Mackay of Clashfern, over the employment by UKRI of the “relevant specialist employees” to which Clause 9 refers. Government Amendment 178 deals with that matter.

However, in his letter to us, the Minister also referred to the research councils’ role in appointing some relevant specialist staff in line with the principles of autonomy. As he reminded us:

“A package of flexibilities for research council institutes was approved by Her Majesty’s Treasury at the 2015 Budget”.


There were five flexibilities. Two of them are of concern to my noble friend Lord Willis, who is a member of the NERC, and to the CEO of the NERC. These are the exemptions concerning pay and the rollover of commercial income.

The CEO of the NERC has pointed out that neither of these exemptions is in practice available to research councils. They do not form part of the councils’ agreed delegations and there is no mechanism within BEIS for their approval, so they do not happen. For example, to address the 20% pay gap that now exists between NERC institutes and the HEIs requires a multiyear strategy. NERC as an employer must have confidence that this can be adopted without being placed in annual jeopardy by being subject to annual BEIS approval. There is no real sense in which the councils have the freedom to manage payroll within existing budgets as agreed at the 2015 Budget. Neither does the rollover flexibility work. In practice, an offer is made to HMT to consider a rollover of commercial income in January. NERC did this but had received no reply by the second week in March. If no answer is received, the money will be lost. Accordingly, NERC has now committed the relevant expenditure in this year. That means that in reality the rollover flexibility does not work either.

Our amendment addresses this problem. It seeks to impose an obligation to have regard to the agreed package of flexibilities and it seeks to give the Minister an opportunity to explain if the freedoms granted to the research councils in the 2015 Budget will in fact be available after the introduction of UKRI and the reorganisation of the councils.

I acknowledge that we are raising these rather complex matters at a late stage. I apologise for that. I should entirely understand it if the Minister preferred to write to us in response.

[Lord Stevenson of Balmacara]

My Lords, it has been a good debate on a wide range of issues broadly around the work of the research councils. It includes the Government’s important and welcome commitment to uphold the Haldane principle—or Willetts principle—and indeed to enshrine it in the Bill and throughout the instructions that will be given to the various bodies that are to subscribe to it.

We are delighted to be able to sign up to a number of government amendments in this group. We are pleased to see the concession made to the point argued strongly in Committee by the noble and learned Lord, Lord Mackay, about including under specialist employees all technical staff where they are involved in research. That contrasts with the attitude taken in Committee and earlier stages of the Bill, when we attempted to broaden the representational elements relating to the Office for Students—or office for higher education, as it should be called. In particular, we raised the lack of engagement with students, which seems perverse given the Government’s willingness at this stage to include others involved in their discussions.

I shall speak briefly to Amendment 177—the one amendment to which no one has spoken—and seek the Government’s response. We all accept that the strength of our higher education and research institutions will be central to the health of our economy and vitality of our society. As we look towards a post-Brexit world, the role of research in driving innovation, investment and well-being will surely assume greater significance. The capacity of research institutions to act with autonomy and independence will be key to their success.

The Government’s amendments, as I have already said, rightly respond to concerns raised about the need to embed the principle of institutional autonomy more firmly within the Bill. Why, therefore, have the Government not accepted Amendment 177 or brought forward their own version of it?

The Government did respond to arguments about autonomy in relation to the OfS. We welcomed their amendments and signed up to them—they are now in the Bill—such as that on,

“the institutional autonomy of English higher education providers”.

Yet as it stands, UKRI has no such duty, despite the extensive influence and engagement—indirect and direct—that it will have with higher education providers under the new system. We accept that UKRI is not a regulator, but its role is instrumental. It is bound to be engaged in discussions with institutions and bodies that are in a different sector from the institutional autonomy provided by the Secretary of State and the OfS.

That is an asymmetry that I regret. Could the noble Lord, when he comes to respond, at least give us some solace by accepting that, although it may be too late to amend the Bill at this stage, the institutional autonomy issue percolates through to research, is important to the institutions that will be working with the research councils and UKRI post-implementation of the Bill, and is something which the Government should address at some point, whether through memorandums of understanding or by guidance?