Financial Guidance and Claims Bill [HL]

Baroness Kramer Excerpts

2nd reading (Hansard): House of Lords
Wednesday 5th July 2017 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I first thank the attendants for lowering the air conditioning. It seemed as if, in this corner of the House, we had been sent to Siberia—it is now far more congenial. I join others in welcoming the Minister to her new role and thank her for the meeting she has already invited both me and my colleagues to attend, and for meetings that will follow in the future. She will gather from the overall mood of this House and from listening to the speeches that the Bill is regarded as worthy, significant and not contentious, and that across this House there is an intention to strengthen and improve it. We on these Benches join exactly in that approach.

A number of speeches have addressed issues that appear to be both relevant to the topic and essential background substance to the Bill, but which may be difficult to include in its current Long Title. In particular, the issues of pensions and financial exclusion were raised by my noble friend Lord Kirkwood, the noble Lords, Lord Haskel and Lord Holmes, the noble Baroness, Lady Altmann, and others. I say to the Minister, I once took a Bill through this house that was informally known as the “dump it in here” Bill, which had new clauses added at almost every stage of its progress. Would the Government consider amending the Long Title in such a way that other issues that seem so relevant could be included in a slightly more generous fashion, particularly given the amount of time available for the Bill to be discussed and pursued? I recognise that this would be a government decision.

The noble Lord, Lord McKenzie, described this so accurately as a Bill in two parts. Part one creates the single financial guidance body, and I pick up on a couple of related issues. The noble Baroness, Lady Altmann, focused on the potential it creates for joined-up thinking and for a people-focused approach to guidance and advice that stretches across the continuum, whether it be on debt, savings or pensions investment, all of which are now captured under this overall body. It is crucial that we have mechanisms in the Bill that allow the relevant body to take advantage of that possibility of much more holistic thinking.

The noble Lord, Lord Hunt, and others, including the noble Earl, Lord Kinnoull, identified that important activities carried out by the existing bodies must not be lost. The phrase that the noble Lord, Lord Hunt, used was, “customer-focused”. We should reinforce that, because it might be easy, for example, for debt advice to be downgraded as the focus shifts towards aspects of pensions, or vice versa. To lose the strength of those existing bodies would be a waste, frankly, and I hope the Government are aware of that issue.

A number of speakers talked about the incredible indebtedness—indeed, over indebtedness—of a large part of the UK population. My noble friend Lord Sharkey and the noble Baroness, Lady Drake, talked particularly about this issue. The phrase that I think the noble Baroness used was “lack of financial resilience”: one in six people in the UK is over indebted and slow to seek advice, and many are vulnerable. The noble Baroness, Lady Coussins, just made the point that wage stagnation, sharply rising inflation, a collapse in savings and a very sharp increase in consumer credit are all adding to the pressures that require individuals to turn to debt management. I pick up on another point raised by the noble Baroness, Lady Coussins: it is really important that support and advice in this arena is free to consumers. Like others, I sometimes look rather askance at the idea that anyone would choose a paid option when a high-quality free option is available. I hope that this overall body will stress and advertise the quality embedded in that free advice. There is often a public perception that free equals second best, and I do not think anyone would argue that that was true in this case.

On the Money Advice Service, there are some questions that need to be answered. The noble Lord, Lord Holmes, talked about access for all, and the noble Baroness, Lady Coussins, and various others talked about the need for resource. Currently, the Money Advice Service commissions advice on a needs basis, adjusting the capacity for each region based on its pattern of overindebtedness. With devolution, it is hard to understand how this will operate—will it be according to the Barnett formula or on a needs basis? The two, very significantly, do not overlap. If it is on the Barnett formula, what would happen to areas that would presumably see a cut in the level of advice they receive, even though they have very high levels of local indebtedness? The Money Advice Service is currently funded by the financial services industry, and this raises the question of ring-fencing, including making sure that, in any new system, it cannot be dissipated. As we have seen, many councils have cut their contributions to debt advice and management because they are under broader pressures. If this is now to be on a non-ring-fenced basis, it creates concerns and would also raise questions within the industry providing that financing. I hope that the Government will address these issues.

At the moment, the Money Advice Service is largely funded through grants. Will there be government pressure to shift to contracts? Given the complexity of cases, these would seem to be the kind of clients for which contracts are not appropriate and grant funding is far more typically successful. My noble friend Lord Sharkey—he was not alone but, I am sorry, I forget which other noble Lords raised the issue—called for a moratorium period, as in Scotland, for those who face a debt crisis and are seeking advice.

On the pensions issue, I think that we are all aware that Pensions Wise, at present, provides advice only to those over 50 and for defined contribution pensions. The Pensions Advisory Service, as I discovered myself through personal experience, limits its response to rather straightforward questions. Given the complexity of our population, I fear an awful lot of people fall between the various cracks in the structure of the service. Will this be an opportunity, as my noble friend Lord Sharkey recommended, for a much more comprehensive approach to providing guidance in this crucial area? We know that it is crucial—I am a great supporter of the triple lock, because it removed the disincentives to save for old age as well as, frankly, rescuing pensioners from pensioner poverty—but we have had such a proliferation of products. The noble Baroness, Lady Greengross, and others talked about the complexity of products that comes with pension freedoms. There are growing numbers of people with defined contribution pensions, which absolutely require investment decisions. We have a very complex pensions picture to cope with. It is noticeable, as various Member of the House have said, that although guidance is available, its take-up is relatively low, despite the complexity. This single body will hopefully become a mechanism to encourage far broader use, but we need some assurance that it sees this as a crucial challenge that it will address.

The noble Baroness, Lady Drake, referred to standards. The new body must set standards but the FCA has to approve them. She pointed out that the FCA’s remit and that of the body are not identical. I hope the Minister will address how the tensions and issues will be resolved. Various Members of your Lordships’ House talked about financial capability. There have been calls for that to be a standalone function within this single body because it is so important. There was discussion on the Floor of the House about the role of financial education in schools—I personally believe that it should be statutory—but how will this body tie in with post-school education? The point at which people need financial education tends to be when they start to save, invest in an ISA, join a pension scheme or engage with a mortgage. It is very hard to anticipate when that will happen for those aged 18 and under. Therefore, we have to recognise the need for ongoing education on financial capability.

The last section of the Bill addresses claims. I think the Minister will have picked up the message from across the House that claims management firms are not well favoured by Members of your Lordships’ House, and that many have been victims of constant cold calling, whether on PPI or a whole range of other issues. The noble Lord, Lord Hunt of Wirral, took the approach that we should close every loophole. I suspect that very much reflects the mood in this House. I join others in supporting the transfer of supervisory authority over claims management companies to the FCA, and support the powers that it will be given to cap fees. However, the cold calling issue surely deserves a focus of its own. To echo the noble Baroness, Lady Altmann, this applies just as much to pensions as it does to debt management, as my noble friend Lord Sharkey said, and to the range of other issues that claims companies exploit. I pick up the point made by the noble Earl, Lord Kinnoull, that some companies provide legitimate access to justice and come into a separate category. However, there is a very large group of essentially rogue companies that simply move from issue to issue where they reckon the public are most vulnerable, and seek to exploit any loophole in the law that they can. I hope that we are giving sufficient powers to the FCA to target all these groups, because if one area is closed off to them they will simply move their activities into another. I am not clear what happens to overseas-based companies that fall into this category. It would be good to hear the Government comment on that.

We on these Benches are very supportive of the Bill, which offers some important opportunities. However, we hope that the Government will consider whether there is an opportunity to use it to accomplish further aims that are not controversial and are generally agreed across this House, and which would allow us to respond more expansively to the issues around pensions, cold calling and financial inclusion.