Pub Companies

Damian Hinds Excerpts

Tuesday 21st January 2014 Commons Chamber

[Damian Hinds (East Hampshire) (Con)]

The hon. Member for Chesterfield (Toby Perkins) outlined effectively and persuasively the importance of pubs as valuable assets to this country. They are at the heart of our communities and a big part of being British. In East Hampshire we have great community hubs, from the Fox and Pelican at Grayshott to the White Hart at Holybourne. There are also a number of the beautiful country pubs that form part of our national image and attract people to visit this country, such as the Queens and the Selborne Arms, the Greyfriar at Jane Austen’s Chawton, the Harrow, the Trooper and the Pub With No Name. That great range of brilliant pubs is a mixture of managed houses, tenancies, leases and independent free houses.

Like many other areas, we have also suffered too many pub closures. Just in the past couple of years, in one town in my constituency, Alton, and its surroundings, we have lost the Gentleman Jim, the Railway Hotel, the Barley Mow, the Wey Bridge, the two pubs in Ropley—the Chequers and the Anchor—and, just recently, the only pub in the growing community of Four Marks, the Windmill. Like the pub that my hon. Friend the Member for Norwich North (Chloe Smith) mentioned, the Windmill is going to become a Co-operative retail store. Of course, a lot of other publicans are struggling to break even and make a decent living.

I welcome the Government’s support for the licensed trade, such as the scrapping of the beer duty escalator, the 1p of tax taken off a pint, the extension of small business rate relief and the community right to bid. It is worth remembering that the pub trade’s problems predate the beer duty escalator and exist in both tied houses and free houses. Top of the list is the declining propensity of men to visit a pub after work multiple times a week to drink reasonably large quantities of draught beer, which is a high gross margin product. The second, related, problem is the wide price gap between the on-trade and off-trade in alcohol sales, which has coincided with the arrival of affordable, decent quality new world wine. There are a whole range of other factors, many of which we would welcome in themselves but have had adverse consequences for the pub trade. I refer to things such as the smoking ban, radically different attitudes to drink-driving and changes in people’s living rooms, such as having big-screen TVs at home, not just at the pub. There is also intense price competition in food and leisure in general.

When I used to work for an integrated brewer—I worked for Greene King for a couple of years—the cost pressures that licensees used to talk about included the massive price of Sky, which my hon. Friend the Member for South West Bedfordshire (Andrew Selous) mentioned, the national minimum wage and the cost of products through the tie.

We could argue that pub owners take too much money from publicans, but to mention only the tie is to chase the wrong target. People have two key objections to it: the impact on product range, and the way the product is priced. On the first point, we must remember that the tie is not the same for every pub. For some, particularly food-led pubs, it excludes wine and spirits, for example, which can be bought from outside. For others, even a tied house, there may be provision for a guest beer or for what is sometimes called a “local hero”, which means that a pub owner in an area where there is one dominant beer brand might be allowed to have that brand, even though it is a direct competitor.

A lot of the focus has been on whether licensees have the right to buy in a guest ale of their choosing. The hon. Member for Chesterfield mentioned the 160,000 members of CAMRA, and a lot of other people are also real ale lovers. I am proud to count myself among their ranks. I am proud of real ale—it is a uniquely British product that is not found anywhere else in the world, and I am proud to bits that it is growing. It is a craft product, and we should support it. I would love the Triple fff brewery in Four Marks, in my constituency, to have more outlets for its beer, which people would enjoy drinking. A guest ale option is positive for the increase of the brewery industry. However, we must be clear that it is a red herring for the survival of most pubs. Real ale is a small category in most pubs, and four out of 10 do not stock it at all. The drinks that matter in most pubs are standard lager, bag-in-box Coke and the others that generate the bulk of revenue.

The second set of objections to the tie are about pricing, which goes to the heart of pubs’ profitability. Sometimes when we discuss the matter—it happened in the last debate in the House—we speak as though, if we could remove the tie and the inflated beer prices from the equation, everything else would stay the same. Of course, that is not what would happen at all. The target margin for pubs is set by starting with a target return. There is an asset on the books with a certain value, and it is believed that the shareholders and the market require a certain return to be demonstrated on it. That return is split between rent and margin, the latter sometimes being known in the trade as “wet rent” for that reason. If the return was all on rents, the rent would clearly be higher and pubs would be more operationally geared, with a higher fixed cost. Arguably, more businesses might fail.

[Greg Mulholland]

With respect, although my hon. Friend speaks from a position of knowledge, I think he is missing the point. The whole point of the benchmark level of the market rent-only option—the Select Committee’s solution—is to stop the double overcharging that currently happens. The large pub companies have skewed the traditional tie so that there is no longer a lower rent if there are higher beer prices. The benchmarking survey by the Association of Licensed Multiple Retailers shows that tied rents are higher, on average, than free-of-tie rents, which is an abuse of the tied model.

[Damian Hinds]

It is difficult to go into the maths in great detail in a forum such as this, but with respect, I do not see how we can make that comparison, because we are talking about different pubs in different places.

[Toby Perkins]

The hon. Gentleman is right to say that it is difficult to make such comparisons. That is precisely why we are making the case that the only way to get genuine fairness is to ensure that people know what is a fair market rent. We can then say, “You can take that or you can take an alternative. The choice is yours.” That is the only way we will get a genuinely fair deal.

[Damian Hinds]

I have a lot of sympathy with that view and it is legitimate. We must not forget, however, that the owner of the pub also has an interest in that business thriving, and it must be an arrangement both sides are happy with. In one sense, the tie is just a way of sharing risk. It is a way of having rent that goes up when business is good, and down when business goes down. If we want to complain about how much money pub owners take from licensees, that is perfectly reasonable, but it is misleading to speak only about the tie and to say that if that went, all those problems would disappear. I do not believe they would.

I believe the single most important thing for regulation is to ensure the availability of proper financial and legal advice for new licensees. That must include someone giving advice who is able to understand and challenge what the pub company puts forward. It is called FMT—fair maintainable trade—and involves an estimate of what the pub can make, on which the rent and target return is based. If the licensee enters that arrangement with their eyes fully open, it is a commercial decision. Pub companies tell us that things are getting better and that pre-entry training, consultation and so on has improved, but it is difficult to tell that from the outside—I know the Select Committee has had more opportunity to look at that in detail.

Overall, we want more of a partnership approach between the owner of the pub and the licensee, and in the industry at its best that is of course what happens. For a long time, pulling pints has not been enough to survive and thrive in the licence trade. Such businesses are increasingly food driven, and they are trying to attract a wider range of customers while having to compete against managed houses that have different cost structures. There can be big advantages to being part of a wider group, such as consultancy and guidance on the development of the food business and menus. For some, there are other streams of business such as accommodation and retail opportunities, or—critically—improving purchasing programmes to improve margins.

It may be that as the industry evolves, the old tied model becomes less appropriate as more business goes to food and other products, and a franchising-type model may become more appropriate. It is arguably easier to do that and provide a full range of services if there are managed houses, as well as tenancies or leases. It is not for the Government to force such things through, but competition authorities can ensure there is sufficient space in the marketplace for operators who would provide a different model to licensees. The other crucial thing the Government can do to ensure that pub companies are fully mentally invested in long-term pub operations, rather than having an asset register of real estate, is make it harder to convert to residential property. If someone knows that the way they will make money out of a certain asset is by trading it well as a pub or a place where people come together to eat and drink, their minds will be focused on doing that more and more.

Where communities want to take over a pub, but that does not work out with the pub company and so on, I would like the Government to review continually the way the community right to bid works. We have a number of such instances in my constituency, and there is a great team working on the Anchor in Ropley. People are giving up a lot of time and putting in their expertise. That seems quite hard on occasion, and I hope the Government will keep that under review to ensure the process is as simple as possible.

In conclusion, we should beware of solutions, such as removing the tie, that appear to solve a lot of problems. Let us think back to the beer orders, and those who thought it was a great idea at the time in terms of breaking the vertical integration hold of brewers on individual pubs. I wonder what some of those people think about that now.

Payday Loan Companies

Damian Hinds Excerpts

Monday 20th January 2014 Commons Chamber

[Damian Hinds (East Hampshire) (Con)]

It is a great pleasure to follow the hon. Member for Makerfield (Yvonne Fovargue), who, as always, speaks not only with great passion but expertise and first-hand experience. This is an important debate, and not just because of the widespread detriment that is acknowledged to result from the payday loan market and the huge growth in it, which is not new but continues to happen and is set in the context of a much wider high-cost sub-prime market in this country. We cannot consider one without thinking about the interaction with the others.

The debate is also timely. This is debt awareness week and this Friday, the 24th, has been dubbed payday loan danger day as apparently it is the day of the year on which, as a result of Christmas and so on, people are most likely to take out a payday loan. To look at the more positive side, we are also in a period of regulatory change and an evolving FCA regime. This is Parliament’s opportunity to have some input into that and, I hope, to shape it.

We should also acknowledge what has already been done and welcome it: the enhanced enforcement from the OFT; the referral of the entire sector to the Competition Commission; and the FCA’s announcements on its regime, including the affordability checks, measures on roll-overs, advertising restrictions and what is being done on the continuous payment authorities, which the hon. Member for Makerfield mentioned. It is also worth acknowledging some of the wider things the Government have done, such as putting financial education on the national curriculum and providing great support for credit unions, putting £38 million behind the credit union expansion project and liberalising that sector.

[Sheila Gilmore (Edinburgh East) (Lab)]

On credit unions, does the hon. Gentleman agree that we need to put a lot more effort in if the system is going to work? The credit union in my constituency is run by volunteers and operates from an upstairs office, without a shop front. The payday lenders and the like are in glossy high street operations. Perhaps local councils could help credit unions to get out on the high street.

[Damian Hinds]

The hon. Lady is right. Of course, many local councils do that, providing premises and soft support in all sorts of ways. What the Government are doing, which is key, is trying to help the sector get to a point where it stands on its own two feet. Although subsidy and direct support have a role, we eventually want the sector to thrive, to be self-sustaining and to be able to take on the other lenders. That will include brand awareness and a product range that is right and that attracts people, but essentially we want the sector to be a bigger, professional operation that provides a real alternative. I think that we are moving in that direction, both through the Government’s support and through the liberalisation of the sector, with the legislative reform order and the move from a 2% cap to a 3% cap on interest a month. That puts credit unions a little closer to being able to compete with payday lenders, although it is still very hard to break even at 3% per calendar month on a payday loan.

The biggest change by far that the Government are putting in place is the duty to have a cap on the cost of credit. That is an enormous change—not just for a Conservative or coalition Government, but even for a Labour Government. I was reluctant about such an idea, but a couple of years ago I finally concluded that we needed to cap total costs in this market.

Why was I reluctant and why did I change my mind? I was reluctant because, in this country, with the exception of natural monopolies and a few other very specific examples, we do not do price control. It goes against the philosophy of our economy and of our politics. We—by which I mean most people in this House, not just those on the Government Benches—tend to believe in the efficacy of markets, in consumer sovereignty and in the beneficial impact of price competition. Why did I change my mind? I was trying to reconcile all those beliefs about what markets do with what we see in this market, and in many ways the normal laws of economics do not seem to apply to high-cost sub-prime credit.

The hon. Member for Makerfield talked about how pessimistic some people can be, but in some ways people are incredibly over-optimistic, even about their ability to pay back a loan. They feel that they are not the type of person who will get into difficulties. The hon. Member for West Bromwich West (Mr Bailey) set out very clearly how consumers in this market tend not to buy on the basis of price, so, unlike in other markets, bringing in more competitors does not tend to bear down on price.

If the normal rules do not apply, in many ways the normal remedies that one might apply to a market that was not working well do not apply either. Of course we want clarity about what a product offers, disclosure, health warnings and so on, but there is a limit to their effectiveness. Warnings quickly become part of the wallpaper of life, just like that thing that goes, “Your home is at risk if you do not…blah, blah, blah.” People stop paying attention and, as I say, borrowers do not anticipate that they are the ones who will end up with a problem.

As for sound financial education, of course we want educated, empowered consumers but there are limits here too. There is a big time lag. If we educate the next generation, we will have to wait quite a long time before they are in a position to need to use that education—and I can guarantee that by the time they do need it, everything will have changed. If we had had financial education when we are at school, we would have learned about clearing houses and endowment mortgages. They would have said, “Don’t worry—at least a final salary pension will see you safe,” and we probably would have been told that payment protection insurance was a damn good idea and we should get as much of it as we could.

Of course competition is a good thing, but if it does not affect prices there is a danger that more competition can mean more ubiquity, more advertising about speed and convenience and more proposals of instant solutions that do not really exist—and, I am afraid, more people believing in those things.

Micro-interventions are another suggested solution. We think that if we find an abuse in a market we should stamp it out, but there are limitations in that regard. If we restrict roll-overs, I can guarantee that the industry will find a different way to make money. That even applies to the real-time database that people are setting such store by—we should always beware when people think that one solution will solve a lot of problems. Quite apart from the other problems caused by the creation of mega-databases, there is also the issue of scope. In Florida, for example, there is no home credit market on the same scale as ours. If a real-time database is to be really effective, it must include the other parts of the market too.

If we believe that the current levels of payday lending are a social ill, that it will not go away as the economy improves, as there is growth and real wages increase, and that to some extent the market creates its own demand through advertising and supply, we should ultimately conclude that we must make the market less attractive. We must reduce its ubiquity so that we reduce both supply and demand. Not only do we want to make the market work better, we want less of a market. A cap on the cost of credit is a fundamental part of that, not only in ensuring that consumers are not ripped off but in making it less attractive to players coming into the market. We do not want to make it unattractive, because, as the hon. Member for Makerfield said, there are of course times when the short-term borrowing of relatively small sums of money makes perfect financial sense, but we want to make it less attractive.

A cap is, of course, not a panacea either. First, stimulation, whether big or small, at the margin of the illegal market will definitely be a problem. Of course, firms will find other ways to make money. When people hear that, they say, “Oh, but I’m not talking just about a cap on interest. I mean a cap on the total cost of credit,” but what do they mean by that? I suggest that people mean different things and think that everyone else is using the same definition. Sometimes, people mean restricting behavioural charges or penalties. That is a perfectly legitimate goal, but it is not the same as reducing the overall cost of credit. Such a cap would have to be really rather high to tackle the real abuses.

Some people say, “Ah, but we’re talking not about penalties, but the overall cost and the hidden fees.” Well, that is what annual percentage rates cover. If a fee is paid by everyone, it is already included in the APR. Because people do not understand percentages very well, they could be presented with a cash number for the total cost of credit, but I suggest that there is a big difference between using a cash number for disclosure where it makes perfect sense—“You will pay x per £100”—and using it for a limit where it can be generalised. That probably explains why most usury caps use APRs, and I suggest that the twin caps approach now used in Australia is probably the most effective.

Oral Answers to Questions

Damian Hinds Excerpts

Tuesday 14th May 2013 Commons Chamber

[The Financial Secretary to the Treasury (Greg Clark)]

The hon. Gentleman should support the Sheffield city deal, which has been enthusiastically endorsed by civic and business leaders in Sheffield. The point of the deal is to improve the city’s record for getting people into work, thus ensuring that the growing businesses there can access a high-quality labour force.

[Damian Hinds (East Hampshire) (Con)]

T4. In the light of the Government’s commitment to helping families to save for their futures, can the Minister tell us when we will see the details of the consultation on the measure announced in the Budget to allow the transfer of savings from child trust funds to junior individual savings accounts?

[The Economic Secretary to the Treasury (Sajid Javid)]

My hon. Friend has raised an important issue. The details of the consultation will be published today, and the consultation will close on 6 August. It will deal with the question of whether transfers should be allowed, and if so on what basis. The Government propose that voluntary transfers should be allowed if requested by the registered contact for an account.

Financial Services Bill

Damian Hinds Excerpts

Monday 10th December 2012 Commons Chamber

[Stella Creasy]

My hon. Friend is right. I pay tribute to the work that she has done in this regard, and also in regard to debt management plans.

Bad practice is widespread in this industry. The Financial Conduct Authority will have an opportunity to set the tone when it comes to the sort of consumer credit industry that we want in the future, but let us use the opportunity presented by the OFT to do something about the problems now, and to prevent 2013 from being boom time for the legal loan sharks.

The Minister must be aware that three quarters of consumers are looking towards Christmas with severe financial concerns, and that 10 million of us in Britain feel financially squeezed. Will he state explicitly whether he will support my proposals and take them to the OFT, so that we can be certain that 2013 will be a time for legal loan sharks rather than consumers to be worried? I urge him to read the Bristol research findings—which are already in the pocket of the Department for Business, Innovation and Skills—in order to understand how measures such as this, and total cost-capping, can work, so that we can finally say that Britain is a legal loan shark-free zone.

[Damian Hinds (East Hampshire) (Con)]

It is an honour to follow the hon. Member for Walthamstow (Stella Creasy), and to speak in favour of the spirit of Lords amendment 78.

The problems of high-cost sub-prime debt are widely acknowledged. Although they have come much more to the fore through opinion-formers of late because of payday lenders, they are not, of course, new, and by extension—this is somewhat at variance with what the hon. Lady said—it is not new that Government are not capping the cost of problem credit. It worries me slightly that we use the term “payday” as a catch-all shorthand for all these problems, and I hope that the Minister will reassure us that we are not just talking about payday lenders.

Dealing with problems of this kind requires an integrated approach involving financial capability and the provision of alternatives for people who need access to credit, but it also requires regulation. Disclosure is not enough in this market, especially as it often involves very vulnerable consumers and the ready, easy availability of credit. It could be said that supply sometimes creates its own demand. Some people tend to opt not for the solution that best suits their needs, but for the most recent that they have seen. In seeking to address these costs, however, we need to look at costs in the broadest sense. This is not just about interest rate charges.

[Justin Tomlinson]

On the question of percentage charges, if we displayed everything in cash terms it would be far easier for even the most vulnerable consumer to make an informed decision.

[Damian Hinds]

Yes, total cost of credit information is a good way forward—although, ironically, that would please a lot of payday lenders because, relatively speaking, they would not look quite so bad.

This is not only about interest rates; it is also about ensuring that credit is eventually paid down, and about behavioural charges, which can be difficult to pin down under the annual percentage rate as they apply to some consumers, but not others. An APR cap on its own might seem like a panacea, but, as Members on both sides of the House realise, it is not. Unfortunately, there are ways around caps. The experience of some states in the United States where there has been a 30% cap on payday loans is that the rent-to-own sector gets a great boost, because money can be made in another way: by whacking up the base price of the goods.

If there is to be a cap—and I think there can be a place for a cap—we must talk about what sort of cap it will be. I have always argued that a blunt general cap is a bad idea, because it can only be set either so high as to make no difference or so low as to put some parts of the market out of existence entirely and thereby run the risk of driving more people into the unlicensed part of the market, where someone’s idea of a late payment penalty is a cigarette burn to the forearm.

--- Later in debate ---

[Stella Creasy]

It is wonderful to hear the hon. Gentleman talking about the positive aspects of capping. I suggest he look at total cost capping, because arrangement fees are not the only issue; there are also issues to do with late payment fees and the incentive they give lenders to push people to keep rolling loans over. Like the hon. Gentleman, I want this to be a future-proof—that is a dreadful term—proposal. We must also ensure lenders cannot get around it, however, which is why we need to cover all the costs involved.

[Damian Hinds]

The hon. Lady is entirely right, and I alluded to that point when I talked about behavioural charges. It is wrong to think we can legislate perfectly for all eventualities in advance, however. This market has an amazing ability to shapeshift and find its way around any regulation we might put in place, as has been seen in the United States.

I would like to hear an assurance from the Minister that under the new regime it will be possible to have a flexible capping regime that allows for all parts of the market to operate while also insisting that they do so in a responsible way. I also seek an assurance that we will not just address “payday” loans, which are a relatively new phenomenon in this country. Home credit is massive, and it has been with us since Victorian times, and has been a problem for quite a long time. There is also pawnbroking, which my hon. Friend the Member for Chatham and Aylesford (Tracey Crouch) mentioned. Logbook loans are a big market in the United States; they have not appeared in a major way here, but we can bet our bottom dollar that they would get a big boost if other parts of the market were capped. Rent-to-own is another area.

On the basis of the Minister’s conversations across Government, can he assure us that the Government will continue with an integrated approach that addresses not just regulation but boosting financial capability, starting with children’s capability with mathematics in school? Will they also continue to support operators that provide responsible credit, in particular credit unions? I pay tribute to the work the Government are doing in supporting that sector, and would like them to go further in modernising it and making credit union services more widely available, such as through the post office network.

[Andrea Leadsom (South Northamptonshire) (Con)]

I want to speak briefly on Lords amendments 25 and 36, both of which deal with the issue of competition in respect of the new regulators: the Prudential Regulation Authority that will supervise the banking sector and the Financial Conduct Authority that will supervise business conduct in the banking sector. I seek reassurance from the Minister that having regard to the quality and level of competition in the marketplace will be sufficient to drive a radical improvement in respect of the new challenger banks.

As the Minister knows, the five oligopoly banks in the UK currently have over 80% of all small and medium-sized enterprise bank accounts and personal current accounts. That means access to finance is very limited in respect of choice and types of finance, and as bank balance sheets are currently in a difficult position, it is extraordinarily hard for small businesses to get hold of the financing they need to grow, which in turn will help our economy to recover. So the Bill gives us a once-in-a-lifetime opportunity to ensure that the regulators are, in future, incentivised to ensure not only that banks do not fail, but that we encourage new entrants to the market. At the moment, many would-be bankers find that they are set enormous hurdles, such as having to set up a dealing room just to provide evidence of their ability to do so, yet at the end of an enormous obstacle course the FSA tells them that they cannot have a banking licence. What we cannot have in the future is the PRA and the FCA combining to make it as difficult or more difficult to encourage new entrants into the market. So I hope that the Minister will set out how the regulators of the future will not only tolerate, but encourage new competition.

Oral Answers to Questions

Damian Hinds Excerpts

Tuesday 6th November 2012 Commons Chamber

[Danny Alexander]

I note that when the Labour party was in government and had receipts from the 3G auction, it used the resources to pay down debt, which was very prudent. Instead, we are bringing forward policies to support housing, such as the Government guarantees, which will be available to housing associations in Scotland, as well as in other parts of the country.

[Damian Hinds (East Hampshire) (Con)]

Alton in east Hampshire has just benefited from a much-needed £9.5 million affordable housing scheme. What more can be done, working with other Departments, to bring on more such schemes, partly using council land, especially in the overcrowded south-east?

[Danny Alexander]

My hon. Friend is right to highlight the importance of releasing public sector land for development for housing, including affordable housing. The Homes and Communities Agency is well ahead of its targets for releasing such land and for schools—

First-time Buyers

Damian Hinds Excerpts

Wednesday 14th March 2012 Westminster Hall

[Damian Hinds (East Hampshire) (Con)]

He has the block vote.

[Paul Maynard]

I agree entirely. Perhaps we would like to see a gesture from leader of the National Union of Rail, Maritime and Transport Workers as to what he will do in future.

We need to use our social housing stock better, which is why I welcome the Prime Minister’s announcement on enhancing the right to buy. We have to stop seeing our social housing stock as ghettos that we create. When I first moved to London, into the housing development that I mentioned, as ever, the housing developer built the required proportion of affordable housing at the end of a cul-de-sac; there were two rows of cheaper housing. It became ghettoised and stigmatised, as is always the case. We need to move beyond that and to think of social housing as a resource for the use of the community, not areas of a town or village that are regarded as somehow less worthy. That has always been my concern about the social engineering aspect of housing policy, which many Labour Members seem to want to create—communities that they can somehow control. That strategy is desperately wrong.

Jam Jar Bank Accounts

Damian Hinds Excerpts

Tuesday 28th February 2012 Westminster Hall

[Damian Hinds (East Hampshire) (Con)]

It is a great pleasure to see you in the Chair this afternoon, Ms Osborne.

For most of us, using a current account is as natural and normal a part of modern life as indoor plumbing, but it was not always so. Many hon. Members will remember their parents coming home with weekly wages in cash, in an envelope with little holes in it so people could count the money when it was given to them. On arrival at home, the cash would be divided into amounts for the rent, the bills, housekeeping and, hopefully, savings for an unexpected bill, school uniforms or Christmas. The sub-divided amounts would typically be kept in separate boxes, tins or jam jars, from which this debate takes its title.

Most households have changed a lot since then, and there are many advantages to that evolution. For most jobs now, people need a bank account to accept their salaries or wages, and people also need an account to pay the rent or the mortgage. People’s money is also safer in a bank than on the kitchen windowsill. As payments through direct debits and standing orders cost less for financial institutions to process, bank accounts give people access to better deals. A bank account also becomes a gateway to other financial services.

Much progress has been made over the last number of years on that front. The number of people without a transactional bank account, including a basic bank account, fell by about a half between 2003 and 2010 to just 1.5 million households.

As I said, there are many advantages to the transition, but there are also some drawbacks. For a start, there is loss of control, particularly with things such as direct debits. Although people set them up, they happen subsequently without people actively having to do anything.

[Justin Tomlinson (North Swindon) (Con)]

My hon. Friend has secured a fantastic debate.

Our extensive research in my all-party group on financial education for young people highlighted loss of control as a particular problem. Some 91% of people who got into financial difficulty did so because they kind of lost control, and my hon. Friend has highlighted exactly why that is happening.

[Damian Hinds]

My hon. Friend goes right to the heart of the matter. There can also be a feeling of being rather flush on payday and a danger of people not making provision for unexpected, or sometimes even expected and known, subsequent liabilities.

Although most of us enjoy free in-credit banking, nothing in life is free; there is a cost to operating bank accounts. The point made by my hon. Friend the Member for North Swindon (Justin Tomlinson) also goes to the heart of that issue. The provision of free banking relies on people making mistakes and incurring penalty charges. Research for the financial inclusion taskforce has shown that low-income families that move to have a bank account in order to save money through direct debits and so on found that those savings were entirely wiped out by penalty charges, which averaged £140 in the first year. That combination of factors, as my hon. Friend says, can lead to people tripping into debt, which can then spiral. I mentioned people who do not have a transactional bank account, but many choose to manage in cash even if they have a bank account.

[Esther McVey (Wirral West) (Con)]

My hon. Friend talked about people tripping into debt. He will also find that people trip into ill health, particularly mental ill health. I work with Advocacy in Wirral, and one of the main issues that it deals with is the sheer practicalities of life and not being able to pay bills, leading to a deterioration of mental health.

[Damian Hinds]

My hon. Friend’s point is, as ever, apt and to the point. She could also have mentioned the stress that debt and trying to manage one’s finances can bring to families, which is one of the key factors in family breakdown.

To address those points—at least in part—and a few other points, we have jam jar accounts. They mimic the jam jars on the windowsill; that is the whole point of such accounts. Louise Savell of Social Finance has identified three core features. First, when someone’s wages come in, the money is automatically distributed among different pots within the bank account—for rent, household bills, spending money, savings and so on. Secondly, the person would receive a low balance alert by text, if there is a danger of that person failing to meet one of their bills from the bills account. Thirdly, if the person does not act on that for whatever reason, there would be an auto-sweep from savings into the bill-paying account in order to avoid penalty charges or failing to make the payment.

There are a number of questions about product design, which can be done in different ways. One big debate is about budgeting support, which could accompany the accounts. Comprehensive budgeting support—helping people to decide how much goes into each pot and how and when to redistribute—would be a great bonus, but that is quite costly. The issue should have a separate debate, because we can have a lot of the benefits from jam jar accounts without fully comprehensive budgeting support, and we can have a lot of great benefits from fully comprehensive budgeting support without jam jar accounts.

A second question about product design is how easy we make it to raid a savings account. Jam jar accounts are in many ways a method for one to impose discipline on oneself. A customer might decide that it would be good to impose further discipline and say, “If I want to move money out of the savings account into the spending account, I should have to do something actively. Ultimately, it is my choice because it is my money, but I will make myself ask for it in writing or by e-mail.”

[David Simpson (Upper Bann) (DUP)]

Does the hon. Gentleman agree that more attention and help need to be given to those of a certain age? They could find bank accounts hard to deal with—it is taxing, as he has suggested—and they like to see what they have and manage it in that way. More help is needed for the senior citizens of our country.

[Damian Hinds]

The hon. Gentleman is absolutely correct. There is a generation that is more comfortable with managing such matters online, if they have access to a desktop personal computer, or, for those who do not have that, through smart phones, mobile phones and auto-voice recognition. However, there is a cadre of people for whom that is less appropriate.

The third question on product design is how to market such accounts, by whom and to whom.

Why would we want a great increase in jam jar banking? First, it would reduce the extent to which people trip into debt. Secondly, the poorest would pay less, both directly, through lower bank charges; and indirectly, because service providers would have a lower average cost of collection. Therefore, the poverty premium, as highlighted by Save the Children and others, would be reduced. Thirdly, and just as importantly, it would stimulate savings through a sort of a nudge. One of someone’s jam jars would automatically be a savings account, and they would have to say yes or no to put a few pounds away every week or month. We all know what a difference that makes; it can be quite transformational to have savings and assets.

[Guy Opperman (Hexham) (Con)]

As my hon. Friend knows, I am leading a campaign for the establishment of community-based local banks. Would one of the best custodians for jam jar accounts not be a community-based local bank? Such banks allow people to save locally with a local bank manager, with whom there can be a close, personal relationship. That would increase savings and the benefits of a jam jar account.

[Damian Hinds]

My hon. Friend makes a fine point, and I commend him on his leadership in the local banking movement. I will say a few things about credit unions, which I think share some characteristics.

I have talked about the “Why?” of jam jar accounts, and it is also fair to ask, “Why now?” There are three good reasons why the issue is particularly relevant at the moment. First, the Government and Members on both sides of the House are focusing, rightly, on the cost of living. We discussed heating bills in the preceding debate, and there are active debates about rail fares and petrol and diesel costs. Bank charges are also a significant part of the cost of living. The second reason why the debate is particularly timely is because of the introduction of universal credit, the move from fortnightly to monthly payments, and the move away from direct payments to landlords. The third reason is the sector modernisation fund of £73 million for credit unions that the Government are supporting. That presents new opportunities for development in that sector.

[Esther McVey]

Of course I greatly welcome—as all of us here do—the universal credit, but does my hon. Friend agree that what is being offered protects not only those receiving the credit, but potentially the landlords and other people who are the recipients of bill payments? Those people also need protection.

[Damian Hinds]

My hon. Friend is right. Of course, there is a potential benefit for landlords and other service providers. There is a line of argument that goes: why not just keep the two-weekly payments and the direct payments to landlords? However, a key objective of universal credit is to make the receipt of benefit feel more like being in work, which usually means having to cope with monthly payments, not having money paid direct to a landlord and so on. The use of such accounts is a good way of helping people through that, which is a perfectly legitimate aim, while keeping the key features of universal credit.

We know that Ministers are interested in this area. Most recently, in answer to a written parliamentary question tabled by my hon. Friend the Member for North Swindon, which was published after I applied for the debate, the Minister of State, Department for Work and Pensions, my hon. Friend the Member for Thornbury and Yate (Steve Webb), confirmed that the Government are actively looking at the potential for low-cost budgeting accounts.

So why do they not exist already? Well they sort of do, just not on a particularly big scale. Last year, there were four providers of jam jar accounts, although three of them are not the household names that most of us would recognise. Until now, a key driver for the development and roll out of such accounts has been debt management companies wanting to have greater security of payment schedule, rather than consumer advertising. So although they exist, they do not exist at scale. Social Finance estimates that there are only about 150,000 such accounts in the UK. They do not exist through big brand institutions—by the way, the exception to that is the Royal Bank of Scotland. I know that it is not very fashionable these days to say nice things about RBS, but I commend it for having such an account, which it uses for its most challenging customers. However, that also means that the account is not actively marketed to the general public. Someone would struggle to walk into an RBS branch and open such an account, unless they are referred on to it.

[Guy Opperman]

Given that RBS will potentially be sold or divested by the Government in the longer term, is that something that should be carried through post-sale and hopefully made part of a community-based organisation?

[Damian Hinds]

In the interests of time, I will have to leave that question hanging—fascinating though it unquestionably is—because I must plough on.

The third important point is that such accounts are not available at an attractive price—with the exception of the RBS account. Typically, they cost the consumer about £150 a year. Why are such accounts not available at scale through big brand institutions at an attractive price? That is a very good question. Intuitively, such accounts seem like an attractive concept. In fact, many hon. Members here might reflect that, in our own personal finances, we mimic how jam jar accounts work. We might have a separate current account for household bills or a separate credit card that we use for car payments or something like that.

There is an attraction to such an idea, but the key stumbling block is economics. There is no reason to believe that the banks that do offer such accounts at the prices I talked about are making above normal profits, although at scale the cost should come down. Social Finance estimates that it should be possible to provide such accounts at between £5 to £7 a month, which is around £60 to £85 a year. The biggest sensitivity to that cost is the extent to which call centre human support on budgeting and so on is provided.

In any case, that is still a lot of money, so the question of how to pay for it remains. My hon. Friend the Member for Wirral West touched on some of those issues a moment ago. There is some reason to believe that people—consumers themselves—would be willing to pay something. In the credit market, if we think about how much consumers implicitly are willing to pay for the convenience and flexibility of home credit over cheaper sources, there is some evidence that people value and would pay for control. Some research suggests that maybe people would be willing to pay £1 a week—£50 a year. However, that still seems rather a lot. That could possibly be augmented with some other charges for ATM withdrawals and so on.

Some people might say, “Get the banks to pay for it. They’ve done all these bad things, so they should do it.” To be fair to banks, they do quite a lot in the corporate social responsibility sphere already, including with credit unions. We could perhaps get them to provide such accounts on a semi-commercial basis, forgoing their normal profit margin. What would not be a good idea is to suggest that other customers should cross-subsidise those with jam jar accounts. There are two reasons for that: first, for competition policy reasons and, secondly, because it is generally a bad idea in the interest of effective markets.

As my hon. Friend the Member for Wirral West mentioned, there may be a role for service providers, particularly housing associations and utility companies, who would benefit from having a more reliable payer. Particularly for the most risky customers, a housing association, for example, might even be willing to provide cash support for the costs. Perhaps more generally, one would be looking for softer support in terms of marketing and so on to reach scale.

We are talking about banks and consumers, but is there a role for the Government? There is certainly not a role for the Government in telling people what sort of bank account they should have. There is also not a role for the Government in telling banks what should be in their new product development pipeline. However, there is a real social interest in all these issues, as I outlined earlier. If it is a question of bringing together organisations that may all have an interest, some of which may not know about it yet, in developing this market, perhaps the Government are best or uniquely placed to do that.

In my final minute or so, I have three simple asks of the Government, to which I would love to hear the Minister’s response. The first ask is to prod the banks and continue to stress to them the benefit that may be had both to society and potentially to them in developing these products. There may even be a pure commercial case to be made for them. After all, I often remark that nobody knew until 3M brought it to market that the thing that was really holding back their office productivity was a little yellow square piece of paper that can be stuck to the wall. Sometimes products just have to get out there before we realise their potential.

The second ask is to consider having a pilot scheme in one area, working with a housing association and one or more utilities. It would then be possible to quantify the benefit that comes from security of payment and collection cost, as well as to assess the beneficial impact on individuals in terms of their budgeting behaviour, the amount of money they save and their propensity to start to make savings.

My third ask is to work with credit unions. This Government have been a great supporter of the credit union sector, particularly through the £73 million modernisation fund. If part of that were to be used to develop a robust, sustainable common banking platform, it would open up all sorts of possibilities, including this one. There would also be the potential to work with the Post Office, which would provide a great new source of revenue and business to post offices, which matter so much to all of us in our communities and constituencies.

We know that financial inclusion, helping people to make the transition into work and helping hard-pressed families with the cost of living are all things for which Ministers have shown a passion. They are also all things where jam jar banking could make a substantial difference. I hope very much that Ministers will continue to work with consumer groups, housing associations, utilities, banks and credit unions to help to stimulate such accounts into becoming an at scale reality.

Public Service Pensions

Damian Hinds Excerpts

Tuesday 20th December 2011 Commons Chamber

[Danny Alexander]

At the start of the process, the Office for Budget Responsibility forecast opt-out rates resulting from the contributions increase as being about 1% of pay bill. Of course, because the local government scheme is a funded scheme, one thing we are allowing is that savings delivered by long-term reform, such as increasing the retirement age or moving to a career-average basis, can be used to cover the cost of some of the contribution increases. It is therefore possible that once the final local government scheme is put in place, local government workers will face little or no contribution increase because they are in a funded scheme.

[Damian Hinds (East Hampshire) (Con)]

For purposes of comparison, what estimate has my right hon. Friend made of the proportion of new starters in the private sector who can look forward to a defined benefit scheme?

[Danny Alexander]

The number of new starters in the private sector who can look forward to a defined benefit scheme is very small. The number of open defined benefit schemes is decreasing, but that should not deflect us from our wish to continue to provide defined benefit pensions in the public sector, which are a right and proper part of the reward for a lifetime’s commitment to serving the public.

Oral Answers to Questions

Damian Hinds Excerpts

Tuesday 1st November 2011 Commons Chamber

[Miss Smith]

I will tell the hon. Lady what I am certainly going to do about it, which is join the rest of this Government in working on welfare reform, tax reform, child care reform and many other measures that will take women’s unemployment down from its record level, where her Government left it.

[Damian Hinds (East Hampshire) (Con)]

5. What recent estimate he has made of the size of the structural deficit.

[The Chancellor of the Exchequer (Mr George Osborne)]

The estimate is that the structural deficit for this year will be 5.3% of GDP, which is down from the record 8.9% in the last year of the previous Government, with it having been the highest in the G7 before the crisis. Of course, these estimates are now provided independently by the Office for Budget Responsibility, rather than being fiddled by the close advisers of the Chancellor and the Prime Minister, as used to happen.

[Damian Hinds]

Other countries face fierce criticism for their tardiness in addressing not only their immediate deficit, but their growing medium and long-term liabilities. How is progress in that regard for the British Government?

[Mr Osborne]

We are bringing the deficit down from the record levels that we inherited, which has in part provided stability in the financial markets for sterling and our interest rates. That has been absolutely crucial, as we can see in the very high interest rates faced by not just Greece and Portugal, but now even by countries such as Italy and France, which face significantly higher interest rates than we do. That is of course a huge boost to the British economy.

Finance (No. 3) Bill

Damian Hinds Excerpts

Monday 4th July 2011 Commons Chamber

[Mrs Chapman]

All those steps are very welcome, but they do not go very far at all in addressing the fundamental issue. The Competition Commission says that what the OFT wants to do is nothing like enough. I understand the hon. Gentleman’s intention: it is to give the Government a background against which they can decide not to support this new clause, but we are trying to force this issue to the fore and get something done about it. We are all for cross-party consensus—that is wonderful when it can be achieved—but what we actually want is something to be done. I hope the hon. Gentleman will therefore forgive Opposition Members if we are sometimes slightly intemperate in the way we express our views on this issue.

As I said when talking about my ten-minute rule Bill, for me the key issue is the advertising of these products, which is irresponsible. It might be argued that people are being given a choice, but people are not making that choice on value-for-money grounds. They are not shopping around. They are not thinking, “What’s the best product for me?” They are instead thinking, “What will get me an answer to my problem as quickly as possible, and who will say yes to me? I don’t want to go to the bank and be told ‘No’ or ‘You can’t have this but you can have something else and do you want to make an appointment to come back next week?’” These people have very immediate financial difficulties, and these products are deliberately targeted at them.

[Damian Hinds (East Hampshire) (Con)]

First, may I apologise for missing some of the earlier speeches?

I have a great deal of sympathy with much of what the hon. Lady has said, but the fact that these companies have high costs and in particular high marketing costs, and the fact that there is no evidence that consumers are making rational choices based on which is more or less expensive, suggests that taxation is not the answer to the problem. There may well be an answer to the problem, but hiking up taxes is almost certainly not it.

[Mrs Chapman]

The new clause does not only address taxation. The hon. Gentleman should read it thoroughly, as it talks about other measures too. I do not think there is any one measure alone that will address this problem; there will have to be a package of measures.

There is no real competition in this market, as there are only a few companies in it. On Friday my attention was drawn to a company operating in the north-east called Provident. I was very disturbed to hear that last Christmas Provident representatives were going door to door deliberately targeting single mothers—as members of political parties, we all know that can be done. Its representatives were knocking on doors just before Christmas, saying, “We can offer you £500 and you don’t have to pay it back until after Christmas.” They were saying it could be paid back in a number of easy payments, thus making it seem attractive and ordinary. That is completely exploitative, and it will happen again this year unless the Government do something about it; indeed, it will happen Christmas after Christmas after Christmas. This House should neither accept nor tolerate that.

All Opposition Members are big supporters of credit unions.

--- Later in debate ---

[Yvonne Fovargue]

At any one time there are 5 million to 7 million people in this country who are unbanked or who do not have a credit history. In the main, they are the people who turn to high-cost lenders, because they do not have a credit history and they have nowhere else to go. Personal debt is rising, with 46% struggling until pay day, up 8% this year. Again, they are the people turning to the payday lenders.

I take issue with the claim that the rate has grown in the last decade. When I started in the advice field 20 years ago, there was one high-cost lender, Provident, which targeted a specific market. Provident went round the estates, using neighbours and talking to people. The company would go in—here I also take issue with the claim that people use the money on luxuries—and find people who needed to replace their broken cooker. The neighbour would come in, look at the cooker and say, “Oh yes, I can lend you that money.” When the loan was nearly repaid, Provident would come back and say, “Tell you what, your sofa’s looking a bit shabby. It won’t cost you much more to get a sofa,” and people would get trapped in a cycle of debt. However, in one respect, Provident was reasonably easy to deal with, because there was one company with a specific target group. It was possible to go round and talk to individuals, target schools and visit the residents groups that the people concerned attended. It is much more difficult now. The explosion of advertising and the normalisation of the process have made it so much more difficult to control the market and tell people what the dangers are.

I had a constituent come to me in February, as soon as he realised my interest in the subject. He could not quite manage to the end of the month—I think his car tax was due—and he had taken out a payday loan. The company immediately took the payment and the interest out of his bank account the next month. He realised that he could not get to the end of that month either, so he took out another payday loan. That carried on and in the end he had 10 payday loans and all his salary was being taken from his bank account. That was a man who was working. Such companies are supposed to check that people can afford to pay the money back and that they do not have other credit, but that did not happen in this case. For such companies, self-regulation absolutely is not working. That company was not an illegal loan shark: it was a legal company and it did not threaten to break the man’s legs, but it left him in a cycle of stress and depression that he found very hard to get out of.

I am also concerned about the double whammy that these companies are operating, as many of the companies that put people into debt are opening debt-management arms to get people out of debt as well. When the financial inclusion fund was finishing last year, those companies were circling like sharks. I cannot tell hon. Members how many companies contacted me basically gloating and saying, “There will be no, or very limited, free debt advice, so people will have to turn to us and you will have to deal with us now.”

I welcome the Money Advice Service because any advice on budgeting is welcome, but that service does not replace face-to-face debt advice. There is a need for that kind of service to be available—and more freely available than it is now. People have what I call behind-the-clock syndrome. They get into debt and cannot face opening the letter about their debt so they put it behind the clock. When they get the next letter, that also goes behind the clock. I cannot tell hon. Members the number of people who used to come into the bureau with a carrier bag whom I would look at and think, “They are in debt”. They would have a carrier bag full of letters that they could not face opening. People are not going to deal with a telephone or online service if they cannot even open a letter. There is a need for free, impartial, face-to-face debt advice and for regulation of debt management companies. Self-regulation is not working. It did not work in America, and when America regulated, those companies started coming over here because they like what they see.

[Damian Hinds]

Does the hon. Lady agree that while the availability and accessibility of free debt advice are important, visibility is also important? When people do get around to opening letters and starting to seek help, if they search on internet search engines for debt advice, Citizens Advice and the Consumer Credit Counselling Service ought to come at the top of the list even though they cannot afford to compete with debt management companies on pay-per-click rates. Should we not exhort Google and others to make sure that those services are duly highlighted?

[Yvonne Fovargue]

I think that is an excellent suggestion, but there also have to be appointments available when people need them. It is no use searching for citizens advice bureaux if appointments are not available for six to eight weeks because funding to provide the very specialist advice that is needed has dried up. We have to make sure, first, that people get information about where they can go, and, secondly, that appointments are available.

Regulation of debt management companies is needed. They come at the top of Google and other search engines on the basis that they will be going out of business in two years’ time anyway, so they might as well make as much money as possible by charging up-front fees and charging as much as they can. If they do go bust, as two have recently, it does not really matter to them. I had a client come to me who had been paying £40 a month to a debt management agency for 18 months, at the end of which he owed his creditors more than when he had started. Those companies need to be regulated.

The new clause is one of the range of measures we need. We have to keep this issue high on the agenda because the longer we leave it, the more people will go to high-cost lenders and debt management companies and the more people will get themselves into a spiral of unaffordable debt. We have to act now. It is no use leaving this for another five or six months—how many thousands more will have got themselves into debt in that time?

--- Later in debate ---

[Sheila Gilmore]

Indeed. On Saturday, I was at just such a festival in my constituency. It was a beautiful day—the first sunny Saturday for some time. Volunteers from Castle credit union, who help to keep it going, were there for exactly the reasons the hon. Gentleman suggests. However, if, unlike credit unions, high-cost lenders have a high street presence—extremely attractive, brightly lit and hardly missable—it is much easier for people to find them.

Regrettably, only 2 % of people in the UK are members of a credit union. We can all work harder to increase that number, but one thing that would clearly help would be real resources to build the movement. Experience in my city is that real resources, far from being put in, are declining, and there are even fewer members. Despite the efforts of the volunteers who man stalls at local fairs and festivals, credit unions are not providing the competition we want with high-cost lenders. I should dearly like people to use credit unions instead of those institutions.

I understand that this is politics, but when Opposition Members make proposals we meet the accusation that Labour should have done things over the past 13 years, and it is suggested that the fact we did not debars our making proposals and expecting them to be listened to. I am sure that if my hon. Friend the Member for Walthamstow had been a Member during our period in government, she would have been harrying Ministers in exactly the same way as she has harried the Government over the past year. She would not have been afraid to speak.

We should not accept too lightly the suggestion that the previous Government did not look seriously at financial inclusion. The present Government say that they are interested in it too, but they do not put in the means to make it happen. It is not good enough to say they are interested. In my Westminster Hall debate, I referred to our manifesto proposal to oblige banks to provide basic bank accounts. The Minister’s response was, “Oh, we don’t really want that sort of regulation. We want it to be voluntary and we want to work with banks.” That is all too often the Government’s response. They say they want the ends, but they are not prepared to put in the means.

The previous Government did a lot of work on financial inclusion, but no one thing is enough: credit unions will not do it; basic bank accounts will not do it; and taking action against high-cost lenders alone will not do it. We need a range of measures.

Some of the steps that would help have been positively stopped by the Government. The growth fund, which helped to boost credit unions and other community-based financial institutions, has not been renewed or extended.

[Damian Hinds]

Is the hon. Lady aware of the modernisation fund of up to £73 million?

[Sheila Gilmore]

I might be wrong, but I understand that the fund is not a substitute for the money that was available through the growth fund. When it was introduced, it was hoped that banks would lend to community-based lending organisations; they have not done so, yet high-cost lenders can get finance to expand their businesses to make them attractive.