Bank of England and Financial Services Bill [Lords]

Gary Streeter Excerpts

3rd reading: House of Commons & Report stage: House of Commons
Tuesday 19th April 2016 Commons Chamber

[Helen Goodman]

I am pleased to follow the hon. Member for Broxbourne (Mr Walker) who made an excellent speech on an important subject. He showed his characteristic bravery and forcefulness in addressing an issue that many other hon. Members wanted to address, but were unenthusiastic about putting themselves in the firing line.

The Minister said earlier that everybody is happy with this Bill, but now that we are discussing the regulation of financial services, she may discover that Labour Members are not quite so happy with this part of the Bill. I wish to speak in support of amendments 8 and 9, and I am also sympathetic to amendment 2 tabled by the Scottish National party. Getting the senior management regime right is vital for reducing the risk of further irresponsible behaviour in financial institutions, particularly the banks. We all know the devastating impact that the behaviour of the banks had on rest of the economy—anyone who is in any doubt about that should see the film “The Big Short”, which wonderfully describes that episode, albeit from an American point of view.

The clauses on the senior management regime are a retreat from the sensible legislation introduced in 2012, following the Parliamentary Commission on Banking Standards, which recognised that one way of changing behaviour and culture is to make those people at the top of the banks accept their full responsibility. The clauses in the Bill no longer do that. It is completely sensible for people to be expected to have the same responsibility for the behaviour of those who work for them that other institutions have for health and safety.

We have heard a number of arguments for the Government’s decision to reverse the reversal of the burden of the proof—rather an awkward mouthful—and one of the main arguments is that the regulatory approach that was legislated for in 2012 is too burdensome. This, however, misses the whole point, which is that we want people to spend more time looking at how to reduce risk rather than spending a great deal of time on how to make lots and lots of money irrespective of the risks posed to the economy. The risk does not apply ultimately to themselves on their own account, but it infects all other financial institutions.

I attended a seminar in the City last week, and senior practitioners from law firms, accountancy firms and from some of the big asset managers were in attendance and proved to be supportive of the original parliamentary commission approach. I expressed my feeling that it was disappointing that the Chancellor was going back on this, and suggested that he was not doing it as a whim, but because he had been lobbied to do so. I asked why they thought he had been lobbied in this way. It was, of course, a naive question, and I had no idea what the answer would be. They all roared with laughter and said, “Well, it’s obvious. It’s a way to facilitate people making millions of pounds without facing any downside risks.”

We cannot put ourselves in that situation again. The cost of the bail-out in 2008 was £133 billion. We really must take seriously the lessons that can be learned from that, which is why the amendments tabled by my Front-Bench team and by the SNP should be taken seriously and accepted by the Government.

[Mr Gary Streeter (South West Devon) (Con)]

I should like to take this opportunity to introduce my new clause 10, which is aimed at safeguarding the free debt management sector. Let me reassure the Minister that this is very much a probing amendment; I know she is looking forward to responding to it.

There has been a long debate over the “fee versus free” principle in the provision of debt management plans for indebted consumers. It is not my intention to re-open that debate now, although my concern is about free providers that are facing a looming capacity crisis.

Organisations such as PayPlan and Christians Against Poverty operate the “fair share” model of free debt management that sees creditors covering the cost of customer plans on a polluter-pays basis—in other words, through schemes that are free to the debtor. These organisations are facing increasing pressure as a consequence of fee-charging firms leaving the marketplace after failing Financial Conduct Authority authorisation. In one recent case, this left 16,000 debt management clients unsupported, and these customers are now being are being signposted to free providers. The last thing people want to happen when they are caught up in the desperation of heavy debts and are trying to slog their way out of it is, of course, that the person advising them suddenly disappears so that they have to start again with new people.

The debt management sector is nearing a desperate point, and the market is becoming increasingly inefficient, with consumers treated badly in many cases. The fair-share operators I mentioned have seen their revenue reduce as a consequence of consumers’ disposable income falling. As more and more fee chargers leave the market, we will soon face a situation in which fair-share operators are unable to provide economically viable plans. Plainly, we now face a situation in which consumers will be charged higher fees and their options for free debt management services will be severely limited—again, we are going in the wrong direction.

There were considerable and commendable efforts over the course of the last Parliament aimed at safeguarding free debt management provision, most notably on the creation of a voluntary protocol. Members of all parties have tried to make similar long-term changes, reflecting the cross-party nature of this issue. More recent efforts have come from the parliamentary debt management working group, of which I am a member. I see in her place our chairman, the hon. Member for Makerfield (Yvonne Fovargue), who is poised to speak in, I hope, support of my new clause.

Recent efforts have been aimed at establishing an industry-wide offering of free consumer debt management services. I accept that, while desirable, such an approach may not be feasible at this time. The new clause provides for a small tweak to the Financial Services and Markets Act 2000, mandating all creditors, via an FCA rule change, to fund free-to-consumer debt management plans under the “fair share” model. Many large creditors—banks and credit card companies—do accept a reduction in the amount due in exchange for the establishment of a coherent plan, but some still do not, and the new clause is intended to tackle that. While it falls short of outlawing the provision of fee-charging plans, it provides a strong safeguard for the “fair share” model, ensuring that customers can continue to access free debt management plans.

I am certain that this is a robust mechanism for desperately needed reform in the debt management sector, and I hope that, subject to Members’ approval, it can be implemented without delay. I thank the Economic Secretary for her interest in the matter, and for her helpful guidance behind the scenes.

Every age has its challenges, and it may well be that historians will look back at our era and marvel at the levels of unsustainable personal debt that were carried by so many people. Such debt may arise from grave misfortune, poor choices or the actions of others, but whatever the reason, it is vital that the right help is at hand to help people to step their way out of debt, and the FCA can assist that process by making the rule changes I have proposed. I thank the Economic Secretary again for her patience and kindness, and commend the new clause to her and to the House.

[Yvonne Fovargue (Makerfield) (Lab)]

I am afraid that I cannot support new clause 10. While I have great sympathy with the aim of the hon. Member for South West Devon (Mr Streeter) to keep the free-to-consumer plans going, I do not feel that his new clause will achieve that.

I am slightly unclear about the use of the term “fee”. As the hon. Gentleman said, this is currently a voluntary arrangement. I am a little concerned about what public benefit would result from his proposal. Would it merely ensure supplier revenues for certain service providers? If so, is that really a legislative issue? I have wider concerns. I feel that too few debt providers give advice on debt, but I also feel that the current landscape is fairly confusing. I do not think that introducing a statutory funding mechanism for one debt solution—a debt management plan—is the right way forward. Plenty of options are available to people in debt, including bankruptcy, debt relief orders, debt management plans, administration orders, debt consolidation, and individual voluntary arrangements.

Many of those plans are not funded sustainably. I think that one organisation that offers them is paid £35 for each order that it issues, and that is not a sustainable solution. I do not want providers to offer plans on the basis of how they are funded rather than on the basis of what is best for the individual, but I fear that the new clause could lead to their doing so. I am sure that many would not, but the new clause might lead to more providers’ choosing to offer the “fair share” solution because it is statutorily funded, whereas they make a loss on every debt relief order that they issue. That is not the best solution for the individual who is in debt.

I think that we need a proper review of the current debt solution landscape. I believe that it is too complex, and that it is not properly costed. I also believe that the providers have insufficient funding. As the hon. Gentleman said, there has been a problem with the debt management plans. In fact, a review of the fee-charging debt management companies found that 60% of their clients were put in a worse position. That cannot be allowed to continue, and I am pleased that the FCA is cleaning up the market. However, I worry about what will happen to people who come off debt management plans. They took a big step to deal with their debts—and facing up to the fact that you cannot pay your bills is a difficult decision to make—and went to a provider. Now they have been told, “Actually, your provider was not providing a good service. Go and find somebody else.” I worry that those people will not look around, and I hope that the Minister will look at ways of promoting opportunities for them to go to other providers.