Financial Guidance and Claims Bill [Lords]

Jack Dromey Excerpts

2nd reading: House of Commons
Monday 22nd January 2018 Commons Chamber

[Jack Dromey (Birmingham, Erdington) (Lab)]

A heavy duty falls on us in Parliament to ensure the security, dignity and financial wellbeing of the British people. On the one hand, we must help our citizens to realise opportunity, particularly with wise advice about planning for their retirement. On the other hand, we must avoid our citizens being taken advantage of in adversity. It is therefore key that we provide the ability to access high-quality advice that can be counted on, and that our citizens are not ripped off in the process. The hon. Member for South Thanet (Craig Mackinlay) was right when he said that it is also key that people know exactly where to turn, particularly in circumstances of adversity. My hon. Friend the Member for Makerfield (Yvonne Fovargue) was right when she said that it is crucial that advice is intelligible and accessible.

Sadly, history is littered with scandals and scams, including PPI and the all too often outrageous behaviour of claims management companies. Think of Carillion and the shameful scams, with the vultures—the introducers —who, on the backs of workers facing disaster, whether at Port Talbot or Carillion, move in and seek to take advantage of their vulnerability. Sometimes, extraordinary losses of up to £200,000 are incurred. For all my history I have fought for working people to be able to enjoy advice that they can count on. I brought together the group that formed the second community law centre in Britain a generation ago.

Earlier today, we had the urgent question on private sector pensions, and the Government were rightly held to account for their lamentable failure and the failure of governance in respect of Carillion. However, it would be absolutely churlish of me not to reflect on the fact that this is a welcome Bill, establishing the single financial guidance body and also the more effective regulation of claims management companies, including regulation under the auspices of the FCA. I was intrigued by the notion proposed by the hon. Member for Bromley and Chislehurst (Robert Neill) of fit and proper tests being applied to those who work for claims management companies—a powerful argument that we might return to in Committee.

It is a welcome Bill, which was strengthened in the Lords —particularly by Lord Sharkey and Baroness Drake—and informed by the Select Committee on Financial Inclusion and its deliberations. I must say that the Minister has been in genuine listening mode. He has a personal history of financial inclusion, including in his own constituency with the establishment of the Tynedale Community Bank. We support this important Bill, but we will seek to strengthen it further and to inject in it a sense of urgency.

May I turn now to some individual measures in the Bill? On the issue of funding more generally, the Government’s impact assessment says that a high proportion of people need help but are not currently getting it. One in five of those in debt receive advice. The Bill aims to bring together the pre-existing three bodies under one roof to give better and more efficient advice. However, if the Government are looking to make a financial saving, that would be wrong. There is growing demand for good financial guidance, and the Government should be looking to increase funding in that area, not to decrease it.

The new body must be adequately funded to fulfil the multiple roles that it will be tasked with carrying out. There were some very powerful contributions during the debate. We heard about the importance of effectiveness from the hon. Member for Chippenham (Michelle Donelan) and about the importance of high-quality advice, particularly for working people in dire straits, from my hon. Friend the Member for Bristol North West (Darren Jones). I will return to that point later.

I have these questions for the Minister. Does the Government expect to make savings from the merger, and, if they do, how much? Have the Government considered what resources the new body will need to identify and to support those who do not currently access advice or guidance? If the body is a success, there will be many more who will want to access it. How will the Government guarantee the adequate resources to ensure greater uptake of services?

Let me turn now to cold calling. The Government committed to banning cold calling in their 2017 manifesto and we did, too. Cold calling preys on some of the weakest in society, and particularly the elderly. I am not sure whether I was completely convinced by the argument of the hon. Member for Walsall North (Eddie Hughes) that, somehow, it is axiomatic that poor people are more likely to find it difficult to manage their finances. Actually, very substantially, my experience is the reverse.

There are 2.6 million cold calls made every month in the UK. What they do is put at risk those who are the recipients of those calls. The hon. Member for Croydon South (Chris Philp) was absolutely right when he pointed to the evidence from the Association of British Travel Agents. He said that, effectively, what was happening was that the public were being encouraged to commit a crime by reporting bogus illnesses, and he also mentioned the driving up of the cost of holidays. The Government have stated that they wish to ban cold calling, specifically calls and texts on pensions. The Bill is the perfect opportunity to put that into practice.

A prime example of the vulture-like nature of these companies has come in the tragic case of the collapse of Carillion. Those people who may have just lost their jobs and are unsure of how they will cope financially are being preyed on by those wishing to trick them into transferring their pension immediately, usually charging extortionate transfer fees. A similar practice was carried out after the massive redundancies at the steelworks in Port Talbot.

More generally, the evidence from Citizens Advice is powerful. Some 10.9 million consumers have received unsolicited contact about their pensions since 2015. It found that almost nine in 10 had difficulty in identifying the scams, not least because the scams are clever and constantly evolving. It rightly argued that a ban on pension cold calling is a crucial part of the consumer protection framework, which should help to reduce the disgraceful targeting of consumers

The Government must seek to put in place a ban on cold calling as soon as possible. They indicated in the other place that they would bring forward an amendment or new clause to introduce such a ban, and that it would not be linked to the establishment of the new body. Will the Minister do so, and, assuming that he does, what will it cover? Will he also listen to the powerful contributions in this debate from the hon. Members for Croydon South and for Gloucester (Richard Graham) and bring forward new provisions at Committee stage to put in place, in their words, an immediate ban on cold calling and to introduce default guidance to assist people accessing or seeking to transfer their pension assets?

Let me turn briefly to the self-employed. In its current guise, the SFGB will provide advice for the self-employed only on their personal finances and debts, not their business finances or debts. The Money Advice Trust, which helped more than 38,000 people last year, said that for many self-employed people there is simply no distinction between their personal and business finances. As the shadow Secretary of State said, to exclude business finances and debts from the SFGB’s remit is a missed opportunity, particularly given the significant growth in self-employment in recent years. Will the Government respond to the arguments that have been put, including by the National Federation of the Self-Employed and Small Businesses?

We heard a number of powerful contributions on default guidance during the debate. This is a key pillar of the Bill and moves to improve financial awareness for those looking to undertake transactions. Anyone wishing to transfer a pension must be automatically provided with financial guidance by a qualified independent expert. That should be given by default, and anyone not wishing to receive that guidance should have to sign a form stating specifically that they do not want to be given it. That would avoid the process whereby people are given the minimum amount of information possible to try to force them into transferring their pension. This would be of use to many workers who were let go by Carillion last week and who may be faced with the choice of transferring their pension, but who should, by default, have access to independent financial guidance to help them to make their decision.

What consideration has the Minister given to removing the exemption of “introducers” from the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 —a specific point on top of that to which I have already referred? A default guidance scheme guidance would be very helpful, but what else has he given consideration to on that front, and what consideration has he given to allowing the FCA to keep the financial penalties that it receives so that it can increase its enforcement work?

On the breathing space scheme, there is cross-party support, including from the other place. This is about granting a freeze on interest charges, fees and enforcement action for six weeks so that a person can receive guidance on the next steps that they can take to relieve the debt burden. UK household debt in 2017—I know that this was an issue of some contention during the debate, but the facts speak for themselves—reached £l,630 billion. Consumer credit has increased 17% since 2012, and UK household debt is now 140% of UK household disposable income. That is why it is all the more necessary now, with the sheer scale of the pressures being generated—this was very powerfully described by the hon. Member for Chippenham when she talked about the agony that is debt—that the Government, having committed to this in the past, act now at the next stages. The commitment is in the Bill, but the timescale for implementation is too slow. It is vital that the Government get it right and act quickly to have this measure in place as soon as possible. This is a vital change to lift the burden of debt from millions of people across the country, including those who may be suffering from mental health problems as a consequence. Therefore the Government need to act as quickly as possible.

As the shadow Secretary of State has made clear, we support the introduction of universal credit on its premise of simplifying the benefits system. However, a number of reports have shown that, in its current guise, it leads to increased personal debt, including rent arrears. Has the Minister considered the impact of universal credit on personal debt and the implications for resourcing the new body?

The Bill gives the FCA the power to cap fees for claims management companies when dealing with PPI claims. However, the proposed cap would limit the average fee to only £340 plus VAT, which is not much different from the current cap. The Government could ensure that firms that are at fault for PPI claims are charged the fee and that the consumer receives 100% of their compensation. Why are the Government not also prepared to act on the mis-selling of packaged bank accounts—bank accounts that charge a fee and are sold with added benefits—many of which were mis-sold over the past 15 years without sufficient information? Why have the Government not introduced a provision to cap fees for these claims in the Bill? The justification given thus far is unsatisfactory.

On the duty of care, I do not want to add in any detail to the powerful contributions made by the hon. Members for Mid Derbyshire (Mrs Latham), for North Ayrshire and Arran (Patricia Gibson) and for Gloucester. We have received a number of constituency letters about the amendment proposed by Macmillan. The Lords Financial Exclusion Committee has advised that the Bill should include a provision requiring the FCA to make rules setting out a reasonable duty of care for financial services providers. The evidence given is powerful, particularly from Macmillan, as four out of five people with cancer are affected financially by their diagnosis, as a result of increased costs and loss of income. The Government and the FCA have said that they must wait until after the UK’s withdrawal from the EU becomes clear. However, our strong view is that this issue should not wait any longer. I urge the Minister to consider it carefully and bring forward suitable proposals in Committee.

Financial inclusion is absolutely critical. Will the Secretary of State use this opportunity to address the scourge of financial exclusion in our society, including the proposal from the hon. Member for Eastbourne (Stephen Lloyd) that this should now be set out in statute? The pensions dashboard is a welcome proposal, but will the Secretary of State bring forward legislation to ensure that pension providers liaise with the scheme and give all savers a clearer picture of their savings?

In conclusion, there is a heavy duty on parliamentarians to ensure the security, dignity and financial wellbeing of our citizens, and that is all the more important in these tough times, seen at their most dramatic with the collapse of Carillion. There is substantial consensus on the Bill—we have adopted a constructive approach towards it—but it needs to be better and stronger and to act with greater urgency in the next stages.