Lord Flight
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(12 years, 5 months ago)
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Lord Flight
“(9) The FCA shall work with the Department of Education to secure the provision of teaching on financial literacy at both primary and secondary level.”
Lord Flight
My Lords, everyone will be aware that the F:SMA included a key brief to the FSA to advance financial education. My observation is that pfeg and some of the other charities have done a reasonable job, and that certain banks such as RBS provide reasonable courses, but that still in our schools financial education is extremely mixed. If people have not had financial education at school, it is unrealistic to think that they will get it as adults when they need it. It is an absolute prerequisite of life today that children growing up should become what I will call financially literate. We all have to look after ourselves so much.
This amendment is not exactly what I would wish. I would like financial education to be part of the required curriculum in schools and I have asked a question on that matter in the past. However, I have put forward this probing amendment to see whether the Government have to offer rather more than we have at present in terms of making sure that there is universal financial education in our secondary schools.
Baroness Liddell of Coatdyke
My Lords, I have felt passionately about financial education for a long number of years and I support the probing amendment in the name of the noble Lord, Lord Flight. I first became interested in the issue in the late 1990s in the aftermath of the personal pensions mis-selling débâcle when many highly educated and sophisticated people were mis-sold products, largely because of the impenetrable nature of the language in the retail product being presented to them and, harking back to some of the issues raised in the previous debate, the less-than- adequate performance of some independent financial advisers.
Since then my concern has become even greater as we have seen more mis-selling scandals, such as payment protection insurance and inappropriate hedging instruments for small businesses against interest rate movements. Added to that, there is constant pressure on people to get involved in financial instruments at very great cost—everything from store cards through to payday loans. There should be a fundamental understanding on the part of people that when they take out something like a payday loan, it is not a printing error when the rate of interest is in four figures. It is there deliberately as a means of making money.
This issue comes up regularly. FSMA looked at it. Every time there is a debate on financial services, financial literacy is raised. It has become motherhood and apple pie. However, a point will come when we start to take this seriously. I was lucky enough to go to a school in an area that had a mutual bank, the Airdrie Savings Bank, which continues to exist as the last surviving mutual savings bank. It provided certain financial education in schools. I have to say that there was probably a subplot because I still have the little silver bank and I still retain a passbook for the Airdrie Savings Bank. I have no doubt that the Royal Bank of Scotland did exactly the same when it did its work in schools. That is laudable, but at the end of the day the issues are now too great to leave it to charitable and well meaning organisations. There is a need now, for the well-being of the citizenry as well as the well-being of our financial services sector, to put financial literacy firmly on the curriculum, and I would hope not just here in England but in Scotland as well. I support the amendment in the name of the noble Lord, Lord Flight.
Lord Flight
My Lords, at present it is effectively paid for via the charges of the FSA, which then go in a charitable form to pfeg and others and which is inadequate. However, one could turn it the other way round—one could do it how one wants. With schools teaching English literature, that is part of their budget. In my view, schools should be obliged to teach financial literacy and that should be part of their budget as well.
Lord Peston
My Lords, I am very sympathetic to the amendment and to what has been said by my noble friends. Unlike them, I am much less optimistic about what can be achieved, if anything. First, I will give the personal side. When I was at school, I was indebted, and have been indebted for the rest of my life, to my teachers for the guidance they gave me on the subjects that were taught in school. My love of English literature and my love of mathematics are two very good examples. However, if someone had said “Now we are going to have a class in finance”, I cannot believe that it would have been other than a turn-off. It would not have been what I went to school for.
Times have changed. I agree with that. However, the other thing is that is amazingly difficult to explain to people even the most elementary examples of financial literacy. To give one example, which is one of my bête noire, I come from a family of gamblers. I know that gambling is a mug’s game because to be a successful gambler, there are only two possibilities. Either one is corrupt and has some inside information or one is claiming—with the bookmaker creaming 10% off the top—that one is 10% cleverer than anybody else around, and there is absolutely no reason to believe that. When I have tried to explain that elementary proposition in financial literacy, I have found it impossible to persuade anybody at all. That is my personal experience. It does not mean that we should not try, but it does mean that there is a genuine question mark over what we can achieve. I am not saying that we should not try, but I am pessimistic.
I turn to the technical side of financial literacy. Perhaps noble Lords have read a brilliant speech given by Andrew Harvey of the Bank of England in 2009. It is on the Bank of England website. My strong advice to noble Lords is to look it up under “Speeches” rather than “Publications”. I wasted a good hour knowing that it was there but unable to find it. It is a brilliant analysis of the behaviour of financial intermediaries—which is after all the essence of financial literacy—and it is based on network analysis, which is a rather esoteric part of mathematics. I will read one paragraph from Andrew Harvey’s lecture, which I strongly recommend.
Lord McFall of Alcluith
My Lords, I agree not with the pious nature of the amendment of the noble Lord, Lord Flight, but with the realism of my noble friend Lord Peston. I chaired a workplace retirement income commission last year for the National Association of Pension Funds. We have seen a flight from defined benefit schemes to defined contribution schemes. As a result, we invited a Harvard professor to examine and explain the defined contribution scheme. He told us that he was unable to understand his own defined contribution scheme, never mind anyone else’s. Therefore, while financial education may be good, it is not the whole show.
Lord Flight
My Lords, although I acknowledge the issue, I do not believe it is that difficult. I observe that my own parents learnt basic accounting some 90 years ago at ordinary grammar schools in London as part of the general certificate. That stood them in pretty good stead. Even in my time, when I was doing basic economics, what I learnt was pretty fundamental to understanding what equity was, what debt was, and so forth. The courses that are up and running are pretty effective—for example in my own school, of which I have been a governor for many years—although I do not say that they are perfect. One of the problems is that since the Second World War, money has almost been thought of as dirty within the educational world. This is something to shy away from. One of the crucial things is for the schools themselves to have staff who can be taught to teach and be enthusiastic about the subject.
Lord Stevenson of Balmacara
My Lords, we support this amendment in the name of the noble Lord, Lord Flight, although in saying that, like a number of noble Lords, we worry that it does not go far enough in simply calling for the FCA to work with the Department for Education. Surely all children and young people should have access to a planned and coherent programme of personal finance education so that they leave school with the skills and confidence to manage their money effectively. Knowing how to manage money and be a savvy consumer is a vital life skill in an increasingly complex world. Education is about giving young people the skills and knowledge they need to get on in life, which is why we should get behind a campaign, so that every child should not only learn the three Rs at school, but also learn about pensions, savings, borrowing and mortgages.
As we have heard, personal financial education is covered in the primary curriculum at present, but it is only there as part of the non-statutory framework for PSHE—personal, social, health and economic education. There are, of course, opportunities with a number of subjects across the curriculum to learn about financial matters, including citizenship—compulsory for all 11 to 16 year-olds—mathematics, business studies, careers, and enterprise education. However, we think this important life skill should be made compulsory, as the previous Government were indeed planning to do in the last Session of the preceding Parliament. Sadly, there has been no legislative progress for the past two years.
As the Minister will be aware, an e-petition calling for financial education to be a compulsory part of the curriculum got more than 100,000 signatures last year and led to a Westminster Hall debate, which is worth reading in Hansard. Many Members of your Lordships’ House will know of Martin Lewis of the website moneysavingexpert.com, who has been campaigning on this issue for several years now, and was indeed the man behind the petition. He has recently corresponded with the Prime Minister, and the most recent exchange was an open letter to the Sun, which provoked a response which I would like to share with your Lordships’ House.
The Prime Minister writes to “dear Martin” and thanks him for the letter. He goes on to say,
“It is true that young people should have access to good quality personal finance education, so that they leave school with the knowledge and confidence to manage their money effectively”.
He goes on:
“The PSHE non-statutory programmes of study include elements aimed at ensuring that, by the time they leave school, pupils should be able to manage their money, understand and explain financial risk and reward and identify how finance will play an important part in their lives and in achieving their aspirations”.
This goes some way toward answering some of the points made by my noble friend Lord Peston. The Prime Minister goes on to say:
“This economic wellbeing and financial capability strand of PSHE was only introduced in September 2008 and Ofsted reported in 2010 that schools had not yet got to grips with this”.
We understand some of the reasons for that now. We are aware that some aspects of PSHE are patchy and, as you say, there are some schools that are not able to access good resources. However, the letter concludes:
“We believe it is important that schools are given the freedom and space to provide a truly rounded education, including important things such as finance education”.
However, Martin Lewis’s response to the letter says it all. He thanks the Prime Minister for his comments, but he says that,
“financial education must be deemed a core skill. It’s the cheapest way, long term, to prevent millions being screwed by scandals such as PPI, bank charges and endowments, to help people keep energy costs down and tackle our debt epidemic”.
The letter finishes:
“So far, your government’s only commitment has been Schools Minister Nick Gibb saying: ‘It'll be looked at in the curriculum review.’ That's good, but please ensure this isn't political double-speak for being filed in the bin”.
We believe that every child deserves to be supported in the development of the behaviours, attitudes and skills which will allow them to effectively manage their finances in order to fulfil their potential. However, it must be part of the core curriculum, and it must be compulsory. The recent Impact Review of Financial Education for Young People conducted by MAS, confirmed that attitudes to money are formed early. All the experts in this area agree that financial education has to begin as early on in a young person’s school career as possible and should continue in a progressive way year on year.
We agree with the amendment of the noble Lord, Lord Flight, but regret that it does not go far enough, simply calling for the FCA to work with the Department for Education. As Martin Lewis said, that sounds to me a little like political doublespeak for filing it in the bin.
As the Minister will be aware, a Private Member’s Bill was introduced recently in the Commons, which would require financial literacy to be included in the national curriculum. So the Government have the luxury of a choice here. They can take the low road and accept the amendment from the noble Lord, Lord Flight, or the Minister could take the high road and indicate today the Government’s support for the Private Member’s Bill, which would get us to where we all surely want to be on this motherhood-and-apple-pie issue.
Lord De Mauley
My Lords, I think I addressed it, although I did not express it in those terms. I said that the department is reviewing PSHE education, including whether any aspect of it should become statutory. That was intended to be my response. The noble Lord knows the Government’s approach to Private Member’s Bills.
Lord Flight
My Lords, as I said, this was intended, largely, as a probing amendment. I am glad that MAS is continuing with its role. I am strongly of the view that financial literacy should be part of the core curriculum. The teaching of it at present is mixed and, in general, I do not think it is adequate. We have had a useful discussion of the subject and I beg leave to withdraw the amendment.
Baroness Hayter of Kentish Town
My Lords, Amendment 104BA stands in my name and that of my noble friend Lord Eatwell. Much will change in the OFT, partly as a result of the Public Bodies Act, the forthcoming Enterprise Regulation and Reform Bill, and this Bill, with responsibility for consumer credit moving from the OFT to the FCA.
This amendment is not so much about that but about the all-important competition role of the OFT, until that, in due course, moves to the CMA. That includes competition references and market studies, as well as super-complaints and promoting competition. Meanwhile, as we know, and welcome, the FCA has also taken on a new remit to promote competition in financial services.
On 14 June in another place, Mark Hoban for the Government welcomed the fact that the Office of Fair Trading and the Financial Conduct Authority will take forward the ICB recommendations to improve transparency across all retail banking products. If the OFT retains the right to conduct market studies in relation to financial service markets, the ABI is concerned about the risk of duplication and/or the lack of co-ordination between the FCA and the OFT. Therefore, the ABI feels that the OFT should be subject to a statutory duty to cooperate and to produce an MoU. It would certainly be the preference of the ABI for the FCA normally to take the lead on competition matters, and for the OFT to undertake market studies only in exceptional circumstances.
Meanwhile, the consumer world, not dissimilarly, would like the relationship between the FCA and the OFT changed from that set out in the Bill. The consumer world would like the FCA to have the same powers as a number of other sectoral regulators to make competition referrals themselves—that is, the equivalent of Section 131 powers. I am attracted to that but have not tabled an amendment specifically on that at this stage, in the hope that this amendment will give the Minister the chance to explain why he has not replicated such an enabling power within the present Bill. Without such a power, the FCA will still have to refer cases to the OFT for market analysis before a referral to the Competition Commission can take place. It sounds—and I guess it will be—a bit slow. It also adds additional, possibly unnecessary, hurdles. The Joint Committee agreed. It said:
“The Government should review its decision on the FCA’s competition powers. The FCA should be given concurrent powers alongside the OFT to make market investigation references to the CC. The FCA will need greater competition powers to achieve its recommended objective than is currently set out in the draft Bill.”
We know from the debate in the other place that the Government, however, prefer the FCA to continue to have to make a referral to the OFT, which would allow the FCA to draw on the expertise of the OFT. However, the Government have agreed that they will review whether the FCA should have specific competition powers in five years’ time.
It is hard to see why a new authority, set up with a specific and new remit to promote competition, should not have the requisite powers. But perhaps we will hear the rationale when the Minister replies. Meanwhile, the OFT is itself keen to establish greater clarity for interested parties on how the OFT—and subsequently the CMA—and the FCA will work together, and the OFT is very happy for this issue to be raised today. The OFT judges it important for effective debate on the Bill that there is an understanding of how the OFT and FCA will work together.
There is, of course, also the matter—a smaller matter, perhaps—of the handover of consumer credit responsibility from the OFT to the FCA, and various transitional issues. The handling of these should no doubt also be included in any MoU.
The current OFT acknowledges that a key issue will be the publishing of a memorandum of understanding setting out the respective roles of the OFT and the FCA, their responsibilities and how they will work together. Indeed, I understand that the OFT has already begun working with the FSA on a draft MoU and is keen to establish greater clarity for those two parties and for those of us looking from the outside.
I am aware, although my eyesight is not that good, that the Minister has a file entitled, “say no to everything”. I hope in this case that he might drop that and just agree that an MoU may be without that remit. I beg to move.
Lord Flight
My Lords, my Amendment 173D covers essentially the same point, but is in that part of the Bill that deals with the practical operation of the competition objective for the FCA. There is clearly a risk of duplication or lack of co-ordination between the OFT and the FCA, so Amendment 173D proposes a legally binding MoU setting out how the two bodies will co-operate together and who will do what. It should be made clear that the FCA would normally take the lead on competition matters in financial services and the OFT would undertake market studies in exceptional circumstances. The competition objective for the FSA is very well worded, very clear and extremely appropriate. Consumers need a healthily competitive market. I am still of the view that the PRA should have a competition objective. It is the lack of competition that led to a cartel in banking. Whenever you get a cartel you get bad habits, so, in my book, a major aspect of having a much healthier banking system is having more competition.
Lord De Mauley
My Lords, Amendments 104BA and 173D both relate to co-ordination between the FCA and the OFT. Amendment 104BA would require the FCA to co-ordinate with the OFT and to prepare and maintain a memorandum of understanding to be laid before Parliament and published as it sees fit. Amendment 173D, in my noble friend’s name, is similar, but the duty to co-ordinate, and to establish an MoU, relates solely to the promotion of competition. Amendment 173D would also require the MoU to make it clear that the OFT will conduct a market study into a financial services market within the regulatory remit of the FCA only in exceptional circumstances.
Before turning to the question of the need for statutory provision for co-ordination between the FCA and the OFT, it might help if I explain the approach taken elsewhere in the Bill. The Bill provides for a properly focused regulatory system in which the individual regulators have clear roles and responsibilities and the right tools to deliver them. It is right, therefore, for the Bill to provide explicitly for co-ordination and MoUs between the key players in the system for regulating financial services—the Bank of England, the FCA, the PRA, the Financial Ombudsman Service, the Financial Services Compensation Scheme and the Treasury—so that they can work together effectively without the boundaries between their roles and responsibilities getting blurred, and of course the legislation sets out a procedure for laying these documents before Parliament.
Clearly, the FCA will need to work closely with the OFT and, in due course, the Competition and Markets Authority. In fact, the FSA already has an MoU with the OFT on a non-statutory basis and the FSA is already working with the OFT on putting in place a memorandum with the FCA.
To address the need for particularly swift and effective co-ordination in cases where a large number of consumers have suffered detriment, such as the mis-selling of payment protection insurance, the FSA has put in place additional formal mechanisms for co-ordination such as the Coordination Committee of the FSA, the OFT, the FSCS and the FOS. Statutory duties to co-ordinate and maintain MoUs are not needed to underpin that co-operation. That already happens and is effective.
On the specific issue of competition, which Amendment 173D addresses, the FCA, as the lead regulator for financial services, clearly will need to work closely with the OFT, as the central competition authority. Of course, the regulators will have to co-ordinate their work so that their own resources are used effectively and duplication is avoided. Although they will need to take into account their respective regulatory objectives and priorities, powers, expertise and resources, I contend that we should allow the regulators, based on careful consideration, to develop an effective protocol for working with each other in order to promote competition.
Lord Barnett
My Lords, the amendment stands also in the name of my noble friend Lord Peston. It is fairly self-evident, referring to,
“the need to inform and educate consumers”—
which I assume everybody is in favour of—
“with special emphasis on the unavoidability of some risk”.
Life is full of risk, certainly in the financial area— I hope that everybody accepts that. New Section 1C(1) states:
“The consumer protection objective is: securing an appropriate degree of protection for consumers”.
If the Minister is unable to accept our amendment, I hope that he can explain what,
“appropriate degree of protection for consumers”,
the Government have in mind. It is unclear to me what is “appropriate” in this case. I hope that,
“emphasis on the unavoidability of some risk”,
can be considered seriously. When my noble friend talked a little earlier about his experience in school, he said that he did not think that he would not have been terribly interested if anybody had taught him about financial affairs, but I think that risk would be fairly simple to explain even to most teenagers at school. In those circumstances, this amendment seems reasonable to me and I hope that the Minister will be able to accept it. I beg to move.
Lord Flight
My Lords, it strikes me that the Bill slightly buries “buyer beware”, which was in FiSMA, and that we are creeping towards a culture where a lot of people think that if they lose money on any investment they are entitled to compensation. I do not wish to be overly harsh but it is fundamental, as the noble Lord said, that people understand risk and graduations of risk. That is backed by financial education.
Lord Borrie
My Lords, in agreeing with my noble friends Lord Barnett and Lord Peston in their amendment, I agree also with what the noble Lord, Lord Flight, has just said. He did not used the famous Latin phrase “caveat emptor”, perhaps because we are not supposed to use Latin any more—that is the case in the courts; it may be not so here. If it is convenient to the Committee, I shall speak to Amendment 106, which is grouped with my noble friends’ amendment.
The Bill states that the Financial Conduct Authority, in assessing the degree of consumer protection that is desirable,
“must have regard to … the needs that consumers may have for the timely provision of information and advice that is accurate and fit for purpose”.
The noble Baroness, Lady Oppenheim-Barnes, has kindly joined me in Amendment 106, because, while we agree about information and advice having to be accurate, we are not happy about the phrase “fit for purpose” and would prefer it to be replaced by “intelligible”.
“Fit for purpose” is a vague and uncertain phrase. As the consumer organisation Which? has said in briefing to me and no doubt to others, it is a woolly phrase and invites the question: whose purpose? It has become fashionable to use the phrase “fit for purpose” for all sorts of reasons, and despite its perfectly respectable origins in Section 14 of the Sale of Goods Act and indeed previous common law, it is now used to such a wide extent in all sorts of circumstances that it would be better replaced in the Bill with “intelligible”.