Small Business, Enterprise and Employment Bill
Debate between Lord Flight and Lord Stevenson of Balmacara(9 years, 9 months ago)
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Lord Flight (Con)
My Lords, I thank the Minister for listening to the various concerns in this territory and for the government amendments. I am aware that the insolvency industry is comfortable with the legislation as it now stands. It understandably has the view that it hopes creditor meetings will not disappear as they can be extremely useful. However, a most satisfactory compromise has been achieved, for which I thank the Minister.
Lord Stevenson of Balmacara (Lab)
My Lords, as the Minister said, in Committee we were concerned that, rather than increase creditor engagement, the original clauses in the Bill would reduce it. We reported that the Federation of Small Businesses believed that the proposal would be detrimental, the British Property Federation had concerns and that R3, to which the Minister referred, wanted the Government to think again about the issues.
We take the view that creditor engagement is a core part of a strong, transparent, fair and trusted insolvency regime. Indeed, we have such a regime in our country. Creditor meetings are an essential part of that and build trust and confidence in that regime. Although the clauses also included proposals on virtual meetings—we are not against that—we wondered whether it was a bit previous to suggest that they might entirely replace face-to-face meetings. I am delighted that the Government have listened to the arguments from all around the House and have agreed to come forward with these amendments, which we support. The noble Lord, Lord Flight, has been assiduous in his attendance and has pressed amendments without number. There were so many, it was hard to keep track of them. I think that only one has landed, but I am glad it is this one on no-win no-fee conditions, which will make a big difference. I am grateful to him for his support for this.
Small Business, Enterprise and Employment Bill
Debate between Lord Flight and Lord Stevenson of Balmacara(9 years, 11 months ago)
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Lord Flight (Con)
My Lords, I will repeat and add to the comments made about the UK insolvency regime. It is fair to describe it as probably the best in the western world. It is thus rated by the World Bank. It returns more money to creditors faster and cheaper than the systems of the US, Germany or France. UK insolvency practitioners return more than £4 billion a year to creditors, including HMRC. There are some 1,700 insolvency practitioners in the UK and around 10,000 professionals who work in insolvency. Most insolvency practitioners are accountants or lawyers. They are all qualified and regulated, and have a statutory objective to maximise returns to creditors. According to the latest figures, for 2012, UK IPs saved more than 750,000 jobs and advised more than 95,000 businesses, with just under 50% continuing in some form.
Our arrangements have developed from statute law, from common law and from practice over many years. I am nervous about quite a lot of the tinkering with the system in the Bill, which is not necessarily for the better. As your Lordships will know, the professional body representing the profession is R3. The members range from senior partners of the big four accountancy firms to those who run their own small businesses. I am grateful to R3 for getting me up to speed considerably in this territory and I apologise in advance if I get some things wrong. It is not really my main territory.
It strikes me that the Treasury has not had as much dialogue with R3 as it might have done. I asked if anyone had had a meeting with the Minister and the answer was no. It is probably R3’s fault, but before this legislation gets completed it would be sensible for the Government to have a session with R3 going through its concerns in more detail.
Clause 116 appears to state that any proceeds of a claim—for example, transactions that undervalue—received by an administrator would be unavailable to the holder of a floating charge. This strikes me as unfair because the actions of a director that led to the claim will be putting the floating charge holder in a worse position, whereas the successful action will benefit unsecured creditors. This does not strike me as particularly equitable. This issue may be able to be dealt with by modifying the clause and, as far as I can tell, the clause does not automatically mean that unsecured creditors are excluded but it certainly needs a little more explanation.
Clause 124 allows an administrator to extend administration for a year—previously, it was six months—with the consent of creditors. This gives the administrator too much flexibility to let residual matters drag on if a long extension can be obtained. It is not unknown for the insolvency practitioner to get case fatigue when dealing with less interesting matters that are not at the front end, which is to the disadvantage of all creditors, and the extension could exacerbate this. I might add that this point is not especially supported by R3 but I do not see the need for an extension from six months to a year.
These two clause stand part Questions have been tagged on with my Amendment 61AJ, which goes with Amendment 61VA, and is about something entirely different. From this coming April, directors who commit fraud, are negligent or wrongly take money out of business can walk away with more than £160 million a year—money that is owed to creditors, including small businesses and the taxman. To prevent this from happening, the creditor representative groups, including the Chartered Institute of Credit Management and the British Property Federation, are calling on the Government to grant insolvency litigation a permanent exemption from the Legal Aid, Sentencing and Punishment of Offenders Act 2012. These groups wrote an open letter to the Prime Minister last October outlining their concerns but have not received a response. The issue is relevant to the Bill because it deals with tackling director conduct and returns to creditors.
From this April, the new regime for insolvency litigation will thus leave creditors out of pocket and create a system whereby directors who have committed misconduct could get away with their actions. The current funding regime for insolvency litigation also protects the public interest and public money—the two objectives that LASPO originally sought to address. It deters white collar crime and puts money back in the hands of creditors.
Insolvency litigation is a vital tool for recovering and returning money from rogue directors back to creditors, and conditional fee arrangements and after-the-event insurance are needed to fund insolvency litigation because there is often no money in an insolvent state to fund this type of action. There are many other benefits to using the current regime; the costs in a successful case are paid for by the director who has committed misconduct and, in most cases, the simple threat of the CFA-ATE regime leads to the directors or third party settling before being taken to court.
The impact of the reforms on insolvency litigation was not considered during the consultation phase of the policy, nor in the Bill’s impact assessment. The Government therefore granted a two-year exemption to allow time to seek alternatives to the current regime. Independent research, which considered virtually all cases that used insolvency litigation in 2010, has since shown that no alternatives will ensure that the same amount of money is returned to creditors. Since the report showed that there were no alternatives, the Government have changed their justification for the temporary exemption from allowing time to find alternatives to allowing those involved time to prepare for the changes. The change in justification, without any government review, is less than desirable—especially as independent evidence demonstrates that the current regime has clear benefits.
My amendment has been drafted in consultation with barristers; its wording is that of the current exemption and would therefore provide insolvency litigation with a permanent exemption from the litigation funding changes made by LASPO. This is an issue that is slightly aside from the main part of the section on insolvency but I should like to think that the Government will consult further on this territory.
I should also have started off by declaring my interests, as listed in the register.
Lord Stevenson of Balmacara
My Lords, I have little to say in response to the substantive points raised, but I would like to put it on the record that we have also received a lot of assistance from R3, and I certainly commend the suggestion made by the noble Lord that perhaps a discussion with that group might be helpful to round out the understanding of the position it is adopting in these matters.
Lord Stevenson of Balmacara
My Lords, Amendments 61ZB and 61ADG are in my name and that of my noble friend Lord Mendelsohn, who is today occupied by affairs in Gibraltar—for those who are interested in following his movements.
Our Amendment 61ZB omits the phrase “creditors’ committee or” from Clause 118. It has always been the case that officeholders in liquidations and bankruptcies require official permission to carry out certain functions as part of the process. That is for the very simple reason that the insolvent estate needs to be protected from powers that could have a negative impact on it financially and, as a result, on its creditors and employees.
Those permissions are normally obtained from creditors’ committees or, where there is none, from the Secretary of State or the court. Clause 118 gives liquidators the ability to exercise any of those commonly used functions without gaining approval first. Likewise, Schedule 10 gives trustees in a bankruptcy the ability to exercise any of those powers without the need to obtain approval of either the court or a creditors’ committee or, where there is none, the Secretary of State.
We accept that insolvency practitioners are regulated professionals who are paid to work in the interests of creditors and to protect the monetary value of the estate, and that in most cases any misconduct would be dealt with by their own regulatory structures. However, in the small number of bankruptcy cases in which creditors’ committees are used, we feel that these committees can be a very useful way of empowering creditors. Obtaining permission from creditors’ committees is also accepted to be far less costly than an application to the court, or even to the Secretary of State; they are likely to be local and therefore less costly to reach, and since they are stakeholders in the enterprise, in a way, they will know the background and are therefore more likely to reach quick decisions.
We therefore have some doubts over whether the need to seek permission from such a committee should be removed altogether under the Bill. What does the Minister believe will be the implications for the continued existence of creditors’ committees if this opportunity to influence the process is removed altogether?
Our amendment would not prevent an IP seeking the permission of the court or the Secretary of State, but would still leave power in the hands of the creditors’ committee. We regard Amendment 61ADG as a consequential amendment, affecting as it does Schedule 10. I beg to move.
Lord Flight
My Lords, the Government’s aim in Schedules 9 and 10 is to create a more efficient process for the Government’s official receiver to be appointed trustee of a banker’s estate—I mean a bankrupt’s estate; it might be a bankrupt banker. This would mirror the provisions for compulsory liquidation and therefore seem logical but the changes set out in Schedule 10 go further and remove the requirement for the official receiver to tell creditors whether or not they can hold a meeting to appoint a trustee. This means that creditors will not be informed that they have an up-front opportunity to appoint an alternative trustee, should they wish to do so, because there will be no process in place to inform them. The schedule would see a dramatic reduction in creditors’ power to influence insolvency proceedings and I fear that this could lead to a reduction in trust and confidence in the UK’s insolvency regime.
My Amendment 61WA—I mis-referred earlier on but Amendment 61VA also relates to this point—seeks to provide that the official receiver becomes a trustee on making the bankruptcy orders, and to omit the existing provisions which require the official receiver to decide whether to hold a creditors’ meeting to appoint a trustee and to notify the creditors if he decides not to do so. I take the view that three creditors or the proposed threshold of 10% by value of the creditors should be sufficient to requisition the qualifying decision-making process.
In addition, there is no provision in the Bill requiring the official receiver in each and every bankruptcy case to inform creditors of their rights to appoint an insolvency practitioner as trustee or for the mechanism to do so. This lack of provision disenfranchises creditors and surely flies in the face of increasing creditor engagement. Amendments 61WA and 61VA are intended to address these points.
Lord Stevenson of Balmacara
In moving Amendment 61ZC, I shall also speak to Amendment 61ZD in my name and that of my noble friend Lord Mendelsohn. I have further information to share with those who follow my noble friend’s actions carefully. He is not in Gibraltar; Gibraltar is here and he is in a meeting not far away and hopes to join us later.
The Government’s aim in Clauses 119 and 120 is to increase creditor engagement by allowing the development of communications as technology improves. The clauses abolish the power of the officeholder to summon a physical creditor meeting in all types of insolvency procedures. Instead of these physical, face-to-face meetings, the insolvency practitioner will need to hold virtual meetings through other means, such as via the phone, over the internet or through written correspondence. The insolvency practitioner will be able to hold a physical creditor meeting only if it is requested by a required proportion of creditors—10% of the value of the creditors.
Our amendments would set a threshold for calling a physical meeting at 10% of the number as well as the value of the creditors. As this is a probing amendment, I am open to other suggestions. Indeed, the noble Lord, Lord Flight, has already suggested that a minimum of three could convene such a meeting. I understand that and would be interested to hear the Minister’s response to it. The amendments also seek to encourage the holding of meetings if there are no real cost savings. I cannot quite see the point of cutting creditors out if we are also trying to make sure that they have a part to play in the processes.
We fear that the net impact of the Government’s proposal will be that, rather than increasing creditor engagement, these clauses will reduce it. The Federation of Small Businesses believes that the proposal will be detrimental to small businesses and the BPF also has concerns. As we have touched on, creditor engagement is a core part of a strong, transparent, fair and trusted insolvency regime. By their very nature, insolvencies can be complicated and confusing for those who do not deal with them often. They can also be daunting and time-consuming for creditors.
We believe that creditors’ meetings are an essential part of creditor engagement, trust and confidence in the insolvency regime. At present, meetings are usually called at the very outset of an insolvency proceeding and periodically afterwards. The meetings achieve a number of important goals, including helping to establish who all the creditors are and what they are owed, updating creditors on the process and progress of the case and finding out more details around the financial affairs of the debtor. Creditors will often be able to provide details to the IP of which they would otherwise have been unaware. The first meeting in a creditors’ voluntary liquidation, under both individual and company voluntary arrangements, also gives creditors the opportunity to question the directors of the insolvent company or the debtor himself or herself. This first meeting is a useful opportunity for creditors to participate in the process and is the most appropriate and convenient forum for agreeing the basis of the IP’s fees and establishing a creditors’ committee, should that still be permitted.
The drawbacks of alternative styles of meeting are clear. For example, a report published a few months ago by the Federation of Small Businesses revealed that some 45,000 small businesses do not have broadband and that thousands of others have very slow broadband speeds. In rural communities particularly, access to broadband can be very limited; so networks of information will not exist to allow such meetings to be held in the new virtual reality. Other areas, particularly outside London, have particular difficulties and it is therefore important to bear in mind that while the new virtual reality is coming, it may not have reached us all and, therefore, the Bill is sometimes in advance of where people are now. We are worried that this approach will reduce creditor engagement and, as a result, the amount of money that ends up in creditors’ pockets will be reduced. We are also worried that part of the process will be complicated. Our Amendment 61ZC ensures that there would be a more workable threshold whereby physical meetings can be staged, if required. I beg to move.
Lord Flight
My Lords, my nine amendments in this group also relate to creditor meetings. The Government’s aim, as I understand it, is to increase creditor engagement by allowing development of communications and new technology. The fear is that, in fact, the reverse will happen. The clause would abolish the power of the officeholder to summon a physical creditor meeting in order to act in insolvency procedures. Instead of those physical face-to-face meetings, the insolvency practitioner will need to hold virtual meetings through other means, such as on phones or the internet. The insolvency practitioner will be able to hold a physical creditor meeting if requested by a prescribed proportion of creditors—10% in their value.
The concerns are that rather than increasing creditor engagement the proposal will, as I say, serve to reduce it. The Federation of Small Businesses believes that the proposal will be detrimental to small business, and the British Property Federation also has concerns. The Government are concerned that creditor meetings are sometimes poorly attended. A 2013 report by Professor Kempson found that only 4% of creditors attend meetings. The report also showed that 86% of unsecured creditors, mostly small businesses, often or sometimes attend or vote by proxy at physical creditor meetings. It is these small businesses that will be harmed as a result of the proposal. Even where physical meetings are poorly attended, they still remain a vital tool for both the insolvency practitioner and creditors in getting all the facts, making important decisions and providing any information on the insolvent business or individual.
Insolvency practitioners should be encouraged to use new forms of media to hold meetings but all options should be available, including holding a physical meeting. The proposal should be dropped and Clauses 119 and 120 should not form part of the Bill. However, two possible compromise solutions could be considered. The first is to retain the requirement to call the first meeting, a proposal that would take into account the fact that the first meeting is the most important, where creditors are most likely to attend and important decisions taken. A further compromise could be that three creditors could call a physical meeting; this would be added to the existing proposal for a prescribed proportion of 10% of the value of creditors. Therefore, a physical meeting could be called by either three creditors or 10% of the value of creditors, whichever is smaller.
In December 2014, R3 surveyed its members on the proposals and found that 86% of insolvency practitioners believed that the proposals would reduce trust and transparency; 78% believed that the proposals would reduce creditor engagement; 87% agreed or agreed strongly that virtual creditors’ meetings were not suitable in all cases; 74% said that physical meetings were useful for finding things out that they did not know previously; 65% said that physical meetings were good for getting the views or input of a large number of people; 63% said that things go wrong with virtual meetings; and 48% would describe physical meetings as more useful than virtual meetings.
During the passage of the Bill through the Commons, the Opposition tabled an amendment in Committee to replace 10% of the value of creditors to allow a physical creditors’ meeting with just one creditor. The amendment was supported by the Federation of Small Businesses and the British Property Federation. It was passed, but was subsequently reversed on Report, so basically I think that I am still arguing the same case, and I would suggest that Clauses 119 and 120 should be deleted.
There are some additional amendments which I have included for consideration, while on 8 January the Government themselves tabled further amendments to Schedule 9. I have serious concerns about those amendments and propose that they should be amended further in order to avoid a potential hiatus, cost delays and confusion to the process of appointing a liquidator. As currently drafted, the proposal also throws up practical issues around the appointment of liquidators, who are currently appointed in Section 98 meetings at the start of the liquidation process. Those are physical meetings. If these issues are not dealt with, the liquidation procedure could be crippled and thus harm the interests of creditors. While the latest set of amendments recognises the unequivocal need for the appointment of the liquidator, the amendments do deal with what happens if the deemed consent procedure is overtaken by a creditor nomination or competing nominations. It must be necessary to allow reasonable time for creditors to engage, but the liquidation should not be unduly delayed.
There is obviously some tension between the two perfectly proper principles. The detail of the process is destined for the rules, but because the two principles are fundamental, I would submit that either the proposed process should be fully explained, or a virtual or physical meeting should be required. My Amendments 61UA and 61UB endeavour to address these points. The first is to ensure that the person nominated as the liquidator under the section takes office immediately and that the deemed consent procedure will not apply in these circumstances. This is because the procedure involves allowing a specified time to elapse for creditors to object before the decision is final. If this provision were to apply, it would mean that the period of time that the liquidation would be left in limbo to enable a liquidator to be confirmed in office would be taking place at a time when prompt action is essential to deal with the issues.
The second amendment would provide that the corporate representative is able to nominate a liquidator on behalf of the corporate creditor under Section 100. Corporate representation is dealt with under Section 434B of the Act. However, as modified by the Bill, that section would not allow a corporate representative to act for the purposes of nominating a liquidator under Section 100 because the amended section would allow such representation only for the purposes of a qualifying decision procedure or a meeting. As neither of these procedures would apply to the nomination of a liquidator under Section 100, special provision should be made to allow corporate representatives to act in these circumstances.
The issue of creditor meetings and the various points under it are the main substantial territory where the profession has particular concerns about the provisions of this Bill. It is particularly around creditor meetings and creditor arrangements that it would be helpful if the noble Baroness could have a very full discussion with the professional insolvency practitioner body.
Lord Flight
My Lords, I am grateful to the Minister for agreeing to reconsider the thresholds. I say simply that, rather like the AGM of a company, it is healthy to have a physical meeting. The danger of meetings merely on the telephone is that they do not get recorded accurately and the whole process does not get off to a good start. I am quite genuinely concerned that our excellent system of insolvency runs the risk of getting into trouble if you do not kick off with a creditors’ meeting each time.
Lord Stevenson of Balmacara
I thank all noble Lords who have spoken on this group. I think that together we have arrived at a conspectus view, which has persuaded the Minister that a little more thinking on this would be welcome. I am grateful to her for that.
I do not think that we are in any sense trying to be negative about what is being proposed. This is the future—we understand that. I just think that we are not quite there yet and that the sentiment from all sides is that we perhaps need to encourage people to do things in a more innovative way but not lose some of the values in the original proposals. If we can get somewhere along that line, I would be very grateful. I am also grateful to her for her comments about broadband. We are on the same side here and we want this to happen. She made the point herself: if she has to leave her wonderful kitchen in her rural farmhouse to find an internet café in order to participate in the wider world, something is not quite right yet in the Government’s plans.
Small Business, Enterprise and Employment Bill
Debate between Lord Flight and Lord Stevenson of Balmacara(9 years, 11 months ago)
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Lord Stevenson of Balmacara
My Lords, we have a few amendments in this group and I will speak to just a couple of them. Two of them deal with matters to do with the Regulatory Reform Committee, which I think will be dealt with by the Minister when he comes to respond. The amendments would simply implement the proposals that have not already been dealt with by the previous discussions.
Amendment 19 is a probing amendment. In this set of amendments we deal with the third leg of a three-legged stool that tries to address a set of arrangements around the failure to commit to a financing model for small businesses at the individual level. This is a different attack on the same problem we have talked about throughout the whole of this afternoon: why finance does not flow as well as we would all like to this sector of our economy. The amendment is designed to suggest to the Government that there would be merit if one could extract some lessons from the process, whether or not it also includes the proposals just spoken to. That would add another dimension. We will see how the Government respond to that.
In the context of there being a small business in need of financing, a set of traditional lenders to whom it may or may not have applied, alternative suppliers and others who have expertise and knowledge about that, it would make sense for there to be some lessons learnt from these processes. The suggestion is made in the amendment that the Government might wish to think about providing an annual report to Parliament so that we have a sense of how these things operate. This is to some extent uncharted territory. It may feel like another administrative burden. In some senses, being a probing amendment, the wording is not to be taken at face value. However, this is interesting and new ground. We need to learn the lessons from it and to get the information that we gather out to as wide a group as possible. I hope the sensibility of that would commend it to the Government in some way. I look forward to a response on that.
The converse side of this argument is to be found in Amendment 21. This was slightly touched upon by the noble Baroness, Lady Wheatcroft, who I am afraid is not now in her place. I recognised what she said in her intervention on the last group. We would all be worse off if the credit referencing agencies and those others involved in this stool of three legs that I have talked about were fed information that was wrong. There has to be some means or mechanism for those who feel that the information held on them in these agencies is correctable. The noble Baroness was right to say that this has a sense of the googlisation issue, where you might have the right to correct your own information if you do not like it, but that is not where we are here. We are saying that if it is factually incorrect or in some senses paints a distorted picture, there ought to be some redress mechanism.
There are probably already reasonable direct relationships that could be invoked for that. Of course, there is the Financial Ombudsman Service, which plays a great part in dealing with many issues. I suspect that the people we are talking about in the SMEs, particularly the smaller ones, would find it helpful to have a body like the FOS to which they could pray in aid for help to correct information, question whether information held is correct and iron out any problems. The amendment is there as a suggestion, to the extent that there may even be other systems that would be better able to take this on. If there are not, why should the FOS not be invited to do so? The reason for tabling the amendment was that, in researching this, it turned out that there is a rather low limit for the size of institution that can approach the FOS. It would perhaps be helpful if, as a result of this discussion, the Treasury took this back and looked at it again. It seems wrong to cut off an area that is clearly effective in trying to get things resolved and to get the economy moving and things going. I hope that that is a helpful contribution.
Lord Flight
My Lords, as I have already pointed out, Amendment 25 really goes with Amendment 5. Very simply, and hence why it comes up in this section of the Bill, it endeavours to slightly widen the size of SME which can benefit from the provisions on credit information availability by substituting the R&D tax credit definition of an SME for the definition currently pertaining in the Bill.
There is quite an important point here, which is that the crucial measure of the ability of a company to command lending services is really its EBITA. Most companies with an EBITA below £5 million have problems in sourcing capital investment finance. Basically, the argument runs that the definition used for an SME is really too small and that small and medium-sized businesses are in just as much need of assistance in sourcing credit and investment as are smaller companies.
Gambling (Licensing and Advertising) Bill
Debate between Lord Flight and Lord Stevenson of Balmacara(10 years, 11 months ago)
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Lord Flight (Con)
My Lords, I support the amendment. I have not added my name to it, but it seems to me straightforward common sense. It is nonsense for it to be legal to play on one’s own personal device in the middle of a casino building but not to play on a device provided by that casino. I know that it is a somewhat shallow example, but you can imagine people coming in, one of whom has got their machine and the other who has not; the two want to play and one cannot. I just do not see the logic of that.
The amendment is before us largely because, when the Bill was passing through the Commons, there was the expectation that government was going to sort out the issue—indeed, that was what the Minister there implied—and to do it via secondary legislation rather than by primary legislation. However, it seems to me that the primary route is much simpler. The problem really arises because the Government still categorise internet terminals as gaming machines. The amendment clarifies that a remote gambling terminal provided in a casino is not a gaming machine, and provides for the Secretary of State to be able to make regulations setting the maximum number of such terminals which may be made available. The industry has added a whole list of what I will call morally correct undertakings in relation to this.
This is a silly anomaly which it is time to sort out. I hope that the Minister will be able to tell us either that the Government are willing to sort it out this way or that they have some better route.
Lord Stevenson of Balmacara (Lab)
My Lords, I start at a considerable disadvantage in that, having been nurtured in the far north-west of Scotland and led a very sheltered life, I have never been in a casino, although I have seen them on television or in films, which I suppose equips me to comment on matters as much as I am able to today. The Gambling Act 2005, which, as our founding document, has formed part of a lot of the discussion that we have had today, was very good and well respected for being what it is, but unfortunately technology has moved on and one therefore needs to think again about some of the regulatory arrangements.
I say that because it seemed to me that my good friend the noble Lord who moved the amendment was trying to lay a somewhat philosophical conundrum before us about whether or not, if you were in a place such as a casino but playing online on your own iPad, you would be in some way susceptible to the same sort of regulatory environment as you would be had you been playing on a machine, probably with the same internal workings and connections, supplied by a third party—presumably a casino. When the Minister comes to reply, I wonder whether he can be clear about where he thinks that we have got to in this process. I can think of many bad things we could do in reviewing the Bill, but the one thing we should try to do in this area is not to anticipate where technology might be taking us on this matter. We are at a point where things may change considerably.
Financial Services Bill
Debate between Lord Flight and Lord Stevenson of Balmacara(12 years, 5 months ago)
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Lord Flight
My Lords, the noble Lord, Lord Borrie, pointed out that this chapter addresses the transfer of the regulation of consumer and small business finance from the Office of Fair Trading to the new FCA. My two amendments, Amendments 118D and 147K, address a specific point: the suggestion that the regulation of claims management companies might be transferred from the Ministry of Justice to the FCA, on the grounds that this area has attracted quite a lot of complaint.
I also wanted to make the point that, as the Minister will be aware, the industry is slightly concerned that the re-drafting of all the arrangements that presently operate through the CCA regime to come under financial regulation and to end up in an FCA rulebook is a pretty monumental task. It is questionable whether that can all be accomplished with due care to become operative by April 2014. Therefore, might it be wise and/or possible for at least some of the CCA activities to be able to continue beyond April 2014, allowing sufficient time for consultation and for rewriting everything into what is required as a new format? Apart from anything else, there is some £50 billion worth of lending finance to very small businesses, which are substantially one-man operations and represent a few million businesses. It is really quite an important commercial area, and it is important that things do not get through by mistake in the re-drafting that could cause problems.
Lord Stevenson of Balmacara
My Lords, my noble friend Lord Borrie kindly drew the Committee’s attention to my position as chair of the Consumer Credit Counselling Service and I declare my interest again. I would also like to thank him very much for his kind remarks about the work of the charity, which does so much for people who have unmanageable debt.
This is a wide-ranging group of amendments in the sense of issues that have been raised. I will focus on two areas: the claims management area and the debt management space. Claims management companies have increased in number and have come to the attention of the public, and the industries in which they operate, much more in recent years. You have only to turn on the TV or listen to the radio to be bombarded with advertisements from claims management companies. E-mail traffic is also increasing.
There are apparently more than 3,200 authorised firms operating today. Of course, many in the claims management industry act responsibly. The part of the industry that does not adhere to best practice breaches guidelines on cold calling, text messaging and e-mails. Some will take up-front fees and/or fail to disclose properly the amount of compensation that a consumer will pay if their claim is successful. Through high-pressure sales they will sign up people who have no possibility of making a successful claim on the basis that they can get you thousands of pounds in compensation.
That sort of activity is prohibited under existing regulation, but unless it is effectively policed it comes to nothing. However, large numbers of those in the industry do not adhere to best practice and a few could even be described as rogues. In a recent debate on this subject in your Lordships’ House, the noble Lord, Lord Kennedy, said that the Government need to take a long, hard look at the industry, look at existing provisions and make a number of changes to beef-up existing regulation and ensure that existing provisions are used effectively in an industry that needs effective policing.
In those circumstances, it is also fair to pick up a point made by the noble Lord, Lord Flight, that the current arrangements with the Ministry of Justice acting as both the sponsoring department and the regulator appear to have broken down. It would be good if the Minister could report on what progress has been made on this list of helpful suggestions.
My noble friend Lord Borrie drew attention to the debt management sector and in particular to the 2007 Act. There are nothing like as many private sector debt management firms in the UK, as much of the debt advice is undertaken by charitable bodies such as Citizens Advice and my own body the CCCS, which offer a free service of high quality. Collectively, commercial firms administer some 200,000 debt management plans and about 50,000 IVAs. The trade body, DEMSA, estimates that this is some 40% of all the debt management plans currently in operation.
DEMSA states that its goal is to promote best practice and protect the interests of clients and the lenders to which they owe money, but in its review of the sector in 2010 already referred to, the OFT found instances of non-compliance among DEMSA member firms, albeit DEMSA members received a clean bill of health compared to the rest of the sector, and action was taken on a number of firms.
On the publication of its report on debt management in March 2012, the chair of the BIS Select Committee, Adrian Bailey MP, said:
“During these difficult economic times, increasing numbers of people up and down the country—not least some of the most vulnerable members of our society—are relying on the provision of consumer debt management services and payday loans to make ends meet. And yet this industry remains opaque and poorly regulated. Despite a Government consultation that ended almost a year ago little has been done to remedy the situation. The Government must take swift and decisive action to prevent firms from abusing the needs of such a vulnerable customer base”.
The committee’s main recommendations are worth repeating. The Government must work to phase out up-front fees: the provision of guidance on this point by the OFT is inadequate. The Government should introduce the necessary regulations to ensure companies publish the cost of their debt advice and their outcomes if an agreement cannot be reached during discussions with the industry. The Government should establish effective auditing of debt management companies’ client accounts. The report concludes that greater transparency in the commercial debt advice market would benefit consumers hugely and that voluntary codes of practice are highly unlikely to achieve this aim. The Government must be prepared to regulate if consumers are to receive the protection and the level of information they require.
It seems clear from all this that we have reached the stage in these two sectors whereby strong and effective regulation is required. We also think it is time that the Government should take advantage of the opportunity of the Financial Services Bill to make the new regulatory bodies responsible for this currently unregulated part of the market which affects so many vulnerable customers.
Financial Services Bill
Debate between Lord Flight and Lord Stevenson of Balmacara(12 years, 5 months ago)
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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.