Queen’s Speech

Lord McKenzie of Luton Excerpts

Thursday 29th June 2017 Lords Chamber

[Lord McKenzie of Luton (Lab)]

My Lords, as the Minister announced at the start of the debate, we have a Financial Guidance and Claims Bill on which we commence our parliamentary scrutiny next week. Without pre-empting that process, I will use my brief time to talk to some issues surrounding or arising from that legislation.

The Bill’s stated aims—worthy aims—are to increase levels of financial capability, reduce levels of problem debt and improve public understanding of occupational and personal pensions by merging three existing guidance bodies. It also introduces a tougher and welcome regulation regime to tackle the range of conduct issues and problems in the claims management market. But it is all very high level and vague, and we will have to sort this out in Committee. It also has the good ambition of a national strategy to improve the financial capabilities of members of the public.

We will judge the salience of the Bill by its contribution to some of the most pressing problems facing our country at the moment. We will need to consider whether it is a missed opportunity to contribute more to combating financial exclusion, which holds back the life chances of so many of our fellow citizens. We know that levels of financial capability in the UK are low and that many people face significant challenges when it comes to managing money, avoiding debt, building up savings in the short term and balancing this with retirement savings.

The House of Lords Select Committee, very ably chaired by the noble Baroness, Lady Tyler of Enfield, addressed these matters in its recent report, Tackling Financial Exclusion, identifying those most at risk of financial exclusion as including, not surprisingly, those on low income or living in poverty as well as those who lack digital access or capability. Data provided to the committee suggested that one in six struggles to identify the balance on their bank statement, 40% of the working-age population have less than £100 in savings and 23% of adults do not possess basic digital skills. Just yesterday, the press were full of the depressing report of the Social Mobility Commission, setting out what limited progress we had made in reducing inequality between rich and poor over the last two decades—referred to by my noble friend Lord Whitty.

On the same day, we heard dire warnings about the build-up of unsecured consumer borrowing. Evidence provided to the Select Committee suggested that the average UK household now owes some £12,887, and concerns have been expressed by debt agencies about the rise in calls concerning rent arrears, energy and water bills, telephone bills and council tax. Of course, the Government are not without blame in this matter. The transfer to local authorities of responsibility for council tax support schemes, with a starting 10% reduction in resource and subsequent cuts in funding, is having a direct impact on arrears. We know that the monthly payment of universal credit and the introduction of waiting days are further driving people into poverty—the bedroom tax and benefit cap likewise. Perhaps I may digress a bit to ask the Minister to confirm what I thought he said at the start of our proceedings: that the bedroom tax is not to be applied to those families rehoused as a consequence of the dreadful fire in Kensington. If austerity is truly to end, when is all this going to change?

The pensions landscape has been the subject of significant change in recent years, making access to robust guidance imperative, and we might expect more change in the future. We are grateful to the ABI for its briefing, which encompasses some of this. Auto-enrolment continues to generate significant pensions take-up, and of course there is greater flexibility in when pensions can be accessed and how they are taken. The Government have announced the scope of the review of auto-enrolment, with the prospect that its application can be extended. This would be welcome.

The need for guidance and support on pensions is very much relevant to these recent changes, and I hope we have learned the lesson of bringing in radical changes to the pensions system without laying the groundwork of consultations and safeguards, backed by access to robust guidance.

On the horizon is the prospect of the secondary annuity market being advanced, changes to DB schemes and the emerging potential for a pensions dashboard. We await the decision on the state pension age.

The introduction of pension freedoms in 2015 also spawned an industry in scamming, involving fraudulently extracting money from individuals’ retirement savings. Some lost the entirety of their pension pots—an unimaginable trauma for someone whose working life was assumed to have been over. Promoting awareness of the techniques used is essential if we are going to make progress.

As for improvements to the regulation of claims management companies, an independent review carried out by Carol Brady has identified the need for change. The review exposed the depth of the skulduggery that continues in the sector: non-compliance with rules, misleading advertising and speculative and unnecessary claims. In supporting stronger regulation, though, we should bear in mind that CMCs can and should play a role in providing access to justice and can provide a check on the complaint-handling processes of individual businesses.

Our ambition for the Bill is to see it be part of a process of a step change in improving financial inclusion and reducing financial exclusion. The report of the Select Committee has charted the way.