Financial Guidance and Claims Bill [HL]

Lord McKenzie of Luton Excerpts

Committee: 2nd sitting (Hansard): House of Lords
Wednesday 6th September 2017 Lords Chamber

Moved by

[Lord McKenzie of Luton]

19: Clause 2, page 2, line 32, at end insert—
“( ) financial inclusion,”

[Lord McKenzie of Luton (Lab)]

My Lords, I shall also speak to our other amendments in this group, namely Amendments 22, 25 and 39. Amendment 19 adds “financial inclusion” as one of the matters which the national strategy should specifically seek to improve. Amendment 22 sets out a range of factors which the SFGB must address as part of this national strategy. Amendment 39 offers definitions of financial inclusion and financial exclusion for this purpose. Amendment 25 takes us back to issues of financial education, which we discussed at the end of our previous Committee day.

As will be readily identified, these amendments draw heavily on the recommendations of the House of Lords Select Committee on Financial Exclusion. We acknowledge that the Government have already dealt with one of its recommendations—that there should be a clearly designated Minister for Financial Inclusion, and we support this. However, this opens the way for other recommendations of the Select Committee report to be taken forward, two in particular. These are that the Government should lead and set a clear strategy to improve financial inclusion in the UK as one aspect of a wider strategy to tackle exclusion, and that there should be an annual progress report submitted to Parliament. A Minister should have lead responsibility, but work is needed across government. The role of the SFGB in these circumstances would be to support the production of the annual report in conjunction with the devolved Administrations. This is exactly what Amendment 22 provides. However, if the Government were not minded to proceed with leading on a strategy and routine reporting, how will they take these matters forward? Can the Minister say more about when the Government will respond to the totality of the Select Committee’s report, and set out in particular what they see as their role in tackling financial exclusion and promoting financial inclusion?

As the report sets out, the precise use of the terms “financial exclusion” and “financial inclusion” has varied over the years, but we warmed to the approach adopted by the Select Committee, which we have set down in Amendment 39. This might be broadly characterised as financial exclusion representing the problem and financial inclusion the solution—that is, what we should seek to achieve.

One of the objectives of the SFGB is that it must have regard to improving the ability of members of the public to make informed financial decisions. Those who struggle to do so face the risks of financial exclusion, such as the inability to access what might be considered everyday financial products and services. As we know, such individuals can face significant barriers to engagement in modern society. Hence Amendment 22 requires the SFGB, as part of its role in developing a national strategy, to work widely with financial institutions and technology companies to support hard-to-reach groups in accessing financial support and products online.

At the same time as internet banking is growing, causing more financial services to move online, we are experiencing a programme of significant bank closures: 53% of UK bank branches closed between 1989 and 2016. It is suggested that this is a particular problem for older age groups who, we are told, place a high value on face-to-face contact, tend to be more reliant on cash and experience challenges in travelling, and one-third of people over 80 either have never used a cash machine or prefer to avoid them. Some of the high-street banks are responding to this by helping to develop the digital skills of their customers, and there is an obvious role for the SFGB in encouraging and promoting this.

Exclusion is not only a consequence of the digital challenge. The House of Lords committee heard about the difficulties for some, such as those without a passport or driving licence, in meeting rigorous requirements for bank accounts. These matters particularly affect the homeless, ex-offenders and migrants, to name but a few. Amendment 22 also highlights some of the financial exclusion issues which affect those suffering with mental health conditions. The report describes how certain behaviours, such as,

“disengaging … from contact with creditors and financial services providers”,

lead to the build-up of debt and problems with credit ratings, and that,

“excessive spending during manic episodes”,

can also lead to the build-up of debt. It is important, therefore, that arrangements include “control options” for customers.

However, as recent events demonstrate, the existence of control options does not guarantee provider compliance. One especially disturbing issue reported on by the Select Committee is the communication strategy pursued by some online retailers. This involves potentially “predatory behaviour” in the early hours of the morning, when lonely and isolated individuals are at their most vulnerable. This is a matter for the Government, the SFGB and others to be concerned about. Is the Minister satisfied with the current state of regulation and its implementation in this regard?

Finally, Amendment 22 calls for a review of the impact of the Welfare Reform Act 2012 on financial inclusion. While it calls for an annual review, we accept that it might better call for, as did the committee,

“a detailed, comprehensive cumulative impact study of how changes in social security policy resulting from the Welfare Reform Act 2012 might have adversely affected financial wellbeing and inclusion”.

Other organisations have tried, such as the IFS and the CPAG. A recent analysis by the latter showed that under universal credit and child benefit changes since 2013, families and children have lost more than any other group, with cuts far outweighing the increased support for childcare costs. Compared with the original design of universal credit, the average family with three children will be more than £2,500 a year worse off. The point is that the changes to universal credit will be heavily poverty-producing and lack of money is a feature of financial exclusion. While an annual review to monitor changes is helpful, the cumulative effect of all components of the changes to social security shows how mean-spirited and counterproductive they have been.

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I apologise for a somewhat lengthy response but noble Lords have raised some really important issues. I hope that the explanation I have provided will explain why we are concerned about the relationship between financial inclusion and financial capability. These proposals would greatly expand the function of the SFGB and risk causing duplication and confusion over the role of other public institutions. On that basis, I ask the noble Lord to withdraw his amendment.

[Lord McKenzie of Luton]

My Lords, I thank all noble Lords who have spoken on these amendments. With the exception of the noble Viscount, Lord Trenchard, who had some equivocation about them, and the Minister himself, all were in support and I am grateful for that. The Minister has given a very long, very full reply and I will certainly need to take Hansard away and have a read of that, but I would like to pick up one or two points. He referred to the evaluation already in place for universal credit and the welfare reform. What evaluation specifically has focused on the impact of these welfare changes—or social security changes—on the build-up of debt and on the relationship with preponderance of debt? I ask this particularly because there are a number of instances identified in the report where there is clearly a correlation between the social security provisions and debt. The issues around the seven-day waiting period is a simple example. There are issues around the payment of rent—a monthly payment for some. There are also issues around council tax support. That support has changed and is delegated to local authorities at a time when their budgets are being slashed. We will discuss the nature of debt shortly. One of the issues flowing from that is the changing nature of debt. For example, utility bills and council tax bills are featuring more prominently in debt. I believe that at least part of that is a direct consequence of the system that the Government have put in place.

The Minister was concerned about the definition of financial inclusion or capability and said that the amendments could introduce confusion into the standard international definition. Leaving aside the precise semantics, what does he see as the Government’s role in all this? What are they going to do to improve financial capability—if that is the terminology he prefers—or financial inclusion to help people make better use of financial services and banking so that they can play a wider role in everyday life? That is what this is about at the end of the day. What will the Government do? What is on the Minister’s agenda? How will that be shared across Governments given that the report talks about needing to join up these services? I believe that a financial inclusion task force used to do some of this work but the coalition Government abolished it a few years back. This issue features as one of the strong recommendations in the report. Leaving aside terminology, these issues are not joined up at the moment and they need to be.

The noble Baroness, Lady Kramer, rightly pressed the Minister on the extent of the FCA’s role when there is a gap—namely, precisely what it should be doing in these circumstances. I need to read the record but there seemed to be a dispute over the extent to which the Minister’s assertions were correct in that regard.

A number of other points were made, including that of post offices filling the gap when banks close. However, I think there is some way to go before that happens. It is right to say that post offices are becoming more alert to these situations but I do not think that they are anything like clear substitutes for banks.

I thank the noble Baroness, Lady Coussins, for agreeing about the importance of financial inclusion—or whatever term we use—being an integral part of the strategy we adopt. That must be right. The noble Earl, Lord Listowel, mentioned the importance of this area to young people. The noble Baroness, Lady Finlay, rightly expanded the range of circumstances about which we should be concerned. I think the Minister said that nothing in the Bill prevents action being taken in relation to fluctuating mental health and disability issues and issues around coercion. Incidentally, the noble Viscount, Lord Trenchard, talked about people’s reluctance to seek advice. I would have thought a clear case of that would be where it is available but they might feel intimidated—actually intimidated or intimidated by the environment.

The noble Baroness, Lady Finlay, touched on the important issue of gambling. There is quite a chilling paragraph or two in that report about online providers deliberately targeting vulnerable people at two or three o’clock in the morning, when they are most susceptible to spending and making their commitments.

The noble Baroness, Lady Hollins, supported the amendment and referred to the challenges of chip and pin. A statistic in the report says that one-third of people aged 80 or over have never used a cash machine or would not want to. That is quite a frightening level of disconnect.

We have been at this for quite a long time but it is an important subject. I propose to take the Minister’s response away, and we may return to it on some basis at a later stage. In the meantime, however, I beg leave to withdraw the amendment.

Amendment 19 withdrawn.

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[Lord Young of Cookham]

My Lords, I will try to reflect the German work/life balance referred to by the noble Earl, Lord Listowel, by sitting down well before six o’clock. I am grateful to the noble Baroness for introducing her amendment, and as I do so often, I found myself in agreement with nearly all of her analysis of some of the challenges out there: the fall in the savings ratio and the need for a holistic approach to these challenges. I also agree with what the noble Earl said about the problems faced by young families. Where I parted company with the noble Baroness was when she sought to place this extensive new duty on the single financial guidance body. Basically, what her amendment does is to require the new body to produce a report within its first year advising the Secretary of State on how government departments might best assess the impacts of any changes in public expenditure, administration or policy on financial inclusion, financial capability and household debt.

I have a lot of sympathy with the intent behind the amendment. I agree with much of what the noble Lord, Lord Stevenson, has just said about the need to stand back and take a holistic approach to the issue, and of course the Government do not want to do anything that would have an adverse impact on financial inclusion, financial capability or household debt through any of the policies that they pursue. However, I have real difficulty with the point that the noble Baroness is trying to make here, and I do not think that the amendment is either necessary or appropriate.

As I implied a moment ago, the scope of the report proposed in the amendment is very far reaching indeed. The definition of,

“public expenditure, administration or policy”,

is very broad. I have to ask the noble Baroness whether she will compel the body to produce a report for the Secretary of State which considers how to assess the impact if, for example, the Chancellor chooses to adjust expenditure on infrastructure, defence or healthcare. I am really worried that the amendment could overstretch this body’s resources in its first year and expand its remit far beyond that which was originally envisaged. In its first year the body is going to have to prioritise resources into bringing together three disparate bodies, identifying gaps in the market, as we heard earlier, and building on its primary task. If we start going down this road, I see a real risk of diverting resources away from the front line of providing services, bringing together and co-ordinating the functions of the three pre-existing bodies, and from front-line delivery.

The second point is one that has already been touched on. Ministers already review a range of issues when they assess new policies. The financial impacts on individuals and families are considered as a normal part of policy-making, and as noble Lords know, impact assessments are also produced to accompany legislation. I am not convinced that this broad requirement is in keeping with the body’s strategic function of working with others to support the co-ordination and development of strategies to improve people’s financial capability, their ability to manage debt, and the provision of financial education for children and young people. This function is about identifying the most important issues and possible interventions in financial capability, personal debt management and financial education for children and young people working through others.

In response to the point made by the noble Lord, Lord McKenzie, in winding up the last debate and in part response to the issues raised in this debate, a lot will become clearer as to where the Government are coming from on this when we publish our response to the ad hoc Select Committee. The noble Lord, Lord McKenzie, asked me where the Government are coming from, and given the number of recommendations made by the ad hoc Select Committee, I think that that is the right place to reply.

On government leadership, we take the issues of capability and inclusion very seriously, and perhaps I may reiterate my comments about government leadership. In addition, the Secretary of State can request guidance or advice from the new body under Clause 2(2), which will help co-ordination between the Government and the body. I am grateful to the noble Baroness for giving me the opportunity to put the Government’s view on this important issue on the record and to underline our concerns about the potential diversion of resources if we go down this particular route.

[Lord McKenzie of Luton]

May I receive a bit of clarification on the Government’s response to the House of Lords Select Committee? I think the Minister said that it would be soon, but can he give us an assurance that we will receive it before we get to Report? We are going to have a little gap after next week. I hope that that will be enough time for the Government to respond.

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Moved by

[Lord McKenzie of Luton]

26: Clause 2, page 2, line 34, at end insert—
“( ) As part of undertaking its strategic function to improve the financial capability of members of the public, the single financial guidance body must carry out research on a periodic basis, in collaboration with other bodies with an interest in debt issues, to determine—(a) the level of unmanageable debt across England, Wales, Scotland and Northern Ireland,(b) the causes of unmanageable debt, and(c) ways to prevent unmanageable debt.”

[Lord McKenzie of Luton]

My Lords, in moving Amendment 26 I will speak also to Amendment 40. These amendments concern unmanageable debt, which we seek to define in Amendment 40—with some trepidation given my last attempt to define something. Amendment 26 would require the SFGB to carry out research from time to time relating to unmanageable debt and to do so in collaboration with other bodies with an interest in debt issues. The focus of the research should be to determine levels of such debt across the whole of the UK, the causes and the ways to prevent it.

Unmanageable debt is defined to recognise those situations where individuals are not routinely able to, or heading for circumstances where they will not routinely be able to, meet their financial commitments when they fall due. Research into such matters would not be new, but it is of particular relevance given the levels of unsecured personal debt in the UK. Citizens Advice reports that unsecured debt, after falling from its peak in 2008, is now growing faster than incomes and faster than secured debt. It cites an OBR forecast that levels of unsecured debt will return to pre-crisis levels by the end of the decade. These have implications for the individuals and families concerned, as well as the aggregate impact on the national economy. Citizens Advice research shows that unmanageable debt is unevenly distributed, taken as a measure of unsecured debt equivalent to six months or more of a person’s income but taking into account savings. Not surprisingly, those in the lowest income group are three and a half times more likely than the highest fifth to have unmanageable debt, those who are 20 to 29 years old are twice as likely as those who are 30 to 39 years old, and private renters are twice as likely as those with a mortgage.

Amendment 26 would require not only that the level of unmanageable debt be recognised but that the causes of the debt and ways to prevent it be determined. That is a more challenging requirement but would reflect changing circumstances over time. Evidence given by the Money Advice Trust to the House of Lords Select Committee was to the effect that, 10 years ago, the problems reported by 69% of callers to its National Debtline were to do with loans, overdrafts or credit cards, but that this percentage has fallen significantly to 42%. However, the service has seen a dramatic 140% rise in calls concerning household debts such as rent arrears, energy and water bills, telephone bills and, as we have discussed, council tax. This analysis was echoed by others, including StepChange.

We discussed in a previous amendment consequences of the abolition of council tax benefit and the detrimental effect that this has had on council tax debts. Another feature highlighted was the impact of the tax collection practices of different local authorities and how this could impact debts generally. We are, of course, coming on to discuss the importance of a breathing space. It has been suggested that the loss of debt advice and benefit advice services, particularly those funded by local authorities, has exacerbated the problem.

In seeking to bring research to bear on ways of preventing unmanageable debt we also need to focus on the wider consequences of individuals and families living with unmanageable debt, including family breakdown and poor physical and mental health, as well as on the fundamental issue underlying much of this—low and erratic pay. Research is not only about looking back. The Money Advice Service, together with CACI, published research on the design of a model to estimate the probability of an individual being overindebted. It concluded that the overindebted population is younger and more likely to rent and have children; feels the impact of macroeconomic changes more significantly; and is more exposed to changes in the welfare system. Unsurprisingly, they claim that, together with partners, this research will enable services for overindebted people to be provided earlier to help resolve crises and support them to stay out of debt in the longer term. We know that debt advice can be effective. Research can assist in channelling that advice in the most effective and efficient way. I beg to move.

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[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Buscombe) (Con)]

My Lords, I thank the noble Lord, Lord McKenzie, for tabling these amendments. Amendment 26 relates to the strategic function of the body and would add a requirement for the new body to conduct research on levels of unmanageable debt across England, Wales, Scotland and Northern Ireland, the causes of unmanageable debt and ways to prevent it. Amendment 40 then seeks to provide a definition of unmanageable debt. It is right that this House takes great interest in seeking to understand the causes of debt and how the Government can best help those who are struggling. I thank noble Lords again for their important contributions on this matter at Second Reading, in the meetings we have conducted since and in their amendments. I have given them a great deal of thought. I assure noble Lords that the Government take problem debt very seriously.

We understand, as the noble Lord, Lord McKenzie, has said, that the cost of living can sometimes become too great and that problem debt can be hard to escape and can compound family breakdown, worklessness, stress and mental health issues. The Government are committed to supporting those who are struggling with their finances and, as we have previously outlined, work is ongoing on this area. Indeed, during the Recess I paid a visit to the Money Advice Service to see for myself some of the work that it is doing in this regard, particularly the different areas of research it is carrying out. I also take this opportunity to acknowledge the work that Citizens Advice is doing in this area, and particularly the report they published last week, Stuck in Debt, which highlights the problems faced by many. The report highlights the risk of people taking on debt that they cannot repay and clearly shows the impact of unaffordable debt.

The strategic function of the single financial guidance body will be critical. It will give the new body the ability to work with others in the financial services industry, the devolved authorities and the public and voluntary sectors to identify the most pressing issues and possible interventions in financial capability, personal debt management and financial education for children and young people. I understand the very worthwhile aims of this amendment; however we do not believe that it is necessary to specifically reference one area of research in legislation. Clause 2(3) enables the body to conduct research on,

“anything that is conducive or incidental to the exercise of its functions”,

so it could conduct research into anything that noble Lords have raised this afternoon, for example. Furthermore, the body will, under its strategic function, be expected to work with stakeholders across the financial services industry, the devolved Administrations and the public and voluntary sectors to share and pool research evidence and knowledge among each other to inform the national strategy on financial capability.

Let us not forget that the whole purpose of this new body is to improve the financial capability of the public, through both its delivery and strategic functions. In order to deliver its objectives and functions effectively, this body, like any other delivery organisation, will need to conduct research to understand the issues it is addressing, test and learn new approaches to determine what works and continuously improve the services it is providing. I would find it hard to believe that this body would not conduct research on the very issues that the noble Lord has raised. The question here is not whether the body should conduct research on this and other matters—the Government are clear that, of course, it should. The question is, is it necessary to have it defined in primary legislation?

There are several topics that the body may wish to look into, but I am concerned that specifying just one could risk limiting its ability to look widely and strategically at issues across the whole sector. It must also have regard to emerging issues in the future. Amendment 40 seeks to provide a definition of the unmanageable debt levels that the body would be tasked with researching under Amendment 26. The noble Lord’s amendment undoubtedly highlights some of the key characteristics displayed by those who are struggling with their finances, such as being able to make only minimum repayments on outstanding credit commitments, difficulty in paying for essentials and a reliance on credit. The question here is not whether the Government agree with this definition; it is about whether this should be defined in legislation. As I have already explained, the Government believe that the new body should have the ability to choose the specific topics it researches in relation to its functions, and that these should not be specified in legislation.

Should the new body choose to research the causes and effect of unmanageable debt, it should also have the ability to define what it is researching. Although I understand the intention behind the definition suggested in the noble Lord’s amendment, defining unmanageable debt in legislation could unintentionally limit the scope of the body’s research. It is envisaged that the body will continue to support the aim of reducing problem debt, and this is clear in Clause 2(7)(b), which states that part of the strategic function is to improve,

“the ability of members of the public to manage debt”.

As I have said, the Money Advice Service and others already conduct significant amounts of research into the causes of overindebtedness. They are doing a great deal of work at the moment on how to support the aim of reducing problem debt in the first place. Indeed, I had an extensive discussion about how to do this in a much more strategic way; I think it was the chair of MAS who said that if someone falls off their horse, it is not just a case of looking at how they get back on it; it is how they learn to ride. It is about people’s whole approach, from an early age, to managing their finances. We envisage that the fantastic work the organisation is carrying out in research will be transferred and will extend and continue through to the new body, so I cannot quite accept the premise of the question asked by the noble Lord, Lord Sharkey, that if the money is not spent on research, how is the budget assessed. If that were the case, it would go to the core issue of whether the body is functioning: a crucial part of its function is to ensure that the body is looking at and thinking about how to improve people’s ability to manage their finances through life.

I know that a particular focus of research at the moment is to do with people’s attitudes; not just how they manage their debt in the short term, but their whole attitude to money and how they manage it going forward. I have various pamphlets here and I found it incredibly encouraging to learn about what we are doing for young children, going through to the elderly. Of course, as always there is lots more to do but the whole tenor of my response is that we should not restrain or constrain this body by tying it down, by listing or being too prescriptive in primary legislation. I hope that, after considering the points I have raised, the noble Lord will withdraw the amendment.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for that sympathetic reply and for the detail contained in it. The thing I am struggling to understand is why, simply because the Government have particularised an approach in the Bill, that precludes any other approach to research or indeed any other type of debt to be the subject of that research. But this is probably not the time to pursue that in great detail. I simply do not see why the amendment cannot be accepted without impairing the argument the Minister has made for how she sees research and the importance of it. Unless she wants to say anything more, I beg leave to withdraw the amendment.

Amendment 26 withdrawn.