Financial Services Bill

Lord Stevenson of Balmacara Excerpts

Wednesday 18th July 2012 Lords Chamber

[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, Amendment 104B, as my noble friend Lord Flight has explained, would require the FCA to work with the Department for Education to secure the teaching of financial literacy in primary and secondary schools. I am sure, as the voices around the House have confirmed, that we all agree on the importance of financial education for young people and indeed for adults. The Government share this view.

As the noble Lord, Lord Stevenson, said, finance education is currently taught as part of non-statutory personal, social, health and economic education. I think that was how the previous Government set it up. The Department for Education is reviewing PSHE education, including whether any aspects of it should become statutory as part of the basic curriculum, and will be carefully considering the position of finance education. The Money Advice Service is feeding into this review.

However, the FCA is being set up as a focused conduct of business regulator. The Money Advice Service is the appropriate body to work with the Department for Education at an operational level on matters of financial literacy. MAS was established by the FSA, and its objectives are set out in new Section 3R of FiSMA, as inserted by Clause 5 of the Bill currently before your Lordships. They include an objective,

“to enhance—

(a) the understanding and knowledge of members of the public of financial matters”.

I cannot see how MAS could discharge this function without working closely with the Department for Education.

MAS was established by the FSA as an independent body with similar oversight arrangements to the FOS and FSCS. It has a statutory function to enhance the understanding and knowledge of members of the public of financial matters and their ability to manage their own financial affairs. The FSA must take such steps as are necessary to ensure that MAS is, at all times, capable of exercising its consumer financial education function.

The FCA will take on the FSA’s responsibility for consumer protection and conduct regulation, and will oversee MAS in the same way as the FSA does now. MAS will continue to have operational independence. To give the FCA responsibilities in the area of financial education would not only risk diluting its focus but would duplicate the role of MAS. So, in short, I do not believe that this amendment is necessary. I ask my noble friend to withdraw it.

[Lord Stevenson of Balmacara]

I wonder whether the Minister can answer my point about the Private Member’s Bill which is going through the other place. It seems to me to offer a way forward on this issue. If he cannot give me a reply today because he has not been briefed on this matter, perhaps he could write to me.

[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.

--- Later in debate ---

[Lord Peston]

I support my noble friends, particularly my noble friend Lady Liddell. This takes us back to our earlier remarks today on the need for a professional body for the financial intermediary. I was very disappointed at the way in which the Government did not seem to recognise that as a matter of great concern. As I understand it, doctors have a professional body in the first place and, secondly, they have a code of conduct. Therefore, this sort of thing is not necessary for them because they know that that is how they have to behave. This is true of a number of other professions.

However, one group of people who claim to be professional—the financial intermediaries—have nothing like this at all. I think I am right in saying that there is no professional body whatever. The Government seem perfectly happy with that. They do not seem to see that they should at least encourage them to set up a professional body with a code of conduct, et cetera.

My noble friend Lady Liddell puts her finger on it when she says that we really should not be discussing this issue and that it should be taken for granted that the sort of things referred to by my noble friend Lord McFall could not happen. In a decent society, that should be the case. However, it is not the case. One of the great things about this House, until we are all thrown out, is that your Lordships accept their responsibilities, although our successors may not. It is important to draw attention to what responsibilities should exist in society. I believe that the Government should respond positively to my noble friend’s amendment.

[Lord Stevenson of Balmacara]

My Lords, I support the amendment in the name of my noble friend Lord McFall. I declare an interest as chair of the Consumer Credit Counselling Service, the country’s leading debt advice and debt management charity. I want to focus in particular on people who struggle with debt, often because they have got into arrears with their credit cards or personal loans and other consumer credit products, but also because of mortgage arrears, rent arrears and, increasingly, fuel and utility debts and council tax.

CCCS has helped more than 1.5 million people in the past three years and about half of them told us that unemployment or reduced income were the main reasons for their debt problems. People also say that life events such as illness or separation can quickly overwhelm family finances and cause or contribute to mounting debt. What they find is that debt is rarely a problem in isolation. There are nearly always other factors that need to be addressed, including the link between problem debt and depression. Nearly half of CCCS clients said they had been worrying about their debts for a year or more before seeking help from a debt advice provider. Around a third of people said that their debt problems had weakened their relationships or led to a break-up. Nearly half said that debt had shattered their self-confidence to support themselves and their families.

The pre-crash boom in consumer credit, which peaked in about 2007, also remains a key part of the UK debt narrative. Even after several years of near zero lending, the total outstanding secured and unsecured debt is still some 91% higher than it was 10 years ago—so it is a pretty bad picture. Research for CCCS by the Financial Inclusion Centre concluded that some 6.2 million households are currently either already in financial difficulty or at risk of getting there, and it is going to get worse.

The IFS estimates that real median household incomes will fall by 7.1% between 2009-10 and 2013-14 as a result of low growth and fiscal tightening, the largest decline since the 1974-77 fall of 7.5%. Unemployment remains at a stubbornly high 8.3%, or 2.65 million people, although it has just reduced. Youth unemployment sits at 22%—more than one in five young workers is without a job. This is particularly worrying as we know that time spent not in employment, education or training as a young adult can have a scarring effect as well as reducing earnings.

At the same time, we are experiencing an extended period where households are facing rising costs for essential goods and services. Food, fuel and transport costs are rising sharply and we will sooner or later face a rise in interest rates, which are unnaturally low at present. Figures from the Financial Inclusion Centre show that if living costs rise by more than £50 per week, it would double the percentage of households—which is currently 30%—who have no spare cash at the end of the month.

There is surely sufficient evidence in what I have said that the idea that consumers should be required to take full responsibility for their decisions does not accord with what happens in the real world. My noble friend Lord McFall made this point very eloquently, and we strongly support his idea that in considering what degree of consumer protection may be appropriate, the FCA must have regard to the differing ability, disability and vulnerability of different consumers.

However, it goes further than that. The FCA has also got to take into account what the CCCS and FIC research tells us about the way people’s history and the impact of family issues, illness and relationships interact with their credit arrangements. Families are being squeezed hard at both ends, with incomes and expenditure under pressure. The Bill ought to be amended to reflect less of the theory of caveat emptor and be more reflective of what is happening on the ground.

[Lord Sassoon]

My Lords, the debate on this group of amendments has been very interesting. However, it has some characteristics of straying into Second Reading territory because it has gone much wider, albeit over very important areas, into questions of broad mis-selling standards in the industry, which we have discussed already this afternoon. Therefore, I will not go over all the points that have been made but stick to the issues that are the focus of the specific amendment, subject only to one general point about the important questions raised by the noble Lord, Lord McFall of Alcluith, on proposed new Section 1C—on the consumer protection objective, which clearly goes to the heart of this—and his observations and questions on proposed new Section 1C(2)(e), which concerns the general principle of care.

One issue around the drafting that we should bear in mind is that the FCA will be responsible for the protection of retail consumers, but will also have a responsibility for wholesale markets, professional markets and counterparties. The reason behind the drafting of proposed new Section 1C(2)(e) is to make sure that it encompasses both the very strong duty of care that is due to individual consumers, on the one hand, and the fact that between professional counterparties the nature of the duty of care is very different. Indeed, in the terms of this particular principle, there may be no duty of care under this provision if the market is purely professional—it is very different from a consumer product market. It is important to understand that background to the discussion. However, these amendments are very much concerned with protection of the consumer.