Money Advice Service

Lord Stevenson of Balmacara Excerpts

Thursday 12th March 2015 Lords Chamber

Asked by

[Lord Stevenson of Balmacara]

To ask Her Majesty’s Government what action they will take to implement the report on the Money Advice Service undertaken by Christine Farnish.

[Lord Stevenson of Balmacara (Lab)]

My Lords, I thank those who have signed up to speak in this debate. We may be few in number but I know that this will be a high-quality debate. I declare my interest as the retiring chair of the charity StepChange and as a commissioner on the Financial Inclusion Commission, which reported yesterday. I commend its report as a much needed opportunity for all parties to refocus on the issue of financial inclusion, which is an egregious block on too many of our citizens fully participating in society.

When I applied for this QSD some considerable time ago, I was reasonably confident that the Farnish report would have been published by now. However, it is a case of being in “Hamlet” without the prince, or perhaps one of these dark Nordic noir detective stories— while I do not watch them, I do have the jersey. Where is the Farnish review? Can the Minister tell us what is happening and whether this Government will, in fact, ever publish the report? As I am sure he is aware, there have been rumours of many prospective publication dates, each of which has subsequently passed without action. Indeed, the Minister himself told me last week that it would definitely be available for this debate. All this is very surprising, given that it is supposed to be an independent report, and we know that the Government received the report before the end of 2014, in line with the published terms of reference. So why the delay?

Given the role that the MAS has until now assumed for itself, this delay is bad for the sectors with which it interacts such as the free debt advice sector. As I hope the Government realise, it is particularly bad for the board and staff of the Money Advice Service itself. Why should well meaning, hard-working and committed people endure prolonged uncertainty over the future of their organisation and their jobs? It is already evident that the organisation is thoroughly demoralised and in danger of haemorrhaging staff. This is not a good situation and it must be resolved in short order. The hold-up has already delayed publication of the MAS’s business plan for the financial year 2015-16, which starts in about three weeks’ time, and the next steps on its UK financial capability strategy. This can be in nobody’s interest.

It is worth recalling that the review was prompted by the Treasury Select Committee in the other place. Its report has been included in the Library’s helpful briefing note for this debate. In publishing its report of December 2013, it said:

“The Money Advice Service is not currently fit for purpose. It is far from clear that it has adopted the right strategy or even that it is performing its correct role. In finalising this report, the Committee considered carefully whether to recommend that the MAS be scrapped completely … The review must assess whether the MAS should continue to exist and, if so, how it can overcome the serious problems laid bare in this report. Its findings should be available for scrutiny by the Treasury Committee and others by the summer of 2014. Only then can a credible, informed decision on the future of the MAS be made”.

The committee set quite a high hurdle. Presumably the committee may also have views on the delay that has occurred since that report.

I assume that in the real world what will happen is that, after the Budget, the Treasury will formally respond to the Treasury Select Committee report, basing its comments on the Farnish review and submissions from the MAS, FCA and perhaps others, and that is when we will see the report. I would be grateful if the Minister could confirm this. Whatever happens, there is now little time left in this Parliament for the Treasury Select Committee to give proper consideration to this issue and we may have to accept that it will drag into the next Parliament. This does not seem appropriate.

Turning to the review itself, I have high hopes for the report. I hope that Christine Farnish, who is well respected in the sector, has not been constrained about answering the fundamental questions raised by the Treasury Select Committee about the very existence of the Money Advice Service. If she recommends that MAS should survive, I hope that she will set out clearly what its role should be in both the money and debt advice spaces.

In my view, for what it is worth, I can see a place for the retention of a slimmed-down Money Advice Service but only if its role changes. It should not set out to do what others are doing better. As I have consistently argued in this House, it should complement but not duplicate the work of charities and not-for-profit agencies which work so effectively in providing debt solutions and money advice. Secondly, MAS cannot and should not be a quasi-regulatory body, as only one body can do that—the Financial Conduct Authority, which is already having a significant impact on this sector. No group can be expected to operate to two regulators and that would not be sustainable. Albeit in a slimmed-down form, MAS could be given a new role—perhaps a strategic functionality focusing on creating and influencing financial services policy and as a consumer champion, complementing and supporting the excellent work already done by the FCA’s consumer panel.

In the rest of my contribution I simply wish to set out what all of us in this sector should do to develop a new policy on problem debt. We need to recognise that personal debt has a macroeconomic impact. Recent research carried out by StepChange has shown that problem debt imposes significant costs on our economy —it estimates about £8.3 billion per annum—most of which comes from job loss and low productivity from people struggling with their debts. It also includes the costs of rehousing people, mental health costs, the costs of relationship breakdown and other matters. These are real and effective drags on the proper work that could be done to grow the economy and restore it to full health. Action needs to be taken.

We also need to do more than just recognise the problem. Savings are a recurrent issue with people who have problem debt. New research that my charity carried out recently showed that about 500,000 households would have been able to avoid problem debt if they had had £1,000 saved. Low-income households, in particular, would see their chances of falling into debt reduced if they could put aside rainy-day savings. Low-income families are not saving because the incentives contained in the main savings policies are not relevant to them, based as they are on tax relief. They do not mean much if you do not pay much or any tax. It is also hard for people with tight incomes to make positive choices to save when they have more immediate concerns, such as putting food on the table.

We need to improve credit products available to low-income families so that they do not rely on high-cost forms of credit such as payday loans. People need to be able to spread the costs of high-cost items such as boilers, fridges and school uniforms, and they need products that are not going to hurt them. There is a real problem developing in the rent-to-buy market, an issue touched on in recent debates in this House. We need to think harder about what will provide the low-interest forms of borrowing that are necessary to avoid that.

People with unmanageable debt are not feckless, and need support if they are going to seek advice and commit to working out a resolution of their problems. My charity is calling for statutory protection against interest, charges, collection charges and enforcement action when people get structured help to repay their debts. This approach is modelled on the excellent Scottish system, the debt arrangement scheme, which is an obvious, low-cost, high-impact solution that gives people control, rewards responsibility, saves creditors the cost of pursuit and collection and gets them a predictable rate of repayment.

Fourthly, we need to ensure that insolvency solutions are fit for purpose. The consumer credit market has changed dramatically in the almost 30 years since the principal parts of our insolvency system were introduced. As the credit market has changed, so too has the nature of problem debt in the UK and the profile of people who find themselves in difficulty. However, our insolvency options have been updated only in piecemeal ways, leaving gaps in protection and coverage, prohibitive fees and a lack of flexibility around changing circumstances.

Finally, debt advice is underfunded across the UK. There are probably around 3 million people who need it, barely half of whom are getting it. We think that there is a need to go back and make an ambitious but realistic call on all businesses that create problem debt but currently do not make fair contributions. Debt advice on its own is not enough. We need to ensure that those who have decided to seek debt advice are quickly and efficiently offered solutions that will get them into a situation in which they can pay off their debts and be allowed to rebuild their relationship with credit. Ideally—it is something that we aim to do—that process should educate them so that they can manage their finances better in future.

The Farnish report is an important step in the progress we need to make on reshaping the money advice and debt solutions that should be available as we move forward in the 21st century. I have tried to outline some thoughts about what should happen next but, of course, one essential first step might be to have a proper debate about the report, when it is eventually published. “Hamlet” without a prince is not much of a play, and one could not even put on one’s jersey to watch a noir thriller with no plot resolution. I cast the noble Lord, Lord Newby, in a key role in this small masque and look forward to hearing how the story will end.