Financial Guidance and Claims Bill [HL]

Lord Young of Cookham Excerpts

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

Returning to where I came in with the noble Viscount, Lord Trenchard, I accept that things will become clearer when we get a debate and a government response to the ad hoc Financial Exclusion Committee. That cannot come fast enough for some of us, who are wondering where it has been and when we can access it, but in the meantime the Minister should take note of some of the ideas in these amendments. They may be ambitious but they are certainly worthy of the department’s careful consideration as the Bill progresses.

[Lord Young of Cookham (Con)]

My Lords, the co-pilot is in charge of this leg of the legislative journey, and I apologise in advance for any turbulence. I thank the noble Lord, Lord McKenzie, for tabling these amendments and for the way he argued in support of them. As I listened to some of the contributions, it struck me that during this debate we have identified gaps in existing provision. One of the things we want the new body to do is to identify those gaps and then fill them. I will come back to this issue later on in dealing with some of the specific points that have been raised. I am grateful for the contributions that have been made and I will try so far as I can to address them.

Clause 2 sets out the functions and objectives of the new body, including the role of the strategic function. In designing these functions, we have set the parameters so that the body has a clear remit to focus its efforts while at the same time ensuring that the scope is sufficiently wide so that it can respond to changing needs and circumstances in meeting that remit.

I begin with Amendments 19 and 39, which seek to integrate financial inclusion within the new body’s strategic function and to set out in statute a definition of financial inclusion and exclusion, the case made by the noble Lord, Lord McKenzie. As my noble friend mentioned at Second Reading, we take the issue of financial exclusion seriously. The Government are grateful for the work of the ad hoc Select Committee on Financial Exclusion in highlighting this important issue. I am all too aware of the appetite of noble Lords to read the Government’s response, and I recognise that the general election held this year and subsequent ministerial changes have, unfortunately, pushed back that response, which will be published shortly. None the less I am grateful for the comments from the noble Lord, Lord Kirkwood, and the noble Baroness, Lady Coussins, about the appointment of my honourable friend Guy Opperman as a Minister with responsibilities in his department.

I cannot anticipate the Government’s final response, but in the meantime I want to be as helpful as I can to the noble Lord, Lord McKenzie, and others by outlining our understanding of the term “financial inclusion”. I begin by picking up the point identified by my noble friend Lord Trenchard in looking at issues of definition. To quote the World Bank:

“Financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs—transactions, payments, savings, credit and insurance—delivered in a responsible and sustainable way”.


That is an internationally accepted definition of financial inclusion. When we consider that definition, it follows that the Government’s policy regarding financial inclusion must be focused on ensuring that there is an adequate and appropriate supply of useful and affordable financial services and products. The Government therefore work closely with the industry regulator, the Financial Conduct Authority, to ensure that appropriate action is taken when the market fails to supply services and products. The noble Baroness, Lady Coussins, mentioned bank closures, which is an example of where the market has failed to supply what particular customers want. In passing, I note that in many parts of the country the Post Office is stepping up to the plate, and one should not underestimate its contribution.

On the matter of “financial capability”, the term refers to the ability of the public to manage their money well, including the ability of members of the public to engage with services and products made available by the financial services sector. So there are two different concepts—capability and, as I shall refer to in a moment, the supply of services. Of course there is little value in ensuring an appropriate supply of useful and affordable financial services and products if people do not have the ability to actually use them. That is where financial capability comes in. It is the role of the single financial guidance body to improve the ability of the public to manage their money so that they have the skills, knowledge, motivation and confidence to fully use the financial products and services on offer.

Against the background of those definitions, the concern that we have about these amendments is that the reference to “financial inclusion” would fundamentally change the nature of the new body from an information and guidance body to more of a regulator with specific powers to intervene in the financial services market. At the moment the Treasury and the FCA have responsibility and the relevant powers to intervene when the financial services market fails to supply affordable products and services. Against that background, the attempt in the amendments to give the body a remit over financial inclusion risks duplication and confusion.

I think noble Lords will be aware of the FCA’s work in the area of financial inclusion. It is of the utmost importance that this progress is not impeded by unnecessary confusion over the role of different public bodies. Indeed, the FCA’s competition objective states that it may have regard to,

“the ease with which consumers who may wish to use”,

financial,

“services, including consumers in areas affected by social or economic deprivation, can access them”.

The FCA takes those objectives very seriously and has undertaken a number of pieces of work in recent years—

[Baroness Kramer]

Perhaps there is a slight misunderstanding here. The FCA certainly sees its role as regulating appropriately those financial services that exist, but where a gap exists, it takes no responsibility for filling it. Many in this House have had a long dispute with both the Treasury and the FCA about that, because the gap never gets closed. I draw that to the Minister’s attention, because often those who are not close to this matter assume that it has that role.

[Lord Young of Cookham]

My initial response is that if the gap is indeed not closed, it is one of the objectives of the FCA to address that. I was just quoting that it has to have regard to,

“the ease with which consumers who may wish to use”,

financial,

“services, including consumers in areas affected by social or economic deprivation, can access them”.

If it is not responding and ensuring access, that is a case not for giving that responsibility to another body but for holding the FCA to account to get it to discharge the responsibilities that we have given it.

The FCA takes its objectives very seriously, and has undertaken several pieces of work in recent years to increase access and protect consumers, including a report on consumer vulnerability in February 2015. To give one example, in June this year, the FCA published a call for input on access to insurance, following a broader report on access to financial services that it published in May last year. The call for input seeks views on the challenges that firms face in providing travel insurance for consumers who have or have had cancer and the reason for pricing differentiations in quoted premiums.

I look forward to seeing that work develop, and I encourage all relevant stakeholders to provide responses to the call for input. It is important work and, in response to the noble Baroness, is an example of the sort of project to promote financial inclusion that the FCA can conduct in its role as industry regulator.

Against that background, I urge the noble Lord, Lord McKenzie, to withdraw Amendment 19 and not to press Amendment 39. I am grateful for the opportunity to address the important topic of financial inclusion, to which I am sure we shall return, but, as I said a moment ago, the Government are concerned that the amendment could create confusion between the roles of the FCA, on the one hand, and of the SFGB, on the other.

I turn to Amendment 25, which makes provision for the new body to advise the Secretary of State on the role of Ofsted and the primary school curriculum. I am aware that the Lords’ Select Committee on Financial Exclusion made a similar recommendation on the role of Ofsted and the primary school curriculum in its recent report. We will of course respond to each recommendation in due course and give them the close attention that they deserve but, for the time being, I just comment that the Government believe that this amendment could cause confusion about the remit of the new body with regard to the school curriculum.

As was stated earlier, the new body will have a role to help co-ordinate and support initiatives delivered by charities and other parties which are designed to improve the financial education of children and young people. It will be able to identify gaps in provision, identify best practice, and work with schools to understand how they are delivering financial education, in which lessons that is taking place, and explore further the barriers to school involvement. The Government are clear, however, that the school curriculum and monitoring of school performance is a matter for the Department for Education in England and those of the devolved nations.

In practice, this means that the body will be able to undertake activities to help schools to provide financial education. For example, the body will be able to undertake activities such as funding the project undertaken by the Money Advice Service and the Education Endowment Foundation to run a trial of Young Enterprise’s Maths in Context programme. Some 12,000 pupils in 130 English schools will take part in the trial, testing whether teaching maths in real-world contexts improves young people’s financial capability and attainment in GCSE maths exams.

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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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[Lord Young of Cookham]

I would love to give a direct and helpful response to the noble Lord’s very reasonable question. It would be irresponsible of me so to do. There are a lot of government departments involved in this. I cannot give an exact timetable at the Dispatch Box today, but I will make some inquiries and see whether we can shed some light on a publication date perhaps later in our proceedings.

I think I was at the end my peroration, imploring the noble Baroness, Lady Drake, to withdraw her amendment.

[Baroness Drake]

I thank the Minister for his reply. I totally disagree with most of what he said. I thoroughly agreed with the bit where he agreed with my analysis— it was just the bit about the amendment not being practical. This will be neither onerous nor expensive, which is really his only argument against it. This is not saying to map every problem that contributes to financial capability or financial exclusion, but to give a report that sets out in the methodology how best to make an impact assessment across government departments when they are pursuing their policy.

This is not novel; it is a methodology and a discipline that operates in a range of areas. A huge amount of work has already been done. A national strategy has already been created by the work of the Money Advice Service—there is already its capability survey. It has mapped the problem. I was rereading it over the weekend. There is no need to reinvent the wheel. A lot of that work exists and it is an organisation that is going into the new organisation. The Bill already gives to the new financial guidance body responsibility for co-ordinating and developing a national strategy. The Government have already given it the heavyweight bit, which is to co-ordinate and develop the national strategy, but ensuring that that strategy is effective and delivered—ensuring that the whole machinery of government is responsive to the challenge—is a methodological challenge in terms of what I am proposing on how you assess the impact so you can take it into account.

I do not accept that it is expensive or onerous. It is a challenge of how one guides departments to make those impact assessments. There is plenty of advice and guidance from the NAO, other government departments and other bodies that have given guidance to the Government on how to make impact assessments. If there is such a resistance to making impact assessments, how is the Prime Minister to meet her commitment? If she wants to make the Government function better she has to stand back, look at the problem and make an assessment. All I am saying here is that simply giving a budget to an NDPB and saying, “Get on with developing and co-ordinating a strategy; we as a Government have now discharged our function”, is not sufficient. The whole machinery of government has to be told that when it comes up with its actions or policies that it has to assess the impact it will have on capability and debt. The Government will go on to make their policies, but they have to put a discipline in. Just handing over the more labour-intensive bit to the NDPB, not the least labour-intensive bits that I am suggesting, will not get good outcomes for the country.

I reject the premise of the Minister’s argument that it will be very expensive and labour intensive to do. A lot of the groundwork has already been done by the MAS. None the less, I beg leave to withdraw my amendment.