Independent Debt Advice

Nia Griffith Excerpts

Tuesday 8th February 2011 Westminster Hall

[Nia Griffith (Llanelli) (Lab)]

It is a great pleasure to serve under your chairmanship, Mrs Riordan.

I begin by congratulating my hon. Friend the Member for Makerfield (Yvonne Fovargue) on securing this debate on the very serious subject of debt advice, and on the important work that she herself has carried out to highlight the devastating effects that debt, and worrying about debt, can have on people’s lives. I will not repeat the excellent comments made by hon. Members who have outlined the problem clearly.

The number of people seeking debt advice is increasing, and the statistics are alarming. In 2009-10, the CAB dealt with some 2 million debt issues. The main non- fee-charging advice agencies offering debt advice are the CAB, National Debtline, Consumer Credit Counselling Service and Payplan. The CAB and National Debtline receive no money from the credit industry, whereas the CCCS and Payplan do. Of the four agencies, only the CAB offers an intensive, personal counselling service on debt.

Citizens advice bureaux, as we know, are generally staffed by volunteers, most of whom are generalist advisers, with some paid specialist advisers. Specialist advisers deal with the most complex cases, but they also supervise volunteers who undertake simpler casework in the specialist’s area of expertise. In the majority of cases, when a specialist adviser is made redundant, the bureau concerned generally no longer offers an advocacy service in that advice area. The bureau cannot expect volunteers to carry on without that back-up. The CAB is a highly professional organisation that recognises the considerable risks of people proffering advice that they are not qualified to give. Without the back-up of specialist advisers, they know that they have to limit the advice they can offer to clients.

In many cases that may mean that generalist advisers can only give the client access to information about the options and procedures that he or she might pursue. Providing information for a client to follow is a path used by bureaux when a client considers themselves sufficiently articulate, literate and confident to proceed on their own. However, most debt advice clients who approach the bureau for advice feel unable to communicate effectively with their creditors. They need the advocacy that specialist advisers provide.

Bureaux do not offer debt advice in isolation. The client also benefits from benefit, housing and employment advice. At the CAB they know that they are not just dealing with a debt problem; they are dealing with a human being. A person has their own unique set of circumstances: work circumstances such as losing their job or being put on reduced working hours, or retirement or giving up work to care for a family member; or personal circumstances such as relationship breakdown, dependent children and so on. People may not initially present as debt cases, but it may become apparent in talking through their other problems that they have an underlying debt problem.

Citizens advice bureaux have a highly trained network of volunteers who understand what they are and are not qualified to advise on. They know that if a client has complex debt problems that they are not qualified to advise on, they can arrange for them to see the appropriately qualified member of the team. CABs have led the way in using volunteers but making sure that they have proper training, and that they are backed up by qualified teams. In that way, they are able to make the most of their volunteers and to offer real value for money.

As Dame Elizabeth Hoodless, who is retiring after 36 years in charge of Community Service Volunteers, said:

“We know we need to save money, but there are other ways of saving money without destroying the volunteer army.”

She used the example of libraries and pointed out that people may want to help in a library but do not want to run it. The same is true of the CAB: volunteers are happy to come along and carry out clearly defined duties for which they have been trained, but they know that they can be more effective because they can call on a team of professionals when they recognise that a problem is beyond their competence. They certainly do not want to run the business.

We all appreciate the idea of a one-stop shop; we yearn to simplify matters, and we recognise that people often find themselves in a Catch-22 situation and have to deal with several different agencies. One of the vital features of CABs is their ability to deal with the whole range of problems that a client may have. That is why taking away any one of their streams of funding will have such a serious knock-on effect.

Let us look at the overall funding of the CABs. First, there is huge input from local councils, which provide some 43% of the total income of CABs. We all know that councils are facing severe difficulties in planning their budgets for the next few years and that in order to protect their statutory services, they will look at all options, including cuts to funding for CABs and similar organisations in their area.

Then there are the cuts in legal aid. A cut of one sixth of the legal aid budget will mean that some £350 million out of £2 billion will be cut. That, too, will have a serious effect on CABs because of the franchise work that some bureaux do. It is completely incomprehensible that legal aid will be available for debt work only when a person’s home is at immediate risk. One does not need to be a specialist adviser to recognise that early intervention is far preferable, much cheaper and more effective.

[Mr Slaughter]

My hon. Friend is absolutely right. In my constituency, three of the four advice agencies have lost all their local government funding, and if the Green Paper goes through, they will lose 90% of their Legal Services Commission funding. Even services that the Government say they will protect will not be available because the advice centres will have closed, and areas such as my constituency will be advice deserts. There simply will not be any advice available to anyone in most parts of the country.

[Nia Griffith]

My hon. Friend vividly highlights a serious problem; that is exactly what will happen.

There will be cuts to advice on education, employment, family, housing, immigration and welfare benefits. Those cuts will have a direct impact on funding for CABs and their ability to provide a comprehensive service, but they will also have a direct impact on clients’ debt problems. If clients are unable to fight for the welfare benefits or extra provision for a special needs child to which they are entitled, they may be faced with a worsening debt problem.

Given the cuts to legal aid and to CABs through the withdrawal of the financial inclusion fund and local government funding, CABs will struggle, and many will close. The Government’s Office for Civil Society has a transition fund that will apparently provide grant funding to bridge any gap, at least in the short term, but it applies only to England, and it applies only to organisations with an income of between £50,000 and £10 million, which excludes some CABs. Can the Minister clarify whether any of the transition fund will be used for debt advice and, if so, how much?

What are the alternatives to organisations such as the CAB? How else can debt advice be delivered? Are the Government expecting the Consumer Credit Counselling Service and Payplan to deal with all the additional workload of clients who will no longer be able to go to a CAB? Those organisations receive funding from the credit industry, and although Payplan has considerably expanded its services in recent years, it is simply unrealistic to expect it to be able to expand quickly enough to deal with an additional 2 million cases a year. Moreover, it deals with debt; it does not deal with the full range of clients’ problems, which are often inextricably linked to their debt problems.

We have to ask the Government what alternative they propose. Is it debt management companies? The record and practice of many such companies gives rise to serious concern. In September 2010, the Office of Fair Trading told 129 debt management firms that they faced losing their consumer credit licences unless immediate action was taken to comply with its debt management guidance. The OFT found misleading advertising; in particular, firms fail to disclose that a fee is retained by the business. In fact, firms misrepresent debt management services as being free when they are not. That is serious, as clients already have enough difficulties without being exploited still further.

[Helen Goodman]

Does my hon. Friend share my concern that meetings were sponsored at the Tory party conference by the very organisations that are perpetrating scams on our constituents?

[Nia Griffith]

I certainly share that very real concern, because not only is the advice not free, it is poor. The OFT found that front-line advisers working for debt management companies lack competence, and provide poor advice based on inadequate information. Not only is the client landed with having to pay a fee that is not made clear in the firm’s advertising, they are then poorly advised. Receiving poor advice on debt management is a serious business; it can cost the client considerable amounts of money.

Furthermore, the OFT also reports that there is low industry awareness of the Financial Ombudsman Service rules for resolving consumer complaints. Even with all the work that CABs and similar providers are doing at present, we currently have a situation where 129 companies that are not fit for purpose are trading on people’s debt problems.

What will happen to a CAB’s clients when the funding for debt advice is withdrawn? Some may not seek debt advice at all, perhaps because they do not know where else to go, or perhaps because they realise that debt advice companies will charge them fees and they worry, rightly, about being exploited and getting into yet more difficulty. Many will be driven to seek advice from debt management companies.

[Angela Smith]

Does my hon. Friend agree that the Government’s actions suggest that the concept of the big society is, indeed, a big sham, and that the real message coming from them is that if someone is struggling with debt, they are on their own?

[Nia Griffith]

Indeed I do.

People may not go to debt management companies because they realise that the advice given could be substandard, and that they will be charged fees and could end up in more difficulty, but many will be driven to seek advice from such companies, many of which have been shown to be doing a poor job. We could see a mushrooming of similar companies, out to profit from the loss of CAB advisers, and many more clients being charged fees for poor advice. No responsible Government should push forward policies that will allow that to happen.

What are the Government proposing as an alternative to the excellent work that CABs do? Can the Minister tell us how the proposed national money advice service will improve on the debt advice service that is currently funded by the financial inclusion fund and delivered through organisations such as Citizens Advice? Can he explain how clients who are currently being helped by CABs will be better served by the national money advice service?

Debt advice is a specialist area, and it is time-consuming and labour-intensive. No matter what expertise and computer programmes a debt adviser has, every client will have slightly different circumstances. It takes time to work through the problems, and for the client and adviser to discuss what the possible solutions might be and, when appropriate, for the adviser to arrange advocacy. Can the Minister explain what will happen to clients if the national money advice service is not up and running before CABs have to make their debt advisers redundant?

One of the problems for any new service is getting known and reaching the people who really need help. Citizens Advice is a well-established organisation—it is an established brand with a good reputation—and many people know that they can go to it to seek advice. People from all walks of life know where their local CAB is. Can the Minister explain how people will know about the national money advice service, and where they will go to access it? Can he explain the rationale for destroying an established service?

Given the economic outlook, with many more workers likely to lose their jobs due to Government cuts and the knock-on effects in the private sector, why does the Minister want to destroy a competent, independent, local, user-friendly service such as Citizens Advice and leave people bereft? At the moment, it is offering people very much needed and valuable debt advice.

--- Later in debate ---

[Mr Hayes]

I said that in the second part of my speech I would try to come to the specific measures the Government will take. I hope I will have time to do so.

The first of the six points of principle is that we want to ensure that the debt management regime means that those who can repay debt do so and those who cannot pay get appropriate debt relief. Debtors and creditors should benefit from a system that is clearer about expectations and provides good advice in advance; I will come to how that advice might be provided later. The picture painted by a range of hon. Members of an entirely haphazard system is not the Government’s intention and it would not help either responsible lenders or debtors. I understand that and it will inform what we do.

Secondly, we want to see empowered debtors accessing good quality preventive advice, as well as advice to deal with debt, to ensure that the most appropriate solutions are found for the debtor’s particular difficulty. Thirdly, some stakeholders have called for a review of the whole lending and borrowing landscape—a point that has been echoed today. I think such a wholesale review is necessary, and the Government will go about that.

Fourthly, we are told that some debtors and, potentially, their advisers, are confused by the array of choice. We heard today about independent debt advisers. We are aware of the issue, and I take the point about the OFT’s condemnation. Fifthly, it is important that we clarify the responsible options available to people rather than allowing a free-for-all in which the advice they receive is of varying quality.

[Nia Griffith]

What action is the OFT taking against the 129 companies?

[Mr Hayes]

I will deal with that specifically in the second part of my speech.

The OFT survey, as the hon. Lady said, points out that many players in the field are less than scrupulous, and that must be dealt with. Finally, we are looking for evidence on how the regime should work. We have called for evidence, and much has been received. I invite the hon. Member for Makerfield, who has expertise on this issue because she managed the CAB in St Helens, and others to play their part in the review.

On the specific measures, the House will know that the Department for Business, Innovation and Skills has been responsible for face-to-face debt advice on behalf of the Treasury for about five years. I am sure the House also knows that the financial inclusion fund, which provided funding for that project, was always due to close in March 2011. I understand the worry about the decline of face-to-face advice, which all contributions today seemed to reflect. Face-to-face advice must support online and telephone advice, and we will look at how to reinforce that.

Funding of £1 million has been confirmed for next year for the National Debtline, as has been acknowledged. We need further work on how to support some form of continued additional face-to-face guidance. I will ask the Under-Secretary of State for Business, Innovation and Skills, my hon. Friend the Member for Kingston and Surbiton, to clarify as soon as possible, in a statement to the House, precisely how, when, why and whether that might happen.

Secondly, the Government are working with the Consumer Financial Education Body to provide better advice on debt. As hon. Members know, it will shortly be renamed the money advice service. It was set up to take over responsibility from the Financial Services Authority to promote understanding of the financial system and raise levels of financial capability across the UK. It is funded by a levy. We will launch the new service in spring. That preventive approach is critical to stop people getting into difficulties, with the results we heard about today.

The Government will also review the framework for financial services regulation. Two new regulators will replace the FSA: one focused on prudential issues with the Bank of England and the other on markets and consumer protection—the Consumer Protection and Markets Authority. We see this as an opportunity to improve how consumer credit is regulated and to create a simpler, more responsive regime.

As Members know, we have also launched our review of consumer credit and personal insolvency. It is taking an end-to-end view of consumer credit and personal insolvency, from the decision to borrow money through to how we support people in difficulty and help them to resolve their debts.

The feature that characterised most contributions to the debate was the CAB. As a constituency Member of Parliament, I am very aware of its work. I visited the CAB in Spalding to discuss these issues. Indeed, one of the many virtues of our system of parliamentary representation is that Ministers are also constituency MPs. I heard what was said today about the CAB and its importance in providing not only debt advice, but a holistic approach to advice that reflects the connection between debt, well-being and the wider range of challenges that many people face.