Debt Advice (FCA Levy)

Robin Walker Excerpts

Tuesday 21st January 2014 Westminster Hall

[Mr Robin Walker (Worcester) (Con)]

It is a pleasure, Mr Hollobone, to speak under your chairmanship. I am grateful to the Backbench Business Committee for allowing one of its first Tuesday morning debates in Westminster Hall to be about this important issue. Following last night’s positive cross-party debate on the recent report on the payday loan sector by the Select Committee on Business, Innovation and Skills, this debate allows us to expand on a vital and timely matter, which was subject to a key recommendation in that report.

I particularly welcome the cross-party support for this debate from the Chair of the Select Committee, from its Labour members, including the hon. Members for Sheffield Central (Paul Blomfield) and for Glasgow North (Ann McKechin), from my Liberal Democrat colleagues, my hon. Friends the Members for Edinburgh West (Mike Crockart) and for Chippenham (Duncan Hames), and from a good number of Conservative colleagues, both on and not on the Select Committee. It is good to see my hon. Friends the Members for Gosport (Caroline Dinenage), for East Hampshire (Damian Hinds) and for North Swindon (Justin Tomlinson) here to contribute to today’s debate.

This debate is timely because, over the next year, the payday lending sector and other high-cost lenders will begin to be regulated by the Financial Conduct Authority and to pay the levy that it raises to cover the costs of regulation and to fund the Money Advice Service—and, through that, the provision of free debt advice services.

Hon. Members will be as surprised as I was to note that, until now, the highest-cost lenders have not had to make the same contribution to free debt advice services as their competitors in the banks and the credit unions. That has been unjustifiable, but I am glad that, thanks to changes made by the Government and the FCA, such lenders will shortly be making at least that contribution in future. However, there is concern that if the machinery of regulation and the levy remain as they stand, and no guidance is provided, the opportunity for those lenders to contribute additional resource to free debt advice services might be missed.

Another reason why this debate comes at a crucial time is that the Money Advice Service is negotiating with free debt advice services over their future three-year plans and budgets. Almost all hon. Members will benefit from the important work that the likes of the citizens advice bureaux do in our constituencies, and will recognise the enormous value to constituents of being able to access free, timely and impartial debt advice. I value highly the work of Worcester CAB, Worcester Housing and Benefits Advice Centre and other small debt advice charities such as Two Pennies Money Advice and Christians Against Poverty. I am grateful to all those organisations, as well as to national charities such as StepChange, for their work with constituents and for the information they provided to inform this and other debates.

A key way in which the free debt advice sector is funded is through the Money Advice Service and that, in turn, is funded through the FCA’s levy. The problem was discovered by a cross-party group of MPs who have been working together on these issues; I am grateful to the hon. Members for Sheffield Central, for Glasgow North and for Makerfield (Yvonne Fovargue), and to my hon. Friend the Member for East Hampshire, for sharing their meetings in this regard.

Understandably, the FCA sees itself as a collection organisation for the levy, with powers to agree what is put to it, but not to set the terms of the levy or measure the demand for debt advice services. Meanwhile, the Money Advice Service has been under pressure to show that it is delivering value for money and running efficiently, and its representatives have told me and other hon. Members that it has no current plans to ask for an increased budget in the years to come. If things remain as they are, we could miss the opportunity offered by the fact that new organisations will be paying the levy and contributing at last to the budget for free financial advice; their contributions could be cancelled out by a levelling down of the charges to other financial institutions.

I recognise that some colleagues, and even the Treasury Committee, are worried about the cost of regulation encompassed in the current levy, and I do not want to rule out a reduction in the contribution to the levy of other financial organisations. I have no reason to object to any such changes, but I want to ensure that they are not made at the cost of funding valuable and necessary support for free financial advice.

I also recognise that there is a legitimate debate about the role of the Money Advice Service, and that it has been the subject of reports by the National Audit Office and the Treasury Committee. The latter recommended a full independent review of its work and questioned whether it should continue at all. However, today’s debate is not the avenue for taking forward that particular discussion. If we accept that the Money Advice Service is the established channel for allocating funds to the free debt advice sector and that its negotiations with free debt advice providers are likely to set the limits of lenders’ financial contributions to the sector, we must show political leadership in calling for those limits to be raised.

I would like the proceeds of the levy for debt advice to be allocated among an even wider group of organisations, including some of the smaller players in the voluntary free debt advice sector, alongside the major providers, but that is also an argument for another time. I note that the National Association of Citizens Advice Bureaux confirms in its briefing that the six lead organisations work with more than 240 smaller organisations to deliver free debt advice.

In previous debates on high-cost credit, I have advocated the advantages of a levy on the highest-cost lenders to create a competitive advantage for more affordable lenders such as credit unions. I have pointed out that if such a levy were related to the rates of interest charged and the extent to which they go beyond the existing cap on credit union lending, that could create a virtuous circle whereby the growth of the high-cost lending market would fund ever greater provision of debt advice or the availability of more debt advice might direct borrowers to cheaper forms of debt, such as credit unions. I still believe strongly that such a system is desirable, but I recognise that it is not what we currently have. As a pragmatist, I want to make the system that we have work better.

Charities such as StepChange have made a clear case that the high-cost lending industry in general, and payday lenders in particular, are contributing to the growth in demand for free debt advice. As the BIS Committee report reflected, tens of thousands of people have been put into severe financial difficulty by taking out loans that turned out to be unaffordable for them. They are in addition to the hundreds of thousands who struggle to meet their obligations and the millions for whom short-term, high-cost loans might not be the best financial choice.

StepChange and citizens advice bureaux have reported rising numbers of people seeking advice as a result of getting into trouble with payday loans. The latter reported that the number doubled in the last year alone, and the former referred to a sevenfold increase over five years. Citizens advice bureaux highlighted that, in the last four years, there has been a tenfold increase in the proportion of clients receiving casework help with multiple debts that included a payday loan debt. They also reported many problems with people taking out multiple payday loans, and I hope that the speedy introduction of real-time data sharing and action on rollovers will address that.

However, we should not believe that, just because regulatory action is being taken on some of the most pressing issues of high-cost credit, all the problems will go away. Research by the Money Advice Service shows that 8.8 million people in the UK are over-indebted and, of those, 1.9 million are considering seeking advice. Although levels of household indebtedness have come down from a peak during the last Government, they remain well above long-term averages.

The evidence of the last few years is that demand for short-term, high-cost products is here to stay, and that consumers put a greater premium on ease of access than on price in many transactions. That point was well made in yesterday’s debate. There is a vital role for the free debt advice sector in ensuring that consumers understand the true cost of the financial decisions they are taking. The FCA’s current guidelines include recommendations for greater signposting to free debt advice services. Such signposting, although welcome, is likely to create more demand on a sector already under financial pressure.

I do not intend to go into a long discussion of the financial and fiscal difficulties that the Government inherited, but one consequence has inevitably been pressure on the direct and indirect funding of free debt advice services. Whatever our political views on that—those are likely to differ from one side of the House to the other—hon. Members of all parties should welcome an opportunity to secure funding for these very important services at no cost to the taxpayer and at no risk of being removed by political necessity further down the line.

Securing greater funding through the FCA levy would achieve that aim. In its recent report, the BIS Committee recommended:

“When payday loans come under the authority of the FCA, they will be subject to a levy. This must be additional to the existing levy and not used to off-set the level of payments by other financial organisations. We recommend that the levy paid by payday lenders is ring-fenced by the Money Advice Service solely for the funding of front-line debt advice services.”

Similarly, the briefing that StepChange kindly prepared for this debate concludes:

“StepChange Debt Charity believes the inclusion of payday lenders and other consumer credit firms as levy payers should be used to significantly boost funding for free debt advice. It should not be used to level down the total payments other financial services organisations have to make. The OFT says around a third of payday loans lead to repayment problems, suggesting the strain lenders place on debt advice is exceptionally high. StepChange Debt Charity believes the contribution different financial services firms make to debt advice should be based on the level of detriment they cause as well as the firm’s size. Payday lenders cause a disproportionate level of consumer harm relative to the amounts they lend; relative to turnover, they should therefore pay more towards debt advice.”

In succinct terms, the briefing from Citizens Advice concluded:

“The additional contributions from payday loan companies should result in an increase in the funding available for debt advice.”

I know that the Minister, my hon. Friend and Worcestershire colleague, is a sensible and reasonable man. Rising Treasury star though he undoubtedly is, I realise that not all aspects of the debate fall within his diktat, although I hope that he can reassure the Chamber today that the Government will look carefully at the issue. Huge progress has been made on the regulation of high-cost lending in recent months and the Minister can take a great deal of credit for important decisions that have been taken to date, as a result of which many more lenders will be paying the FCA’s levy and the bizarre anomaly of their not contributing while credit unions did is at last being dealt with. I hope the Minister will agree that we should take the opportunity to ensure that the free debt advice industry is properly and adequately funded and that institutions that drive up demand for its services make a proper contribution to the costs.

The FCA is a regulator and independent of the Government and the Money Advice Service is an arm’s-length organisation designed to deliver support to the free financial advice sector. Both have made strides in improving their approach to high-cost lending but the danger is that, without clear guidance about the will of the House, they could miss an opportunity to go further. As things stand, neither has a mandate to match the resources made available to the free debt advice sector to the growth in demand for its help.

It is also worth our noting the Low commission’s recommendation to increase substantially the funding made available for free financial advice. The measure that I have been discussing is one of the means by which that can be achieved. I hope that today’s debate will help to provide much needed guidance and that the Money Advice Service will consider taking the opportunity of having new contributors to the levy, to increase the resources that it passes on to the free debt advice sector.

I am grateful for your chairmanship, Mr Hollobone, and to the Backbench Business Committee for allowing the debate. I look forward to the Minister’s comments on how we can best address the important issue to the advantage of all involved.

[Several hon. Members]

rose—

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[Cathy Jamieson]

The hon. Lady makes an important point, and the issue of financial education was raised in the debate in the main Chamber last night. Financial education is important because there are people who have literacy and numeracy problems, which are often picked up at the point that they come for advice. They may not have felt able to tell people before then, but the problem becomes very apparent in a face-to-face meeting with advice workers, who can perhaps assist them to get help and support.

More broadly, financial education in schools is, of course, valuable; I have said that many times. It is the right thing to provide, but if it is only seen as something to be provided in schools that is not enough. There are key points in people’s lives when there is the opportunity to introduce them to different forms of financial education.

[Mr Robin Walker]

As the hon. Lady points out, financial education in schools is very valuable, but it is not the whole solution. Recently I visited a community primary school in my constituency where the local anti-loan sharking team were holding an assembly, which was entirely funded by money confiscated from illegal loan sharks. That is one example of how good work can be funded with no direct cost to the taxpayer and is this debate not another example of that, whereby we can help to fund the good work of debt advice charities and the rest of the sector without any cost to the Exchequer or the taxpayer?

[Cathy Jamieson]

Again, the hon. Gentleman makes a valid point. It reminds me of a previous career, when I was in another Parliament and worked closely with the predecessor of my hon. Friend the Member for Makerfield on tackling some of the illegal loan sharks and trying to ensure that they were brought to justice.

Of course, it is important that we consider everything we can do to establish the principle—I think it was referred to as “the polluter pays” principle—whereby the people who cause the problem have a social responsibility and, in this context, a financial responsibility to provide some of the funding to pay for the resources we need to tackle the problem.

My hon. Friend the Member for Glasgow North (Ann McKechin) asked if there has been a lack of discussion between MAS and the FCA. Again, I hope that the Minister can enlighten us on that issue, perhaps giving us some more information about the involvement of the two organisations. Also, can he say whether or not he can ensure at this crucial stage that all the organisations are brought together for further discussion? I am almost hesitant to say this again, but, as I have already said, there is sometimes a danger that people involved on the Treasury side would perhaps look in isolation at this issue; they would look at the money flows, the funding streams and so on, without necessarily looking at the people involved. In this context, it is very important to look at the people involved.

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[Sajid Javid]

I agree that demand seems to be growing, and evidence on that is emerging. It might help the hon. Gentleman if I move on to how MAS determines its budgets for money advice and debt advice, and how it has to take demand into account.

[Mr Robin Walker]

As the Minister will be aware, the Treasury Committee, among others, pressed MAS to justify the efficiency with which it delivers those services, and it was right to do so—I am the last person to object to that. Does he agree that it is important that MAS does not take from that the message that the only way to justify itself is by keeping its budget flat or spending less money? Delivering a greater service and providing more money to debt advice services would also be a sign of efficiency, so a message that MAS could take from this debate is that there is support for it providing a better service, and potentially more money, to the free debt advice industry.

[Sajid Javid]

I completely agree with my hon. Friend. He will know that I gave evidence to the Treasury Committee’s inquiry on MAS last year in my previous role as Economic Secretary. I said that the Government would have a full review of MAS during this Parliament, and over the coming weeks and months, I will set out how that review will take place. The review will consider some of the issues he raises.