Financial Guidance and Claims Bill [ Lords ] (First sitting)

Yvonne Fovargue Excerpts

Committee Debate: 1st sitting: House of Commons
Thursday 1st February 2018 Public Bill Committees

[Yvonne Fovargue (Makerfield) (Lab)]

Has my hon. Friend read Peter Wyman’s recent independent report on the debt advice landscape? He advocates that there should be somebody in charge of the whole debt landscape—almost a debt Tsar. That seems to be a really good idea, to maintain the independence of the debt landscape. Does my hon. Friend agree?

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[Jack Dromey]

Although self-employed people will be able to access the help of the new body for their personal finances, they will not be able to use it for their business finances. We have listened very carefully to the voice of the self-employed—on one hand organisations such as the Federation of Small Businesses, and on the other hand people I have spoken to in my own constituency, including taxi drivers and construction workers who are self-employed and, indeed, an individual who ran a fruit and veg shop in Erdington High Street and got into financial difficulties.

I have seen how self-employed people badly need advice and guidance, and there is all too often an overlap between their personal advice and guidance and that for the business in which they are engaged. That is why we say that evidence shows that, for the self-employed, the line between personal and business finances is usually blurred and can be very difficult to manage, particularly for those just setting out as self-employed people. The number of self-employed people is higher than ever before in our economy, so they need to be able to rely on the new body for advice and guidance when they need it.

Figures released last year suggest that the number of self-employed workers in the United Kingdom rose by 23%—from 3.8 million to 4.7 million—between 2007 and 2017. That represents a shift in the nature of the world of work and the way the British economy is working. Self-employed people now represent about 15% of the workforce, and 91% of businesses say they hire contractors. The majority of self-employed people are sole traders, and there is no legal distinction between them as individuals and as businesses. There were 3.4 million sole traders in 2017. The biggest increase in self-employed people was among women.

Although self-employment is a positive choice for most, there is a real problem with the conscription of some into reluctant self-employment. Either way, the average earnings of the self-employed are significantly lower than those of the employed. The figures vary—I would be the first to acknowledge that—but there has been growth in self-employment in higher-skilled, higher-paying areas, such as advertising, public administration and banking. Although some workers enjoy greater flexibility and control over their working patterns, self-employment can nevertheless have a negative impact on their access to finance.

As self-employment has increased, so has demand for advice about business-related debts. Last year, 36,421 people were helped by the business debt line run by the national charity the Money Advice Trust, which does outstanding work and gave us very good advice and guidance about the Bill. Demand for the debt line has increased from 24,000 in 2016 to 36,421. The Money Advice Trust says, and I think it is right, that it expects the rise in demand to continue.

The amendments would ensure that the SFGB provided self-employed people with information, advice and guidance about their business-related, not just their personal, debt and finances, with a focus on those who are most in need, in line with the body’s wider objectives. The amendments would apply to its debt advice and money guidance functions. As Lord Haskel said in the other place,

“the work of the SFGB should include the self-employed and micro-businesses, particularly at a time when the line between company employment and self-employment is becoming very blurred.”—[Official Report, House of Lords, 5 July 2017; Vol. 783, c. 933.]

Personal and business finances are closely intertwined for many self-employed people. Some 48% of self-employed people use a only personal current account for their business, and a further 17% use both a personal and a business account, according to the Financial Conduct Authority’s “Financial Lives” survey in 2017. The Money Advice Trust report, “The cost of doing business”, which is based on extended interviews with business debt line clients, found that almost seven in 10 of those who had taken out a personal loan were using it to prop up their business. Research by the University of Bristol’s personal finance research centre identified two key areas of overlap between business and personal finances: first, general living expenses, especially for those who live on their business premises; and, secondly, the use of personal credit to manage cash flow where necessary. Given the intertwining of business and personal finances for many self-employed people, if the SFGB does not offer information, advice and guidance on both, it will not be able to provide that growing section of the population with the support it needs.

I very much hope that the Minister will respond constructively to what we are saying and look at what might happen if the Government choose not to amend the Bill. I reserve my right to come back on that after hearing the Minister’s response.

[Yvonne Fovargue]

I want to make a short contribution about how the finances of the self-employed are muddied with their personal finances. I had a meeting recently with Amigo Loans, a guarantor loan provider. It said that an increasing part of its business is loaning to people in a personal capacity, although they know it is for business purposes. Is that a business debt or a personal one? The fact that it does not look at the business plan might make it a personal debt, although I do think it ought to be looking at the business plan. Is it a personal debt or a business debt for the guarantor who guarantees the debt? In a lot of cases, it is fairly unclear where the line lies. To have a firm demarcation line where no business debts are dealt with is probably detrimental.

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[Mhairi Black]

The amendment is pretty straightforward and sensible. It would clarify the important differences between information, guidance and advice, which we know have a major impact on people’s decisions and how reliable they are if things go wrong. It is not often that parliamentarians admit ignorance, but before I became pensions spokesperson, I did not realise that there was any official difference between the three terms. I am a Member of Parliament and I have only recently found that out, so the Committee can imagine what it must be like for the general public. As long as the Government clarify the definitions of the three terms, I will be happy to withdraw the amendment.

[Yvonne Fovargue]

I support the hon. Lady’s request for definition of the terms, although I recognise that it is difficult not to stray into other areas. A further concern is that the information, guidance and advice need to be free and impartial. There are too many pensions providers that spend a lot of money—I heard of one spending £15 million—on ensuring their advice is compliant with all the FCA impartiality rules. As somebody said, if pension providers are spending £15 million on making their advice impartial, they must be expecting some return on their investment. That worries me—that people are gently steered towards a particular product if they go to a particular service.

I believe that some of the comparison websites that people use are not always impartial. If they take money for the top rankings, they are not providing a properly impartial service. People do not understand the differences between those comparison website that have paid-for rankings at the top and those that are completely impartial, based on objective criteria. Guidance on the types of investment can be different when it leads to a product sale, unlike when it is just helping a consumer through their options, completely free of any sales pitch.

[Craig Tracey (North Warwickshire) (Con)]

I declare an interest as chairman of the all-party parliamentary group on insurance and financial services. I welcome the Bill in general, and from my conversations with the insurance industry I know that it is very supportive of the Bill and of the establishment of the single financial guidance body as great step forward to having access to guidance at relevant points in life. Because of the welcome pension freedoms, that guidance has become more essential than ever before.

There is good practice in the industry already—for example, Aviva insurance is running its MOT at 50 scheme, on which the preliminary feedback has been very positive. The results show that getting advice made people far more engaged with their finances and more likely to plan for their retirement, and many went on to seek regulated advice. The crucial point that Aviva made was that by delivering the MOT at 50, people had time to change their plans, think realistically about the future to meet their retirement objectives.

I want the Minister to give clarification on three points. First, what will the Bill provide for consumers? From the APPG’s and my perspective, it should look at providing financial resilience, promoting early intervention to prepare for life events, and raising awareness of the benefits of protection products, which are particularly helpful for the self-employed—things such as income protection, critical illness and life insurance. In my experience as a broker, people generally only took those when it was too late and when they had had a bad experience. If we can help to advise people ahead of incidents, that would be really useful.

Secondly, could we have clarification on the timeline for implementing the SFGB and assurances that transitional agreements will provide certainty of access to guidance for consumers, and certainty for providers in relation to signposting arrangements? Thirdly, will the Minister set out how the new body will set standards to be approved by the FCA? The Bill says that that should happen, but it does not specify how it should be approached or how it intends to set out the strategy. Could the Minister provide some guidance on that? I appreciate that the answer to the third point might be quite detailed and I will be happy if we wants to write to me with the information. I look forward to his response.

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[Guy Opperman]

I will come to the comprehension point in a second, if the hon. Lady will permit. I will deal with all three points.

After the legislation was suitably amended, debated, discussed and agreed with their lordships, it was specifically written into the Bill that the information, guidance and advice should be free and impartial. I take the point that the hon. Member for Makerfield raises, but I hope that she is reassured that that has been specifically written into the Bill, and is addressed there.

On the definition of terms, may I address the points made by the hon. Member for Paisley and Renfrewshire South that go to the fundamentals of her amendment? One of the key recommendations of the financial advice market review—sometimes known as FAMR—was to clarify the regulatory definition of financial advice. The Government consulted on revising the definition of regulated advice in the existing Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, so that regulated advice was based on a personal recommendation. That definition is in line with the EU definition set out in the markets in financial instruments directive 2004, catchily known as MFID. The Government agreed that revision, which came into force in early January 2018. We therefore suggest that introducing a new definition of advice in the Bill is unnecessary and potentially duplicative. It would cut across existing regulatory architecture, not just in respect of what the Bill is trying to do and the clients it covers, but across other aspects of the Treasury and dealings with the Financial Conduct Authority and industry and consumer groups. In addition, using legislation to establish definitions for those terms would not provide the flexibility in the future to adapt the definitions appropriately, if and when that needed to take place.

I also take issue with a number of points regarding the amendment. First, the three organisations that we are merging to form the single body do not seek the definitions that the hon. Member for Paisley and Renfrewshire South is seeking to persuade us of. Those organisations are a pretty good guide to what the Government are doing, because we have consulted at length, asked them what they want us to do, and they most definitely have not said, “Go away and define those individual points.” They want the degree of latitude to continue.

Secondly, the hon. Lady asked the body to do this within three months. To answer my hon. Friend the Member for North Warwickshire on timings, we hope that the body will be created—subject to the good will of the House and Her Majesty signing on the dotted line—between the end of October and the beginning of December. Asking the body to make, within three months of its creation, having merged three organisations, a definition that would probably apply across all financial sectors is, with respect, putting quite a big burden on the body. Also, it is not the appropriate organisation to do that. That should be done by the independent Financial Conduct Authority, suitably engaged in consultation with wider parties. We have done that in relation to advice; that is why we had the FAMR review. To be fair to the FCA, it took two years of long, hard struggle to come up with the specific definition that all parties were content with. I go back to the point that while those particular points are not sought by the individuals, I believe that it is not appropriate to give the definitions.

My hon. Friend the Member for North Warwickshire asked about timings. We will be up and running, with a fair wind, in winter 2018—but beware of Ministers who say when things will happen, and of course winter in parliamentary terms can stretch a long time. The standards by which the single financial guidance body will be judged are set out in clause 10, on which I am delighted to be addressing the Committee this afternoon, so I will not go into detail about the standards now but will ensure I set out a bit of detail in answer to that question when we debate clause 10, so bear with me. He also made a point about resilience and life events, which I will address briefly.

A simple point is made about resilience, as set out in clause 2 through the various objectives described, whether the consumer protection or the strategic function. It is also fundamentally set out in clause 3(9), which mentions

“financial capability of members of the public”.

One may use “resilience” or “capability”, but the words—without getting too much into definitions—are all but interchangeable and, in the circumstances, we believe that those provisions address capability and the points made by my hon. Friend.

Regarding preparation for life events, my hon. Friend is a passionate supporter, as am I, of the concept of the mid-life MOT, which has been pioneered by certain companies, including Aviva. As a Government, in particular the Department for Work and Pensions, we are looking at the idea of people, at different critical points of their life, the middle point in particular, assessing where they are in terms of finances, pensions, guidance and everything. That seems eminently sensible to us, and we encourage all private sector organisations to do it. We are formulating plans.

[Yvonne Fovargue]

But does the Minister agree that it is not only major life events that can cause a problem? In connection with financial resilience, we all know that it might be the broken washing machine that can cause a bump for people who do not have that amount of savings. On financial capability, does the Bill look at addressing the need for people to build up a small pot of savings?

[Guy Opperman]

The answer is yes. Capability is about the ability to deal with life events, whether the traditional ones such as marriage, birth of a child, retirement or the middle of one’s life generally, or—the hon. Lady is dead right—the washing machine or the car breaking down. There is formulated, as I am sure she is aware, things such as the sidecar proposal that is attached to auto-enrolment specifically to provide a savings pot to deal with life events, so that people are not affected by the sudden events involving £100 or £200 and so on. The Department is definitely working on such things, as we will seek to work with the single financial guidance body to ensure that it formulates those strategies. As the BBC puts it, there are other providers, such as Moneybox, Plum or—the name of the third one that I am particularly impressed by—Chip, which allow people to make small savings through day-to-day earnings and usage, giving them a pocket of savings to deal with things. We very much support all such organisations, and I utterly endorse the points made.