Oral Answers to Questions

Yvonne Fovargue Excerpts

Tuesday 17th January 2017 Commons Chamber

[Mr Speaker]

Finally, I call Yvonne Fovargue.

[Yvonne Fovargue (Makerfield) (Lab)]

More than a year ago, the Treasury promised to consult on breathing space to assist people in debt and protect them from interest and other charges while they seek help. In view of the high levels of personal debt, will the Minister commit himself to proceeding with that as a matter of urgency?

[Simon Kirby]

I can tell the hon. Lady that we are looking closely at the issue and will see some progress in the very near future.

Savings (Government Contributions) Bill

Yvonne Fovargue Excerpts

3rd reading: House of Commons & Report stage: House of Commons
Monday 12th December 2016 Commons Chamber

[Mr Thomas]

My hon. Friend makes a good point, and I hope to deal with it a little more in due course. She is right that credit unions have scope to reach out to more of the 3.5 million people Ministers want to assist through the Help to Save scheme, whom NS&I might not be best placed to help.

Credit unions are not-for-profit financial co-operatives, owned and controlled by their members. They are, I would argue, more uniquely exposed to low and middle- income financial services markets and are used to offering financial services to those who are often excluded from other better known sources of finance. They provide safe savings and affordable loans, with some credit unions offering other products, such as current accounts, individual savings accounts and mortgages.

[Yvonne Fovargue (Makerfield) (Lab)]

Is it not true that what is key is that credit unions can also provide loans? We know that low-income families have more bumps in the road than the majority of people on a higher income, so that provision, combined with the opportunity to keep saving, is an important service that NS&I cannot offer.

[Mr Thomas]

My hon. Friend has stolen one of my lines from later in my speech. She makes an entirely appropriate point: credit unions can offer access to an affordable loan while encouraging people to save at the same time. When the loan is paid off, the incentive to keep saving is still there.

Credit unions have until now enjoyed the support of Members on both sides of the House. From 2006 to 2007 the growth fund, launched by the Co-op party’s—and now Strictly’s—very own Ed Balls, saw more than 400,000 affordable loans offered and saved recipients between £120 million and £135 million in interest that would otherwise have been paid to high-cost lenders. It is that type of success that, after a long Co-operative party campaign under the last Government, saw Ministers, led by the right hon. Member for Broxtowe (Anna Soubry), agree to allow three credit unions to offer services to our soldiers, sailors and airmen and to their families—in short, to offer an armed forces credit union. Given the funding from the Department for Work and Pensions under the last Government to expand credit unions, it seems odd that Ministers should tonight want to continue to exclude credit unions from offering a product in a market in which they already have significant interest and penetration.

Concentrix

Yvonne Fovargue Excerpts

Wednesday 26th October 2016 Commons Chamber

[Rebecca Long Bailey]

I hope that the Minister will address the hon. Gentleman’s question in her speech because we all want to hear the answer.

Several provisions in the contract relate to payment by delivery. The head of the National Audit Office stated in June 2015:

“While its supporters argue that, by its nature, Payment by Results offers value for money, these contracts are hard to get right, which generates risk and cost for commissioners…the increased risk and cost may be justified, but this requires credible evidence. Without such evidence, commissioners may be using this mechanism in circumstances to which it is ill-suited, to the detriment of value for money.”

Under schedule A6.1 of the contract, HMRC required Concentrix to deliver, over the duration of the contract, some £1.03 billion in savings in annually managed expenditure. I appreciate that the contract used estimates to forecast potential savings, but given the model, how could anyone have been certain about the position without a crystal ball? In answer to parliamentary questions, it was revealed that total savings in annual managed expenditure were £2.3 million in 2014-15, £122.3 million in 2015-16, and £159.5 million in 2016-17, to mid-August 2016.

[Yvonne Fovargue (Makerfield) (Lab)]

Does my hon. Friend agree that these savings were made by my constituents facing a similar situation—100% of them have had their benefits paid back—going to food banks for the first time in their lives? The place-based team in Platt Bridge has seen a spike of some 50 families going to them because of problems with their tax credits.

[Rebecca Long Bailey]

My hon. Friend’s intervention highlights the human impact of these contractual failings. My constituents have asked me for the addresses of food banks and whether parcels could be delivered to them because they were too ashamed to be seen as struggling by their communities. To put people in such situations is an absolute disgrace.

Total savings of £284.1 million have been made since the commencement of the contract in November 2014. Anyone can see that the leap from £2.3 million in 2014 to £159.5 million by mid-August 2016 is excessive. Does the Minister therefore believe that there was simply a massive increase in fraud in the system, or does she agree that the contract was granted in the absence of a firm evidence base to justify the risks associated with an agreement based on payment by results?

As I said, there is a human impact and a human cost; it is not simply a case of slapping Concentrix on the back of the hand and saying, “Let’s all move on.” We are talking about the Government’s duty to preserve justice being abandoned as a result of the profit motive established by the contract. The risks were real human risks—families being forced into destitution, anguish and despair, with all the associated pressures on an individual’s mental health.

Earlier this year, the Social Security Advisory Committee noted that the payment model could create a conflict of interest. It recommended that the National Audit Office should examine the contract to ensure that it included appropriate safeguards to preserve justice for the claimant. At that stage, there was no investigation, but the Labour party has since written to the NAO and received the following response:

“My team has carried out some preliminary work to look into the issues. Their view is that the contract between HMRC and Concentrix merits further investigation.”

I am pleased that the NAO will investigate, but the Government must carry out a full and transparent inquiry of their own. Our motion calls on the Government to conduct a comprehensive investigation into the performance of Concentrix and HMRC’s contract with the company, in terms of both the adequacy of enforcing all the contractual terms, and the suitability of a payment-by-results model for delivering such a service. I would add that the NAO confirmed last year that the Government’s payment-by-results schemes accounted for at least £15 billion of public spending. It has stated that neither the Cabinet Office nor the Treasury monitors how payment by results operates across government.

The Economy and Work

Yvonne Fovargue Excerpts

Thursday 26th May 2016 Commons Chamber

[Yvonne Fovargue (Makerfield) (Lab)]

I would like to concentrate my remarks on the help to save scheme—or should I call it the reinvigorated savings gateway? It is welcome that the Government have recognised the importance of saving and particularly of matched saving—one of the best ways of encouraging people to save. Analysis by StepChange shows that 44% of people on low incomes have a lower chance of getting into debt if they have savings of about £1,000—that is half a million people who would be prevented from falling into debt.

However, I have a few issues with the design of the scheme. For example, two years is a very long time in which to have to save regularly. Some 14 million people experienced at least one income shock in the past 12 months —that might be because of a job loss, a cut in hours, illness or a new baby. If money is withdrawn, people will lose the bonus they feel they have already gained. People on low incomes know they are going to experience some income shocks, and that could discourage them from saving.

We all know that it is good to save and that it is very worthy, and we all start things with good intentions. For example, when we join a gym, we intend to go every week—of course would do—but imagine if we had a two-year contract saying we had to go every week. Crucially, therefore, there should be some measures in the Government’s proposals to allow for irregular savings, where people cannot afford to put money into the scheme one month—after all, we have all missed the odd week at the gym. Things do crop up, and we should allow a couple of withdrawals.

We also need to look at the behavioural economics of people in relation to the scheme. People may need some encouragement and some incentives to join—for example, prize draws. We all know that people spend the odd pound on a lottery ticket in the hope of winning something, and encouraging people to save by offering them the incentive of a prize would be important.

I would like to say a quick word about financial education, which is really important. I am pleased that academisation has been taken out of the Queen’s Speech. However, there is a lack of financial education in the curriculum, and it should start earlier. My experience is that primary education is really important. I had a great scheme with a great tutor, Vernon Fuller, who ran a wonderful course for primary students over 10 years ago. I would love to see how they are getting on now.

[Suella Fernandes (Fareham) (Con)]

Will the hon. Lady join me in congratulating the all-party parliamentary group on financial education for young people, which this week launched its report, of which I was the chair, calling for more Government support for financial education for primary school children, because children form their money habits at the age of seven?

[Yvonne Fovargue]

I will indeed. I read that report with interest, as financial education has always been an interest of mine, but I have to say that it is not a silver bullet.

All efforts need to be made to keep people out of the hands of the payday lenders and the rent-to-own sector. We need to make sure that support is given to alternative providers of finance such as Fair for You, and that they have a level playing field. For example, real-time data from everyone, including the banks, must be available to new market entrants so that they can make fair assessments of lending. We must also make sure that those data are accurate, as I have had reports of data from various companies being quite inaccurate.

Talking of fairness and level playing fields, I support the calls for transitional arrangements to help the women who have been adversely affected by the mishandled increasing of the state pension age. Perhaps I should declare an interest in this as a woman who was born in the 1950s. I urge the Under-Secretary of State for Work and Pensions, the hon. Member for North West Cambridgeshire (Mr Vara), to revisit this unfairness during the passage of the pensions Bill.

I welcome the savings scheme, but I would like it to be designed to reflect the real lives of people on a low income: the real life that has bumps in the road on quite a few occasions; the real life where sometimes buying a new pair of shoes or going out for the day with the family is more important than putting money away for a rainy day. I hope that the Government will recognise this in the design of the scheme.

Bank of England and Financial Services Bill [Lords]

Yvonne Fovargue Excerpts

3rd reading: House of Commons & Report stage: House of Commons
Tuesday 19th April 2016 Commons Chamber

[Mr Gary Streeter (South West Devon) (Con)]

I should like to take this opportunity to introduce my new clause 10, which is aimed at safeguarding the free debt management sector. Let me reassure the Minister that this is very much a probing amendment; I know she is looking forward to responding to it.

There has been a long debate over the “fee versus free” principle in the provision of debt management plans for indebted consumers. It is not my intention to re-open that debate now, although my concern is about free providers that are facing a looming capacity crisis.

Organisations such as PayPlan and Christians Against Poverty operate the “fair share” model of free debt management that sees creditors covering the cost of customer plans on a polluter-pays basis—in other words, through schemes that are free to the debtor. These organisations are facing increasing pressure as a consequence of fee-charging firms leaving the marketplace after failing Financial Conduct Authority authorisation. In one recent case, this left 16,000 debt management clients unsupported, and these customers are now being are being signposted to free providers. The last thing people want to happen when they are caught up in the desperation of heavy debts and are trying to slog their way out of it is, of course, that the person advising them suddenly disappears so that they have to start again with new people.

The debt management sector is nearing a desperate point, and the market is becoming increasingly inefficient, with consumers treated badly in many cases. The fair-share operators I mentioned have seen their revenue reduce as a consequence of consumers’ disposable income falling. As more and more fee chargers leave the market, we will soon face a situation in which fair-share operators are unable to provide economically viable plans. Plainly, we now face a situation in which consumers will be charged higher fees and their options for free debt management services will be severely limited—again, we are going in the wrong direction.

There were considerable and commendable efforts over the course of the last Parliament aimed at safeguarding free debt management provision, most notably on the creation of a voluntary protocol. Members of all parties have tried to make similar long-term changes, reflecting the cross-party nature of this issue. More recent efforts have come from the parliamentary debt management working group, of which I am a member. I see in her place our chairman, the hon. Member for Makerfield (Yvonne Fovargue), who is poised to speak in, I hope, support of my new clause.

Recent efforts have been aimed at establishing an industry-wide offering of free consumer debt management services. I accept that, while desirable, such an approach may not be feasible at this time. The new clause provides for a small tweak to the Financial Services and Markets Act 2000, mandating all creditors, via an FCA rule change, to fund free-to-consumer debt management plans under the “fair share” model. Many large creditors—banks and credit card companies—do accept a reduction in the amount due in exchange for the establishment of a coherent plan, but some still do not, and the new clause is intended to tackle that. While it falls short of outlawing the provision of fee-charging plans, it provides a strong safeguard for the “fair share” model, ensuring that customers can continue to access free debt management plans.

I am certain that this is a robust mechanism for desperately needed reform in the debt management sector, and I hope that, subject to Members’ approval, it can be implemented without delay. I thank the Economic Secretary for her interest in the matter, and for her helpful guidance behind the scenes.

Every age has its challenges, and it may well be that historians will look back at our era and marvel at the levels of unsustainable personal debt that were carried by so many people. Such debt may arise from grave misfortune, poor choices or the actions of others, but whatever the reason, it is vital that the right help is at hand to help people to step their way out of debt, and the FCA can assist that process by making the rule changes I have proposed. I thank the Economic Secretary again for her patience and kindness, and commend the new clause to her and to the House.

[Yvonne Fovargue (Makerfield) (Lab)]

I am afraid that I cannot support new clause 10. While I have great sympathy with the aim of the hon. Member for South West Devon (Mr Streeter) to keep the free-to-consumer plans going, I do not feel that his new clause will achieve that.

I am slightly unclear about the use of the term “fee”. As the hon. Gentleman said, this is currently a voluntary arrangement. I am a little concerned about what public benefit would result from his proposal. Would it merely ensure supplier revenues for certain service providers? If so, is that really a legislative issue? I have wider concerns. I feel that too few debt providers give advice on debt, but I also feel that the current landscape is fairly confusing. I do not think that introducing a statutory funding mechanism for one debt solution—a debt management plan—is the right way forward. Plenty of options are available to people in debt, including bankruptcy, debt relief orders, debt management plans, administration orders, debt consolidation, and individual voluntary arrangements.

Many of those plans are not funded sustainably. I think that one organisation that offers them is paid £35 for each order that it issues, and that is not a sustainable solution. I do not want providers to offer plans on the basis of how they are funded rather than on the basis of what is best for the individual, but I fear that the new clause could lead to their doing so. I am sure that many would not, but the new clause might lead to more providers’ choosing to offer the “fair share” solution because it is statutorily funded, whereas they make a loss on every debt relief order that they issue. That is not the best solution for the individual who is in debt.

I think that we need a proper review of the current debt solution landscape. I believe that it is too complex, and that it is not properly costed. I also believe that the providers have insufficient funding. As the hon. Gentleman said, there has been a problem with the debt management plans. In fact, a review of the fee-charging debt management companies found that 60% of their clients were put in a worse position. That cannot be allowed to continue, and I am pleased that the FCA is cleaning up the market. However, I worry about what will happen to people who come off debt management plans. They took a big step to deal with their debts—and facing up to the fact that you cannot pay your bills is a difficult decision to make—and went to a provider. Now they have been told, “Actually, your provider was not providing a good service. Go and find somebody else.” I worry that those people will not look around, and I hope that the Minister will look at ways of promoting opportunities for them to go to other providers.

Real-time Credit Scoring

Yvonne Fovargue Excerpts

Tuesday 2nd February 2016 Commons Chamber

[Chris Evans]

I will develop that argument further. The hon. Gentleman identifies the nub of the problem—the delay in credit scoring needs to be addressed. That is common sense and I hope the Government will grasp the nettle.

[Yvonne Fovargue (Makerfield) (Lab)]

I congratulate my hon. Friend on obtaining this debate. Does he agree that it is not just consumers who would benefit, but new entrants to the market who are lending for the medium term would be able to come in without having to buy two databases: the payday loan database, which operates in real time, and the other database that operates for banks and other financial institutions, which is at least a month behind?

[Chris Evans]

My hon. Friend speaks with some expertise. I pay tribute to the amount of work she has done on payday lending and raising the issues associated with it. She is right. The real problem is that the banks have a stranglehold on lending. They jealously guard their data and they are suspicious of the Data Protection Act. They therefore keep out of the market major competitors who could bring down interest rates, which is what we all want to see.

Post Office Closures

Yvonne Fovargue Excerpts

Tuesday 1st December 2015 Westminster Hall

[Yvonne Fovargue (Makerfield) (Lab)]

It is a pleasure to serve under your chairmanship, Mrs Gillan. I congratulate the hon. Member for Bexhill and Battle (Huw Merriman) on securing this important debate. He is keen to ascertain what the Government will do to ensure that the Post Office has proper plans in place for provision and that, where there are problems, it acts quickly to ensure an available replacement, whether on a temporary or permanent basis.

The hon. Member for Strangford (Jim Shannon) hit the nail on the head and spoke for everyone when he said that the post office is the heart of the community. Post offices are indeed an essential part of British life, providing somewhere for people not only to buy their stamps and post letters and parcels but, as the hon. Member for Caithness, Sutherland and Easter Ross (Dr Monaghan) said, to access many other vital services. As my hon. Friend the Member for Wansbeck (Ian Lavery) said, sometimes they are the only places where people can access such services—it might not be possible to go anywhere else.

Of course, things do change. Quite often that is as a result of technological change. The hon. Member for Central Suffolk and North Ipswich (Dr Poulter) summed that up by saying that we are in a digital age and, as a result, the number of post offices has fallen in recent years. Most post office branches are operated by franchise partners or sub-postmasters who are independent business people, so, in order for their post offices to remain open, they often rely on Government subsidy. Despite some reassurance, clearly there are still real pressures, which have not been helped by the controversy surrounding the Post Office’s Horizon accounting system.

Many hon. Members have raised cases in the House in which it appears that honest and hard-working sub-postmasters and sub-postmistresses have had their reputation tarnished and livelihood threatened—in some cases they have lost their liberty—having been accused of improper accounting. Whatever the truth, in those cases computer software was responsible for the loss of large sums of money. Unquestionably, that may have acted as an off-putting factor for those who might have considered running a post office as part of their business.

In addition, as has been pointed out, some post office proprietors have been resigning from the business because they are concerned that their post offices are not financially viable. Local papers throughout the country are full of stories—I see them in my constituency—of postmasters and postmistresses struggling to stay in business. Often, that occurs where Post Office Ltd has changed the status of a local post office as part of national changes to the service, which leaves them having to rely on commission to offer what services they can.

When that happens, the survival of the post office is dependent on the viability of the shop in which it is contained and some complain that they cannot afford to run the post office, in particular owing to the extended opening hours demanded by Post Office Ltd. Will the Minister tell us how many sub-postmasters have resigned in the past year as a result of being unable to run their business profitably with a post office in their premises? What procedures do the Government expect them to follow when it becomes clear that a post office is in danger of closing?

Without proactive policies, thousands of constituents can be left without a local post office because Post Office Ltd is unable to rely on the good will of an individual operator. Does the Minister believe that Post Office Ltd is taking adequate steps to be proactive in preventing closure and acting swiftly enough to ensure that a replacement is available locally when a post office has to close? Indeed, does he believe that conditions put on replacements, such as very long opening hours, are unreasonable?

[Jim Shannon]

One thing that has not been mentioned but the Minister could take on board for his response is the possibility of incentivising financially those who want to take over a post office. Perhaps the Government need to offer a small financial bonus or incentive to enable people at least to consider that, based on a contract and proper conditions. That has happened in Northern Ireland and perhaps it should happen here as well.

[Yvonne Fovargue]

That is certainly something to put to the Minister. The Government have committed £640 million from 2015 to 2018 to fund the network transformation programme and to protect branches where vital services are provided to communities but the post office is not commercially viable. Is the Minister content that sufficient funding is being provided to fulfil that task? What will happen when the subsidy runs out in 2018? Can he guarantee that after that point the transformation programme will have ensured that remaining post offices are commercially viable? I look forward to his response.

--- Later in debate ---

[Stephen Barclay]

My hon. Friend raises a valid point. These things are looked at on a case-by-case basis, and each case tends to be different. That is highlighted in the case of the post office in the constituency of my hon. Friend the Member for Bexhill and Battle, where a number of interim measures were tried. He alluded to a portakabin being used and the attempt made to look at whether that could be located close to the store or needed to be further away. The issue of temporary staff was considered. A mobile van was also considered, which is sometimes suitable, but the volume of customers at the Heathfield store was too high. There were specific issues with the portakabin, but that solution was tried.

Attempts are made to mitigate the time taken, but sometimes local factors work against that. Unfortunately, in my hon. Friend’s case, a chain of events has made it more difficult to put the interim solution in place. I hope that better news is imminent. I know he supports the proposal for a new permanent host for the post office in Heathfield: Unique Wine Ltd, which is on the high street. The consultation is ongoing, so I hope there is light at the end of the tunnel for him.

In terms of locating a post office in an existing business—in that case, an off-licence—there are plenty of examples around the country of such collocation working well, not least due to the longer hours in which it enables the public to access the post office. I take slight issue with the suggestion from the hon. Member for Makerfield (Yvonne Fovargue) that the Post Office is imposing unfair terms by asking for longer hours. She also suggested that the public are not getting access to post offices. I think most customers will welcome the fact that a post office, through collocation, is open for longer hours. That is part of the public benefit.

[Yvonne Fovargue]

I will simply give the Minister an example from my constituency, where a local shop has a post office in it but is finding it difficult to maintain a profit with that post office because of the hours for which it has to maintain that particular counter. It is thinking of closing the service, rather than keeping it open for shorter hours.

[Stephen Barclay]

Indeed, but the proposed new branch in the constituency of my hon. Friend the Member for Bexhill and Battle would be open for 21 hours longer a week than the previous store. Notwithstanding the time taken to put the new branch in place, once it is in place, subject to the consultation, the collocation means that the post office will be open for an additional 21 hours, which I think will be particularly welcome to his constituents.

The Post Office is tasked by Government to maintain a network of 11,500 branches and to meet specific access criteria—for example, that 90% of the UK population live within 1 mile of a post office. The Post Office is meeting those criteria, as set out in the annual report it publishes. That agreement does not specify that every community must have or retain a post office. That is because the business needs the flexibility to respond to local circumstances in each case. Were we to require the Post Office to maintain individual branches or reopen them within a set period—an issue that my hon. Friend the Member for Bexhill and Battle raised—it could lead, in extremis, to a new post office having to be built if a lease could not be secured on an old site. Such a restriction would be counterproductive to protecting the commercial viability of the network.

The economics of the Post Office is such that with the changes brought about by the internet and the digital world, small stand-alone post offices sometimes do not generate enough business to be sustainable on their own. The modernisation programme that the business has been following for the past few years has been about moving local post offices into a vibrant shop where the overheads of a business, such as property and staff costs, are shared with the host business, which is what we are seeing in my hon. Friend’s constituency.

The experience of the Post Office’s directly operated branches—the Crown branches—is illustrative. Collectively, those businesses have moved from making an annual £50 million loss to breaking even. That underlines the Government’s commitment to the Post Office network and a mix of modernisation, automation, labour reform and, in no small part, the franchising of weaker branches that are not delivering that performance. Were the Post Office to be forced to run more directly operated businesses with weaker turnover than in busy town centres, those branches would not be sustainable without greater public subsidy. Rather than force that on the business, we are allowing the estate to manage itself in a more value-for-money way, while protecting the 3,000 rural branches and the wider network.

It is regrettable that the Post Office has been unable to maintain service provision at Heathfield since April. However, that is not due to a lack of effort or expense by the Post Office. Unfortunately, local circumstances sometimes prevent the ideal outcome, as we saw with the portakabin example. In most cases, the business is able to find a way to maintain provision successfully. I am glad that a potential branch has now been found in my hon. Friend’s constituency, which I know he supports.

In seeking a solution at Heathfield, we should not lose sight of the fact that the Post Office is delivering a service that is open for more hours, with less public subsidy, and therefore offers a better, value-for-money service for the taxpayer. That reflects the Government’s commitment to maintaining the branch network and recognising the social hub that the hon. Member for Strangford described so well.

Question put and agreed to.

Resolved,

That this House has considered service provision in the event of post office closures.

Tax Credits

Yvonne Fovargue Excerpts

Thursday 29th October 2015 Commons Chamber

[Jenny Chapman (Darlington) (Lab)]

It is a privilege to follow the hon. Member for Stevenage (Stephen McPartland). Other than the last sentence or two, it was a tremendous speech. I hope that those on the Treasury Bench listened to the words he uttered, because there is widespread agreement in this Chamber and out in the country with the points that he made. He made a detailed analysis of the situation and gave some sensible suggestions that we can all support.

I hope that the hon. Gentleman is able to return to the fold, because we would like the Chancellor to dig himself out of the hole that he has created for himself. He has certainly got himself in quite a situation. We are all fascinated to watch how he gets himself out of it. I think that the Lords did him a favour because had all these changes been passed, the anger in the nation would have been something that we have not seen in my adult life. The Government are being let off the hook in a sense, because they have an opportunity to dream up some mitigation and put this awful mess right.

However, the Government need to hurry up because the fear and uncertainty over what is going to happen are already out there. I spent Saturday morning on High Row in Darlington talking to residents about the changes to tax credits. They already know what is happening. They are already worried. They are already looking at their incomes. They are already changing their decisions, plans and financial commitments and making decisions on employment. The Government need to get on with coming up with decent ideas that will mitigate the damage that is being done, which was outlined so cleverly and succinctly by my right hon. Friend the Member for Birkenhead (Frank Field) in opening this debate.

[Yvonne Fovargue (Makerfield) (Lab)]

Is not one of the major problems the speed with which the tax credit cut is coming in, when balanced against the speed at which the national minimum wage will rise? It has been said to me that it feels like the Government are removing the lifebelt before the life boat has arrived.

[Jenny Chapman]

That will probably end up being one of the quotes of the day. That is a good way of putting it.

I am speaking on behalf of the 7,200 families in my constituency who care for the 3,900 children who will lose out as a result of these changes. When the Government bring forward whatever ideas they come up with to mitigate the impact, we must have the information that we need to assess whether they will be effective.

My right hon. Friend the Member for Birkenhead outlined what data he would like to see. I would like to see a regional distribution, because I suspect that communities such as the one I represent, where wages are low, will be impacted more heavily than other parts of the country. I am also interested in the gender impact of the changes. I would like to see how much debt the Government believe is being serviced by incomes that are in part made up of tax credits. I suspect that mortgages, car loans, credit cards and other personal debts are being repaid on the back of tax credits.

Rent-to-own Sector

Yvonne Fovargue Excerpts

Tuesday 14th July 2015 Westminster Hall

[Paul Maynard (Blackpool North and Cleveleys) (Con)]

I beg to move,

That this House has considered the rent-to-own sector.

It is a pleasure to serve under your chairmanship for the first time in this Parliament, Mr Hollobone, and to see the Minister in his place.

As is not traditional, I shall start with a string of apologies, particularly to the UK public affairs sector: it has experienced great confusion over the past week, having seen the title of the debate and been desperate to tell me all about rent-to-own home ownership. It will be fascinating to see whether the Opposition speakers have been similarly wrong-footed and have furiously to rewrite their contributions.

My second apology is to the hon. Member for Makerfield (Yvonne Fovargue), because I unwittingly gazumped the topic of the report published just before the election by the all-party parliamentary group on debt and personal finance, which she chairs. I discovered that only after I requested this debate a few weeks ago. I know that she will have plenty to say—indeed, earlier we discussed the fact that the two of us could debate this issue for an entire day. The Minister will be relieved that we have only 90 minutes, but I am sure that we can fill them. The hon. Lady will have to forgive me if I occasionally borrow from the APPG’s quality report.

The real inspiration behind this debate is not the public affairs sector—thank goodness—or even the APPG: it is what I see in my constituency on a day-to-day basis. I see families having to cope with the unexpected financial shocks that occur in day-to-day life. We often see the rent-to-own sector as a key component of that unexpected shock—when these things happen, the RTO sector becomes part of an almost transformative experience in how people deal with personal debt. I have spoken to my local food bank, citizens advice bureau and credit union, and they all tell me the same things.

I get frustrated when Members simply read out a list of case studies—I could easily do that for 20 minutes; I want to read out one that encapsulates the problem. The person in question has mental health problems and physical disabilities, and he is highly vulnerable. He does not understand contracts and finds it very difficult to assert himself and say no. He made a purchase from BrightHouse, and when he goes in each week to pay off his debt he comes under pressure from the sales team to buy something else. He finds it very difficult to cope. He has bought a laptop, a TV, a DVD player and a tablet, even though he cannot do emails on a computer and just uses Google.

As soon as he paid off the laptop, he came under immediate pressure to buy something else. The sales team know that he gets mobility allowance, and seem to think that it represents acceptable funds. He struggles to pay the rent and top up the electric meter. He defaulted on the payments for his mobile, which was repossessed. He was pressured into joining Utility Warehouse, so cancelled with BT, but because he cannot understand contracts, he did not realise that that would involve an £800 financial penalty for leaving his contract early. He is now having to pay off that as well. He still goes into BrightHouse every week to pay off his items, and finds it a stressful and fearful experience.

I could fill the rest of the 90 minutes with similar case studies. I am particularly troubled by the suggestion that those who are most vulnerable, who have the mobility allowance, are somehow fairer game than any other set of customers when it comes to extracting the extra few pounds a week that they rely on. Nevertheless, I should make it clear that I am not here just to bash BrightHouse or the wider RTO sector. Theirs is a legitimate business; there is a case for providing short to medium-term credit to people who need it. I recognise that, with a 70% market share, BrightHouse will get more than its fair share of horror stories, but the sector employs many people across the country, fulfils a consumer need and occupies space on the high street that might otherwise go vacant. I recognise all that, but it does not change the fact that vulnerable people are being exploited in troubling ways.

The challenge for the sector is how it can adapt what it does in order to continue to perform its role without taking advantage of people. I want to consider the extent to which the private sector models are truly broken, if they are; whether they are appropriately regulated, and how that regulation can be improved; and whether alternative, socially-funded models are viable, adequate and the right way forward. It is worth pointing out that not all private providers are the same. A firm called Buy As You View already adheres to much of the findings in the APPG’s report. It actually argues for better regulation, but regulation that is also proportionate and fair.

There needs to be some consistency with the principle that credit has a role to play if the object for which someone seeks credit will retain value after the credit has been paid off. In other words, credit is probably not appropriate for things such as food or electricity bills, but it may be for a consumer good. There is also a wider issue about how we ensure that markets function in the best interests of the consumer. That is a key Conservative principle, but I do not want a partisan debate because this is a cross-party issue. We all have vulnerable constituents who are at risk of being sucked into a situation that they cannot get themselves out of. I cannot possibly hope to encompass the entire debate in my short contribution, but I do want to set out a handful of areas that the Government should pay particular attention to and to encourage the Financial Conduct Authority to focus on them as well.

In the centre of Blackpool are the bus stops where people get on the buses. It is a complicated one-way system: people get on at one place but the place to get off is half a mile around the corner. Where people wait to get on the buses is a branch of BrightHouse. There will be dozens of people standing at the bus stops and admiring the scene inside BrightHouse, which has lots of cheerful, bright consumer goods. There are bright-coloured sofas, settees and beds, and enticing goods such as TVs and iPads.

I am sure we can all imagine the range; it is very attractive and fetching. It is bright and modern, and it entices people with what they want in their lives. We live in a world where we are almost defined by what we own. I am tempted to stray off into a spiritual discursion about whether we are measured by what we own and whether that is good for us spiritually, but that is way beyond the Minister’s remit, and even that of the House. We will leave that to God himself.

People aspire to own, not to rent. I am concerned that the idea that the answer is to abolish the sector entirely, with people just renting, misunderstands people’s aspirations to own consumer goods. We should not place an artificial cap on what people want to own in life. Doing so would be a “nanny knows best” approach that fails to respect individual dignity. People on low incomes deserve the opportunity of ownership, but not in an exploitative market. When I think of my constituents and look at the typical customers in the RTO sector, there are broad similarities: 78% are female, 60% have children and 94% are in rented accommodation. Only 1% have hitherto used a payday lender. It is worth reflecting on that a little: although only 1% have used a payday lender before they go to an RTO provider, how many are using a payday lender by the end of their RTO experience?

The bulk of customers have an average of only £19 a week of disposable income to pay for these purchases. That does not represent a great degree of financial resilience. The rent-to-own model is about buying more and more goods over time, and they can quickly mount up. Of course, it is an appealing way to access credit. That misleading low weekly payment does not reflect either the entire cost after three years or what will happen as new items are taken on. I retain a degree of concern about how staff in these stores are being incentivised to sell more and more to each individual. Such incentives lead to perverse outcomes for the individuals concerned—they are not necessarily a good thing.

I will probably keep saying this for the next five years, but I represent the second most deprived Conservative constituency, which contains the fourth most deprived ward in the country. Right behind the Imperial Hotel—many will have been there over their time in the House—is Imperial Street, on which is a mother and baby sheltered housing unit. I have no doubt that some in that sort of sheltered housing may be transient and have experienced family breakdown, or worse, and will often need to furnish their houses rapidly and fully. They will need the full complement of consumer household goods. They cannot just buy one thing and then wait a few months, so they are often driven towards the rent-to-own sector, which is not always the right thing for them. It is a captive market: providers have no incentive to lower prices. Competition is neither transparent nor evident to such individuals, who may not have the necessary financial literacy to understand how to navigate their way through the market. The Blackpool, Fylde & Wyre Credit Union wrote to me and said:

“Some people do not understand the full cost, others do not believe they have a choice because they are frozen out from mainstream credit and have a lack of knowledge of alternatives such as Credit Unions.”

Some in the RTO sector take advantage of the lack of legal understanding of how the system works to encourage payments.

The pricing is unclear. I sent Zach from my Blackpool office on an undercover mission—it was actually rather transparent—to the BrightHouse around the corner to find out what was going on and to look at some of the prices. Zach spotted a Samsung TV on display with a product price of £1,053.13, but the total payable after three years of weekly payments of £18 was £2,808, including what they call “Five Star Service”, which is neither optional nor separately priced and appears to add some £400 to the product price. Just down the road in Tesco, however, the same product was available off the shelf for £1,049 with optional insurance extras. It is worth noting that insurance in the RTO sector also seems to attract interest payments.

The different elements, such as the goods themselves, the warranty cover and the insurance, are all lumped into one tempting weekly payment. After years of pressure, it remains hard to compare properly the products available in the RTO sector with what can be obtained by other means. The product codes remain different due to slight tweaking of the products, such as a different-coloured fascia which might add something to the end of the code meaning that it cannot be directly compared with what one might get in Tesco.

Second-hand or repossessed goods are sold as “pre-loved”, often costing more than a brand new item would somewhere else. The APPG found that about one third of products on sale in the RTO sector were pre-loved. That is not necessarily a bad thing if the credit is made more affordable as a consequence or if it meets the consumer’s need better and more cheaply than a hi-spec alternative, but that depends on the ethics, systems and processes in place in each individual RTO provider.

[Yvonne Fovargue (Makerfield) (Lab)]

Will the hon. Gentleman give way?

[Paul Maynard]

I will indeed: the hon. Lady will give me a chance to catch my breath.

[Yvonne Fovargue]

Getting someone to pay for goods and then repossessing them and selling them to somebody else for twice the price is a wonderful business model. Offence was taken when I mentioned that during the inquiry, but we have not yet been able to find out the providers’ break-even point, which is obviously commercially sensitive. There will be a break-even point, but providers can sell goods to someone else once they have been handed back voluntarily after, say, a year.

[Paul Maynard]

I thank the hon. Lady for that contribution, with which I have a degree of sympathy. Equally, an ethical provider bartering a customer down, because the pre-loved item is a better deal for that individual, can have a role to play. The hon. Lady is quite right, however, about the lack of transparency in the sector and the difficulty of assessing what different providers are actually doing. One cannot regulate in a non-transparent market, which may go to the heart of the matter.

The hon. Lady will perhaps make this point herself, but ownership requires one to make all the payments. One cannot own two thirds of a television. Some providers may seek to make exceptions when almost all payments have been made, but someone could make half the payments and still find themselves losing the product. I am unsure whether the regulations are clear or being applied consistently across the market. There is no mandatory health warning, as I believe payday loans now have—the hon. Member for Walthamstow (Stella Creasy) will tell me if I am wrong—saying that goods are at risk if payments are not made.

Shorter loan periods are certainly not advertised, and three years is the default option. I understand that shorter periods increase the weekly payments and make the deals less attractive to consumers, but why not sell products with more modest specifications or de-bundle the warranties or insurance, as companies such as Buy As You View already do? The three-year contracts matter dreadfully because of the nature of poverty. Child poverty has been discussed a lot recently due to the Government’s changes to the measurement—for the better—but behind that decision was some excellent investigative work about the ingrained nature of poverty and the churn rate. Around half of those in poverty in one year are not in poverty the following year. Around 10% are in persistent poverty, meaning three years out of four. If someone submits to a three-year contract, the probability that disaster could strike in one of those three years vastly increases. If more people could access one-year or two-year deals, the likelihood of having a problematic year might be reduced.

My local credit union said to me:

“The bigger issue we have seen is that people are not just sold one item. We have seen people with multiple debts to a weekly pay store. One customer on benefit income was paying for 8 different items at a total £120 per week (£520 per month) which would stretch the budget of the average full-time working person to breaking point, let alone the low-income people who tend to be the users of these stores. The fact that the goods may then be repossessed for non-payment introduces an element of fear that prioritises these payments in the customer’s mind causing them to pay the weekly pay store and falling into arrears with other essential bills.”

That might particularly be the case when customers have multiple disadvantages, such as mental health problems or a learning disability. It is simply unclear how such companies are protecting the vulnerable people who come through their door seeking to own a consumer good. No obvious assessment of affordability is built in to the selling process in some firms. I recognise that Buy As You View does assess affordability and rejects some 70% of applications, but it is almost unique in the sector in applying that degree of toughness. Such financial vulnerability goes beyond merely an inability to understand the annual percentage rate, and the cost to the taxpayer when vulnerable individuals reach crisis point has not been assessed. How vulnerable customers best access credit for goods is perhaps a separate issue, requiring particular attention, from the wider market of roughly 13 million low-income individuals who need to access low-cost credit for consumer goods.

I welcome the fact that the Government have extended local social welfare funds. It was a matter of controversy in the previous Parliament, but I am glad that they have taken that decision. Such funds are well used and well spent in Blackpool. Many councils may not be doing such a good job, but such funds should be maintained where they are well spent. We must consider the alternatives, however. The Minister is something of an expert on credit unions, some of which have tried to set up RTO providers. The APPG mentioned Smarterbuys in County Durham, which was set up by the Prince Bishops Community Bank.

Those are interesting models, which have something to offer, but I have concerns about their scalability and about the creation of a national network of different providers, all with slightly differing rules and regulations. The scalability is problematic, but I recognise that credit unions have an important role to play, in part because they often have to sweep up the consequences of an engagement with the rent-to-own sector that has not gone well.

What role might Big Society Capital play in inspiring innovation in the sector? Buy As You View is keen on a comparison website and, in the short-term credit market, the Competition Commission encouraged lenderscompared.org.uk, which is a properly regulated, independent price-comparison website in that sector. I can see no reason why we cannot have a similar website mandated by the Financial Conduct Authority or another body in the rent-to-own sector. It would be a great deal of help—in particular because many people use their mobile phones to shop—so that people can make the comparison at the same time and understand the best option.

I hope that the Minister accepts that there must be a fair regulatory playing field for the not-for-profit sector and the for-profit sector. We are not talking about bashing for-profit providers, simply because they happen to be for-profit providers—that would be a dangerous path to go down. There is already broad variety in the sector. We need well understood regulation that puts consumer needs first. I hope that the Minister, or the appropriate Treasury Minister, will meet me, perhaps the APPG members, the charities involved such as StepChange, the companies involved, and the regulator to look at how conduct can be improved across the board.

Will the Minister put on record his view that the FCA needs to focus on fair outcomes for the consumers, rather than only on inputs and what occurs before the individuals take their product away with them? We need to ensure that proper competition and choice for the consumer are the key indicators of effective regulation.

I would be grateful for some thought on how the sector can improve data sharing, not only to identify poor risk and prevent people from getting into problems, but to help the financially vulnerable, so that they can be identified and offered alternative means to access the goods that they need. I hope that the Minister agrees with me that bundling expensive warranties as a condition of the loan seems to contravene the principle that lenders ought to treat consumers fairly, which has to be at the heart of all regulation. Things should be transparent and clear for day-to-day consumer engagement in the shops, but in my view that is not occurring.

I want the Government to press the FCA to work more closely with the industry, to accelerate what it is doing and to ensure that we are as diligent on RTO as we were in the previous Parliament on issues such as payday lending. They are all part of the same financial resilience package.

Will the Minister also outline what steps the Government might take to improve people’s ability to manage their debts? Does he share my concerns about the examples that we have heard today of vulnerable people facing life-changing amounts of debt because of what is to all intents and purposes the mis-selling of consumer goods, credit and insurance?

[Yvonne Fovargue]

Will the Minister also review the advice available to people in debt? Managing one’s own money involves getting out of debt in the first place, then being able to manage the money. That is really important. A recent report on fee-charging debt management showed that 60% of the fees put people in a worse position, so we need to look at the availability of the free advice sector.

[Paul Maynard]

I am sure that the Minister heard that question. I am now trying to reach my conclusion rapidly, because I have been going on far too long.

Lord Freud has met with the debt-management charity, StepChange, but will the Minister agree to convene a cross-departmental working group consisting of the Departments for Business, Innovation and Skills, for Work and Pensions and for Education, and sector representatives? The issues stretch across Government and are not confined to the Treasury alone.

To finish, I want to make a point of principle with which I hope the Minister will agree. About four or five months ago I remortgaged my property, but it has never taken me so long to do so. I was locked in my bank for about six hours, or that is what it felt like, going through every last iteration. I understand why that is: we have to improve safeguards for borrowing, we have to reduce risky borrowing and we have to ensure that the banks are sustainable. Yes, my mortgage payments are a substantial element of my outgoings and part of my financial arrangements, but why are we not as careful about RTO-types of credit as we are about mortgages? If someone’s available disposable income is only £19 a week, even £12 a month is a sizeable payment. There ought to be a point of principle: it matters as much to those people how their consumer credit is regulated as it does to me how my mortgage is regulated.

We as a Government need to look much more closely at how we encourage financial resilience. We need multiple bulwarks for families against the unexpected—too often the unexpected leads us down a path to perdition financially. Proper and proportionate regulation, which does not seek to condemn the private sector simply for being the private sector, is the best way to allow people to fulfil their legitimate aspirations to own consumer goods.

I have asked a lot of questions and I have talked a lot today—I apologise to those present. I look forward to the Minister’s reply.

--- Later in debate ---

[Yvonne Fovargue (Makerfield) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Hollobone. I welcome the Minister to his place—it is all the better that he was a member of the all-party group on debt and personal finance in the previous Parliament. I also congratulate the hon. Member for Blackpool North and Cleveleys (Paul Maynard) on obtaining this important debate.

The rent-to-own sector is not well understood. People think it is relatively new on the high street, but when I was a citizens advice bureau manager I had run-ins with Crazy Georges, the precursor to BrightHouse. In many ways the sector operates under the radar and I hope that the debate will raise the profile of the issue.

As the hon. Gentleman said, the all-party group undertook an inquiry into the sector towards the end of the last Parliament, producing a report in February. We did so because we were concerned about a number of the issues, not least the fact that rent-to-own customers seemed to be paying about three times more for their televisions, fridges and sofas than they cost on the high street or elsewhere.

I hesitate to say this, but the pricing structure is complex and possibly deliberately so: not only is the base price of the goods high, but customers pay a hefty interest rate on the loan taken out. BrightHouse, Buy As You View and PerfectHome charge annual interest rates ranging from about 50% from Buy As You View to a 94.7% annual percentage rate, or APR, from BrightHouse. As the hon. Gentleman said, the interest is usually charged over a period of three years—not only on the price of the item, however, but on the expensive warranty-style service agreements, insurance and the delivery charge. Everything is bundled together.

The latter items are the most troubling of the whole package, because deals are almost impossible to obtain from the leading firms without those expensive extras. The firms vary on whether such additions are compulsory or optional—in fact, BrightHouse has agreed to make them optional—but in all cases linked insurance and service cover are being sold at the point of sale: it does not matter that the customer is already covered by a statutory guarantee or might have home contents insurance. Moreover, there is little chance of a new TV or washing machine breaking down these days, but the selling is such that the emphasis is on people wanting peace of mind—“Complete peace of mind for you.” Everything is bundled together.

Furthermore, the insurance policies only cover a single item against fire, theft and damage—nothing else. By contrast, a single home insurance policy might cover any number of items up to a value of £50,000. For example, in BrightHouse a £490 double bed costs £55 a year to insure against fire, theft and damage; I have not actually set fire to my bed recently, and it has not been stolen, either, but there we go. Cover for a £725 fridge-freezer would cost £80. By comparison, both those items, up to a total of £50,000, could be insured by Direct Line with a similar level of cover for £118 a year. The more items there are, the more problems there are. There are very few circumstances in which customers get better value for money from insurance than through a single home contents insurance policy. When multiple items are purchased, the value for money will obviously get worse.

As I said, the total cost is higher. In September 2014 a Samsung freezer with a five-year service plan was £644 at John Lewis—Which? found that when it shopped around—whereas at BrightHouse the total repayable over three years was £1,716, three times the price. I accept that people cannot always afford to pay up front, but we need to look at making something available that allows those customers to shop around for goods.

As the hon. Member for Blackpool North and Cleveleys said, weekly instalments are appealing because they give customers the ability to spread cost. The stress put on weekly payments is what is most attractive to customers, which is probably why BrightHouse still advertises itself on its website as “Your Weekly Payment Store”—it does not advertise its prices but the ability to pay weekly. The payments seem affordable—£5 or £10—but amount to a sizeable expense over a few years, as the hon. Gentleman said. For people on low incomes, that will often mean going without elsewhere. It also means that many rent-to-own contracts are left unfulfilled, as customers do not make their payments and goods are returned. As the hon. Gentleman said, two thirds of a TV is no TV at all. The payments are lost, and there is nothing to show for them except, perhaps, a shadow on the wall.

The irony is that the people who can least afford it end up paying the most. That is probably not surprising, as they have little choice but to go somewhere such as BrightHouse and pay those prices. The rent-to-own firms have them over a barrel. That lack of choice for consumers is why I believe that this market in particular needs to be regulated. They are often from low-income households, and many are significantly reliant on benefit income. The typical customer is young, female and has children, and almost all live in rented accommodation. When I spoke to the chief executive of BrightHouse, he said that the firm bundles everything together because it knows its customers are female, and “females like things simple.” Simple, but a little expensive, I would say.

Failure to pay rent-to-own debt means that customers face losing goods. That puts pressure on money available for food and household bills. The average rent-to-own customer is substantially worse off than the average payday loan customer, yet they probably feel they have made a better choice, because of the publicity surrounding payday loans—rent-to-own, as I said, has operated under the wire.

The all-party group was concerned that the financial promotions downplay or ignore relevant costs and risks. Full ownership has to be the target with rent-to-own, surely—owning is in the name—yet the advertising focuses on the weekly payments and does not draw attention to the risks, namely the total cost of the credit and the fact that the goods can be taken back.

At the APPG inquiry, the Financial Conduct Authority said that it shared concerns about how firms advertise the deals and the prominence of the weekly repayment. The emphasis on the low weekly cost could be why so many customers get into debt: according to the FCA, 50% of customers get into difficulty with their rent-to-own commitments. That is a really high proportion of people who cannot afford to pay. I agree with the hon. Member for Blackpool North and Cleveleys that it raises the question of what affordability checks are being done.

The all-party group owes a debt of gratitude to Damon Gibbons of the Centre for Responsible Credit, and the Stockton-based community group Thrive. Their efforts led to the three large firms promising to improve their operations and an agreement was reached for a customer charter, although that was then reneged on—another reason why the APPG undertook our inquiry. That proves that perhaps voluntary agreements do not always work in this sector. The Centre for Responsible Credit and Thrive also gave evidence to our inquiry. Unfortunately, they said that little had changed.

We also took evidence from the three big firms in the sector: BrightHouse, PerfectHome and Buy As You View. They defended their business model on the basis that their customers had peace of mind because of the extensive service contracts. That may give some peace of mind, but what peace of mind can there really be when people cannot afford the goods, as the deals are so expensive, or when, as we heard from Thrive, two big lads turn up late at night to take away the fridge-freezer—“voluntarily”?

We also took evidence from Linda Woodall of the FCA, who said that the practices were ringing “alarm bells”—that was her actual phrase—at the regulator, which is concerned about the high level of repossessions and incomplete transactions as well as the warranties and insurance. The FCA has engaged with the issue: since the publication of the report I have had a meeting with Linda and can see that the FCA is taking the issue seriously. I thank it for that.

The FCA’s intervention has helped to elicit changes in the market, not least on price transparency. Firms are now breaking down the prices they charge for the goods, the loan and the warranty, and we welcome that. BrightHouse has also stopped requiring customers to take out its insurance product compulsorily, if they can prove they have their own household insurance. However, the extended warranty remains compulsory with both BrightHouse and PerfectHome.

[Paul Maynard]

Does the hon. Lady agree that that requires staff in BrightHouse to be aware of and apply the rules, and that, no matter what the centre of the firm might think, that does not necessarily always happen?

[Yvonne Fovargue]

I agree absolutely with the hon. Gentleman; we have seen rogue managers. For example, a manager at PerfectHome actually took a customer’s house keys before handing over the goods, so that they could go into the house. PerfectHome said that was a rogue manager, but it shows that the stores are perhaps not being operated as they should be.

The FCA should go further. I would like to see it ban expensive warranties and insurance as compulsory parts of a rent-to-own agreement. I would love to see some mystery shopping, as well, to look at the staff and staff incentives. The FCA may need to be given a wider statutory remit to do that, so perhaps giving it that remit would be a way forward. However, even within the current FCA rules, surely the current bundling offends against the idea of a credit agreement’s fairness? The FCA took action against compulsory single payment protection insurance premiums, so why does it not have the powers to prohibit credit agreements sold with compulsory service charges? I would like to see those people who were sold such products after April but who already had home insurance come forward, as I think they could reclaim.

The FCA has also said it is concerned about the high level of goods repossessed or surrendered before the agreement is completed. Twenty-two per cent. of customers have their goods repossessed or surrender them—more than one in 10 of all agreements. BrightHouse said that it never repossessed goods, but having looked at its practices and received some information, I have found that it has its own companies that collect debts, Caversham Finance and Sigma. One term in the contract with those firms is for repossessing goods. Caversham is a branch of BrightHouse, and Caversham Insurance is registered in Malta.

I wonder about the idea that customers would give up their goods voluntarily. That beggars belief. Let us say that someone with three children, who will need a washing machine daily, pays hundreds of pounds for one—the idea that they would then happily give it back, leaving themselves without after paying for it for two years, stretches credibility. The firms defend the high levels of surrenders by saying that customers often think of themselves as renting the goods, and happily give them up to move on to something else. Well, possibly, if it is something like an iPad, but not if it is a washing machine, a bed or the sofa. The customer expects to see something at the end. The whole point, as the hon. Member for Blackpool North and Cleveleys said, is that it is “rent to own”—they expect to own the goods at the end.

Thrive gave evidence of people who were extremely distressed when their goods were taken back—or “voluntarily” surrendered; their arms were twisted somewhat. Surely if people wanted to rent, they would go to a specialist rental outlet and pay the lower charge. I have done some comparisons with that sector. The high level of repossession shows a failure of the initial affordability checking, the forbearance procedures or both.

We should also look at whether the companies give people who get into difficulties breathing space. As has been said, over three years people at that income level are likely to get into difficulties. That is not acceptable; the FCA should look at producing sector-specific safeguards to protect people in financial difficulties against the loss of essential items. There are rules that set out that some bailiffs cannot repossess essential items, such as children’s beds, so surely there should be rules for this sector as well. We also think there should be health warnings on rent-to-own stores and websites to ensure that customers are aware of the cost of the agreement and the risks of repossession.

The FCA prefers to promote a supervision-led approach, which elicits a voluntary agreement from the firms to behave more reasonably. However, as I have said, we have tried the voluntary agreement route. The Centre for Responsible Credit and Thrive had a voluntary agreement arrangement, but it did not work. The FCA thinks rent-to-buy is a small sector compared with other, bigger sectors, but it is growing. BrightHouse’s model is to open a new store every fortnight, often in areas of the highest deprivation. Its stores are in prime locations in our towns and cities—particularly in areas of deprivation—and they prey on the poverty and desperation of many of our constituents, who are charged exorbitant prices for goods that they may never own.

We have to promote the alternatives to the rent-to-own model to allow people to obtain a more reasonable deal. We also have to ensure that people who are forced into the sector have some control over the worst aspects of the market. Those customers, as has been said, are particularly vulnerable. The FCA has a particular responsibility to give them a higher level of protection than other customers. We look to the Government and the FCA to protect customers who are not able to go elsewhere and therefore need our protection.

[Several hon. Members]

rose—

--- Later in debate ---

[Damian Hinds]

I will have to write to the hon. Lady about the details of the regulation on bundling. In general, price bundling in markets is not illegal, but on the specifics of this market I will have to get back to her.

The Government have set up the Money Advice Service, which provides a single point of debt advice for consumers and allows those who face problems with debt to obtain free and impartial money advice. This year, MAS will spend £47 million on debt advice, delivering through its third sector partners an increase of almost £9 million on the previous year.

It is important to take a joined-up approach to the provision of free debt advice. Following the independent review of MAS, the Government welcomed the creation of a debt advice steering group, which will help to improve the effectiveness and efficiency of free debt advice provision by bringing together senior representatives of the debt advice charities, high street banks, water and energy bodies and devolved organisations.

[Yvonne Fovargue]

I welcome the fact that there will be a body, but is it not appropriate to get local authorities involved as well, because they quite often fund free debt advice in their areas? I also feel that the Local Government Association needs to be involved in the body.

[Damian Hinds]

The steering group will be an open forum to involve all relevant and interested parties, and I take on board the point that the hon. Lady makes. I wanted to come back to a point that she raised earlier, which my hon. Friend the Member for Blackpool North and Cleveleys also mentioned: where the consumer stands in relation to part-paid goods. The Consumer Credit Act 1974 states that in a hire purchase agreement, a court order is required to repossess goods if a third of the total cost has been repaid. Furthermore, where 50% of the total price has been repaid, a consumer can return a product without penalty and the agreement will finish.

Fiscal Responsibility and Fairness

Yvonne Fovargue Excerpts

Thursday 19th March 2015 Commons Chamber

[Danny Alexander]

I am very grateful to my right hon. Friend. I thank him for his support on the measures to support tax avoidance and evasion and on the package of measures that we announced yesterday to support the oil and gas industry, which has been widely welcomed in his constituency and elsewhere. He is absolutely right that although the Labour party might not like the fact that we have a coalition Government, it needs to get used to the idea that that may well be the norm for many years to come. Innovation will be needed in parliamentary procedures and other things to accommodate that.

[Yvonne Fovargue (Makerfield) (Lab)]

At the beginning of his statement, the Chief Secretary seemed to express concern over the direction of the coalition Budget and some of its measures. Will he confirm that the Liberal Democrats will go through the Lobbies with their coalition partners?

[Danny Alexander]

As I said in my statement, all policy measures in the Budget have been agreed across the coalition. What is being set out is an alternative fiscal scenario for meeting the path of deficit reduction to 2017-18, which is an entirely legitimate thing to do. Labour Members may not like the fact that they crashed the economy, made a mess of the nation’s finances, and have no plan of their own to sort it out, but they should welcome the fact that an alternative plan has been set out today.