Examination of Witness (Questions 520-539)
MR BRIAN
POMEROY
9 MAY 2006
Q520 Jim Cousins: You have not done
that.
Mr Pomeroy: No, but, if I may
explain—
Q521 Jim Cousins: Are you going to
do that?
Mr Pomeroy: Could I explain. The
Social Fund is important to us as a source of credit and as we
monitor affordable credit we will be monitoring the use of the
Social Fund, but the reform of the Social Fund and changes to
the Social Fund are not in our terms of reference and so we have
not looked at it.
Q522 Jim Cousins: They may not be
in your terms of reference, but you are staring at the state's
own social fund, which is the largest single system we have in
this country of offering support for unsecured loans to the not-very-well-off.
I would have thought it is glaringly obvious, and that the possibilities
of that—of extending it, of giving people more choice, part
of the Choice Agenda—might appeal to you.
Mr Pomeroy: I do not dissent from
what you say but, if I could repeat, the reform of the Social
Fund is not within or terms of reference. We also have to consider
what we think of as being financial inclusion. The Social Fund
at the moment—and we are looking at it at the moment rather
than in a reformed sense—does provide loans, it provides
budgeting loans, but the eligibility criteria are restricted—you
have to have been on benefit for a period—and of course
it is capped and it is provided basically for people in extreme
need. We have not tended to think, rightly or wrongly, of the
Social Fund as being a source for financial inclusion. We think
financial inclusion is mainstream financial services, whether
they are provided by the third sector or by the private sector,
and we have tended to see the Social Fund as a safety net, with,
as I have said, a rather restricted eligibility criteria, rather
than being a mainstream provider of credit as an alternative to
the private sector or the third sector. That is how we have regarded
it.
Q523 Jim Cousins: The Social Fund
is the main stream of support for many people on benefits. It
may not be in your terms "mainstream" but it is the
main stream of support.
Mr Pomeroy: I do accept that,
but if you ask us who we consider to be financially included (that
is, connected to the financial systems widely) we do not consider
somebody who has borrowed from the Social Fund as being financially
included. We would like to see them financially included in the
mainstream.
Q524 Jim Cousins: You surely do not
regard people who, because of their circumstances, find the main
stream of support for unsecured lending is through the Social
Fund as somehow second class citizens.
Mr Pomeroy: No, I am not suggesting
that at all. I am saying that the Social Fund is constructed in
a particular way, with particular eligibility criteria, and, indeed,
a financial cap on it, which puts it slightly apart in our minds
from the products for financial inclusion.
Q525 Jim Cousins: A large number
of not very well off people have bought, for example, their council
house and there is a big problem for them in maintaining that,
in reinvesting, improving, renewing the house that they have bought.
Have you considered ways of supporting people to keep their property?
Have you considered the issue of how low income owner-occupiers
maintain their property?
Mr Pomeroy: No. The income group
we are mainly considering are the bottom 30%. In general, although
I am sure there are exceptions, this is a group which is not asset
rich and does not typically have security. Secured lending of
the sort that I think you are describing has not been something
which has been high on our agenda, simply because the majority
of people on low incomes do not have security.
Q526 Jim Cousins: This is a country
where owner-occupation is widespread. I find it extraordinary
that you have not considered the possibility that there are low
income owner-occupiers, many of them elderly, who want to maintain
their property and do not want it to crumble around them.
Mr Pomeroy: I cannot tell you
what proportion of the group we are looking at is in that catchment.
Q527 Jim Cousins: Should you not
find out?
Mr Pomeroy: Since you have raised
it, we will find out.[3]
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Q528 Jim Cousins: Some years ago, off
my own bat, I did a little exercise in my own constituency about
insurance because many people in the less well off parts of my
constituency said that there insurance costs seemed to be very
high. I discovered that there is a secret system of postcode charging
for insurance, so that if you want to insure your house, your
property, your contents, your car, your van—a lot of people
drive vans—your motorbike, you pay far more pound for pound
in certain postcodes than you do in other postcodes. Have you
looked at that system of overcharging people who live in less
well-off areas?
Mr Pomeroy: No, and it is simply
because insurance is not within our terms of reference. It is
not one of the three areas of financial exclusion that we are
looking at.
Q529 Jim Cousins: Do you know anyone
who is looking at this system of overcharging in the less well-off
areas of our cities?
Mr Pomeroy: One of the main intermediaries
through whom we think products to promote financial inclusion
can be delivered are, for example, social landlords, like housing
associations, and we have talked to them in the context of banking
and credit. We do know from talking to them that there are schemes
which do meet exactly the point you have raised. But it is not
within our terms of reference and I do not claim expertise.
Q530 Jim Cousins: We are back to
the idea that there should be special schemes of state handouts
to cope with market failure. I am drawing to your attention that
there are undisclosed, very well organised, deeply embedded systems
of prejudice against certain neighbourhoods, so that people in
those neighbourhoods pay more to insure their motorbike, pay more
to insure their DVDs, than people who live in better off neighbourhoods.
Mr Pomeroy: I do not dispute that
for a moment, but I am saying that we have not looked at it simply
because it is not within our terms of reference. I am aware of
schemes, as I say, which aim to meet that, but I am not expert
in them and nor is the taskforce because it is not within the
remit we have been given.
Q531 Jim Cousins: Would you consider
going back to the Treasury and saying, "This guy has raised
an interesting point. Could we have our terms of reference extended
so we could look at that"?
Mr Pomeroy: I am certain that
if this Committee made recommendations about our terms of reference,
the Treasury would look at them and discuss them with us, yes.25[4]
Q532 Chairman: On the Social Fund, the
point Jim is making is related to the outstanding loan rule. We
have had quite a bit of evidence from the CAB and others of the
hardship that the outstanding loan rule is creating. I think the
CAB said that in 2001-02 20% of people were turned down because
they were deemed to have too much outstanding debt to be able
to afford a loan under these rules.
Mr Pomeroy: Yes.
Q533 Chairman: It is that issue that
it would be handy to look at.
Mr Pomeroy: I had not understood
that was the issue.
Q534 Chairman: I will give you one
example which they gave us: in Essex, a loan parent with two children,
one of whom was ill and needed medication kept in a fridge. The
client applied for a loan for the fridge but was turned down as
she was already paying off a £530 loan at £13 a week.
Mr Pomeroy: The point is logged.
Jim Cousins: Could I just say that one
of the most disgraceful areas here is people paying for funerals—people
paying to bury their kids. I have a constituency case at the moment
where an 85-year old man is left on his own to finance the burial
of his child and there is inadequate support through the Social
Fund to do that. That is an utter disgrace, that in this country
in 2006 we can be landing these obligations on an 85-year old
man on pension credit in sheltered accommodation. It is disgusting.
Q535 Peter Viggers: I am sorry I
left the room briefly but I had to go to another meeting. Can
I ask what interest your taskforce takes in financial education.
For instance, one of most basic points is to advise people against
credit card indebtedness. Are you interested in the field of education
and what do you do about it?
Mr Pomeroy: We are interested
in financial education—financial capability, as it is sometimes
called. Although our terms of reference do not refer to financial
capability at all, they refer to financial inclusion, it is really
inseparable, frankly—particularly when you think of the
demand-side initiative, the initiative that we have just launched,
to work with intermediaries who will help financially excluded
people to make their way into mainstream banking and affordable
credit. If intermediaries—advice centres, housing centres,
social landlords, whoever—are sitting down with someone
and taking them through the benefits for them of having a bank
account or borrowing from a certain source, leading them through
that so that they can make an informed choice, that is really
inseparable from financial capability. Effectively, financial
capability is embedded in our terms of reference and particularly
in this initiative that we have just launched. So, yes, we are
interested in it. We are also obviously aware that the main statutory
responsibility for financial capability lies with the Financial
Services Authority. We have a close dialogue with them, so we
are aware where in their financial capability projects they see
the potential for producing financial inclusion and we are making
them aware where in our demand-side initiative we are approaching
financial capability.
Q536 Mr Mudie: I would like to go
back over one of your answers on this basic bank account. A minute
of your taskforce on this matter says, "Recently one bank
has extended the clearing cycle on its basic bank account."
I presume that is more than the three days.
Mr Pomeroy: Yes.
Q537 Mr Mudie: You say on that: "Ultimately,
banks must be free to set the terms and conditions of the accounts
that they offer, since to not allow this would be anti-competitive."
There is nobody in this country, outside the banking world, who
thinks the three-day clearing makes any sense. It is just a way
of further holding on to people's money and making money from
it. There is great pressure from the Government to get the banks
to stop this indefensible practice, but when they do it on basic
bank accounts you think that to even protest about this would
be anticompetitive.
Mr Pomeroy: Not at all.
Q538 Mr Mudie: That is the minute
I have.
Mr Pomeroy: That minute is intended
to say—and it may not be perfectly drafted—not that
we approved of the lengthening of the credit cycle—and I
will tell you in a moment what we have done about it—
Q539 Mr Mudie: I am not suggesting
you do.
Mr Pomeroy: —but simply
to note that the banks have that freedom to offer it. We are very
concerned. Just as we were concerned about restricting access
to the counter, which has already been raised, in basic bank accounts,
we are concerned about this as well. We have raised it with the
banks. The banks tell us that the main reason is that they believe
there is a greater risk or incidence of cheque fraud on these
accounts. Nonetheless, our position is really, as I said before,
that having entered into an agreement with the Treasury to offer
a basic bank account with reasonably full functionality, it is
unfortunate, to put it mildly, and of concern, to put it mildly,
if some of that functionality is withdrawn and if the functionality
of those accounts is less advantageous than other accounts. The
answer is we are concerned about it. We have a discussion in train
with the banks at the moment about it. We understand the reasons
they have given us as to why they have done it—which is
to do with cheque fraud—but that does not mean that we approve
of it, because we think that, within the spirit of the goal that
was agreed between the Treasury and the banks, they should maintain
functionality.
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