Examination of Witnesses (Questions 1000-1019)
ED BALLS,
MR CLIVE
MAXWELL AND
MS SUE
CATCHPOLE
22 MAY 2006
Q1000 Mr Love: Kerry mentioned earlier
the disappointing amount that is spent through community investment
tax relief and, of course, this is one of the areas in which CDFIs
can be supportive. At the moment it does not cover personal lending.
I know that is an issue that the Treasury looked at. What are
the problems that you see in addressing that role and is there
a real possibility that this may be a way of extending the remit
of CDFIs in covering the cost structure?
Ed Balls: The answer to that is
that that is an issue, as you discussed last week, which has been
put to us and we are very happy to listen carefully and look at
that. It would be quite a big change for the operation of some
third sector providers and it would be a change in the intent
of the relief but it is absolutely not a change to which our minds
are closed.
Q1001 Mr Todd: Do you think it is
time to review the law relating to credit unions? It was last
done in 1979.
Ed Balls: I cannot give you an
immediate answer to that. It has not been put to me in the first
two weeks that this is a priority.
Q1002 Mr Todd: The thing that they
raised is that they are by law prevented from taking deposits
from bodies corporate of any kind, be they voluntary sector bodies,
local community groups or whatever. They must accept deposits
only from individuals.
Ed Balls: As you say, this is
an issue which has been the same since the Credit Unions Act in
1979. The answer to that is that this is quite a detailed technical
area. We are happy to receive representations from the sector.
Q1003 Mr Todd: This looks like a
tremendously good opportunity for a Handout Bill for Private Members
on this, and as someone who sponsored one for this sector in the
past, it certainly looks like something the Treasury could develop
relatively straightforwardly.
Ed Balls: My understanding is
that over the last few years there have been quite a lot of ways
in which we have legislated to support the growth of co-operatives
and mutuals.
Q1004 Mr Todd: Indeed, yes.
Ed Balls: In this particular area
there has not been a change in the legislation since 1979 but
there have been quite a lot of other changes in the legislation.
As it happens, I am a co-operative as well as a Labour Member
of Parliament so I have always taken an interest in co-operative
matters and can see why and how they can play a very important
role.
Q1005 Mr Todd: Would you ask your
officials to have a look at the possibility of a Handout Bill
in this area?
Ed Balls: I am not sure if, as
a Treasury Minister, one is ever allowed to look at a Handout
Bill. It sounds rather un-Treasury. I think there have already
been discussions going on with the sector on the particular point
you raise about taking wider deposits.
Q1006 Mr Todd: It does require primary
legislation.
Ms Catchpole: I have had extensive
discussions with representatives from the credit union movement
on this issue. It raises some difficult regulatory questions and
I think it is fair to say that the credit union movement itself
is pretty divided on it. Some people see it as a good way forward.
Others feel that it would undermine the whole basis of individual
member based organisations.
Q1007 Mr Todd: I think it depends
how you define which organisations could take part in it. It would
have to have the same community of interest argument, for example.
Ms Catchpole: There are also ways
in which people can invest in credit unions already which are
not used.
Q1008 Mr Todd: Turning to another
area of activity, the surveys have shown that there are a significant
number of people who own a home but are nevertheless financially
excluded. Is there a way in which we can encourage greater availability
of secured loans to those sorts of individuals, particularly to
improve their homes, because that is very often one of the key
requirements they face?
Ed Balls: I know from before coming
to the Treasury that this is a particular issue at the moment.
In our district locally we have a major expansion going on in
repairs and maintenance to social housing because of post-transfer
and the organisation called Wakefield District Housing, but the
issue arises where you have a row of houses where a lot of money
is being spent along the rows to do the new roofs or whatever
and there is one house in the middle where you might have somebody
who bought the house under right-to-buy but then for whatever
reason may now be on JSA or mortgage benefit and just does not
have the access to financial support to make their contribution.
This causes a very serious problem. There are things which can
be done. There are ways in which home owners can be eligible directly
to local authorities for grants or loans for essential repairs.
There are innovative ways in which we might think of relieving
some of the burden and allowing people who are in that position
to get broader support from the local authority.
Q1009 Mr Todd: Very few local authorities
pursue this sort of activity, do they?
Ed Balls: As I said, I come to
this more from the point of view of a constituency MP rather than
my brief. I was meeting last week with the head of our housing
association, Wakefield District Housing, and they are actively
thinking about how they can ease the burden on those kinds of
individuals, partly from the point of view of the needs of those
individuals and partly because it is obviously very difficult
if you are trying to do a major repair or reconstruction programme
when you have one house in the middle of the road which, for whatever
reason, cannot afford to make a contribution. We need to think
innovatively in this area. I think this is really a matter for
the Housing Minister rather than myself in the first instance
but it is something which from a financial inclusion point of
view we need to address because it is not clear that it is simply
going to be solved by asking people to take on substantial amounts
of extra debt.
Q1010 Mr Todd: Probably not but it
would be wrong to suggest that it is purely an activity a council
could be involved in. There is likely to be significant private
sector funding made available even if it is through some local
authority relationship.
Ed Balls: We are in a world in
which the combination of a desire to spend more and the ability
to spend more in these areas, plus the fact that a number of people
have found themselves in very difficult circumstances because
of previous right-to-buy policies combined with whatever events
which then befell them, means that we need to find a solution
to this and I think we need to be open to innovative ways in which
this can be done. If the committee has thoughts in this area and
proposals to make the door is open to ideas.
Q1011 Chairman: Will you find it
quite easy to have discussions with the Housing Minister on that
issue, Minister?
Ed Balls: I will always endeavour
to make sure that I consult closely with all colleagues in whatever
department.
Q1012 Mr Gauke: A number of witnesses
have raised with us the difficulty of obtaining general financial
advice other than in relation to the sales process. Can I ask
whether you recognise that there is a difficulty and how you propose
to deal with that because there does seem to be a likelihood,
assuming that the Turner Report recommendations come into play,
and you probably know more about it than I do, that there will
be an increased need for generic financial advice?
Ed Balls: As you know, the responsibility
for general financial advice and promoting financial capability
is a responsibility of the FSA under the legislation. My first
meeting with somebody outside the Treasury was with Callum McCarthy
from the FSA. The first thing we spoke about was the way in which
the FSA is taking forward their responsibilities in this area
and I think it is something they take very seriously indeed. As
you know, the £120 million fund for the next few years has
a pot of money which has already been allocated through the DTI
to the sector for money advice of £45 million and the DTI
is tendering for that at the moment. In addition to that, and
as I said I spoke to Brian Pomeroy about this today, there is
£20 million left. The task force is very keen that we run
a campaign aimed at encouraging more people who might otherwise
not do so to take up the kind of financial advice which is on
offer and think innovatively about how we can get to those people,
whether it is through housing associations or whatever. My sense
is that people are thinking hard about both the general issue
of financial capability and in particular how we can get this
kind of advice to people who are in need of it.
Q1013 Mr Gauke: You mentioned the
role of the FSA and also the task force. Is there not a danger
of great overlap here and of the one doing what the other should
be doing? Was the FSA consulted on what the task force was going
to do in this area?
Ed Balls: It is always the case
in Government that you have different objectives which have an
overlap. We have one objective which is to improve the general
level of financial capability in education across the whole population,
which is the responsibility of the FSA. That was a controversial
issue when it was discussed a number of years ago because there
were some who felt that this should not be the responsibility
of the FSA, but that was the decision which was made. My sense
from my initial discussions is that that is something that the
FSA is taking very seriously indeed. There is a separate issue,
which is not the same as general funds for education, which is
tackling financial exclusion, in which advice is an important
part but just one part, and we have a task force whose job is
to drive forward that agenda working with the Treasury. Clearly
there is an overlap between those two separate objectives, which
is where the provision of advice generally can help tackle financial
inclusion. Government is about making sure those overlaps work
in a constructive rather than a destructive way. My sense is that
there are no problems between the FSA and the task force. I do
not know whether Clive has spotted anything.
Mr Maxwell: No.
Ed Balls: If there are problems
arising then we should deal with them but, as I said, that has
not been my initial impression.
Q1014 Mr Gauke: Can I return specifically
to the side of this which is about the generic financial advice?
You will presumably be aware of the Resolution Foundation and
the work it is doing trying to put together proposals for a national
financial advice resource. Can I ask what your attitude is to
that, whether you feel that it will fulfil a useful role and whether
there is an argument for partial state funding towards such a
resource?
Ed Balls: I read the transcripts
of the Resolution advice experts to the committee. Clive Cowdery
is the gentleman in charge. As a result of that I asked what had
happened and was told that the Treasury had actively encouraged
the task force to engage with Resolution to listen to their ideas.
There are regular meetings going on and so I think we are very
receptive to their ideas. While one part of my responsibility
for the spending review will be about financial inclusion there
is a separate, as I said, overlapping responsibility which is
how we take forward more generally in Government the financial
capability agenda and work with the FSA to make sure that in our
discussions with DfES on the curricula or with the Child Trust
Fund or with Sure Start or with the Social Fund we take forward
some of these financial capability issues. It is an important
part of my job to make sure that happens in an effective and proper
way for the spending review.
Q1015 Mr Gauke: One of the elementals
of the Resolution plan is particularly focusing on those who earn
between £10,000 and £22,000 a year. They are not necessarily
the most financially excluded but do you recognise that there
is a difficulty for people in that salary bracket to obtain generic
financial advice?
Ed Balls: I think there is. One
of the things which has developed in terms of the Government's
thinking is that in the early phases the focus was simply on people
who did not have a bank account, who were unbanked, and what has
happened in the development of understanding here is that there
are people who in some sense are engaging in the banking world
but, for example, because they have a POCA account or more broadly
whether it is in terms of decisions made about savings, are not
getting the kind of support they need. Tackling financial inclusion
and broadening access to education advice is not simply about
people who are completely outside the banking system. It is also,
as you said, about people who are likely to have a bank account
but who are not necessarily getting the best advice, or the best
advice at an affordable rate. That is certainly a focus for us.
Q1016 Mr Mudie: I am surprised at
that. You have half a million of your people getting benefit through
the Post Office. They have chosen to do that. Why do you know
best?
Ed Balls: I am not sure if I understand
the question.
Q1017 Mr Mudie: I will do it again
then. Half a million of your customers get benefits paid by HMRC
through the Post Office. They chose to do that and you are saying,
"After 2010 no". Why do you know best?
Ed Balls: I think the majority
of people who are receiving tax credits are receiving them through
bank accounts.
Q1018 Mr Mudie: No, no, half a million
are not. That is the proportion—11.5% of the people on Post
Office accounts are in receipt of benefits from yourself.
Ed Balls: The point I was going
to make was that of the large majority who are getting support
through bank accounts a substantial proportion can access that
money at the Post Office, and personally I would like more of
those people to be able to access their benefits at the Post Offices.
Because we are discussing financial inclusion today I would much
rather they could do so using an account which was more suited
to the demands of the modern world and gave them more flexibility.
I do not think that it is right that we should accept as a permanent
state—
Q1019 Mr Mudie: The Post Office?
Ed Balls: No. I do not think it
is right that we should accept as a permanent state people who
are not getting the kind of support for direct debits or to be
able to make deposits which—
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