Examination of Wintesses (Questions 1-19)|
1 MAY 2007
Q1 Chairman: Brian Pomeroy, welcome to
the Committee and to our inquiry into the Financial Inclusion
Taskforce. Would you introduce yourself, please?
Mr Pomeroy: I am
Brian Pomeroy, Chair of the Financial Inclusion Taskforce. I understand
I am here principally in my capacity as the author of the recent
Review of Christmas saving schemes, since the Taskforce
itself has not yet looked at savings.
Q2 Chairman: I commend you on the
work you have been doing in the area of financial inclusion. I
also note the Government's positive response to our Committee's
recommendations and the positive agenda that has been developing
since then. Do you want and expect the Taskforce remit to be changed
to give greater prominence to savings issues? You have previously
expressed concern about the resource implications for the Taskforce
on the expansion of its remit. What assurances do you have about
the funding for the Taskforce in the period of to 2011 and savings
Mr Pomeroy: On the first point,
the Taskforce would be happy to take on savings if the Treasury
asks us to do that. Our terms of reference were given to us by
the Treasury, so it is up to them. My understanding is that the
Treasury is considering that and is looking to see the output
of the Saving Gateway pilots and its own decision-making on that
before giving us a remit, but if they give us a remit, we will
be happy to take it on. I should add that our remit has recently
been extended to include insurance, which is one of the recommendations
of this Committee. As far as resources are concerned, the Taskforce
has a budget for itself, which we have found perfectly adequate
to commission the research we need. So far as the period to 2011
is concerned, we are aware that the Government has committed to
a new Financial Inclusion Fund, but we do not yet know what the
amount of it will be or how it will be deployed.
Q3 Chairman: Following the Review
of the Christmas savings schemes which arose from the collapse
of Farepakand we are not focusing on Farepak here directly
but the consequences of itthe Government has announced
an agreement with the industry on the provision of secure, ring-fenced
accounts for such savings. I know that discussions are still going
on about that. Does the latest information that is available reassure
you regarding the removal of the risks, particularly in the hamper
market, for consumers?
Mr Pomeroy: Yes. I should say
that I have not been part of the detailed discussions and what
I know is the concept that was announced by the DTI a few weeks
ago. It seems to me the concept is a sound one, which is that
the money will go into trust; the trustees will only release the
money when it is needed to buy hampers or vouchers, whatever happens
to be ordered. It seems to me that is a sound concept. Clearly,
it depends on it being implemented in detail properly and effectively.
Whilst I have no reason to think that it will not be, I have not
seen the detailed fine print of what has been agreed.
Q4 Angela Eagle: Staying with Christmas
hampers and that market and following the collapse of Farepak,
in your Review of Christmas savings schemes, you identified, very
properly I think, the attraction of them to those who are low
earners, and a range of advantages, particularly with locked-in
finances, so that people can definitely guarantee that the amount
of money they are saving will go on Christmas issues and not suddenly
be taken for something else. How do you think this kind of an
approach, which clearly low income customers like, can be preserved
in future arrangements, whilst guaranteeing that we never have
Mr Pomeroy: I think the key is
to make sure that their money is safe and that the people who
provide the product also provide long-term good value. It is clear,
from the research I did, that the product is valued provided the
money is safe. Something like three-quarters of a million families,
mainly families on low incomes though not exclusively so, make
use of it. They make use of it because for some of them it is
the only way that they will save at all. The home collection of
money is the only way they will save at all, and the lock-ins,
as you say, are also vital. The important thing is to make sure
that the money is protected but also that it is good value for
money because as well as making a recommendation about protection
of the money, I have also noted in my report that the market is
highly concentrated now in the hands of one firm, and therefore
that at least ought to be looked at to make sure there are no
competition problems or issues that might give rise to poor value
Q5 Angela Eagle: So you agree with
the attention that the Office of Fair Trading is currently paying
to the fact that the Park Group are really the dominant player
now with I think £230 million in profit?
Mr Pomeroy: Yes; they have something
like 90% of the hamper market. I very much welcome the fact that
the OFT is looking at it. The fact they have 90% does not of itself
mean there is an abuse of position but clearly to my mind it raises
a need at least to examine the matter.
Q6 Angela Eagle: This model again
particularly depends on not having low-income savers physically
going to an institution to deposit money, but actually having
door-to-door sales forces, often from the local community who
are known to individuals, going round collecting small amounts
of money. It also, I think, relies quite a lot on deliveries to
the door because often some of these people do not necessarily
have cars and cannot pick up large products from a delivery point.
Do you think that that almost offsets the paying of interest because
there was much comment when Farepak collapsed that the savings
were not getting interest at all, as well as the fact that they
had been ripped off?
Mr Pomeroy: I think it is certainly
a factor that offsets it because clearly the home service that
you describe, which is an absolutely vital component, is an expensive
way of doing business. It means agents have to go to houses. That
means they are paid for it. It is obviously a much more expensive
way of doing business than having someone go to a supermarket
and that needs to be covered somehow. I have not been privy to
the detailed financial position of the companies or the economics
of the product but I can say that the users of the product do
not particularly complain about not having interest. Some commentators
have noted it; the users of the product generally do not complain
about not having interest. Clearly, those extra costs have to
be covered somehow. There are other ways of covering it. For example,
the providers make a margin when they sell a hamper and they also
get a discount from the retailer when they buy a voucher. So there
are other sources of income as well. It is interesting in the
research I did, which involved talking directly to 100 users of
this product, that lack of interest was simply not an issue at
Q7 Angela Eagle: Do you think that
might be because they are not that familiar with savings products
that actually attract interest and that they tend to live in the
more cash economy, though not all of them are unbanked, where
interest is not such an issue?
Mr Pomeroy: It might to some extent.
It was quite interesting that in the workshops we ran a number
of people, although they would not necessarily go to financial
institutions, indeed sometimes would mistrust them, were aware
that they would give interest, and certainly gave me the impression
that if they were saving with a financial institution, they would
expect interest. So they did understand that financial institutions
give interest. They also understood that what they were doing,
although they were saving, they were doing it with a retail firm.
They understood that it was a retail, mail-order purchase essentially
that they were making. A number of them did say, "Look, how
much interest would we get, frankly? If we save £10 a week
for 45 weeks, that is £10 interest. It is not a lot, is it?"
So there was a sense, although you would normally expect to have
interest on savings, the absolute amount was not something which
they particularly missed.
Q8 Angela Eagle: Do you think that
this model with its very specific structure, the door-to-door
issue and the lock-in, has any lessons for larger Saving Gateway
issues and financial inclusion more generally, since it is clearly
a model that has a history in fact in many communities? It is
clearly a model that people like.
Mr Pomeroy: I think the general
lesson is that there are some people who find it very difficult
to save unless there is some stimulus or prompt. Perhaps that
does not have to be someone coming to your door but it is very
clear that many people would only save if something prompts them
to save. They will not of their own accord go down to a building
society, a bank or a credit union. To me the lesson is that there
are people who need some stimulus and incentive to save and therefore
across the board of financial savings products, one needs to think
about that issue when addressing particularly people on low incomes
who have many competing demands on their cash.
Q9 Angela Eagle: What do you think
about the lock-in point because people clearly like the fact that
they cannot get at their money once they have put it away?
Mr Pomeroy: Indeed, they do like
that. Of course, one of the consequences of the lock-in is that
if you buy goods on the basis that you can only get the goods
and you cannot get cash at the end, that removes it from financial
services and actually at the moment removes it from the compensation
scheme as well. One has to be aware that under present legislation
those kinds of schemes can actually remove a protection. There
is no question that when saving for something specific like Christmas,
the lock-in is absolutely vital and it is partly, I suppose, that
people do not trust themselves.
Q10 Angela Eagle: And do not trust
the financial pressures on them?
Mr Pomeroy: Yes, particularly
when it is very important because the background to all of this,
as I have discovered, is the very high importance people place
on having a good week at Christmas. It is because that is so important
that they are prepared, in some cases at the expense of personal
hardship, to ring-fence that money. It has that degree of importance
Q11 Angela Eagle: Finally, do you
think that the point you have just made about the fact that you
do have the lock-in and you cannot get the money out actually
removes it from financial regulation? We clearly saw that there
was an issue there with what happened to Farepak in terms of protecting
people's money. Do you think that there is therefore an argument
for having some form of regulation, not perhaps the full panoply
of Financial Services Authority regulation, which applies in that
very particular instance to protect people's assets?
Mr Pomeroy: I definitely felt
it was necessary to protect the asset in this case. Of course,
the issue is quite complicated because legally this was a prepayment,
and we prepay for things all the time. Throughout the economy
there are prepayments. This product and the prepayment have two
particular features: one the prepayment is for much longer than
usual and up to a year; and, secondly, the people who are prepaying
are the most vulnerable group financially and can least afford
the loss. In that situation, I felt protection was necessary.
So far as I am concerned, the most important thing is that the
outcome of protection should take place rather than the means.
I did not express a view as to whether it should be formal regulation
or whether it should be done by an agreement; in fact, it has
been done by the latter. The most important thing is the outcome.
I think there are some circumstances to prepayment, when a combination
of the length of the prepayment and the vulnerability of the prepayer
definitely require protection, yes.
Q12 Mr Gauke: Do you think an increasing
emphasis could be placed on generic financial advice in this area
so that consumers are more aware of the range of options, whether
it be informal savings products or regulated financial services?
Mr Pomeroy: Yes, I do. The question
of generic financial advice of course is under review at the moment.
Otto Thoresen is doing a feasibility study on it. Obviously I
do not know what view he will come out with, but I am quite clear
that a discussion that takes place between a generic financial
adviser and someone being advised needs to take into account all
kinds of products and all kinds of savings, and in this case savings,
and in particular the adviser would need to be aware not only
of formal savings productsI mean properly regulated financial
services productsbut also these alternative products. It
is vital that they should be aware of them and be in a position
to say to the person they are advising, "Perhaps you are
using this. Have you thought of these alternatives? They are not
quite the same but they have advantages and disadvantages. Here
is the range", and be in a position to advise them. I think
this kind of thing definitely should be within the purview of
a generic financial advice scheme, yes.
Q13 Mr Gauke: How do we go about
placing greater emphasis on savings products? At the moment, generic
advice tends to be focused more on debt reallythe role
of the Citizens' Advice, for instance. How do we go about increasing
the emphasis on savings?
Mr Pomeroy: I think the fact that
generic financial advice is under review at the moment is an opportunity
for getting it right, It will come down to the range of issues
on which generic advice is given within whatever structure the
Government decides to adopt. I think advisers should be told very
clearly that they must understand that in fact there are products
out there which are substantively financial services productswe
are talking about one which is savings at the momentbut
which are legally not and they must be aware of all of them and
be prepared to advise on a range of them and give them appropriate
Q14 Mr Gauke: You have talked of
having a specific consumer campaign to make people aware of the
options. Are you thinking overall or specifically with regard
to Christmas savings schemes?
Mr Pomeroy: I am thinking with
regard to Christmas savings, and I am thinking now because it
is very clear that Farepak very much undermined, for obvious reasons,
savers' confidence in that industry and these were savers, it
is clear, who really were not aware of many other alternatives.
Actually there are not many alternatives that replicate exactly
the features of this product. It was clear from the people I spoke
to that a number of them were very disoriented; they would like
to continue saving but do not know whether they should; some have
decided not to save at all; some are saving a bit; some are saving
with friends, and some are doing other things. I am talking now
about Christmas 2007 and not beyond that. I believe it is important
to put some information out there.
Q15 Mr Gauke: Who should be doing
Mr Pomeroy: The "Government".
In fact the OFT has been given the job, and that sounds fine to
me. Firstly, it seems to me it is important to communicate the
fact that secure arrangements are now being put in place and that
the money will be safe because of the trust arrangements that
I have just described, but also to explain to people that there
are alternatives; there are credit unions who offer Christmas
savings accounts; there are supermarkets that offer Christmas
savings accounts; there are building societies. They do not all
have the same features but some will suit some people. It is those
two things: (a) communicate security and (b) communicate the range.
I personally think it is urgent because there are people out there
who want to save for Christmas to avoid getting into debt who
will not save for 2007 because of what they know about Farepak.
Q16 Mr Gauke: You say it is a question
for now. Are you concerned that the OFT is being a bit slow on
Mr Pomeroy: Again, having made
the recommendation and having been very pleased to hear it has
been accepted, I have not been involved in the detail. My understanding
is that they are planning a campaign. I have no information about
the timing of it or the detail of it.
Q17 Mr Gauke: You are conveying very
much a sense of urgency.
Mr Pomeroy: Yes.
Q18 Mr Gauke: I am not sure you are
conveying that you have confidence that the OFT has that sense
Mr Pomeroy: I am afraid I do not
actually know when they are planning to launch it. That is the
honest answer. I do think it needs to be soon.
Q19 Mr Breed: Do you have an idea
of figures in terms of the fall-off since the Farepak situation?
Have we seen a very steep decline or is it relatively modest?
We only really have one big player now. Presumably they would
be able to determine whether there has been very significant damage.
Mr Pomeroy: I do not know, and
I would very much like to know. I know that when I ran workshops
with these 100 customers, a significant number of them said they
would stop, though that does not mean that they will all stop.
I also know, because I am sure it is on public record, that one
of the firms, which has recently been taken over by Park, did
announce a very much lower order book I think in February of this
year than they would normally expect, implying that they would
have been affected. One would anticipate there would have been
some fall-off but the truthful answer is that I have no information.