Examination of Witnesses (Questions 88-99)|
1 MAY 2007
Q88 Chairman: Welcome to our evidence
session on this inquiry. Can I ask you to introduce yourselves
for the shorthand writer, please?
Ms Whyley: I am Claire Whyley;
I am Deputy Director of Policy at the National Consumer Council.
I lead our work on disadvantaged and financial inclusion and I
am a member of the Financial Inclusion Taskforce.
Mr Rhodes: I am John Rhodes; I
am the Head of Financial Capability at Citizens Advice, which
means that I lead the financial education work which we are encouraging
bureaus to undertake across England and Wales.
Q89 Chairman: John, you mentioned
that savings should play a more central role in the Government's
Financial Inclusion Strategy. Given that the Government will accept
that, how do you expect the move of savings to a more central
role in that strategy to be reflected in practice?
Mr Rhodes: I think that the answer
to that in a way lies in the Treasury's own March paper where
it talks about the importance of a buffer for people. I think
that a clear recognition by government that borrowing and saving
are part and parcel of the same issues of financial capability
and financial inclusion. Looking at the Treasury paper, it seems
to me it has been fairly carefully drafted and I think we would
like to see the Financial Inclusion Taskforce having a clearer
and greater role for looking at savings. I think we would like
decisions to be made on things like the Saving Gateway and I think
we are very much in line with what Elaine was saying about that.
We would like more work to be done on disincentives, the issues
which I think we have already provided evidence about, so the
capital rules on the benefit levels. We welcome initiatives like
the OFT campaign, and hope to be involved in it, but, above all,
I think that we want to be in a position where working with other
organisations, some of which have been mentioned todaycredit
unions, housing associationswe can help promote saving
through long-term financial education initiatives. At present
we receive long-term funding from Prudential, and Barclaycard;
for the rest we are usually scrabbling around, and bureaus are
scrabbling around, with one year's money.
Q90 Chairman: Claire, Brian Pomeroy's
review of Christmas savings schemes stated that the hamper products
in the Saving Gateway meet quite distinct savings needs. Do you
agree with that and, secondly, is there any reason why the principle
of match funding from the Treasury for private citizens could
not be applied to Christmas savings products or other savings
products with a short-term lifespan?
Ms Whyley: I think the Christmas
hampers industry in the Saving Gateway do serve different purposes.
I think all the research shows that people on low incomes particularly
like to save for a specific purpose. That is not to say they do
not also aspire to save for general non-specific purposes as well,
but it is much easier, and there are clearly much bigger incentives,
to save for particular purposes, especially with savings products
that are focused around events like Christmas, which are clearly
predictable; but clearly families have a big emotional investment
in making it right, making sure their kids have a good time and
there is an added incentive for people to save. I think general
saving is something that serves a slightly different purpose.
It does not mean that they cannot run alongside, but they are
definitely different. I would agree that match-saving so is simple
and so powerful and the evidence shows that it really is successful,
I think that principle could be applied to all kinds of savings
products and, possibly, other financial products as well.
Q91 Angela Eagle: Have you done any
work on how much extending the Saving Gateway in its initial first
phase form would actually cost if it were to be extended to working
families' tax credit levels?
Ms Whyley: We have not done work
costing the Saving Gateway, I am afraid, no.
Q92 Angela Eagle: Do you think, in
principle, there is an argument for looking at some of the tax
savings that are given at the top of the income stream and the
income levels for saving, investment, ISAs, pensions and redistributing
some of that to the bottom so that we could encourage a sort of
Saving Gateway style approach for those that are on very low incomes
who (as has been said earlier today) do not benefit from the tax
incentives to save since they often do not pay tax?
Ms Whyley: I think there is absolutely
a need to look at that. If what we are really trying to do is
incentivise new saving among people who previously have not saved
or who find it very difficult to sustain saving behaviour, then,
absolutely, we need to be looking at a different types of incentive
and we need to look at where the current incentives are benefiting
people. As we know, they are not benefiting people at the low
income end of the spectrum and they are not necessarily benefiting
people who are currently not saving. I think that the mismatch
of these incentives actually comes from a failure among policy-makers
principally to really understand the kind of behaviour that they
are trying to incentivise. There is an assumption that if you
make the same incentives or products available to people on low
incomes as are available to people higher up the scale, that will
automatically result in the behaviour you are looking for. What
we really need to do is start with a means-based approach and
we need to talk to people about what it is that makes a difference
and what would work for them and then develop the right incentives.
We have seen the success of things like that with credit union
saving and with the Saving Gateway. That is an incentive that
works for people; it makes sense to the people whose behaviour
we are trying to change.
Q93 Angela Eagle: If there were a
shift of that kind, it being for 18 months or maybe two sets of
18 months or two years, as the professor was the suggesting in
her evidence, do you see that as a kind of temporary issue to
try to get them into mainstream saving or do you see it as something
more fundamental. A more permanent sort of restructuring of the
incentives that there are in society would actually give a lot
more money to the voluntary institutions, credit unions, those
kinds of saving institutions which are quite weak structurally
at the moment. Do you see that there would be benefit from diverting
tax money there in order to try to create a more robust infrastructure
for those on low incomes?
Ms Whyley: I think there could
be. If credit unions are going to be the answer to encouraging
people on low incomes to save, then we absolutely do need a bigger
and more robust structure. I think anything that can encourage
and facilitate that would be a good thing. Like Elaine, I would
like to see all these things more joined up. Clearly, what you
need to initially encourage people to start saving and then help
them to sustain that saving behaviour may not be something that
you need to sustain throughout that person's saving lifetime,
but I do think that it should link into the infrastructure and
the products that already exist so that at various times people
have choices about what they do and the choices are relevant to
what people want to achieve out of saving.
Q94 Angela Eagle: Do you worry about
the structure of the current financial services institutions which
has meant that people have got into terrible trouble if they have
been taken out of financial exclusion into inclusion and then
hit with huge penalty charges that they cannot afford and driven
back into debt?
Ms Whyley: I think this is all
part of a failure, which the taskforce has been trying to address,
to really understand why people are financially excluded; and
it does come down to this idea that if you make a product available
and, if you incentivise industry to provide it, you provide a
requirement on industry to provide it, that will lead to financial
inclusion. Actually financial exclusion is grounded in a whole
range of things, part of which is a lack of appropriate products,
some of it is cultural, some of it is social that family traditions
have perpetuated. Clearly, it has not been as simple as making
a product available and people just being able to come in and
use it. I think people have been hit very hard. Like Elaine, I
think often they know that that is what is going to happen, it
is why they have not used the products in the first place, it
is often why they have often chosen to self-exclude, but I think
there is a huge amount of work to be done to make banking products
particularly suitable for people on very low incomes so that they
can make their lives cheaper and easier. I think they are not
always achieving that at the moment.
Q95 Angela Eagle: John Rhodes, are
you optimistic that that will happen given that people at the
lower levels of income simply are not profitable from the models
that our financial services industry has chosen to introduce to
run itself with? They are not interested in people at the lower
end of the income scale, are they?
Mr Rhodes: In terms of the practice
to date, the answer is, "No." I suppose one of the issues
for me is when one can shift what the financial sector is doing
in terms of financial education and working towards financial
inclusion, when it shifts from being something where you are talking
to the Corporate Social Responsibility Department and where you
are actually dealing with the Marketing Department. First of all,
as we were saying earlier, it should not be beyond the technological
capability of the financial institutions to offer the kind of
smoothed accounts that Elaine was talking about. I think there
is a mindset issue there. It does seem to me that there may be
a cost to banks, but if you look at banks' balance sheets and
their reports recently, you cannot help feeling that they can
afford to subsidise it a little bit.
Q96 Angela Eagle: Banks have a few
spare profits in there that they might reasonably think they might
do some interesting work with, do not you think?
Mr Rhodes: All organisations,
whatever their size, have got an innovation fund these days is
all I would say.
Chairman: Very diplomatic.
Q97 Mr Gauke: Can I ask the question
again about generic financial advice and what role that has to
play in improving people's understanding of both regulated products
and also the informal savings market. How important is generic
advice in this area?
Mr Rhodes: We at Citizens Advice
think it is very important. At the risk of sounding a bit like
the Saving Gateway, we are undertaking a second pilot of generic
financial advice which is involving 25 bureaus with IVAs working
through those bureaus. It is based on a very positive experience
first time round, so we want to test it a bit further. The first
time round was essentially a smaller scoping project. We have
made clear in our CSR submission to government that we reckon
that for 25 to 35 million pounds a year we could offer generic
financial advice through all bureaus, and I think that is important
but, as I think was also suggested in earlier evidence, I do not
think that is sufficient. Nor is financial education alone sufficient.
That too helps, it contributes to it, but for the most part the
kind of issues which we have been discussing this morning, and
the kind of numbers, frankly, 750,000 hamper scheme clients are
not all going to be reached through generic financial advice,
they have got to be reached through the kind of awareness campaigns
that we, other organisations, other agencies, are trying to promote,
and I think it could be quite exciting as to what might be done
through the OFT. That might itself be a pointer towards the kind
of activity that might be rolled out more substantially in the
Q98 Mr Gauke: Do you have anything
to add to that?
Ms Whyley: No. We would also agree
that generic financial advice is key, particularly in helping
individuals understand that balance between spending, saving and
borrowing and what constitutes the right decision at any one time
and the risks and consequences of any actions. We would also agree
that, although there are networks in place that offer some elements
of generic financial advice, they are very, very oversubscribed
and money is insecure. So, what we actually need to see is a real,
clear investment into a different form of advice than the remedial
advice that we tend to have now.
Q99 Mr Gauke: Mr Rhodes, when you
talked about your submission for the CSR£25-30 millionwould
that enable all your bureaus to provide advice on savings as well
Mr Rhodes: Yes, that is right.
All our bureaus at present, all 400 plus bureaus, offer debt advice,
80 bureaus offer financial education and, under this new scheme,
25 bureaus will be offering, on a two-year pilot, generic financial
advice. The 25 to 35 millions pounds a year would buy a level
of dedicated capacity within each of those 400 plus bureaus.