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Mr. Michael Fallon (Sevenoaks) (Con): I hope that you will agree, Mr. Bercow, that we are indebted to the hon. Member for Leeds, East (Mr. Mudie) for introducing the debate. There are many reports before us, and it is a tribute to your assiduity that probably only you, Mr. Bercow, will have read them all in detail. I hope, therefore, that you will excuse me if I do not touch on every aspect of every report.
The subject that we are debating is a key issue, and it is right that the Treasury Committee should have spent so much time on it. Indeed, the more time that we devoted to it, the clearer it became to us that it was an area of public policy failure in several respects. First, it is far too easy to get into debt. There has been a high demand for credit, possibly because of low inflation or relatively low interest rates, and its price has dropped accordingly. We have an innovative, competitive, financial service industry. I have no criticism of that, but because the demand and market for credit has expanded, we have been flooded, as we are all familiar, with various offers for credit cards, credit card checks and the rest. It has been far too easy to get into debt.
Secondly, because it has been too easy to get into debt, the most vulnerable people have suffered the most. There has been careless lending and a lack of data-sharing, and although vulnerable people have not been specifically targeted, they have been the victims. We know from our constituency casework that those who get into trouble financially might have other problems or addictions to drugs or alcohol which mean that they get into a spiral of decline.
Thirdly, as the hon. Gentleman illustrated, financial capability is appallingly low. There is a lack of numeracy in our schools and we simply do not understand that to be innumerate as a citizen is just as great a handicap as to be illiterate. Innumeracy leads to poor decision making, which, if repeated, leads further and further into debt.
Fourthly, I do not want to moralise, but I think that there has been a change in the culture of credit. It used to be frowned oncertainly, where I was brought up in Scotlandbut is no longer seen as wrong or dangerous. Indeed, it is not even perceived to be morally neutral; it is presented as being wholly legitimate and beneficialalmost democratic in allowing an entry point to an increasingly materialistic society. That change has contributed to the failure of public policy.
Finally, there has been an almost total collapse of our savings culture. The blame for the first four factors cannot necessarily be laid wholly at the door of the
Labour Government, but blame for the collapse of the savings ratio can firmly be laid at their door. We simply are not saving enough as a habit, and we are not saving enough to deal with sudden emergencies. As a country, we are not saving enough to see us through an increasingly longer old age, or to help members of our families who get into difficulties.
How do we tackle those issues? I have several suggestions to put to the Minister and to my hon. Friend the Member for Fareham (Mr. Hoban) in his preparation for the next Conservative Government. First, we must continue to tackle the doorstep home credit market. I do not want the industry that offers non-standardised products to be wiped out by excessive regulation, capping of interest rates and so on. On the contrary, we need to keep that non-standard market open and honest. More transparency is needed, particularly in respect of the guidelines that apply to agents. We need better data sharing, and we need constantly to ensure that the home credit market is adequately regulated and that it continues to offer those who rely on it products that are easily understood.
Secondly, we need to do something about credit unions, which have a remarkably small share of take-up. I believe that it is only 1 per cent. It is much higher in other advanced democracies, such as the United States, Australia, New Zealand and Canada. We need to go further in this area. I applaud the commitment of the Economic Secretary, which was expressed in her 25 October announcement. A commitment to greater competition, more flexible membership qualifications and the use of electronic communications is extremely helpful, but I urge her to go further in liberalising the market in which credit unions operate. I do not understand, for example, why they should not be allowed in the fullness of time to determine their own common bond. Do we need a minimum age requirement? Why should they not pay interest on savings? Why should they not be allowed to deal with organisations in the same way as they deal with individuals? This seems to be an area, if the Economic Secretary is taking an interest in it, in which it is possible to do a great deal more, and I look forward to hearing further from her.
Thirdly, there are the banking practices to which the hon. Member for Leeds, East referred. The Select Committee has done useful work in that area. As a result, we now see clear information on our credit card statements about the actual cost of interest, and there are clearer warnings about repayment. However, lenders should understand that we will not hesitate to return to the subject if we see further obfuscation or delay in ensuring that that aspect of banking practice is as open and transparent as it should be.
Fourthly, as I have said before, too many individual voluntary arrangements have been concluded, and probably too rapidly. There is a danger in that, because once an IVA is concluded, it inhibits the debtors future ability to access credit products. I suspect that as the credit markets tighten, a sub-class of people will be created who will never again be allowed to access credit markets in the way that they did because their IVA will stand for ever on the public record. I suggest to the Economic Secretary that there may be some scope for introducing more independent advice before arrangements are signed and sealed.
Fifthly, there is the role of education, which no Government have got right. Much good work on financial education is being done, but it is all over the place. Some is being done in the City, some by the Financial Services Authority, some by the Department for Education and Skillsor the Department for Children, Schools and Families, as it is now calledand some has been promoted by the Treasury. The more that members of the Select Committee considered the matter, the more we came to the conclusion that it was a mess. There needs to be clear guidance from the centreone Department in chargeand a firm programme. I am no fan of targets, but perhaps this is one area for which there ought to be a target. We need urgently to improve the work that is being done in respect of financial education and to ensure that it is better focused.
Finally, we ought to do more to help the agencies that deal with debt. Sevenoaks has an active Christian counselling service that works extremely hard, but of course it depends entirely on volunteers. It receives no help from anybody. Why should a service such as that not be able to access some of the funding streams that are available? More controversially, there is the role of our citizens advice bureaux. Every Member of Parliament knows that they carry a large work load. The Government support the work of the bureaux. I note that last year they gave £40 million to the National Association of Citizens Advice Bureaux, now called Citizens Advice. However, a large chunk of the funds never in fact reach the bureaux in our constituencies. Much of it is spent centrally. I note that some £3 million is spent centrally on influencing policy makers. Nationally, Citizens Advice has a wage bill of more than £15 million and employs more than 400 staff. Eight directors are paid more than MPs. The 3,000 bureaux in our constituencies are not able to access the money that the Government make available because it is filtered through the national association. Indeed, things are actually the other way around. A citizens advice bureau must subscribe to the national association and pay a membership fee.
The Government have provided some useful individual, selected funding streams to Citizens Advice. I urge them to consider again how the central grants are given and to ensure that more of the money gets through. Otherwise, the burden falls on our local authorities, hard-pressed as they now are. My council, which has to cut another £1 million from the services that it operates, obviously has less scope to make the grants that it used to make to the Sevenoaks and Swanley citizens advice bureaux. Therefore, there is a case for looking again at the £40 million and seeing whether more of it could be channelled into local offices.
Mr. Love: I have some sympathy with the hon. Gentlemans argument, but does he accept that the CAB needs a central organisation in order to maintain the highest standards in offices around the country? Does he accept that a central organisation is needed for high standards of IT, which makes the job of local offices much easier? Therefore, while I understand the criticisms that he is making, there is a strong justification for a central organisation.
I certainly accept that there must be a central organisation, and that many grants are made for improving IT in individual bureaux. My point is
simply that a balance must be struck. If the Government allocate £40 million to such work, I would like to see more of it pushed out to the bureaux themselves. It may simply be a question of redressing the balance.
Other colleagues wish to speak in this important debate. I know that the Government have already accepted several of the themes and have made commitments in respect of them. I very much look forward to the Governments response and to the response of my hon. Friend the Member for Fareham.
Mr. Andrew Love (Edmonton) (Lab/Co-op): I welcome you to the Chair, Mr. Bercow. I cannot do so without a tinge of regret, as I believe that your talents are much better used on the Floor of the Chamber.
I also welcome the Economic Secretary. She takes a great deal of interest in this subject, and I look forward to her contribution. I apologise to her because I shall raise quite a number of questionssome have already been covered, but there are othersand I hope that she will at least be able to touch on them.
This is an important debate. To put the matter at its simplest: poor people pay more. I can give hundreds of examples of that, but let us take the case of the utilities. Paying by direct debit is incredibly cheaper than paying by cash. That goes through our whole economic system, which is becoming much more focused. Therefore, there is a need for financial inclusion, which will allow people on low incomes to help themselves. We need to deal with such matters, and the reports touch on many of them. Although all the issues raised in our reports are important, the critical factor is that people should have a bank account. Bank accounts are a gateway into the financial services system and the first key to reducing financial exclusion.
I start by echoing something that my hon. Friend the Member for Leeds, East (Mr. Mudie) said. When we first looked at the subject, we agreed with the Government that we should reject going down the legislative avenue. Indeed, we did so even though we had been to the United States and been mildly impressed by how the Community Reinvestment Act was working, although we recognised that the American system was different from ours. However, we felt that we needed to give voluntary endeavour an opportunity and to see whether it was working. Now that we have had time to see how things have developed, is the Minister still convinced that voluntary action by everyone in the financial services sector is delivering what the Government want?
My hon. Friend mentioned four areas, but I shall telescope them into three, and they were covered in the reports that we issued some time ago: access to banking, affordable credit, and financial capability and education. Let me start with access to banking and the basic bank account, although I shall touch on the Post Office card account and its replacement. In 2004round about when we started our inquiryabout 2.8 million individuals did not have a bank account. The Government and the banking sector agreed that we should have a target of halving that number going forward, but the Committees investigation showed that there were several difficulties in the way of achieving that. Many customers have problems setting up basic
bank accounts or, indeed, any bank account. The money laundering regulations are regularly mentioned in the House, and we found many instances of banks asking for high levels of information before bank accounts could be set up, and there was some concern about that. There were also concerns about whether bank accounts performed useful functions once they had been opened for customers.
We did not find great enthusiasm in the banking community for dealing with such things; indeed, many banks privately accused each other of not doing enough, while saying that they themselves were doing a great deal. There was therefore just a little legitimate concern about whether they were fully committed to a programme of ensuring that everyone had a basic bank account. Of course, there was some resistance from customers themselves, many of whom opened accounts only to extract the money almost immediately without making any use of the account, which is a difficulty. Furthermore, many Post Office card account holders have shied away from involvement with the banking sector, and there are issues that need to be addressed in that respect. However, as was said, we could not get real-time figures for how the banking industry was doing on basic bank accounts. We know that many accounts have been set up, but it was difficult to form a view. I therefore wonder whether the Minister has been able to elicit information from the banks on how well we are doing on achieving the target that was mutually agreed by the Government and the banks.
I want to touch briefly on a number of other issues relating to basic bank accounts. The basic bank account arose out of research carried out by the social exclusion unit, but much of the evidence that we took suggested that it was not designed effectively enough for those for whom it was intended. Let me give just two examples to highlight that. First, it takes ages for money to get into peoples accounts when they cash a chequean absolutely crucial point for people on low incomes. The British banking system has a pretty appalling record on getting money into peoples accounts, but the situation was even worse for basic bank account holders. Is anything being done about that? Secondly, small buffer overdrafts would give people confidence when dealing with their account, and quite a number of banks already have them, but most do not, and that is really important. In this regard, I could also mention parity of esteem because many people with basic bank accounts cannot use the bank itselfthey cannot go in and cash a cheque because they are not allowed to do so, even though ordinary bank account holders are. My question, however, is whether we are achieving the objectives and targets that we have set ourselves for basic bank accounts.
We know that the Post Office is critical, and 24 million customers go through its network every week. The Post Office card account has just under 4 million members, 1.2 million of whom are on benefits, so it is a critical part of the lower-income sector. We know that there are major problems with getting people to migrate to an ordinary bank account or a basic bank account, and no one underestimates those problems; indeed, that was part of the inspiration behind the
introduction by the Department for Work and Pensions of the procurement process that was mentioned. As we have been informed, there is now talk of a Post Office card account No. 2, and I have a number of questions about that. There is the issue of functionality and of whether people can save with the new account. We need to take decisions and to give considerable thought to how we can make the account more attractive to customers. We need to think about how we can make it more relevant, rather than trying to put people off, which will not succeed. What progress is being made? What discussions is the Minister having with the DWP on the subject? Of course, such discussions will feed into the Treasurys targets for basic bank accounts and for ending financial exclusion.
I must mention two other issues. Free ATMs were mentioned, and most of the ATMs in post offices are free. However, someinterestingly, they are mainly in deprived communitiesare not because, the Post Office tells us, they would not be viable if they were free. While researching our report, therefore, the Committee asked the Post Office whether it was ensuring that customers who used post offices knew that those machines were not free, and it is important that we get some reassurance that that is the case.
The other issue relates to bank accounts. Many people with bank accountsnot basic bank accounts, funnily enoughcannot use the post office because the Post Office and certain banks have failed to reach agreement. I understand that commercial sensitivities and difficulties will be involved, but that does not help the customer basethe people whom we want to ensure can use post office servicesand I wonder whether there is any discussion of those matters.
Both previous speakers mentioned affordable credit. I shall start with the social fund, although I do not intend to deal with it at length, because it is not part of the Ministers responsibilities. However, the Committee asked for the fund to be reviewed, expanded and improved, and that is tenor of the report by the Select Committee on Work and Pensions, which is part of our discussions. Is the Minister talking to her opposite numbers in the DWP? Is consideration being given to expanding the social fund? Many people, including members of the Treasury Committee, believe that that could have a major impact on addressing the problem of affordable credit in the sector of the economy that we are discussing.
I certainly endorse several of the Governments actions. I strongly welcome the action on illegal lending and the work being done in Birmingham and Glasgow, which is now being expanded to other cities. That is excellent. I welcome the work that is being done on home credit. The hon. Member for Sevenoaks (Mr. Fallon) mentioned home credit, and of course there was a super-complaint. The Competition Commission has reported on that, and data sharing was one of the issues that it touched on, as well as competition matters. We welcome those moves. Credit card charges have been among the concerns of the Chairman of the Select Committee, and we must be ever-vigilant about that.
My question about affordable credit relates to third sector lenders. Originally, community development financial institutions were funded through the Phoenix fund. When it was decided that that should be removed, we set up the growth fund, which provides
£36 million. I know that the Government have announced that they will not continue the tax relief for deprived areas, and there is some concern in the third sector that if, as it appears, the Government are moving towards removing support from the third sector, it will not be able to respond to need. I seek some reassurance from the Minister that the third sector is still very much in your sights and that support will continue.
I shall not go into the Credit Unions Act 1979, except to say that credit unions can and should play a much more important role. They are very marginal to our considerations of affordable credit, but they could be more central. For that to happen, they would need to be further deregulated, by an Act of Parliament, as a matter of urgency. I understand that the Minister has indicated that the Government will publish a Bill in the next week or two and we welcome that.
The final thing that I want to say about affordable credit is that we hope that the unfair credit relationship test in the Consumer Credit Act 2006 will allow those who are provided with unreasonable credit to take legal action. That course was not really available to such people under the Consumer Credit Act 1974. Howeverand the Minister will be aware of the responsible lending campaign that is under way inside and outside Parliamentthere is some concern about that matter. I strongly support the Act and I believe, and all the evidence suggests, that we should not introduce a cap; I believe in the Governments approach. However, it is also important to try to ensure that bodies that can lend money do so responsibly. I should like the Government to run an advertising campaign to provide information in that context. It is not just a case of buyer beware for the consumer. There should be some responsibility on lenders to lend responsibly.
On financial capability, financial education and the problems connected with upwards of 15 to 20 per cent. of society being functionally illiterate and innumerate are an educational challenge. I understand that there is movement towards more financial education in the curriculum. Indeed, the GCSE maths curriculum has been expanded to include it. I wonder what discussions the Minister is having about carrying that forward. The Financial Services Authority is doing some sterling work on that with its national strategy for financial capability, and the Government should give whatever support they can across the board. The primary responsibility lies not with the Treasury but probably with the Department for Children, Schools and Families. However, it would help enormously if Treasury Ministers would talk to the DCSF about the importance of financial education.
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