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I finish with a few words about generic financial advice. The important thing to recognise in this context is that the description generic means that there is no product recommendation at the end of the advice, ensuring that the advice need not be regulated. There is
concern about the line between regulated and non-regulated advice. The Government could help to resolve that and ensure that it is possible to know exactly which is which. I welcome the setting up by the Government of the Thoresen review. I understand that the interim report has now been issued, and pilots have been set up to study the different types of platform from which the advice could be provided. It has been suggested that provision should be independent and impartial, based on a national model, which I think everyone accepts, and that it should be built on existing structures; that is also probably accepted across the industry. We know the advantages: there will be major advantages for the industry if consumers are better informed and there will be advantages for the Government, not least connected with the new accounts that will be set up under the Pensions Act 2007, and the new agency will have a critical role in ensuring that people understand the benefits of that.
John Bercow (in the Chair): Order. I am genuinely loth to interrupt the hon. Gentleman. It has been a fairly seamless progression, but he has used the word you several times. I am not a participant in the debate, and I am sure that the hon. Gentleman has the Minister in mind, but debate flows through the Chair.
There are two issues on which I hope the Minister will be able to give me some reassurance in connection with Thoresen review and the final report, which will come out early next year. First, I should like some conclusions about funding. Will there be a mixture of funding and will the industry contribute as well as the Government? Secondly, the Treasury Committee recommendation was that the advice should be focused on people on lower incomes. Yet Thoresen has suggested that all consumers should be able to approach the new organisation. I accept that decision in principle, but one might be concerned to ensure that the people on whom the initiative is primarily focusedthose on lower incomes, who need the support more, I suspect, than people further up the income scale, who are better prepared, and more involved in the financial services sectorshould not be excluded as a result. There are many examplesSure Start is the perfect oneof initiatives that were intended entirely to be focused on those on low incomes and those who are excluded, but which have in many ways been much better used by people further up the scale. Perhaps the Minister could provide some reassurance on those two points.
The Treasury Committee very much supports the Governments strategy on this matter, and we want to help their work in whatever way we can. We consider the matter to be one of some urgency, and if we can work together, and the Minister can continue with the work so ably carried out by her predecessors, we can begin to have a real impact on financial exclusion.
Mr. Colin Breed (South-East Cornwall) (LD): It is a pleasure to make a contribution to this important debate. It is a pity that it is on a Thursday afternoon, but that is always the case for such debates. I do not apologise that I shall discuss many issues that have already been covered. They are the main areas of the body of work that the Treasury Committee has done, on which it should be congratulated. There has been some very good work. There have been many other contributions, however, and in the past few months a large number of reports have come in the post or been slapped on our desks. It is not just MPs, or the Treasury Committee, who are concerned about financial inclusion or exclusion. Some young people, as well as middle-aged and older people, face fundamental problems in managing their money and taking control of their financial affairs.
That set me thinking about what banking was like when I left school and joined the Midland bank 43 years ago in 1964. A bank account was a privilege, and was certainly not enjoyed by the vast majority of people. There was a multiplicity of banks, not only the ones that we know today, but others with strange names such as Williams and Glyns, District, the old National Provincial and so on. Flourishing regional Trustee Savings banks operated effectively in all parts of the country, and there were many post offices where people had Post Office savings accounts. People had multiple opportunities to move money about, but banking was the preserve of the wealthy, not hoi polloi.
There has been a huge change in 40 years. There used to be a culture of saving for a rainy day or to buy something, but credit now proliferates. The other day, I asked some young people what they thought about savings, and it became clear that their savings or their emergency fund was the difference between the balance on their credit account and its limit. That provided them with the ability to meet unexpected bills, and the idea of having money saved in some sort of savings account had not occurred to them. They seemed to think that that was a quaint relic of a bygone age. I shall say more about that in a moment.
Bank accounts have changed enormously. They are no longer a privilege, but are essential, and it is almost impossible to operate without them today. So many payments, including salaries, go directly into bank accounts, and everyone wants people to use bank accounts, standing orders and direct debits. They are a necessity for everyone, but a significant number of people still find it extremely difficult to obtain a bank account, even today.
Some banks use rules designed to prevent money laundering to deter people from having bank accounts and to restrict such accounts, which is wrong. I have had to help someone who was having difficulty in opening a bank account, and I urge the banks to recognise that such accounts are no longer a privilege on which they can make a decision, but are a necessity and that they must respond accordingly.
Before going too far on ATMs, I applaud the fact that a free one was installed in my constituency some time ago. I was privileged to open it and to take out not my money but the banks money, and to give it to a charity. All ATMs should be free, because they were
introduced not as a service for bank customers, but to reduce the banks costs at the counter and the necessity for them to increase the size of their branches, and to keep some branches open. ATMs have made a massive contribution to banks profits and it is obscene to charge for the use of them, because they were intended not as a service for us, but as a means of reducing costs.
We must exert continual pressure and ensure that basic bank accounts are available to everyone who needs them. I mourn the loss of Girobank. What would the Post Office give today to have the Girobank mechanism available to it? I do not know how much it was sold for, but I believe that it was about £50 million. It was probably the worst ever decision because of its effect on financial exclusion.
On savings, there has been a cultural shift since the bygone age when people put money aside for a rainy day, unexpected emergencies and bills, or an expensive purchase. People now rely almost completely on credit, and we must restore the savings ethos. The hon. Member for Sevenoaks (Mr. Fallon) rightly pointed out that the savings ratio is now so low as to be almost insignificant. The banks have contributed to that because, as they have relied less and less on retail deposits, they have been able to reduce interest rates. The margin between their interest rates on deposits and those at which they lend money has increased significantly, and because of the huge increase in wholesale deposits they have not valued their customers deposit or savings accounts.
We all know that banks have concentrated on the more lucrative end of credit. The way in which that has been promoted and sold is a problem, and young people are targeted. Only a year or so ago, my son received from his building society a wonderful offer of an extra £10,000 on his mortgage with a reduction in his monthly payments. He thought that it was a good deal to pay less every month and to receive an extra £10,000. I asked him what he wanted an extra £10,000 for, and he said that he would find something to spend it on. I then asked him whether it had occurred to him to wonder how the building society could lend him another £10,000 and reduce the monthly repayments. It did not take long to work out from the very fine print that the term of the mortgage would be extended, and that the total amount of interest that he would ultimately pay would be hugely more. In his rather ignorant way, he thought that the building society was giving him £10,000, but he would have had to pay significantly for it. Such marketing and use of credit is not helpful, to say the least.
The hon. Member for Leeds, East (Mr. Mudie) chided the Liberal Democrats view of child trust funds, and I have some sympathy with his views, but a limited amount of money is available and a balance must be struck. I hope that the Government will introduce a culture of saving, but that is yet to be proved. People should start saving early and continue saving throughout life. At a number of forums at which I have spoken I have suggested that people should try to have at least one months salary somewhere. We have all had people come to our surgeries in desperate need of a relatively small sum. They may need to use their car to go to work. If it does not pass its MOT, they may need suddenly to find £300 to keep it going, but have
only £25 and do not know where they can find £300. It is amazing that relatively small amounts can knock people sideways.
We should encourage low-cost savings and investment products for low amounts so that people have easy access to simple accounts to save relatively small amounts of money, and a cushion for emergencies. That requires a basic advice regime. I wondered what that was, and page 40 in volume 1 of the 12th report describes it as
a short, simplified form of savings and investment advice. Consumers are taken through a series of pre-scripted questions to identify their financial priorities and determine whether a product from within the range of low-cost regulated saving and investment stakeholder products is suitable for the customer.
saw no evidence that the basic advice regime is encouraging retail insurance firms to actively target consumers on lower median incomes. Mr. Tiner
admitted that very, very few financial institutions had signed up to offer products under the basic advice regime. The FSA submitted a list of the 46 organisations that had signed up to offer the basic advice regime. Of these, there was only one major insurance company and no major high street banks, with the overwhelming majority made up of small Independent Financial Advisers.
It would help if the Government gave some recognition to the section of the report that deals with the subject of basic, simple advice to save, and perhaps the FSA ought to get on with conducting its full review of the basic advice regime and report to Parliament at some stage. Savings must be given the same priority as credit, borrowing, or access to financial services in any financial inclusion strategy. Indeed, savings must be at the heart of any such strategy. Even those who find life difficult need to understand that saving a small amount over a long period may help them to begin to climb out of their difficulties.
Much of what I wished to say has been said, but I shall say a few words on credit unions. Credit unions do a good job, but at a low level. There are around 550 credit unions in England, Wales and Scotland. Their objectives of thrift, control, savings, providing fair interest on credit and helping people manage their financial affairs are goodabsolutely wonderful. The unions have been growing more strongly, but they are still at a low basethey have only around 500,000 adult customers, which is a small number against the number that they ought to have. That is partly because they are not easily recognised for what they are. The phrase credit union does not express the nature of such organisations. For a long time I have said that I should like the sector to be greatly enhanced, perhaps by unions joining together and marketing themselves as community banks. The community banking networkthe not-for-profit sectorin America is particularly strong and makes up a huge part of the total number of financial services organisations. We ought to rebrand credit unions as community banks. I should go so far as to say that if the credit unions in my part of the world in Cornwall grouped together and called themselves the Cornwall Community Bank, the community interest and support and the range of people who would become interested would be significant. Such an organisation would do a lot more work among the financially excluded.
I hope that we move towards a more liberal regime for credit unions, as the hon. Member for Sevenoaks said, and in particular enable them to be more market oriented. Calling the unions a community banking network is about ensuring that an organisation does what it says on the tinthe unions are not about credit; they are about savings. I do not know what a union of credit is and I do not believe that the phrase credit union gels.
On financial education, I wish to pay tribute to the Personal Finance Education Group. It has sent people to see me and I have attended two conferences in my part of the world, both of which were well attended by a range of people, which demonstrates that many people are interested in the subject and the groups work in schools. I pay tribute also to HSBC, which might ultimately pay my pension, for its support for financial education. There is a lot of work to be done and I believe that schools ought to grasp the issue. Schools have a lot to do, but financial education is too low key. It has become almost a tick-box exercise. Schools provide financial education in the sense that they mention it in a personal or social health or citizenship class or some such, and so are able to tick a box six months later. That does not provide what we need. Financial education needs to be more structured and mainstream. Teaching staff need to understand exactly what they must do. Those things will happenthey mustbut the sooner the better.
I am always struck by the fact that, in Japan, there are only about 180,000 of what we know as chartered accountants, which is not a lot compared to our country. The reason is that everyone studies accounts in Japans mainstream education systemit is part of the curriculumand has a basic understanding of budgeting, accounts, spreadsheets and so on. We must go in that direction and have more people take personal finance examinations, perhaps instead of general studies. An A-level in personal finance would educate people and provide them with a qualification that could help their future careers.
Once again, I applaud citizens advice bureaux. Without them, my service to my constituents would not be what it is and my surgeries would not function as well as they do. Many bureaux rely on local government support, but that is being squeezed all over the place and a number of bureaux are finding things difficult at a time when they need more resources. They are being squeezed from two sides: more people are coming through their doors with more needs, but it is difficult for local government to continue to provide the generous funding that it has provided for a long period. There ought to be some recognition of the tremendous number of volunteers. They undertake a great deal of training and understand some of the legislation on pensions and benefits better than people in Department for Work and Pensions offices, yet they work for nothing. We ought to value their work and recognise that they need support.
In summary, first, we need a greater emphasis on savings as opposed to debt. Secondly, we need to create a community banking network to tackle financial exclusion on a more formal basis. Thirdly, we need more education, not only for young people but for everybody. We need to provide basic advice and information to enable people better to control their affairs. We will be a healthier society for it.
Mr. Philip Dunne (Ludlow) (Con): I come to the debate as a new member of the Treasury Committee and I was not present for the evidence-taking sittings from which the reports were compiled. I have therefore read them cold, as it were, but I have found aspects of what the Committee deliberations brought out to be revealing. I approach the issue from the perspective of the rural constituency that I represent. I am chairman of the rural services all-party group, which has looked at the impact of the closure of post offices on the provision of financial services in rural areas. I have also taken on the role of secretary of the post offices all-party group, and I shall focus on financial inclusion in rural areas wearing those hats.
Contrary to popular belief, many rural areas, including Ludlow, have substantial pockets of deprivation. Average incomes are significantly lower than average incomes nationwide. Many people have limited access to financial products or services, not only because of the geographythere is a relatively small number of bank branches or post offices within an accessible distancebut because technology, which is the focus of the delivery of services in both the private and public sector, is, to a large extent, not as readily available in remote rural areas as in towns. For example, broadband is more or less universally accessible now in towns, but in remote areas the topography and distances are such that the BT lines that deliver broadband are not equipped to deliver it to households, so it is not good enough to say that individuals can access services online, because they do not have an online service that will receive the technological feed.
That brings me to my first point. The Government are increasingly looking to technology to solve many of the problems of financial exclusion. I accept that they need to put the technology in place, but for the most vulnerable in our community, many of whom are of an age at which there is no realistic prospect of their being able to access technology to receive services or product delivery[Interruption.] I apologise, Mr. Bercow; I thought that I had turned my mobile phone off.
Mr. Dunne: The Governments programme for service transformation led by Sir David Varney has undertaken a lot of work bringing together technological advances to deliver services, but the track record in the most simple stage of using contemporary technologyit is really the technology of the 20th century, because it uses telephone contact centres to deliver services, which was piloted initially by the financial services industryhas been poor, to put it charitably.
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