Mr.
Hoban: In the recent financial crisis, people’s
awareness of the compensation limits increased significantly. Does the
task, in relation to awareness of the limits of the Financial Services
Compensation Scheme, fall to the consumer financial education body or
to the FSA, which devises the rules for the scheme? We need to clarify
some of the issues on the margin about what the FSA is still
responsible for doing, and what responsibilities the new consumer
financial education body has. There is a danger that in the transfer of
responsibility the FSA may lose sight of its remit to make sure that
people are aware of its activities and we need to understand exactly
what the consumer financial education body sees as its
parameters.
9.30
am Mr.
Mark Todd (South Derbyshire) (Lab): I have not previously
welcomed you to the Chair, Mr. Benton, and I do so
now. The
hon. Member for Fareham has made a rather thoughtful speech, and that
is not unusual; most of what he says is well worth listening to. I
shall reinforce some of his points and add one or two additional
dimensions. Reflecting on my adult lifetime, which I think is that of
everyone in this Room—or not quite—the range of financial
products available to us, and the complexity of choice for consumers,
is by a quantum much larger than it was when I was 18. Then it was a
matter of sorting out a bank account—I do not think credit cards
existed, and I certainly could not get one—or worrying about
some of the more complex areas: insurance and investment products.
Savings were very straightforward. It is a world that has utterly
changed.
That shows
one of the strange things about this subject: poor financial education,
leading to poor decision making, is not necessarily related to
education. There are significant generational issues involved. Like
most hon. Members I have had highly intelligent constituents of a
certain age coming to see me after moving into an area of financial
products completely outside their experience. It is nothing to do with
how they were originally educated. Often they were educated to degree
standard. It is simply that the matters were outside their compass, and
they had trod waters far too deep for them.
Neither, as
the hon. Member for Fareham has said, is the problem always related to
income. It may concern people with significant sums of money—I
have, for example, dealt with some of those who have, sadly, put
substantial sums at risk by investing in the Isle of Man—who
have not done the necessary research to understand the risk they might
be taking, and who have given themselves much greater exposure than
they imagined.
This is a far
more complex subject than it is often portrayed to be. It is not about
helping poor, ill-educated people to deal with the crises in their
lives; that is part of it, but quite often poor people make sharp and
necessary judgments and are instinctively cautious about some of the
more foolish things that one can get into. It is much more
nuanced. The
hon. Gentleman also said, rightly, that the response to the
challenge—perhaps understandably, bearing in mind what I have
said—has been disparate, incoherent and confused, with a large
number of initiatives in the private and voluntary sectors and,
latterly, sponsored by the public sector, to address the problem. That
has meant often patchy coverage and extraordinarily little quality
analysis of what is being
done. My
biggest anxiety, therefore, is that we, collectively as a
society—some of the money comes from the private sector, but an
increasingly large sum is from the taxpayer purse—are
distributing a large amount of material without a great deal of
understanding about its effectiveness in addressing the problems that
we think we are seeking to tackle. We all know that there are problems
there, and the response I am afraid in some cases has been to turn on a
hose of money and point it vaguely at what we think the problem is,
without attempting to work out what tools might work best, then testing
and applying them to the rather different audience sets that are
undoubtedly there for what we are seeking to offer.
I
want to illustrate that. Two members of the Treasury Committee are here
today and they will know that I questioned the FSA at its last
appearance before us. In the FSA annual report is an evaluation of what
it has been doing on financial education. There was quite an impressive
list of statistics at the back of the report, saying, “We have
done this, this and this.” I picked out one example of the FSA
approach, in which it said, “We have got a target to reach this
number of pupils in schools.” The FSA had exceeded that target,
because the method used to count how it had done so was the number of
schools that materials had been sent to and the number of pupils in
those schools. I pointed out that that did not tell us a great
deal. I
shall come back to why I think such an approach of simply sending large
packs of materials into schools is unhelpful, but those of us who know
schools well, know that they receive a lot of material for free, from
Government and from other well-intentioned agencies. Some of the
materials end up in the round filing cabinet and others, more commonly,
end up in store rooms or teachers’ bookshelves. There was no
attempt to work out whether pupils had been reached by the initiative,
as opposed to the post room of the school being reached by the
initiative. That
was one example and there were, sadly, many. When I went through the
list of achievements, I think there were only four occasions when there
was any sign of an evaluation of what had actually been done.
Otherwise, all of the work was quantitative—“We have sent
all of this stuff out, so we have reached the
target.” That
is a worrying state of mind which, I am afraid, applies not just to the
FSA. I have had a number of discussions with PFEG—acknowledged
in the speech of the hon. Member for Fareham—which was the
distributor of the packs. PFEG took a somewhat similar view. When I
used in evidence the constituency that I serve and the schools in it,
saying, “Well, there is precious little evidence that what you
are sending out has actually produced an outcome,” it had to
concede that that was true, because the test done on engagement with
schools showed that in the entirety of my constituency, the actual
engagement of any solidity beyond sending a piece of paper to the
school was virtually nil. We are in a position in which we appear to be
doing rather a lot—it is certainly costing quite a lot of
money—but without any evidence that it is actually producing
substantial
outcomes. Another
worrying thing, again focusing on the school environment, is that the
quality of material, to the untrained eye, would appear excellent. It
often looks impressive; it is a well-presented pack of apparently good
teaching materials. I have the advantage—or disadvantage,
depending on how you look at it—of having worked in the
educational publishing industry for a large chunk of my life.
Therefore, I can view the material from the perspective of how it would
work in the school environment, as that was how the business I worked
in survived or failed. Many of these materials have a strong resonance
with some of the products that, sadly, led the part of the company that
attempted to sell to schools into steady decline during the time that I
worked there. I moved out of the school section fairly early in my
career towards other parts of what was a large business. We declined
from being No. 1 in the
school marketplace when I first joined the company
in the mid-70s, to being about No. 4—which in those terms meant
nowhere—by the time I left at the end of 1996. The materials
that we produced were often excellent and sold extremely well at the
top end of the school market, which was relatively small. If someone
sought to provide materials for a more harassed school environment with
a harder-to-persuade pupil clientele, that was often regarded as
inappropriate. We tended to get lots of plaudits, and people saying
“Marvellous”, from grammar schools—where they
existed—public schools, and the top end of the comprehensive
system. It was the same for some of the primary materials. Often,
however, such materials were not the product of choice for those at the
coal face of education. A quick look through some of those materials
indicated that we were in the ballpark of producing what appeared to be
excellent materials, but as soon as they were tested in the school
environment it became harder to see whether they would work.
My knowledge
of this is out of date, but I have some experience from some time back,
which is probably greater than that of other members of the Committee.
However, it worried me that we were in that mode, which led me to think
about our approach.
Mr.
Hoban: I am following what the hon. Gentleman says
carefully. Is his argument that the content is not geared to the full
range of schools that this material is for? This initiative goes across
the board to all schools, but the level of engagement with financial
services and knowledge of budgeting may well differ from school to
school. Is the material aimed at too high a
level?
Mr.
Todd: That is broadly what I am saying. The generic
material that I saw would have been suitable in some schools but not in
many others, and that would have been a barrier to its wider use and
adoption. That is why my approach is fundamentally different from what
is being done now because I wish to use the market. At the moment, we
wholly fund free materials that are provided to the educational system
or, more broadly, to the voluntary sector so as to provide support for
financial education. In my experience, having worked in a pedagogic
marketplace environment, we will not get the highest quality materials
with that approach. We need greater competition between providers in
the marketplace, and we should produce price indicators among
consumers, and some measure of choice between the various products
available. As I have said, those products will vary in how they fit the
communities that they serve.
Therefore, to
take up a point raised by the hon. Gentleman, I would wish for the body
that we are seeking to set up, which I welcome, to be very much a
commissioner of services rather than a provider of products, and a
commissioner in a competitive environment. It should provide an
opportunity to tender for the products that it seeks to make available,
and one assumption in distributing those products should be that they
might not always be free. I take the somewhat old-fashioned view that
if one sends people free things, quite often they do not attach as much
value to them as one does oneself. By introducing some market tools
into the provision, we will create a sharper, better-informed
marketplace with more providers who are more incentivised to make a
substantial difference to the education landscape with which we are
contending.
9.45
am I
hope that that is what the new body will do, so I hope that it will
evaluate with a sharp focus what has been done until now. The hon.
Gentleman referred to the pack given to expectant mothers. That falls
exactly into the category that I described. It is a beautiful
thing—I dread to think how much it cost to produce and
distribute to all expectant mothers—but it most strongly
resembles an extraordinarily impressive doorstop. It is bulky, it
contains a large amount of information that is not necessarily attuned
directly to its recipient and it is unvariegated. The only commonality
among the recipients is that the circumstances of the birth of their
children will vary dramatically, as will their need for
information.
I have been a
harsh and relentless critic of that and other FSA products—I am
sure that if I was ever on Chris Pond’s Christmas list he has
removed me—but one must be tough about such things. In answer to
my evaluation questions during the question and answer session at the
start of this Committee, the FSA produced statistics as evidence that
at least sometimes, the pack appears to have some use and people make
something of it. However, I would be interested to see the evidence
base and data that produced that information. I suspect that the sample
might be rather small and might not represent the entire community of
those who received that extraordinarily impressive package. My
unscientific survey of women who had been through that experience
indicates that they made little or no use of it. The FSA’s
survey was more robust than mine, but I would like to know more about
the
evidence. I
have spoken at some length because, although clause 1 might appear to
be the most significant and certainly deserves significant debate,
clause 6 will probably be the Bill’s major initiative, in terms
of its lasting implications, if we get it right. As with many things,
because it is consensual—we all think that it is a good thing to
do—it risks not being evaluated sharply enough or subjected to
proper test. I look forward with interest to the Minister’s
response. While I continue in the House, which will not be for long, I
will continue to take an active interest in how the matter is
pursued.
John
Howell: It is a great pleasure to follow the speech from
the hon. Member for South Derbyshire, which was very informed. I found
myself agreeing with most of what he said, because the big issue here
is not the need for financial education—the Committee has no
doubt that there is such a need—but whether the Bill takes it
forward in the right way and delivers it so as to produce a lasting
effect. I
start by picking up a point made by my hon. Friend the Member for
Fareham and, indeed, picked up by the hon. Gentleman, about the
confusion over the role of the new body. That was summed up admirably
in the terms of whether the body was a commissioner, an umbrella
organisation or, as one of the witness submissions said, nothing more
than another financial watchdog, or whether it is actually going to do
things. It is instructive that not just members of the Committee are
confused, but the witnesses themselves. Their interpretations were very
different, a few of which I want to tease out as we go
along. The
Bill definitely contains power for the new body to delegate—to
commission—although, practically, the only thing in the clause
amounting to any concrete
activity is the issuing and production of publications. Everything else
is much more general promotion. I completely concur with the hon.
Gentleman’s concerns about that being one of the key things to
be done if we do not understand what is going to
happen. Also
missing, which was picked up by the CBI for example, is any mention of
tackling the issue of risk. We seem to have a number of different
levels for which education is provided; our baseline is the educational
need. It would be interesting to know whether the hon. Gentleman, with
his experience, has seen that level of general baseline
ignorance—if I can use that term—change over the period.
Has the gulf between that level of ignorance and the difficulty of
coping with ever more complicated specific instruments grown wider or
narrower? However, we certainly have a general level of financial
ignorance with which to cope. Overriding the specific education about
individual products—the example of ISAs, given by my hon.
Friend, was a good one—is the understanding of what risk is
within financial services and individual instruments, and how to
appreciate and manage that risk. As many of the witnesses said, it is a
great regret that there is no mention of that—certainly nothing
in the
Bill. The
lack of clarity about what the new body will do and how it will do it,
I found to be one of the determining factors in our questions in the
evidence sessions. A number of us tried to tease out of various
witnesses what success would look like to the new organisation. I am
not sure that any of us got a very good answer to that or that the
additional memorandum by the FSA takes us much further along the
way. I
appreciate the difficulty of measuring success with such a wide
audience and when the idea of success in such an environment is,
inevitably, somewhat intangible. However, for the ultimate test of
success—certainly from the FSA’s point of view—not
to be known until a new base survey is done, which could be 2016 at the
earliest, is not an acceptable way of assessing the success of a body
that is going to play a major and important role in taking us forward
in the financial services area. The Committee may recall what Angela
Knight said was needed: careful scoping of what the body is going to
do; clarity at the start; a review process; proper understanding of
what the targets are; and measurement of the
outcomes. If
one of the issues is about the internal structure of what the new body
will do, the second issue created is that of boundaries with a number
of other organisations, in order to maintain confidence in the
financial system. I was fascinated by Andrew Whittaker’s view
that the new body would not have told people to pull out of Northern
Rock even if it had known that there was a problem there, because of
the effect that that would have had on financial stability overall. We
may argue about whether that would have been a sensible and right thing
for the new body to do, but it goes to the heart of a debate that needs
to take place about the extent to which the new body will be able to
take action and provide information on an event-by-event
basis.
That also
raises questions about the level of detail that the new body will get
into. As was suggested in the evidence sessions, will it be simply
reduced to what I think one witness described as issuing pamphlets and
telling banks how quickly they should reply to customers’
complaints? If that is the ultimate outcome for this new body, we need
to think carefully about whether it is worthwhile. Another
boundary issue relates to the question that has been raised by some
hon. Members about what is already being done in this area. I seem to
recall from an evidence session that Angela Knight tried to put a
figure on how much is being done in the private sector compared with
what is being done with Government money. She thought that the amount
being spent by the private sector was certainly no less than the amount
of Government money being spent and I seem to recall that she thought
that it was several times larger.
As others
have pointed out, that creates huge potential for duplication. I would
never like to see duplication and a waste of resources in the whole of
the system, but there is actually a much greater risk than duplication.
That is that the banks and building societies involved in the current
programmes simply say, “We are duplicating our costs and
therefore we will pull out.” I do not think that that would be
useful for the market or open it up to the type of products that we
need there.
In some ways,
the FSA’s additional memorandum makes matters worse. Paragraph 6
lists the number of Government Departments that will consult on the
FSA’s budget, but we are left with the clear indication that
that is not an exhaustive list and that the FSA will continue to
discuss its budget with others. That opens up a number of boundary
disputes with those organisations, particularly with the OFT. Again,
that was an issue that was raised by many witnesses.
As I
mentioned earlier, that confusion can be seen in some of the
submissions by witnesses from organisations. Many of the organisations,
such as Catch-22, Citizens Advice and Age Concern, raised questions
about targeting and the need to target the vulnerable, which is another
issue that we have already touched on. However, there are questions to
be asked about the extent to which what is being delivered is actually
providing real help and whether help is reaching vulnerable people
deliberately or by accident. There is confusion over whether we are
giving advice and what that advice would be. There is also a big issue
about establishing the boundaries of what will be covered.
I recognise
that organisations involved in this process will be pulled in several
directions. There will be a need to focus, to justify the use of what
is a finite amount of money. However, there is a desire, which we saw
in many of the submissions that we received, not to focus and reduce
the scope of this new body but to widen the focus and include benefits
advice, tax advice and advice on general financial well-being. That
advice certainly needs to be given within the educational framework for
the financial services system, but the question is whether it is
appropriate for this new body to give that advice
specifically.
Of course, we
can see from the witness statement of Adrian Coles that 38 per cent. of
people are getting face-to-face contact and that those people are
dealing with tax and benefit issues, not issues relating to financial
services. Given that situation, he asked why banks and building
societies should pay to provide that information rather than something
more specific. That is a question that needs to be answered.
Matthew
Fell of the CBI said that he was not sure who derives the benefit from
providing the information and therefore who should pick up the tab. He
also admitted that there is a broader public interest in improving
financial literacy among the public, but his view was that that aim
does not come across in the Bill and therefore it was very difficult to
establish a balance. Age Concern also picked up on that issue, asking
questions about whose interest the new body would act in. There are
several boundaries that need to be clarified in order to find out how
it will work and what it will do.
10
am There
is also a question of credibility. We saw from the comments of Adam
Phillips that the FSA has a history of over-claiming its successes. It
is essential that whatever staff it takes on will overcome that.
However, although we were told that the new body will choose its staff,
that will happen only after the existing staff have been TUPE’d
over from the FSA to the new body. It will start with a group of people
who, over the years, have clearly developed an expertise; the question
is whether that expertise will be delivered in the right way.
We
do not want the new body to find that whatever it does is blighted by
the FSA’s track record. As I said in an intervention on my hon.
Friend the Member for Fareham, a big gap in the FSA’s activities
has been providing feedback on what has been found during its
educational activities. As a result, there has been a cut in the loop
that would normally allow the education system to move on. Feedback
means learning from mistakes and being able to target better.
The
FSA’s additional memorandum gave a number of examples of the
educational activities that have been undertaken. It also set out an
overall approach to assessing them, based on four key
criteria—reach, content, process and impact. I have no
difficulty with those criteria being considered as reasonable
indications of success, but I would be worried if all four were given
equal weighting. It would have been interesting to know whether a
weighting had been given to them so that some were above others. To my
mind, the most important is impact—whether we see any real
change in behaviour—as that will be the most lasting effect and
the one with the most benefit to the financial services
sector.
I have great
enthusiasm for the idea of continuing and ramping up the educational
aspect needed by the financial services sector, but I am less convinced
that it is set up in a way that will deliver it in an enduring manner
or deliver the success required to take things
forward.
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