The Committee consisted of the following Members:

Chairmen: †Mr. Roger Gale, Mr. Joe Benton

Bain, Mr. William (Glasgow, North-East) (Lab)

† Barlow, Ms Celia (Hove) (Lab)

† Breed, Mr. Colin (South-East Cornwall) (LD)

Cable, Dr. Vincent (Twickenham) (LD)

† Duddridge, James (Rochford and Southend, East) (Con)

† Hoban, Mr. Mark (Fareham) (Con)

† Howell, John (Henley) (Con)

† Love, Mr. Andrew (Edmonton) (Lab/Co-op)

† Marris, Rob (Wolverhampton, South-West) (Lab)

† Mudie, Mr. George (Leeds, East) (Lab)

† Pearson, Ian (Economic Secretary to the Treasury)

† Roy, Lindsay (Glenrothes) (Lab)

† Todd, Mr. Mark (South Derbyshire) (Lab)

† Tyrie, Mr. Andrew (Chichester) (Con)

Walker, Mr. Charles (Broxbourne) (Con)

Watson, Mr. Tom (West Bromwich, East) (Lab)

Chris Stanton, Eliot Wilson, Committee Clerks

† attended the Committee

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Public Bill Committee

Thursday 7 January 2010

(Afternoon)

[Mr. Roger Gale in the Chair]

Financial Services Bill

Clause 6

Enhancing Public Understanding of Financial Matters etc.

Amendment proposed (this day): 40, in clause 6, page 4, line 15, leave out subsection (3).—(Mr. Hoban.)

1 pm

Question again proposed, That the amendment be made.

Amendment, by leave, withdrawn.

Mr. Andrew Love (Edmonton) (Lab/Co-op): I beg to move amendment 42, in clause 6, page 4, line 15, at end insert—

‘(3A) In section 5(2) (matters the FSA must have regard to in considering what degree of consumer protection may be appropriate), insert at end “, including—

(i) advice and information about regulatory action taken in pursuance of this objective, and

(ii) any needs for advice and information identified by the consumer financial education body.”’.

As this is the first time that I have spoken in this Committee today, may I welcome you to the Chair, Mr. Gale? It is a pleasure to serve under your chairmanship. As we heard this morning, clause 6 is one of the most important in the Bill. It is entitled “Enhancing Public Understanding of Financial Matters”. That is to be done primarily through the setting up of the consumer financial education body. We had a wide-ranging discussion this morning on that subject—almost a stand part debate—and I do not intend to delay the Committee by referring to what was said, other than by saying that both sides of the House supported the setting up of the body, although concern was expressed about how it will operate. Its creation recognises the need to consider the real problems caused by lack of financial understanding, especially given the complexity of the marketplace.

In this morning’s debate, a number of concerns were raised, particularly about the removal of the Financial Services Authority’s public awareness objective. It is on the impact that that may have on the activities of the FSA that I wish to speak. Amendment 42 is designed to address that problem. I hope that it will strengthen the consumer focus of the FSA. It would amend section 5 of the Financial Services and Markets Act 2000, which relates to the FSA’s objective to protect consumers—another issue that was mentioned this morning.

The amendment would incorporate in that objective the fact that information and advice about the regulatory action of the FSA should be included. That subject was missing from our discussion this morning. The amendment

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would also mean that information and advice relating to matters identified by the new consumer financial education body was included; we had a debate about that body this morning. The amendment will ensure clarity about the objectives of the FSA and the new education body. To refer back to the title of clause 6, the amendment will also enhance “public understanding” of the FSA’s regulatory reviews and of the new education body.

The amendment is important because of the need for transparency. Transparency is critical, because it is the key to better public understanding of the complex issues that we discussed this morning and, through that, better consumer protection. To achieve that, the FSA will need to work hard to inform consumers about a variety of issues.

The first is poor practice in the marketplace and some of the poor products that are available. In the House, we often speak of the real difficulties in the mortgage market, in terms of the quality of the products available. The FSA has not always delivered that transparency, or worked hard on behalf of consumers. We touched on how balance is to be achieved between the Financial Services Authority’s role representing the industry and its role representing consumers. Although there have been real difficulties in the past, recent work such as the mortgage market review has been widely welcomed on both sides of the divide. Consumer representatives welcomed it as an insight into the FSA’s thinking on how it could regulate that marketplace better.

That is important, because better transparency and understanding give the consumer greater confidence. As we have all admitted, we are talking about a technical and complex subject. Greater confidence allows consumers to challenge bad practice in the marketplace and seek redress, which is the critical factor.

I have had discussions with consumer advocacy bodies that have expressed considerable concern that if clause 6 remains unamended, several things will happen. The first, as I mentioned earlier, is the removal of the FSA’s public awareness objective, about which Members on both sides of the House are concerned. Also, there is concern that certain activities currently undertaken through the public awareness objective will not be covered by the new consumer finance body. There will be a hole in the net that protects consumers. The combination of those two issues led to amendment 42.

I am worried that some of the activities undertaken by the FSA in recent times, when its track record has been much better, will go by the wayside. Highlighting problems in the marketplace for consumers may well be downgraded. Information and advice, in the specific words used in the public awareness objective, will no longer be a central activity for the FSA, and some of that will not be picked up by the new consumer body.

I will give two examples of the activity that I mean. First, the FSA website, Moneymadeclear, has been widely welcomed, particularly among consumer bodies. It does a fantastic job. Consumers and consumer bodies can access it, and it is widely recognised to contribute to better consumer understanding. Secondly, the FSA’s annual report, a comprehensive document, is perhaps not the sort of thing that an ordinary consumer would read, but advocacy bodies certainly make great use of

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it, and it keeps them up to date with the latest thinking at the FSA. The worry is that without the objective, the site and those activities might be downgraded.

Mr. Mark Hoban (Fareham) (Con): I am not sure that I entirely buy the example. Given that Moneymadeclear is the brand used in the financial capability work, I assume that it would be run by the consumer finance education body. As for the annual report, the FSA is required to publish annual reports, and that will continue to be a requirement even if the FSA loses the objective.

I am concerned about what will happen to things such as the FSA’s thematic reviews on mortgages or payment protection insurance. They offer opportunities for industry to learn and consumers to recognise the issues arising from the sale of such products. I am concerned that the FSA will not publicise such reviews as widely as it should. I do not think that it publicises them sufficiently widely as it is, and it might go backwards. In those areas of regulatory activity, I am concerned that the FSA might not be as forthcoming, in terms of publicity, if the objective is dropped from the Bill.

Mr. Love: I certainly agree with the second part of what the hon. Gentleman says: the reviews are critical, not only for the FSA in undertaking its activities and regulating the market but, as has been mentioned, in publicising that as widely as possible. The work of the FSA has undoubtedly improved in that area, especially with reviews such as the mortgage market review, which was particularly warmly welcomed. That has been publicised well, but the worry is that the publishing of such information will become less of a priority.

The worry is not that the examples that I gave of the website and the annual report will disappear—of course they will not. The worry is that they will not be as comprehensive or be modelled on the ability of the consumer, and consumer organisations, to make use of such mechanisms to get better protection and support, and achieve a better understanding of what is happening in the marketplace. We do not think that the FSA will entirely run away from its responsibilities of providing information and advice, but we are worried that it will downgrade what is currently happening, which has been warmly welcomed over the past couple of years. Amendment 42 would ensure that the responsibility to provide information and advice was not lost.

That leads on to the other objective of the FSA, which is to protect consumers. I believe, as do consumer advocacy bodies, that the amendment would enhance the transparency of the FSA’s activities because it imposes that duty of consumer protection. It does that by enhancing the publicising of the FSA’s regulatory actions, which is the critically important feature. We do not think that the FSA is likely to be less robust in its regulatory actions; the credit crunch and the recession have seen to that. However, we are worried that publicising those activities might not get as much priority.

Under amendment 42, the FSA must also publicise issues that are brought to its attention by the new consumer finance education body. That is also critical. The Minister referred earlier to proposed new section 6A(2)(e), which states that the consumer education body would provide

“information and advice to members of the public.”

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Through the amendment, I seek clarification from the Minister about whether that wording specifically relates to the provision of generic financial advice through the Thoresen review and to what has been happening in the north-west with the pilot schemes, or whether it refers to a continuation of the publicising of FSA reviews of activities, undertaken by the new consumer finance education body. We are particularly concerned about that widespread publicity.

Let me briefly sum up my point. Amendment 42 would ensure maximum transparency for consumer benefit and redress, and it would clarify and publicise the important work that will be carried out by the consumer finance education body. I hope that the Minister will look kindly, if not on the specific wording of the amendment, then at least on the spirit in which it is brought forward—the spirit of ensuring that consumers are adequately informed.

Mr. Colin Breed (South-East Cornwall) (LD): May I also, in my first contribution on the clause, pay tribute to the work undertaken by a lot of bodies in recent years to address the issue of consumer financial education? Many other countries have been at it far longer than we have. As the hon. Member for Fareham probably knows, we have about 25 times as many accountants in the UK as there are in Japan, even though Japan has far more businesses. That is principally because the Japanese have financial education very much embedded in their school and education curricula, which means that almost everyone leaving school can not only read and write but do such things as calculate profit and loss, produce balance sheets and everything else. That is an interesting way of going about it. There are some disbenefits, because in Japan, of course, all those knowledgeable people decided to save all their money for about 20 years and locked up the whole economy, so perhaps sometimes that is not quite so useful.

1.15 pm

We had some very good contributions from hon. Members this morning on an important subject. All contributions were very worth while. I have a couple of concerns different from those expressed this morning. “Education”, if that is what it is, comes seemingly more and more often as unsolicited promotional material, which bangs through our letterboxes in ever-increasing amounts and sometimes slips out of magazines and things. I think there should be greater control over some of that material because, frankly, it is sometimes considerably misleading, but regretfully it provides a sort of education.

Secondly, the “education” often provided through large newspaper adverts—often in the Sundays, sometimes even supported by articles in those very publications—is not capable of properly differentiating and identifying the needs of the individual readers. It is sometimes enormously misleading. Regretfully, that is the sort of thing that people read, getting completely the wrong information and advice. We need to encourage the appetite for professional financial education in advance. I suspect that we have all had far too many constituents coming to us, seeking information and advice, when they have already made the decisions, sometimes with catastrophic outcomes for the their finances and those of their family. It is important, therefore, that the education is timely, so that people make the right decisions.

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To be effective, information and advice have to be trusted and independent, and have to use language that is easily understood, rather than legalese. As for people who give advice, among the more difficult issues is that of being very careful about the legal aspects. We need to address that, so that people have much more easy-to-understand language in the information and advice that they need. The information and advice have to be appropriate to people’s particular circumstances, which differ significantly, as we indicated this morning. Whether we are talking about savings, mortgages, credit cards or pensions, everyone’s circumstances are different and cannot easily be handled in a rather huge and across-the-board way.

I am also concerned about the boundaries between the consumer financial education body and the FSA, which I think the hon. Member for Henley mentioned. If in the next few years we see a modest rise in inflation—as is predicted—and savings institutions continue to provide minimal savings rates of interests, so that savings could in effect be losing purchasing power or value, is anyone likely to tell everyone to take all their money out of the banks at a time when the FSA is trying to get the banks to build up their capital, liquidity and everything else? We have conflicting aspects; what may be right for the consumer may not necessarily be right in other respects. There might also be issues to do with the “relevant matters” that are, I think, mentioned in the Bill somewhere.

What does the FSA do with its education policy? Does it tell people that having their money sitting in a bank is not a good idea, and to take it out immediately and put it somewhere else? Would it then have to say to the banks, “Why haven’t you attracted far more deposits?” It is difficult.

When I was with what is now HSBC, the position was clear: bank managers gave customers advice that was in their interest, even if it was against the interests of the bank. They do not do that now. If they started doing that now, they would be given short shrift. We have moved away from the idea of people trusting in proper information that is in their interests rather than in the interests of something else. If we are not careful, we will be advising consumers in the interest of the national economy rather than in their own personal interest.

I agree with the hon. Member for South Derbyshire that a range of people need advice. I found that out recently when I looked at what happens when I leave this place. What I thought might be the case was clearly not the case. I thought that I might have at least some idea of what was going on. People who think that they know a little bit can be more dangerous than those who accept that they know little, but who pretend that they know nothing and get some proper advice. A little information is a dangerous thing.

What might be termed the vulnerable young people sector—the 16 to 25s—needs very specific advice as early as possible. I am amazed at how many people in that age group are already borrowing significant sums on credit cards or from relatives. Before they have even begun to earn much, they already have pretty large debts, and we do not help with things such as student loans. I hope that the sector will receive attention, because debt can determine people’s life chances and opportunities for a long time. If they find themselves in severe debt and even going bankrupt at an early age, it can have all sorts of repercussions, not least homelessness

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and family breakdown, and can perhaps even result in people resorting to crime. That sector needs specific attention.

I agree with the hon. Member for Edmonton, who talked about clarity and objectives: it is important to get clarity and transparency, so that the public begin to have a greater understanding of what the FSA and the Financial Ombudsman Service do. The FSA has been seen more as a regulator than as a consumer protection body. Separation, transparency and clarity will be helpful. The removal of public awareness is a concern of mine. We need to listen to what the Minister says about that, and I look forward to his remarks.

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Prepared 8 January 2010