New Clause
4Duty
regarding socio-economic
inequalities ‘(1) The
Financial Services and Markets Act 2000 is amended as
follows. (2) In section 2(1)
(the FSA’s general duties), after paragraph (b)
insert— “(c)
which when making decisions of a strategic nature about how to exercise
its functions the Authority considers desirable so as to exercise them
in a way that is designed to reduce the inequalities of outcome which
result from socio-economic
disadvantage.”’.—(Mr.
Love.) Brought
up, and read the First
time. 1.15
pm
Mr.
Love: I beg to move, That the clause be read a Second
time. I
am not sure whether there is such a thing as a probing new clause, but
this is an attempt to probe an issue that will be of increasing
importance. New clause 4 is designed to address inequality
and unfairness in financial services. It is particularly timely, as
inequality and unfairness are more prevalent currently, what with the
turbulence that we are going through following the credit crunch and
the recession that we are
suffering. New
clause 4 would introduce a new duty to tackle systemic problems of
socio-economic disadvantage. I would like to pray in aid a debate that
I heard this morning on the “Today” programme, featuring
the Secretary of State for Communities and Local Government. The debate
was primarily about 10 years of the Race Relations (Amendment) Act
2000, but the thrust of what the Secretary of State was saying was
that, with the economic difficulties that we are facing, we will come
to deal more with inequality, because that will be at the centre of our
concerns. That is very much at the centre of the concerns expressed
through new clause
4. The
reason why I suggested that this might be a probing new clause is that
it draws on the work done in the Equality Bill, which is currently
before Parliament. On Second Reading, it was illustrated just how
important such a clause can be in an Act, with a number of examples
being given of how such a clause might operate to protect those who
suffer inequality and unfairness. If we take the example of
disadvantaged communities, where smoking is much more prevalent than it
is across the community at large, it could be argued that
smoking-cessation programmes would be particularly appropriate, to
address the significant health inequalities resulting from the high
incidence of smoking in those
areas. Such
clauses could deal with educational disadvantage. Many people in
communities, including my constituency, feel that they do not get
treated equally with regard to access to the best schools in the local
education authority area. Often the problem is down to their lack of
knowledge and information on how to go about the application process.
One of the ways that we could reflect the provisions in such a new
clause would be by ensuring that that information and support was given
to the most disadvantaged—to those families suffering from
educational inequality—in order to give them an equal
opportunity. I
do not really have rural areas in my constituency, just a few small
parks, but there are areas across the country where there are low
car-ownership levels and
where the public transport system is rudimentary to
say the least; sometimes it is non-existent. Local authorities or
central Government might want to subsidise the provision of a bus or
other types of transport services in order to move the balance. The
arguments for addressing such socio-economic difficulties are many and
strong. Mr.
Colin Breed (South-East Cornwall) (LD): I listened
carefully to what the hon. Gentleman said and it contained a great deal
of sense. For instance, the closure of a bank branch in a relatively
remote rural setting, or in a suburb of a larger city, could cause real
socio-economic difficulty, financial exclusion and so on. Might the FSA
have powers, if not to veto the closure, then at least to require the
bank to make a good case for seeking to remove that
facility?
Mr.
Love: Perhaps the hon. Gentleman ought to have declared an
interest, as a former bank manager, in raising that issue. He gave a
good example, because there is a strong argument to be made when it can
be shown that the alternative ways in which we can access services
provided by a bank branch—through the telephone, the internet
and other mechanisms—are not available to the community that the
branch serves.
Through the
new clause, we are trying to draw out the kind of situations in which
it would be appropriate to take such concerns into account before a
decision was made. I do not think that anyone is suggesting that we
should be able to veto an organisation’s decision to close a
branch, but we could inform that decision, so as to make sure that the
widest possible worries were taken into
consideration. The
issues that I have dealt with so far relate to the Equality Bill, a
measure that introduces the same socio-economic duty as is suggested in
new clause 4. However, that duty applies only to central and local
government, and does not go any further. I tabled the probing new
clause because it sets out an attempt to extend that duty to the
Financial Services Authority. There is also a strong argument for
extending it to all economic regulators. I believe that the subject has
come up in debate; no doubt it will feature in the Committee stage
discussions on the Equality Bill in the Lords. I was somewhat surprised
that the FSA and other economic regulators were not included, because
they would have a much greater, more direct impact on the inequality
and unfairness suffered by many people in the
marketplace. Mr.
Mark Hoban (Fareham) (Con): I am trying to follow the hon.
Gentleman’s argument. Will he give us some examples of what the
FSA might do in pursuit of such an objective? I can understand the
allocation of, say, resources for financial education to more deprived
areas; that is already envisaged in the way in which the consumer
financial education body will implement the Moneymadeclear service.
However, I am not sure where his proposal is heading and what he means
by outcomes in the context of the financial services
sector.
Mr.
Love: The hon. Gentleman must have been reading my mind,
as I was about to focus on that. Earlier, I focused on a wider range of
services not particularly related to the FSA in order to set the
backdrop—to explain why I tabled new clause 4 and why it is
important that the socio-economic duty be extended
to economic regulators. I think that that would bring a number of
benefits. I shall now focus on the FSA, as requested.
The
new clause will encourage the FSA to use its existing powers to focus
on areas of concern to vulnerable consumers. For example, the FSA has
the power to look at markets, but it often does so without considering
how those markets impact on different parts of the marketplace,
particularly vulnerable consumers. In the FSA’s investigations
into markets, much greater priority should be given to how markets
impact on vulnerable and poorer sectors.
The reality
is that the FSA’s primary objective is consumer protection,
which is often seen through the narrower lens of competition. The new
duty would widen the lens so that there was an impact on the most
vulnerable consumers, who lack consumer power and who are often
marginalised. They are not helped by the FSA’s exclusive focus
on competition. I am anxious for the Minister to consider that in his
response on the new clause, because of the issue of how disadvantaged
consumers experience the
marketplace. For
example, we all have stories of being bombarded with offers of loans
and of being subject to various other kinds of blandishments from the
financial services market, yet we know that there are many
disadvantaged consumers who do not get those offers. They find it
difficult to access credit and are forced into loans at very high rates
of interest, or are forced into the illegal credit market. It is
important that the FSA considers not only the more general competition
issues in that sort of marketplace but the specific needs of
disadvantaged consumers. That will happen only if we engage with new
clause 4 and give the Financial Services Authority that socio-economic
duty. New
clause 4 will also address the shortcomings in the Financial Services
Authority’s conduct of business regulations. It is criticised
for not placing enough emphasis on the relative disadvantage faced by
vulnerable consumers. Sub-prime mortgages, for example, are mainly
taken out by middle and lower-income consumer groups; very bad
practices have emerged in that particular sector of the mortgage
market. Take, for example, the right to buy: many people exercising
that right have been sold mortgages that they simply cannot afford in
the longer term. That has not been experienced particularly
in the rest of the marketplace, but it is a feature among the
disadvantaged groups. New clause 4 would have led the Financial
Services Authority to act sooner and would have prevented many
consumers from experiencing events that were to their severe
detriment.
I conclude by
suggesting that we need a combination of the Equality Bill’s
provisions for central and local government and a socio-economic duty
on economic regulators such as the FSA. Working together, they could
have a significant impact on the experience of many disadvantaged and
vulnerable consumers in the marketplace and in the provision of public
services. As I say, new clause 4 does for parts of the private sector
what the Equality Bill will introduce for public sector
bodies.
John
Howell (Henley) (Con): The hon. Gentleman has mentioned
the Equality Bill on a number of occasions. I sat on the Equality Bill
Committee, and I remember the discussion about the socio-economic duty.
The difficulty is that that Bill deals with discrimination. The
unhelpful nature of the socio-economic duty blurred the distinction
between discrimination and disadvantage, with the result that it
tackled neither. The disadvantage element was
handled in many other ways by many other different
pieces of Government legislation. Blurring the two led to feelings of
confusion in the Committee on whether the duty would achieve
anything.
1.30
pm
Mr.
Love: I accept that there are dangers. Indeed, the
discussion on this morning’s “Today” programme
touched on a number of cases where discrimination is still very much a
factor. Because of the economic circumstances, disadvantage is now
coming to the fore.
The new
clause may go part of the way to addressing the disadvantage element,
but we should not lose our concern about discrimination. Indeed, there
are many groups that would ensure that we do not lose it.
Discrimination still exists for women in equal opportunities, and for
ethnic minority communities. It is often the case that people who are
discriminated against are also to be found among disadvantaged and
vulnerable consumer groups, so it is not always easy to tell whether it
is discrimination or disadvantage that is acting against them. It will
often be a combination of both.
The point is
valid, but I want to ensure that economic regulators—in this
instance, the Financial Services Authority—have a duty to ensure
that disadvantage is taken into account in their consideration of the
reviews or actions that they are likely to take to support
consumers. I
believe that by using both the Equality Bill and, if it is accepted,
new clause 4, we can begin to address some of the more severe
disadvantages that many vulnerable consumers face in the marketplace. I
therefore commend it to the Committee.
Ian
Pearson: I thank my hon. Friend for what he calls a
probing new clause. Of course, the Government do not disagree with the
spirit in which it has been proposed. The Government believe that
tackling socio-economic inequality is of great importance. Over the
past 12 years, we have demonstrated our commitment to
creating a fair society with fair chances for everyone. We are proud of
our record on reducing inequality, and we are putting further measures
in place to deal with it.
My hon.
Friend will be aware that a 2008 report by the OECD showed that income
inequality and poverty fell faster in the United Kingdom than in any
other OECD country between 2000 and 2005. For the first time since the
1980s, the UK poverty level is well below the OECD average. In short,
the Government are, and always have been, a champion of greater
equality. However, although we fully support the spirit of the clause,
it is not necessary or appropriate, and I doubt whether it would in
practice have the effect that my hon. Friend intends.
I shall give
my reasons for reaching those conclusions. First, the services provided
by the entities that the FSA regulates are, in many cases, essential to
people's lives, and lack of fair access to them may well influence
socio-economic outcomes. The Government believe that the best way for
the FSA to contribute to tackling these issues is by focusing on its
day job as a specialist financial services regulator. Overarching
social issues are matters for the Government, and
we are dealing with that. We are addressing socio-economic equality in
financial services in other ways, too: we have a financial inclusion
strategy to ensure that everyone has access to appropriate financial
services.
To support
that strategy, the banks have made a commitment that basic bank
accounts will become universally available, which will reduce the
number of adults not having access to a bank account, and to take
action to support the growth and development of third-sector lenders. I
applaud the work of credit unions and community development financial
associations in the UK, and their valuable contribution to helping
people in vulnerable circumstances.
My hon.
Friend uses the term,
“decisions of a
strategic nature”.
Under the new clause,
the FSA would be required to address that through its detailed
day-to-day regulation of banks. However, imposing a duty on the FSA is
not the same as imposing a duty on the firms that it regulates.
Extending the duty to the FSA would be effective only if we also
extended statutory responsibility for tackling socio-economic
inequality to private sector companies such as banks, investment firms,
insurance companies and so on. That would hugely expand the nature of
the duty, and we are not minded to go down that route. To improve
financial inclusion, for example, we have not legislated for specific
outcomes or responsibilities, but sought to take a collaborative
approach to working with the financial services industry. We believe
that that is bearing fruit, as shown by the recent announcement that
the banks have met our shared goal of halving the number of people
living in households without access to a bank
account. In
addition to the points I have just made, I do not believe that reducing
inequality, or pursuing other socio-economic outcomes, is an
appropriate objective for the FSA or any other specialist regulator. My
hon. Friend mentioned the discussions taking place on the Equality
Bill. The Government’s view is that regulators should not be
subject to that duty, which is why they were intentionally left out of
that Bill. The Committee might be aware that the Government resisted an
amendment similar to the new clause during the House’s
consideration of the Equality Bill for the reasons that I have
outlined.
I do not
believe it to be appropriate for a non-elected regulator with extensive
rule-making and other compulsive powers to be given a mandate to pursue
core questions of social policy, however much we might agree that such
issues need to be tackled. The discretion to make rules that promote
socio-economic equality should remain with democratically elected
Governments, and I believe strongly that it is up to us to take
decisions in those areas. I hope that my hon. Friend will be persuaded
that his probing new clause is unnecessary, and that it would not be
right to impose such a duty on the FSA. I also hope that he understands
and supports—as I am sure he does—the Government’s
commitment to promoting greater social equality in this country. I
therefore hope that he feels able to withdraw his new
clause.
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