The Department for Business, Innovation and Skills: Helping over-indebted consumers - Public Accounts Committee Contents


Supplementary memorandum from the Permanent Secretary, Department for Business, Innovation and Skills

  I am writing to provide the extra information I promised during Monday's Public Accounts Committee hearing on Helping Over-Indebted Consumers.

  Richard Bacon MP asked for a breakdown of the £600 million figure provided by the National Audit Office in paragraph 1.9 of the report. I have now confirmed with the NAO that the constituent programme budgets that make up that figure are as set out in the table in Annex 1.

  Both Mr Bacon and Nigel Griffiths MP asked for more information on the relative performance of the BIS-led projects set out in Appendix Two. There were 14 projects from the original 51 on which BIS took a lead or shared lead role. Three of these relate to the governance of the over-indebtedness action plan (Elements 49, 50 and 51 in the appendix), which we covered in depth on Monday and on which I have said that Departments accept the criticism in the NAO report. The largest programme in financial terms by a significant margin is the Face-to-Face Debt Advice Project (Element 33). This was the main focus of the NAO's scrutiny and has been assessed as delivering good value for money.

  We discussed in the hearing the work BIS is leading to tackle illegal money lenders and provide support for their victims (Elements 28 and 29). The £16.5 million invested to date in this project makes this the second largest BIS programme contributing to tackling the problems of over-indebtedness. As I indicated on Monday, BIS investment in this area has led to 150 convictions since the project's inception in 2004, helped over 10,000 people and written off over £30 million in illegal debts. It is also helping with the rehabilitation of the victims of loans sharks and promoting greater financial inclusion. As we informed the Committee this programme is currently being evaluated.

  The other eight projects are too diverse to allow for easy comparison of their relative effectiveness. They include regulatory initiatives such as the Consumer Credit Act 2006 (Element 23) and the Consumer Credit Directive (Element 27). They also include a range of more focused interventions, such as developing new debt advice gateway and formal referral agreements (Element 30). This was a pilot project that subsequent evaluation suggested should not be rolled out nationwide. Some have been superseded by more recent activity—eg changes to the advertising, agreements and early settlement regulations (Element 3) which are now being updated by the Consumer Credit Directive implementation.

  I provide an update on how BIS has evaluated these initiatives or is planning to do so in Annex 2 to this letter. I regret if there was a misunderstanding on Monday over the range of programmes the Committee wished to consider in addition to the Face-to-Face programme. I hope this letter will reassure the Committee that BIS is carrying out its responsibilities under the wider strategy and is assiduous in monitoring and evaluating implementation and results.

19 March 2010

Annex 1

  The main funding streams identified by the NAO, which includes projects introduced since the 2004 report:


£m

Lead Dept/Org
April 2004 to
March 2007
April 2008 to
March 2011

Total
Illegal Money LendingBIS 6.69.916.5

National Debtline
BIS/MoJ 813.8521.85

Face to Face Debt Advice
BIS 4585.3130.3

Money Advice Outreach pilots
MoJ 6511

Growth Fund
DWP 4256.7598.75

Regional Financial Inclusion Champions
DWP12 12

Money Made Clear
FSA 121224

Personal Financial Education in school curriculum
DCFS11.5 11.5

Mortgage Rescue Scheme
CLG 285285

Total
610.9


The NAO rounded down to arrive at their £600 million figure. The figure for Illegal Money lending is for spending up to end March 2010. A further £5.2 million has now been committed to this project for the year to March 2011.


Annex 2

  BIS was responsible for 14 of the key elements identified in Appendix 2 in the original 2004 Action Plan. Numbers 28, 29, 33, 49, 50 and 51 were covered in the NAO report. Updates on the other projects are provided here:

No 3.  New statutory instruments on consumer credit advertising, agreements and early settlement. These were laid in Parliament in June 2004 to update the regulation in these three areas to reflect the way credit was being offered in the market at that time and to deal with any future developments ahead of the fuller implementation of the Consumer Credit Directive (CCD). They are now in the process of revision as a result of the CCD. The new regulations in these areas will be evaluated as part of the wider assessment of that directive (see No 27).

  No 12.  OFCOM—promoting best practice in the telecoms industry—All fixed line telecoms providers are required to have debt management and disconnection procedures that are proportionate and not unduly discriminatory. OFCOM monitor complaint levels on an ongoing basis. They can take enforcement action if a provider is in breach of the relevant general conditions.

  No 18.  Consumer Credit (Amendment) Bill—This refers to the Consumer Credit Act (CCA) 2006 which was fully implemented on 1 October 2008. The Act updated the CCA 1974. It established a fairer, more transparent and competitive credit market, updating consumer credit legislation that had been in place since the 1970s. The Act will be further amended by the introduction of the Consumer Credit Directive (see No 3). We are committed to carrying out an evaluation of the Act within three years.

  No 24.  Addressing the high cost of some credit—A report by Policis for the Department, The Effect of Interest Rate Controls in Other Countries, was published later in 2004. This concluded that imposing an interest rate cap would harm the consumers it was intended to protect, forcing them to use alternative less appropriate forms of credit including illegal loan sharks. This view on caps was shared by Citizens Advice, Which? and other leading consumer groups. OFT is currently reviewing the high cost credit market and they will publish their findings shortly.

  No 27.  EU Consumer Credit Directive (CCD)—Although under discussion in 2004, this was only adopted formally by the EU in May 2008. The CCD replaces a 1986 directive and takes a maximum harmonisation approach. It harmonises key aspects of consumer credit legislation in Member States as part of the objective of creating a common credit market while maintaining high levels of consumer protection. We are currently nearing the end of the implementation phase. We will be making the necessary UK regulations in the next few weeks. It is too early to evaluate the impact of this wide ranging set of reforms, but we will do so within three years of its implementation.

  No 30.  Developing new debt advice gateway and formal referral agreements—This was trialled by the free advice sector in two pilots in Yorkshire and Gloucestershire during 2006. The pilots aimed to direct enquirers through to the most relevant advice source for them. The assessment was that it was not cost effective and so it was not rolled out nationwide. There have since been efforts to improve triage in the sector and many agencies have introduced initial "vetting" of clients to make sure the right clients are assisted by the right mechanisms.

  No 35.  Widening and deepening the funding base for debt advice—This was part allocated to the advice sector, creditors and DWP, MoJ and BIS. The Money Advice Trust, a charity set up in 1991 to increase the quality and availability of free, independent money advice in the UK, led on the practicalities of getting in extra funding for the sector and has met with success from many creditors. Over 30 leading creditors contributed in the last year.

  No 41.  Encourage better use of the time order provisions—The Consumer Credit Act 2006 (see No 18) was implemented in three phases and the final phase on 1 October 2008 enacted the changes on time orders. These enable consumers, following receipt of an arrears notice, to apply for a time order (which is where a court can give consumers more time to repay a debt if the court considers it fair to do so). This will be evaluated as part of wider evaluation of the Consumer Credit Act.





 
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