To be published as HC 271-ii




Treasury SUB-Committee

Money Advice Service

Wednesday 20 June 2012

Lord Turner of Ecchinswell and Martin Wheatley

Gerard Lemos and Tony Hobman

Evidence heard in Public Questions 88 - 328



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Oral Evidence

Taken before the Treasury Sub-Committee

on Wednesday 20 June 2012

Members present:

Mr George Mudie (Chair)

Michael Fallon

Mark Garnier

Mr Andrew Love

Teresa Pearce

John Thurso

Mr Andrew Tyrie


Examination of Witnesses

Witnesses: Lord Turner of Ecchinswell, Chairman, Financial Services Authority, and Martin Wheatley, Managing Director, Conduct Business Unit, Financial Services Authority, gave evidence

Q88 Chair: Good afternoon. I will hand you over to Mr Tyrie to begin with.

Mr Tyrie: Thank you very much, Chair. Before we go any further, just a couple of things that relate to wider Treasury Committee business. Lord Turner, I would be very grateful if you would pass on the Committee’s appreciation to Hector Sants for the huge amount of work that he has done, the commitment he showed to public service while he was in that job. He engaged with the Committee vigorously-formally and informally-and very helpfully over a number of years, which we appreciated. He was also exceptionally diligent in everything he did, and we wish him very well for the future.

Lord Turner: I will certainly convey that message to him. Indeed, at about 6 pm, we are having a small, appropriately modest drinks party to say goodbye to him, so I shall mention it at that stage.

Q89 Mr Tyrie: Thank you very much, Lord Turner. The second thing is that the main Committee wrote to you-or I wrote to you on behalf of the Committee-about interest rate swaps. The reply told us that you are looking into it. We wondered what progress there had been, if any. We don’t need a lengthy report now, but it would be helpful for you to give us some indication of when you think there might be an outcome.

Lord Turner: Well, we are taking it very seriously. We are making sure that we fully investigate what is going on, and on that basis will decide whether there are sets of actions that we need to take. I think it would probably be best if Martin Wheatley describes in more detail what we are doing.

Martin Wheatley: There are a number of stages to the outcome. The first stage is that we said that we would update the Committee-the public-by the end of this month, so that is a commitment to give a progress update. Needless to say, the situation is complex. The range of contracts that people have entered into, and the time period in which they entered them and the prevailing economic conditions, will have varied, and the practices were quite different between the different banks involved. There were four banks that sold around 95% of the product, so that is where we have been focusing our energy. We think there are a number of questions to answer, and what we intend to do by the end of the month is to give an initial indication of where we think there are questions to answer and a statement on a way forward.

Q90 Mr Tyrie: Thank you very much. With your permission, Chair, to return to the subject of the day-the Money Advice Service-could I begin with Lord Turner? Given that you have been with the FSA for several years now and that the FSA has been on the case of financial education for well over a decade, do you think we are getting best value for money from this, or do you think that there might be merit in pressing more vigorously to try to improve the quality of financial-related maths education in schools?

Lord Turner: Well, that is a very good question. When I joined the FSA, I looked at the relatively small amounts that we were then spending on the consumer education side and the websites that we had, and I asked myself, and others, "What do we really achieve with this? How many people do we reach? Is it making a difference?" I will come back in a minute to the story of what has happened since then and how I presently see it. What is absolutely clear is that unless you are going to spend an enormous amount, there is no way it can make up for, as you say, a lack of basic capability on behalf of people coming out of school and into society, so I don’t think we should see these things as alternatives. There is a lot of evidence that standards of basic maths, basic understanding, and basic understanding of finance are inadequate coming out of school, and I think we should place a significant concentration on that. Now, whether that would ever be good enough so that you could then say that there is no value in spending money of the sort we have, I rather doubt. I suspect there is a useful ancillary role for what we have ended up with, but it is worth while explaining where we have ended up.

In my first year at the FSA, the authority devoted approaching £20 million to this activity. That fundamentally increased to the £45 million or so that is currently spent on the Investment Advice Service as a result of the Thoresen review, which came up with the idea that there should be generic financial advice. Although that was not driven in itself by the FSA, when I looked at the outcome of that, I thought there was a reasonable prima facie case that there was a set of a capabilities that would be helpful in getting people-even if they did have basic maths skills-to navigate the complex set of investment offers that are available. I agree that we could debate the real value of that, but my key point is that the core of where that comes from was the conclusions of the Thoresen review, and the conclusions that the Government then reached, rather than a set of conclusions that were debated within the FSA board itself.

The other aspect of the MAS budget that I suspect is more clearly and obviously justifiable-I would be very surprised if we ever concluded it was not necessary-is the debt advice budget, which garners about £27 million, where, to be clear, what has really happened over the last year is not a new set of activities, but essentially just a shift of something from public expenditure to a levy on the industry-something that was already ongoing and has been picked up and given to MAS, essentially as a device to move something from public expenditure to the levy. In that area, I would be very surprised if we ever concluded that there wasn’t a role for advice to people who had got into trouble, because even if we do get to the stage where everybody understands-as we ought to aim to get them to understand-the dangerous role of compound interest, and the way that once you start borrowing money, it can roll up and up, there will be people who get into a mess, and those people will require a degree of handholding and advice about what to do in those circumstances. That is how I would think about the different categories of the budget we now have.

Q91 Mr Tyrie: Just on the first part, which you said was debatable, you said that this was partly an effort to transfer some public expenditure to the levy, so what you are really saying is this is a public accounts fiddle.

Lord Turner: Well, let us be clear what happened. On the about £45 million spent by MAS on things that are not the debt advice-essentially the investment advice stuff-the story was that the FSA board expressed concern at various stages, but felt that it had to go along with the wishes of Government. This went in a series of stages, first: "You are currently spending £20 million. We want you to do a wider set of things coming out of the Thoresen review. The proposition is: will you levy another £6 million on the levy payers, and we will pay £6 million for it out of public expenditure?" It then expanded to £12 million and £12 million, and then after a while it became, "Well, why don’t you just pay for the whole £25 million?" To be blunt, that was the sequence of stages that I think all members of the FSA board would recognise between 2009 and 2011. Essentially, the increase of the FSA levy payers’ budget from about £20 million to £45 million fundamentally arose from the Thoresen conclusions that we ought to have generic financial advice being accepted by the service, accepted by the Government, and then a set of decisions by the Government that it did not want to pay for this out of public expenditure, but wanted the FSA to levy for it. That is the essence of the story.

Q92 Mr Tyrie: It sounds as if you were not very happy with the horse trading that took place.

Lord Turner: To be honest, the FSA board expressed points of view at various stages, to at least two Financial Secretaries, I think, to say, "Look, we have concerns about this, although we understand the legitimate objectives that you are after and we also understand the legitimate need to understand public expenditure." On a couple of occasions, I have written letters to Mark Hoban saying, "Look, we will go along with this, but just be aware the FSA board would like to record the fact that it has not made an independent decision that this is an end it would have pursued itself. It has accepted your right to say, ‘Here is a new function that you would like to give to the FSA,’ but it is not an independent decision that we have made ourselves. The board, on those occasions, overtly asked me to write to the Minister and make clear that that was its concern.

Q93 Mr Tyrie: But you did not think of coming to see us.

Lord Turner: We did not, but I think it is very appropriate and I welcome the fact that you are now doing a bit of a "drains-up" on this fully to understand what is going on.

The other thing I would stress is that it would be wrong to suggest that the FSA board thinks that the present package is a mistake. It can understand the prima facie case for it. At each stage, it said, "Look, this seems to make sense to us." It is simply that it felt a bit uncomfortable ending up levying the industry for something when, although it could see the prima facie case for it, it was not the prime mover on thinking out what it should be.

Q94 Mr Tyrie: We are hearing a message that the board is dissatisfied, and I would have thought that that is something-

Lord Turner: It has had concerns about the process that we have expressed, yes.

Mr Tyrie: -that either the Sub-Committee or main Committee is going to want to look at further.

Lord Turner: Yes.

Q95 Michael Fallon: Lord Turner, you have a statutory duty to approve the services business plan. Have you looked at it?

Lord Turner: Yes, we did. We considered the business plan for 2012-13. We considered it at the board meeting in December, when the board was particularly focused on the issue of whether there were metrics of success. The board’s particular focus was to say, "We are really not in a position to second-guess your judgment that you should shift to a more internet-based delivery, but what we want to see clearly in place is a set of measures that you specify in advance, and that we as the board can then look at and say, ‘Well, have you met those measures?’" That led to a letter from me to Gerard Lemos immediately after the board saying, "We are approving the plan, but subject to a greater specification of those metrics of success". It then led to a letter back from Gerard Lemos to me setting out what those are, and it also led to a specification of the time scale we want to go through in the run-up to the 2013-14 business plan over the next six months, for which the board wants greater engagement at an early enough stage really to challenge the thinking of the MAS.

Q96 Michael Fallon: Let us just stick to the plan that you have approved. Did it not strike you as odd that this plan has only nine numbers in it in 24 pages?

Lord Turner: I think that precisely reflects the response of the FSA board in December and the desire to see more detail, in particular in terms of the measures of success. The measures of success with which we were then provided gave us greater precision than is in here but, yes, there was a desire-and there will definitely be a desire this year on the part of the board-to see more detail.

Q97 Michael Fallon: But you have approved this particular plan. Never mind the metrics, in a normal business plan, wouldn’t you have expected to have seen a proper budget of income and expenditure?

Lord Turner: We did see a more detailed budget. The papers that we would have seen were a bit more detailed-although not massively more detailed, I have to say-than the published document of the business plan, so we did see some, and the FSA board did ask for more detail. However, I would have to say there is also concern on the part of the FSA board, which I expressed in a letter to Mark Hoban immediately after the board meeting in December, that our responsibilities at the moment put us in a sort of betwixt and between stage, and the board has clearly expressed the view that, going forward, we would like either to move in the direction of the MAS becoming a fully independent body directly accountable to this Committee and the Treasury, or to have more oversight at an earlier stage. We have clearly expressed the view that we would like to head in one or other of those directions.

Q98 Michael Fallon: I understand, but the statute is clear-you have a duty to approve this plan. You are telling me now that you have approved the plan, but you were not particularly happy with the weak detail of it.

Lord Turner: The board felt that it had enough detail to approve the direction of travel. It is such a major change that the essence is based on an argument that the more effective way forward is to use a more web-based approach. It believes that there is a reasonable prima facie case that that is the case. It asked questions about it and challenged it. There is a belief that it would not be possible for the FSA board itself to dive into huge details without becoming, as it were, the board of the MAS, which has been set up as a clearly independent body. We therefore exercised the same oversight in relation to this body that we exercised in relation to the FOS and the FSCS, for example, but it is, bluntly, more difficult because the whole thing has been a moving story during which, as I mentioned earlier to Mr Tyrie, the MAS has been given a series of extra responsibilities over time. We felt we had enough material and enough verbal explanations that we could say, "Yes, this is in line with what the Government wanted out of the Thoresen review. You have to make the judgments as to what is the operationally most effective way to deliver that, but we want a clear set of metrics by which we can measure whether you then deliver what you say you are going to deliver".

Q99 Michael Fallon: You are spending around £80 million this year on the two different services. Do you know what proportion of that £80 million goes on running costs?

Lord Turner: On the element of the Debt Advice Service, which is of the region of £30 million, the vast majority is for a set of contracts with another set of agencies, such as Citizens Advice, so you can’t really break down what is employment cost. The employment cost is down in the deliverers, but I am sure that that cost will be significant, because they are providing a face-to-face service, so by definition employment cost will be a large element. If we come back to the element of the £46 million, including that in 2012-13, the figures are set out, and the direct staff and associated costs, as I understand it, are £6.6 million.

The bigger issue that people have raised is that the large chunk of the budget is on marketing and advertising expenditure-that is where the really big figures are. I think those almost automatically come from a decision to go down a web-based route. Having decided to go down a web-based route, you do need to build initial awareness of that so that people come to those websites and use them but, broadly speaking, the approach that Gerard Lemos and Tony Hobman have pursued is to reduce the element of direct labour cost through-indeed- making a number of people redundant and investing more in web delivery and communication. Again, I would say we did go through that in the FSA board. We asked questions about it. There was an acceptance that there was a reasonable case in principle of why that was the correct way to go, but we are not the board of the MAS itself, so we did not subject it to the same degree of precision that you would expect of the MAS board itself.

Q100 Michael Fallon: You approved the remuneration of the board’s members. What made you think that a salary greater than that of the Prime Minister, the Chief of Defence Staff or the Lord Chief Justice was appropriate for this chief executive?

Lord Turner: The chief executive salary was set on appointment in February 2010, and it was proposed by the Executive and those involved in hiring Mr Hobman, in the light of his previous remuneration and with a point of view on what was required to persuade him to move to this job. It was also set by cross-reference to the then salary and remuneration of the head of the FSCS, which was seen as the nearest comparable body. It was decided by our remuneration committee, chaired, as it is, by what is called the head of NedCo. The FSA has an arrangement where the chairman-myself-is not a member of the NedCo or a member of the RemCo, because, apart from anything else, they set my remuneration. I was not involved in the detailed decision at that time, although I was informed of it. As I say, it seemed to fit in with a comparison of an equivalent daughter organisation, the FSCS. Having said that, I do support what MAS has subsequently done, in that I think that the board of MAS has somewhat moderated that, because I think I would agree with you that, in retrospect, the decision probably pitched it a bit too high.

Q101 Michael Fallon: A bit too high?

Lord Turner: Yes.

Q102 Michael Fallon: You spoke about the metrics. What are you doing as the FSA to ensure compliance with the budget as the financial year unfolds? Are you testing these metrics three-monthly, half-yearly or whatever?

Lord Turner: No, we are not testing them three-monthly-

Q103 Michael Fallon: Are you requiring budget information on outcomes and out-turn?

Lord Turner: No, we are not requiring month-by-month or quarter-by-quarter, because that really is the role of the MAS board rather than ours. Realistically, I would be very surprised if we end up at the end of the year with significant overruns, and obviously we would be very concerned about that. As for effectiveness, I think we are in a difficult situation here, because they have made a strategic decision to change quite fundamentally the model of delivery and they are launching that now. Once they have launched that, it will take us some time to work out how successful they are, but I think by the time we get to December’s discussion of the FSA board, we will want to get detailed information on what is known so far about it. One of the things that we do have within our powers is to request a more detailed value-for-money audit using an external body to go into much greater detail than the board can simply by listening to presentations. Our intention is to ask for such a value-for-money audit probably in the first half of next year. The decision was made that there was no point in doing a value-for-money audit for this half year of a model of delivery that is to be fundamentally changed. The new model has to be launched and we will have to see how it is working. At that stage, it will be possible to go in to determine how effectively it is working. We were therefore of the belief that the appropriate time for a more detailed value-for-money audit would probably in the first half of next year.

Q104 Michael Fallon: So that will be after two financial years.

Lord Turner: Yes, that will be after two financial years, including one in which they have now fundamentally changed the model from what it was before.

Michael Fallon: Thank you.

Q105 Mr Tyrie: Lord Turner, have you expressed your view that the remuneration was set too high to anyone in the FSA?

Lord Turner: No, no. I will be-

Q106 Mr Tyrie: Why didn’t you raise it with the board?

Lord Turner: I am saying it in retrospect. At the time I was informed about it, I did not look at it. Let me be clear, I am not saying that at the time I said, "This is a bit too high," right? I did not do that. You are asking me now as I look at it in retrospect, and I can see why I think it was pitched somewhat high, relative to what it would and should be. I think the MAS board has done a good job in recalibrating it somewhat. At the time, I left it fundamentally to the process of the RemCo, and they seemed to have a reasonable basis for thinking about it as comparable to other jobs in the FSA family. To be honest, I did not dive into all the details of operations or all the aspects of it, and it was directly comparable with the then chief executive of the FSCS, or very closely comparable. The figures were £250,000 versus a figure of £235,000, and I think that the £235,000 then became £250,000 in the subsequent year.

Q107 Mr Tyrie: It is still a sizeable slug of money for an important post. Do you not think that this is something that you should have raised with the board-not at that time, but at the time that you came to the view that it was too high?

Lord Turner: But that is really thinking about this over the last couple of days in preparation for this, I have to say. With that having been set at that time, and it having been handed over to the MAS, it would be absolutely true to say that, for the past two years, the issue of the chief executive salary at the MAS has not been something that I have been focusing on at all, to be honest.

Q108 Mr Tyrie: Do you not think that the financial detail that Michael Fallon feels is absent from the document, some of which was presented to the board but is not in the published document, should now be given to Parliament?

Lord Turner: We could look to do that, yes, although I think it would really be for the MAS to provide. I cannot immediately remember what extra level of detail there was, but my memory is that there was more detail than this. I have not gone back through the board papers, but there was more, or certainly there was in questioning to Gerard Lemos and Tony Hobman.

Mr Tyrie: May I suggest, Chair, it would be helpful for the Sub-Committee to see that?

Q109 Mr Love: Can you just confirm, Lord Turner, that the contract under which the chief executive was employed made sure that he paid his full amount of tax and national insurance?

Lord Turner: Yes. I do not think the FSA has ever been involved, to my knowledge, in arrangements that are designed to avoid tax or national insurance. As I say that, I am hoping that nothing will emerge from the woodwork, but it is certainly not our intent to use things that are tax or national insurance-avoiding mechanisms.

Q110 Mr Love: There has been some surprise that the budget for financial advice that went through the FSA included a not insubstantial increase. Was there any debate in the FSA board about whether it was appropriate to levy an increase on members, and did you have any consultation with MAS about the level of the increase and whether it was appropriate?

Lord Turner: As I say, the commitment to the increase came fundamentally from the Government, and it would be true to say that at various meetings of the FSA board, when we were presented with the proposition from Government-"We would now like you to take responsibility for a set of proposals which came out of the Thoresen review"-there was a considerable back and forward about should we be doing this, or should it not be something that is entirely under our control. There were therefore, as I said, a number of letters over the years between myself and Mark Hoban, and particularly one of the middle of last year in relation to the Debt Advice Service.

Q111 Mr Love: Let me just interrupt you there. I am not talking about the fact that the financial services industry ended up paying the whole amount related to the MAS. There has been an increase from the first year to the second year-I think it is £43 million to £46 million.

Lord Turner: To £46 million, yes.

Q112 Mr Love: There was just a little surprise that in the context of the overall situation with public expenditure and the financial services industry, they received an increase. Was there any discussion about this?

Lord Turner: Yes, there was. My memory is that the debate was about the proposition by MAS that there were some one-off costs in the development of the website, which you can see on page 12 and 13-they are called "£6.6 million one-off costs". Once they were in place, it would be possible to proceed for a number of years without any further increases, and the proposition to us was that you invested in technology, better websites and website delivery, rather than a people-intensive delivery, and that it is the nature of such a proposition that you tend to have upfront costs. When we went through that-and I do remember us having the debate-there was a feeling that it was a reasonable proposition. It is, as I say, inherent in the nature of a web development that a lot of the costs are upfront and, in that context, a relatively modest increase followed by a flat level thereafter seemed a reasonable business proposition to deliver what had been asked for.

Q113 Mr Tyrie: The more I hear about these exchanges with Mark Hoban, the more I think the Committee ought to take a look.

Lord Turner: Yes. We would be very happy to provide you with those letters.

Q114 Mr Tyrie: Perhaps you would also supply us, should it be required, with any additional information that you have about telephone conversations and the chronology of events that led to the decisions that were taken to move this on to the levy and off public expenditure.

Lord Turner: There may not be perfect records of all those telephone conversations now.

Mr Tyrie: I understand.

Lord Turner: But, certainly, yes.

Mr Tyrie: With that health warning, it would just be helpful to see what happened here. Thank you.

Q115 Chair: Lord Turner, you mentioned this almost as though it was leaving you. Who is going to be responsible for MAS in the next couple of years? You were trying to palm it off to us. It is not a responsibility I would turn down, but go on.

Lord Turner: Well, let me be completely open about how we see it at the moment.

Chair: I am hoping you are open.

Lord Turner: We are always open. There is a letter to Mark Hoban of 14 February from myself-it is essentially from the board, and written on behalf of the board. It says that we have debated two alternative approaches: a fully independent MAS with no oversight role for the FSA; or a much more integrated model where the MAS is fully accountable to the FCA. It then says, "We recognise that at the moment you don’t want to move towards the independent route, and as for the FSA/FCA taking greater control of it, although is a possible option for the long term, it is not something that we would suggest over the next year and a half", because bluntly the FCA has enough things to do to get going with the rest of its activities. What we suggested was that the options of going one way or the other should be considered in about two years. In the meantime, we are committed to making the present rather intermediate arrangements-and, to be clear, from the FSA’s point of view somewhat unsatisfactory arrangements-work as well as possible. What we are going to do is say, "Look, this isn’t a situation that we greatly welcome. We feel we have been left in a slightly intermediate position of having responsibility without full control, or without enough control, but we will try to work as collaboratively and effectively as possible with MAS." We therefore have defined more detailed engagement than before on the development of the business plan for this year, and we are working on a trilateral framework document with HMT, ourselves and MAS that will specify more clearly the different roles that we should play. I would say that, for the next two years, we really don’t have an alternative except to make the present situation work as well as possible, and we will do that-we will put in extra effort and commit extra resources internally to do so.

Q116 Chair: Yes, but better than you have in the past two years?

Lord Turner: We will increase the intensity. Well, here is one of the challenges-

Q117 Chair: But don’t you think you should have for the year 2012-13?

Lord Turner: No, I think we have done an adequate job in line with our formal required role, which is-

Q118 Chair: Right. Well, let’s go back over what Michael said. If I had been sitting on the board and expenditure was going to double, because of the way this worked, to £43 million and up to £46 million, and if I looked at the detail, as Michael has done, and discovered that, out of £43 million, you were going to spend £20 million on marketing a website, I would have had to say that, in this day and age, I do not understand why you were not tougher with the Government. You are representing an industry and caring about an industry, but what the Government effectively did was to throw 20 million quid at this and get the industry to pay it, and you accepted that-that was the first thing. The second thing is, as Andrew suggested, that you let through a 5.7% increase in the budget. Now, can you name a Government Department that received a 5% increase in its budget in this financial year? I know you did, but you are not Government.

Lord Turner: As I said earlier in response to Mr Love, I think that the increase over the past year from £43 million to £46 million, which we did pore over at length and ask questions about it, is justified in terms of the commitment to move to a more web-based approach, which inherently involves one-offs. Essentially there are things that, under a different accounting model, you might put as capital rather than current expenditure, but-

Q119 Chair: No, you are mixing it up. There are additional sums in this budget for the digital work-for the work on the programming or whatever. There are additional sums. I went through it on the train this morning, and I think the poor customers get about £15 million out this £43 million. The rest is internal, so you are allowing them to spend £20 million on marketing themselves and then another lump of money-millions of pounds-for the fundamental change of going digital, and you then wonder what on earth is happening to the education and the financial advice side of affairs. If you want to know where I think you might get costs down, what about all these redundancies. How much were the redundancies? Do you know, because nobody in the public can get the figure from MAS? What was the cost of making the staff redundant? You are the overseer. You are responsible for that; you look at the budget.

Lord Turner: Let us be clear: we are not the board of the MAS. It has been set up as an independent body, subject to our ability to cast an eye over the budget and approve it. It is not for us-or at least this has not been our interpretation-to dive into the details of what should be the operational model and what should be the balance between face-to-face and web, and if we had been doing that-

Q120 Chair: Long term. You do not have to delve into the budget to see that a sum of £20 million out of £43 million is for marketing. You do not have to delve in the budget. Do you mean to say that the board of the FSA went through that budget and business plan and saw that £20 million, but thought, "It is too minor a matter for us to get involved in"?

Lord Turner: No, there was a challenge. There was, "Why do you want to do this?" and "Let’s hear the proposition," but once you have decided that you want to go down a web-based route, it is in the nature of that that you have to make people aware of it so that they come to that web base.

Can I pick up one question from before? You asked whether we should we have been more forceful in saying, "Why are you shifting this stuff from public expenditure to the levy base?" Of course, the Government made a decision years ago that the whole of financial regulation would be on a levy base rather than on public expenditure, as is the case in many other countries, and they have a right to do that. Given that they have a right overall to say that the approach to the base load of the FSA regulation is on levy payers, not public expenditure, I think they clearly have a right, if they want, to say, "We are going to legislate that these are functions that are handed to the levy payer in future".

Q121 Chair: Let us just look at that. You thought that at a time when all Government Departments and local government were having no increases or 1% increases, a 5.7% in budget was acceptable. You also thought that £20 million spent on marketing was acceptable. You thought that paying the chief executive £250,000, plus another £100,000 in other benefits, was acceptable for an organisation of 80 people. I thought that light-touch had gone.

Lord Turner: Our interpretation of our responsibility for MAS is that it is an independent body with its own board, which is now fundamentally responsible. We have to cast an eye over it. We have to challenge and ask questions, but we do not have a detailed involvement in the development of the plans. If we are to do that-

Q122 Chair: No, not the development, but you have to agree it. Now, do not flannel: you have to agree it, and you agreed it.

Lord Turner: We did agree it.

Q123 Chair: But now you are saying that you don’t have any responsibility for it.

Lord Turner: No. We did agree it, and we thought it was a reasonable proposition, but we absolutely flagged that we want-

Q124 Chair: Which one are we talking about now?

Lord Turner: The extra expenditure.

Q125 Chair: The 5.7%.

Lord Turner: Yes, the 5.7%, because-

Q126 Chair: Why? How was that reasonable in the context of public expenditure at the moment?

Lord Turner: Because it involved these one-off transition costs to shift the model. Well, that was the proposition that was put, and I think it is not an unreasonable proposition.

Q127 Chair: But it is not true. You just have to spend five minutes with the budget to see where the costs for going digital are, but on top of that, as I say, there is £20 million, so do not say, "Oh, they got 5.7% but they had a lot of transitional costs". They had transitional costs the year before-the transition seemed to last a long time. They have two figures in each year for transitional costs, so the 5.7% was free-gratis, for nothing. I do not know why you agreed it.

Lord Turner: I don’t agree with that, because I think we were presented with a case that we thought was reasonable and that involved-

Q128 Chair: What is reasonable about 5.7% when the Home Office is 1%, the Treasury is 1% and the Cabinet Office is 1%? What is so reasonable about 5.7%? Tell me another Government Department that received a 5% budget increase. Don’t you think that the Home Office, DECC and BIS all had good reasons and arguments for increasing their expenditure? But you pluck this department out and give it a 5.7% increase; we are just asking why.

Lord Turner: I tried to explain the logic, which was we believed that they were going through an investment phase that would then enable them to move to a new model-

Q129 Chair: So you made a mistake. We will accept that.

Lord Turner: No, I am not saying that on this one. I am saying that we are uncomfortable with our intermediate level of responsibility for this. We are going to make it work by greater concentration in future, but we still thought when we went through it last time, on the evidence and the information available, that the fundamental proposition of spending some development money on the website in order to move to a new model was reasonable. That was the judgment made by the FSA.

Q130 Chair: Lord Turner, we have heard that. Let us accept that you do not think you made a mistake, but I think it is a scandal that this budget was allowed to go through by the FSA.

Now, one of my questions was who is looking after this next year. Is it still the FSA, because that is how I understand it? Will you agree to look at the Financial Services Act, see what powers you have, and make sure when you come before this Committee next year, you will have examined the budget a bit more deeply?

Lord Turner: Yes, we have set out a clear programme over the next six months of a deeper engagement. We do not think that that is what is implied by the terms of FSMA, and the engagement we are seeking is closer than, for instance, we have with FOS and FSCS. Essentially, we have treated this in terms of the amount of board time that we devote to it and the degree of information and challenge that we have. We treated it as equivalent to FOS and FSCS, which are models that have worked in the past. I think what we have found is that when we are going through an organisation that has been given whole new functions, the issue is that semi-independent status is a bit unsatisfactory, because it is not clear to us that we have the ability to dive in and make the overall strategic decisions that our judgment-

Q131 Chair: But the new functions were a different part of the budget altogether. We have not mentioned that. We are talking only about money advice. The money that came from BIS in terms of debt advice is another budget altogether.

Lord Turner: No, but they were completely new functions over the previous year and a half or so. They were not functions that we owned back in 2008-09 and, as I say, our own budget that we had set was £20 million before we transferred those people over to MAS.

Q132 Chair: Just to bring me peace, you will look a bit more closely at the budget next year, won’t you?

Lord Turner: Yes.

Chair: Yes.

Lord Turner: We think that we will be going beyond our formal legal requirements in order to make an unsatisfactory situation work, and that is honestly what we will be trying to do.

Q133 Mr Love: Mr Wheatley has been sitting very quietly so far, and I wanted to seek some reassurance, because the time scale we are talking about for this closer relationship, pending the final decision by Ministers on the future of MAS, is that the FCA will have that closer relationship. However, Lord Turner has already indicated that the FCA has some major issues that it has to resolve in terms of setting up and getting itself up and running effectively. Can you reassure this Committee that those two things are not incompatible-that they can be done together?

Martin Wheatley: Yes, they can. As you know, we are going through a fairly major change programme, and the creation of the successor bodies is our primary focus at the moment. I think what Lord Turner had said is that if there were an appetite for, and a decision on, the FCA going forward to have more oversight other than that prescribed in legislation, it would be something that we would have the capacity to take on in perhaps two years; in the meantime, we simply have to tighten up the oversight that we currently have. We have asked MAS to provide much more detailed metrics to us as to how we judge success. I think one of the points that has not really come through today is that it is still very much a start-up, and it is very hard to judge value for money in a start-up because we are in the investment phase. The benefits will come in subsequent years. What we want to be clear about is what metrics will allow us to judge whether we are getting value from it, so we will tighten up our oversight within the powers that we have. It is an uncomfortable position. If there is a decision to change that, we will welcome that decision, but that would be, in our terms, some time after we have managed the transition to the new FCA body.

Q134 Mr Love: We are getting an impression of what has happened today, and while I understand the reasons why the FSA took its eye off the ball in relation to MAS, I do hope that that will not happen with the FCA. You seem to recognise that there needs to be an enhanced role from FSA-FCA. I hope that you will be able to provide that going forward.

Martin Wheatley: Absolutely, and it is very clear from this discussion and others that as it moves into an operational body-I stress that it is still a start-up-we will need much clearer levels of accountability as to what the objectives are and what the money buys, and that is something we are developing at the moment.

Q135 Michael Fallon: You said a moment ago, Lord Turner, that you were not clear about the responsibilities of the MAS, but looking at the Act, that does seem very clear. You are the only body that is responsible for varying the plan.

Lord Turner: Varying the plan. I think we are responsible for approving the plan.

Q136 Michael Fallon: No, it says, "The Consumer Financial Education Body may with the approval of the authority vary the plan", so you must therefore approve any variation to the plan.

Martin Wheatley: I think that is correct. With the draft that you have-I do not know if that is the earlier draft with the CFEB-the powers that we have are to appoint the chief executive, to appoint the chairman and to approve a budget-and, by definition, to approve variations to the budget-so I think that is correct. However, that is different from intervening to instruct what the plan should be.

Lord Turner: I think what that is saying is that if they set a budget at the beginning of the year and then want to change the budget during the year, we would have to change or approve the variation in the budget. That is how I would interpret that word "variation". I do not think that means that we are in charge of re-designing the budget that is set out. That has not been our interpretation.

Q137 Michael Fallon: It seems clear to me. It says, "The annual plan must set out how its resources are to be allocated", and you have to approve that?

Lord Turner: We do have to approve that, yes.

Q138 Mr Tyrie: Yes. Just to be clear, you would have only one person allocating a budget at any given time. You cannot have a load of people simultaneously thinking that at one point in time they have altered the budget and allocating any resources they like. At the end of the day, one person takes a decision, and that can only be the person who has the power to vary the budget. A budget is in place until it is varied. Someone comes along and varies it and, in this case, it is absolutely clear that that person is not anybody else but you. It says here very clearly that the budget is varied only with your approval.

Lord Turner: Yes, but I do not think there has been any variation. Clearly, we agree the plan that is set out at the beginning of the year, which is also the budget. If, halfway through the year, they wanted to say, "We do not want it to be £46 million; we want it to be £52 million," they would have to come back to us and say, "We want to vary the budget," and we would have to do that. I am not sure that the word "vary" adds anything here to approval. We clearly have to approve the budget that is set to us.

Q139 Mr Tyrie: Who is in charge of this budget?

Lord Turner: They are in charge of this budget.

Q140 Mr Tyrie: They can do what they like with it?

Lord Turner: No, they cannot. If they came back at the end of the year and said, "Halfway through the year we thought we would like it to be £52 million, not £46 million, so we have spent £52 million," we would have to say, "No, that was unacceptable behaviour because we agreed a budget of £46 million and if you wanted to vary it, you should have come back to us." That is how I would interpret what is intended by variation. I think the crucial thing-honestly, I do think that this issue of the word "variation" is a minor technicality-is the approval. It is how much detail should we go through in the approval, which I think is a legitimate question for you to ask. We have used the model of the FOS and FSCA oversight, which has not involved us diving into trying to second-guess the fundamental strategic challenges that they have made. We have gone through a process of kicking the tyres a bit, asking questions and satisfying ourselves that there is a reasonable prima facie case, but with them, ultimately, it is the body that is operationally responsible for making the decisions. That is how we have interpreted it, and that is what we have set out in the various letters that you will see to Mark Hoban saying, "This is our interpretation of the limit of our powers and we feel ourselves in a slightly unsatisfactory intermediate position." That is where we have been.

Q141 Mr Tyrie: Clearly you are not happy with the status quo, so I do not know why you are simultaneously defending it.

Lord Turner: What I am saying is that we are not happy with the status quo, but we think that, within the imperfections of the status quo, we have tried to exercise our powers in a responsible fashion. Within the limits of the status quo, we are now going to intensify the best-

Q142 Chair: Lord Turner, you can talk for Britain, but let us just say this. MAS says its budget this year is going to be £47 million and you close your eyes and say, "£47 million; everybody agree?" Everybody agrees; you have fulfilled your responsibility. What is the alternative? The alternative in the ordinary world is that as you are responsible for that budget and, as you are saying, you are answerable for that budget, you must look at the budget. I do not expect you to, but you must employ somebody who goes through the budget and then passes you a note saying, "Do you know they are putting up a faster rate of inflation? Do you know they are intending to spend £20 million"-I think the rumour is-"for the next three years on marketing?" Even if you do not share my view that that is outrageous, if you did feel that, are you are saying to Mr Tyrie that it was not your job to say, "Go back and fix it again because our board, the FSA board, is not approving this."?

Lord Turner: We thought it was a reasonable plan as presented and subjected to our challenge. We do not think that there is anything necessarily wrong with the fundamental proposition. We believe that as we move into implementation, it should be looked at very carefully, and that is why-in a way that we think is somewhat stretching the definition of our powers-we have agreed that we will significantly increase the involvement this time round in the run-up to the setting of the 2013-14 budget and plan. That is the way we have tried to proceed on this business.

Q143 Mark Garnier: Three quick questions, if I may. Martin Wheatley, can I go back to interest rate swaps? When I was a regulatory compliance officer about five or six years ago, I remember that you had to do quite an extensive client classification to make sure that the right product was being sold to the right level of client. Have the rules on that changed in the last five or six years?

Martin Wheatley: The introduction method and the European directive changed client classification to a degree so, yes, there were some changes in 2005, but there still is a requirement. There is an absolute requirement to categorise a client.

Q144 Mark Garnier: My question is this: as part of your investigation into what is going on with these interest rate swaps, will you be looking at the classification of clients that have been sold this product with the view to seeing if they have been mis-sold it as a result of not being the right pay grade, if you like?

Martin Wheatley: Yes, absolutely.

Q145 Mark Garnier: Fantastic. Thank you very much.

A question to both of you. Lord Turner, you said earlier that you thought that financial education was inadequate in this country. Do you think that we should be putting financial education on the curriculum and, if we do, should we be testing financial education, or do you think we should just be putting it into maths and PSHE in terms of the qualitative side of it?

Lord Turner: That is asking us to speculate on something beyond our area of responsibility, although I accept that.

Q146 Mark Garnier: In your opinion.

Lord Turner: In my opinion, I think it would be valuable. It is important for people to have good basic maths, and the reason why it is important to have good basic maths is for operating both in the work place and as consumers. A crucial element of operating as consumers that requires maths is the ability to navigate the most straightforward elements of what compound interest is, how it works, what percentages are and how to make sense of the data coming in. I think it probably follows that if we are going to try to develop those skills, they have to be put into a processes through which we test whether those skills exist. So, yes, I broadly agree with you.

Q147 Mark Garnier: So in the curriculum.

Lord Turner: That would be my tendency.

Martin Wheatley: Strongly, my personal view is that it should be. This is a life skill, and it is increasingly important given the needs of individuals and the economic trend of individuals having to take care of their long-terms savings and long-term pensions. It is irresponsible to have a system that does not equip people with those skills when they leave school and as they start their first career.

Q148 Mark Garnier: Fantastic. Thank you.

My third question is very wide-reaching, but it is more philosophical. For the past hour or so, we have been chatting about the MAS and a lot of fine details of it, but it has been re-organised several times and has been in its current form only in the last 18 months to two years. It is costing so much money, and the cost of regulation in this country is extremely high-I think the highest in the world. We are burdening firms with yet more costs in terms of things like the RDR, which I have some views about. In addition, there are large numbers of existing organisations that provide debt and money advice. Given all those facts, my simple question is this: what is the point of the MAS?

Lord Turner: That is easiest to answer in relation to debt advice, because it is important to realise that the budget it is in charge of for debt advice is not duplicating-these are people who are already provided. It is the co-ordinator, the commissioner and the conduit for the money, but it will be giving money to citizens advice bureaux in the future, so we cannot argue that you are spending a separate pot of money. It is the same pot of money and it has a co-ordination process, which I think that is reasonable.

If you go back to the £46 million that is spent on the investment advice side, it is important to work out over time the relative role of that public service versus the stuff that is privately provided or charitably provided. It is the case, as I understand it, that there is an attempt to use its own website intelligently to refer to other websites that are useful sources of information. That routing is a part of an intelligent design to use the system to best effect, but as we roll forward, I think that those are questions that we will have to talk about. What is the correct balance between it doing its own generic advice versus being a signposting to stuff that is already available?

Q149 Mark Garnier: Indeed, a kitemark-

Lord Turner: Or it could kitemark it, yes.

Q150 Mark Garnier: This is an important point, because the FSA is there to require all the people involved in the financial services industry to reach a minimum standard, but there is nobody in the FSA who looks for excellence, and there is no opportunity for MAS to be an organisation that seeks out excellence, rather than necessarily trying to replicate a lot of what is already going on.

Lord Turner: That could certainly be the case. I think that is something in our ongoing debate with MAS that we will take into account, but I think it is above all a question to direct to the MAS management and board themselves, who I think are about to come in.

Chair: Lord Turner, thank you very much for your evidence this afternoon. Thank you, Mr Wheatley. I am sure we will see you again on this subject.

Lord Turner: Thank you very much.

Martin Wheatley: Thank you.

Chair: We will hear from MAS straightaway. We will not have a break, because there is a strong possibility that there will be a vote at about 4 pm.

Examination of Witnesses

Witnesses: Gerard Lemos, Chairman, Money Advice Service, and Tony Hobman, Chief Executive, Money Advice Service, gave evidence.

Q151 Chair: Are you sure you want to go ahead with this?

Gerard Lemos: We are delighted to have the opportunity to explain what we are doing.

Chair: I see you are the man responsible. Now, I will apologise, because chances are that we will have to break in half an hour. We will then have a break for something like a quarter of an hour, and then we will come back. I think we have the room until 8 pm, so you are okay; we will not do an FSA on you.

Q152 Michael Fallon: Mr Hobman, Lord Turner clearly thinks you are paid too much. Will you be taking a cut?

Tony Hobman: As he mentioned, I have already had a qualification in my remuneration, and indeed waived my bonus in full. I continue to believe that I am taking the job in good faith at the rate that I am paid, and that I should and can demonstrate value for that. My focus is entirely on continuing to do so. I am very acutely aware that this is a substantial sum of money; I do not take a penny of it for granted.

Q153 Michael Fallon: But he says that you are paid too much? Are you not going to reflect on that?

Tony Hobman: I have already reflected to the extent that, as I said, my remuneration has been reduced. Clearly we have a governance process through my board, and if that is a discussion that it wishes to have with me as a result of any further input to the process, I will listen to that.

Q154 Michael Fallon: Let us ask your chairman. You heard what Lord Turner said. Do you think it is appropriate that the chief executive is paid more than the Chief of the Defence Staff?

Gerard Lemos: I am not sure that those two jobs are precisely comparable but, as Lord Turner explained, this was all decided before the Money Advice Service was formed-certainly many months before I came on the scene-and it was set in relation to benchmarks within the FSA’s family. I do not have anything to add to what he said about how the figure was derived. As to whether it is too much, I think what I would say about that is that we would not want to set the remuneration at a level that excluded people with a commercial background. In order to make this thing work-no doubt we will go on to talk more about whether it works, and how it could work better and so on-we do need people with the right skills. If the post was to be vacant again, which it is not and we do not anticipate that it will be, the Remuneration Committee-I do not chair it, but I am an ex-officio member-of the Money Advice Service will take a view on what remuneration would be needed to attract somebody who could make a success of the job. I am afraid that that may be more than the Prime Minister’s pay, although I would not want to pre-judge it at this stage.

Q155 Michael Fallon: But Lord Turner has judged it. He is fairly aware of what financial skills and commercial skills are priced at, and he thinks it is too high. Why don’t you?

Gerard Lemos: I think it is a lot of money and we should expect a lot for it. As I say, we were not involved in the setting of it, and it is not inconceivable that if we were looking at it again, perhaps we would not start at the same place.

Q156 Michael Fallon: You think it is too high as well?

Gerard Lemos: I think it is a lot of money, yes.

Q157 Michael Fallon: If you were doing it again, would it be lower?

Gerard Lemos: I would not want to give you that undertaking now, but I am very happy to give you an undertaking that we would start with a clean piece of paper in the event of the post being vacant, although the situation at the moment is that Tony has a contract and I think it would be wrong of us to alter the terms of that contract. I think it would be wrong of me to undermine his position by now saying that those terms were wrong. I am not in the business of breaking contracts. The other thing I should say-Lord Turner hinted at it, and Tony mentioned it, too-is that Tony did not take a bonus for 2011-12, and he also moved to the new terms and conditions that we established when the new organisation was set up. I think the net cost to him-this is all set out in our evidence-was £25,000 or £30,000, so his net remuneration is already substantially reduced, and that is within the terms of his contract. As I say, however, if the contract was starting afresh, we would look at it afresh.

Q158 Michael Fallon: The other funding bodies with which we deal are all having to reduce their expenditure, but your budget increases year on year. Why have you not been making savings like everybody else?

Gerard Lemos: Perhaps a little bit of background that Lord Turner did not explain would help the Committee. When Otto Thoresen reported to the last Government on the need for preventative financial advice service, his estimate was £56 million, which then came down to £50 million in negotiations between the FSA and the Treasury. I think that those numbers are right, but we can certainly confirm them. Then the process arose of how it all came to be funded by a levy, which Lord Turner described. In fact, what is happening is that we are spending less than Thoresen envisaged, and indeed less than was it was originally suggested was needed for preventative financial advice service. That said, I recognise that the budget did rise from last year. I would want to assure the Committee that we do not anticipate that it will continue to rise.

The real point about all this is that there is a massive advice gap in this country. There are a lot of people doing a lot of good work. There is the CAB service on the one hand and there is IFA on the other. Thoresen suggested that the advice gap was 19 million adults, and that is the gap that we are trying to fill. How much it costs to fill such a massive gap is something we could debate and, to some extent, the cost depends on how you seek to do it-whether you seek to do it partly online and face-to-face and so on. No doubt we will come to all that in due course.

Q159 Michael Fallon: We will, but we just have to stick to the questions I asked. Just sticking with the budget, are you now telling us that you are going to freeze the budget in future years?

Gerard Lemos: I think it may even come down a bit. Our forecast is that it may come down.

Q160 Michael Fallon: It may come down a bit. You provided very little information on the overall business plan for both the service as a whole and the debt advice service. Will you be producing more data in future business plans?

Gerard Lemos: Yes, I think we will. I think we have learned from this experience. I can explain to the Committee how this came about. We have a lot more detail. I understand that we have supplied some more detail to the Committee already, and we would certainly be willing to supply more, if required. One of the features of the statutory framework within which we operate is that we are obliged not just to have a business plan and to get it approved by the FSA, but to publish it. We took the decision-you may say that this was the wrong decision-that we should publish a business plan that would be for public consumption, rather than our own internal use. We do have a much more detailed plan for our internal use and we did share some of it with the FSA, as Lord Turner explained, but I would not want the Committee to think that all that was available was what was published. As this is early days for a new service-as Martin Wheatley said, we are a start-up-we really wanted to get the narrative out of what we were seeking to achieve. To answer your question directly, if there is a wish on the part of the Committee, or indeed anyone else, that we should publish more information and more details in our budget plan-and indeed publish it in a draft form-we should be very content to do that.

Q161 Michael Fallon: You seem to saying that you have a business plan, but because you had to publish it, you took all the figures out of it?

Gerard Lemos: I did not quite say that, if I may say. We certainly do have all the figures and, going forward, we are certainly willing to publish more.

Q162 Michael Fallon: Why don’t you publish a plan for more than one year?

Gerard Lemos: Because we have to get this approved on a year-by-year basis by the FSA, so any plan we produce for longer than a year would be subject to approval by the FSA. That said, I am very happy to publish draft plans for years 2 and 3. We certainly have those plans and I would be very happy to publish them.

Michael Fallon: Thank you.

Q163 Mr Love: Can I turn to the vexed question of expenditure on marketing? Something like a quarter of your total expenditure, including that for debt advice, goes on marketing. How do you justify that expenditure and, secondly, how will you measure the impact?

Gerard Lemos: We are spending a lot on marketing and that goes back to this massive advice gap. I would say that the success of the Money Advice Service depends on closing the savings gap, or at least going someway towards doing so, and making some impact on the pensions gap through auto-enrolment. We therefore feel-and this is the strategic decision that my board took, which Lord Turner described-that we need to reach a lot of people even to begin with, as we do not think that you can reach 19 million people, which is the advice gap. In its model, the CAB currently reaches 2 million people, I understand, and only one in seven of the population has an IFA, so there is the huge gap in the middle, and that is the one we are seeking to address. That is the rationale for our marketing spend and also for beefing up our digital strategy. We want to have a web proposition that is more than a website-very different from what we currently have-which allows people to take decisions and action, and we feel that people need to know it is there. If we spend our entire budget-except for staff and operations, which comes to about £9 million or £10 million-which is £36 million, entirely on giving face-to-face advice, we would reach-and we have calculated our unit costs, which are extremely good compared to other people’s-around 600,000 people. If we put all our funds in the same way into telephone advice, we would reach about 3 million people. Now some people would say, "Do that and do it in depth," but it would leave this huge advice gap, and what we understand we have been asked to do by Parliament is to build a national financial capability agency and to raise the general level of financial skills and financial education in the population. Therefore, we need people to reach this service and use it. I think the choice we have to make-I entirely accept it is a choice-is whether we want to invest at this stage in reaching a lot more people with a much better service, or whether we want to concentrate on smaller numbers but fill much less of this huge advice gap. I think that that is a strategic choice, and the choice that the Money Advice Service board has taken is the one that has been set out.

Just to be clear, there is one thing I would like to add to what Lord Turner said. We are never going to be a digital-only service. We are a service that provides face-to-face and telephone advice. We produce 3 million paper products, and we will continue to work through all those different channels. The numbers that we have set out for face-to-face and telephone advice are drawn from the Treasury’s impact assessment of the Financial Services Act. We are meeting the requirements that we were asked to meet for telephone and face-to-face advice by the Treasury’s impact assessment, and going further on reaching people through the web because we want to fill this big advice gap. That is the strategic decision that we have taken.

Q164 Mr Love: Let me press you on that. First, you said in our last hearing that there are already websites out there reaching up to 50 million people. What efforts are you making to work collaboratively? If you can, will you also answer the question of what impact you think this expenditure on marketing is having? Do you see an increased recognition of your brand out there?

Gerard Lemos: I will deal with that question and then come to the websites. We know from our research that recognition of our service rises enormously when we undertake marketing activity. The usage rise is 90%, so it nearly doubles. Two thirds of the people we target through our advertising earn less than £30,000 a year, so they are on low to middle incomes. One in three people, when asked in research, "Do you recognise the Money Advice Service?", now say yes. Considering we have only been going for 15 months or something, we don’t think that is too bad. We recognise that we have a long way to go, but the recognition is higher among people on low-to-middle incomes. I think the answer to your question is that the marketing does work. I entirely take the point that Mr Mudie made to Lord Turner that we could otherwise spend that money on delivery, and perhaps in years to come that will be the right thing to do. However, I go back to this advice gap. If we really want to get people to use this service-we are the only dedicated, preventative, unbiased, free financial advice service, and Parliament has given us our unique purpose with cross-party agreement-we think we have to reach a lot of people, and that requires professional marketing. We do have good evidence-we will be happy to supply it to the Committee, if you would like-of the effectiveness of the marketing plan.

Q165 Mr Love: We could certainly do with that. The other question-

Gerard Lemos: I am very happy to deal with that. There are more than 300 organisations to which we refer people, including many other websites, including some from which you have heard, perhaps in a more lively fashion than I can manage. We do hand off to lots of other websites, including MoneySavingExpert and the CAB service. We do not want to compete or duplicate. A challenge was put to you last week, was it not, that we are competing and duplicating things that already exist? I do not think that is true, frankly. The issue is that we are seeking to fill this advice gap and to reach people. Those people may indeed use MoneySavingExpert, MoneySupermarket, GoCompare or any of the others, but our research and other people’s shows that they still say that they do not know who to turn to for advice or how to improve their savings, and that they do not feel financially prepared for expected and unexpected life changes. One of the things you were told last week was that people’s financial problems often derive from a change in circumstances. We see people all the time who have recently been divorced or been made redundant. All I am really saying is that I think we are different.

Q166 Mr Love: Let me just help you there, because what was said to us last week was that you are not competing. First of all, there is not a level playing field, because you have a very large amount of money that private sector organisations do not have to market themselves. Secondly, they are getting 15 million hits a week, but you are getting much, much fewer. They do not consider you- If they had said to us, "These are real competitors to us," we would have probably been much happier. How do you respond to that criticism?

Gerard Lemos: We are transforming the service to reach far more people and transforming the way the service is communicated. Over the next few months, starting in July, you will see a very different Money Advice Service proposition. This is what we have been working up to over the last year. As I say, it will be much more focused on encouraging decision taking and action. Frankly, I do not think that I would accept, as I think you were told last week, that our services are crap. Some 90% of people who use our services say that they would come back, while 60% say that they would recommend them to other people. What we feel is that we can make them a lot better, and we feel that we can reach a lot more people. What I would say is that it is early days.

Q167 Mr Love: I think they said to us not that your service was crap, but that while it was very worthy, it was perhaps not, given their experience over many years, as relevant to the group you are trying to reach. However, I do not want to continue on that line.

Let me move on to the substantial reductions in staffing, which I suspect you will tell us were to make room for you to undertake this marketing effort. Tell us the numbers that we are talking about in terms of reductions of staff. Have you been able to save money? Have you ended up having to employ consultants and others to fill the gap left by the numbers of staff you have had to reduce?

Tony Hobman: Just to step through that, we are taking the organisation from about 150 people-the number that effectively came out of the financial capability division of the FSA when CFEB was created-and moving to a model where we believe we need about 85 people at the centre. Many of our services are face-to-face services delivered-indeed contracted-through organisations such as Citizens Advice in Wales and Scotland. That remains the same.

Q168 Mr Love: Let me just stop you there. These people had left the Financial Services Authority less than a year before they found themselves made redundant. Do you have any figures on how many have gone back to the FSA? I would have thought that you had a very dissatisfied group who transferred in good faith, but then found themselves made redundant.

Tony Hobman: I do not have an accurate figure, so I cannot guess, but I believe I know of one or two who have, although I do not know how many. I am sure we could find the figures for you.

We have a model going from 150 to 85, but not one that diminishes the front-line services giving the money advice. Indeed, in our call centre we are upping the numbers somewhat because we anticipate greater volumes. On the question of what that means in terms of redundancies, about 50 staff have left the business already. We are in the process of a second wave of consultation, so I cannot say what the final figure will be, but it is of an order of magnitude of about 50. It is certainly true that to manage that transition, we are employing some interim resources, but I think that the total cost of those would be in the order of £600,000, so that is much less than the gap from the circa £10 million that we were paying in staff costs last year and the £7 million we anticipate this year. This year’s consultancy spend is about £400,000, and none of that is supplementing skills that we already had. It is for a range of specialist input to the new digital work that we are doing and, for example, activities such as data security.

Q169 Mr Love: You are projecting to save £3 million on your staffing budget, yet there is no expenditure on contractors or consultants to fill some of that gap.

Tony Hobman: Yes, it is the interim costs that I referred to of about £600,000.

Q170 Mr Love: Coming back to this issue of salaries, can I ask you, Mr Hobman, whether your contract is a normal one with you paying PAYE and national insurance in the normal way, or was there a special arrangement with either the FSA or MAS?

Tony Hobman: No, absolutely not. It was based on a standard FSA contract.

Q171 Chair: Can you specifically tell us then if there are any of your employees on such a contract?

Tony Hobman: I can tell you there are none.

Q172 Chair: I have information that there are. Will you go and check?

Tony Hobman: Yes, I will indeed.

Q173 Chair: We would like you to give us a specific answer one way or the other. My information is that you have someone who has been there a considerable period of time-over the 12 months that Cabinet has decreed is reasonable-who is on that type of contract.

Tony Hobman: I certainly will check that. Perhaps I should say that I am conscious that there are people in our interim staff people who we get from agencies, and we pay the agency. There are none of whom I am aware who we pay in that way, but I will check, yes.

Q174 Chair: It depends on how you pay the agency.

Tony Hobman: I will check it.

Q175 Mr Love: The assumption in all this debate is that if consultants work for a limited period and have a short-term contract, it is then appropriate, but not if they go past that contract-and I think you may well be getting to that stage. If there are consultants who have been employed by you, you may wish to look at that.

Tony Hobman: I will confirm that.

Q176 Mr Love: We would be interested in those figures.

Mr Lemos, Lord Turner could argue that while it was for the FSA to decide on remuneration, not only for the chief executive, but for all directors-I will come on to that in a minute-and to reference them with others in the financial services sector, but since you have come in, do you not find that it sits rather uneasily with the community with which you are engaged-the debt advice and the financial advice community-that senior members of staff are being paid so highly? In other words, are you sending a bad signal through all this?

Gerard Lemos: As you know, we did not have these debt advice responsibilities when this contract was established. I am not sure it is a bad signal, but I think I would accept-I daresay that Tony would accept it, too-that in the debt advice world, this would seem like a lot of money. As we are now living with debt advice as part of our world, I can see why that comparison is made. Frankly, I can absolutely see why it does not look great, and of course it would be absurd to suggest-

Q177 Mr Love: You would accept that there has been some comment within the industry, if I can call it that-I am talking about debt advice-and in newspapers about that. As you indicated, you are providing a support and advice service to medium and low-income individuals, so does it not appear rather inappropriate that such large salaries are paid?

Gerard Lemos: We both accept that this is a lot of money, and we absolutely recognise the concerns that you have described.

Q178 Mr Love: Let me ask about other directors, including yourself. I do not wish to pry too closely into your individual circumstances, but is that something you may look at, in light of the experience with the chief executive?

Gerard Lemos: On the other directors, let me set out the situation for the Committee. As far as non-executive directors are concerned-this includes myself and my remuneration-we are paid exactly the same as a non-executive director and chairman of the Financial Ombudsman Service and the Financial Services Compensation Scheme. That was how it was offered to me, and that was what I accepted.

Q179 Chair: What does that give you?

Gerard Lemos: I am paid £75,000.

Q180 Chair: How many days a week do you work?

Gerard Lemos: I am contracted to do two, but it is always more.

Q181 Chair: Two. What about the other directors? Are they on the same as you-£75,000?

Gerard Lemos: No. I think the non-executive directors are on £25,000.

Q182 Chair: Okay. How many days do they do?

Gerard Lemos: Again, we can check this and come back to you exactly, but I think that they are contracted to do three or four days a month.

Q183 Mr Love: Let me put to you the point that was made earlier about Mr Hobman. When these decisions were taken, this was a £43 million to £46 million organisation with around 120 to 130 staff members. The reference to the Financial Services Compensation Scheme or the ombudsman scheme does not seem terribly appropriate given the size of organisation involved and, of course, there is this issue about the community to which you are referenced. Does it not seem inappropriate to you that we have such large emoluments being given to non-executive and others like yourself? Is that not something you should look at?

Gerard Lemos: As I say, these figures were set by the FSA when I joined. I have explained how they were explained to me and how they were derived. As I have already said, I can absolutely understand why people who work in debt advice, and indeed people in debt themselves, would look at these figures and think that they are very generous, but that is the rationale for them. The only thing I would say is that, as I have said in relation to Tony’s remuneration, we do want people with the relevant skills. I think that we have an excellent board of non-executive and executive directors, and we have to pay to get that. I entirely accept the general thrust of your questioning, however, which is that we need to justify these numbers in the light of now being much more closely aligned with the world of debt advice.

Q184 Mr Love: I hope that you will provide all the information that we have requested. It is interesting to note that, like others in the financial services sector, they are not covered by freedom of information, but for them that might be related to market-sensitive issues. There does not seem to be the same market sensitivity for you, so would you accept, as I think the Minister has already indicated, that you should be covered in future by the Freedom of Information Act? Are you relaxed about that, and are you going to be as open and transparent prior to that decision being taken in order to reassure the public?

Gerard Lemos: This is a question, as you rightly indicate, for the Minister to decide, not for me, but we shall certainly comply with what we are expected to do in relation to freedom of information. Let me be clear: I have no reason for or investment in being secretive. We have met all the requirements that have been placed on us, statutorily and otherwise, for transparency and disclosure. If people feel that is not enough, I must say I have some sympathy with that, from the business plan and in other areas too, and we are very happy to provide more information. As Mr Fallon was just exploring with Lord Turner, the current arrangements are the ones set out under statute. We are responsible to the FSA, as is reflected in the memorandum and the articles of our organisation. All remuneration matters, for example for directors, therefore have to be approved by the FSA, and so on and so forth. The natural benchmark, including in terms of transparency, would be the other members of the FSA family. We will certainly work with the FSA, and indeed with the Treasury, to ensure that there is as much transparency and disclosure as people think is important. We are not seeking to shy away from it.

Q185 Mr Love: I come back to the issue that in some parts of organisations there will be market-sensitive issues, but that does not seem to apply here. We were told by Lord Turner that he received significantly more information on your business plan and your accounts than the public, but still he had some difficulty explaining the rationale for the change of model that you are using. Do you not think that if you had been a little more open and transparent about the change in model, you might not have hit some of the difficulties that you have encountered due to the natural suspicion that arises from reducing staff numbers at the same time as you are increasing the levy on financial services companies?

Gerard Lemos: In hindsight, that is absolutely right. I would not dispute that for a moment. We could have gone about this in a more open and transparent way, as you suggest. Perhaps I could just add one thing in our own mitigation, as it were. I arrived 18 months or so ago. We were, and have been, very preoccupied with the sizing, the strategy and this plan. It is very early days. We only launched the service a year ago, so that was our focus. I had to recruit a board. I had to get them in and appointed, get the organisation up and running, get a strategy, get a plan together, and get that agreed by the Treasury and the FSA, and by BIS and the OFT. That was what we were focusing on. Perhaps it is fair to say that on keeping stakeholders and others involved, we did not put quite so much time into it as we might have done.

Overlaid on all that was the arrival of debt advice, which was not a responsibility we were expecting, so we had to produce two business plans-two strategies. I might say that we consulted extremely widely on our plans for debt advice; indeed, we are consulting very widely on our plans for financial education in schools, which perhaps we will come to later, because I would be very happy to talk about that.

The way we went about those two, where we were not under so much pressure of time, was we included lots of people. It was very transparent. People are very familiar with our plans for debt advice, as you heard from people last week from CCCS and Advice UK. They may not be happy with every detail, but they certainly had their say. If we had done something a bit more like that in relation to Money Advice Service, perhaps that might have been, in hindsight, not such a bad thing.

Q186 Teresa Pearce: We have heard a lot about the advice gap and the 19 million adults. Who are they?

Gerard Lemos: Tony, do you want to say something about that?

Tony Hobman: Yes. The number of 19 million was the one we came to. It is very similar to that in Thoresen’s original work, although we applied some slightly different factors. It is a population that we say needs money advice. We say that because we know the importance of life events, and we have talked about how vulnerable they can make people. We know how those life events affect the population at large, and we can segment the market in that way. We know from Thoresen what their basic money needs are. He established that quite clearly, whether it was making ends meet, choosing financial products, getting what people are entitled to and so forth. We added to that analysis something that he did not, because perhaps it was not so prominent at the time, although it is one of the most important things we found in our research: people’s attitudes to money. In other words, we have identified, broadly, six groups in the population; for example, those who are worried, stressed and disorganised, but do not know where to turn. Another group-these groups will all be millions strong-may be fairly organised, but very much lives for today, so those people will be unlikely to think about long-term planning. We were able to apply all those layers, as it were, to the population and to come up with a basic segmentation. As I say, we have six major groupings within the population. They are mainly defined by their attitudes, but they also map very closely to Thoresen’s work and levels of income, as well as socio-economic status.

Q187 Teresa Pearce: Given that there is this 19 million gap and you are spending about a million a person on marketing, how can you market to that advice gap?

Tony Hobman: Having that sort of segmentation allows us to start to do that much more than if we were just taking a blunderbuss approach and saying, "We know there are 19 million, but we do not know what makes them tick, how they think or where they are." It is absolutely the case-any professional marketing operation ought to do this-that if you can segment your market, you can buy your media, whether it is digital, broadcast or whatever, in a way that speaks to them, in a way that is relevant, and in a way that reaches them in the places where they are. It is interesting that television, although we acknowledge that it is certainly no more than 25% of our total marketing budget, is a relatively expensive medium, but it is one that reaches people in socio-economic groups C to DE to a much greater extent than other parts of the population. We believe that we can tune the marketing in a way that resonates-

Q188 Teresa Pearce: Is your marketing in-house, or do you use an agency?

Tony Hobman: It is both. We do use agencies. We use a media planning agency to help us ensure that we put the campaigns together in the right way and, yes, we use a creative marketing agency.

Q189 Teresa Pearce: Given that you have this enormous marketing budget, how will you measure its success? How will you know that you have reached anybody you would not have reached in the first place? How do you know it is not dead weight?

Tony Hobman: We do, and will do, special tracking surveys that take place before, during and after the marketing takes place. Indeed, we did this last year. We spent some money last year on marketing, and in the rather unpalatable jargon of that world, there are measures such as prompted and unprompted awareness, and so-called consideration, whether once people have seen advertising they are more likely to use the service. Then there are links you can make between being on air-let us say on television-and seeing the level of uptake on your products. We have some of those metrics already established. I think Gerard mentioned one earlier: when our campaigns are running, we see something like an 87% to 90% uplift in people using some of our key products.

Q190 Teresa Pearce: But if somebody is using your website, it does not mean that they were helped by your website. How do you measure that someone is actually being assisted, rather than being just a hit?

Tony Hobman: That is a very good question. That is why, when we talk about the numbers of users of our service, we do not just talk about people who have hit the website. We believe that there were something like 1.3 million individual users of the site last year. In terms of the number of hits we got through the web, it was probably 4 million or 5 million, so we have a process where we set out the criteria for someone who credibly has used it, and then gone on and done something. If I may say, that is why one of our key targets for this year is to have a million action plans-people who come on to the site or use the service, and then take some structured steps towards their financial plan.

Q191 Teresa Pearce: But given that we are in a digital age, surely the people who are likely to come on to a website and use that service are people who would go to a website anyway. Isn’t it the people who are not accessing the website who need face-to-face help? Those are the people in the advice gap who your website will not reach.

Tony Hobman: They are not the only people-

Q192 Teresa Pearce: But they would be a significant number.

Tony Hobman: Yes, absolutely. I understand that, and that was why we retained the commitment to the telephone and face-to-face service. Coming back to a point that Gerard made earlier, in terms of the original impact analysis that was done following Thoresen’s work, there was an expectation that by this time in the service’s life we would be serving about 80,000 to 90,000 people face-to-face. That is the number we are doing. The number for telephone was somewhat smaller than the numbers we currently have, and the website, significantly less. We will increase the numbers on the website, because that is relevant for people who need that. We are increasing our telephone numbers; next year they will be significantly greater than this year. I think the answer, in truth, with face to face is that we need to wait and see. It is relatively more expensive, of course, as you would expect.

Q193 Teresa Pearce: Considerably more expensive.

Tony Hobman: It is closer to £60 than the few pence for when we get to the level of internet usage we want, but we absolutely have not abandoned it, and when we are putting together our budgets and business plans in future years, we will need to think hard about what the justification is. I do not think it will a case of reducing that number under any circumstances, but maybe increasing it.

Q194 Teresa Pearce: We heard earlier about the pensions gap and auto-enrolment. Is part of your marketing budget going forward to market to people regarding pensions?

Tony Hobman: Yes, it is. We see that as a very significant opportunity.

Q195 Teresa Pearce: Why would you be marketing that when the DWP already has quite a big budget, as does NEST? Are you working with them?

Tony Hobman: Yes.

Q196 Teresa Pearce: Is this another overlap?

Tony Hobman: I think it is quite a good example of how the service can work, going forward. We have already worked with the DWP to produce a planning tool to help to support people who are thinking about auto-enrolment. It is clearly a virtuous thing that the greater numbers who come through our site will have access to such support and information. It will be the first time that anything like that has been produced. Equally, we are working with the DWP on universal credit and the direct payment of benefits, because they feel we have some functionality and information that can be embedded in that process as well.

Q197 Teresa Pearce: Can we just go back to the very beginning? At the very beginning, Mr Hobman, when we were talking about your salary, it was mentioned that you did not take a bonus last year. Does that mean there is a bonus in your contract that is a reward for success?

Tony Hobman: Yes. There is a set of objectives.

Q198 Teresa Pearce: What is the metric for measuring that success?

Tony Hobman: If we were to take this year, it would be for the delivery of the new service-the upgraded service; the one that we have said we are just about to launch. It would be for delivery of the 50% extra value that we, with stakeholder partners, are working to extract from the direct grants that we took over from BIS for debt advice. It will be to put together a detailed, coherent plan for how we take debt advice forward on a long-term basis, and I think it is not without significance to say it is also to ensure that we have a very clear and effective plan for stakeholder engagement as well.

Q199 Teresa Pearce: Given that we have a 19 million advice gap, but there is so much advice out there, the problem for people is who they trust and where they go.

Tony Hobman: Yes, absolutely.

Q200 Teresa Pearce: Given that there is such a lot of advice out there and there are your two roles of money advice and debt advice, how do you engage with those services, and how is there differentiation between one service and another? What do you do?

Tony Hobman: In terms of money advice, it is clear that when talking to any of our money advisors on the phone or face to face, or indeed visiting the website, we do not provide any of what you might term the hard-edge, back-end of the debt advice process. We do not say to people-

Q201 Teresa Pearce: You have money advice and you have debt advice. They are separate roles.

Tony Hobman: Yes. Because we already had the money advice role-this was before we were ever asked to take on these additional duties-when people come to us for generic money advice but also need debt advice, we already hand them over, when appropriate, to those other agencies. We have always done that. Indeed, something like 20% to 25% of those who visit our face-to-face and phone service would eventually be handed on to debt advice. We have said very clearly-I believe it is the right thing to do-that we are not trying to create another debt advice brand for the Money Advice Service. There is a lot of excellent provision out there already, whether it is the telephone-based providers, some of which were witnesses last week, or Citizens Advice. What we want to do is to work with them to create a more coherent, sustainable, long-term model that is probably more visible to the public. One of the challenges at the moment is that some people tend to fall into paying for debt advice-the fee-charging part of the system-when they do not need to.

Q202 Teresa Pearce: People do not know which is which.

Tony Hobman: Yes.

Gerard Lemos: I am sorry to interrupt, Tony. I think that is right. We are not going to provide debt advice under the Money Advice Service logo, as it were. We are only going to co-ordinate the services that we fund in part, and others do, too. For example, we give, through different grants and contracts, £23 million to the Citizens Advice service. Nearly a third of our total funds goes to the Citizens Advice service, principally for debt advice, although it also has some money advice contracts. We are very conscious of the risk of confusing that picture in customers’ minds.

One of our key objectives in co-ordinating debt advice is for people in debt to get debt advice in a more timely fashion than at present. The consistent feedback we get from the providers of debt advice is that people come to them too late, and that is the feedback we get from creditors as well.

Q203 Teresa Pearce: To us too late as well.

Gerard Lemos: Yes, exactly, and you know that from your own surgery. One of the things we are doing in that arena is putting in place a set of standards for ensuring that the creditors-like banks, utilities and so on; the bigger creditors-refer directly to debt advice, so the responsibility is with the creditor, rather than the debtor, to find the advice. Now, there will also be, as it were, self-help debt advice provided by the National Debtline and so on, but we want to get people to the debt advice services that exist. Referring people to debt advice at the moment can mean things like just getting a letter with a list of phone numbers, and no doubt that is the sort of thing you see in your surgery, but we want to get people to a point where they are just literally put through to a debt advice service.

Q204 Teresa Pearce: What link will you have with local authorities, for instance?

Gerard Lemos: The links that the debt advice organisations already have. Our job is not to-

Q205 Teresa Pearce: Directly with the local authority rather than the debt advice. Local authorities quite often will see somebody who comes along and has not paid their council tax or whatever, and that is part of the bigger thing. Would they know to direct people to you?

Gerard Lemos: If it was debt, they wouldn’t necessarily direct people to us, but if they did-

Q206 Teresa Pearce: Surely your website shows people somewhere where to get debt advice?

Gerard Lemos: Yes, sure. Absolutely, there is lots of information about where to get debt advice.

Q207 Teresa Pearce: The website costs a fortune. There must be something on it somewhere that tells people-

Gerard Lemos: Yes, there absolutely is. Sorry, I-

Teresa Pearce: I am not saying that you would give the debt advice.

Gerard Lemos: Precisely, no.

Q208 Teresa Pearce: But you are a signposter; you need to-

Gerard Lemos: We would signpost people, and we do already do that.

Q209 Teresa Pearce: In your business plan-your initial business plan. How many business plans have you had now? Is it the third year?

Tony Hobman: We have had two in my time.

Q210 Teresa Pearce: Two, right. In your first business plan, you made a number of people redundant, and in your second business plan you are having to make a number of people redundant. When did it change from the first year to the second year-when you realised you needed another tranche? What happened?

Tony Hobman: It is all the same process, so towards the end of last year when we had-

Q211 Teresa Pearce: Is this part of the original plan, then?

Tony Hobman: It is part of the original plan, and we clearly took the view, in terms of the stability of the business, that this couldn’t all happen just once in short order and that it ought to be a phased process. Really all that is happened is that process has straddled two business years-

Q212 Teresa Pearce: Okay, so there is not something that has happened that has made you realise-

Tony Hobman: No, no, absolutely not.

Q213 Teresa Pearce: When you did your first business plan, did you engage with the sector that is already out there, and did you consult it on your business plan?

Gerard Lemos: The money advice business plan or the debt advice business plan?

Teresa Pearce: The money advice.

Gerard Lemos: Not as much as I think in hindsight, as I think I said to Mr Love, perhaps would have been the right thing to do. As I have said, we were very focused on getting the thing up and running and out there.

Q214 Teresa Pearce: For your next business plan, how much will you consult?

Gerard Lemos: We will certainly consult more than in the past. We have learned that lesson for sure.

Q215 Chair: But you have not seemed to have consulted at all, so if you double that, you still end up with nothing. Let us put a serious marker down. Teresa has asked you a straightforward question: how much are you going to consult? Are you going to consult fully before your budget starts and before you start dishing out contracts and so on?

Gerard Lemos: Yes.

Q216 Chair: Is there going to be a real partnership?

Gerard Lemos: Absolutely.

Q217 Chair: Well, that is better than saying, "We will double what we did last time," because you-

Gerard Lemos: Sorry to interrupt you, but something much more like what we did with debt advice is what we foresee, and something much more like what the Financial Ombudsman Service does at the moment. So, it is rather more than we are statutorily obliged to do, absolutely.

Chair: There is a vote in the House. If you would just get yourself a cup of tea or something for quarter of an hour, we will be back.

Gerard Lemos: Okay.

Sitting suspended for a Division in the House.

On resuming-

Q218 Chair: This is overtime, but not for you, Tony, not for you. Do you understand?

Tony Hobman: I do, yes.

Q219 Teresa Pearce: Can we just be clear about what it is that you actually do? You have two tranches, and you have debt advice that you fund the contracts for.

Gerard Lemos: Sorry to interrupt you, but let’s just get the debt advice thing clear, shall we? We fund the contracts, which were the previous BIS contracts, and we roll them forward on the same basis. We have added Scotland, Wales and Northern Ireland under the Barnett arrangements and so on. The other thing we are doing-and we have had a lot of support from this, from the debt advice world-as I started to explain before the Division, is trying to improve the triage arrangements, crudely speaking, and also to set standards for consistency across the agencies and ensure that people get to hear about these services better, so we are, for example, in discussion about the possibility of having a single telephone number. We have a long way to go on that, so I don’t want to make that commitment here, but that is one of the things we are trying to work towards, as well as quality assurance and so on.

Then there is a policy agenda, because of the changes to consumer credit regulation, that we are going to transfer from the OFT to the FCA in due course. Debt advisors need consumer credit licences, so we need to be working closely. Anyway, there is a lot of policy stuff as well; that is what I am saying.

Q220 Teresa Pearce: You have two main bolts to what you do. One is that you provide debt advice via providers, so you fund the CAB to do that.

Gerard Lemos: Yes.

Q221 Teresa Pearce: And you do money advice; that is what you actually do.

Gerard Lemos: Yes.

Q222 Teresa Pearce: What does A4e do? What is it contracted to do?

Gerard Lemos: It is contracted to provide face-to-face money advice in England-

Tony Hobman: And Northern Ireland.

Gerard Lemos: And Northern Ireland. We had a procurement process and a competition-

Q223 Teresa Pearce: And it was the best?

Gerard Lemos: At that time, it won the contract, yes. Obviously, this was some time before the much publicised issues that surrounded them.

Q224 Teresa Pearce: Have you revisited that contract since?

Gerard Lemos: Well, we monitor all the contracts. The others are with Citizens Advice-

Q225 Teresa Pearce: How is it paid? Is it just given a fund and it does it? What happens?

Gerard Lemos: No, no.

Q226 Teresa Pearce: Could you just talk me through it?

Gerard Lemos: Yes. There certainly are quantitative targets, and we do quality-assure those targets, so there are volume targets for the contract. We can certainly send all those numbers to the Committee, if you are interested.

Q227 Teresa Pearce: That is for money advice-face to face.

Gerard Lemos: Face-to-face money advice that it is doing under our brand in hundreds of different locations around the country.

Q228 Teresa Pearce: So if somebody comes to your website, they don’t get face to face. How do they get face-to-face advice from you? What do they have to do?

Tony Hobman: Perhaps I can explain. It could happen in two ways. If they come to the website, it is clear that there are phone numbers, and indeed you can access face to face. What we have tasked our contractors with doing-and that is A4e as it is, Citizens Advice Scotland and Citizens Advice Wales-is to go out and find those people. That is part of the contract. Let me come back to the points we were making earlier about the Thoresen work; indeed, you were asking about how you segment the market. What Thoresen came up with, in effect, was a sort of Experian-based segmentation model that you can overlay on postcodes. In other words, you can map where vulnerable people are most likely to be. They use their local intelligence. Some of it they subcontract themselves, for example to Age UK or another agency like that, where there is coverage on the ground where vulnerable people are.

Q229 Teresa Pearce: To use a Work programme analogy, A4e is your prime contractor, but there could be sub-primes.

Tony Hobman: It has the bulk, and then contracts about a third, I believe.

Gerard Lemos: The contract arrangements are slightly different, but the analogy is the same.

Q230 Teresa Pearce: If somebody goes to the website and finds out there are face-to-face facilities, do they then ring and book an appointment, or-

Tony Hobman: Yes, or A4e or the other contractors find them themselves.

Q231 Teresa Pearce: So A4e can go out and find people who need advice?

Tony Hobman: Yes. We pay it to do that.

Gerard Lemos: But most of the referrals are people who self-refer, or come via our telephone.

Tony Hobman: Their contractors are trained by us and quality-controlled by us. Clearly part of the contract is that they maintain the standards, but we have an independent verification.

Q232 Teresa Pearce: Just to go back, A4e could go out and find some people who need face-to-face advice, and then give that face-to-face advice. How do you know it has done that?

Tony Hobman: Part of the contract is that it has to provide evidence that it has done what we have asked, and we conduct independent audits as well. Indeed, we have recently done one.

Q233 Teresa Pearce: For instance, if it said that it had met 10 people that week, do you do follow those people up and ring them back to find out?

Tony Hobman: Not everyone, but on a-

Q234 Teresa Pearce: But you do random checks.

Tony Hobman: Yes, we do.

Gerard Lemos: We did revisit it, as you would expect.

Q235 Teresa Pearce: Someone like the CAB, for instance, or my local law centre is not making a profit. They are covering their overheads, or even not doing that. They are basically run by volunteers and people who work many more hours than they are ever paid for, whereas A4e is a commercial business. How is it that A4e can be paid an amount of money to deliver a service and make a profit out of it, yet you cannot deliver that service yourself or get someone like the CAB to do it? It would not seem to me that it would be somewhere where someone could make a profit, because if there is a profit element that is going in for A4e, surely that would be an amount of money that could help somebody else.

Gerard Lemos: We are bound by Government procurement arrangements for those contracts. It is different in debt advice. We make grants in debt advice. They are not contracted, which obviously have statutory powers-

Q236 Teresa Pearce: You had to have open tender and it won.

Gerard Lemos: It won.

Q237 Teresa Pearce: What was it about its tender that was better than everybody else’s? Was it cheaper?

Tony Hobman: I couldn’t give you all the criteria here.

Gerard Lemos: But we are very happy to.

Tony Hobman: Yes. We can send you details of the factors that gave it to them. There would be some commercial sensitivity-

Q238 Teresa Pearce: But you see my point.

Gerard Lemos: Yes, I entirely see the point.

Q239 Teresa Pearce: One of the criticisms is the fact that people like CAB are run on a shoestring. They are for ever worrying about whether they are going to be able to keep their staff on. The service is pretty much run by volunteers. However, you have this huge budget, but a big chunk of it is going to a commercial company and that looks wrong. I am not saying it is wrong; I am just saying that to anybody who works in that advice world, where lots of it is voluntary and lots of it is done by charities and churches, this looks like a company that will do anything for a price-there are lots of them out there and we all know their names. They will go, "Yes, we can do that." They can do anything as long as the price is right, but why are they experts when somebody like the CAB is not?

Gerard Lemos: Yes, I entirely understand-

Q240 Teresa Pearce: What you are saying is you are bound by the procurement rules and you have to put it out there, and if they come up with the best tender-

Gerard Lemos: That is the statutory framework under which we operate.

Q241 Teresa Pearce: It is the same as the Work programme.

Gerard Lemos: It is exactly the same issue. There has been one example of the reverse happening and that is our telephone contract, which was won by a charity-Elizabeth Finn Care-through commercial procurement. So our telephone contract is staffed and delivered by a charity, not a commercial provider.

Q242 Teresa Pearce: Can I just give you an example from my experience? I am a Member of Parliament, and people ring up every day and say, "I need an appointment to see you." Nine times out of 10 they don’t need an appointment to see me because they can just tell me what they need and we can deal with it before they have their appointment. How do you decide-or how does A4e decide-who needs a face-to-face and who doesn’t? Is it just that the person says, "I want a face-to-face meeting"? How is that decided? Surely everybody wants a face-to-face meeting, and if they can increase demand, they are just going to increase their contract.

Tony Hobman: Like all contractors, it was given a clear picture of who it was seeking to meet. We come back to this point originally about Thoresen’s segmentation. It is very clear that it needs to meet people who are generally going to have below-median incomes and other clear distinguishing features that mark them out, as it were, as particularly financially vulnerable. It is because of its knowledge of local networks and local areas and of where people are, whether it is going into community centres or indeed into local CABs, and then delivering that advice that means that generally it will target that right. We do set a very clear criterion for meeting this threshold of vulnerability, and last year it got to 74%. We would like it to be higher; we would like it to be closer to 85% of the people in need.

Q243 Teresa Pearce: I know you have not been going for very long, but I have people coming to me with debt issues all the time, and I don’t know where A4e is in my area delivering this at all.

Gerard Lemos: You say debt issues.

Teresa Pearce: Debt issues, but it is not always. Recently we have had a lot of people with interest-only mortgages who want to know what they need to do next, or about any final annuities. They do not understand. I don’t know where A4e is in my area so that I am able to say, "These are people who could help you." Why do I not know that? Why is it not contacting MPs?

Gerard Lemos: We can certainly let you and indeed every-

Q244 Teresa Pearce: But it should be, shouldn’t it? It shouldn’t just be going out looking for people looking puzzled in a bank window. It should be getting in touch with people like us and saying, "We have this service".

Tony Hobman: We did write to all MPs with a pack explaining the service, and indeed giving a constituency helpline, so that people could understand where these services are, even to the extent of putting posters up if you wanted or making statements in the local press. I am happy to send that to you again if that would help.

Teresa Pearce: I would like to have that, yes.

Tony Hobman: I know a number of MPs have done that and have found it particularly useful.

Q245 Teresa Pearce: As I say, it just seems to me that this is exactly the same as the Work programme, where you have these large corporates that are able to apply for the tender because they have capital in the bank and all the things that they need to show they are a credible organisation-charities often do not, because they are not allowed to keep capital-and they have won these contracts and are managing to make a profit. When I look at my local law centre and CAB, they do not and could not make a profit, but they deliver a fantastic service. It seems to me that this is not the right road to go down.

Gerard Lemos: We can certainly supply you with information about what-

Q246 Teresa Pearce: They should be knocking on my door, though, shouldn’t they?

Gerard Lemos: Absolutely, and we will make sure they do.

Teresa Pearce: I will pretend I am not in.

Q247 Mark Garnier: In your written evidence, you say what you are going to do with regard to financial education. Can you give us a bit of a flavour about how you see your role with the MAS with regards to financial education for young people in schools?

Gerard Lemos: Absolutely. You said that we had two planks to our financial capability strategy-debt advice and money advice. Well, a third plank is financial education, and we are drafting the national financial capability strategy, on which we will consult very widely with the Treasury, the FSA and all stakeholders.

Q248 Mark Garnier: Can you explain what the national financial capability strategy means?

Gerard Lemos: We have been asked by HMT to put together a national financial capability strategy, and we have suggested to it that the three components of financial capability, within the background of the work that the FSA did on financial capability and so on, are: financial education in schools, which I will say a lot more about that in a minute; preventative financial advice of the sort that we have just been discussing; and debt advice of the sort we have discussed at length. One the things I am very conscious of-it relates a bit to what Lord Turner was saying-is that we do not want the organisation, just as it is getting up and running, and it is early days, to be constantly given new responsibilities and obligations. It does not help us to keep focused and keep getting the structures right and so on. So I want to focus on those three things. We have talked about debt and we have talked about money advice; now it is financial education.

We published some research last week, which we talked about at the breakfast that you kindly organised and I was delighted to speak at, that shows that the financial services industry spends £25 million a year on financial education in schools. It is saying to us, as indeed it said at that breakfast, that it wants us to do two things. The first is to understand what makes a difference and an impact, and to get much clearer about evaluation and impacts. That is regardless of whether financial education is included in the curriculum, which we support-we support the APPG on that. The second thing is to broker the overlaps and the under-laps in access to financial education in schools. We are very happy to do both of those things, and we are now embarking, with PFEG and others, on putting together-I think Tracey Bleakley told you about this last week-a national financial education plan in schools, and we will consult on that very widely. We are already committed to doing that.

Q249 Mark Garnier: Could you give us a flavour of what that looks like?

Gerard Lemos: It is some of the things we talked about last week.

Q250 Mark Garnier: On the record; we can’t refer back to the breakfast we had last week.

Gerard Lemos: Absolutely. The research from this country and others seems to indicate that the thing that works in financial education is tooling up young people in the transition to adulthood-so from 14 years onwards. We have reduced our age profile for our own service-you will see this rolling out over the next few months-from 18-plus to 16-plus to reflect that, and we are pleased to be able to do that.

Q251 Mark Garnier: Why 16-plus? Why not earlier?

Gerard Lemos: It could be. That is a good challenge.

Q252 Mark Garnier: Give me some clarity on what you are doing. What I would like to hear from you is how much money you are prepared to put into this financial education in schools. Do you see your role as being to help to contribute to educating teachers to deliver these things? Do you see your role as merely a sort of co-ordinator of the efforts that are being put in by banks, or do you think you should supplement them?

Gerard Lemos: On teacher education, that is not a role that we see ourselves funding at the moment.

Q253 Mark Garnier: Why not?

Gerard Lemos: The financial services industry has quite strong views that teacher training is not an obligation it thinks we should pay for.

Q254 Mark Garnier: Why not?

Gerard Lemos: Because it is a job for the Department for Education, in its view. If that view was to change and it was, in consultation, willing to provide us with the resources to do that-

Q255 Mark Garnier: What conversations have you had with the Department for Education about this?

Gerard Lemos: Extensive ones over the years. We have worked very closely with the Department for Education and the APPG, but as this process goes forward, we will talk further to them. We do feel currently, although we are very happy to debate it, that the question of teacher training and teacher education is not a job either for charities or for us. What we will do-we have been in discussions with PFEG about this already-is to produce learning and teaching materials that we will help to syndicate into schools. We are absolutely committed to doing that.

Q256 Mark Garnier: How much money do you put into that?

Gerard Lemos: We are building this up now.

Q257 Mark Garnier: How much do you anticipate putting into it?

Gerard Lemos: I don’t know the answer to that.

Q258 Mark Garnier: Give me a rough estimate-£1 million; £10 million. The reason I ask is because you are also saying that you could reduce your budgets. There is a lot of criticism that you are spending a huge amount on advertising a website that is arguably superfluous to requirements.

Gerard Lemos: Not in our view.

Q259 Mark Garnier: It wouldn’t be in your view, because you are the one who is going to-

Gerard Lemos: Well, it might not be in other people’s views, might it not?

Q260 Mark Garnier: Yes, absolutely. I won’t repeat what Martin Lewis said about it, but he obviously has very strong views. It is a big issue, as you have said. You are talking about reducing your budget. You also have an extensive marketing budget for this website, and then you talk about possibly putting money into literature-perhaps lesson forums and that kind of stuff.

Gerard Lemos: We are already committed to doing that and it is coming out of the funds we are already spending.

Q261 Mark Garnier: Fantastic. How much is it?

Gerard Lemos: I can’t tell you off the top of my head, but I am happy to come back to you.

Mark Garnier: But there is a commitment.

Gerard Lemos: Yes. We are in the middle of building materials as part of this transformation that will be-

Q262 Mark Garnier: But roughly what is it?

Gerard Lemos: I am sorry, but I don’t know is the answer to that. I am very happy to come back to you.

Mark Garnier: Tens of thousands. Hundreds of thousands?

Gerard Lemos: It is more than tens of thousands.

Q263 Mark Garnier: So perhaps a six-figure sum, but not necessarily more than £200,000. Is it that type of thing?

Gerard Lemos: I don’t know, but we are very happy to provide you with that information. As I say, we are working closely with PFEG, as you heard last week, to build this plan. I must say there is a lot of money going into this already, and we have already heard a lot of concern from this Committee about the cost of all this and the cost of regulation.

Q264 Mark Garnier: But you are in a very strong position on this. You are the Money Advice Service; you are contracted by Act of Parliament to create. If anybody could take the lead on this, it could be you, and I am trying to get a flavour of what you are doing. You have extensive resources of £80 million or so. I appreciate that quite a lot of it is deployed out to crisis money, but I am just trying to get a flavour of how much of your budget you are prepared to put into financial education for young people because, as is being repeatedly discussed, we have a-broadly speaking and, it is accepted, relatively speaking-financially illiterate nation.

We are not really doing much about it apart from the enthusiasm of the banks that come into schools to do it, which is something they should be praised for. We all spend a lot of time beating the banks up, but they are doing something about this-nobody else is. We have people who have unadvisedly bought products and all sorts of things, and have got themselves into mortgage arrears and all sorts of problems, yet we are not dealing with the root of the problem, which is financial illiteracy. I want to know how you are taking leadership to drive this forward.

Gerard Lemos: What I would say is that is we do accept that leadership role. We see it as absolutely-

Q265 Mark Garnier: What are you doing to do?

Gerard Lemos: We are building a strategy for financial education with PFEG and so on.

Q266 Mark Garnier: I am sorry. I do not mean to browbeat you-it is unfair of me-but people say, "We’re coming up with a strategy," or, "We’re going to be doing this next week," or, "We’re going to be doing this in a year’s time." This organisation has been going in one form or another since 2006, and I don’t see any real evidence that there is anything substantial and meaty coming forward in terms of leadership on financial education in schools, and driving it forward and getting it on to the curriculum. I have not seen a strong coherent case from you guys about getting financial education on to the curriculum. What have you done about that? I am the vice-chairman of the all-party parliamentary group.

Gerard Lemos: I know you are. I have only been here since 2010, as you know.

Mark Garnier: Two years.

Gerard Lemos: Yes.

Q267 Mark Garnier: It is a long time. I mean, I have only been here since 2010 and we are achieving quite a lot.

Gerard Lemos: All I can say, although perhaps it will not satisfy you, is that this is an area we are committed to. Do keep pressing us on it, and we will keep working on it.

Q268 Mark Garnier: That is not a good enough answer. I am pressing you now. I would like to see something coming forward. Show us evidence and engage with the all-party group. You are not doing that. You are talking about what you are doing, and yet in two years I have not seen anything from you guys on this.

Gerard Lemos: That is a fair challenge.

Q269 Mark Garnier: Please explain why.

Gerard Lemos: As I have already explained in relation to other areas, the task that we felt we had been given by Parliament was to implement the need for a preventative financial advice service, and that is what we have been focusing on. We have done a lot of work in schools over many years-long before my time-and that is an area that we intend to continue to work in. Should we do more? Well, we are always under pressure to do more and this is, in a sense, our problem.

Q270 Mark Garnier: But it is your core job.

Gerard Lemos: It is certainly one of our core jobs. We wouldn’t dispute that.

Tony Hobman: Can I have a go? I have nothing more to offer than the stark reality of everyone who is out there in the world now not being financial capable. That is a very big job, and we know it exists. I think there are 1.4 million young people-16 to 18-coming out into the world in some form every year. What we have done is to try to move the boundary of our service, as it were, further down than it was before. It was rather more a service for adults, but what does that mean? If you take some of the points we were making about life stages being much more important, we now recognise one that in house we call "young firsts". In other words, it is people who are coming out into the world, and we absolutely feel-because you are right; there is a lot that isn’t dealt with at root-that they are vulnerable. Now, we absolutely feel that that has to be one of our priorities.

You have raised the issue, but is there anything we can do to step back before that-back into the world of schools and the root cause? We have gone quiet for a while, and part of the reason was because we were asked to go and think strategically, rather than just do things, and that was why we commissioned the research to which Gerard referred to establish what the landscape is. Who is out there spending circa £25 million from the industry on 36 or 38 projects, many of which measure engagements and numbers although not many, it has to be said, that have yet managed to measure long-term behaviour change?

So, having stepped back from it-and that was only very recently; just a matter of weeks or months-we now feel we are at a point where we have to gather everyone round us. I know that that sounds like talking and strategy again, but we have to do that and say, "So what needs to be done? What sums would be involved?" There is a lot of money bandied around that we could spend or might not spend, and I think we need to go into that loop seriously and, with another business case coming up for another round of funding, that is something we need to think about. I don’t think we can commit a sum at this stage or indeed, in a sense, a certainty of role.

Q271 Mark Garnier: I have had an estimate that £5 million would kick-start a training programme for teachers.

Tony Hobman: That is something we need to consider. That is not a figure I have seen.

Gerard Lemos: We also have to take the financial services industry with us on this, and there is feeling in the industry that teacher education was not something that it should be doing.

Q272 Mark Garnier: The financial services industry it going to a great deal of effort to go into schools to do this. I have certainly seen it in my constituency, and it is part of the all-party parliamentary group’s report into this issue. The reality of it is you may get one lesson a year or two lessons a year. They do a good job-don’t get me wrong-but, having written the report on financial education in schools and circulated it to all the schools in Wyre Forest, I have had schools come back to me saying, "This is fantastic. We are desperate for it. Where do we get the help from?" They are not getting it. I keep coming back to you and I keep putting the pressure on you. You are the ones who have an Act of Parliament that is there to make you get on with it, and I am not seeing any evidence of real action. I am seeing evidence of focus groups and evidence of getting together and having conversations about it.

Gerard Lemos: We do have to take stock-

Q273 Mark Garnier: Of course you do, but we have taken stock-

Gerard Lemos: That is what we have been doing.

Mark Garnier: We have done it on the basis of a six-month-

Gerard Lemos: So it will be part of this business planning process that we have already talked about, which we will consult on widely. If the answer comes back from that consultation about the kind of numbers- With respect, we are being criticised on the one hand for not consulting people and taking decisions unilaterally but, on the other hand, you are pressing me to take a decision now without talking to anybody. I think you have to give us a little bit more time-

Q274 Mark Garnier: You have been in the job for two years, and the organisation has been going for six.

Gerard Lemos: Okay, but we have been asked to take a step back from what was going on and, as Tony says, to take a view of what was going on in financial education in the schools. We now need to think about what the next steps are. A consensus may build that we should do more of that and after the consultations there is the business plan that we have talked about. You know, if I was now to say to you, "Yes, it is £5 million a year," or whatever it is, what credibility would all the other answers I have given about consultation have?

Q275 Mark Garnier: Sure, which was why I couched it in terms of very loose amounts of money and order of magnitude. Certainly there would be no question that this Committee would hold you to stuff that you have obviously said in verbal evidence. I do not want to browbeat you any more, but I would be extremely grateful if you would come back to the Committee as soon as you can with a coherent, structured business plan as to how you are proposing to deliver financial education to schools. A nice extra would be to have Nick Gibb complain to the Minister in charge of this, and him come to complain to me that, as a result of me browbeating you, you have been on to him every day about getting financial education on to the curriculum. That is what you have to do. You have to drive it. We do our best, but you have to drive it.

Gerard Lemos: It will be part of our business planning, I absolutely give you that assurance.

Q276 Mark Garnier: I would also like you to give support to all those other organisations out there that are involved in trying to drive this process forward as well, and that are doing it as charities.

Gerard Lemos: Absolutely. I have already talked about wanting to involve people and consult them more. To repeat my earlier comments, perhaps we should have done more of that in the past. I absolutely assure you that, in our next business plan, there will be a section on financial education in schools.

Q277 Mark Garnier: When is your next business plan coming out?

Gerard Lemos: For the next financial year. We are beginning that process now.

Q278 Mark Garnier: I slightly weep at that. I would rather have you come up with something a bit more constructive than that.

Gerard Lemos: We have a business plan about which we are being criticised for spending all this money, and there was a discussion earlier between Mr Fallon and Lord Turner about variations to our business plan. I really don’t feel that I am empowered to go to the FSA now and ask for a variation. I think that would be quite the wrong thing to do.

Tony Hobman: We are already, at this early stage, starting to put the business plan together. So, it is a process that gathers speed across the summer and then, when we are into the autumn-

Q279 Mark Garnier: When is it being published?

Tony Hobman: It will be published next March. Absolutely it has to be agreed, because it has to go before the FSA well before the end of this year.

Q280 Mark Garnier: So it is another year, basically, before we-

Gerard Lemos: But the process is going to start very soon.

Mark Garnier: Very soon?

Gerard Lemos: The process of consultation on our business plan, which we have spent a good deal of the afternoon being told we should do more on.

Q281 Chair: The good thing is you have a lot of spare brass there, don’t you? You should have made an offer of £5 million straight away-you could have taken it out of your marketing. A sum of £15 million is quite sufficient to spend on marketing, and you could have had a friend. But your attitude with Mark is my fear about how you are acting as an organisation. You see, I picture you like the playground bully who is come with all these powers and all this money; you make sure you are okay, and then you start causing havoc out there in the market. Nobody knows what on earth you are doing.

You inherited a perfectly good-in fact, the National Audit Office said it was world leading-organisation. You hadn’t had it for a year, and then you sacked nearly half the staff. You decided to go off in a direction nobody is quite clear about. You have got the debt advice, and you are going about causing havoc there, and then a Member of Parliament says, "Here is a very important subject," and you are saying, "Oh, we will let you know." That is exactly the basis on which the existing organisations out there are worried about your attitude. You don’t discuss it. You do not consider it. You do not do any work on it or any research on it. You seem to just decide to take a notion.

For example, on debt advice, there is a paper you have here in which you say it is not that you are just going to co-ordinate debt advice-if I can find the relevant paper-but you are going to make it more sustainable and more efficient. How often have you been in a Citizens Advice debt clinic?

Gerard Lemos: Well-

Chair: No, I am not asking you; I am asking the chief executive.

Tony Hobman: I visited one last month in Wales.

Q282 Chair: Was it busy?

Tony Hobman: Yes, it was.

Q283 Chair: Yes. Mine is locked out halfway through the afternoon-halfway through the session-because they just cannot take any more people. Do you know what you have done as an organisation, with the powers that you think you have? You have gone in and said, "You must do 50% more with the same money." Now that is bright, isn’t it? Anybody who goes in a debt clinic can see the individuals with all the problems they bring in, the time it takes to get them to settle down, the time it takes to go through things, the time it takes to decide who you have to contact to negotiate with, and so on, only to make another appointment and bring them back, but that does not matter as long as they see more people.

I will tell you what you are doing to my Leeds one. You are asking for a 62% increase in throughput, without any more money, without any more people. That is what you are doing on debt advice, and then to top it all-just what we are speaking about-you then come back with, next year, they are going to have to bid for money for face-to-face debt advice.

Gerard Lemos: No.

Q284 Chair: So, will you put on the record that you are not having-

Gerard Lemos: Yes, we will.

Q285 Chair: You had Citizens Advice bidding for face to face on money advice, and you gave it to a company that is up for fraud. If I could send one of my constituents to A4e or the CAB now and I asked, "Which one do you want to go to?", I know which one they would choose: the CAB-it would be the same anywhere in the country. The CAB is a firm with the best brand and best reputation going, and you have said, "You are not doing enough and we are coming in here to make you more efficient, and in turn you will bid for your service."

Gerard Lemos: No, sorry, can I just-

Chair: Well, what are you doing? Why is there bidding for service and money advice, and then there is a rumour going around that there will be bidding for debt advice next year?

Gerard Lemos: No, we have already taken that decision. Just on that last point, we are not going to re-procure the debt advice services next year.

Q286 Chair: All right, and on what basis have you taken that decision?

Gerard Lemos: Because we have taken the view that we need to complete the process, which everybody is involved in-this is all the things I went through earlier about standard setting, quality assurance and so on. Also, it is about completing the value-for-money exercise that Lord Turner referred to at the beginning of next year. Then, at some stage, I think we will be expected-

Q287 Chair: So you will go to bidding at some stage?

Gerard Lemos: I don’t think, no. Sorry, I don’t want to-

Q288 Chair: Finish that sentence, though. It was quite wrong of me to interrupt you. "At some stage we will"-what?

Gerard Lemos: Once the value-for-money exercise is complete, we will decide what to do next. It may be that we will go on to that.

Q289 Chair: You are either saying you are not going to take the contract from them, you are going to continue funding them, or you are going to put it out on the market. Which one is it?

Gerard Lemos: That is the decision-

Chair: Is that the choice?

Gerard Lemos: Well-

Q290 Chair: So there is a sword hanging over the CAB debt advice in the future, because you will make up your mind at some stage in the future, and the CAB in Leeds thinks it is next year.

Gerard Lemos: It is not next year.

Q291 Chair: You will decide when you will do it. It is just a question of when you will do it, not if you will do it.

Gerard Lemos: No, it is a question of if we will do it. That is the decision. The stats-

Q292 Chair: Why did you do it on money advice?

Gerard Lemos: Because that was the requirement we had when we set up the service.

Q293 Chair: From whom?

Gerard Lemos: From the statutory framework within which we operate-

Q294 Chair: No, the statutory framework did not say you outsource or you put it out to bid. Who gave you the express order to outsource it and put it out to bid when there was an existing service there? You decided to take the money, and you decided-[Interruption.] Yes, go on; you can consult if you wish.

Tony Hobman: Well, the procurement process started before I started the organisation, but I believe the answer was because there was no comparable service beforehand. It was post-Thoresen, and I think you would have to go back to the conversations that took place at the time of the Bill and within the FSA after that. It was decided that because there was no national face-to-face service at that stage, as part of-

Q295 Chair: There was no national-

Tony Hobman: Not as part of the financial capability offering that was seen as being taken out into the Money Advice Service. It should be procurement for that service. I can’t tell you who took that decision, but the decision was taken at the beginning of the organisation.

Q296 Chair: You are paid £350,000 a year. You must know who told you to do it.

Tony Hobman: It was done before, for the process-

Q297 Chair: What do you mean, "It was done before"? You took it over. You keep telling us about your independence, so you just did this: Monday morning; "Oh, we’ll go out to tender".

Tony Hobman: No, it is my understanding that the process was already in train because it was agreed as part of setting up CFEB before it even left the FSA, so the decision must have been made in the FSA-I will check that for you-that there should be a procurement of the face-to-face service, in order to form this newly created CFEB system.

Q298 Chair: So you will tell the Committee who gave you the specific instruction?

Tony Hobman: Yes, I will.

Q299 Chair: Lovely. Now let us go back to the debt advice. Do you not think it is worth re-thinking making these instructions to people to go on the number of people who walk in the front door, rather than the quality of work that you are doing? Do you not understand what you are doing to the debt advice service? That is a service. But that is not important; it is what they are doing to their customers. They have come in. They are in desperate trouble. They are near breaking point. Some of them have health problems, mental problems. Some of them lost their job or lost their house. It doesn’t matter to you because as long as they are out and in, and then somebody else is in, your figures will look good. Do you understand what you are doing to the debt service?

Tony Hobman: First, I would say it does matter to me.

Chair: Good.

Tony Hobman: Absolutely, and we would not have let this process start-thinking about increasing the numbers-unless we had had extensive conversations and dialogue with the sector, and we did.

Q300 Chair: No, we spoke to the citizens advice bureau about the extensive discussions you had, and they are coming before us next month to put it on record. So can we recast that conversation? They were forced to increase their numbers so that you could meet some target that you designed, and you are doing harm to a lot of innocent people out there in the communities, and I really think you should agree at least to go and reconsider the targets you have given, unless of course you give them some more money.

Tony Hobman: We are doing a review at the half year of the process.

Chair: Good.

Tony Hobman: I have to say at the moment that, yes, indeed we will.

Q301 Chair: I am saying "good" so you will include this in a review.

Tony Hobman: Yes, we will.

Q302 Chair: You will give some comfort to the debt advice agencies that, if they have had difficulty in the first half year, they should relax, because you are now fully aware of the problems they have with the people they deal with?

Tony Hobman: Yes, Mr Mudie, absolutely that is the intention. The intention of this review is to establish whether the process is working as intended, whether the standards are being maintained, whether there are-

Q303 Chair: Mr Hobman, I will tell you what it is. This just sums up our total frustration at how your organisation is working. If you can go into a citizens advice bureau on debt advice and, just like that, say that there is a 50% increase in numbers with no more money and no more debt advisors, you can’t be trusted to do anything else, because that is the most sensitive part of the whole field-even more sensitive than the education field.

Tony Hobman: With respect, that is not the way the process worked. Indeed, many of those providing debt advice across the country are now able to operate at a level that is even higher than the one I think we had suggested.

Q304 Chair: Yes, and I would like to see their customers. If I have someone, I send them to the citizens advice bureau because I know they will get treated properly and seriously and they will do everything they can to make sure that the person gets through that period, but you say they are not doing enough. Just with one visit you suddenly say they can do 50% more, which is impossible.

Tony Hobman: We didn’t have one visit; we spoke to more than 30 of the providers before the process, as I understand it.

Q305 Chair: You mean the citizens advice bureau and another 29?

Tony Hobman: Well, I can’t tell you the number of Citizens Advice-

Q306 Chair: You only fund another six.

Tony Hobman: Well, they represent-

Q307 Chair: No, you only fund another six.

Tony Hobman: They represent 234 contributing organisations within those-

Chair: Sorry?

Tony Hobman: The six lead projects that we fund have, I think, 236-

Q308 Chair: Yes, and they are not the citizens advice bureau.

Tony Hobman: Many of them are citizens advice bureaux; yes, you are right.

Q309 Chair: I welcome you putting in the review and I welcome you coming back with that review after we have seen the citizens advice bureau, and we see whether they feel they can do the job. The ones that feel they can do the job-good luck to them. That is not what happened at national level with Citizens Advice. It was given an offer: a horse’s head in the bed-an offer it could not refuse-and I think that is worth revisiting.

Tony Hobman: We will do a serious review.

Chair: Wonderful, anything else? Andrew, you are looking pensively at me.

Q310 Mr Love: Arising from something Mr Hobman said, I wanted to have a final fling on the issue of salaries, because it says in your submission that you waived your entitlement to a bonus in 2011-12, but you said earlier on, in an answer to Teresa Pearce, that if you fulfilled certain metrics, you would get a bonus. If you fulfil all the metrics, how much would that bonus be?

Tony Hobman: I believe the bonus entitlement would be up to 20% or 25% of my salary for this year.

Q311 Mr Love: So that would be an additional 20% to 25% of your salary?

Tony Hobman: But I have also made no commitment to take the bonus this year either.

Q312 Mr Love: I understand that you waived it last year, and I will come on to that. It also suggests that for your pension, an employer contribution will be capped at 10% of salary?

Tony Hobman: Yes.

Q313 Mr Love: So I can assume that the employer will make a £25,000 contribution towards your pension.

Tony Hobman: Yes. We have moved from a non-contributory to a contributory scheme, and that is elective. If I take the maximum pension to which I am entitled to get a matching sum, and that would be 5% and 10%, that is how that would be derived. But in order to get that 10%, I would now, on the new terms and conditions, need to take it from my salary. Previously I did not.

Q314 Mr Love: I have to say that you will not get an awful lot of sympathy. There are doctors who are discussing that particular issue about greater contributions at the present time. But I want to be clear: my understanding is that if you were to take your bonus, and you were to contribute up to the maximum, your salary would be well in excess of £300,000. And 20% of £250,000 is £50,000.

Tony Hobman: It would be close to it.

Q315 Mr Love: Plus a £25,000 contribution to your pension from the employer. We could calculate it exactly. It would be £325,000 on that basis. Would that not be correct?

Gerard Lemos: I was just going to say that the decision about whether to award a bonus is a matter for the Remuneration Committee of the Money Advice Service. It is not a question of whether Tony would take it.

Q316 Mr Love: But Mr Hobman said earlier that if he fulfilled the metrics, he would get it. That is an arrangement in place for the coming year, although I don’t underestimate the achievement of those metrics-I am not suggesting that for a moment. What I am trying to get a handle on is that we have been told-indeed, the BIS Committee I think was also told-or led to believe, that the salary we were talking about had gone from £364,000 pro rata and £314,000 down to £250,000, when actually potentially it could be £325,000, which would be an increase on 2011-12 when it was £314,000. On that basis, I think the Committee was of the view-Lord Turner was of the view-that the salary was too high. Indeed, Mr Lemos, you were of the view-hesitantly, it has to be said-that you could interpret this as being too high. Based on the new figure of potentially £325,000, would you not accept that it is too high?

Gerard Lemos: You are-

Mr Love: I am asking you, yes. You are the chairman.

Gerard Lemos: I think the decision about whether Tony will get a bonus- He has waived it for 2011-12, and the 2012-13 decision will not be taken until July 2013. That will be a matter for the Remuneration Committee of the Money Advice Service and a recommendation to the board. We can take any decision we like at that point, but what we can’t vary, as I have already explained, is Tony’s contractual entitlement to his core salary. So we could say, even if Tony had fulfilled the metrics this year, that he would not be awarded a bonus. Indeed he could do what he did do this year, which was come to us and say he does not even want to be considered for a bonus. So the process would be either he would say he didn’t want-

Q317 Mr Love: It would be invidious for us try to enter into some sort of discussion about a renegotiation, but are you saying that there is no scope for MAS directors to consider his base salary, and whether it is appropriate or not?

Gerard Lemos: I don’t think we have any legal or contractual-

Q318 Chair: You say you "don’t think", but we are not here to hear your thoughts. Do you know? Have you checked it out legally?

Gerard Lemos: Yes-

Q319 Chair: So you don’t think; you are saying you have legal advice that you cannot change an employee’s salary, because it would mean a breaking of contract. Is that what you are saying to us?

Gerard Lemos: I am saying what I have been advised by our human resources.

Q320 Chair: All right, and have you that advice in writing?

Gerard Lemos: I can get it in writing by all means.

Q321 Chair: No. Do you have it in writing?

Gerard Lemos: From our own Human Resources staff, yes.

Q322 Chair: Can you send us a copy?

Gerard Lemos: Sure.

Chair: Lovely.

Q323 Mr Love: All of this is leading up to the question that has been asked all through this, and I am not sure we have had a clear answer as of yet: is MAS going to reconsider-the decision will be yours, of course; that is what you have been tasked to do-the overall remuneration of the chief executive and the remuneration of other directors of MAS? While we went into the detail, we did not get a clear view from you as to whether you considered it appropriate to reconsider at this time, following on from the publicity that these two issues have received.

Gerard Lemos: Within the bounds of our contractual rights to do so. I am not going to give an assurance that I am willing to break people’s contracts. I am not.

Q324 Mr Love: We would not wish you to do that, clearly, but I do think that-

Chair: Do not put it to the vote, Andy.

Mr Love: What I would ask, Chair, is that perhaps MAS could consider what has been said this afternoon and respond to us on what they think they are entitled to do as an organisation and how they perceive these issues, because I think it is an important issue for us to pontificate on and put in our report.

Gerard Lemos: I am happy to do that. Sorry to interrupt you. I should also add that our memorandum and articles make it clear that the FSA has to approve any remuneration for directors, and that remains true. It does not just relate to when Tony was appointed. It is still the case.

Q325 Chair: You have seen him in action, and you can say you are happy that he will get his salary, but what I would say to you is let us not make it about Mr Hobman. If you were re-advertising the post-if Mr Hobman at some stage has gone to pastures new-at what level would you be suggesting, because this is not about Mr Hobman; this is about you as chairman? You are chairman of an organisation that has a chief executive who gets paid more than the Prime Minister and every permanent secretary in the Government. He is probably, on basic pay, one of the highest paid people in the civil service or associated quangos. There is anger out there about it-genuine and understandable anger-but the anger is being directed at us in this respect, with, "Well, they are public servants. You appoint them and you agree what they are paid at." Now we are always told, "Oh, he has a contract," or, "She has a contract." Okay, that may be so, and we will see your letter and we will take legal advice about it. But in the future, as you are the chairman, would you be advising a level is set for an organisation that looks after 80 people at a level that is almost double the Prime Minister’s? Well, it is more than double the Prime Minister’s, if you add on your £100,000 benefits. Now, what would you be recommending?

Gerard Lemos: Well, we have changed the basis of the benefits, so it is a lot less than £100,000 now. But I think if-

Q326 Chair: Sorry, say that again. You have not changed the basic.

Gerard Lemos: We have not changed the basic, but we have changed the 10 years-

Q327 Chair: Yes, well, leave your benefits out. They shouldn’t be on the table in the first place. But second-and you have admitted that you can take them off, so you should be taking them off.

Gerard Lemos: No, sorry-

Chair: The basic salary is £250,000. Now, people are watching this on the television, and I am putting a straightforward question to you. You are chairman of this little quango that employs 80 people, and the post carries a salary of £250,000 a year. The Prime Minister gets half that. There is not a permanent secretary looking after Defence, the Cabinet, the Treasury or the Home Office who gets more than £200,000. Do you think you will recommend a salary level that is so obscenely higher than the Prime Minister’s salary?

Gerard Lemos: We would consider the benchmarks at the time, but I think as things stand, it is very unlikely that we would do that.

Q328 Chair: Well, that has hedged every bet. You should be in the City. You would be a hedge fund.

Gerard Lemos: I am not a banker, I should say. Well, perhaps I should have said that at the beginning.

Chair: Gentlemen, I am very grateful for your time. A lot of the stuff has been sensitive and I accept that you have sat through it with dignity, Mr Hobman. But thank you for all the evidence. I think there is a lot of controversy and a lot of questions needed to be asked, and it has been very useful. Thank you.

Prepared 26th June 2012