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Baroness Noakes: My Lords, I congratulate the noble Lord, Lord Tomlinson, on securing this short debate this evening, and I thank him for the work that he did on the Private Member's Bill. I look forward to his bringing that back in the new Session.
The noble Lord, Lord Tomlinson, and other noble Lords have given a good overview of the strengths and opportunities for credit unions. It is the policy of my party to support consumer choice in financial services, and that requires diversity. Credit unions are clearly an important part of that diversity, as my noble friend Lord Sheikh so clearly explained. I am grateful to the noble Lord, Lord Graham, for reading out my honourable friend Mark Hoban's positive views on credit unions. I will be happy to tell him that he is endorsed by the noble Lord, Lord Graham.
It is tempting to just agree that credit unions are a good thing, in particular because they provide lower- cost credit for those who might otherwise fall into the hands of loan sharks, as the noble Lord, Lord Howarth, explained. I would like to spend my few minutes this evening concentrating on the other side of the equation, which is saving. Credit unions obviously do have savers, but their reach is not particularly great within society. I argue that we need a much broader focus on the desirability of saving in our society rather than on access to finance.
We have seen an explosion in personal debt in the past decade or so, with personal debt now standing at £1.5 trillion. In the past two years that has been stabilising, and we have even seen one or two falls in the monthly statistics. The fact remains that the average household debt is nearly £60,000 and unsecured debt is around £9,000. An astonishingly high proportion of the adult population, at over one-third overall-double that rate for groups such as single parents-have no savings whatever. That is why at the smallest financial crisis those people are driven to borrowing, often at very high rates with undesirable terms.
In addition, we have seen growth in a culture of borrowing for consumption. While that might be okay for those with secure incomes and good prospects, it is not necessarily sensible for those living on limited incomes. Many have borrowed not just in an emergency but to finance a lifestyle that they cannot really afford. The time has now come to reverse the trend and start to promote saving as a beneficial way of life. The savings ratio went below its long-term average shortly after 1997 and even went negative last year. It has ticked up this year, but it is still below the level of the 1980s and 1990s and below the long-term trend.
I acknowledge that the Government are experimenting with the saving gateway scheme to try to kick-start the saving habit of those who live on benefits, and credit unions want to be a part of that. I do not think that is enough. I would like to read just one bit of a study
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Do the Government have any policies likely to create rainy-day savers among the young? We do not regard child trust funds as being in that category. I have never heard it claimed that they are there to create a saving habit among children. They may do something for parents.
A significant number of adults do not have access to a transactional bank account. That is an important part of access to wider financial services, including savings. It can also reduce the cost of living, for example by accessing cheaper energy charges. The latest report from the Financial Inclusion Taskforce shows that while there have been significant improvements in the number of unbanked adults, there remain up to 2.7 million unbanked adults, depending on the definitions that you use. Credit unions have only about 24,000 accounts at the moment, so they are clearly not the answer to that problem.
In the Prime Minster's speech to the Labour Party, he referred to the Post Office playing a much bigger role. I hope that the Minister will elaborate on this. In particular, will this role foster financial inclusion and savings, or is it just going to be yet another route for more borrowing in society? The focus of policy going forward should be angled much more towards encouraging saving than borrowing. Then we might have a chance of rebuilding a responsible approach to finance in our country.
The Financial Services Secretary to the Treasury (Lord Myners): My Lords, first, I thank my noble friend Lord Tomlinson for bringing about such a timely and important debate. Thanks, too, to all noble Lords who have spoken in this debate and for the important insights that they offered.
The Government support credit unions and the benefits that they bring to consumers and to local communities. Credit unions help to instil and encourage a savings culture among their members. In some communities, and for many who are excluded from mainstream financial services, credit unions continue to offer the only credible alternative to loan sharks and unscrupulous doorstep moneylenders. Credit unions in Great Britain also play a significant role in supporting financial initiatives such as the child trust fund, the growth fund and ISAs, and many will also offer saving gateway accounts from next year-an important initiative to support the financially excluded.
There are around 700 credit unions across the United Kingdom with a combined membership of 1 million adult members. As my noble friend Lord Tomlinson indicated, this is a growing sector, appealing to many throughout the UK. It has yet to reach its potential. We recognise that we need to modernise and update the legislative and regulatory framework if the sector is to continue to grow.
Next month, we will be laying in Parliament our legislative reform order for the sector, which is eagerly awaited by the sector. It addresses many concerns that
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The order forms part of a review of legislation that commenced in 2007 with the aim of providing the mutual sector with a cost-effective legislative framework to facilitate effective competition in the modern economy and to continue to fulfil its valuable social role. It will amend the Credit Unions Act 1979 to amend the requirements for membership of a credit union, reform restrictions on non-qualifying members of credit unions, allow credit unions to admit bodies corporate to membership, allow credit unions to offer interest on deposits, abolish the limit on annual dividends, amend the attachment of shares provisions and allow credit unions to charge the market rate for providing ancillary services to their members.
I am sorry that the Co-operative and Community Benefit Societies and Credit Unions Bill now faces an uncertain future, but there are grounds for hope that it can be resuscitated. That Bill, which complements the order, focuses on the linked objectives of modernising legislation and increasing member confidence in co-operative and community benefit societies by improving their corporate governance standards-laudable objectives that have received strong support from the community of stakeholders. The Bill seeks to give the Treasury a power to make further changes to credit union law by importing building society law where appropriate. The sector wants this change to help it to move on to the next phase of its development.
The Bill also contains measures designed to protect the key aspects of credit unions to ensure that their fundamental nature-their defining philosophy and structure-is not undermined, while permitting credit unions and their governance to develop and improve. The Bill will be of direct benefit to some of the poorest and most vulnerable in society-people who should be able to count on their Government for support. As my noble friend Lord Tomlinson so eloquently said, it is people helping people and Parliament helping people to help people.
The Government intend to make an order under the Electronic Communications Act 2000 to facilitate the use of electronic communications between credit unions and their members and the Financial Services Authority. A similar order was made in 2003 to facilitate the use of such communications by building societies.
The current lack of legislation enabling the use of electronic communications for other mutuals means that communication between credit unions, industrial and provident societies and friendly societies, their members and other stakeholders is usually paper-based. That is both inefficient and costly. The ability to use electronic communications to discharge some of their statutory obligations would enable credit unions and other mutuals to reduce their costs, increase their competitiveness and better serve their members.
The Government fully support the Bill proposed by Mr Malcolm Wicks and so ably supported by my noble friend Lord Tomlinson. I am sorry that its further passage is now uncertain, but I am grateful to the Delegated Powers Committee and the Constitution Committee for their careful consideration of the draft Bill. My officials and I will work closely with my noble friend Lord Tomlinson and others to decide how best to take forward legislation in this area, as is sought by the industry and supported by government.
The Government, in their support for this sector, have set up a growth fund, with a total worth now of almost £100 million for credit unions and community development finance institutions to lend to their members-the sort of initiative that I am sure that my noble friend Lord Howarth of Newport had in mind. More than 170,000 credit union members have so far benefited from loans since the start of the growth fund in July 2006.
In the Pre-Budget Report, we announced a review into Northern Ireland legislation for credit unions and industrial and provident societies. The Treasury published the review in the summer. The Treasury and the Department of Enterprise, Trade and Investment in Northern Ireland are now preparing a joint consultation. That will give stakeholders an opportunity to comment on the proposals for reform. The consultation is expected to be published before the end of the year.
There were many important contributions to the debate. The noble Lord, Lord Sheikh of Cornhill, spoke with great sensitivity and persuasiveness about the role that credit unions can play in meeting the needs of the most vulnerable in society and those who are unbanked. I share with the noble Lord a great respect for the concept of mutuality, and have previously spoken about my regret that mutuals are no longer as prominent in the financial sector landscape as they were. I concur with the noble Lord that credit unions are playing and can continue to play an important role in fostering the spirit of thrift and supportive communities.
My noble friend Lord Haskel spoke of social entrepreneurship as lying at the heart of working for the common good. I will be talking more about the issues of banks and their responsibilities to society in a speech that I shall be making tomorrow evening to the Worshipful Company of Bankers. On the specifics of the issue raised by my noble friend, in a speech that I gave last week to the British Venture Capital Association, I spoke about the need for the financial services industry to show some contrition for the damage that it has brought on the economy, by supporting community programmes. It would be abhorrent-I said this previously in response to a question asked by the noble Lord, Lord Newby-for banking institutions to cut back their community programmes at a time such as this. Much more can be done in sharing skills. I will certainly write to the British Bankers' Association conveying the sentiments expressed by my noble friend Lord Haskel. I will of course share with my noble friend and others who have spoken in this debate both the letter that I send and the reply that I receive.
My noble friend Lord Graham of Edmonton spoke about the theory and practice of the sector. In a challenging environment, as he said, we can clearly see
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My noble friend Lord Howarth of Newport spoke about his experiences in Newport and Norwich and quoted examples of growing and thriving credit unions developing product suites and cultures suited to the poorest and most disadvantaged. My noble friend spoke of the need to respect localism built around a common bond and for government to create a framework that enables, but does not enmesh, the essential local character of a successful credit union.
My noble friend spoke about the opportunities for local financial institutions to second people to credit unions to provide some skill and professional support and for others to provide funding to support credit unions. The Bill supported by my noble friend Lord Tomlinson includes the admission of corporate bodies, unincorporated associations and partnerships, which would achieve some of the goals that my noble friend Lord Howarth of Newport had in mind.
The noble Lord, Lord Newby, quoted Mr Mark Hoban earlier than I could, which is one of the many privileges of being in opposition. There are few of being in government, I can assure him. I fully support the sentiments expressed by Mr Hoban and supported by the noble Baroness, Lady Noakes, that we would wish to do everything to encourage credit unions to become the alternative to banks. To do that, we clearly need to ensure that credit unions have contemporary structures and the ability to offer a contemporary suite of products and services to their members.
The noble Lord also spoke about the difficulties of setting up credit unions. The LRO to which I referred earlier is aimed at simplifying and removing burdens in connection with the establishment of credit unions. The consultation that supported it sought to identify barriers to the development of credit unions and to facilitate the elimination or, at least, diminution of those barriers.
The noble Lord, Lord Newby, also spoke about the need for bankers to provide support, and I thought the example he gave of legal practices providing pro bono support for legal advice centres is a good parallel that the banking industry should be encouraged to follow. With the noble Lord's agreement, I will quote it in the letter that I intend to write to Miss Angela Knight at the British Bankers' Association. I am delighted to hear that he wishes to see the Bill, or a successor Bill, pass through Parliament.
The noble Lord raised the Financial Services Compensation Scheme and its cost to the credit union movement. The cost is relatively small. It is less than £1,000 for the majority of credit unions and not much more than that for the largest. The credit union movement wanted to be conjoined with other deposit-taking institutions. It was invited to indicate a wish to be treated separately, but it concluded that it was in the interests of credit unions to be conjoined with other deposit-taking institutions. Credit unions have clearly benefited in terms of depositor confidence and assurance from the security that the compensation scheme provides.
I welcome the opportunity to agree with the noble Baroness, Lady Noakes, and share the sentiment that she expressed that we need to move back towards a
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Baroness Neville-Jones: My Lords, this amendment probes an issue that was partly alluded to and covered in a previous discussion. Will the Minister respond to the question: in what circumstances would the Secretary of State decide that he would no longer try to get the parties to a disagreement to resolve it and instead intervene with his own powers and just take a decision, irrespective of the views of the parties? It seems that the clause would allow him to do this. I beg to move.
Lord Faulkner of Worcester: My Lords, Amendment 152AY would remove new Section 24AO(5) and have the rather curious, and I suspect unintended, effect of removing the power that ultimately enables the Secretary of State to make a final determination to resolve disputes about the contents or implementation of airport security plans. I suspect that that is not what the noble Baroness intends, but she specifically asked how the resolution process could work in practice, and I am very happy to answer that question.
Because disputes are likely to vary significantly in nature and complexity, the Bill provides the Secretary of State with broad and flexible powers to resolve differences, whether these relate to airport security plans or police services agreements. Powers contained in new Sections 24AO and 29B allow the Secretary of State to compel parties involved in a dispute about an airport security plan or a police services agreement respectively to take steps that he considers will assist in the resolution of the dispute.
As part of what I will call the initial stage, the Secretary of State could choose to compel the relevant parties to attend meetings with officials in order, for example, to work through the evidence base for either document. Alternatively, the power could be used to facilitate an external inspection of policing. This approach could be very effective in particular cases and give parties the opportunity to resolve the dispute in a mutually agreeable manner at less cost than formal determination might require.
The Secretary of State may choose to determine a dispute either because steps taken during the initial stage have not satisfactorily resolved matters or because he considers it most appropriate to proceed directly to a determination. When determining a dispute, the Secretary of State will consider the information that the Bill requires to be considered, such as any representations from relevant persons, as well as any further evidence that he feels is necessary. That might include advice from independent experts.
I emphasise that the use of the powers that provide for the initial dispute stage is not a prerequisite for the Secretary of State's formal determination of a dispute. Whether or not the initial stage is employed, in the event that a dispute is unresolved the Secretary of State can proceed to a determination.
It is important that we have a flexible way of dealing with disputes, but also that the Secretary of State can determine them where necessary, so this new subsection is essential. I hope, in light of the clarification that I have offered the noble Baroness, that she will feel able to withdraw her amendment.
Baroness Neville-Jones: My Lords, I thank the Minister for that reply and for outlining how the powers would be exercised. I hope that the procedures that are outlined in the Bill lead to co-operation, which is very important. The Committee has expressed some anxiety about certain aspects of the working of the Bill, and it will need to be monitored closely to ensure that it functions effectively. This is a very important part of the Bill both for the economy and for security.
I do not suppose that a Secretary of State would wish to exercise his powers arbitrarily. Equally, I hope that this is the type of situation where this sort of power would be exercised only rarely. Nearly always in disputes between parties, there are third parties with interests which will not necessarily be directly represented at the table. It is obviously very important that any decision taken does not cut directly across their interests. On the basis of the Minister's explanation, I beg leave to withdraw the amendment.
The Department of Transport and the Home Office must provide such assistance as may reasonably be required by a manager of an aerodrome, chief officer of police or other body drawing up guidance that, when issued and published with the approval of the Department of Transport and the Home Office, would be relevant guidance for the purposes of sections 29A to 29E of the Aviation Security Act 1982, as amended."
Baroness Neville-Jones: My Lords, this amendment rather reflects some of our earlier discussion. For all the Government's explanation of how this Bill will work, there is a certain anxiety on the part of those
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