Tuesday 9 November 2010
[Mr David Crausby in the Chair]
Vulnerable People (CSR)
Motion made, and Question proposed, That the sitting be now adjourned.—(Mr Newmark.)
It is a great pleasure to speak under your chairmanship, Mr Crausby. I am particularly pleased to have secured an opportunity to debate the effects of the comprehensive spending review on vulnerable people.
Some of the issues that I raise may well be raised in the more specific debate on housing benefit in the main Chamber this afternoon. For the purpose of this debate, I want to define the terms to which I have referred. The debate is, in effect, about the impact on vulnerable people of not just the CSR, but the Budget and the various departmental announcements that have been made and which underpin the context in which the CSR was announced on 20 October.
By “vulnerable people”, I mean not just those in need of specific state support who are unable, through a learning disability or other forms of disability, to manage alone, but those who may become vulnerable or find themselves in significant need, housing stress, homelessness, hardship or debt. The effects to which I refer cover a wide range of policy areas. Of course, I do not intend to cover all areas of government, although vulnerable people are likely to be affected by a wide range of policies, but I am keen to cover access to housing and housing benefit; welfare, including the support and benefits for unemployed and disabled people; care for adults and children; and public transport and access to it.
By way of background, it is worth noting that no self-respecting political party would have undertaken, in the lead-up to the last general election, the kind of measures that have been proposed since, because of how our political system works. However, we all knew as we went into the general election that Britain had the largest deficit in peacetime history, the largest structural deficit in Europe, that £120 million a day was needed to service the interest on that debt and that £1 in every £4 that the Government spent was borrowed money. We entirely understand the need to put right the public finances, which is the background to this debate and the CSR.
I would like to acknowledge a number of achievements. From the Liberal Democrat Benches, it is worth acknowledging that, despite the rather austere circumstances, we have secured outcomes from coalition agreements of which I believe the coalition can be proud. I am referring to the policies of taking the lowest earners out of tax altogether, which I know will be ratcheted up over the coming years until the figure is £10,000 before tax applies; restoring the earnings link for pensioners and a guarantee of uprating with a triple lock; the pupil premium and the early years premium, particularly for vulnerable children; the pay protection for low-paid public sector workers; capital gains tax for top earners; and the banking levy to help to pay for many of these measures. I was also pleased to hear of the Treasury’s intention to make a concerted effort to tackle tax evasion and fraud, which is essential to ensure that we get the balance right in where the finances are found.
Also by way of background, it is worth acknowledging that the Chancellor of the Exchequer repeated a theme throughout the CSR statement on 20 October—one that I entirely applaud. For example, he said at column 951 that
“those with the broadest shoulders will bear the greatest burden”.
Equally, he said at column 956:
“A civilised country… protects the most vulnerable”.—[Official Report, 20 October 2010; Vol. 516, c. 951-56.]
Protecting vulnerable people was a theme repeated throughout the statement, and I loudly applaud both those objectives.
The purpose of this debate is to ask whether that laudable and agreeable objective is achieved by the combined efforts of Government policy. If not, will the Government review their policies and make the necessary adjustments to ensure that those with the broadest shoulders do bear the greatest burden and that the vulnerable genuinely are protected? I doubt that, in the tribal warfare that often masquerades as debate in the House, we will do anything other than divide on pre-determined lines on the assessment behind those questions, but we can call on other commentators to contribute to the debate.
As we know, the Institute for Fiscal Studies disagreed with the Treasury’s claim. I am pleased to see the Minister in her place and I look forward to her response to the debate. I am sure that she will respond to the IFS assessment of the combined impacts of the CSR and the Budget. The IFS disagreed that the overall package of tax and benefit changes was progressive. Carl Emmerson, acting director of the IFS, said that
“our analysis continues to show that, with the notable exception of the richest 2%, the tax and benefit components of the fiscal consolidation are, overall, being implemented in a regressive way.”
The IFS emphasised the problems involved in estimating the distributional effect of changes in public services. It welcomed the Treasury’s attempts to model those, but noted its finding that the public service spending cuts announced in the spending review were regressive.
Equally, the Financial Times described the spending review as
“a gamble given the continuing weakness of the recovery”,
but supported the decision to cut spending, provided that growth in the economy returns. The Times said that, broadly speaking, the priorities chosen by the Chancellor were correct but that the changes could be “very painful” for the poor. The Guardian also commented that the spending review was “a major gamble”—I shall return to that concept—at a time when economic conditions have deteriorated. It said that, furthermore, the cuts would be focused on the sick, the poor and working parents. The IFS commented that the cuts in overall public spending over the spending review period would be the deepest in real terms since the second world war and that cuts in spending on services would be the largest since the four years beginning in 1975.
As I said, housing benefit measures will be debated this afternoon in the main Chamber. Two primary changes are being made next year. The first is the capping of local housing allowance for each property, which will be implemented in April 2011. That has been a primary focus of political debate and comment in the House and elsewhere, although it will impinge on a relatively small number of properties and households. For example, just 139, all in London, receive in excess of £50,000 per annum; 11,233 are in receipt of more than £20,000 per annum, some 10,000 of which are in the London area. In Cornwall, which, as hon. Members might expect, I will discuss in a moment, 40 households are in that category. The measure would save £65 million.
What concerns me most particularly is the impact on rural areas such as Cornwall—but not just Cornwall. A focus of my comments will be the reduction in the percentile market rates used to calculate local housing allowance rates from the 50th percentile—the median—to the 30th percentile of local rents, which will be implemented in October next year. The Department for Work and Pensions estimates that that will secure annual savings of £425 million.
The nature of the debate in the media gives the impression that housing benefit is paid mainly to people who are unemployed. Because of the “tabloidisation” of the debate, the implication is that the work-shy are in receipt of housing benefit and need to be encouraged by stick rather than carrot to find work. In fact, only one housing benefit claimant in eight is unemployed. I should add that, in future, the effect of the uprating of housing benefit according to the consumer prices index rather than local rents will place further significant downward pressure on housing benefit and may well result in shortfalls between rent and the housing allowance that people are given.
The Secretary of State has made it clear that the intention of the Department is to use housing benefit to force rents down, and I can understand the logic behind that, which is that housing benefit, because of the sheer volume of those who receive it, has an inflationary impact on the rental market, particularly the private rented market. However, not all areas will necessarily respond uniformly. The changes may well work in some rental market areas, but I am not convinced that they will work in them all.
For example, according to figures published in The Guardian on 30 October, outside London, Cornwall will be the hardest hit by the changes. Indeed, 11,180 households —one third of all households with employed people in receipt of the benefit—will be affected. There will be a significant shortfall between their housing benefit and the rent that they will pay.
In Cornwall, there is a significant shortfall right now between the median rent as assessed previously by the rent office—now by the Valuation Office Agency—and what housing benefit should be in Cornwall, and therefore between the housing allowance that will be available to tenants and what is available in the market on a week-by-week basis. It is very rare indeed that a new property comes on to the market that is actually within—either on or below—the median rent as assessed by the valuation office. Most rents fall above it, and therefore the shortfall has to be made up by the tenant, who may be on a low income or on benefits.
In Cornwall, 57,109 people claim housing benefit; 12,972 are of working age but not working—they include those in receipt of income support or jobseeker’s allowance—and about 12,000 are of working age and are working, or are on a non-passported benefit or employment support allowance, previously incapacity benefit, or contribution-based jobseeker’s allowance. A similar picture is painted by one of the larger social landlords. Penwith Housing Association tells me that about 60% of its tenants are on housing benefit. More than half of those who are of working age are indeed working, and are in receipt of either partial or full housing benefit support to cover their rent.
Yesterday, Cornwall council published some information on the likely impacts on the local community of the various changes to housing benefit. Its assessment is that the reduction of the market rental from the 50th percentile—the median—to the 30th percentile is likely to have the biggest impact. It says that 10,500 households are experiencing a shortfall between housing benefit and the rental, and it is unknown what the likely impact will be on them.
The council has not yet made a calculation, but it believes that a larger number of households will experience a significant shortfall between the rent and the housing benefit available. It anticipates that tenants who will ultimately be evicted because they can no longer meet their rent payments as a result of the shortfall will be found to be intentionally homeless, according to statutory interpretations, and therefore not eligible for assistance from the local authority. There will be an increase in demand for social housing in some areas, and the impacts on local people will be significant indeed.
We are very lucky in Cornwall to have the Cornwall Residential Landlords Association, which is a responsible and well-organised band of private landlords who, collectively and individually, provide an excellent service to the local population. They look for clear signals from the Government. I believe that the Government are looking at increasing the availability of direct payments to landlords in certain circumstances. Where that is done, preferably on a voluntary basis with the agreement of the tenant, it may help to lever rents down because the landlord will have a cushion of reassurance that the payments will come to them. However, the pressures and difficulties that will be experienced between landlords and tenants will intensify as a result of the cuts.
The problem in a market such as Cornwall’s—this applies to many other areas where there is also a vibrant tourism economy—is that landlords have alternatives that, frankly, on many occasions, will give them a far better income and greater certainty that they can recover the property. Many take up those alternatives. Many landlords will leave the marketplace and go for the much easier option of gleaning their income from the tourism sector.
The situation in Cornwall is not quite like the urban or suburban situation that I believe the Government have envisaged, whereby the alteration in the housing benefit arrangements and assessments will result in a levering down—a crow-barring—of the rentals in the private rented sector. It is not anticipated that that will happen in a place such as Cornwall, so I hope that the Government will look overall at this measure and consider that having a roof over one’s head is absolutely vital for many families. We are talking about working families who are simply seeking security in life from which to get to work, school their children and establish some kind of family security. This is about penalising people not because they are unwilling to work but simply because they are poorly paid, and I am sure the Government have no intention of doing that. I think they would like to ensure that work does pay.
Looking at the situation in Cornwall, which is, I understand, the same as in North Norfolk and other such rural settings, most analysts consider that there will be few new properties coming on to the market in the 30th percentile or below. Opportunities will be restricted, landlords will be given other options, and there will be instability, overcrowding and a possible cutting of corners, with families having to move and working families under greater stress. The problem with the proposal in the housing benefit reforms to extend the single room rent to people under the age of 35 is that there is little of that type of accommodation available in many rural areas, and planning policies seek to restrict what is often referred to as “bedsit land” in some smaller towns. On the one hand we have the Government, through their planning policies, giving local authorities the right to restrict the extent to which parts of small market towns are, as they see it, ghettoised by these bedsit arrangements, and on the other hand they have a policy that seeks to encourage that, through the housing benefit system.
My hon. Friend makes a very good point about one of the great difficulties that occur when there is family break-up. I fear that as a result of these kinds of measures we might get more family break-ups, because of the stress and pressure under which families might be placed. In our constituency surgeries, we all see families in that very sad situation. We see single parents “without care”, as they are sometimes rather unfairly described, who find themselves wanting to have contact with their child or children but being unable to do so because of their very constrained circumstances. This policy will only make that situation worse.
I wonder whether the hon. Gentleman could look at levels of pay. In Cornwall, and similarly on the Isle of Wight, there is a higher level of pay in the summer and a lower level in the winter. Is that catered for in his understanding?
Other than with people who live in uncertain accommodation—winter lets during the winter and very uncertain accommodation in the summer—I am not aware of any circumstance in which people have variations in their rents, with a landlord varying the rate of rent on the basis of the tenant’s income. My hon. Friend makes a very good point. I am afraid that the system does not allow or cater at all for seasonality in working families’ employment and income.
A further incongruous circumstance is the potential conflict between this policy and what the Minister’s colleagues in the Department for Communities and Local Government appear to be doing regarding the registered social landlord sector. The intention is to allow, and even encourage, registered social landlords to increase the rent on their properties up to a notional 80% of the market rate for a particular location. The net effect of that—it will apply, I understand, to future new dwellings and to re-lets—is to create a rather strange circumstance: on the one hand the Government appearing to want to get the housing benefit bill down, but on the other hand one of their Departments appearing to ratchet it up. Of course, a large proportion of people in social rented accommodation—60% of those living in the accommodation of one of my RSLs—are in receipt of housing benefit, and ratcheting up the benefit in those properties would result in an increase in the housing benefit bill.
There will be other strange circumstances. People who seek to downsize their properties—for example, an older person living alone who wants to move into a single-person bungalow to release a family house for a local family—will be discouraged from doing so because the re-letting situation will mean that their rent could go up significantly if they were to pursue that otherwise relatively selfless act. By pursuing a re-let—a transfer—their rental might go up and their housing benefit might not cover it.
Because of the time, I shall quickly canter through a few other issues. First, on the wider issues of welfare reform, many of us will have read in the newspapers and heard in the media over the weekend the comments of the Archbishop of Canterbury, the Chartered Institute of Housing, the National Housing Federation, the Child Poverty Action Group and Action for Children, all warning about the unintended consequences. I certainly exonerate the Minister and her colleagues from wishing to pursue an intentional policy of impoverishing vulnerable people; I think that it is entirely unintended.
I am sure that the hon. Gentleman is coming to this point, but will he talk a little about the impact on vulnerable people now and in the future of not dealing with the deficit? Will he also refer to the positive measures in the Budget for businesses in his constituency? There is the scrapping of the jobs tax, the national insurance holiday, tens of thousands taken out of tax altogether, the pupil premium and other initiatives. Surely, in any speech on this subject, all those factors have to be taken into account.
I am grateful for that intervention; I am sorry that the hon. Gentleman arrived late and therefore missed the part of my speech when I congratulated the Government on precisely those measures.
Clearly, we need to deal with the deficit, but the question of the speed and the extent is a debating point. I am not necessarily saying that the current speed and extent are wrong, but that judgment needs to be kept under review. Also, where do we find the money from? The hon. Member for Skipton and Ripon (Julian Smith) talked about the point that I am coming to; I will certainly come to a conclusion, which is that we need to question whether we have the balance right, so that those with the broadest shoulders bear the greatest burden. I am not certain we do have it right, which is why we should be taking a measured judgment on the impact of the proposals across all income ranges.
All the groups I mentioned, and many others, have been warning about the unintended consequences of some of the welfare reforms. The Chartered Institute of Housing anticipates that by 2025 most two-bedroom properties in the south will be unaffordable to those claiming housing benefit, whether or not they are working. That will force people into areas with less employment—in other words, an unintended consequence, not making work pay by forcing people into areas where they will find it much more difficult to get a job. It will also steepen the tapers, for example, by increasing the rents on social rented accommodation. As we all know, if someone takes a job or accepts higher pay, housing benefit is often withdrawn at a rate of sometimes 80p in the pound earned, and that is on top of other benefits that may be lost, such as council tax benefit. That places people in a poverty trap that discourages them from taking the very work they are keen to take up. All those factors will lead to social impacts on stability, family security, children’s education and other matters.
Other sanctions are proposed that have been mooted in the press over the weekend and will no doubt be part of the Secretary of State’s statement on Thursday. We have been presented with the prospect of unemployed people wearing tabards, picking up litter from our streets as a result of some kind of compulsion. Having worked in the voluntary sector, among others, for a while before coming to Parliament, I know that the one thing we do not need is to apply compulsion or humiliation to this matter.
It is clear that the many people I speak to in my constituency who are seeking a job are extremely keen to secure not only a job but work experience. The Government’s proposal to set up voluntary arrangements that enable people to undertake worthwhile voluntary work in their communities can only be a good thing. Unemployed people want well organised work and voluntary opportunities, and the voluntary sector want the willing, not the unwilling. At the weekend, the Disability Alliance argued that many people will be pushed into poverty by the changes to the employment and support allowance, previously called incapacity benefit. We await the outcome of that proposed change on Thursday.
Within the care sector, pressure on local authority budgets—26% cuts over three years—means that councils are routinely removing the discretion to give care support to those in moderate need. As costs, and no doubt charges, go up, the definition of “higher” and “severe” need could become more stringent. Budget pressures are likely to reduce early intervention for children, as Action for Children identified over the weekend, and the services available to the most vulnerable. There is a 20% cut in the bus operators’ grant and local authorities are already looking at cutting some services. The young and the old will be most affected by that—those without a car, and, therefore, the most vulnerable. Other cuts, such as in the education maintenance allowance, will also affect young people.
The questions remain: will those with the broadest shoulders bear the greatest burden, and will the vulnerable be protected? It is important not to forget that the gambling of the rich busted the banks, which did most to drop us in this situation. We must not allow them to get away with that while the poorest and public servants are made to pay the price; that is hardly justice. On the question of measures to get the balance right between cuts in services and benefits, and of where to obtain resources to maintain services, the banking levy, although welcome, is a relatively infinitesimal gnat bite on the banking sector, given the rate at which it is set.
I am glad my hon. Friend has spoken about the banking levy, because the previous Government did not do that, and I presume he will give credit to the coalition for taking aggressive action on the banks, and for the three reviews on banking reform taking place over the coming year.
I again remind the hon. Gentleman that, had he been here earlier, he would have heard me mention that. I welcome the banking levy and have congratulated the coalition on it; it is a move in the right direction. However, I fear that some of the most vulnerable in society may be pushed further to the margins, and we need to keep that situation under review. Equally, we need to keep under review the question of whether the banking levy has been set at a level that retrieves from the banks the resources that we believe they should be putting back into the economy, having dropped us “in it” in the first place.
The Minister is an excellent Minister and I know she is listening to these concerns. I fear that the reforms, although well intentioned, may well miss the target: they may not necessarily push rents down in the way anticipated or protect the vulnerable, and they may fail to meet the Chancellor’s stated objective as given in his 20 October statement. A strong and self-confident Government can listen, reconsider, gracefully accept the situation, adjust and move on when things are not going quite according to their plan. In her winding-up speech, I hope the Minister will address those issues and reassure me that the Government are listening to these concerns.
As ever, Mr Crausby, it is a pleasure to take part in a debate with you in the Chair.
I congratulate the hon. Member for St Ives (Andrew George) on raising this important strand of an exceptionally complex set of announcements, which have come thick and fast from the Government and are only now beginning to reveal themselves to MPs, never mind to the wider public, as the implications begin to hit home. A lot of implications will not hit home until the next financial year and then into the next few years of this Parliament, at which point I would expect growing discontent and increased shock and surprise at how harsh the Government chose to be on the most vulnerable in society through their spending policies.
The hon. Member for St Ives is being exceptionally honourable in this matter, and he genuinely feels strongly about trying to speak up on behalf of vulnerable people, but when he says that certain consequences of the Government measures are “perhaps unintentional”, I suspect that he is being more than generous. Part and parcel of the political strategy that goes alongside the Government’s supposed economic approach is ensuring that the welfare changes and reductions in expenditure hit the poorest in society who, on balance, tend not to vote for the Conservative party.
The hon. Gentleman will have greater insight than me into the Liberal Democrats’ approach, although I suspect that even he might not know what is going on with those at senior levels, as they assimilate ever more closely with the leadership of the Conservative party. I still regret the choice that his colleagues made to prop up and provide the scaffolding for this harshly strategic and deliberate set of decisions. Those in the Conservative party have been planning such decisions for many years, and attempts to scale back the role of public investment in our economy have been part and parcel of their approach throughout. They are now able to unwind that approach with a certain degree of alacrity under the guise of deficit reduction.
Nobody disagrees that we need a level of welfare reform, but the question of how we do that is at the centre of the debate. We could shut down the Department for Work and Pensions tomorrow and not spend an extra penny. That would be a degree of welfare reform, but it would be so ridiculous that it would be off this planet. We could have a level of reform that was too slow and did not really bite. I believe that the trajectory of reforms pursued by the previous Administration sought to strike a fair balance.
The extent to which Ministers are reducing what is known as “annually managed expenditure” within the welfare budget has been designed around a political strategy. By taking that amount from the welfare budget, the Chancellor tried to come within spitting distance, as he saw it, of Labour’s plans for deficit reduction within the departmental expenditure limits. That political strategy rapidly fell apart, particularly because the Opposition accepted the need for a certain level of welfare change.
Let us look at the points raised by the hon. Member for St Ives. If the welfare changes are not handled sensitively and their implementation is blind to the human costs involved, some of them will affect the real lives of real people. Such people will be increasingly frightened and unable to cope with some of the changes, and that will create great harm. That harm might not have the quantifiable economic or econometric measurements that we traditionally look at when monitoring fiscal and monitory policy, but it is real and will have an indirect effect on our economy.
I am following the hon. Gentleman’s narrative, but before he strays too far from his point about the intentionality—or otherwise—of the possible consequences of the reform package, let me make it clear that I do not associate myself with his analysis. I do not believe that it is the intention of the Government or the Minister to impoverish people deliberately.
The point that I was building towards concerns the balance of risk. Taking a risk with the poor needs to be balanced by taking a risk with the banking sector, which I do not think that we are doing at the moment. If we are to probe policy so as to get the balance right between those with broad shoulders and more vulnerable people, we must put pressure on the top end just as much, if not more.
As I said, the hon. Gentleman is being more than fair—perhaps a little too fair—in his analysis of the Government’s intentions. I hope that I am wrong in saying that a measure of deliberate choice is involved. However, the weekends at Chequers during which the Deputy Prime Minister and the Prime Minister pored over the political stratagems that they could devise, having linked some of the measures in the spending review together, suggest that a balancing act was going on in the Government to think about who they could hit and get away with it, rather than the human consequences. That is a difference of opinion that we will have to accept.
I am sorry if I have hurt the hon. Gentleman’s feelings; that would be a dreadful thing to do. However, it is far worse to hit the poorest and most vulnerable people in society through the measures that he will support by walking through the Lobby. The warm words that he espouses are all very well, although so far he has not said much about vulnerability and the impact of the reforms. He is doing his job and wants to progress through his party—I wish him luck with that—but the measures that he will be supporting will be harmful, and I am sorry if he feels that that is insulting.
Let us look at some of the changes to housing benefit. As I said, housing benefit needs to be reformed, but not necessarily at the pace and with the harshness espoused by the Minister. Some of the combined, compounding changes will come in quickly, with some starting on 1 October next year. According to the Government’s own figures, the reduction from the median 50th percentile to the 30th percentile for housing benefit will affect 642,000 people. Many hon. Members, including the Minister, will be getting letters from their constituents about that. Those reforms will leave some people £39 worse off per calendar month. Some landlords might be happy to say, “That’s all right; we will bear the loss”, but others will say, “Sorry, that is unacceptable. Out you go.” What will be the consequences for homelessness? What will the pressures be on the indebtedness of individuals who are already stretched with credit card debts and so on? Will we see even greater pain at that level?
The National Housing Federation said in the newspapers today that the reforms were “brutal cutbacks.” Those are not my words, so if the hon. Member for Skipton and Ripon (Julian Smith) feels that such words are insulting, he should speak to the National Housing Federation. It said that the reforms risk the prospect of people
“falling into debt or hardship or being forced to move out of their home and away from their local community.”
That sudden drop in income and the rushed nature of reform are what the Labour party fundamentally disagrees with. Of course we accept that the deficit needs to be tackled, but we take a different view of how to do that.
You do not know how to do it.
Given that we are talking about vulnerability, let us look at the impact of the spending review. The hon. Member for St Ives mentioned the banking levy but, as we debated last night, that is a puny and pathetic attempt by Ministers to let the banks off the hook while they are hitting families and children hardest of all—[Interruption.] I am sorry that Minister does not like my example, but she has made a choice and we would do things differently. It is important that the record shows that the Government have decided to let the banks off the hook lightly.
The Minister may well bleat and moan, but she should realise, for example, that cutting mortgage interest support for the most vulnerable will, as the Archbishop of Canterbury said, help to create a cycle of despair for many people. I do not think that the archbishop is a particularly partisan individual, and it would be a great pity if the remarks of those in civil society were dismissed.
I am interested in the Government’s approach to the universal credit, which they are looking to put in place as part of welfare reform. In many respects, it is a reasonable concept. However, I cannot understand why their approach is then to cut council tax benefit by 10% and to localise it, as has been announced. How is that consistent with the universal credit policy? Will the Minister elaborate on how the universal credit arrangement will come into place for the most vulnerable people when the council tax benefit is not part of it? I would like to understand the consistency, because that change will hit the poorest in society, as will many of the disability welfare changes.
We accept that disability welfare reforms are needed but, again, we must at least ask questions about the pace and harshness of some of those changes—as the hon. Member for St Ives has done. Taking out £2 billion by limiting the contributory employment and support allowance to the very disabled raises questions about how those who no longer have such support will cope. It is incumbent on those who are proposing the cut to explain where the support for those individuals will come from. Even pensioners will feel the impact of many of the changes, and they will lose out because of the four-year freeze in the savings credit element of the pension credit.
Public service reductions will have an indirect effect. This debate is not just about welfare, because the public service reductions announced in the spending review will also have a disproportionate impact on the very poorest in society. As the Institute for Fiscal Studies has said,
“modellable cuts to public services are regressive”.
There will also be a cut in health service spending. If we take away the social services element—it is being redefined as NHS spending, which it was not previously—and look at core NHS spending, it will fall by 0.5%. The IFS described that as the “worst settlement since 1951”. Again, those people using the health service are the most vulnerable and they will bear the brunt.
There will be local government reductions, in particular for support to the voluntary sector. For example, several welfare advice centres in my constituency will no longer be able to offer help and support to the very poorest in society because of the implementation of legal aid cuts. People will be left to fend for themselves, with far less advice—[Interruption.] The Minister is chuntering away, but she will get her opportunity to speak in a moment. I hope that she can give those people an explanation of the deficit reduction choices that she is making that deliberately addresses the speed of her measures. I understand that everyone in the House wants to ensure that deficit reduction is carried out sensitively, but I cannot quite understand the voracious speed at which the Minister thinks she has to do that. Her approach seems punitive and potentially risky.
There are education changes, too, and we have also talked about policing and crime. Those who tend to need the support of the policing services are those who are the victims of crime, and most of all the poorest and most vulnerable in society. The list goes on: reductions in the working neighbourhoods fund; no more future jobs fund; and, again, some of the welfare advice changes. Those things give rise to more worries and concerns.
The IFS was right to point out the regressive nature of the Budget. All the spin and warm words that the Minister will no doubt parrot again have been unravelled by the objective and independent analysis carried out by the institute, which the Conservatives were more than happy to cite in times past, but now seem keen to rubbish. The IFS says that the cuts are the
“deepest since the second world war”.
The Government have decided to hit families with children hardest, with the health in pregnancy grant going, the taxing and freezing of child benefit, the cuts to child care help through the working tax credit, and the scrapping of the education maintenance allowance. It is not necessarily those individual changes, but the compounding effect of them all happening simultaneously, with the speed of implementation chosen by the Minister, that makes them hit the most vulnerable very hard.
It was right that the hon. Member for St Ives raised the question of whether those with the broadest shoulders are bearing the greatest burden. The Chancellor keeps saying, “We’re all in this together,” but that is completely unbelievable and palpably not the case.
The puny nature of the banking levy is such that even the International Monetary Fund has said that it is a third of the size that it suggested. The banks will enjoy the corporation tax cuts, as well as their deferred tax benefits. There is also, of course, complete inaction by the Government on banker bonuses, which will be revealed when the bonus season starts in January or February.
All in all, the set of changes is exceptionally regressive and will hit the most vulnerable in society most of all. Perhaps the saddest fact is that many of those who will be affected do not yet realise it. The changes have not necessarily been reported in detail. People might well be completely oblivious to the changes that are coming but, for example, when the housing benefit change comes in on 1 October next year, they will be faced with great difficulties.
I have urged my local authority in Nottingham to find a way of communicating with recipients of housing benefit so that they can prepare themselves for the changes that are coming. Will the Minister at the very least—even if we disagree about the speed and nature of the policies—tell hon. Members how the Government intend to communicate with people and give them a bit of a heads-up so that they can prepare themselves for some of the changes? With a little preparation, the poorest in society might be able to try their best to brace themselves for what is around the corner.
I have set out my genuine concerns. There are political differences between us, but the story is a sad one that will unravel further in the years to come.
It is a pleasure, Mr Crausby, to serve under your chairmanship of this important Westminster Hall debate. I congratulate the hon. Member for St Ives (Andrew George) and pay tribute to him for securing the debate. I remember that during the spending review debate and the emergency Budget debate held earlier this year, his presence in the Chamber was constant, which shows his commitment to and concern about the issues—he is right to point out that we should all be deeply concerned about them. I shall start by setting out the background to some of the measures, and then talk in more detail about the housing benefit measures the hon. Gentleman mentioned in particular.
I listened to the response from the hon. Member for Nottingham East (Chris Leslie). He clearly holds a different view, but I found his speech deeply irresponsible in many ways. As an incoming coalition Government, we have picked up a fiscal deficit without precedent not just in our own country, but across the developed economies of the world. His party handed over that deficit, which we and the Liberal Democrats are working to address.
Certainly, the situation we took over was grave. The hon. Member for Nottingham East talked about the speed with which we are tackling the deficit, but that very much underscores just what a serious position our country was in when we came into government earlier this year. In fact, had we not taken the steps we are taking over the coming years, our debt would be £100 billion higher and we would be spending some £5 billion more as a nation on debt interest—money we want to put into supporting our public services. Had we not taken those steps, there would have been the real risk of being unable to have as a good a chance as we now do of keeping interest rates low, which is critical for companies investing and creating jobs and for households across the country with a mortgage.
Clearly, therefore, we needed to take action. One of the key pledges that we made as part of the spending review was that fairness would be at the heart of our decision making. The hon. Member for St Ives was right to say that despite the challenging backdrop against which the emergency Budget and the spending review took place, they included important measures such as increasing the personal allowance, which saw 880,000 people taken out of income tax altogether. Interestingly, he also mentioned that the Government’s aspiration was to go further on that, which is important. The distributional analysis and the IFS modelling do not take those aspirations into account, because we have not yet announced how we will carry them forward. Nor do they take into account the benefits of the universal credit or the stimulus and support that it will provide to people who are getting back into work. It is important to bear that in mind.
As I said, one of our key pledges in the spending review related to fairness. By fairness, I mean that, across the entire deficit-reduction plan, those with the broadest shoulders should bear the greatest burden. There has been a lot of debate about the IFS, and it is interesting that we have published more distributional analysis alongside our comprehensive spending review than any Government have ever done before. There is, of course, a debate about how to do that analysis in a more refined way, and the TUC, for example, took a view in its own analysis about how to spread defence spending across income deciles. Clearly, therefore, there are methodological questions that it is worth while looking at to see how we can improve things. Hon. Members will be aware that Robert Chote, who was the head of the IFS, now heads the Office for Budget Responsibility. He is precisely the kind of person who can help us to have a more transparent, independent assessment of our policy. That will help not only the Government, but people who look at our policy to understand what it means for our country and our communities.
Fairness has underpinned our approach. Critically, we have to move to a welfare system that helps and supports the vulnerable, but does not trap them in the way the system we have taken over too often did. We need a system that supports people back into work, and that is affordable. That is important because my great concern is that we need a system that people across our country buy into. That means that the system must be fair not only to the people in it, who need the support, but to those outside it, who perhaps work and pay their taxes. Those people might be happy to pay into a system to support the most vulnerable, but they might feel that it needs to be fair to them as well as to those who get the benefit payments. They need to feel that the system improves the lives of those who receive benefit payments and gives them the chance to be independent that, for various reasons, they do not have at the moment. I will say a little more shortly about how we can do that.
We have had a test on fairness, and there is no doubt that we have had to make some difficult decisions about how to spend the small amount of money we have following the Labour party’s profligacy in government. Today, in its debate on welfare on the Floor of the House, the Labour party will have another chance to set out how it would approach welfare reform. We have heard an awful lot about the fact that there is a better way of doing things, although we have occasionally heard from Labour Members that they do not oppose all our reforms. However, if we are to have a thoughtful and constructive debate about this important issue, it is time for the Opposition to engage more meaningfully, rather than simply setting out what they are against. They owe that to Parliament, which needs a proper debate from elected representatives, and to our country. They should set out exactly how an alternative, if there is one, would look.
I want now to look at the welfare state in a little more detail. Under the previous Government, benefit bills soared by 45%. In some cases, the benefit bill for a single out-of-work family amounted to the tax bills of 16 working families put together. To return to my earlier comments, everybody would say that that was not just unfair, but unsustainable. Given the financial position that we inherited, protecting the welfare budget was not an option. If we had done that, it would have forced more drastic front-line cuts on services elsewhere, which so many of us, including those on benefits, rely on so much. We therefore tried to focus our support on the people who need it most—the long-term unemployed, the very young, the very old, the disadvantaged and those who, through no fault of their own, are unable to work or find it hard to enter the labour market.
The spending review announced reforms to tackle welfare dependency by delivering a simplified system in which it always pays to work. The hon. Member for St Ives rightly mentioned impoverishment, and at its heart is the fact that people do not have a job. We need a welfare system that supports people back into work, and that applies particularly to people who have been on incapacity benefit and employment and support allowance. In one of my first roles as a new MP in Parliament, I sat on the Work and Pensions Committee, and I clearly remember that one of our first reports looked at incapacity benefit. It was a real scandal that although jobs had been created over the previous decade, the overwhelming majority of those on incapacity benefit were left wanting to work. On Thursday evening, I met visually impaired people in my constituency who were desperate to find work and to be financially independent. Those are the people we are keen to support back into work, but they were languishing on benefits in way that was bad for not just them, but our country and communities. It was also unaffordable.
The Minister is making an extremely important point; in fact, it was one of the many that I made. We need to establish a bridge between dependency and securing work. That applies to the housing benefit system, and I mentioned tapers, or the rate of withdrawal of housing benefit. The previous Government did nothing about the problem, which has been going on for decades. The point also applies to incapacity benefit. There is a cliff-face between benefit dependency and being able to get work. Perhaps the Government need to look a little more at ways of establishing a bridge to help people into work, rather than impoverishing them, putting them at risk or worrying them about making the transition into work.
The hon. Gentleman raises one of the key flaws that has existed in the welfare system, which is that it has trapped people. Going back to my time on the Work and Pensions Committee, I remember an inquiry that we did into Jobcentre Plus. The then Government had to introduce a better-off test to prove to people that they were better off going into work, because it was so complicated to work out what benefits people were receiving and what they would lose. It was not clear to people that moving into work would be the best thing for them financially.
The hon. Gentleman will be interested to read the White Paper that the Department for Work and Pensions will release in the next few days on the universal credit, which is intended absolutely to make sure that people who are currently on benefits know that they will be better off if they move back into work. We can move away from the situation faced by some of the worst-off people in our country, who have moved into work only to be penalised with some of the highest marginal rates of tax, which are simply eye-watering. We would not dream of putting even the highest earners on such rates, but the marginal rates of tax faced by some of the lowest-income people have been huge, and the universal credit is aimed at starting to tackle that situation.
For the benefit of hon. Members, will the Minister tell us what the marginal rate of tax will be for families that lose child benefit when they earn more than a certain amount? What will the percentage be? As I understand it, earning £1 could result in £2,000 of lost child benefit.
I am sure the hon. Gentleman will want to consider those calculations in detail, but that brings us back to my concern about the Opposition’s engagement with the subject, which was typified by his intervention. Unfortunately, it was not at all constructive but deeply negative. At the heart of my concern about the Opposition’s lack of thoughtful strategy is the fact that he argues for a policy that would maintain child benefit for higher rate taxpayers.
No; I want to make some progress.
The hon. Member for Nottingham East could have set out some better alternatives, but he failed to do so. That is a shame for our democracy. I assure him that we are tackling problems in the welfare system that the previous Government failed to tackle; I had hoped that he would welcome that. I know that the Opposition agree with some of our welfare reforms; it would help if we knew which ones, as we could then have a genuine political debate about areas of disagreement.
The universal credit will be a big step forward, and a good one. It will ensure that people are no longer trapped in welfare, as they have been. The hon. Member for St Ives said that one of our achievements as a coalition Government was to re-establish the earnings link. He is right; against the backdrop of a difficult fiscal deficit, we have maintained pensioner benefits on things such as free eye tests, free prescriptions, the free bus pass and free TV licences for the over-75s. We have also increased the cold weather payment award permanently to £25.
The hon. Gentleman also mentioned social care. Again, it is symptomatic of what we have in mind that we must protect the most vulnerable. That is why we have added £2 billion to the social care bill, with £1 billion from the NHS and £1 billion from the budget of the Department for Communities and Local Government. That is precisely to ensure that local authorities do not need to restrict access to social care. The fact that the money comes from the NHS and the Department shows that we need them to work more closely together. The reality is that health and social care are inextricably linked. Indeed, good social care can protect the vulnerable and help them maintain a healthy and independent life. As MPs, we have all seen people in our surgeries who are very keen to do that, and we have all worked to help people maintain the independence that so many want. We have therefore been particularly careful to ensure that funding for social care is supported.
I turn to the hon. Gentleman’s important comments on housing benefit. In the changes that we made to housing benefit, we tried to ensure that we tackle the underpinning of affordable housing and the lack of new affordable housing. One reason why housing has become so expensive is the gap between demand and supply, and the fact that housing starts over the last 10 years have generally been lower than in the past. That was so particularly for social housing, and especially for affordable homes in places such as London.
That is the backdrop and the key reason why rents have risen and housing has generally become more expensive. The previous model of affordable housing did not work. If Government money had been thrown at it during an economic boom, we would have seen the sorts of affordable housing that were needed, but it did not happen. We therefore had to think of different ways to do it. We are working far more effectively with housing associations and other investors that want to create housing, to ensure that we get back to creating the levels of social housing and affordable housing that are needed. That means investment—£4.5 billion for new affordable homes and £2 billion for the decent homes programme. We also need a more flexible system of affordable housing to help those who need to move for work and to protect the most vulnerable, and one that is also fair to the taxpayer.
I acknowledged earlier that £4.5 billion will be retained over the next three years for social housing. However, the Government intend funding the shortfall by allowing social landlords to increase their rents by up to 80% of the market value. That will result in more housing benefit. Within the Treasury’s modelling, to what extent does the Economic Secretary anticipate the increase in public-sector contribution resulting from the increase in the housing benefit to be paid to residential social landlords as a result of rent increases?
It is important to say that the change relates to new tenants rather than existing ones. Existing tenancies will not be affected by such measures. On the question of market rates and affordability, we will want to see landlords, the Homes and Communities Agency, and the regulator, in conjunction with local authorities, talking about ensuring affordability. The hon. Gentleman is right to point out that housing benefit will still be available to support people.
The challenge is to move to a more sustainable footing for housing, and particularly for social housing. That is most important for housing associations, and the need for them to keep reinvesting. We have tried to strike a balance that is broadly fair to those on existing tenancies and to ensure that the new stock that we seek to create—the £4.5 billion will create about 150,000 affordable homes—is used more effectively to support people. At the same time, we want to work with people to ensure that rents are affordable. Nevertheless, housing benefit will still be there.
The hon. Gentleman also spoke about the cap on the housing allowance and setting the local allowance at the 30th percentile rate. The reality is that people who are working must ensure that they can afford where they live. It will be difficult to ask them to pay into a system in which people on out-of-work benefits are living in areas that they simply cannot afford. The 30th percentile change is about trying to strike the right balance between what is affordable and what is fair and reasonable.
I thank the Economic Secretary for her earlier comments, which were helpful in setting the scene for reform. However, I share the concern of my hon. Friend the Member for St Ives (Andrew George) about the fact that housing benefit will impact differently in different areas. For instance, in my area I obviously have winter lets, and people seem to be concerned about the smaller one-bedroom or two-bedroom properties. I know that the transitional fund has been allocated, but will the Economic Secretary explain how the problems of each individual area, as they relate to vulnerable people, will be dealt with sensitively?
The hon. Lady is right: different parts of the country clearly have different housing needs and challenges. The Department for Work and Pensions will be working with local authorities through the transition period, and as she pointed out, we need funding in place for that as well. There will be £140 million of discretionary funding to support local authorities, £10 million of which is for London. It is worth pointing out that that is not the only support available for those affected.
For example, we still have many things such as the social fund, which includes budgeting loans, crisis loans and community care grants that are being maintained. We are considering how the social fund can be more localised, so we are working with the Department for Communities and Local Government and local authorities to see how we can best use the money we have to support people, in a way that works for them and at the local level. Interestingly, no London MPs are here, apart from me. Depending on where one represents in the country, there is a different group of constituents, facing a different series of challenges. Therefore, ensuring that the local aspect is fully part of how we work through the transition is vital. That is why the role of the Department for Work and Pensions, working with local authorities and the DCLG, is so critical. That is also why, as Liberal Democrats will recognise, localism is a theme that needs to run more broadly through our policy across Government. That is one reason why in this area it is important.
That is central to the point that I was making, and it has been repeated by my hon. Friend the Member for Mid Dorset and North Poole (Annette Brooke). I entirely understand that in a London setting, and perhaps in other parts of the country, this is a debate about the understandable sense of injustice among hard-working people, who feel that those who are not working have preferential, and indeed better, living circumstances than they themselves can afford. In my part of the country that does not apply. The key issue is that the rental properties coming on to the market are not getting close to even the median or below, which is the setting for housing benefit in my area. Understanding how the market works in our area, we know that the policy of ratcheting it down to 30% will not lever private rents downward. It will leave a large group of people—working and non-working—significantly impoverished.
The hon. Gentleman has set out his concerns for his area. I go back to my earlier comment about the 30th percentile change. That is the right thing to do to ensure that people feel the system is fair. As for rents, interestingly, if one looks at the changes around local housing allowance, about 32% of people affected by the changes will lose money, but will still get enough to cover their rent. Because of the way that local housing allowance worked in the past—it meant that people got more than they needed to pay their rent—a third of people will not be left with a shortfall.
We talked about the discretionary fund and working with local authorities. The concerns that the hon. Gentleman has raised are precisely why we want to ensure that as much of that support as possible can be localised. The reason is twofold. Local authorities might feel that the best way they can support people is to keep them in the homes they are already in—that is the decision they take. In other cases, they might feel that the best long-term sustainable situation is to help people to move to something that is more affordable to them.
The hon. Gentleman is absolutely right to raise those issues, which are precisely why we have set aside £140 million to ensure that the support is there to tackle some of those on-the-ground changes through the transition period, as we move to a housing benefit system that feels fairer and more affordable, and that does not trap people in poverty and out of work, as we have seen in the past.
I thank the hon. Member for St Ives for securing today’s debate, which has raised some very important points, and I am grateful to hon. Members for their contributions. There is no doubt that the spending review will have an impact across our society—not just for the next four years, but for many to come. The decisions we have made will help to shape Britain’s future. That is something of which I am very conscious. That is why we have put such an emphasis on fairness, protecting the vulnerable and supporting the most needy.
That fairness is rooted in not only supporting people today, but giving them the opportunity of a better quality of life tomorrow. We know that cuts to public expenditure have to be made—even the Opposition would agree with that—but that should not come at a cost of a more divided society, where the poorest and the most disadvantaged suffer as a result of mistakes that were never theirs. Our actions in the spending review reflect that: we have delivered a fair settlement, demonstrated that we are a progressive Government and supported the most vulnerable in our society. That was our promise when we came to power, and it is one that we fully intend to keep.
Consumer Credit Regulation
I have tabled this debate for a simple reason. As a new MP, it seems to me to be the best way to get some answers from the Government about a matter that I know is very important to many of us in Westminster Hall today: how we support the poorest consumers in society.
Despite the pressure applied by Compass, the End Legal Loan Sharks campaign, the Better Banking Coalition and myself and others, as yet Ministers have not made any commitment to act on the issue of consumer credit regulation. I hope we can change that today, especially after the show of support by the number of Members here for this debate. I want to show how and why the Government should act, through regulation of consumer credit. I want also to highlight how important it is that that be undertaken in conjunction with a range of other measures to support people who get into debt, and ultimately to help break the cycle of debt that blights the lives of too many people in Britain.
I have a lot of detailed evidence on these matters that I want to put on the record and I know that a lot of other Members also want to speak out. Nevertheless, I hope that in 90 minutes we can make progress and have a constructive debate, and I am keen to hear what other people have to say on this issue.
At the heart of this debate is a concern about debt and how it defines the financial situation of millions of families in our country. During the past 30 years, households have become more reliant on credit as a means to secure homes, invest in education and skills and smooth out the fluctuations in income and expenditure that everybody experiences. Let me say at the outset that this is not a debate about the wearing of hair shirts or a musing on the nature of contemporary consumer society. The uses of credit that I have just described can be a powerful driver for economic growth. Therefore, ensuring access to credit and confidence in credit markets is vitally important, especially when public spending is so constrained.
However, a growing number of people have problems using credit, and the ease of access to credit also makes it much more likely that people can end up using the wrong kind of credit for their needs or taking on more debt than they can service, so that their financial fortunes become far too sensitive to changes in their circumstances. That creates a toxic mix of the wrong kind of banking and credit services, the ups and downs of life, and a small amount of financial comfort with which to cover the difference between income and expenditure.
A study by The Observer newspaper earlier this year found that for 26% of men and 34% of women, living beyond their means was the cause of insolvency. However, for many more people—indeed, for 50% of women—insolvency was caused by unplanned changes to their personal circumstances, such as divorce or job loss. So, for many people the problem is being caught suddenly with an additional expense—replacing a broken-down washing machine or a car—that means a cost to their monthly budget that they cannot afford, or being unable to manage a sudden loss of income through redundancy or family breakdown. All these factors then lead to over-indebtedness, default and insolvency.
Just how bad is the debt problem? The UK now has one of the highest levels of personal debt in the world. In April this year, people in Britain owed more than £1.4 billion in private debt and in recent years personal insolvency has reached record highs, with more than 130,000 individuals entering a formal insolvency process this year alone. These official statistics can tell us about formal insolvency, but it is clear that that is just the tip of an iceberg. Industry estimates are that about 500,000 people are currently in a debt management plan, and independent research by R3—the Association of Business Recovery Professionals—shows that a further 600,000 people say that they have contacted their creditors for help as a result of struggling with their debts. R3 also estimates that another 960,000 people are struggling with debts but do not seek help.
Debt has become the norm in our lives in Britain, with most of us owing money on credit cards, loans and overdrafts. However, it is when those debts become unsustainable and overbearing that trouble happens. According to R3, as a result of the recession four in 10 people are now worried about their current level of debt, with 3 million people fearing redundancy and 2 million people having taken on more debt in recent months. One in 10 people frequently struggles to make it to pay day, with money tending to run out around the twentieth day of each month.
There is every indication that these problems will only get worse, especially for those who can least afford indebtedness. The Government’s deficit reduction programme will put millions of people who are on low incomes under severe financial pressure, as they face reduced public services, a greater threat of unemployment and public sector pay freezes. Family Action has identified how a total of 21 different cuts, from changes to the working tax credit to the rise in VAT, will hit low-income families hardest. Crucially for those of us who are concerned by these issues, many of those are people for whom debts are a daily fact of life and for whom unemployment and cuts in income will be even more likely in the coming years, with banks and building societies remaining out of reach as a source of credit.
So it is welcome news that the Government have announced a review of credit and insolvency, and that they have made firm commitments to considering capping interest rates on credit and store cards. However, this debate is about what is not in the credit review, what the Government have not done and what they have failed to make firm commitments about. It is the millions of the poorest consumers, who end up using the so-called home credit, hire purchase and pay day loan sector, whom I want to talk about today.
The Better Banking Coalition estimates that some 6 million people are in that position. Many of them are people for whom the illegal loan sharking industry may once have been an option, and the progress made by the previous Government in addressing loan sharking must be recorded. The work of the Department for Business, Innovation and Skills itself shows that about 300,000 individuals, representing about 3% of the poorest families in Britain, used to borrow about £120 million a year from illegal moneylenders, on which they ended up paying back £450 million. The work of the taskforce on illegal moneylending should be commended, and I hope it will be supported. Indeed, its work should be protected within the budget of BIS, especially as it has been judged as delivering value for money.
I congratulate my hon. Friend on securing this very important debate and on campaigning so vigorously in this vital area. Does she agree with me that in combating the loan sharks, the work of local trading standards departments has been absolutely critical? Furthermore, does she agree that it would be an absolute tragedy if, as a result of the Lib Dem-Tory cuts that will affect local government, trading standards officers were held back from doing that vital work?
My right hon. Friend makes an incredibly important point. With local authorities facing cuts of 25% or more to their budgets, it is clear that those cuts could affect trading standards and that the action now being taken on illegal loan sharking could therefore be put at risk.
We should not free communities from one form of exploitation only to allow another form to grow unchecked. Indeed, as more effort is put into cracking down on the criminal activity of loan sharks, it is all the more vital that there be greater access to affordable credit, an issue I will return to at the end of my comments.
We are here today to talk about the growth of the high-interest legal home credit market—a relatively recent phenomenon in the UK, and an industry that originated in America. As a result, many of the companies operating here are “exporters”, either working online or in our town centres. A good example is Dollar Financial, a US-based lender that operates under the trading name of the Money Shop in the UK. The Money Shop has expanded from just one store in the UK in 1992, which dealt primarily with cheque cashing, to 273 stores and 64 franchises across the UK by 2009. Now, in communities such as mine in Walthamstow, these companies litter our high streets.
I want to set out the sort of products such companies sell. We are talking about pay-day lenders, organisations such as Oakum or Wonga.com. In August, the Consumer Focus group published research into the use of pay-day lending. It estimated this market to be worth £1.2 billion a year and that it was used by around 1.2 million people. Its report went on to forecast a significant growth in the market. Such loans are often short-term ones with technical interest rates of anything up to 3,500% for a five-day loan—another point I want to return later.
The Consumer Finance Association, which represents pay-day lenders in the UK, estimates that these companies’ customers have an annual income of between £12,500 and £30,000, with £18,000 being the approximate average. However, research for the Friends Provident Foundation found that one in 10 UK pay-day customers had incomes of less than £11,000 per year. These are the people who can least afford to borrow at such high rates, even if it is only for a short time. The price of such lending is often as much as £35 in interest for every £100 borrowed, which simply drives these people further into debt, especially as these loans are often rolled over, one after another.
Furthermore, these companies make a point of targeting those who are unable to access the UK banking market. Indeed, in my own constituency Oakum makes a point of hiring people who can speak two languages, so that they can target their services at communities who are new to Britain and for whom the British banking system is still alien.
In the “home credit” market, people are approached on their doorsteps and offered loans. Generally, such loans range from £200 to £500 and have to be paid back over the course of a year. Although the companies involved claim not to charge for missed or late payments, if someone borrows £300 they have to pay back about £10.50 a week, which adds up to some £540 over the course of a year. That means a typical annual percentage rate of 272%, compared with the 9% or 10% APR that is often offered by mainstream banks.
One of these companies, Provident, has 11,500 “agents” who visit some 1.8 million people a week to collect payments and offer credit. Agents work with each person they serve to judge how much credit they can buy. Some 70% of both customers and agents are women. Critically, agents are paid according to how much they collect, not how much they lend, creating even more pressure to keep people borrowing at such rates.
Or consider the antics of hire-purchase companies such as BrightHouse. Such organisations target those on low incomes who have been refused credit and offer goods for sale on hire-purchase terms. The goods, which often have a high mark-up already, are leased out at high interest rates, so that a computer costing £800 or £900 ends up costing £2,000 or £3,000. Should someone default on a week’s payments, the company often imposes high penalty charges and requires the following week’s or month’s payments straight away, making it even harder to catch up.
Opportunities to expand resulting from the comprehensive spending review have not been lost on many of those who work in the market. Indeed, Provident’s chief executive publicly stated that he expects growth in his target market as a direct result of the CSR. Another factor driving today’s debate is the failure in the credit market for such consumers. The lack of competition to serve them means that it is a seller’s market. Six lenders account for 90% of the home credit market—Provident accounts for 60%—so there is little competition to drive down interest rates.
Clearly, credit lent must be repaid. It is therefore inevitable and fair that interest should be charged to cover the cost of providing credit. It is not disputed that many of those on low incomes or with bad credit histories are a higher lending risk, so interest rates on products aimed at them will be higher than those for the mainstream. However, the terms on which such transactions take place are critical. It is right for both parties that credit should be affordable, which means that both sides must judge what is possible.
There are concerns on that point, because many companies, however ethical and caring they may profess to be, are not. They operate in ways that undermine that profession. A pawnshop in my constituency rings customers back to offer them unsecured loans. Some lenders make a virtue of the fact that they do not consider previous credit history or assess whether a household can afford repayments. Such lenders take high-risk customers not out of the goodness of their hearts but because they know they can hook families on their services, creating a long-term cash cow.
High-interest lending also adds to the difficulties faced by the public purse. Lending at high rates to people on low incomes serves only to deepen their poverty. Credit dependency, whereby such debts can never be paid off, results in debts elsewhere, such as on rent, council tax and fuel bills. It results in cold homes and people going without food. I am sure the Minister recognises that the public purse can end up picking up the pieces.
Some 10 years ago, I raised the crucial point of the capping of interest rates on loans to vulnerable households with the Office of Fair Trading, and my arguments were rebuked. The OFT maintained that, given the risk profile of the individuals involved, if usurious rates could not be charged, no credit would be available to those communities, and that some credit, even at usurious rates, was better than none. I was not completely convinced at the time that those arguments were valid, and I am not convinced at all in post-credit crunch Britain. I am pleased that the hon. Lady is raising the issue.
I thank the hon. Gentleman for his point. I will certainly come to that, as there is concern about how we might intervene in the market, but I am confident that we can and should, and that the Government should be considering it.
We are discussing, in particular, the mix of a lack of competition and a rising demand for credit, but it is better to consider the people at the heart of the issue. We can all talk about statistics, but many of us will have seen in our surgeries the people who get into such debts. There are women who get into years of debt at high rates because their next-door neighbour is a Provident home seller who tells them week after week that they need to borrow more. A constituent of mine had loans from Provident, BrightHouse and Oakam, as well as a purse full of store cards. She missed a few payments and her interest rates soared as a result. She tried to juggle all of them but did not have enough money, and ended up running up an expensive overdraft that accrued £10 a day in charges.
The costs affect not just individuals but our communities as well. A Centre for Responsible Credit survey of the Meadowell estate in 2001 found that more money was going out of the estate on payments to door-to-door lenders than the Government were putting in via regeneration budgets. Given the nature of the market and the evidence that I have put on record, will the Minister admit that many of the practices involved in high-interest, short-term money lending are exploitative and unacceptable, and that the Government should intervene to protect people vulnerable to loan sharking?
Has my hon. Friend heard today’s news that the Government will not be proceeding with the people’s bank planned for the Post Office? Does she not agree that that is further bad news for people trying to access fair and affordable financial services?
I agree absolutely. It is a travesty. This debate is not just about cracking down on loan sharks; it is also about increasing access to affordable credit, as I shall discuss later. That decision will not help the people whom we are discussing. It is one thing to say that we are concerned about the market, but the proof of the pudding is in the eating: what are we doing to ensure that more people can access credit?
Given that and the concerns expressed by Members here, will the Minister make a firm commitment to consult on action to cap the total cost of all forms of borrowing—including the high-interest credit industry, rather than just suppliers of credit and store cards—in his Department’s ongoing credit review? I hope he will commit to so expanding the scope of the credit review, because it would make a difference to consumers.
Before the Minister makes that commitment, I will address an issue on which many MPs have been lobbied, and which the hon. Member for North West Leicestershire (Andrew Bridgen) mentioned earlier. It is possible to act on interest rates. I know that some of the companies concerned contacted Members before this debate claiming that such measures, although well-intentioned, would have unintended consequences. They use such arguments to justify the astronomical interest rates that they charge, arguing that any reduction in those rates would be impossible.
To tackle that point head-on, yes, concerns have been expressed not just by legal loan sharks but by organisations that work for those in debt, such as Citizens Advice. I am also aware of the work of the Office of Fair Trading and Consumer Focus, which have both expressed reservations about the impact of introducing a uniform cap on interest rates. They fear that it would close down or reduce pay-day lending, pushing people into the illegal loan sharking market.
Those difficulties—which, it must be said, are disputed by other organisations with counter-evidence—do not mean that we cannot act. We know from legislation dealing with dangerous driving, the introduction of a minimum wage and fireworks safety that there will always be people who point to those who will not abide by the rules. The arguments against a cap presume perfect consumers of the services in question who can make price-sensitive judgments about what loans they can access and their own credit situation, and competition for their custom. I hope I have shown that that is simply not the case. The problems with a rate cap do not mean that we cannot act. Rather, we must work harder and learn from others how best to act.
Is not my hon. Friend trying to make the point that in communities such as ours—Tottenham is next door to Walthamstow, and it is very similar—people need to know who they can trust? We have heard today’s decision on the people’s bank. In years gone by, my mother felt that she could trust the national savings scheme with the Post Office. It is not just about providing poor people with more information; they need the state to step in and take a view on what is excessive and exploitative in that area of the market.
My right hon. Friend is absolutely right. We know that it is possible to intervene effectively in such markets, and I shall come to that next.
In the Consumer Credit (Regulation and Advice) Bill, which is my private Member’s Bill, I suggest not a blunt cap on interest rates, but a cap on the total cost of lending, which is vital. Given the experience in other countries, it seems likely that focusing solely on capping interest rates would lead some companies simply to recoup their profits through administrative and late repayment charges.
Also, as I said, the situation in the short-term loan market can be very different from the long-term compound interest that many people face. That creates perpetual rolling debts in which families get stuck. It is worth highlighting exactly what that difference is and what it means for interest rates. Some short-term loans have an annual interest rate of 2,000% or 3,000%. If I were to lend someone £100 and ask for £10 at the end of a week, it would equate over a year to an interest rate of approximately 3,500%.
We need more sophisticated tools than a blunt cap on interest rates to get around the maths and also to ensure that emergency loans are not rendered illegal or impossible when they are manageable, and that is why I propose two forms of intervention. The first is powers to intervene on the total cost of borrowing over the lifetime of a loan to set parameters within which any company can be expected to act. Such a process would examine the total lending charge and give the Government the power to stop a single loan from exceeding a certain percentage of the original value through all the costs associated with it. That could be done through the Office of Fair Trading or whatever remnant of Consumer Focus the Government leave as protection following their decision to disband it.
Secondly, within those parameters, the Government should consider caps on the interest rates that firms charge for different forms of loans—whether they are pay-day loans, longer term or for hire purchase. That would avoid inadvertently killing off the short-term emergency loan market and address the impact of compound interest.
As hon. Members have pointed out, these are not back-of-the-envelope proposals without any foundation. Just last week in Montana, alongside the mid-term elections, the public voted to cap the interest rate that lenders can charge. That makes Montana the 16th US state in which pay-day lending is effectively banned because of a 36% limit on the annual interest rate that lenders can charge. Indeed, 15 states in America have essentially eliminated pay-day lending altogether by introducing a ban or cap on the maximum amount of credit at a low level, which has driven such lenders out of business. Some 35 US states and eight Canadian provinces have introduced higher caps on the price of pay-day loans, which allows such loans to operate but protects consumers from extortionate lending. For example, in a number of Canadian provinces, caps have been set at between $21 and $23 per $100 lent.
Such legislative interventions have been put in place not only in America and Canada, as 14 European states have some form of ceiling on interest rates. Countries often have more than one ceiling because they are set according to the different type or size of loan. For example, there is a different loan category in Belgium for those under €1,250 and those over. Alternatively, ceiling levels are set according to the terms or nature of the loan, such as depending on whether they are mortgages, credit cards or auto loans. The number of parameters can make some ceiling designs complex and difficult to understand. Indeed, the most straightforward are the absolute ceilings found under the past tradition of usury laws, but their impact is not as effective as some of the more targeted ceilings. There are differences between what has happened in Greece and Malta, and in some of the other countries that have brought in more complicated caps, such as Belgium, Portugal, Poland and the Netherlands. Many of those are based on a reference rate, under which a multiple of average market rates can be used to set the ceiling. In France, the ceilings are set at 133% of the market average—in other words, one third above the average.
A report on the effects of rate caps in Europe is due to be published by the European Commission in February 2011. I understand that it will support the case for caps, provided that the form and level of the caps are carefully constructed. Those issues—what form the cap could take and where it could be set—need proper and full discussion. It does not take the debate forward to say that because some caps have not worked, we therefore should never have them. We should be asking where caps have worked well, how we can learn from that, and how we can apply them so that we effectively help people on low incomes in the UK. Frankly, what is the credit review for if it is not to examine how and if such approaches could work here?
The Government could learn from other countries about ways of preventing compound interest’s connection to debt dependency. Indeed, that is why it is all the more surprising that the credit review does not consider such matters. America and Canada have experimented with restricting the amount that can be lent—for example, Illinois and Nevada have put in place clear requirements that a loan should not exceed 25% of a borrower’s income. In Arizona, California, Colorado and Florida, the number of loans that can be provided has been limited to just one at a time. In addition, Indiana prohibits more than one loan from a single lender and limits the total number of loans to two. Alabama restricts the total number of times a loan can be rolled over to just one. Alaska allows just two, while Illinois, Kentucky and Louisiana prohibit the practice entirely.
The hon. Lady makes much play of the evidence from individual American states. Does she accept that one of the consequences of what happens in America is that lenders that are set up in other states are able to sell their services perfectly legally in the states in which such practices are banned? That increases the risk of illegal lending, so I am not sure that the fact that such things happen in some American states particularly strengthens her case.
The Minister expresses concern about the nature of federal government in America, but he ignores the evidence from European states with a national system of governance that have introduced interest rate caps effectively. The best possible comparison for the UK is European states, rather than states in America and Canada, although I mentioned those cases as examples of where caps have been introduced and differential rates have been used. Frankly, the Minister should be considering such issues in his credit review, rather than them simply being raised as part of an Adjournment debate. I hope that he will rethink the credit review and expand it to consider such issues and the way in which they might apply in the home context. I mentioned such detail to show that it is possible to legislate to deal with the worst excesses of the markets and that such an approach does not increase the market for illegal loan sharks, as that is not demonstrated in the evidence from other countries.
I am extremely sympathetic to the hon. Lady’s aims and cause. However, does she agree that some of the previous Government’s policies did not help people get out of debt but, in fact, trapped them in it? In the days of easy credit, the complex working tax credit system allowed people to get into debt. Given the withdrawal of benefits, and with marginal rates of taxation of 60%, 70%, 80% and 90%, people were trapped in debt because they could never work their way out of it.
I would be interested if the hon. Gentleman could produce evidence for that, as opposed to making a supposition. It is easy to claim that working tax credit put people into such dependency, but let us consider what the loan sharks themselves have said about the comprehensive spending review. They have argued that it will increase the number of people coming to them because those people will not have money to help their families grow. That is where I look for evidence.
Considering the evidence on how we tackle legal loan sharking in and of itself is not enough to help these families. We need to stop the exploitation of low-income households in the credit market and legislate on the cost of borrowing. As Labour Members will understand—they know these problems well because they have had to deal with them—we also need to increase access to affordable credit. Those two issues go hand in hand. We cannot expand access to affordable credit while millions of people are trapped in relationships of credit dependency.
I congratulate my hon. Friend on a powerful and excellent speech. When considering help for such families, we also need to think about credit and money advice. The previous Government provided significant amounts of extra money to deal with the consequences of the recession. Clearly, we must do that if we are to deal with the problems that have arisen as a result of the CSR. An important part of this process is to have more money advice. People need proper advice about how to manage their money, how to avoid getting into debt, and how to make the right decision on loans.
As ever, my hon. Friend makes an incredibly practical and important point on these issues, which I shall come back to at the end of my comments when I consider the third component of the action that we can take to protect the poorest consumers in Britain.
I shall quickly return to my point about access to affordable credit. We must learn lessons and consider how to increase affordable credit access through the existing UK market. We know that that can be done, because people are already doing it. Credit unions and social enterprises such as Fair Finance are demonstrating that it is possible to lend at reasonable rates, to provide money advice services, and to help people to make credit work for them.
I thank my hon. Friend for securing the debate and I know that many of my constituents will be watching it closely. Does she agree that credit unions—including the Leeds City credit union, which has been operating for more than 20 years in my city, and the Bramley credit union—offer an excellent alternative to loan sharks? The Government could do more to support credit unions to grow, for example by enabling them to operate at all post offices and at local council facilities such as benefit offices and local libraries.
My hon. Friend is absolutely right and makes exactly the point I wanted to mention about how important it is to support and promote credit unions. There is certainly scope for British credit unions to grow, and we are behind other nations in that respect. In Ireland, 50% of the population are members of a credit union. In America and Canada, the figure is around 40%. In Australia and New Zealand it is around 25%, but it is closer to 2% in the UK. Despite that, at least 86% of people are eligible to join a credit union in England, Scotland and Wales on the basis of where they live and the working areas that are served by credit unions. That is not just in Bramley—my excellent Waltham Forest community credit union has more than 4,000 customers.
There is clearly interest in accessing credit through such bodies. Membership of credit unions in Britain increased by 35% between March 2008 and March 2010. The challenge we face is how to scale up credit unions extremely quickly, given the CSR and the level of debt that we are facing. The question of the future of the post office network provides therefore both an opportunity and a threat to some of the excellent work that can be done in this field, which several hon. Members have mentioned.
The previous Government proposed—this is being promoted by the Association of British Credit Unions—connecting up the credit union movement and post offices, which would allow the integration of both services. A one-off investment would be needed to provide the common back-office platform that would allow the technical integration of the two services. In turn, that would allow post offices to offer a wider range of services, including those vital instant small-scale loans, as well as access to a Post Office card account. Staff at post offices could carry out transactions in real time, checking account details and giving instant pre-approved loans that were affordable and convenient. Credit union customers would be able to access their accounts and make payments through the post office. In turn, a transaction fee would be generated by each transaction that would provide a new stream of revenue for the Post Office. That could open up access to affordable credit and help consumers by breaking down the monopoly on supply. It is no wonder that the Finance and Leasing Association has briefed against that proposal and argued that it could restrict consumer choice and hinder competition, which is something that many legal loan sharks seem to think is okay for their specialist services.
Does the Minister stand with the loan sharks or the credit unions? What commitment will his Department make to fund the back-office integration of post offices and credit unions so that the post office network can provide credit union services and increase access to affordable credit for consumers? Those problems require us not only to legislate, but to look at what we can do for the families involved. We must not only clamp down on the exploitation practised by the firms, but extend access to affordable credit through credit unions.
Has the hon. Lady considered the implications of the Bill of Sale Act 1878, which effectively enables loan sharks to get away with much of their inappropriate behaviour? We all agree that we should not tolerate loan sharks—they are in my constituency as well as in hers and others.
The hon. Gentleman makes a fair comment. The point behind today’s debate is that there is overwhelming evidence that we can and should intervene, and there is certainly concern about the situation among Labour Members. The credit review offers us, if anything, an opportunity to look at how we can intervene and how the law could be amended. The fact that that is not happening is a travesty, so I hope that coalition Members will challenge the Government to expand the scope of the credit review so that it covers these issues.
I am grateful to my hon. Friend for securing the debate. Will she join me in asking the Minister to clarify the Government’s intentions on the consumer advocate? There has been some speculation that they are keen to go ahead with that position, which was first suggested in a White Paper by the previous Government, but there is still no actual detail. A consumer advocate could play a crucial role in that area, so it would be good to hear the Government’s intentions on that.
My hon. Friend makes an incredibly fair point. I certainly hope that the Minister will address that, along with the credit review and the role that credit unions could play within post offices.
I certainly want more direct financial support for organisations that provide advocacy services and support people who get into debt. The model that we can learn from is that of the drinks industry. In 2007, following public concern about alcopops and the need to address binge drinking, the industry responded by setting up and funding Drinkaware, an independent charity administering grants to tackle alcohol misuse. Each year it raises around £2.6 million from alcoholic drink makers and retailers, which is then used to raise awareness about alcohol and encourage sensible drinking. My Consumer Credit (Regulation and Advice) Bill proposes that a levy should be imposed on organisations selling credit, which would be used to fund a similar grant scheme. That could be accessed by a range of organisations providing debt management counselling or financial literacy services. Counsellors could give one-on-one sessions to families to help them get back on their feet by negotiating with creditors, helping them to navigate the support to which they are entitled and identifying how best they can live within their means.
Supporting those whose lives are ruled by debt requires more than informal advice. R3, the insolvency practitioners’ industry body, notes that one in five of their clients did not seek help earlier because they had no idea who to turn to for help. I welcome the Government’s continued support for the previous Administration’s work on a levy on dormant bank accounts for that purpose, but I hope that they will recognise the need for both financial advice services and specific advocacy services, such as the excellent work undertaken by organisations such as the Consumer Credit Counselling Service, Citizens Advice and Christians Against Poverty. The Moneymadeclear service, as it is currently set out, will not be the same thing, and we must ensure that both are available if we are to address these challenges. Does the Minister recognise the need to provide specialist financial advice and advocacy services to help people who get into debt, and will he commit to setting up a fund to support those services directly, as I propose in my Bill?
We have covered many complicated issues today. Just to be clear, I will end my remarks by repeating the three clear commitments that I want the Government to tell us, on record, whether they will make. First, will the Minister commit to expanding the credit review, to consulting on powers to cap the total lending costs, and to exploring caps on different interest rates for different types of loans? Secondly, will he commit to financing the integration of the post office network with the credit union network to enable them to share back-office technology and thus support each other? Finally, will he commit to a levy on those who sell credit to create a dedicated fund for debt advice and advocacy services?
Failure to act on those matters would not come at a worse time for many of Britain’s families. We know that if the Government are intent on pushing their Budget on Britain, they will raise the number of families in our communities living with the daily misery of debt. They therefore must take responsibility for their actions. They must give the same consideration to the needs of those for whom the never-never is a fact of life as they do for those who have Amex cards or a trust fund. I hope that the Minister will give us three yeses today so that we can make progress on those matters.
I congratulate the hon. Member for Walthamstow (Stella Creasy) on the clear, in many ways convincing and impassioned way in which she put her case. She has had quite a double whammy over the past few days, with her ten-minute rule Bill last week and now this important debate. It is particularly timely, given the review of consumer credit and personal insolvency and this morning’s statement by the Department for Business, Innovation and Skills on the future of the post office network, which, to be fair, contained rather more of positive interest to people who care about those issues than perhaps some Members have suggested today.
Like the hon. Lady, I will concentrate on instalment credit, rather than revolving credit, although both are relevant. I am sure that the debate will be positive, but I will start with three negative points—three not’s. First, this is not a party political debate. I pay tribute to the previous Government’s work with the credit union sector, for example, which at the time had all-party support. I am also sure that measures to address those problems and help the most vulnerable people will receive support from across the House. I know that that is the case among many of my colleagues in the coalition Government, and it is evidenced to a large extent by the number of Members from both sides of the House who have attended the debate.
Secondly, this issue is not new, although, to be fair, it is changing. The leader in doorstep home credit has been around since Victorian times, but every few years the nature of the market changes a little. There are changes over time regarding the importance of priority debt and that of consumer debt, and there might in future be some change back towards priority debt. However, it would be wrong to suggest that the home credit market has been created by the comprehensive spending review, and everyone who has ever worked in communities that have such issues knows that well. It is also a dynamic market, and there is always something new to worry about: whenever we think we have got our heads around the market, something new comes along, be it the increasing problems with fee-paying debt management agencies, inertia selling, payment protection insurance, the growth in pay-day loans, the appearance of pre-paid sub-prime credit cards or the appearance of so-called credit rehab cards.
Thirdly, it is not all bad. Every segment of the market plays some sort of role. Even pay-day loans can have a role—for example, in avoiding excessive current account penalty charges. We also have in this country, much more so than in the European markets to which the hon. Lady referred, a pretty competitive and diverse market. The effect is that very few people in this country are totally excluded from the legal and, therefore, regulated—one might argue that it is not regulated well enough—and regulable part of the market.
There are always three key aspects to any debate on this subject. The first is the disclosure of information; education, so that people have the wherewithal to do something with that information; and the whole surrounding culture, particularly what we as a society aspire to regarding the balance between savings and debt to help people get through the ups and downs of life, which everyone has. I will not talk about that this morning because there is not much time and many Members wish to speak. The second area, which is the focus of the hon. Lady’s ten-minute rule Bill, is smarter regulation, and the third is alternatives to high-cost credit. I will talk briefly about each of those aspects.
When it comes to regulation, we need to understand our objectives, of which there could be one or two. It might be either to reduce the cost of credit to people on very low incomes and who have great difficulties in their lives, or to reduce the prevalence of credit and debt for those people. That is an important distinction, because it might lead to one or two different things. For example, if one just wanted to reduce the costs, one might liberalise the rules on door-to-door canvassing for cash loans, because that would allow new entrants into the market more easily, which could undercut the existing players and cut the cost. However, not many of us would want to do that. If we are trying to reduce the prevalence of lending in those sectors, we might do the opposite and ban door-to-door canvassing even for non-cash loans—meaning voucher loans—because they are used, as the hon. Lady will know, as the way in to new customers, who can then be graduated on to higher value cash loans. My assumption is that the objective must always be both to reduce the cost to people who are taking on sub-prime loans, and to reduce the prevalence of such lending.
The second key question on objectives is whether we are trying to hammer a particular segment. As I said, each segment, if handled properly and responsibly, has a role. Therefore my assumption is that we are trying to target not a particular segment—for example, pay-day loans or home credit—but the principle of people paying sky-high rates for credit when they need it.
There are perennial problems when trying to make smarter regulation in this area. In particular, because it is such a diverse and organic market, as soon as we deal with one problem, another pops up. In fact, in some ways, it is because we deal with one problem that another pops up. Let me give a couple of examples. If we manage to bear down on cash lending, we will see—this is true in some of the American states to which the hon. Lady referred—an increase in rent-to-own, voucher lending and catalogue lending, with grey pricing. That is where the base price of the item is inflated such that at a 29.9% interest rate, to use a random example, the lender is making considerably more than that in terms of margin. If we bear down effectively on interest charges, there is the automatic tendency, it seems, for lenders to rely more heavily instead on behavioural penalties, which, in many types of lending, can end up costing far more than the apparent rate of interest.
With any cap that we put on the cost of lending, mathematically we will be disproportionately impacting on the highest-risk customers, which in this market means the lowest-income customers and usually the most vulnerable customers. At the extreme end, when we are talking about excluding those people, there is the danger that we will push them into the arms of illegal and unregulated moneylenders—the sort of people whose idea of a late-payment penalty is a cigarette burn to the forearm. Of course we all want to avoid that.
However, despite the perennial problems, there are still possibilities, many of which were outlined by the hon. Lady. APR is a widely misunderstood measure, and there is always the danger that anything we replace it with will also be widely misunderstood, but total cost of credit has more potential than APR to be understood.
On caps, I am a free-market Conservative, so in general I am not in favour of price controls. However, the hon. Lady made a good point in that regard. If we look throughout the European tradition world and the Anglo-Saxon tradition world, hardly anywhere has a market as liberal as ours in terms of the interest rate regime. Of course, before 1974—when there was a Conservative Government—there was a usury ceiling in this country. We have to ask the question: if we have got this so brilliantly right, how come other countries are not trying to copy us?
I do not think it will work to go after individual markets saying, “We’ll have this restriction on this product and that restriction on that product,” because new products will just be invented. I wonder whether it is possible to come up with a formula that does away with the market’s worst excesses, while not putting any individual segment of it entirely out of business.
I would love to hear the thoughts of my right hon. Friend the Minister on the regulation of rules and supplementary charges on loan roll-over, missed payments, minimum payments and so on. We also need to think about the way in which credit scoring works. By the time that people eventually seek help, many of them have run up eight, nine or 10 separate lines of credit. We have to wonder what the lenders of the eighth, ninth and 10th lines of credit were thinking. This is a matter of responsibility. Of course in terms of the maths, it might be perfectly rational for the lender to issue a lot of loans with relatively low credit-scoring hurdle points, in the knowledge that although they will have to write some off, that is still a more advantageous profit model than rejecting them.
Most of all, I would love to hear from the Minister on something the hon. Member for Walthamstow talked about at length—alternatives to high-cost credit, to which there are multiple aspects. For example, the social fund is probably due for a bit of root-and-branch reform. Here I am talking not about priority debts or emergency loans, but the discretionary fund. In addition, mainstream banks can be exhorted to develop bounce protection credit lines more quickly, which will stop so many people being forced into pay-day loans.
Above all, however, the opportunity is with credit unions. I welcome this morning’s statement on the post office network, which gives some positive indications. Credit unions have made great strides in the last few years. Historically, they had been very strong in the west of Scotland, Manchester, Merseyside and parts of London, but not in the rest of the country. In recent years, the situation has improved, but we are still not at the point at which everyone can access a credit union.
The range of services has also improved dramatically, with the credit union current account, cash ISAs and so on. When the legislative reform order that we all hope will come along very soon is passed, that will make further strides in liberalising the common bond—in being able to pay fixed rates of interest on savings accounts and being able to bank to groups as well as individuals, which fits well with the big society agenda.
I do not seek to make a partisan point, but will the hon. Gentleman join me nevertheless in asking the Minister to clarify the future of the growth fund, which is due to end in March 2011 and provided significant money to help credit unions and other community finance organisations expand, in order to provide the access-to-credit alternatives he has described?
I am sure the Minister has heard the question and made a note of it. What I will say about the growth fund is that of course, capitalising credit unions to expand their customer base has many positive aspects. Not all credit unions were fully geared up to make maximum use of some aspects of the growth fund, and particularly the speed of the growth fund.
I would also like to see other ways of further funds for lending going into credit unions. All of us, if we have not already done so, can open a savings account with a credit union. That is not a flippant point. We need to encourage more people at higher and middle rates of income to use credit unions as their place for savings, because then, of course, those savings become the source of loans to other people.
Credit unions do not yet exist on the critical scale at which there is mass awareness of the services available.
I particularly welcome the hon. Gentleman’s observation that this is not necessarily a party political issue and that there is support on both sides of the House for many of the elements in the Bill introduced by my hon. Friend the Member for Walthamstow (Stella Creasy). There is a renewed sense of urgency about the issue, perhaps more so among we newer Members who have come by a community-organising route and have seen at first hand the effects in our communities. One thing that prevents credit unions from expanding is that they are seen as operating in charity offices and church halls and they lack the high-street presence of organisations such as BrightHouse, which can spend a lot of money on marketing and targeting people. Integrating credit unions more with the Post Office would have given them that mainstream appeal and access in all communities.
I thank the hon. Lady profusely and will remunerate her suitably later for teeing me up for my next sentence. One of the problems for credit unions, apart from lack of awareness of them in some sections of the community, is that they lack a high-street network throughout the country. Marrying them with the Post Office offers amazing synergistic opportunities for both sides. It marries the financial expertise and product base of the credit unions with the presence and trusted brand of the Post Office. We talked earlier about trusted brands.
The point was made a few moments ago that it is important that middle-income people also join credit unions. I am pleased to have joined my local credit union, as I am sure everyone in the room has joined their local credit union, as a place for savings. The point about a high-street presence is extremely important. My local credit union in Crawley operates out of a community centre, which as we have heard is the norm. I very much support the idea of making credit unions mainstream, and it therefore becoming much more the norm for people to save and transact with them.
My hon. Friend makes a fine point, which I do not disagree with at all. I should say, for the avoidance of doubt, that my own savings account is with the United Savings & Loans credit union in Bordon. That fantastic institution has a high-street presence, but because of the rents in my part of the world, it is not the most prominent high-street presence. The established network of the Post Office could make a big difference to that. Of course, this is not just a matter of saying, “We’ll work with the Post Office.” It is also about the infrastructure that goes behind that—the electronics and the systems. That is why it is necessary to build a robust back-office system and interface. That takes money, but it does not necessarily have to come entirely from the Government, and it would be a mistake to think so. Such activities do of course carry with them a future income stream, and as everyone knows one can borrow against a future income stream. There is certainly a role for the Government in financing such a thing, but not just grant funding is needed.
Overall, the provision of alternatives is the surest and most important initiative that can be taken in this area. Whatever the regulation, people will always find ways to get around it, and we must strive to make things better.
I take the hon. Gentleman’s point, and I understand and recognise his experience in the credit union movement. Does he agree that these are the very issues on which the credit review should be formally consulting? It should be looking not just at store and credit cards but at access to credit, and also the home credit market, pay-day lending and the many other products that may well be expanded, to try to tackle once and for all the needs of the poorest consumers.
I am supremely relaxed about the names that are given to reviews, discussions and discussion documents. The important thing is that members of the coalition Government take a keen interest in this area and are interested in making progress, and I know that they are. The name or title is of secondary concern.
The surest thing we can do is to provide a good, robust alternative, and thereby revolutionise affordable credit. We can also improve the savings culture in this country and provide a real alternative to the doorstep lenders about which we are all so concerned.
I thank my right hon. Friend the Member for Walthamstow (Stella Creasy)—sorry, my hon. Friend the Member for Walthamstow, but soon to be promoted—for securing this debate. As a new Member, I am struck whenever I speak in Westminster Hall by the quality of the debates that take place here. It is such a shame that we do not have the same quality of debate on the Floor of the House, and I believe that that is recognised by all Members here.
Members on both sides of the Chamber have made good points. I know that many people wish to speak, so I intend to keep my remarks brief and largely to restrict them to the north-east and my constituency.
This problem arises in constituencies such as mine and many others because of a lack of affordable credit. People who work part-time and live on low incomes or minimum wage often find themselves with few options, which has resulted in an outbreak of high-cost credit. My constituency is large and made up of many small towns. I cannot walk down the high street of any of the small towns in my constituency without seeing an array of pawn shops that buy gold, cash cheques at exorbitant prices and generally prey on the poor in our communities who, like many hon. Members, I see in my surgery.
In the past seven years, the number of pay-day loan users has increased fourfold and the number of pawnbrokers has trebled. That is happening in constituencies such as mine and that of my hon. Friend. This is probably one of the best attended Westminster Hall debates that I have seen, so the problem clearly exists in other constituencies—not just in the north-east or poorer areas, but right across the country.
Irresponsible lending serves only to make things worse. Companies such as Oakam, which has been mentioned, and the Money Shop charge annual interest rates of more than 444%, despite a Bank of England base rate of just 0.5%. Borrowing at such rates can tip vulnerable people into a cycle of debt and poverty. High debt repayments are linked to rent, council tax and utility arrears, as well as other poverty indicators such as constraints on job-seeking behaviour, poor diet, cold homes, and mental and physical health problems.
The hon. Member for East Hampshire (Damian Hinds) said, rightly, that loan sharking has not resulted from the comprehensive spending review, but the review will simply make things worse. The Government’s plans to reduce housing benefit by 10% after a year will make things worse in constituencies such as mine. So far, the arguments in that debate have centred around what will happen in London, but the effects of the cuts will not be restricted to central London. In my constituency, they will mean people who are already struggling and in debt being forced to find another £15 a week that they simply do not have, and being forced to go to loan sharks and disreputable loan companies.
The north-east is a hot spot for illegal loan sharking. The North East Illegal Money Lending Team, which was set up by the previous Government in December 2007, has identified 1,083 illegal lenders—92 in the first quarter of this year; convicted 40 loan sharks; and saved borrowers more than £2 million. When loan sharks are convicted, the cases are publicised widely in the local press and on television.
Some people have argued that a cap on total lending will simply increase illegal loan sharking, but, coming from an area where it is prolific and is blighting the lives of the poor, I would argue that a cap on total lending, as well as investigating and jailing loan sharks, and publicising the cases widely, would improve the position for the poor in my constituency.
This is very much a gender issue. Fair Finance, a social enterprise bank that offers loans and debt advice, has seen clear trends in those seeking its help: 75% are women, 70% are single mothers and 80% are on benefits. The issue disproportionately affects women. In the north-east, there are recorded cases of women being forced into prostitution because of loan sharks.
All families—all of us—experience financial emergencies from time to time, but when a financial emergency hits a poorer household, it is often the catalyst that sets it into a downward spiral of debt. Many people in such situations are vulnerable at all kinds of levels. Many live on the margins and are preyed upon routinely. One of my constituents was forced to borrow £200—a relatively small sum—from a loan shark to fund a trip to Wales. His sister had been murdered by her partner, and he needed to make a trip from the north-east to Wales to organise the funeral and to settle her debts and affairs. His neighbours rallied round and paid off the loan, but many of them are also poor and vulnerable. If those people can see that there is an issue, surely we can, too, and the Government should act on it.
The hon. Lady speaks with great passion about individuals in her constituency, and I really feel for them. I hate the phrase, “This is not a partisan point,” because we all know what comes next, so I shall not say it. Does she think that the previous Government’s claims to have ended boom and bust encouraged or discouraged vulnerable people to gear up with more debt?
I understand what the hon. Gentleman is saying, but I do not think that it is relevant to the debate, or helpful.
The current situation of allowing very high interest rates to be charged to the lowest-income households leads to greater wealth inequality and greater child poverty, and it constrains efforts to regenerate deprived communities. We have heard about Provident Personal Credit, a legal loan company that operates widely in the north-east. It controls 60% of the home credit and legal doorstep lending there. It mainly offers small, short-term and unsecured cash loans. The typical annual percentage rate on a Provident loan is 272.2%, and 70% of its customers are women. The Government can address those issues and make the lives of those living in the poorest households easier.
On the three recommendations made by the hon. Member for Walthamstow (Stella Creasy), does the hon. Lady agree that the second, which was about the role played by credit unions in the post office network, is the most exciting opportunity for combating loan sharks that we have seen in this country for a long time? The Minister with responsibility for the Post Office has already made it clear that he welcomes a future role for credit unions in the structure and distribution network of Post Office Ltd. In my constituency, the new Gloucestershire Credit Union, which is partly funded by the Department for Work and Pensions, represents an important step forward for us all in our different constituencies.
I thank the hon. Gentleman for making that point, which I was going to come on to. What I will say now is that this is not either/or, and we can do both.
The Government could provide a cap now on the total lending rate that may be charged for providing credit, and on additional interest on late payments and default charges, and that could be targeted on companies that charge excessive interest—and then interest again on that charge—to customers who borrow from them. That would be a popular move. A recent YouGov poll, carried out in April 2010 and highlighted on the “End Legal Loan Sharking” campaign’s website, found that 89% of the people polled would support such a move.
The Government could also provide alternative sources of affordable credit. Many organisations have called for such action on high-street loan sharking, including Compass, Citizens UK and the “End Legal Loan Sharking” campaign. The Government need to provide local authorities with powers to enable them to restrict the provision of premises for licensed consumer credit agencies within a local area, and to give locals a say over what happens in their high street. When people are asked, they say that they do not want these pawnbrokers and “gold for cash” or high-interest-rate companies on their high streets.
I am disappointed by this morning’s announcement that the people’s bank will not be part of the post office network, as it could provide affordable short-term credit. Using the post office network to provide back-office functions that integrated the network’s services with credit unions would help the poorest people to access credit unions, current accounts and savings accounts through post office branches. However, I welcome the announcement about bringing together the synergy of post offices and credit unions.
The credit review and a cap on interest on store and credit cards are both welcome, but in themselves will not help the poorest people in my constituency and in many others. A credit review would seem to be the right way to go, but I ask the Minister to look again at the terms of reference and to include some of the very strong arguments that have been made from both sides of the Chamber today.
The Government need to do something to stop what is happening. It seems that the only growth on high streets in my constituency and in many others is in charity shops and pawnbrokers. The Government have made a commitment to reducing child poverty and this would be a very good place to start.
[Mr Christopher Chope in the Chair]
I shall be very brief. I congratulate the hon. Member for Walthamstow (Stella Creasy) on introducing the debate on those very important issues. She has certainly done her research. The previous Government did some very good work on the regulation of consumer credit, with the Consumer Credit Act 2006. Coming down the line in February 2011 we have the EU directive, and the main thing that that will introduce is the provision that in any credit agreement the customer has to be given standard information. I hope that that, too, will be helpful.
The quality of the contributions to the debate illustrates how complex this issue is—there are other sides to the story. I was speaking to the Finance and Leasing Association this morning, and it is concerned that excessive regulation will shrink the market. The market is contracting at the moment, and that might polarise it.
We could be in danger of using a blunt instrument here, and as has been said, if we knock an apple down, it will bob up somewhere else as an alternative product that cannot be legislated against, so we will continually be revisiting legislation. As was mentioned, the answer is more in education, so that people get the difference between the costs of credit.
I totally agree with the hon. Gentleman. As the hon. Member for Walthamstow said, it is very important to look at the whole cost of a loan rather than necessarily relying on an interest rate. The Finance and Leasing Association is concerned that if we cap the interest rate the market will migrate towards the maximum, with high-risk consumers being cross-subsidised by lower-risk ones because somewhere or other the risk has to be funded.
Does the hon. Lady share my concern that listening to the Finance and Leasing Association on how to protect the poorest consumers is a bit like listening to burglars telling us that muggers are not very nice because they take people’s property to their face?
A burglar might have a lot of expertise in telling us how to keep our homes safe, so it is important to keep an open mind and listen to everybody in the argument. The point is that the association is concerned that if we over-regulate, illegal loan sharks will fill the void left behind when other, more reputable lenders leave the market.
The Office of Fair Trading did a review this year of high-cost credit products, pawnbroking, pay-day loans and home collection credit. It concluded that capping price controls was not necessarily the answer:
“This is because controls such as interest rate caps can contribute to reducing competition in the sector and lead lenders to recover lost income through increasing charges for late payment and default.”
Were a cap introduced, there would be a risk of all lenders raising their interest rates to match their competitors, thus making access to loans more difficult for borrowers. The cost of loans is twofold—it is a combination of interest rate and length of term of borrowing—so although some interest rates are very high, that can be offset by the length of the loan. The variety of lending options ensures that the specific requirements of all consumers can be met.
I shall not go into the pay-day and home credit loans, or indeed store credit cards. The point is that they all have a role to play, provided that they are properly regulated. We have heard reference today to the review by the Department for Business, Innovation and Skills and the Treasury. I know that they are covering slightly more than credit and store cards; indeed, they are covering an issue that I have raised in my private Member’s Bill—unauthorised overdraft charges. I am very hopeful that we will now get a good resolution on that. I would, however, appreciate clarification from the Minister as to what we will be covering, because my understanding is that we could take the opportunity to consider that important and complex issue.
Finally, is not the answer to give deprived communities better access to mainstream debt? We have talked about the Post Office and basic bank accounts. Everyone has a right to a basic bank account, and that should be much better promoted. We have talked about credit unions, and some companies, such as My Home Finance, have reduced their APR to 29.9%. That might sound like a lot of money, but in the context of illegal loan sharks it is quite something. I look forward to the Minister’s problems—sorry, the Minister’s comments [Laughter.] He certainly has enough problems, that’s for sure. In all this, it is important that we take into account the fact that, somewhere, we have to price for risk.
I will be exceptionally brief. My huge notes have been cut back dramatically, and I will focus on one point. First, I quickly pay tribute to the hon. Member for Walthamstow (Stella Creasy) for both this crucial debate and the ten-minute rule Bill, the thrust of the arguments of which I support. So, there is cross-party support.
I want to concentrate on the important element of financial education. It is essential to provide financial education to equip people to make informed decisions. Working with the national financial education charity, the Personal Finance Education Group, and Martin Lewis of www.moneysavingexpert.com, I am launching an all-party group on financial education, with a focus on securing compulsory financial education in schools. It will launch on 31 January. This is a very brief plea to all Members who are still in this important debate to come and join the group, so that we can help future generations to make informed decisions.
It is really important to get financial education into our schools because one of the big problems with things such as credit unions is that people do not understand what they are. Banks come into schools, but we do not know about the whole range of the market.
My hon. Friend makes a really important point. According to a survey carried out by the Nationwide Building Society, 91% of people who got into financial difficulty said that if they had had better financial education, they might not have made the decisions they did. The number of people who think that a higher APR is better than a lower one is worrying, and reinforces the point that financial education is absolutely essential.
I join others who have spoken in commending my hon. Friend the Member for Walthamstow (Stella Creasy) on securing the debate and how she introduced it, and for her ten-minute rule Bill of a week or so ago, which others also referenced. She has done a huge amount of research and has made a powerful case for smarter regulation. She and others focused on the impact on some of the most vulnerable in the various communities we represent of access to finance going wrong, and the associated issues.
My hon. Friend highlighted three specific issues that she wanted the Minister to include in his Department’s review. The first was to consider regulation of the total cost of borrowing and how much interest different financial products can carry. She pointed to experience across the European Union and north America, where similar measures have been introduced. She referenced the need for a levy on those who sell credit to pay for debt counselling and advice services, and she pushed for increased accessibility of credit union services and their integration with the Post Office.
I have just watched the “Jeremy Kyle Show”—I do not want to recommend that to anybody and I cannot believe that I have admitted it in a Westminster Hall debate. During the adverts, a company called Wonga was advertising same-day loans with an interest rate of 2,400%. Is it responsible for advertising companies to allow such adverts to run?
I will not comment on my hon. Friend’s television viewing habits, other than to say that I know he has raised concerns about the activities of Wonga, and I will come on to that. It is an interesting company in the consumer credit field for a slightly different reason, which I shall come to later.
I join my hon. Friend the Member for Walthamstow in asking the Government to consider including the issues that she raised within the review of the consumer credit sector, and I do so in a spirit of welcoming their review of consumer credit.
There seems to have been a tiny bit of confusion earlier about the nature of the review to which the hon. Gentleman refers. I think I heard suggestions that it was restricted to credit and store cards only, but the call for evidence was much broader, as he knows.
As the hon. Gentleman says, there has been a broader call for evidence. I hope the Minister will use the debate to call for further evidence about, and embrace, the areas that my hon. Friend the Member for Walthamstow championed in the debate and in her ten-minute rule Bill.
I am sure my hon. Friend will agree that it is one thing to ask the question, but the challenge is to set out that the answers will be listened to. The Government have, so far, only formally committed to looking at the cost of borrowing on credit and store cards in the remit of the credit review. They might be asking for evidence on the broader credit market, but there has been no equivalent firm commitment. The hon. Member for East Hampshire (Damian Hinds) is shaking his head, but I can show him the details on the BIS website; it is outlined clearly. The Government are looking at the interest rate cap on credit and store cards only, and I am specifically asking for the review to be expanded to cover all forms of lending, so that it looks at the market for the poorest consumers.
I trust that the Minister will clarify his intentions on that. The review should look at the three specific issues that my hon. Friend the Member for Walthamstow raised.
The hon. Member for East Hampshire (Damian Hinds) made an interesting speech extolling the importance of credit unions—as did my hon. Friend the Member for Walthamstow—as a crucial alternative to some of the most costly parts of the consumer credit industry. He said, rightly, that the issue is not new, but the market is continuing to change. He also raised the issue of the importance of education, as did the hon. Member for North Swindon (Justin Tomlinson), whose initiative in setting up the all-party group I commend.
The hon. Member for East Hampshire alluded, I think sympathetically, to considering how to regulate the worst excesses of the market. He made the important point that the consumer credit industry, as part of the financial services industry, plays a crucial role in helping our economy to function effectively; nevertheless, there is genuine concern about some activities of the most controversial part of the consumer credit industry, that which provides pay-day loans.
As others have touched on, it is crucial that we consider access to affordable credit beyond the consumer credit industry, such as through credit unions and community finance organisations. The issue is about not only financial education in schools but access to financial education and assistance outside the school environment through debt advice services, and about how we bear down on illegal activity such as loan sharking.
On giving access to debt advice, my constituency office is working with debt agencies to train our staff, and me, in how to give the right advice. We are also working with local media to communicate constructive advice ahead of the festive period, which is a particularly risky time for people making financial commitments.
I commend the hon. Gentleman’s work on that, and I hope he will bring his experiences to his all-party group so he can share that good practice with others.
There were important contributions from the hon. Members for North West Leicestershire (Andrew Bridgen) and for Crawley (Henry Smith), from my hon. Friends the Members for East Lothian (Fiona O’Donnell), for Clwyd South (Susan Elan Jones), for Halton (Derek Twigg), for Leeds West (Rachel Reeves) and for Darlington (Mrs Chapman), and from my right hon. Friend the Member for Tottenham (Mr Lammy). My hon. Friend the Member for North West Durham (Pat Glass) made an important speech focusing our attention, rightly, on concerns about illegal loan sharking, which I want to come back to in a second. The hon. Members for Gloucester (Richard Graham), for Solihull (Lorely Burt) and for North Swindon also contributed.
My hon. Friend the Member for Walthamstow and the hon. Member for East Hampshire drew attention to the work of the previous Government in reforming the Consumer Credit Act 1974 and introducing the Consumer Credit Act 2006. It is time to look again at the definition of “unfairness” that sits as the heart of the 2006 Act to see whether it addresses the concerns of those championing reform of the 1974 Act. We need further action to tackle loan sharks, who continue to operate despite the activity of teams across the UK dealing with illegal moneylending. We also need to look at how to expand access to credit unions.
Forgive me but, given the time, I will not.
The hon. Member for East Hampshire raised the question of access to social fund loans, which are another important source of short-term lending for those in difficulty. The previous Government decided to increase the amount of social fund loans available, and it will be interesting to hear what steps the Minister’s Government plan to take on that. The previous Government also acted to increase pressure on businesses regarding how debts were collected and interest rates levied, due to considerable concern about how they were operating.
I shall end with questions to the Minister. Consumer Focus, which I understand is to be abolished, has called for reform of the pay-day lending market. It has specifically called for the number of loans taken out or rolled over to be limited to five per household, and called for the development of an industry code of practice. My hon. Friend the Member for Islwyn (Chris Evans) raised the activities of Wonga. He may be interested to know that it has developed a code of practice, and I will be interested to know what the Minister thinks about it, and whether he thinks there is merit in the industry doing more in that area.
I hope the Minister will explain the Government’s intentions for the consumer advocate, and whether it will have a role in regulating unfairness. Will he explain how the Consumer Protection and Markets Authority will take over responsibilities for consumer credit from the Office of Fair Trading? Lastly, will he explain what the future holds for the growth fund and the financial inclusion fund? Both have done much to fund the expansion of access to credit unions and debt advice and, as a result, have provided substantial help to many extremely vulnerable people.
We all wish to thank the hon. Member for Walthamstow (Stella Creasy) for securing this important debate. She made clear her views about loan sharks—even more so when she tweeted a message to me which, if clicked on, plays the “Jaws” signature tune. We know where she stands, and during the few minutes available, I hope to respond to the specific points that she raised. I also want to comment on the excellent speeches made by my hon. Friends the Members for East Hampshire (Damian Hinds) and for North Swindon (Justin Tomlinson), and the hon. Members for North West Durham (Pat Glass), for Solihull (Lorely Burt) and for Harrow West (Mr Thomas).
Sadly, time is tight, so I will go straight on to some of the points that were raised. I am sorry that the Under-Secretary of State for Business, Innovation and Skills, my hon. Friend the Member for Kingston and Surbiton (Mr Davey), cannot be present, but he is involved in the Committee stage of the Postal Services Bill. As part of the development of our policy on postal services, we have published a document to secure the post office network in the digital age. The hon. Member for Walthamstow will have the opportunity to pick up a copy from the Vote Office, but let me draw her attention to paragraph 53 on page 24, which states:
“We are firmly supportive of a stronger link up between Post Office and credit unions and are actively looking into ways the two can work more closely together. Credit union current accounts holders can already access their accounts at post offices through arrangements with the Co-operative Bank, and it is estimated that…almost 80,000 Credit Union transactions have been carried out in post office branches.”
We understand the importance of the links between credit unions and the Post Office, and we have made a commitment on that.
The hon. Lady also asked about a levy to fund credit advice, but that is not a straightforward matter because one would have to consider on whom the levy should fall. Should it fall on credit unions? The Consumer Financial Education Body is part funded by credit card providers and other credit providers, and before we go down the route of a levy, we should await the results of our wider debt review, which I shall say more about in a moment.
The hon. Member for Harrow West asked about the consumer advocate and the consumer landscape review. Following the changes to the consumer landscape announced by the Secretary of State on 14 October, we are still considering the options. The previous Government launched a consultation on that issue, so we are not able to provide a response to that point at present.
Given the level of concern among all parties, I would like to report on changes that are already under way, which go back to the previous Government. Those changes, which will offer significant new protections for borrowers, include a new cooling-off period that will allow the consumer 14 days to withdraw from any credit agreement, a need for adequate explanations to be provided to any consumer when taking out credit, and a requirement for someone to undertake a creditworthiness assessment before any loan is made. Those changes will benefit consumers.
Let me turn to the focus of the debate: the consumer credit and personal insolvency review. A call for evidence was launched on 15 October. My hon. Friend the Under-Secretary is leading on that review and working closely with the Financial Secretary to the Treasury.
The review focuses on three key issues, the first of which concerns helping consumers and lenders to make better borrowing and lending decisions because we think that more can be done in that area. Secondly, consumers and lenders should increasingly manage existing borrowing in the long-term interest of the consumer, so we want a regulatory regime that encourages consumers to manage their level of borrowing over time and limits the scope for people to be unfairly penalised for events beyond their control. Thirdly, people in difficulties should be able to access the most appropriate debt remedy.
When I visited a branch of Lloyds TSB recently, I was told that a major problem was that if good customers get into a dispute, for example with a mobile phone company, and a county court judgment is imposed on them before the dispute is resolved, their credit rating can be messed up. Do the Government intend to review that situation?
Such abuse needs to be included in the review.
In the remaining few minutes available, I shall try to reassure hon. Members about the way in which the review is being conducted. First, we know that we must engage with specific issues, such as advertising. The existing rules on advertising do not address some of the softer issues concerning the way credit is advertised, so we wish to examine that. Impulse buying on store cards is another key issue that will form part of the review. In addition, the coalition Government are concerned that some charges levied by banks, particularly for unauthorised overdrafts, may make it difficult for consumers to keep control over their finances. The review will also cover interest rate caps, which we recognise as perhaps the most controversial issue touched on in today’s debate. We are concerned that the APR on some store cards can average 26%. Despite the fall in the base rate of interest since 2008, there seems to have been no comparable fall in rates on store cards.
The hon. Member for Walthamstow asked about other terms for the review. We have asked for evidence on a specific number of issues, so if people, including hon. Members, believe that we have not flagged up a problem that needs to be addressed, they should provide evidence of that problem to the review and state how it should be identified. The coalition agreement specifically mentions the issue of an interest rate cap on credit and store cards and that of a cooling-off period. Those are specific coalition pledges, which is why they are top of the list in the review, but there was no intention to exclude other subjects from the consultation should hon. Members, or other concerned people, wish to provide evidence of problems to be included.
Is that a yes? If we provide evidence that there needs to be action on interest rates charged across the board, including for pay-day loans, home credit markets and hire-purchase agreements, will the Government look at that evidence, act and include the matters in the credit review?
It is certainly an undertaking that if people, including the hon. Lady, come to us with evidence of a problem, we will consider that as part of the review. Obviously, we cannot commit the Government to act because that raises a host of further issues. If there were time, I might have repeated for the benefit of Opposition Members the details of at least three separate studies on interest rate caps that were commissioned by the previous Government. They all concluded that there were strong arguments against such caps, including the danger that people would become more dependent on loan sharks. We are aware of the evidence from the 2004 study, the 2006 inquiry into competition and, most recently, the OFT review. We are not committed to such measures because of our concern about people becoming dependent on loan sharks, but we will certainly consider the evidence. If the hon. Lady, the hon. Member for Solihull—who has a track record of being concerned about this issue—or any hon. Member would like their evidence to be considered, they should submit it to our review.
I assure the hon. Member for Walthamstow that I and the rest of the Government appreciate the many concerns about the availability and consequences of consumer credit. When used sensibly and responsibly, credit is a tool for coping with life’s uncertainties, but this is an area in which we must gather evidence before we introduce new rules, because we otherwise risk unintended consequences. That is why we have launched our call for evidence, and it is why I welcome today’s debate.
UK Film Industry
I am honoured to be here, as people always say, but I am honoured in particular because this is my first Westminster Hall debate—and under your chairmanship, Mr Chope, which is much appreciated. I thank Mr Speaker for selecting me for once. It is a great honour. I suspect that there was no one else for the lunchtime slot, but one never knows.
I am here today to talk about taxation, and taxation to do with the British film industry in particular. I have a specific film interest in my constituency, which is the base for Leavesden film studios—recently acquired by Warner Brothers and, even now, one of the most successful film studios in Europe.
As I am sure the Minister is aware, Warner Brothers announced yesterday an investment in excess of £100 million in finally acquiring and developing the site. For the record, most people in this country are highly delighted that what has been Watford’s little-known secret—the filming of the Harry Potter films in my constituency, which has been going on for quite a few years—is now formalised. I have not yet been offered a part in the films, but I have had a close relationship with Warner Brothers, as the Government have—the managing director has met with Ministers several times in the past few weeks.
The value of the film industry to this country is significant. People might not be aware, but it directly employs about 36,000 people. If we include the multiplier effect, which studies do, 100,000 people derive their income from the film industry. The taxation commensurate with that is significant. The industry provides about £1.6 billion in direct revenues to the country and £440 million in taxation.
The industry is very significant, with highly skilled and highly paid workers—everything we are looking for in an industry in this country. It has weathered the recession quite well, unlike many other businesses, and production activity is pretty good, I am told.
We rely extensively on inward investment, which is what I want to talk about today.
My hon. Friend is a doughty champion for the British film industry and he has already articulated its importance culturally and economically. It is a vast employer that brings a huge amount of investment and a lot of jobs to this country. Will he, therefore, join me in expressing some surprise that not a single Opposition Member is present—no shadow Minister or Labour politician to speak on behalf of the British film industry.
My hon. Friend makes a good point, as ever. Given the importance of the industry to this country, I had hoped that Opposition Members would be present. However, avid readers of Hansard they may be, so I am sure that they will be able to catch up in the morning.
Order. It is important to point out that this is a half-hour Adjournment debate, and it is not normally possible for Members other than the Member who secured the debate and the Minister responding to participate without having gained the consent of those people. Therefore, saying that Mr X or Mr Y is not present is not really a good point, because in a half-hour Adjournment debate people who could not participate would not normally be expected to attend.
Thank you, Mr Chope, but I ought to explain that I mentioned to the Minister whom I thought would be present—my hon. Friend the Member for Faversham and Mid Kent (Hugh Robertson), who told me that he would be here—the fact that I thought there would be one or two interventions. I hope that has not caused offence to the Chair, and thank you for the clarification.
The first item of which people should be aware is the current taxation, which is a producer film relief for companies making films that qualify in the UK as British films. The relief is in place, and the industry supports it and hopes that the Government will leave it in place. My understanding is that the industry has made suitable representations to the Secretary of State and that that will be the case, although I hope for clarification.
The taxation position, however, has been complex. In 1997, when the Labour Government came to power, they decided to reward what some would say was the electoral help of media “luvvies”—but I am not one of those. Some would say that there was a lax film taxation regime, allowing high-net-worth individuals to get 100% tax credits for investing in films. That situation was, I think it is fair to say, abused by the tax avoidance industry, rather than by the film investment industry. To quote Charles Fry of Pinder Fry, a legendary accountant in this field:
“The fact that we’re investing in films is irrelevant. If we could get the same tax relief investing in cauliflowers, we’d do it.”
To mix my metaphors, there was a chink of light and that industry drove coach and horses through it. The end product was that in 2006 the previous Government pulled down the drawbridge—to use another cinematic analogy—and cut off the tax break for investor funding for high-net-worth individuals.
The vehicle left was the enterprise investment scheme, which is quite well used but very much on a small scale. The average investment through the EIS is between £5,000 and £10,000, so it is a good way to get small investors. However, small films are the type that tends to be funded. While they are very useful, the fact is that, while we have amazing facilities in this country and all the infrastructure, we are providing a vehicle mainly for foreign investors to do their production here while the profit, quite understandably, returns to the investors, who are abroad. Today, I am speaking to the Government about how we need to achieve a situation in which British investors can invest in British films tax efficiently.
What we need to understand about the British film industry is that the budget for a film is now about £1.5 million—the average, median cost of a British film. It was £2.9 million in 1993. With due respect to some fantastic operators, we have gone down to a kind of cottage industry.
To give an example, Mr Martin Carr, who has given me some excellent evidence from his company Formosa Films, explained to me that it is a question of finding many investors to do one film. Films have 600 or 700 investors putting in small amounts of money. While that is obviously useful in employment terms and in benefit to the economy, we have the facilities and capabilities to do much more.
I congratulate my hon. Friend on securing the debate. Does he agree that one of the biggest threats to the film industry is piracy? While I welcome the Gowers report and the Digital Economy Act 2010, we could do many things to improve the Act. That should also be addressed by the Government.
The Oxford Economics study, which was commissioned by the film industry last year, proved that very point. Piracy and the infringement of copyright are the major reasons why money disappears from the system and why film makers are not getting the benefit of any of their films. In many cases, that is a criminal matter and the Government will have to make progress on it—like shoplifting, it is theft, and just like any other crime.
What I am really talking about, however, is how we create an independent film industry in which the vast number of high-net-worth individuals who will take risks can have a vehicle to invest in. What went wrong last time was that clever accountants came up with a device whereby schemes were risk free. People were doing sale-and-leaseback schemes. We are talking about not risky films—everyone knows that films are risky and that people either make or lose a fortune with a film—but series of television programmes that were pre-sold to television companies, so there was no risk at all. Accounting firms were making use of the provisions, which really ruined things for genuine film operators, who are now spending all their time making presentations all over the country to get investors to invest small amounts.
There is no question but that films are risky. In this country, we have a tradition of people investing in one film, which comes from the days of theatre angels, who would invest in a particular west end play. However, serious private investors need a vehicle that bunches a group of films together, because some films obviously work and some do not. People can make a very risky investment, for which they will get some tax relief, and there will be huge benefits for the country in employment and everything else. That is what I am asking the Minister for. A working party should be set up. I and people in the industry would be happy to take part, along with the Treasury and Her Majesty’s Revenue and Customs, to see whether a suitable vehicle could be devised.
This is an important debate. Small businesses in my constituency are involved in film making. Like my hon. Friend, they have made the point that tax is the important issue, but there are other factors. One is simply creating the right environment for investment in the sector, and I would be grateful to hear what the Minister has to say about that. For example, there are the links that small producers have with the BBC and with other small producers. A feel-good factor encourages the right kind of investment, and we need to attract people to these high-profile industries, which also produce a lot of export work.
My hon. Friend makes a good point.
I should also mention lottery funding, although I am referring not to charitable or community-based assistance, but to a serious vehicle for serious investors. I know that my hon. Friend the Minister is besieged by people wanting handouts. I have spoken to the Treasury about this issue, and I am talking about not a handout, but something that would be hugely beneficial to the country economically—all the evidence is there.
I am lucky enough to represent Ealing Studios, a very long-standing and famous set of film studios, and I agree with what has been said this morning. In America and Hollywood, there is so much money that people can afford to plan 10 years ahead. They know that a couple of the films that they take on will be duds, but they can afford to carry the duds because they know that somewhere in the mix there will be at least two or three films that make them a sensational fortune. What is it that they get so right over there that we need to look at so that we get it right here? We need a big enough investment and a big enough group of people who can plan ahead and take a couple of duds on the chin, but who can get the good films going as well.
My hon. Friend makes an extremely good point that goes to the nub of my argument.
For once in this country, we have all the infrastructure. We have studios such as Ealing, Pinewood, Shepperton and Elstree. Of course, no one would dispute that the Hollywood of the UK is Watford and Leavesden, which makes some of the lusher, more tree-lined roads in Watford very much akin to Beverly Hills.
I congratulate my hon. Friend on securing the debate. There has been a lot of talk about south of Watford, but I want to stand up for Yorkshire and the north. Probably one of the most successful British films of recent years was “The Full Monty”, which was filmed just down the road from me, in Sheffield, and I remember going to see it at Penistone picture house. However, my constituency has also hosted two long-running television series, which shows our expertise in film, with all the crew who were involved. We had “Last of the Summer Wine” in Holmfirth, which ran for more than 30 years, and the ITV drama “Where the Heart Is” in Slaithwaite. We have lots of wonderful skills—not just in the television industry—and it is important that we keep them employed in this country. Indeed, if we go on holiday to New Zealand or other English-speaking countries, we find that they also love our dramas, so this really is a good industry for us. Well done to my hon. Friend for securing the debate.
I greatly appreciate that point. Everything that is made in Colne Valley, and every television programme and film that is made, shows research and development working on the spot. A lot of the world-class facilities that this country has developed for graphic arts and special effects have come from films, rather than from laboratories or other fields.
There is a compelling argument here. The Government have done an excellent job on the film producer credit, which the industry is grateful for and which works, but we should look carefully at creating an industry that is British financed and British made, and whose profits remain in Britain. Thank you very much for your time, Mr Chope.
It is a great pleasure to serve under your chairmanship for the first time, Mr Chope. This is perhaps a poacher-turned-gamekeeper moment for you, and I hope you will not take too many points of order during what remains of the debate.
I congratulate my hon. Friend the Member for Watford (Richard Harrington) on a stunning debut in Westminster Hall and on bringing the success of the UK film industry to the attention of the House. He talked knowledgeably about the film industry and some of its technical details, which does not surprise us at all, given that he is the vice-chairman of the all-party group on the film industry and the hon. Member for Watford/Hollywood.
I also thank all other hon. Members for their valuable contributions. My hon. Friend the Member for Hove (Mike Weatherley) talks so much about piracy that he should perhaps take a starring role in “Pirates of the Caribbean 4”—a £200 million film being filmed in the UK. He is extremely knowledgeable and has, indeed, worked in the film industry. My hon. Friend the Member for Ealing Central and Acton (Angie Bray) represents the highly successful Ealing Studios, which are run by Barnaby Thompson. My hon. Friend the Member for Stroud (Neil Carmichael) made an important point about film. My hon. Friend the Member for Burton (Andrew Griffiths) helpfully pointed out that not a single Labour Member could be bothered to come to the debate. My hon. Friend the Member for Vale of Glamorgan (Alun Cairns) has not spoken, but his presence simply illuminates the debate, and I take this opportunity to congratulate him on his strong campaigning on behalf of S4C, another broadcaster whose future the Government have stepped in to secure.
My hon. Friend the Member for Watford began by noting the investment by Warner Bros in Leavesden Studios in his constituency. The studios are quite a well-kept secret in the United Kingdom. They are the place where all the Harry Potter films have been made and have, therefore, been responsible for a massive amount of inward investment into this country. Yesterday, Warner Bros announced that it was going to invest £100 million in Leavesden to make it the only major US studio outside Hollywood, so my hon. Friend’s remark about Watford being the Hollywood of the UK was in no way facetious. That announcement is a real milestone and a fantastic vote of confidence in the UK film industry.
The success of the UK film industry is built on a number of factors. We are, for example, the third-largest cinema-going nation in the world, but we also have a huge range of technical expertise. When my hon. Friend talks about the number of jobs that are directly related to the film industry, it is worth remarking that we have built a highly successful film industry that is fit for the 21st century on the back of the success of the tax credit and the inward investment from Hollywood studios. That includes elements that we might not necessarily consider as part of film, such as the computer graphics industry and world-class companies such as Double Negative Visual Effects, which provide visual effects to the film industry. That is another reason why so many people want to make films in Britain. My hon. Friend also mentioned Pinewood-Shepperton, and it is instructive that the studios are full at the moment. People who want to bring films to the UK are having to negotiate for space with that highly successful organisation.
It will not have escaped the attention of my hon. Friends—I can say that, as all Members in the Chamber are Conservative—that the film industry has been somewhat in the news because of my Department’s decision at the end of July to announce the abolition of the Film Council. One film director said that it was akin to abolishing the NHS. However, as the dust has settled it has become apparent that we took that difficult decision because we wanted to ensure that as much money as possible went to the film industry itself and that we spent as little as possible on overheads.
We will shortly be making an announcement on the future structure of support for the film industry. However, the decision to abolish the Film Council in no way reflected on its leadership. It was superbly led, and is still led, by Tim Bevan, its chairman; and was superbly led by its recently departed chief executive, John Woodward. I pay tribute to John Woodward; having been on the front line of the British film industry for 15 years, both in the British Film Institute and the Film Council, he can take a large part of the credit for the success that we currently enjoy.
Nevertheless, there have been some bumpy rides along the way. My hon. Friend the Member for Watford pointed out that the film tax credit lost its way in the mid-noughties, and that it was seen more as a tax avoidance scheme than a way of investing in the British film industry. I am glad to say that it now works incredibly effectively, and is the main reason for inward investment. We have made it absolutely clear that we guarantee its continuation. The scheme has to be approved.
I am grateful to the Minister for giving way. I congratulate my hon. Friend the Member for Watford (Richard Harrington) on securing the debate. We are talking about inward investment in the UK film industry, but does the Minister recognise the fact that the industry is UK-wide and that we should not focus on any one region? Every nation and region of the UK can play its full part in film-making; it can be an effective way of spreading prosperity away from the south-east of England.
My hon. Friend is quite right. His intervention further illuminates the debate by ensuring that I put on the record the huge success of the Welsh film industry, Welsh television productions and the Film Agency for Wales, and the way that Wales is forging ahead with its digital agenda—no doubt ably supported by my hon. Friend, who is a strong voice for Wales in the House.
The film tax credit is due to expire, on a technicality, on 31 March 2012. If anyone is worried by that statement I can tell the House that, as part of the European state-aid rules, we are required to re-notify the European Commission that we intend to continue implementing it. Officials have already begun the process of ensuring that the system continues beyond 31 March 2012 and is cleared again without a gap.
The film tax credit stands at the heart of inward investment, and I pay tribute to the team currently residing in the Film Council that implements the tax credit, dealing with the nuts and bolts and ensuring that the t’s are crossed and the i’s dotted. Those people do a superb job. I hear again and again from the film industry—this is perhaps for the team’s benefit—that instead of saying, “The computer says no,” it says, “How can we help?” That is to be commended.
There is another strand that supports British film, particularly those films with an essentially British content—national lottery funding. I am delighted that the Government decided to increase significantly the money available from the lottery for the production of UK films. The total sum available, which includes an element for training, will rise to £40 million in 2014; that is a 40% increase. Because of our decision to rationalise the bureaucracy that supports film in the UK, a far larger proportion of that money will go directly to supporting the British film industry.
It is worth pointing out that, as well as the £40 million that will eventually be available from the national lottery and the £100 million or so from the tax credit, the British film industry is supported by BBC Films and Film4. I was delighted to hear Film4 announce recently that it would increase its investment in film from £10 million to £15 million a year for the next five years; that is a 50% increase every year for the next five years. That decision, too, was taken after we announced the abolition of the Film Council. It is a huge vote of confidence in our film industry.
Sadly, one gap remains. I note that Sky now has 10 million subscribers. I hope this successful British broadcasting company will follow the lead of BBC Film and Film4 and establish its own film fund. I am sure that, in a 10-minute conversation with Sky, my hon. Friend the Member for Watford could explain that with the tax credit, the ability to leverage in private investment and possibly the ability to gain lottery funding, a small financial commitment could see substantial British films being made in this country.
As for direct grant in aid, the Government will be putting in about £73 million over the next four years. That includes our support for the British Film Institute. The institute is another important element in preserving our film archive and heritage, but it also promotes British film, particularly with the highly successful London film festival, which garnered a lot of attention this October and brought many film financiers and investors to London.
We also want to ensure that we are known in the world. We have a highly successful British film commissioner in Los Angeles, who helps with inward investment. He is aided by Film London, ably led by Adrian Wootton, and I put on the record my commendation of his work. Pinewood is expanding, with Pinewood Toronto studios becoming a leading production facility for film and television in Canada. We intend to work closely with UK Trade & Investment to ensure that British film has a presence throughout the world.
A side effect of our decision to abolish the Film Council is our wish to establish a more direct relationship with the British film industry. I was pleased to announce recently that we are to have a biannual ministerial forum on film, where all elements of the British film industry can discuss important matters with Ministers.
The key thrust of my hon. Friend’s excellent speech was that we need to build a sustainable British film industry. We want to take it, as it were, beyond the cottage-industry state. It is a highly successful industry that makes excellent films, but the perennial question—the gold at the end of the rainbow—is how to make it sustainable. It is difficult to replicate the US model, which integrates distribution and, with the huge amount of capital that is available, allows investment in a slate of films. However, we shall not take our eye off the ball.
We need to consider a number of the imaginative measures that have been proposed. The Producers Alliance for Cinema and Television proposes what it calls a lot-box; the key to its proposal is that producers should keep some of the intellectual property in their films. Too often, it is given up in order to raise private finance. We need to consider imaginative proposals on leveraging private investment on the back of the substantial money that is available from lottery funding. We must also keep close scrutiny on the need for a distribution model that works for British film, because without distribution the job of making a successful film is only half done.
The film industry in the UK is highly successful—one of the most successful in the world. We have a huge range of talent, not only in our brilliant actors but in our formidable technicians and fantastic world-beating companies. I am delighted to say that through our increase in lottery funding, our guarantee for the film tax credit and proposals that we hope to announce shortly, we intend to build on that success, maintaining and increasing it.
Food Security (Africa)
I will start my speech, although I am not sure that the Minister is yet here to listen to my remarks.
I am pleased to have secured my first Adjournment debate and to be speaking about food security in Africa. I declare an interest: in September, I was lucky to be part of a parliamentary delegation to Kenya that was organised and paid for by the all-party group for agriculture and food for development. I am pleased to say that one of my fellow travellers, the hon. Member for Calder Valley (Craig Whittaker), is in the Chamber. I plan to limit my remarks to 10 minutes in the hope that he and other hon. Members will be able to speak before the Minister responds.
My week in Kenya is undoubtedly one reason why I applied for the debate. I am not an expert on food security or on Africa, but I am, I admit, a child of the ’80s. The television images I saw as a 10-year-old of starving children in Ethiopia made a deep and lasting impression. I have called the debate because I never want to see those images again, because emergency food relief has to be the last resort, and because I believe that Africa has the ability to feed itself and that we in the UK should be doing more to help African agriculture to realise its potential.
I also passionately believe that at a time when much of our political discussion is focused quite understandably on the state of our domestic economy, it is important that we all remember that there are 265 million people suffering from chronic hunger in sub-Saharan Africa. That is the UK’s population four times over, and a third of the region’s total population. Sadly, that number is set to grow by 2020, when it is estimated that, if current trends continue, half Africa’s population will be affected. We must not let that happen.
I have come here today to ask the Minister to put tackling hunger and malnutrition for millions of Africans at the heart of his Government’s fight against global poverty. I also come to remind him—although I hope that I do not need to—that the primary aim of our overseas development assistance must be to tackle the basic needs of the poorest people in the poorest countries, and to help them help themselves. I also come to say that while maternal health, access to family planning and the fight against disease are all vital, so too is investing in smallholder farmers, most of whom are women. Ironically, it is those smallholder farmers who are most likely to face severe hunger and malnutrition.
I also wish to ask the Minister to increase the UK aid that we spend on helping African farmers so that they can improve their harvests and the productivity of their livestock, to increase the amount of agricultural expertise provided by his Department within African countries, and to use our influence within the international community to ensure that African Governments honour the commitments that they made at Maputo in 2003.
I know that I have set out a long wish list, so let me tell hon. Members why I am convinced that refocusing UK and international efforts in this area could make a significant difference. The availability of adequate food of the right nutritional quality is fundamental to people everywhere. Undernourished mothers give birth to underweight babies. Children who are malnourished in the first two years of life are at a much greater risk of ill health when they are older. How will a child learn if he or she is starving? How will the child’s mother fight off malaria if she does not have a decent diet? How will women be empowered if they cannot feed themselves?
When I was preparing this speech over the weekend, I came across reports of fishermen in Malawi using malaria nets to secure their catches in Lake Victoria. If ever there were an example of the way in which food security underpins so many other development goals, surely that is it. If there were a ready supply of food in Malawi, I would suggest there would have been much more chance of the nets being used for their intended purpose.
When the all-party group visited Kenya in September, we met family after family who told us that while their livelihood was their land, that land often did not produce enough for them to live on. They are not even subsistence farmers; they are sub-subsistence farmers, and there are millions of them in Africa. Given the effects of climate change and more irregular rainfall patterns, there are likely to be many more in years to come.
The sad thing is that it does not have to be that way. The use of better seeds, appropriate fertilisers and access to basic knowledge about planting and irrigation can have a dramatic impact on yields. The current agricultural output in Africa, measured in tonnes per hectare, is less than the UK’s wheat output in 1680. Better storage, cross-breeding of livestock and access to micro-finance can mean the difference between feeding one’s children or not, and the difference between having a small surplus to sell at market or not. None of that is rocket science, yet there is a huge challenge in getting the basics right, and getting the best seeds and right sort of agricultural knowledge to the farmers who need them.
There are fantastic projects, however, that have the potential to be scaled up in a way that could offer real results. Take FIPS in Kenya—Farm Inputs Promotions Africa—a Department for International Development-funded, not-for-profit company, which, through a network of village-based, agricultural advisers, works with the private sector to get new seeds and fertilisers out to the farmers who need them. Take Farm Africa’s dairy goat project in the semi-arid area of Kenya around Mwingi, which trains local people in the cross-breeding of goats to increase milk yields and resistance to drought. Better yields can not only feed the family but generate small amounts of additional household income, which creates a virtuous circle of economic activity.
As the recently published Montpellier panel report says, however, there is a “potentially dangerous gap” between a rich patchwork of on-the-ground activities, such as those I have just mentioned, and a “top-down global response” to addressing food security, which is characterised by much-lauded international conferences and big set-piece policy statements. Do not get me wrong: the pledges of large-scale funding at L’Aquila last year are welcome, but they must translate into real improvements in the lives of the poorest in Africa.
I hope that I have been able to explain why I feel that a focus on food security and agriculture in Africa is so important. I ask the Minister, in the light of what I have said, to consider increasing the proportion of bilateral aid spent on agriculture in sub-Saharan Africa to 10% of total DFID money spent there. According to a recent reply to a parliamentary question, the sum for agriculture in that area amounted to £51 million in 2008-09. I calculate that that is just 3% of UK bilateral aid for the region in that year.
Does the Minister agree with World Bank estimates that suggest that a 1% increase in agricultural GDP in Africa reduces poverty by three to four times as much as a 1% increase in non-agricultural GDP? Does he agree that agriculture would, therefore, fit neatly with his Government’s desire to get as much bang for their buck as possible from their overseas development assistance? Will he tell me the position that the UK will be adopting on food security at the G20 summit in the next few days? Will he tell me how much of the £1.1 billion commitment made by the UK at L’Aquila last year has been disbursed in sub-Saharan Africa? Does he know how many of the staff his Department has working in Africa have agricultural training or experience? I understand that there is only one DFID employee with such a background in Africa, who is based in Uganda. I ask him to consider how that might impact on the delivery of the £1.1 billion of commitments. Has he thought about how such a lack of in-country expertise might have affected the offer that each of DFID’s in-country teams have been asked to prepare as part of the bilateral aid reviews? If I were the Minister, I would not be too surprised if those returns were characterised by scant reference to agriculture as a route out of poverty, although perhaps he could reassure us. I appreciate that some of my questions are detailed and that the Minister might not be able to reply to all of them today, but these points are critical if we are to make 2010 the year in which we set the agenda for dealing with the fight against hunger in the decades to come.
If I may, I will leave the Minister with this thought. Investment in small-scale farming will help not only the rural poor. On the first day of our all-party group visit in September, we met a man called David, who lives with his three children in the Nairobi slum of Korogocho. His home is a two-metre by three-metre hut, edged by dirt tracks and foul-smelling gullies. David left the countryside because of family breakdown and because he was unable to feed his children. When he got to Nairobi, however, his life was no better. His saviour was, in fact, a cash-transfer project being run by Concern Worldwide and Oxfam. David’s dream is now to own a piece of land to provide for his family. I could not help but think that if the right type of support had been provided to him and his rural community when it was needed, perhaps he and his family would not be trapped in the Nairobi slum in which they are today.
For millions of Africans, food security is not a fancy concept—it is a matter of life and death. I urge the Minister to do all that he can to address the challenge facing Africa and to use the UK’s position as a world leader in overseas development assistance to ensure that this decade is the one when we really make a difference.
I congratulate my colleague, the hon. Member for Lewisham East (Heidi Alexander), on securing the debate. I also congratulate her on her speech, which outlined the reasons why investment in smallholder farming underpins many of our country’s development goals and why greater investment in agriculture could yield much wider benefits.
At my last “meet your MP” public meeting in my constituency, I was asked why we are spending so much money on foreign aid when our own country’s financial plight seems so dire. The answer is quite simple: foreign aid not only brings untold benefits to the recipient country and its people—when we do it right—and untold long-term benefits to our own economy and country, but produces a sustainable, stable foreign country that helps and grows itself, which in turn helps to make a safer and more secure world.
I want to expand on my comment about “when we do it right”, because the hon. Lady highlighted several charities and non-governmental organisations that do some fabulous work in Kenya. I must also declare an interest, because on our trip to Kenya with the all-party group on agriculture and food for development, we saw not only the excellent examples to which she referred, but the fact that it is not always necessary to spend great deals of money to implement a change for the better. In the smallholder farming stakes, we saw an excellent project in Mwingi, where Farm Africa is doing some fantastic work with the cross-breeding of goats. We were told that a local goat produced a mere 80 ml of milk a day, but if it is cross-bred with one of the stronger breeds of goat, such as a British variety of goat or a German Alpine goat, it produces up to a litre of milk a day. If that cross-breed is then cross-bred further to 75%—that is a goat that is 75% of the stronger foreign goat and 25% of the local goat—the yield of milk goes up to a staggering 3 litres a day.
When that simple, low-cost exercise is carried out by local farmers, it helps them to become much more sustainable within the food chain, because they can sell their milk to hospitals for money that they can use to buy a variety of food to achieve a balanced diet. Furthermore, the resulting milk has tremendous effects by improving the nutrition of newborn children, and indeed their mothers. It is a real “win-win” situation, whereby a low-cost project empowers local people to strive towards sustainability and, eventually, to excel and become sustainable.
Our Government have a huge vested interest in the big society. We need look no further than British NGOs and charities to see examples of organisations that are living and breathing the big society on a daily basis. Through their volunteer programmes, they empower the people with whom they work to map out their own sustainable futures. The power, innovation, leadership and enterprise of our NGOs are absolutely second to none. The NGOs deliver with passion and genuine innovation for smallholder success, without the corruption and self-interest that we often see in national Governments. They are good at mapping out a sustainable future for smallholder farmers but they need help, both from ourselves and our partners.
For the first time in two generations, Africa has a real opportunity to achieve food and nutrition security through agricultural development. As the hon. Lady mentioned, the Montpellier report was published recently. It shows that, despite the fact that the international donor community started to pull out of agricultural development well over two decades ago, there is growing optimism in sub-Saharan Africa that the region can achieve its anticipated green goals.
Food security is a key intermediary outcome in the development process and we have seen a new and growing commitment from African countries to increase resources for agriculture and rural development to at least 10% of national budgets within five years. The challenge for our country, and indeed for our European partners, is how to help to co-ordinate those strategies and how to help to ensure that the momentum is sustained in terms of even greater commitment and funding by the key African and European partners.
The Montpellier report believes that we are well placed to take the lead and drive forward that change. It highlights three key areas that need urgent attention: sustaining the momentum, as I have already mentioned; reducing price volatility; and tackling chronic hunger. My main wish is that the Minister accepts the Montpellier report as a solid blueprint for real sustainable change and that the recommendations in the report, as well as the excellent work of our NGOs and charities in agriculture in particular, are incorporated within our aid programme to help eradicate chronic hunger in Africa for good.
One of the basic requirements in life is food. If we can drive forward our quest to empower people to become self-sustainable with food, the human instinct to survive, along with our aid to empower potential, will ensure that other basic requirements, such as education, health care and housing, will follow. It does not take a rocket scientist to understand that the key catalyst to a safer and more secure world is investment in agricultural development and food sustainability.
I want to start by congratulating the hon. Member for Lewisham East (Heidi Alexander) on securing this debate on a very important subject, and on the powerful and passionate way in which she presented her argument. She also presented the context for any debate on food security, recognising the enormous range of challenges, of which food security is one. The question is how we achieve the critical balance between determining what will be most effective, and what will have most impact in assisting Britain to partner countries to help them graduate away from aid over time, simultaneously meeting the needs of the very poorest people in those countries.
I was delighted that both the hon. Lady and my hon. Friend the Member for Calder Valley (Craig Whittaker) had an opportunity to travel to Kenya with the all-party group on agriculture and food for development—there is no substitute for seeing things for oneself in order to bring these issues to life. To some degree, I have seen these things for myself, as I was born in Tanzania and partly raised and educated in Kenya. The scale of this issue is immense. More than 200 million people in Africa—more than one in four of the continent’s population—suffer chronic hunger. Although Nigeria, Ghana, Rwanda and Ethiopia have all made significant progress in reducing hunger, many countries have made little or no progress and, frankly, some are going backwards. Levels of hunger in the Democratic Republic of the Congo have nearly trebled since 1990, and the levels in Burundi, Botswana, Swaziland, Zambia and Gambia have also increased due to conflict, rapid population growth, economic stagnation or HIV/AIDS. In the years to come, climate change and the scarcity of natural resources will add to the challenge.
The Government are determined to make faster progress in helping to reduce hunger. That is why, at the millennium development goals summit in September, we reaffirmed our determination to tackle malnutrition and to focus our efforts on “the first 1,000 days”—the period from conception until a child’s second birthday—after which intellectual and physical damage from chronic under-nutrition is irreversible.
In doing so, we agreed to work with six major donors to co-ordinate and accelerate our work in countries with high levels of malnutrition. Ghana, Malawi and Uganda are among the first countries to request assistance to reduce under-nutrition rates, which will please the hon. Lady as she referred to a very good example of this type of work in Malawi. It is also why, soon after taking office, the Government reaffirmed our commitment to the L’Aquila food security initiative, which was agreed at the G8 summit in 2009. The agreement aims to increase food production in developing countries, make food more affordable for the poorest and most vulnerable, create wealth and lift the poor out of poverty.
The hon. Lady asked how much of the £1.1 billion in L’Aquila commitments have been spent so far. Although that figure is not yet available, we will certainly write to her as soon as it is. However, I can tell her with confidence that the UK will have met its commitments, which I hope reassures her. Within the G20, we have committed to improving food security by making agricultural trade and markets function more effectively and reducing food price volatility in order to protect those most vulnerable to food price increases.
I am grateful to the Minister for giving way, and I congratulate the hon. Member for Lewisham East (Heidi Alexander) on securing this debate. Does the Minister agree that one of the most important things that can be done for food security is to improve food storage facilities? On the ground, I have seen food go to waste many times simply because appropriate food storage was lacking.
I defer to my hon. Friend’s experience and expertise in such matters, as he has shown great commitment to them over the years. He is right. No supply chain can be managed without the ability to store foodstuffs and distribution points that make it accessible, particularly to the hardest to reach. He is right to emphasise that we should consider a well-designed, holistic approach to solving the big challenge.
I would like to bring to the Minister’s attention a fantastic resource in this country, the Natural Resources Institute, which I was lucky enough to visit during the past couple of weeks. Its researchers are working on technical solutions to some of those storage problems. I urge him to look into the work the institute is doing, as it holds some good potential solutions.
The hon. Lady is right to highlight that. There is nothing more important than an evidence base and designing in what works to ensure that the programmes and resources being supplied in partnership to other countries have the greatest impact.
The point is well made. It also ties in with the hon. Lady’s question as to whether Department for International Development personnel could include more agricultural technicians and professionals. I can confirm that we currently have more than one, which will come as some relief. A newly appointed senior economist in Tanzania used to be the head of the agriculture team in the policy division, and we are in the process of recruiting senior agricultural advisers for Rwanda and Mozambique. I am due to visit Mozambique before long and have been to Rwanda and Tanzania.
Early next year, the Government will publish a major new foresight review of the future of farming and food that will consider how the world can continue to feed itself sustainably and equitably over the next 40 years. I hope that the foresight review will have the opportunity to learn from the research and support that the hon. Lady mentioned. We expect its recommendations to influence a wide range of practitioners and policy makers.
I assure the hon. Lady that we are making a difference. In Rwanda, our work on land tenure reform is helping to underpin wealth creation and food security, particularly for women and girls, who drive it. In Malawi, our support for the Government’s agriculture programme has helped farmers produce a maize surplus in each of the last four years. In Ethiopia, our support for the productive safety nets programme has benefited nearly 8 million people previously dependent on emergency aid. In South Africa, we are funding work on zero tillage technology that conserves soil, reduces water losses and improves yields. This year, our immediate assistance in response to severe food shortages in the eastern Sahel—she will have read about them—helped avert a major humanitarian crisis.
Increasingly, African Governments are giving agriculture higher priority, with support from the comprehensive African agriculture development programme, which we strongly support. The CAADP is leading to increased budget provision in the sector. Above all—I think this is the point the hon. Lady was hoping to elicit from me—it is an Africa-owned and Africa-led initiative. It aims to increase productivity by 6% a year.
As the hon. Lady knows, however, farmers do not work for this or any Government. Agriculture is a private sector activity, whether it involves subsistence farmers, smallholders—as my hon. Friend the Member for Calder Valley mentioned—or large-scale commercial farming. The bulk of the investment needed to ramp up productivity will come from the private sector: from farmers’ own pockets, from banks and micro-credit agencies and from local and national investors.
That is why the Government are seeking to increase our engagement with the private sector. A new private sector department is being created within the Department for International Development, and we are working to encourage increased levels of responsible investment in all aspects of agriculture, including production, processing, transportation and retail. That will be recognised as the results of the bilateral aid review emerge. The results on food and agriculture are much more positive than was suggested, although the hon. Lady will not be aware of that, inevitably, as we have not yet been able to aggregate and publish them. We shall do so in due course.
Food security in Africa is high among my priorities. Since taking office, I have visited Rwanda, Uganda, the Democratic Republic of the Congo, Tanzania, and Sierra Leone, and I am off to Nigeria this evening. During my visits, I have seen what a contribution agriculture makes to combating poverty and hunger. It is also hugely important for empowering women, who provide much of the agricultural labour but control just a tiny fraction of the productive assets they need to support themselves and their families. That is why we have made it such a priority.
I am pleased that the hon. Lady was able to visit Kenya as a member of the all-party parliamentary group and to see for herself something of how food security works and should work. I hope she was able to see some of the projects that DFID, under the coalition Government, supports. Much of our work aims to ensure that new agricultural technology, which she was keen to highlight, is taken up swiftly by smallholder farmers, who make a substantial contribution to food production in Africa. Our cash transfer programme for Kenyan pastoralists has reduced the poverty of 376,000 people and had a clear impact on nutrition. That relates to the point about agriculture versus nutrition, which is often a false dichotomy but must be addressed. Increasing private sector investment is clearly important, but the ultimate prize is reducing hunger and malnutrition.
I congratulate the hon. Member for Lewisham East (Heidi Alexander) on securing a debate on an issue that would have justified an hour and a half of debate, had we been given more notice. The Minister has highlighted the role that science will play in many such programmes; I am pleased that the Government safeguarded the science budget in the comprehensive spending review. How will the Department for International Development, the Department for Environment, Food and Rural Affairs and other Departments co-operate on science and consider how it can be delivered in Africa?
The hon. Gentleman makes an extremely powerful point. The commitment to science can lead to an evidence base that gives us the confidence and sustainability to design the programmes that will have the greatest impact over time. That is precisely why holding on to our precious science budget in the comprehensive spending review was so important. He makes an equally important point: this is not just about a single Department’s efforts, but must involve cross-Department working. We have a number of the inevitable committees and other initiatives. Importantly, I was talking yesterday to my counterpart at DEFRA about precisely such issues of food safety and how the expertise within DEFRA can be harnessed to ensure that the design of our programmes is even more likely to secure the impact and benefits of spending our money well, transparently and in areas of greatest need.
The hon. Lady asked for us to allocate a certain percentage to the issue. It is always more complex than calling for a simple amount within a budget to be allocated; clearly, trade-offs would have to be considered. I hope she will recognise that, as we go through the bilateral and multilateral aid review and, indeed, the humanitarian and emergency response review—coupled with the regional reviews, where there is a real opportunity to look at some regional sharing—she can look forward to seeing how we will aggregate the call for a greater emphasis on food, farming and agriculture with the nutrition elements.
I noted that the noble Lord Cameron—the leader of the all-party group on agriculture and food for development, of which the hon. Lady is a member—highlighted a particularly interesting point about Shujaaz FM radio, which I think all the team must have seen. Important evidence from such trips comes back to DFID, which we can incorporate into our thinking as we move forward, particularly as the foresight group will be reporting early next year.
I pay tribute to the hon. Lady for introducing the debate and raising the subject. I look forward to working with her and other hon. Members as we find the best way to support those concerned, particularly smallholder farmers, in playing a role in tackling hunger where it is most necessary to do so. We need to ensure that we do so on the basis of evidence and knowledge.
Government Policy (NEETs)
A number of right hon. and hon. Friends want to intervene during this debate. As I have told the Minister what I intend to say, I hope hon. Members will excuse me if I take my speech at a bit of a canter because that will, I hope, give colleagues the opportunity to intervene when they can. Given the interest in this topic, I slightly regret that I did not enter the ballot to have an hour and a half debate.
A report on young people not in education, employment or training produced earlier this year by the then Select Committee on Children, Schools and Families states:
“We accept that the term ‘NEET’ is imperfect. In particular, its use as a noun to refer to a young person can be pejorative and stigmatising. It is, however, a commonly used statistical category, and—in the absence of an appropriate alternative—we have accepted it as a first step in understanding the issues.”
A NEET is someone under 25 who is in employment for less than 16 hours a week and who is not in education or training. My constituency has two main towns, Banbury and Bicester. In September this year, 7.5% of Banbury’s 16 to 18-year-olds—approximately one in 12 young people—were not constructively engaged in education, employment or training. Nationally, the Prince’s Trust estimates that almost 15% of 16 to 24-year-olds in England are NEETs, which is around 874,000 young people. The Prince’s Trust estimates that the cost to the state of young people who are NEET is £3.65 billion per year.
As hon. Members may know, in recent years, I have helped to establish job clubs in Banbury and Bicester and, earlier this year, we set up a working party involving those running the job clubs—including Jobcentre Plus and Connexions—to consider what more could be done to help NEETs back into education, employment or training. We also considered how to improve the NEET situation in future years and assist the 142 or so existing NEETs in and around Banbury.
I know my hon. Friend the Minister takes the issue seriously. He inherited a skills system that he has rightly described as over-complicated, over-bureaucratic, incredibly micromanaged and top heavy. He has observed that the previous Government went wrong by basing their skills policy on target-driven bureaucracy, failing to provide sufficient attention to community-based adult learning and effectively abandoning a generation of NEETs. However, during the work I have been doing this year, I have become concerned that a number of policy changes might have the unintended consequence of worsening the opportunities for less skilled and disadvantaged young people to move into further education or employment with training.
We need to consider whether returning the contractual relationship to the Young People’s Learning Agency from councils has reduced local flexibility to provide what is needed post-16, and whether removing the ring fence from Connexions funding has put at risk the work needed to prevent NEETs. It is not possible for me to show in Hansard a diagram of what we are doing locally to try to prevent NEETs and to help existing NEETs. However, the simple fact is that Connexions is the gateway for existing NEETs and provides the signposting, engagement and intervention to help them. That is done through support with apprenticeships, engagement with things such as SKIDZ motor mechanics, work trials, personal advice, interventions, or through programmes such as the new projects in Banbury, including the very welcome new Prince’s Trust programme. We need to ensure that Connexions can effectively undertake that work, because we should be in no doubt that the long-term cost to society of a youngster dropping out at 16, 17 or 18 is far greater than the money that would be spent in ensuring they have educational or training opportunities.
I am certainly grateful for the debate. The comments my hon. Friend makes about the costs are absolutely on point. I am sure he is well aware that the cost to the taxpayer is £97,000 per individual over their lifetime—some estimates put the figure at £300,000 if benefits are included. Does he therefore agree that such figures need to be borne in mind when the Government consider how to resolve this intractable problem?
I congratulate my fellow Oxfordshire MP on securing this important debate and on the initiatives he is pursuing in our area—I would certainly be pleased to support such projects. Does he agree that what these young people most need is continuing support in the form of advice, mentoring and the monitoring of progress? They need ongoing engagement with work-focused practical experience that can lead to a job, and some modest incentives to reward their progress.
I entirely agree with everything the right hon. Gentleman has said; he puts the matter in a nutshell very well. Do the current targets for retention rates on courses for further education colleges mean that they may be tempted to turn away applicants with poor school attendance records? That would effectively write off the already disadvantaged, and potentially create a group of long-term disengaged and unemployed young people with little possibility of improving their position. My impression is that, locally, people are working very hard to try to engage NEETs and get them back into education or training. However, that is not easy. By definition, NEETs have mostly decided to opt out or they have other difficulties—although it is important to recognise that young people who are NEET are not a homogenous group with the same issues, and that they are not even necessarily at the same stage of disengagement.
We also need to recognise that some groups of youngsters clearly have particular challenges. Mencap has sent me a copy of the detailed submission that it made last December to the Children, Schools and Families Committee. In that document, it makes the point that three in every 10 disabled young people aged 19 are NEET, and that a youth cohort study found that young people who recorded themselves as having a health problem or disability are twice as likely to be NEET as others.
When a young person is without or not in education, employment or training they require—as the right hon. Member for Oxford East (Mr Smith) said—support in many different ways. Of course, ultimately that support may have little impact if an appropriate offer of employment or training is not available. I am concerned that the present system to provide further education perhaps does not provide a favourable environment for this group of young people. There seems to be a fundamental policy problem. If I understand matters correctly, that problem is money. Each youngster who stays on in school or goes to an FE college takes with them a pot of money by staying on at school or college to do A-levels or other training—their place gets funded. A NEET has effectively opted out of the system and receives no funding. Any organisation set up by the local authority or by anyone else to help NEETs get back into education or training also does not receive any funding. Those with the greatest need receive no funding and those trying to help them are left scrabbling around to find funding elsewhere. It might be worth considering some sort of system of NEET vouchers, so that if a youngster who is a NEET undertakes approved activity or enrols in an appropriate course, that activity or course receives some funding. Otherwise, it is difficult to see how we will break out of this NEET Catch-22.
It goes without saying that we need a name for programmes supporting NEETs that is sympathetic and has an overall project title—“Dealing with NEETs” clearly does not do it. We need a name such as “Youth Engagement,” and the subject needs a brand. There will be those who say that one of the reasons why there are NEETs is that such people feel that they will not find a job. However, there is something of a chicken-and-egg issue here. The Prince’s Trust has observed that the first concern for disadvantaged young people is often their need for money and a job, and the skills they want are those they need to give them a practical route to employment.
The Chartered Institute of Personnel and Development has observed that, despite financial difficulties and a reduction in vacancies, the majority of organisations remain enthusiastic about recruiting new talent. However, many organisations that require specific skills find that those are not being met by job candidates. The CIPD’s recruitment, retention and turnover survey of this year found that two thirds of organisations report that a lack of necessary skills is a barrier to recruitment. It also found that a lack of necessary specialist skills was a greater problem for the manufacturing and production professions—76% of that group—than any other. If young people do not acquire skills, the reality is that they are unlikely to be able to access jobs.
Does my hon. Friend agree with me that the Government’s recent decision to add 50,000 apprenticeship places this year, and hopefully more next year, is a step forward regarding some of the issues he is talking about? Moreover, the Government are committed to moving away from programme apprenticeships, in which most of a young person’s time is spent in the classroom, towards work-based apprenticeships, which are based around the workplace.
Although the increase in apprenticeships is extremely welcome, in many areas, including my constituency, one of the problems is finding enough employers who will commit to them. Does the hon. Gentleman agree that further education colleges should be given more licence to start apprenticeship programmes, with a view to finding employers perhaps after one or two years?
Employers are crucial to apprenticeships, and we all have a duty to encourage employers in our constituencies to take on apprenticeships. Those who engage with apprenticeships realise that it is actually a really rewarding thing to do. That has been demonstrated by a number of employers in my constituency who have taken on apprenticeships as a consequence of their involvement with the Banbury and Bicester job clubs.
As it happens, a number of substantial construction projects are about to start in north Oxfordshire, and I suspect that it would be daft for the developers to rush to recruit people from eastern Europe when they start to run into skills shortages. It must be sensible to liaise with those doing the construction and development work locally, so that they consider the extent to which they would be prepared to work collaboratively with the local FE college, Oxford and Cherwell Valley college, the Construction Industry Training Board and others. By encouraging young people training in the construction industry, they can start to grow locally some of the skills they will need.
I also understand that the bizarre situation exists whereby youngsters, once they have completed their construction skills training, are required to buy a certificate demonstrating they have the necessary competences, which costs about £200, but if they are under 18 Jobcentre Plus cannot fund that. It is slightly bizarre that young people who have acquired skills are unable to demonstrate that because they cannot afford the necessary certificate.
I am glad to say that in Banbury, with the support of Cherwell district council and the national affordable housing programme, we are staring a self-build scheme at Miller road for young people who are NEET. The scheme is unique in providing a blend of education and learning opportunities, to level 1 diploma standard, in construction for approximately 20 NEET young people so that they can improve their employment prospects and life skills development. When the houses are built, the young people will be re-housed in the completed scheme. It is hoped that that pilot project will demonstrate a model that can be replicated on other affordable housing developments. There are several partners in the scheme, including Cherwell district council, Sanctuary housing association, Southwark Habitat for Humanity, Oxford and Cherwell Valley college, Connexions and the children, young people and families services at Oxfordshire county council. The college has designed a bespoke course to meet the requirements of the scheme and is in the process of recruiting young people to the course. The intention is that work will start this month.
In short, that new affordable housing scheme will provide 10 rented units for young people, who will all participate in the building process and receive training from the FE college, leading to a level 1 diploma in construction, and 20 young people, NEETs, will be involved in the building process. I am sure we would have no difficulty in filling more such construction apprenticeships, and there are other successful initiatives, such as SKIDZ, which encourages youngsters to learn motor mechanic skills that are now extremely difficult to fund.
There is clearly a need to keep NEETs engaged. They are often youngsters who, for all sorts of reasons, did not enjoy school or who do not want to try something new simply for fear of failing. As I understand it, Jobcentre Plus and Connexions run a red, amber and green coding system for NEETs: green is for those who are engaged and want to move forward, and red is for those who have simply dropped out. The predominant colour in my patch appears to be amber, verging on red, which suggests that for those who stay engaged there ought to be some incentive, such as the possibility of outward-bound adventure training, or even free swimming. They are young people, and research shows that if a youngster drops out as a NEET, over their lifetime in various ways they are each likely to cost the state and state agencies £1 million.
I thank my hon. Friend for giving way—putting an amber light on his pacy speech—and congratulate him on securing the debate. Last week, I was honoured to be invited to present the school awards for Moor End technology college at Huddersfield town hall. The school has faced many challenges in recent years. For example, 27 different languages are spoken among its pupils. What really stood out was that the head teacher, Jane Acklam, who provides inspirational leadership, was proud to tell me that only one of the 150 pupils who left the school last year is currently a NEET. Does my hon. Friend think there would be any value in keeping such statistics coming, so that schools can retain some interest in what happens to the children after they leave at 16? That would bring an added motivation and could then link in with the colleges and the wonderful schemes he has mentioned.
The right hon. Member for Oxford East made the point that young people need support, and hopefully they will receive that from their schools during their school careers, but youngsters become NEETs for all sorts of different reasons. Time has prevented me from giving details—I have given them to the Minister—of young people in my constituency who are NEET for all sorts of reasons. They can be young mums, or they might have become offenders when they were younger. The reasons are not necessarily the result of the school’s failure, but the fact is that a combination of different factors has caused them to disengage.
Skelmersdale and Ormskirk college in my constituency is seen as an example of best practice. It offers very flexible programmes for NEETs, starting with early interventions for 14 to 16-year-olds. The point I really want to make is that the college might very well be penalised for its investment in its NEETs programme by disinvestment in the county council and by the Government’s employment and support allowance regulations.
The point I made earlier, which I hope the hon. Lady heard, was that we must between us work out how NEETs who have dropped out get funded back into the system. There is a double whammy, because they have dropped out and are not getting money, so the organisations that are helping them have to find money from somewhere else, which is often difficult. That is the challenge for us all.
In north Oxfordshire, we are grateful that programmes such as that run by the Prince’s Trust are now getting involved locally. That programme will take 12 16 to 24-year-old NEETs through an intensive 12-week course, but funding has to be found locally to support the initiative. That is additional funding that we have to find from somewhere. If that is the situation in a constituency such as mine, and if we are looking at anything like one in 12 youngsters becoming NEETs, nationally that is a truly serious issue. We have to find a better and, I suggest, more positive description for that group of young people. We have to recognise that, by definition, they will be youngsters who will need encouragement and support. They will not necessarily always want to undertake mainstream activities. Indeed, they might find accessing colleges and courses difficult.
Yes, and the more one can engage youngsters in school, the better. Indeed, many of the schools in Banbury already involve youngsters not only in work experience, but, where appropriate, in programmes such as SKIDZ, because they want to keep them engaged.
There are clearly a number of pieces of the jigsaw that we have to get right. They include Connexions and its ability to support youngsters, and apprenticeships, as has been said. My understanding is that the Government want one in five school leavers to become apprentices by 2020, so we need to do more to encourage employers to provide opportunities, particularly in those areas where youngsters particularly want to work, such as construction. The Select Committee made the following observation in its report earlier this year:
“We recognise that future solutions to reduce the proportion of young people not in education, employment or training will have to be more cost-effective and will require efficient joined-up working at local level.”
In Cherwell and Oxfordshire, we are doing everything possible to ensure that there is joined-up working at local level. We all recognise the financial challenges that every sector faces, but clearly it is doubly hard to help young people if they are NEET and therefore receive no funding. With the Banbury and Bicester job clubs, we have made it clear that we want to do everything we can to support people in our community while they are out of work, and help them back into the world of work as speedily as possible. The desire to give that support applies just as equally to youngsters who are NEET.
However, there are some policy issues that need to be resolved if we are to make the progress that we should like. I appreciate that my hon. Friend the Minister inherited some skills and training structures that he clearly believes are flawed, and we are fortunate that his present ministerial post is the one he shadowed extremely ably for a number of years. Many Members are keen to know about the Government’s overall approach in trying to ensure that a far smaller percentage of youngsters between 16 and 24 are not in education, employment or training.
As ever, it is a pleasure to serve under your chairmanship, Mr Chope. It is a particular delight to respond to this debate, secured by my hon. Friend the Member for Banbury (Tony Baldry), who I know cares deeply about such matters. I make it clear that I share his doubts about the label “NEETs”. For some reason, young people seem perpetually prone to being pigeonholed in unhelpful ways—from mods and rockers to hoodies. Of course such terms do not reflect reality and therefore do not do people justice. There is no such thing as a typical NEET; there are different groups of young people with particular kinds of challenges, different circumstances and different needs. As my hon. Friend said, it follows that we will be more effective in dealing with the problems and challenges they face if we have the flexibility to draw on a range of different options and build on best practice.
I intend, in the course of the all too short time that I have, to make nine points of substance and then move to an exciting peroration. My hon. Friend will forgive me if I rattle through those points, but I hope they are relevant to him. Along the way, I will attempt to answer some of the particular issues that he raised. Next week—I know that you, Mr Chope, and the whole Chamber, are waiting with bated breath—we will publish our skills strategy, which will set out the direction we intend to take regarding the funding and management of skills. It will be radically different from the assumptions that have underpinned policy over recent years, and will challenge much of the orthodoxy upon which that policy was based.
Let me deal with one point at the very beginning. I have asked officials to look at the issue regarding certification, which my hon. Friend raised. I agree that it does not seem appropriate—it is anomalous to say the least. We will look at that closely and deal with it.
The young people whom my hon. Friend mentioned, and those whom I meet, have ambition. They want to get on with their lives, and they recognise that learning can help them make something of themselves and can make them objects of admiration and respect. By attaining skills through learning, people gain a sense of value and are recognised by others as having worth. We believe that and care about it, and we will adopt policies that will enable young people to gain that sense of value. The investment we make in young people is our gift to future generations.
I do not doubt that the previous Government cared about such matters too—no party in this place has a monopoly on wisdom, and certainly not on compassion. The matter is one that understandably generates strong sentiment, and sentiment is not something we should disregard in politics; we are not dull utilitarians, are we? None the less, there were real problems with past policy. Many millions have been spent on a bewildering succession of schemes, but to what effect? At the last count, some 874,000 young people between the ages of 16 and 24 —or about one in seven—were not in any form of education, training or work. For a nation that cares about fairness and opportunity and about its own future, that is simply unacceptable.
Let me move to my nine points. The first is that we will certainly take a close look at job clubs such as those in Banbury and Bicester. They are good examples of what can be achieved by local people using prudent public investment, drawing together industry, local government, community groups and charitable organisations. I have discussed the matter with my hon. Friend, and I know they are examples that can be followed. I have asked my officials to look at them to see what can be done to share that good practice.
The second point is again implicit in my hon. Friend’s analysis. We need a more holistic approach to the way we deal with the problem of such young people. It ranges from the circumstances at school and their prior attainment, to family circumstances and the particular physical or mental health issues they may face, to simple matters of confidence born of inadequate skills—a lack of confidence that is inevitable for those who have poor literacy and numeracy skills. However, it is not as simple as that—indeed, it is not simple at all—which is why we need the joined-up approach that I think has been lacking in the past.
Thirdly, we also need to link the issue closely to our benefit reforms. I am speaking to the Department for Work and Pensions about those matters, and I assure my hon. Friend that part of the discussion is about funding. He made a good point about such people carrying funding with them and therefore being attractive to learning providers. We are on the case, and we will look once again next week—I do not want to give away any secrets—at the principles of learning accounts and the part they can play in driving the system through learner choice and employer need. I am mindful of those who are moving from disengagement to engagement in those terms.
There is certainly an attraction to that approach. South Devon college, in my constituency, goes out on to the streets to where the NEETs are to find them. It is a win-win situation. I think we need to go out to get them rather than waiting for them to come to us, which is the point the Minister is making.
My failure to respond to that point has nothing to do with its salience but with the time I have available. I will certainly take the matter up with my hon. Friend; it is a well-made argument.
The fourth point is about careers guidance. We need, as my hon. Friend the Member for Banbury said, to give such people the right advice and guidance. We will be launching an all-age careers service, which I spoke about last week in Belfast. Those who are interested may have a copy of my speech; those who are very interested can have a signed copy.
The fifth point is that raised by the right hon. Member for Oxford East (Mr Smith) about pre-apprenticeship training. As others have said, it is about getting people to the point where they can enjoy more formal training by the skills they acquire early on. We need a continuum of training, and I am working on that, too. However, it has to be progressive. I have said to the DWP that the offer must be authentic in terms of training and skills, and progressive—it must lead to further learning that makes people more employable, and then takes them into work.
The sixth point is the need for early intervention. When dealing with such multi-faceted problems, we need to look at disadvantage; let us be frank about that. It means using the pupil premium, announced by the new Government, in the most imaginative, creative and productive way possible, and seeing how that can leverage real outcomes for people’s subsequent progress in learning and work.
My seventh point is that the Government made a big commitment in the comprehensive spending review not just on apprenticeships, about which I will say a little more in a moment, but on community learning. Adult and community learning was protected in the CSR. I am passionate about the fact that there are different routes into learning. Some of them are informal and others formal, but we must not take the view that there is only one ladder to climb. People will return to learning, and people with a poor history in their prior experience will need a gentle approach. Small, bite-sized chunks of learning, highly accessible, very attractive and often linked to practical competencies can often be the way forward. That is why we protected both the basic skills and the adult and community learning budgets in the CSR.
Eighthly, I have already mentioned apprenticeships. I do not want to trumpet the Government’s achievements in that respect. People are right: we will need to get employers involved, which is why we sent out tens of thousands of letters last week to small businesses to get them involved in an apprenticeship programme and to back the £250 million we have put in, with a view to creating not just 50,000, or 60,000 but 75,000 more apprenticeships, which is more apprenticeships than we have ever had in Britain.
Ninth and finally, we certainly need to give institutions more flexibility. We need to make the system more responsive to the needs of such young people, and generally. A more dynamic and responsive system, shaped around employer need and driven by learning choice, can deliver the skills the country needs, and it can also change lives by changing life chances.
As a result of the initiative of my hon. Friend the Member for Banbury in securing the debate, I have done three things. First, I have asked my Department to develop a cross-departmental strategy to deal with the NEETs problem. Secondly, I am looking at simplifying the funding process for accessing the right money to run community-led projects to address NEET issues. Finally, in particular, I have asked officials to see what we can learn from job clubs in north Oxfordshire.
The issue is about the value we place on individual lives, and the value we place, too, on social mobility, social justice and social cohesion. When each feels valued, all feel valued. It is about building the big society from the bottom up—a brighter Britain where lives are illuminated by the power of learning, and a bigger Britain where all have their chance to grow.
Question put and agreed to.