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Funeral Plans: Regulation

Volume 661: debated on Wednesday 5 June 2019

Motion made, and Question proposed, That this House do now adjourn.—(Amanda Milling.)

I am grateful to you, Mr Deputy Speaker, and to Mr Speaker for granting me this opportunity to raise the important issue of funeral plan regulation again in the House. Much has changed since the last time I brought a debate on funeral plan regulation to the Chamber. I will go into more detail regarding what has happened in the industry shortly, but first I want to explain why this is such an important issue and why action is so important.

Pre-paid funeral plans allow consumers to save for a funeral. If they are sold and handled appropriately, they are a good thing. They allow people to purchase a funeral and secure it at today’s prices. They can avoid the double-whammy shock of losing a loved one and dealing with the financial consequences of a funeral at the same time. Alongside appropriate regulation of the funeral industry itself and the wider anti-poverty work that is required, funeral plans are the best route to avoiding funeral poverty.

I proposed a ten-minute rule Bill in December 2016, as I want to see better regulation of this market. The debate in 2016 followed a report from Citizens Advice Scotland that same year, commissioned by the Scottish Government, on funeral poverty. It made a series of recommendations regarding the action required to stop funeral poverty. Many of them were devolved responsibilities that are now being pursued by the Scottish Government, but some were issues reserved to Westminster, including this one of the regulation of funeral plans. That report, with its case studies of people being mis-sold funeral plans, and representations made to me by constituents prompted me to ask this Government whether they should be doing more. According to UK Government figures, about 200,000 funeral plans are sold each year, and I expect that figure to continue to rise.

Mr Deputy Speaker, I did seek the hon. Gentleman’s permission beforehand, so I have done this the right way.

I congratulate the hon. Gentleman, who so often brings to an Adjournment debate many important political issues that we are all involved in and which I am aware of as well. I know of many people who immediately began a funeral payment policy when they retired, yet this has proved to be a negative move for many families. Does the hon. Gentleman agree that, while it is admirable that 95% of funeral plan providers are signed up to regulation by the Funeral Planning Authority, the fact that this is completely self-regulated takes some of the sting out of the tail? I believe there is also a role for the Government to play, perhaps in stronger legislation to protect the elderly and the vulnerable from being taken advantage of as they come towards the end of their life.

I thank the hon. Gentleman for his intervention, and it would not be an Adjournment debate without his intervening.

The hon. Gentleman raises an important issue, which is the current status of the Funeral Planning Authority, which I will come on to discuss in greater detail in my speech. He is right that it is a voluntary body at the moment, and there has been much debate about whether the best route of regulating this market is through putting the FPA on a statutory footing or through Financial Conduct Authority regulation. The Government appear to be looking at FCA regulation, which I am happy enough with, although I do have some concerns about the direction of travel, which I will ask the Minister to look at. The hon. Gentleman is right. At the moment, the FPA perhaps does not have the teeth to regulate the market properly. It would acknowledge that although it has done a great deal of work in this area since my ten-minute rule Bill was introduced, if it were to have a full suite of powers to regulate the market properly, that would require it to become a statutory body.

The hon. Member for Strangford (Jim Shannon) is right. My hon. Friend the Member for Airdrie and Shotts (Neil Gray) brings a great number of important issues to the Chamber, and this is one on which he has spoken many times. He will be pleased to know that this week I heard from a local family-run funeral service in my constituency, who expressed support for the Treasury proposals and for enhanced consumer protection. He made the point that most funeral firms, as we know from the Treasury proposals, are small and micro businesses. He is concerned, given that the majority of funerals are delivered by those businesses, that such businesses could be at competitive disadvantage compared with larger providers and threatened by the cost of FCA regulations. What are my hon. Friend’s thoughts on that?

I am well aware of that family-run business, and I share its concerns. My hon. Friend speaks well for them, and it is a point that I wish to make. How do the Government protect competition in the market to make sure that smaller funeral providers and funeral plan providers are not squeezed out of the market by the burden of FCA regulation? Of all the criticisms of the route that the Government have chosen, that is the one that is expressed most keenly by people in the market.

Given the number of funeral plans that have been sold in recent years and the growth in the sector, it is critical that we get the regulation right and ensure that consumers are protected. The Citizens Advice report published a few years ago gave examples of mis-selling—people were promised particular aspects of a funeral, but when the plan was redeemed they were told that that was not part of the deal. Particular cars, coffins or flowers that were chosen for sentimental reasons, for example, were not delivered, although people thought they had paid for them. There have been widespread reports of bad sales practices such as cold calling, aggressive selling and the targeting of vulnerable customers.

Since I introduced my ten-minute rule Bill, which proposed the areas of regulation that the Government now appear to have adopted, a significant amount of change has taken place in the market. The FPA, as I have said, has taken great steps to reform its practices as a voluntary market regulator, and it suggests that 95% of the market has signed up to its regulatory model. There have been great moves across the market to reform practices, including by plan providers themselves. Some of them are moving away from the third-party selling model that appeared to be problematic and was part of the 5% issue that concerns us all. I am pleased that my Bill proposal, which was intended to spark debate and action for change, has led to that progress. I am grateful to the Minister for taking action.

I thank the hon. Gentleman for introducing the debate on a subject that is close to my heart. I met him, the hon. Member for Strangford (Jim Shannon) and other Members attending this debate to form a working party, and we intend to consider how we support the Government in looking at environmental funerals, funeral plans and the social fund. While I welcome the Government’s announcement, does the hon. Member for Airdrie and Shotts (Neil Gray) agree that we need to look at the small percentage of funeral plans that are not covered by the FPA? In that two-year window, there is an opportunity for people who can least afford to pay exorbitant fees to be exploited.

I thank the hon. Lady, who is a doughty campaigner in this area, for her intervention. It should go without saying that she has done a great deal, particularly on children’s funerals, and I commend her for her work. She is absolutely right. There is a potential gap, with the two or three-year transition period the Government propose, before moving to FCA regulation. I will turn to my concerns about that in due course, but she is absolutely right to raise the issue and I look forward to continuing to work with her in this area to try to drive the changes we want.

I am pleased that my Bill proposal, which was intended to spark debate and action for change, has started that progress. I commend the Minister in particular. I am grateful that the Government are taking this issue seriously enough to consult on funeral plan regulation and are now proposing moving to a model of FCA regulation. A consultation is now under way until August on what the Government now propose to do in this area. I am grateful to the Minister and to some of his colleagues who also wish to see change and have supported my work, such as the hon. Member for Southend West (Sir David Amess), but I do have some concerns about the direction of travel that I am sure the Minister will be able to answer.

There should be some clear benefits to moving to FCA regulation, such as access to the Financial Ombudsman Service for those who have complaints about the products they have received, but it is not yet clear whether consumers who have a dispute over a funeral plan product will be able to access the financial services compensation scheme.

I congratulate the hon. Gentleman on securing the debate and, more importantly, on his Bill. Has he noticed how funeral costs and some of the practices that go on in the industry are now being highlighted in the press? Does he not agree that there should be a good look at costs in more depth? Very often, bereaved families feel ashamed to raise the question of cost, because there is the matter of pride.

I absolutely agree with the hon. Gentleman, who raises an important issue. He might be aware that the Scottish Government are doing some work in this regard to set up a funerals regulator, part of which will be looking at the practices of funeral directors. I believe—I will turn to this in my speech—that that is probably what the Competition and Markets Authority investigation will be looking at, too. It is also right to acknowledge that many family-run funeral directors are linchpins of their communities. Some take on great burdens, acknowledging the hardships their customers are going through. It is right that we acknowledge that, while also accepting that there are some in the market who are not perhaps operating to the qualities that we would hope and expect to see.

On the financial services compensation scheme issue, I hope the Minister will be able to clarify in his response whether he envisages this particular model of regulation covering the financial services compensation scheme.

I am also concerned that although the Government appear very keen to move forward to a different regulatory model, as they have accepted there is a problem, they have not, in their own work, quantified the consumer detriment in the market. There was clearly a problem identified by Citizens Advice Scotland researchers in 2016, but to what extent has that problem been improved or exacerbated? The Government need to do a bit more work to update the findings of the Citizens Advice Scotland report and also the “Fairer Finance” report that followed my 10-minute rule Bill. It is clear that there are still issues in the market that need to be addressed, but I think the Minister must agree that it is for the Government now to quantify what they are so that the FCA is clear as to its remit and focus.

There also needs to be greater clarity on the likely three-year wait for changes to take effect. First of all, what happens with regulation in the interim, as there will be no incentive for those currently signed up to the voluntary scheme to carry on engaging? There certainly will not be an incentive for those outside FPA regulation—those we really wish to target in whatever model of regulation we bring forward—to come on board. What assurances can the Minister give about what the market will look like and how it will behave during the three-year wait until the FCA fully takes up responsibility for the market? Will the Minister say how many firms will be regulated under the scheme? The Treasury’s consultation document accepts that there will be consolidation in the market, as my hon. Friend the Member for Livingston (Hannah Bardell) suggested. In other words, there will be fewer companies offering these services because of the burden of FCA regulation. Has the Minister assessed whether he feels this model would continue to provide appropriate competition in the market for the consumer? Of course, the Competition and Markets Authority has been critical of some bigger funeral companies for inflated funeral costs, yet this move may give an even bigger market share to those same companies.

I do not have a crystal ball or any insider knowledge, but I fully expect the CMA to follow the Scottish Government’s lead by recommending a funeral regulator, which will look after the funeral director industry and probably some of the at-need market. That means we will be left either with a bit of a crossover in regulation or blurred lines as to who will have overall regulatory responsibility. Perhaps the Minister can clarify how he sees the regulatory environment working when both these areas are established.

In conclusion, for the last three years I have been working across this House, with the funeral plan market and with campaigning organisations to ensure that consumers are protected from being ripped off when they are perhaps at their most vulnerable. I want to see a system of regulation that stops the outrageous practices that we have had reports of in recent years, and I want to see consumer confidence so that there is a greater uptake of funeral plans to avoid the growing problem of funeral poverty.

I am greatly heartened by the Government’s acknowledging that they share my concerns and have effectively taken on my ten-minute rule Bill. I thank the Minister and his officials for what they have done to date, but I hope he will also accept that there is a great deal of work still to do and many questions to answer. Above all else, we have to ensure that the regulatory system in place for this critical industry gets it right for consumers. That means ensuring that we have consumer protection from cold calling, greater transparency in pricing, greater transparency in the products on offer and a better link between some plan providers and the funeral directors. There needs to be greater recourse to pursue complaints and to be compensated when things go wrong.

I am not particularly bothered about who from which body has responsibility for the regulation at the end of the day. I just want to make sure that it is right and that it stops people being ripped off and funeral poverty being exacerbated. We must therefore look at where problems remain with similar issues in the over-50s plan market, which is under FCA regulation, and learn lessons for funeral plan regulation.

Thank you again, Mr Speaker, for granting this debate. I want to know from the Minister that the FCA will always see this area as a priority and that he is alive to the concerns I have expressed this evening, while accepting my thanks for pursuing this matter in the way he has.

I congratulate the hon. Member for Airdrie and Shotts (Neil Gray) on securing this debate, and I thank him for all the work that he has done on this topic with his colleagues. I hope that today marks a significant moment, following the excellent work that he has undertaken. I acknowledge the ambiguities that exist at this time. Although I will try to address a number of them in my response, I invite him to meet me and officials to go through them in detail so that we can fully absorb his concerns.

I also acknowledge the work that has been undertaken by other Members who have spoken in the debate, including, in particular, that done by the hon. Member for Swansea East (Carolyn Harris), who has an ongoing interest in this topic. I mention particularly the work that she has done with the children’s funeral fund. I hope that her Adjournment debate on 1 May, with the Under-Secretary of State for Justice, my hon. Friend the Member for Charnwood (Edward Argar), was of assistance.

On Sunday, I launched a consultation that outlines the Government’s proposal to bring all funeral plan providers within the remit of the Financial Conduct Authority. I will take this opportunity to outline the rationale behind that announcement and do my best to respond to the questions that have been raised.

Sadly, many of us in the Chamber will have had to plan a funeral for a loved one. It is a difficult, emotional and expensive experience, with an average funeral costing between £4,000 and £6,000. For the last 14 years, funeral costs have been rising at twice the rate of inflation—about 6% per annum—so it is understandable that people wish to make some of the arrangements in advance, giving them the peace of mind that their loved ones will not be left with difficult decisions or a large bill after they have passed on. Funeral plans allow people to make these arrangements, to pay for their funeral in advance and to lock in a price. The market for funeral plans has grown considerably in recent years, with sales rising by nearly 200% between 2006 and 2018. Almost 1.4 million plans are now held by individuals up and down the country.

The hon. Member for Airdrie and Shotts asked about the Government’s perception of what this intervention will do to the market. That is difficult to anticipate at this point, but we will look carefully at the responses throughout the consultation, which runs up to 25 August, and will be alive to those concerns. The huge growth in the market, combined with a largely voluntary regulatory framework, has given rise to some pretty shameful practices, with some companies taking advantage of people only trying to do the right thing by their families. It is clear that the market has outgrown the 18-year-old legislative framework and that more robust regulation is needed, as the hon. Gentleman explained to the House more than two and a half years ago.

I will briefly describe the current framework. At present, funeral plan providers who offer plans backed by either a trust or an insurance contract are excluded from FCA regulation. It appears that all funeral plan providers have structured their business such that they benefit from these exclusions. A system of voluntary regulation has been established by the FPA, which has done some good work covering about 95% of the market, as the hon. Gentleman pointed out, but the reports of poor practice have largely come from providers that are not FPA members. A system that allows market participants to choose whether to be regulated cannot be sustainable for a market of this size and nature—we are talking about £3.5 billion being invested by 1.3 million people—because only the reputable firms will choose to comply.

For these reasons and following reports of poor practice, I launched a call for evidence in June last year on the regulation of the funeral plan market. The Government sought views and evidence on how the market was operating and on the Government’s initial policy proposal to bring funeral plan providers within the FCA’s remit. In the light of the evidence received, it is clear that consumer detriment is present in the market, both at the point of sale and afterwards. At the point of sale, some providers and their distributors use high-pressure and misleading sales tactics to promote and sell funeral plans. Given the context—what these individuals are trying to do at a difficult time in their lives—that is particularly unacceptable. Standards of disclosure are also poor, leaving people unsure of what is included in their plan.

We have also found that after a plan has been purchased some providers remove high upfront costs in the form of commission or administration fees, which have been as high as £800, leading to concerns about whether there will be enough money left to pay for the funeral. Some funeral directors have also been named on plans without their knowledge or prior consent, and in some circumstances this has led to an alternative funeral director being appointed, with customers at that vulnerable time left confused about who will conduct the funeral service. There is also anecdotal evidence of conflicts of interest within some trusts’ investment strategies, and there are clear signs that consumers are being disadvantaged.

Perhaps the most striking finding, however, was that 84% of respondents agreed that regulation must be made compulsory, so there is clear demand from the market itself for enhanced regulation. Action must and will be taken. Consumers need to understand the products they buy and be confident they are well regulated. This should have wider benefits beyond the immediate funeral plan sector. Research by the CMA, which is investigating the wider market, has found that the vast majority of people do not shop around for a funeral, which is entirely understandable following a bereavement. A properly regulated funeral plan sector that enables people to plan ahead with confidence and shop around should have knock-on effects for competition in the wider funeral sector.

The FCA is best placed to take on responsibility for regulating the sector, although I acknowledge the concern about the cost and nature of that regulation and would be happy to discuss that with the hon. Gentleman in a meeting. We need to get that right, given the wide range of small family providers, and to make sure it is appropriate. The FCA would be obliged to consult on that. It is none the less a well-established regulator, accustomed to taking strong regulatory action when necessary, and it has the appropriate rule-making powers to tackle the conduct and prudential concerns that are identified in the market. It will be able to develop a targeted and proportionate approach to regulating the market, in line with its statutory objectives.

My Department has developed a full legislative proposal to bring funeral plans within the FCA’s remit. That framework will ensure that the Government meet their three stated objectives for the regulation of the funeral plan market. First, all funeral plan providers and their distributors will be subject to robust conduct standards via FCA rules. Secondly, the FCA will have the necessary powers to tackle the prudential concerns in the market. Finally—this was raised by the hon. Gentleman—consumers will have access to the Financial Ombudsman Service if things go wrong.

The hon. Member for Airdrie and Shotts (Neil Gray) referred to compensation. I want to ask Minister about this because it was discussed at the working group today. If someone pays for a funeral plan and the firm that takes the money goes bust or ceases to operate, will there be a method whereby people can get their money back?

That would be resolved by the process in which we are currently engaged—the consultation process, and the proposals for legislation in the autumn—and my expectation is that that is what we shall be aiming for.

We should set the framework for a market that functions more fairly and in the interests of consumers. The future regulatory framework for funeral plans was set out, in detail, in a consultation that I launched on Sunday. The consultation will run for 12 weeks, and it will give stakeholders an opportunity to comment on the proposed legislative framework before the Government consider the responses and finalise their proposed approach.

The hon. Member for Airdrie and Shotts asked an important question about what would happen during the gap between now and the introduction of the full new regulations. Whatever regulatory route is chosen, a transition will be necessary. FCA regulation can be carried out via secondary legislation and will therefore be quickest. The membership of the existing regulatory authority—the self-defining one—clearly has some reputational benefits in the interim, and I would encourage consumers to use the FPA-regulated providers during that period. I recognise that there is a dispute about the most appropriate way forward. That is what the consultation will be about, and the Government will reflect carefully before presenting proposals.

I hope that I have responded adequately to the points that have been raised. I thank colleagues on both sides of the House for their contributions to the debate. This is a very important issue involving real human misery, and as the hon. Gentleman has said, what was happening was an outrage. I am determined that we will get this right for our constituents across the country and leave the market in a far better state.

Question put and agreed to.

House adjourned.