House of Lords
Monday 11 September 2017
Prayers—read by the Lord Bishop of Gloucester.
Student Loans: Interest Rates
To ask Her Majesty’s Government whether they plan to reduce the 6.1% rate of interest to be charged on student loan debt from September 2017; and if so, how.
My Lords, student loan interest rates vary with income: 6.1% is the maximum rate, and many students will be charged less than this. Borrowers in repayment who earn under £21,000 pay 3.1%. Borrowers are protected, and repayments are linked to income, not interest rates or the amount borrowed. Our student finance system ensures the costs are split fairly between graduates and the taxpayer, and does this while helping more young people to go into higher education than ever before.
My Lords, the noble Viscount failed to mention that the moment a student gets to university, the 6.1% rate applies to them. At the end of three years, it has been estimated that the average interest added, at 6.1%, will be £5,800. Why are the Government determined to put students into even more debt than they are now? Why is RPI being used as the rate of inflation when the Government themselves have rejected RPI when it comes to benefits and pensions? Indeed, it is only students and railway passengers who are penalised by the use of RPI. When will the Government get real and review the rate of interest, as a first stage towards reform of our university fee system?
My Lords, the details of the scheme continue to be kept under review, but the student loan system is working well. The Government’s reforms to the undergraduate student finance system have ensured that it is financially sustainable for the taxpayer in the long term, while enabling those with the talent to benefit from a higher education to do so. Young people from the poorest areas are 43% more likely to go to university than they were in 2009-10. This is a very good step in the right direction.
My Lords, can my noble friend explain why the Government cut the discount rate—their own measure of the liability for the public—arguing that they were able to borrow money more cheaply, and at the same time hugely increased the interest rate that students have to pay? Given that three-quarters of students do not pay their student loan back in full, those who do will be paying back several times what they actually borrowed.
The interest rate system ends up being a subsidy. If we think of one-third of students going to university, a third is written off. The whole complex system is designed to ensure there is an effective balance.
My Lords, could the Minister explain how we have got to a position whereby once graduates earn over £21,000, they effectively face a marginal tax rate of 41% after loan repayments are included, irrespective of any rise in the interest rates being charged?
To answer the question about the £21,000, the issue was discussed at length during the passage of the Higher Education and Research Bill. When the current system was introduced, the threshold would have been around 75% of the projected average earnings for 2016. Since then, updated calculations based on ONS figures show the figure is now 83%, reflecting weaker than expected earnings.
My Lords, what is the Government’s estimate of the average debt of a graduate on leaving university?
I have those figures but I will have to write to the noble and learned Lord with them; they are in my facts somewhere.
My Lords, when student loans were introduced by the Government, students were promised that the threshold of £21,000 would increase in line with average earnings. Why has that commitment not been delivered?
That is because it is not necessary to do so. The proportion of borrowers liable to repay when the £21,000 threshold took effect in April was significantly lower than could have been envisaged when the policy was introduced. The threshold would now be set at £19,000 if it were to reflect the same ratio of average earnings.
My Lords, does the Minister think there are any circumstances—
My Lords, I think it is the turn of the Conservative Benches, but I hope we can also fit in a question from the noble Lord, Lord Adonis.
I thank my noble friend. Is there any merit, while the Minister is reviewing interest rates, in giving consideration to CPI, which of course is lower than RPI?
We believe that RPI is more appropriate than CPI for student loans. It takes account, among other things, of changes in mortgage interest payments and council tax, which, I may say, are typical expenses for graduates that are not included in the calculation of CPI.
My Lords, I am not sure about reforming universities but I certainly think we should reform the way in which we conduct Question Time in this House.
Does the Minister think it justifiable for any vice-chancellor to be paid more than £300,000 a year?
I made the position clear on vice-chancellors’ pay the other day in the House. Although the Government do not wish to interfere, my colleague in the other place, Jo Johnson, has made it quite clear that universities must have restraint in the pay offered to vice-chancellors and, indeed, to other senior positions.
My Lords, if we could come back to the Question, it was reported at the weekend that Mrs May was casting around for ways to ease the burdens on students. Would an obvious way of doing that not be to reduce interest rates to something more like the rates that banks were paying to investors?
There have been rumours in the press about a review but I cannot really confirm that at all. We believe the balance is right between making sure that the interest rates are right and that we encourage people to go to university.
My Lords, when we introduced student loans back in the 1980s, we did so because the Treasury would not accept a student tax. It would be a much better way of dealing with this problem because it is not strictly a loan; it is a lump of government expenditure that is passed from the Department for Education to a student, who then passes it on to the university. That is the amount that I believe a student should pay without any interest at all, and that is what would happen if we had a student tax in this country.
I note the fact that the noble Lord has raised.
Brexit: Impact on Young People
To ask Her Majesty’s Government what consideration they are giving to the impact of Brexit on opportunities for young United Kingdom citizens to travel, work and study within Europe.
My Lords, it is still too early to say what rules will be in place for British citizens travelling in the EU after we leave, including for young people. We are carefully considering our options and the potential impact they may have on different categories of people. We will discuss these arrangements with the EU in due course. At every step of the negotiations we will work to ensure the best possible outcome for the British people.
My Lords, immediate concern in Parliament has rightly been for EU nationals in the UK and Britons currently abroad, but what thought has been given to how the loss of rights to travel, work and study abroad at will would affect Britons resident here, rights that most young European citizens will continue to enjoy, allowing them a significant advantage in chasing up opportunities? What consideration have the Government given to ensuring that young people here are maintained on the same level playing field as their European counterparts, including continuing participation in Erasmus?
My Lords, the noble Earl raises a vital question, because the value of international exchange and collaboration in education and training is a vital part of our vision for the UK as a global nation. It is about the future of our young people. Erasmus, which celebrates its 30th anniversary this year, is an example of the European programmes in which we might well want to participate. We will consider that as part of the negotiation. There are other schemes, too, in respect of which we need to look carefully at how we might participate after we leave the European Union.
Does my noble friend agree that we are unlikely to make much progress on these matters until we get some resolution on debt? In that context, will she tell this House the extent to which the problem is about legality and the extent to which it is about quantum? If it is about legality, have we given serious consideration to arbitration? If it is about quantum, have we given serious consideration to mediation?
My Lords, regarding debt, I assume that my noble friend is not harking back to the previous Question but looking forward to the negotiations on the liabilities the EU owes to this country—and we recognise there will be duties that we owe to the EU, whether they be based in law or indeed morally. A lot of thought has been given to this issue and I have answered questions on it recently. About 10 days ago, the UK negotiators gave a three-and-a-half hour presentation to the EU negotiators, examining each and every part of the directives and treaties the EU put forward as a list of references, without explaining their application to the UK’s liability. So we are deeply involved in examining wherein lay the duties, each way, to each other.
My Lords, the European Social Fund gives adults opportunities to learn—often, people who are less likely to go into further or higher education or benefit from the Erasmus scheme. Does the Minister agree that the Government’s proposed shared prosperity fund should be used to replace money such as the European Social Fund to ensure that such opportunities for learning will continue?
The noble Baroness makes an important and interesting point, and I shall certainly take it back. We need to look over the whole range of activity which encompasses youth training and learning. As the noble Baroness was speaking, I was reminded of the youth mobility scheme, which allows young people aged 18 to 30 from participating countries and territories to learn how to live and work in other societies.
My Lords, the noble Earl is far too young, and the noble Baroness the Minister is certainly too young, to remember that before we joined the European Union, young UK citizens travelled, studied and worked with great freedom across Europe west of the Iron Curtain. Can she confirm that you do not have to be a member of the EU to participate in the Erasmus programme? Does she agree that the graduates of our excellent universities will continue to be very much welcomed by employers in Europe? Is there any reason to suppose that young people will not in future have the same wonderful opportunities in Europe as they have had in the past?
The noble Lord is absolutely right. Also, the youth mobility scheme and Horizon 2020 are open to countries that are not members of the EU; it depends on the negotiations between the EU and that third country. The most important thing is that all of us are looking to ensure that the future of our young people can be as rich an experience as it has been in the past.
My Lords, notwithstanding what the noble Lord, Lord Howarth, has just said, does my noble friend agree that it would be extremely sad, to put it mildly, if young people from all the countries of Europe found it more difficult to travel and work around the continent than those who came over in the Middle Ages to help build Lincoln and the other great cathedrals? If that stage were reached, we would have not a hard Brexit or a soft Brexit but a barren Brexit. That would be the worst of all.
My Lords, I taught history several lifetimes ago, and I know that we were not always the most welcoming of countries. I hope we have learned that it is better to welcome than to prevent people coming from countries for the wrong reasons. Clearly, it is important to have a legal basis to control immigration, but it is important to recognise that we have a way of welcoming people that enriches our society. Certainly, as we have announced already, for those who wish to take up Erasmus, applications will continue as normal in 2017-18, and:
“The Government will underwrite the payment of such awards, even when specific projects continue beyond the UK’s departure from the EU.”
That shows a welcoming spirit.
My Lords, will the Minister apologise to young people for the fact that, when she was Chief Whip, she got her Government to refuse our amendment allowing 16 and 17 year-olds to vote in the referendum? It matters: those are the young people whose futures we are discussing. Furthermore, can she tell us why none of the seven position papers the Government have produced so far make any mention of young people? Will there be something in the Government’s thinking about them?
When we talk about young people in this House, it can be something of an elastic term. But in all seriousness, young people, however we define them, have as much right as those of all ages to believe there is a global future for them beyond the European Union, and we are taking that very seriously. The noble Baroness goes back into history on the referendum Act. We discussed that amendment on not one but several occasions, and it would be wrong for me to encapsulate it in just a brief time at Questions.
Small Businesses: Late Payments
To ask Her Majesty’s Government what action they have taken to assist small businesses in accessing finance by tackling the issue of late payment of commercial debt.
My Lords, we know how important tackling late payment is, especially for smaller businesses. We are taking forward a number of measures to improve payment practices across the public and private sector, including establishing the Small Business Commissioner and introducing transparency reporting in both public and private sectors.
My Lords, there is an abject and continuing failure from this Government to outlaw late payment on commercial debt. The Federation of Small Businesses says that we lose 50,000 viable businesses every year, and we lose some £2.5 billion to the Exchequer, because of the failure to act on that effectively. Would the Minister write me a short but elegant essay on the question of how, given tonight’s vote in the other place, we might transport and import European legislation on this issue into UK law?
My Lords, of course I understand that late payment is very serious for many small businesses and cash is very important to them, but we have made very significant progress in this area. In central government, for example, 95% of all commercial debt is settled within seven days and 99% is settled within 30 days. It is true that in some parts of the economy—in construction, for example—payment terms are later. We believe that by bringing forward the Small Business Commissioner and bringing greater transparency to this area, it will get better.
My Lords, is not this a totally flawed economic system, where large businesses are financed by small businesses, although it is large businesses that can easily raise the finance? What are the disadvantages, if any, of moving to a system where all goods and services are paid for by the end of the month following the month of invoice?
Industries are very different from each other—the construction industry is very different from the retail business, for example. Waitrose has a scheme whereby it pays small businesses selling goods worth less than £100,000 a year to Waitrose within seven days. Rolls-Royce has a scheme with a time that is longer than that, and Marks & Spencer has a scheme giving special terms for smaller businesses. Some flexibility in this area is not unwarranted.
My Lords, the consultation on the appointment of a Small Business Commissioner was first mentioned on 26 July 2015, and the end of the consultation was 7 October 2015. If this Government think that supporting small businesses is important, surely they should get their act together in under two years. If a small business had to wait for two years to make such an appointment, it would be bankrupt.
The noble Lord will be pleased to know that interviews have taken place for the Small Business Commissioner and an appointment will be made in the near term—“soon” is, I think, the right word. By the end of the year, when further secondary legislation comes through Parliament, the complaints handling system which the commissioner will operate will be in place as well.
My Lords, the Government have said that big businesses will begin mandatory reporting of their payment performance—a very important part of this new system—under new regulations from October 2017, via an online service. Yet we discovered, in response to a Written Question, that by the end of July only 208 businesses out of 15,000 had even been invited to join the system. That is 1% signed up so far. What is the current figure?
My Lords, I do not have that figure. The noble Lord is absolutely right that there is now an obligation on big companies to be transparent in their reporting. That came in in April 2017 and is done on an annual basis, so we will not know until April 2018 how many companies are doing it.
My Lords, when the late Lord Weinstock’s GEC took three months to pay my small engineering company, when it should have taken a month, I sued him in the county court and everything changed dramatically. Small companies are reluctant to sue big ones, but they fail to take into account that the accounts departments of these ginormous companies very rarely talk to the sales departments.
My Lords, the noble Lord makes a very good point. Small companies are often reticent to take on big ones, in the fear that they will lose business in the future. Making that relationship easier is one of the reasons why we are appointing the Small Business Commissioner. Where public contracts are involved, we have a mystery shopping service, which enables small companies to ask the Government, on their behalf, to verify late payment and understand why it is taking place.
My Lords, this argument has been going on, under successive Governments, for the last 30 years at least. Where is the real resistance to change and intervention by government coming from? Nothing ever changes.
My Lords, there is a natural reluctance for any Government to get in between supplier and customer in commercial relationships. If there is a problem, it is much better if it can be sorted out. As my noble friend Lord Hamilton pointed out, there are ways of getting redress. I am not sure what the figures are, but I imagine that, going back 30 years, you would find that the average number of days outstanding for commercial debts has come down considerably.
Does the Minister agree that part of the problem is that the SME community is underbanked? Nearly half are permanent non-borrowers and 90% of the SMEs which do borrow do so from the big four banks. Surely the answer to the credit problem is further steps like those that the Government have taken in establishing the British Business Bank and encouraging the growth of alternative finance. I declare my interests to your Lordships’ House.
My Lords, the British Business Bank is not a commercial lender in the way that Barclays or NatWest is. Alternative sources of finance, be it equity or quasi-equity, and making smaller companies’ balance sheets stronger are clearly a good way forward.
My Lords, have the Government looked into the issue of payments by NGOs, by enterprise agencies and by local councils, many of which get their funds originally from the Government? Will the Minister look into the issue of local payment by local organisations?
My Lords, I believe that local authorities are covered by the Public Contract Regulations 2015, so they have to publish their performance annually. They have to report against a 30-day target, so if their length of outstanding indebtedness goes beyond that it will be transparent and open for the public to see.
Housing: Social and Affordable Rents
To ask Her Majesty's Government how many homes to be offered for let at a social rent as opposed to an affordable rent they expect to be built in the next 12 months.
My Lords, I beg leave to ask the Question standing in my name on the Order Paper. In doing so, I declare that I am a locally elected councillor and a vice-president of the Local Government Association.
My Lords, on a daily basis social rent will continue to be delivered by developers and housing associations across England through agreed Section 106 contributions with local planning authorities. The number and tenures of homes to be built outside government funding will depend on housing providers’ assessments of local needs and markets, which are agreed through negotiation of a Section 106 contribution. The Government’s current £7.1 billion affordable homes programme runs affordable rent. The Government introduced affordable rent in 2012 to maximise government investment, enabling us to build more homes for every pound of public spending. This has allowed us to build around 333,000 affordable homes since 2010.
My Lords, the English Housing Survey produced by the noble Lord’s own department and published earlier this year tells us that:
“The number of families in the private rented sector has increased; and the number of families in the social rented sector has decreased”.
It goes on to say that those in the private rented sector,
“spend a significantly greater proportion of their … income on their housing costs”
than do social renters or those buying with a mortgage. Of the 46,328 building starts in the housing association sector up to June 2017, only 3,726 were at a social rent.
Can the noble Lord tell the House why the Government are so opposed to social rented housing playing its full role in dealing with the housing crisis, as evidenced by the Government’s own funding programmes and policies?
My Lords, we are not opposed to it. We are discussing it frankly with the London mayor—indeed, we discussed it with him last week. I absolutely accept that more needs to be done, but there has been an increase in affordable housing starts. We are looking at the social housing programme, particularly in the larger cities, and particularly in London. In the meantime, we are increasing the number of houses being built.
Can my noble friend say what Her Majesty’s Government are doing to support those who need help accessing housing?
My Lords, my noble friend will be aware that the recent housing White Paper sets out many of the things that we are doing. In addition to the affordable homes programme to which I referred, there is a housing infrastructure fund of £2.3 billion, new town development corporations delivering garden towns, and a land release fund that was launched in August 2017—just last month. Increased planning fees are coming on stream, which will help, and we are doing bespoke housing deals as well.
My Lords, how do the Government define affordable housing?
My Lords, the noble Lord raises an interesting point. Affordable housing is at about 80% of market rates. That is the rough assessment.
My Lords, I remind the House of my entry in the register of interests. Is the Minister aware that the number of government-funded new homes built for social rent fell in 2016-17 to just 1,102? Does he agree that there is a much bigger role for local government in driving forward the building of social housing? Will the Government lift the cap on borrowing so that local authorities can build a great deal more social homes for rent?
My Lords, the noble Lord will be aware that there is a difference between social housing and social rents. The amount of social housing is something to which we have committed in the White Paper, and we are looking at that. As I indicated, we are discussing the situation in London with the London mayor. In the meantime, most social housing—about 94%, I think—is at social rents. The noble Lord referred to the borrowing limit. At the moment, there is plenty of headroom for local authorities in that regard, and there is no indication that it needs raising. We are obviously alive to the fact that in the future that might be the case but it certainly is not at the moment.
My Lords, has the Minister heard, as I have, the housing associations say with great regret that although they were founded to house the poorest people in society, increasingly they are having to move upmarket and are having to turn away the poorest households because rents have risen with lower grants and benefits have been cut? If the housing associations cannot house the poorest households, how can we expect private landlords to do so, and does not that simply mean more homelessness?
My Lords, the noble Lord is absolutely right to raise the considerable housing challenge that we face. In the meantime, we are building more than has been built in the years since 2008. I think that we are now running at record levels in relation to new starts. The noble Lord is right about particular issues with people and affordability. We are analysing the consultation on the National Planning Policy Framework, which is about building in the right place. I believe that that will make a difference when we respond to that consultation.
My Lords, can we go back to the original Question of my noble friend Lord Kennedy, in which he asked not about affordable rents, which is what the Minister has emphasised, but about social housing and social rents? Will the Minister confirm the figures given just now on the number of new starts in social housing at social rents? What is the Government’s estimate of how many we need in the next three years and how many the Government expect to see provided?
My Lords, to reiterate my point, there is of course a difference between social housing and social rents. The question is about social rents. I indicated that these are being delivered via Section 106 contributions. In 2015-16, the last year for which we have figures, 6,800 of the homes delivered by such contributions were for social rent. I will endeavour to find figures for the earlier years, if that would be helpful. I will write to the noble Lord on that and will circulate it. However, there is a big difference between social housing and social rent.
Financial Guidance and Claims Bill [HL]
Committee (3rd Day)
Clause 5: Guidance and directions from the Secretary of State
47A: Clause 5, page 4, line 16, at end insert—
“( ) Guidance issued by the Secretary of State under subsection (1) is to be made by statutory instrument subject to annulment in pursuance of a resolution of either House of Parliament.”
My Lords, I will also speak to Amendment 48. Clause 5 says:
“The Secretary of State may issue guidance and give directions to the single financial guidance body about the exercise of its functions … The Secretary of State must publish any directions that are given to the single financial guidance body … The single financial guidance body must have regard to guidance, and comply with directions, given to it by the Secretary of State”.
Amendment 48, which is where we started, requires the Secretary of State to publish any guidance issued as well as directions. This guidance is, as we have heard, not discretionary, and the SFGB must have regard to it. The Delegated Powers and Regulatory Reform Committee, however, in its first report of the 2017-19 Session, takes the view that a parliamentary scrutiny process should apply to these provisions. It considers the negative procedure an appropriate level of scrutiny, hence Amendment 47A; that is what the amendment requires. Obviously, such a procedure would appear to encompass the guidance being published in any event. I beg to move.
My Lords, I thank the noble Lord, Lord McKenzie, for tabling these amendments to Clause 5, which provides for the Secretary of State to issue guidance and directions to the single financial guidance body about the exercise of its functions. It requires the body to comply with any directions and have regard to any guidance, and requires the Secretary of State to publish any directions.
Amendment 47A would require any guidance to be made by statutory instrument subject to annulment in pursuance of a resolution of either House of Parliament. Amendment 48 would place an obligation on the Secretary of State to publish any guidance.
Clause 5 facilitates a sensible working relationship between the body and the sponsoring Minister. It allows the body flexibility and independence in managing its business but balances this with a recognition of Ministers’ responsibilities to Parliament. Conferring functions on an arm’s-length body involves recognition that operational independence from Ministers in carrying out those functions is appropriate. Nevertheless, the sponsoring Minister remains answerable to Parliament for the activities of the body, including any failures.
I believe we are in agreement that creating the body is the right thing to do. I also agree with the comment of the noble Lord, Lord Stevenson, at Second Reading that it is important that we learn from the experiences with the Money Advice Service about what worked and what did not work successfully. One issue highlighted by the independent Farnish review of the MAS in 2015 was that the MAS’s formal accountability regime needed to be strengthened. The review concluded that it was not possible for any party, including the FCA and HM Treasury, to hold the MAS fully to account, either for the way it discharged its role or for the money it spent.
In setting up the single financial guidance body, it is therefore important that a balance is struck between enabling the sponsoring Minister to fulfil his responsibilities and giving the body the desired degree of independence. An arm’s-length body needs to have a degree of autonomy in order to deliver effectively but it also needs to have a good and constructive relationship with its sponsoring department. Arm’s-length bodies represent an extension of the department’s delivery, so it is important that we think about a department and its arm’s-length bodies as a total delivery system. Building trust between the department and the new body—this is critical to the point—will be essential in enabling the right balance to be struck between the body’s autonomy and the Government’s accountability.
In drafting Clause 5, and the Bill more widely, we have sought to provide a legislative framework that allows the body flexibility and independence to make the most of expertise and innovation in managing its business, and to balance that within the context of it being a public body. The single financial guidance body will be a non-departmental public body, responsible for supporting the delivery of government policy.
Clause 5 provides for the Secretary of State to give guidance to the body and requires it to have regard to that guidance in exercising its functions. Amendment 47A would require regulations to be made by statutory instrument, subject to annulment, in pursuance of a resolution of either House of Parliament. I consider that this would represent a degree of scrutiny unwarranted by the non-binding nature of the guidance in question.
Guidance provided by the Secretary of State to the arm’s-length body could cover myriad topics. Guidance could also be sought by the body; it is not necessarily just given. The relationship between an arm’s-length body and its sponsoring Minister and department is critical to the successful delivery of its functions. As in all professional relationships, whether between a sponsoring Minister and an arm’s-length body or a board and its executive team, being able to seek and give guidance in a straightforward and candid way will be important.
Having regard to guidance does not mean that the body must act on that guidance. For example, in commissioning or contracting services, the single financial guidance body may seek guidance concerning government procurement rules or the interpretation of those rules. Guidance may also be given or sought by the body to inform business planning. For example, where government develops a new policy that could affect the services it provides, the body will need guidance to enable it to prepare for potential change. Noble Lords will recall that the Pension Wise guidance service went live at the same time as the pension freedoms were introduced. This required considerable advance planning and service design.
In all those circumstances, it would be disproportionate to expect a statutory instrument to be drafted and for Parliament to scrutinise it. Also, the Secretary of State publishing guidance would not be consistent with the informal nature of much of the guidance that may be given. It would inhibit the critical relationship between the sponsoring Minister and the body supporting the delivery of government policy, and it could deter the body from seeking guidance, or the Minister giving guidance when it would be more sensible to do so. Further, a requirement to publish a guidance could lead to a position where the body feels obliged to respond publicly should it not act on the guidance, or feels under undue pressure to follow the guidance provided regardless whether it makes sense or is appropriate in the circumstances.
However, where it is necessary, Clause 5 provides for the Secretary of State to give directions to the body and, in these circumstances, the body must comply with any directions and the Secretary of State must publish them. This is appropriate in terms of governance and accountability. For example, if the body was not dedicating appropriate resources to debt advice, was spending too much on advertising or was failing to act on justified recommendations by the FCA—these are among a number of things we considered on the second day in Committee—in its review of its body standards, this power enables the Secretary of State to require the body to act.
The measures in Clause 5 facilitate a sensible working relationship between the body and the sponsoring Minister. Alongside other measures in the Bill, they provide a legislative framework that allows the body flexibility and independence in managing its business and balance that in the context of it being a public body responsible for supporting the delivery of government policy.
On the basis of that long, full explanation—for which I make no apology—I urge the noble Lord to withdraw his amendment.
My Lords, I thank the Minister for that reply. I am a little surprised at the position the Government have taken on this. We all agree about the need for balance and flexibility in the arrangements—that is important—but the Government have written into the Bill provisions that give the Secretary of State the opportunity to issue directions and for there to be guidance. The Minister said the guidance is not binding. I accept that it is not technically binding but the provision is clear that a single financial guidance body must have regard to it. There is a strong imperative for the body to do that unless, presumably, there are exceptional circumstances.
Even if the Minister is not happy with the recommendation of the Delegated Powers and Regulatory Reform Committee that the negative procedure should be attached to this, the Government are setting their face against the guidance being published as well. That is an unduly restrictive approach. The report of the Delegated Powers and Regulatory Reform Committee is very clear. It states:
“There is a clear distinction between guidance that the recipient is free to disregard and guidance to which the recipient must have regard and must follow. People required by statute to have regard to guidance will normally be expected to follow the guidance unless they have cogent reasons for not doing so”.
The Government have not taken that into account in their very restrictive response.
There is no point in ranging over this point more extensively at the moment. However, I am surprised and we will return to this on Report. In the meantime, I beg leave to withdraw the amendment.
Amendment 47A withdrawn.
Amendment 48 not moved.
Clause 5 agreed.
Clause 6: Setting standards
49: Clause 6, page 4, line 23, leave out from “must” to end of line 24 and insert “create and publish a commissioning framework based on the competencies of the provider, against which it will satisfy itself when it commissions and procures services from—”
My Lords, in moving Amendment 49 I shall speak also to Amendments 54 and 55 in this group. I am grateful to the noble Baroness, Lady Meacher, for adding her name to the first of those amendments.
The amendments continue the debate we have had about standards and seek to draw out a response. In that sense they are probing amendments and I do not expect them to be accepted as they stand. They are probing in the sense that they are trying to draw out more clearly what standard setting will involve. As has been mentioned, Clause 6 states simply:
“The single financial guidance body must from time to time set standards to be complied with”,
but does not specify what the standards are. Are they about dress codes or eating habits? Presumably they relate to the more detailed work of how it deals with its customers. I would hope that it is the latter but that does not exclude the former. A word of comfort from the Dispatch Box might ease troubled concerns outside.
The underlying problem is that for many of the bodies to which the standard setting will apply there is an existing regulatory framework operated by the FCA and therefore we are in danger of seeing dual regulatory powers. This is not just a trivial point about bureaucracy. In a recent report from the StepChange Debt Charity, in which I have already declared my interest, the chairman points out that the arrangement under which it receives its regulatory authority from the FCA has added 7% to the charity’s costs. This is a body with a £20 million turnover so it is a significant sum for getting itself ready, and rightly so, to be regulated by a body. To think that more of the money that StepChange raises for charitable purposes will have to be spent on satisfying another regulatory body would seem to be unusually onerous.
To be clear on what we would like the Government to say on this point, there is a case for something to be said at the Dispatch Box which makes it clear that the SFGB’s currently broad and largely unconstrained regulatory powers should be moderated by some sort of framework. We propose in our amendment that the regulation should be specifically addressed to a commissioning framework, because certainly in the debt space the intention is that the bodies concerned will be commissioned to provide particular services which the single body thinks should be available. We have taken wording from other legislation which suggests that the commissioning framework should be based on the competencies of the provider against which it will satisfy itself when it commissions and procures services. That would give a route in towards the thinking here.
When we are talking about charities, we are also talking about those that are regulated separately by the charities regulator on certain aspects of their work. Again it is important to recognise that additional and triple regulation would be unnecessary.
The powers will come mainly from the FCA. Once more, it would be helpful if the Minister could respond to the likelihood of that. There is only one comparable situation at the moment where the FCA regulates bodies operating in the debt space, and indeed it has just completed a full review of a number of them. At the same time it has been asked to look at the current rules as they affect the Money Advice Service. When the authority did that, it said that it would not review or comment on the particular requirements of MAS—here I give a sense of its comments—because it felt that its standards were sufficiently high to encompass anything that would be involved in MAS and relating to the bodies that it funded. Again, what that would mean in practice is a little uncertain and perhaps the Minister will think about whether it will be necessary to get a better specification from the FCA, which perhaps could be done through correspondence, of the type of regulatory framework it thought it would be looking for from the SFGB, at which levels there would be any overlap, and in what sense any additional work would be needed. In short, we are looking for legislation that is concise and focused along with a broader statement of practice prior to the passing of the Bill which would give us more detail on how the body will operate in practice and the impact and burdens on those bodies it commissions. I beg to move.
My Lords, I should inform the Committee that if this amendment is agreed to, I cannot call Amendment 50 by reason of pre-emption.
My Lords, I point the House to my declaration of interests. I want to underline something that the noble Lord has just said about the danger of having conflicting areas of advice.
I am sure that my noble friend will be able to explain this, but it is already true in the financial services industry, and elsewhere, that often there are serious conflicts between the decisions being handed down, for example by the Financial Services Authority, the way that such decisions are interpreted by the ombudsman and the way that things come together. That is now a major incubus on the best companies in the field; therefore it is crucial for us to know in advance that what is being done here will not be yet another different series of things that people have to bring together. That is not to defend anybody who is doing wrong or to excuse people who have not bothered, but merely to say that the better the firm, the more important it is for it to be clear what governance it should be concerned with, what guidance means, and ensure that the opportunities for contradictions are eliminated before we start.
My Lords, I rise briefly to speak to Amendment 56, which is in my name. I note that the clause on setting standards, which is only 11 lines long, has eight amendments. That underlines its importance.
The origins of Amendment 56 are my concerns with the behaviour of the Financial Conduct Authority; I have been regulated by it and its predecessors for the whole of my commercial career. I realise that the single financial guidance body will only be a client organisation of it, but I am concerned about FCA ethos leaking down to the SFGB.
Perhaps I should explain further. When a regulated client rings up the FCA with a specific question, asking for help in the interpretation of its rules, the FCA, in my direct experience, simply says, “We can’t give you any help in interpreting those rules”. That is quite unlike regulators in other jurisdictions in other places—I originally wrote down “competitor regulators”. That is very unhelpful, but while it is unhelpful in the financial services world, firms are usually big enough to afford advice from big firms of solicitors. Here we are often dealing with very small charities that do not have access to £1,000 per hour for Allen & Overy, so it is important that the SFGB offers that advice.
It has been said to me that there is a big problem concerning resourcing. I think that that is quite a difficult position to maintain. First, other similar regulators in other jurisdictions do not perceive those resourcing problems. In fact, most of the questions that come up, such as on a drafting issue, do so repeatedly and the same question will be asked by many of those being regulated. Secondly, just thinking about one particular bit of FCA regulation because I know about it—the regulation of insurance brokers—the FCA and those that are being regulated bear the cost of that regulation, which is more than twice as expensive as Ireland, Bermuda and Hong Kong. That multiple is far bigger than for France and Germany. I do not therefore think that good regulation has to be expensive.
The amendment is aimed at trying to ensure that that sort of behaviour is not replicated and that the SFGB remains friendly and helpful in interpreting the regulations that it will impose on those that it regulates.
My Lords, I add my support to Amendment 56. It is important that if those who are involved in the actions that will be part of the new body want to know and to clarify what their duties are, there is clear direction for them. I share the concerns that a number of financial companies have offered to me: they want to abide by the regulations, yet when they ask the FCA, “If I do this, would that be compliant?” the response often is, “If you do it and we don’t like it, we’ll see you in court”, which really is not very helpful.
While I am on my feet, I reiterate the concerns I have relating to Amendments 51 and 52, following on from my noble friend Lord Deben’s comments. It is vital to clarify in the Bill once and for all the difference between “advice” and “guidance”. This is meant to be a guidance body. Unfortunately, regulatorily, the term “advice” is attached to debt in a way it typically is not for other financial products. It would be helpful if the Bill took the opportunity to change the term “debt advice” to something I have suggested here as “debt counselling”, although it could be “debt rescheduling”. The point is, it will be really helpful if the public could see that. “Advice” applies to something the public pay for. It is something available to them; it will look at their whole circumstances and make them an individual recommendation. However, “guidance” or other such words will apply to something that can be free and offered by the Government themselves, or a non-departmental body, or another body or a charity. If we can address that in the Bill it would be enormously helpful for the longer-term future and for a holistic body offering guidance.
We have a chance to separate the advice function and the guidance function. We have already debated the fact that debt advice cannot include proper financial advice as currently constructed—it could, but at the moment the body is not set up to do so—which, for example, would be able to tell the person coming for help with their debt whether to opt out of their workplace pension. That is crucial and it is a difference in the landscape from when the current system was set up, which I hope the Bill will recognise.
I thank noble Lords for their scrutiny of Clause 6, which requires the body to set standards from time to time for the delivery of its information, guidance and advice services. It also requires the body to obtain the FCA’s approval prior to finalising the standards and to publish the standards. I understand that there has been concern among the debt advice sector that the body’s standards will apply to all debt advice providers. I reassure the Committee, and others, that the single financial guidance body is not a regulator. These standards will apply only to the body itself and its delivery partners.
I turn first to Amendments 49 and 54, tabled by the noble Lord, Lord Stevenson, which set out an alternative to setting standards for service delivery. Amendment 49 would require the body to publish a commissioning framework against which it would test the competence of service providers when delegating any of its functions. Amendment 54 would require the body to consult on this framework and to obtain the approval of the FCA.
The setting and publication of standards, and their monitoring and enforcement, provided for in Clause 7, are designed to give assurance to members of the public that the information, guidance and advice services provided by the body meet robust criteria. These standards will apply only to the body itself when it is delivering these services directly, and to any delivery partner organisations it engages to deliver these services on its behalf.
The noble Lord proposes to replace the requirement for the body to set standards with a commissioning framework, but there is a difference between these two. The proposed commissioning framework would only set out requirements that the body’s delivery partners must meet to enable bidders for contracts or grants to understand what the expectations were. The standards will set out the requirements that both the delivery partners and the body itself must meet. The standards will play an important role in enabling members of the public to have confidence in the services provided by or on behalf of the body, and both could not and should not be replaced by the proposed commissioning framework.
When contracts are above a certain value, the body will be required to comply with the Public Contracts Regulations 2015, the regulations that govern public procurement, including the requirement to advertise its requirements and undertake a competitive tendering exercise. Where the size of the contract is below the thresholds cited in the regulations or where the body will be making grant arrangements, we would expect it to follow similar principles.
If the body decides to delegate any of its guidance or advice functions and procure services from other providers, we would expect it to publish its requirements, including any technical requirements, with adequate time for delivery partners to prepare their propositions. It is unnecessary to be specific about this in legislation, as we would expect the new body to build on the good practice of existing organisations. For example, the MAS already has a commissioning framework for debt advice.
Amendments 50 and 55, tabled by the noble Lords, Lord McKenzie and Lord Stevenson, would require the single financial guidance body to consult on the standards. The body will be able to set different standards for different types of information, guidance and debt advice. One size will not fit all. For example, standards for an online service such as the body’s website would of necessity differ from standards for a face-to-face guidance appointment. In addition, the body may need to develop standards if new services come online or if the nature of the service provision changes. We would expect the body continuously to review its service standards. This will be important to the body’s board in ensuring that its services remain customer focused.
In developing and updating the standards, we would expect the body to work closely with a range of stakeholders, including delivery partners—large and small; I stress that to the noble Earl, Lord Kinnoull—devolved authorities and consumer representatives, to ensure that the standards it sets are robust, cover a range of qualitative and quantitative measures and can be properly monitored. The noble Lord, Lord Stevenson, asked how the body would set its standards and what they might be, and about the consultation with the FCA. We would expect the standards broadly to cover delivering the guidance, advice and information, professional standards, communications systems and controls, complaints management and content of the guidance session.
Prior to anything being published, the body is required to gain the approval of the FCA. The FCA will add value by providing independent scrutiny, and the standards will benefit from the FCA’s expertise in relation to financial services and the debt advice sector, and its experience in setting the standards for Pension Wise. Having the input of the FCA will also ensure that the body’s standards complement the FCA’s debt advice authorisation process. As my noble friend Lord Deben has stressed, it is important that there be clarity.
Should the body consider it valuable to conduct a consultation exercise before setting or revising its standards, it could do so. However, I do not consider it necessary or proportionate to require in legislation that the body undertake a formal consultation process, particularly as this would apply even to very minor revisions of the standards.
Amendments 51 and 52, tabled by my noble friend Lady Altmann, return to the debate on earlier amendments to Clauses 2 and 4. There, I made the case that “debt advice” is the appropriate term to use in the functions of the body. I have also written to my noble friend with further explanation of the terminology used in the Bill. The Government believe that it remains the right term here. I apologise for going over old ground with these arguments, but I want to do justice to my noble friend’s amendments.
First, “debt advice” reflects a broader set of activities than “debt counselling”, and this broader set is what the new body will have a duty to deliver. Secondly, similar to independent financial advice, debt advice is an activity regulated by the FCA. Using the term “counselling” may mislead customers who are actually receiving regulated advice. I hope that this is a further response to my noble friend Lord Deben. It is particularly important that we do not confuse customers by introducing other terminology. We should be very clear here on the vital service this body will provide. It will fund and co-ordinate—
I thank my noble friend for referring to me. I do not want her to believe that I do not agree with my noble friend Lady Altmann. The fact is that we have had far too much trouble in the past with the word “advice” being used wrongly. “Advice” should be used only when it consists of somebody who is on your side and giving you advice personally and individually. That is not what we are talking about here; “counselling” or some other word should be used. I hope the Minister will not include me in her supporters on this particular point. This is really serious and we ought to think again.
I hear what my noble friend is saying. I hope he read in Hansard what I set out in detail on day 2 of Committee and what I wrote to all noble Lords. I commit here to spend more time between Committee and Report trying to persuade noble Lords of the reasons why we feel it right to stick with the current terminology regarding the difference between debt advice and guidance, not least because this is already set out in regulations, at the FCA and so on. We are very keen to avoid confusion or duplication. We also very much take on board the experience and expertise we have heard from those who have given this guidance and debt advice for more than 30 years. They said they had never had a problem with this. However, I hear what my noble friend said and can see that I must do more to persuade some, though not all, noble Lords—there is great support for what the Government are trying to do. I can only stress the number of consultations we had prior to introducing the Bill to ensure that we are doing the right thing to the best of our ability, particularly in our focus on the consumer.
Most people who access debt advice have lived with debt problems for more than a year before doing so. They may be facing up to something they have avoided for a long time. They seek help because they do not know what to do. They turn to services such as the Money Advice Trust, Citizens Advice and StepChange, which are all MAS delivery partners, for urgent help with getting out of their immediate crisis. Although there is a clear difference between debt advice and the advice given by independent financial advisers to those lucky enough to have some extra money to pay for it, the advice given by debt advice is still regulated by the FCA.
Debt advisers help people identify the steps they need to take, recommend a course of action, represent people at court facing repossession and, crucially, build their clients’ confidence to deal with their creditors themselves. Under FCA rules, these excellent advisers are required to make it clear that they are giving a customer regulated advice. These individuals need help to work through their problems. They want advice on how to get out of the situation. The labels we use to describe the service on offer must reflect the way these customers use and understand the service. For these reasons, I maintain that debt advice is the most appropriate term to use.
Amendment 53, tabled by the noble Lord, Lord McKenzie, would require that the standards include measures of outcomes for members of the public as well as measures of outputs for the body and its delivery partners. The noble Lord raises an important issue but I do not agree that attaching this requirement to the standards is the right approach. I reassure the noble Lord that assessing the body’s success in improving the ability of members of the public to make informed financial decisions will be very important for both Her Majesty’s Treasury and the Department for Work and Pensions.
The Committee discussed during debate on Clause 1 the business planning process for the single financial guidance body. Part of that process will be for the body to agree a range of key performance indicators with Her Majesty’s Treasury and the DWP. These will be set out in the body’s corporate strategy and business plans. The corporate strategy and business plans will be published, and will include how the indicators will be measured. It is too soon to set out exactly what the performance indicators will be for the body but, as an example, Pension Wise is testing its customers’ knowledge of the pensions freedoms and comparing it with that of a group of non-users of its service. This research seeks to ascertain what difference Pension Wise is making to people’s understanding of their options under the pension freedoms. This evaluation is also recording customers’ intentions shortly after their Pension Wise appointment and any actions they have taken about three months after their appointment.
The body will be about equipping people with the knowledge they need to make better-informed decisions, and ultimately to improve their financial well-being. As a result, measuring the performance of the body to ensure it delivers improved outcomes for members of the public will be essential. The Government will be accountable to Parliament for the impact of the body; designing the right set of indicators is therefore crucial. My belief is that this should be done by the people who will be responsible for running the body, in conjunction with government and, of course, drawing on evidence from stakeholders.
Effectively measuring the outcomes for customers of its activities will be crucial to the new body. It will be essential for it to be able to demonstrate that it has, in exercising its functions, delivered against its objective to improve people’s ability to make informed financial decisions. The body will report on the body’s activities, including an assessment of its progress towards meeting its performance indicators in its annual report. The annual report will be published, as noble Lords will know, and the Secretary of State must lay it before Parliament.
Finally, Amendment 56, tabled by the noble Earl, Lord Kinnoull, would require the body to,
“provide reasonable assistance in the interpretation of”,
the standards to its delivery partners. This is a perfectly reasonable suggestion. However, I hope he will agree that it is not necessary to set this out in legislation because we expect the body to have a strong, collaborative relationship with its delivery partners, large and small, offering help and support as required. It is, after all, in the body’s best interest to ensure that delivery partners understand the expectation it has for the standards of delivery.
We have to keep bearing in mind that the FCA has a statutory objective to protect its consumers. Its work to protect consumers covers a wide range of activities. The FCA acts to ensure that a firm has its customers at the heart of how it does business, giving them appropriate products and services and putting their protection above profits or remuneration.
In building and maintaining these relationships, we would expect the single financial guidance body to build on the good practice followed by the existing service providers. For example, MAS regularly meets delivery partners to discuss expectations and requirements, including encouraging them to respond to upcoming consultations or helping them with research and evaluation design. These discussions happen within a formal performance review framework, which involves quarterly reviews that cover detailed discussion on strategy, service delivery, quality and compliance. Monitoring the quality of the service to the public, whoever provides it, will be part of a continuous good governance activity for the body, which will monitor compliance with the standards to manage risks and address any problems as they arise. This will of necessity include ensuring that delivery partners have a clear understanding of what the standards mean in practice. It will be in the interests of the body to ensure that delivery partners understand what is required of them, and to provide help and support where necessary.
In conclusion, this has been an important debate, scrutinising the crucial issue of the standards for the services provided or commissioned by the single financial guidance body. I hope to have convinced the Committee that the outcomes sought by tabling these amendments are largely already achieved through other mechanisms. I very much take on board that two words the noble Earl, Lord Kinnoull, referenced—“friendly” and “helpful”—are a really important part of the process. I urge noble Lords to withdraw or not press their amendments on the basis of my explanations.
I thank the Minister for a very full response. There were points where I felt she was in a bit of a hole and continuing to dig, and we may well have to come back to them. They were largely in response to the rather sharp questions posed by the noble Lord, Lord Deben, on which I do not think we have reached the end of the journey. We will need to come back to this.
It was very nice to see support from the noble Earl, Lord Kinnoull, and the noble Baroness, Lady Altmann, on different aspects of the same thing. As the noble Earl said, the fact that we have eight amendments in this group and a few more in the next on this area shows that this part of the Bill is not as well baked as some of the rest of it. There are areas that we have some concerns about, but I will read what was said in Hansard and we can perhaps pick up some of the points in correspondence before we come back on Report.
I wonder, however, whether we are not in a bit of a car crash—a hard word to use. I do not think the Bill has quite taken the trick here on a number of the issues that have surfaced. First, we have a body called the FCA which has responsibility for overseeing operations in the financial services area, but its remit, as we have pointed out on a number of occasions, has a different focus from that which we expect for the SFGB. With its overriding responsibility for making sure that markets are fair and that competitive markets are operating in those areas, it is not right for the Minister to say that the FCA can be relied on to have regard to the position of consumers. Indeed, our debate last Wednesday on amendments on exactly this point, which were supported right around the Committee, pointed out a number of glaring exceptions to the feeling that all was all right in this world in relation to those who are generally called vulnerable customers. These range across those not included in any financial arrangements at the moment, whether by desire, function or mental or physical disability. These people who do not currently participate, cannot currently participate and are not finding the services and opportunities for participating that they would expect to find will not be served if the end result of this operation is the FCA’s mode of operating and not what we currently have, which is much more consumer-led. We shall have to come back to that.
On what the standards are doing and how they are operating, enough has been said in Committee to feel that there is a bit of uncertainty about exactly what is being done here. In pensions, where there is direct provision, the standards are internal and operating, but they will not be the same in the debt space, where very expert bodies, which, as the Minister said, have been doing this work for some 30 years, will not take it kindly if some new body, although it has a history as a previous organisation, starts setting standards without consultation and without some sort of specification. I hope the wording is sufficient to take that point.
If we are in a situation where all the services are to be done under existing regulations, does that imply that bodies not currently in the UK might also have to be offered the chance to bid for these services? Presumably this will be done under the EU procurement directives. Is that right? Will the Minister respond to me on that point, not necessarily today, but perhaps in writing? It changes the ball game if we are talking not about Citizens Advice but about a body with a similar but different name and perhaps the German republic offering to operate it because it is able to fulfil a document that has been prepared to elicit bids at an appropriate price. We might be heading for a bit of trouble.
Finally, there is advice and counselling. I am on a bit of a journey here, I confess. I was more firmly in favour of leaving things as they are when I started my work on this Bill than I am now. I am beginning to think there is a problem here because I do not think the consumer is with us in the way the Bill is being drafted. I do not think a consumer has the same expectation about the words “information”, “advice” and “counselling” as is displayed in the Bill, and I appeal to Ministers to use the time between now and Report to reflect quite hard on this. We have to be where the consumer is. If we are saying that there ought to be a body that can deal with people’s genuine need for information, advice or counselling about their financial situation—and I agree with that—we should not set preconditions about how, in what manner and under what regulatory framework that information, guidance and advice is to be delivered. There may be necessary constraints on what can be said, but it is important that we try to align this more closely with people’s motivations when they come forward. That is the first point.
The second point is that this body will not be the success that we all hope it will be if it cannot give the information that is being sought promptly and efficiently to the person making the request. We have already established that that will be difficult in the pensions area from day one, but we also expressed our hope, at Second Reading and subsequently in amendments, that it would be looked at very closely and, indeed, that the pensions dashboard would be under the ownership and control of that body.
It is very helpful that the noble Lord, Lord Stevenson, is giving such a full reply, but perhaps I may ask one question. He made a very interesting point in day two in Committee, saying that the whole problem of debt advice and guidance would have been resolved if we had gone down the path of having two separate bodies, one giving guidance and one giving advice. Is he therefore suggesting that if there were one single financial guidance body, we should expect that one person would have the expertise—for the convenience, in a sense, of the customer—to give all kinds of guidance and advice to one person, so that they would not have to be directed to other people to talk about specific issues?
That is a very good question. I think the answer is that yes, I am saying that; but I am also saying that it is probably impossible. I want to unpick that slightly. It would be fantastic if somebody approaching a body—let us call it the single financial body—primarily for debt advice also had embedded in their series of questions about their unmanageable debts the possibility of going in, or not going in, to an auto-enrolment situation for pensions, or has equity in a house that could be released which might resolve those things. At the moment, there is no way in which any one person could answer those questions effectively and efficiently. I think we all hope that that is where we will be at some point in the future, perhaps with much more use of automation and expert systems which would be able to take a person down a much longer and richer journey on these issues. If we build in barriers now to say, “Oh no, that’s guidance, not advice. We’re not going to go that way—we’re not even going to build a design or even think about how we might do that”, we will build in problems for ourselves further down the line.
We have a bit of time before the Bill goes to its next stages. I think I am asking whether we can use that time constructively to try to get really certain in our mind that, even if it is not the perfect solution, we are progressing with the right approach to this. As I said at the beginning of this little section, I had started on the basis that debt advice was straightforward and I understood it, and I was confident that I knew that because I had worked in the area. I am now not so sure. I have a feeling that we need a broader, higher-level definition that takes us a bit further down that route, where we think about things in terms of perhaps what is paid for and what is not paid for—anything which involves the offering up of clients’ money to be held in trust for them would need a completely different level of care and scrutiny and everything else.
Even with the simpler questions, such as whether people should join a new pension scheme or take money off an existing pension scheme—which will be real to the person asking them, although they may not be aware of the regulatory and other functions behind them—we might be making a terrible mistake. I am sorry to cast problems in what has already been a well-worked-through field—I know that a lot of this stuff has been discussed and debated ad nauseam and we should know better than this going forward—but my feeling is that we might have not quite got there yet, and we need a bit more help.
Before, I hope, the noble Lord withdraws his amendment, I should say that between last week and this week we in the department have constantly visited this issue, and we continue to do so. I do not want to test the patience of the Committee but I have further information on how this might work. I confirm that we will have meetings for all interested Peers so that we can discuss this in more detail between now and Report.
I am grateful to the Minister for that. I think that those meetings will be helpful and useful. In the meantime, I beg leave to withdraw the amendment.
Amendment 49 withdrawn.
Amendments 50 to 56 not moved.
Clause 6 agreed.
Clause 7: Monitoring and enforcement of standards
57: Clause 7, page 4, line 35, leave out subsection (1) and insert—
“(1) The single financial guidance body must monitor and report on its own and SFGB delivery partners’ compliance with the commissioning framework.”
My Lords, this amendment is really the second half of the debate that we have just been having so I think we can skip quite a lot of the introductory part and get straight to the main point. The focus in the amendment in my name—I think other issues will be raised by the noble Baroness, Lady Kramer, and the noble Lord, Lord Sharkey, regarding their amendments, as they bear on the matter in a slightly different way—is Clause 7(2)(b), which states:
“The FCA must, at least once in every three years, carry out a review of … how the single financial guidance body is monitoring and enforcing the standards”.
I have searched reasonably hard through the documentation and I cannot find out what that enforcement is. At the heart of my amendment is a probe—actually, a direct question—to find out what the enforcement would be. Is this in relation to commissioned services being given some sort of penalty? Are fines to be involved? Is it going to involve reporting them to the FCA for a rap on the wrist or worse by some disciplinary body that the FCA might have? We do not know about that and I do not think we understand it. The sensibility is right—there is no point in having standards and asking that they be informed if you cannot do something if they are not informed—but we need a bit more detail before we can take what is in the Bill as being the right approach to this.
In Amendment 59, which I am speaking to but not moving at this stage, the assumption is made that some movement has taken place on earlier amendments and that the SFGB is doing the process of commissioning through a set of standards and a framework. That amendment has been withdrawn so it does not apply, but I still think the sensibility is right. If we are going to ask for reviews, they should be in relation to a specific issue. As it stands, Amendment 59 would give a slightly more flexible framework for that than every three years because it would relate to the success or otherwise of a judgment made by the SFGB on whether or not the work it is doing was going well, and therefore it would have a bit more teeth. I beg to move.
My Lords, I will speak very briefly to Amendments 58, 60 and 61, tabled by my noble friend Lady Kramer and me. We agree with the Bill’s requirement in Clause 7(1) that the SFGB must monitor its own compliance with standards and that of its delivery partners. However, we feel that the results of this monitoring should be in the public domain; in fact, it would be extraordinary if they were not. Our Amendment 58 would rectify what seems to be an omission. It says simply that the SFGB must produce and place in the public domain an annual report of its assessment of its own, and its delivery partners’, compliance with the standards. We hope that this is completely uncontroversial and the Minister will feel able to accept the amendment.
Amendment 60 is equally simple and straightforward. In Clause 7, dealing with the monitoring and enforcement of standards, and in subsection (3), the Bill lists those to whom the FCA must provide a report on its review of whether the standards continue to be appropriate and how the SFGB is monitoring and enforcing those standards.
The Bill specifies that the FCA must provide its report to the SFGB and to the Secretary of State, but there is no mention of Parliament and we think there should be. Parliament will have set up the SFGB. It is a matter of transparency and accountability that Parliament should also have sight of the FCA’s report. Our amendment simply adds Parliament to the list of those to whom the FCA must provide its report.
In Clause 7(4), the Bill provides that the FCA’s report may contain recommendations to the SFGB. But that is it—the Bill does not say what should happen when the SFGB is in receipt of these recommendations. Clearly, something should happen and it should happen in public. Our Amendment 61 provides for this. It simply says that when the SFGB is in receipt of recommendations in an FCA report on its review, the SFGB must then publish a substantive response within three months to any recommendations made by the FCA.
The changes proposed, I hope, in all three amendments are completely uncontroversial. They are nothing more than an application of the principles of transparency and accountability to this new public body. We hope that the Minister will see their merits and feel able to accept them.
My Lords, I have some sympathy with the amendment moved by the noble Lord, Lord Stevenson, which reflects the concerns expressed by StepChange. I understand that the SFGB is to carry out its commissioning function by setting standards for advice, whereas I think the Bill casts the body in the role of a kind of second regulator. That is also made clear by the amendments of the noble Lord, Lord Sharkey, which deal with the same thing. I worry whether the SFGB will become too like the FCA in terms of its culture. I had understood that it would set the standards which would enable the right partners to be commissioned, but if it has too many powers to act as a regulator, I am concerned that it will become more like the FCA and less sympathetic to consumer concerns.
My Lords, I have added my name to this amendment; I simply want to express my strong support for it, and to endorse the comments made by the noble Lord, Lord Stevenson. I apologise to the Committee because I was unable to be in the Chamber for the debate on the previous group of amendments where again, I had added my name. The debate was important and I hope that we will come back to it on Report.
My Lords, I thank noble Lords for Amendments 57 to 61. Clause 7 requires the single financial guidance body to monitor and ensure compliance with its standards. It requires the Financial Conduct Authority to periodically review the standards, and how the body is monitoring and enforcing those standards. After completing its review, the FCA is required to provide a report for the single financial guidance body and the Secretary of State. Once again, I reassure the Committee that the standards will not apply to all debt advice providers. These standards will apply only to the body itself and its delivery partners.
First, I shall address the Amendments 57 and 59, tabled by the noble Lord, Lord Stevenson. I have made the argument previously that the framework set out in Clauses 6 and 7—for the body to set and monitor compliance with quality standards—is the right mechanism for assuring the quality of the services provided by or on behalf of the body. I refer the noble Lord to our discussion on Clause 6, where we discussed the proposed commissioning framework for the procurement of services. There I made the point that it was unnecessary specifically to require the body to publish a commissioning framework, since we would already expect the new body to publish its requirements and expectations, with adequate time for prospective delivery partners to prepare their propositions. I also pointed out that, when contracts are above a certain value, the body will be required to comply with the public contracts regulations, including the requirements to advertise its requirements and undertake a competitive tendering exercise. We hope that those expectations and requirements on the body meet the spirit of the noble Lord’s amendments.
The noble Lord’s proposed commissioning framework would also have replaced the requirement on the body to set and monitor compliance with quality standards. I made the argument that the standards actually play a different role to a commissioning framework, in that they will assure the quality of the services provided by the body and its delivery partners. The standards therefore play the crucial role of enabling members of the public to have confidence in the services that they receive.
I disagree with my noble friend Lord Trenchard that there is a concern about the possibility of the culture of the FCA becoming similar to the culture of the body—or maybe that would be a good thing. The body would not necessarily be influenced by the culture of the FCA, because it has a statutory duty to put the consumer first, as I said under the last set of amendments.
I am sorry to interrupt, but I think that we have had this debate before. It is not right to say that the primary purpose of the FCA is to give the consumer pride of place. That is not what it says in the statute. We had endless discussions about this when this was going through the House, and the Government were adamant that it was an economic regulator and that the main focus had to be on the efficiency of the markets that it served. I think that the noble Baroness, Lady Kramer, made the same point on Wednesday. I understand why the Minister would want to say that, and I am sure from discussions with the FCA that it has regard to consumers and their interests—but there is no consumer representative on the board of the FCA. It has a consumer panel, but it is not allowed to have a main position. I think that there is a representative with an Australian background on the board who has some expertise in consumer affairs, but that is not the same thing as building in from the bottom and ensuring throughout the work of the FCA that it focuses on the consumer, which is the impression that the Minister gives.
I hear what the noble Lord says, but the FCA has a statutory objective to protect consumers. It is clear that the culture of the body will be different, not least because its focus will be to provide a customer-focused service. I hope that that is helpful.
I turn to Amendments 58, 60 and 61, tabled by the noble Baroness, Lady Kramer, and the noble Lord, Lord Sharkey. These would require the single financial guidance body to produce and publish annually a report of its assessment on compliance with the standards; the FCA to additionally lay a copy of its periodic report on the body’s standards and monitoring framework in Parliament; and the body to publish a substantive response to any recommendations made by the FCA in its report within three months of the FCA providing the body with the report. I agree that it is vital to ensure that the public are confident that the body delivers consistent good-quality information, guidance and advice either itself, or through its delivery partners.
It is also right and proper that the body should be accountable for the quality of the service that it provides, either directly or through others. The standards will form part of that assessment. Responsibility for monitoring compliance with the standards rests with the body itself. This reflects the fact that it is intended to be an independent, self-governing body. Like any other service provider, monitoring the quality of the service that it or its delivery partners is providing to the public will be a routine, good governance activity. The board will want assurance that the services being provided to the public meet the standards it has set. We expect the body to design and implement a standards framework to support this, and regularly to report findings and recommendations from this activity to the board. The body will need continuously to review its service standards to ensure that its services remain focused on the needs of its customers.
The Department for Work and Pensions will, as part of its regular accountability reviews with the chief executive, require the body to provide assessments against key performance indicators, including compliance with the standards. As a further safeguard, the FCA will periodically review whether the standards continue to be appropriate and whether the processes the body has established to monitor and enforce compliance with them are robust. The FCA will provide the SFGB and the Secretary of State with a report on its review. These reviews will take place at least once every three years, allowing the FCA to carry out a review more regularly if necessary. As part of its review, the Financial Conduct Authority may make recommendations on how the processes could be improved or recommend that certain standards need to be reviewed. If it does, these recommendations would be addressed by the board, and worked through with the support of the DWP, the FCA and its delivery partners.
To successfully deliver services that meet its standards, the body will need to have a strong working relationship with the FCA and its delivery partners. For example, the FCA currently meets regularly with the Pension Wise team and each of the Pension Wise guidance providers to discuss how the Pension Wise standards are being met, and to constructively work through any issues. The Bill already requires the body to produce an annual report at the end of each financial year, which must cover its activities in relation to the exercise of its functions. The Secretary of State must lay this report before Parliament, and the body will be required to publish it. As a key indicator of its performance, it would be inconceivable that the body would not provide detail in its annual report on how both it and its delivery partners performed against the standards, and on the effectiveness of its monitoring arrangements.
Where the FCA has carried out a review of the body’s monitoring and enforcement of the standards, we would expect the body’s annual report to cover any recommendations made by the FCA and how the body has responded to them. In addition, the Secretary of State has the ability to issue a direction to require the body to include such information in its annual report if necessary. I agree that it is important that there be transparency in this process, but this should not come at the expense of unnecessarily compromising the body or its delivery partners. If problems are uncovered by the FCA then of course these should be tackled, but the FCA review is not just about identifying negative points. It also involves assessing whether to raise standards to ensure services to the public are continuously improved. The body should, of course, give an account of its performance and detail on how it has tackled any issues, but as I have explained, this should take place in its annual report, allowing it time to address and improve matters.
In conclusion, I believe that there are already measures in the Bill and elsewhere which provide sufficient scrutiny of the activities of the single financial guidance body, and I urge the noble Lord to withdraw the amendment.
I thank the Minister for her very full reply, which I look forward to reading in detail in Hansard; we will consider what she has said. The noble Viscount, Lord Trenchard, made a rather good point on a common theme which we need to come back to. Two regulators doubling up—having a second one—is a worry, and we need to make sure that the statute reflects the difference between the two, if there is to be one. He is right to make that point. I thank the noble Baroness, Lady Meacher, for her support. We anticipated it when discussing a previous amendment, when she was not present, so her name is recorded in Hansard in that regard.
What I am missing from the long response—I mean that in a positive sense; I welcome a long response—is a sense of what enforcement there is in practice. I would be grateful if the Minister wrote to me about that. It is important for people hoping to engage with the SFGB that they should understand what they are going into. The relevant word is in the Bill.
I return to the difference between the FCA and the SFGB in terms of consumers. I am grateful to my noble friend Lord McKenzie for providing me with the evidence submitted by the Financial Conduct Authority to the Lords committee dealing with financial inclusion, which stated that when considering what degree of protection for consumers may be appropriate, the FCA must have regard to, among other things, the differing degrees of experience and expertise of different consumers. Therefore, we are not talking about a single response. We are also required to have regard to the general principle that consumers should take responsibility for their decisions. That is hardly putting consumers at the very forefront of the decisions. The FCA recognised that consumers can do this only if they have access to appropriate financial services that meet their changing needs, and that under its objective to secure an appropriate degree of protection for consumers, regard must be had to consumers’ need for timely provision of information and advice that is accurate and fit for purpose. In other words, this is entirely about market-facing competition and efficiency, not those in vulnerable circumstances. In the interim, I beg leave to withdraw the amendment.
Amendment 57 withdrawn.
Amendments 58 to 61 not moved.
Clause 7 agreed.
62: After Clause 7, insert the following new Clause—
“Offence of falsely claiming to be giving guidance and advice on behalf of the single financial guidance body
(1) It is an offence for a person who is not giving pensions guidance, money guidance or debt advice on behalf of the single financial guidance body—(a) to describe themselves (in whatever terms) as a person who is doing so, or(b) to behave, or otherwise hold themselves out, in a manner which indicates (or which is reasonably likely to be understood as indicating) that they are doing so.(2) In proceedings for an offence under this section, it is a defence for the accused to show that the accused took all reasonable precautions and exercised all due diligence to avoid committing the offence.(3) A person guilty of an offence under this section is liable on summary conviction—(a) in England and Wales, to imprisonment for a term not exceeding 51 weeks or a fine, or both;(b) in Scotland, to imprisonment for a term not exceeding 12 months or a fine not exceeding level 5 on the standard scale, or both;(c) in Northern Ireland, to imprisonment for a term not exceeding six months or a fine not exceeding level 5 on the standard scale, or both.”
My Lords, Amendment 62 seeks to make it a criminal offence for a person to mimic, impersonate or behave in a way which indicates that they are giving advice and guidance on behalf of the single financial guidance body when they not in fact giving guidance on its behalf and are not authorised to do so. This is not a novel proposal. Under existing legislation, it is a criminal offence to impersonate Pension Wise. This provision would not stop every organisation seeking to use or mimic government initiative statements to give credibility to their approach to attract members of the public, but it would be a powerful deterrent. A deterrent is definitely needed because the human cost of receiving fraudulent, wrong, conflicted or partial guidance from organisations or persons who win people’s trust by misleading them into believing they are acting under an authorised government initiative can be just dreadful, leading to irreversible financial losses, life-changing losses, debt and more.
Those vulnerable to the activities of the misleading, mimicking guidance operators are not only the struggling, the stretched and those with more basic levels of numeracy and literacy, although their needs are very important; in the context of finances, those individuals who are vulnerable and at risk go up the income chain as consumers deal with products and services that can be diverse, complex and rapidly changing. Those with retirement savings, for example, are usually people who have typically had good and sustained periods of employment over their working life and have usually compulsorily or voluntarily set aside money aside for their later life. These impersonators can be ingenious in their hunt to claim fresh victims, as a recent press release from the Pensions Regulator demonstrated when it warned that,
“rogue pension websites that are carrying anti-scam messages to try to trick consumers into believing that they are legitimate businesses”.
Some even imply they are regulated by carrying warning messages designed to prevent people falling victim to scams. These imitators are using material owned by the regulators or other government initiatives to impersonate and mislead the public. Therefore, in this instance, a mechanism designed to protect consumers is now used to dupe them.
The deterrent of criminal proceedings is needed not only to protect the public and the integrity of the services of the new financial guidance body but to protect the legacy names of its predecessor bodies, such as Pension Wise and the Pensions Advisory Service, names which the public will continue to recollect for some time before they recognise and internalise the name of the new body. It must be a criminal act to mimic not only the new brand but any of the existing brands that will move into the new single financial guidance body.
The Government thought it necessary to make an explicit criminal offence to imitate Pension Wise but no provision is contained in the Bill for it to be an offence to mimic the new financial guidance body. At Second Reading the Minister commented that there was no need for such a criminal offence provision in the Bill, as:
“The brand and service offer of the new body will be protected by existing stringent criminal offences under fraud and copyright laws”.—[Official Report, 5/7/17; col. 946.]
However, that view was not considered sufficient to protect the public from operators imitating Pension Wise—such imitation was made a specific criminal offence. I remain concerned that the absence of a specific provision to make it a criminal offence to mimic the new financial guidance body is a weakness in the Bill. Why was it considered appropriate to create a specific criminal offence of imitating Pension Wise rather than relying on existing fraud and copyright laws? Which existing legislation would ensure that any form of imitation of the new financial guidance body was a criminal offence, and why is that not referenced in the Bill? How will the Government ensure that imitating any of the existing brands that will move into the new single financial guidance body, including Pension Wise, will continue to be a criminal offence? I beg to move.
My Lords, I strongly support the amendment moved by the noble Baroness, Lady Drake. This is an area where we need belt and braces—every mechanism that we can to make the new body and the services that it will deliver resistant to the scammers, who are ingenious beyond the capacity that most of us find credible, until we experience or hear about a scam ourselves.
In many cases, when people seek advice or guidance over an important matter in their lives, they turn to an organisation in which they have built trust over many years, where they have a whole series of experience and where they have neighbours and friends who share that experience. From that, they can be quite informed in choosing to whom they turn. However, that tends not to be true in the kind of issues that this body will deal with. People who are under debt pressure often panic when they finally reach the moment when they feel they must turn to somebody. It makes them particularly open to scammers, who will do things such as charging them, taking commission and exploiting their vulnerability at that moment. In the area of pensions people are exceedingly confused and, again, are hesitant to turn to names that they might know or which are well established for fear that they will meet a sales opportunity. Therefore, someone who sets themselves up as providing impartial advice suddenly becomes productive. Again, they have no testing mechanism due to previous experience of that body.
Therefore, in supporting the noble Baroness, Lady Drake, on this amendment, we very much seek belt-and-braces protection for consumers, recognising that people are increasingly vulnerable to scamming, particularly with modern instruments such as the internet. The Government need to be motivated to make sure that real and significant protection is in place.
My Lords, I too support the thrust of this amendment moved by the noble Baroness, Lady Drake, and the remarks of the noble Baroness, Lady Kramer. I hope my noble friends on the Front Bench will take seriously the efforts being made around the House to improve protection for consumers. I whole- heartedly support the aims of the Bill and I congratulate my noble friends on bringing it before the Committee, but adding to it measures such as this would very much strengthen protection for the public.
My Lords, I support my noble friend, who has drawn a strong parallel with the experience of Pension Wise, with which she was heavily involved. She made the point that it is not only those who might be termed traditionally vulnerable people who are at risk from the ingenuity of impersonators but those who might be more sophisticated.
I should like to make a brief reference to paragraph 17 of the memorandum that the DWP sent to the Delegated Powers Committee. It says:
“Deferring the announcement of the name will also help protect the new body’s brand and reduce the likelihood of the setting up of ‘imposter’ websites as a means of deceiving and defrauding the public. Imposter websites could put members of the public at risk”,
“were an issue when the Pension Wise brand was launched”.
If they were at risk before the naming of the body, what will give strong protection once the body is named? That seems to be the thrust of my noble friend’s amendment, which I support.
My Lords, the co-pilot is back. I thank the noble Baroness, Lady Drake, for tabling this amendment, which would make it a criminal offence to falsely claim to be giving pensions guidance, money guidance or debt advice on behalf of the single financial guidance body. She set out very clearly the devastating impact that misleading or criminal advice can have on people’s lives. Both she and the noble Baroness, Lady Kramer, identified the ingenuity and adaptability employed by scammers and fraudsters to con people.
I was very interested in this amendment and made inquiries to see who would be caught by it. Clearly, people who claimed to give advice on behalf of the SFGB, or whatever it is called, would be caught but, as it stands, I understand that it would not cover someone pretending to give advice on behalf of a delivery partner. The noble Baroness may like to think about that.
Protecting people from financial fraud and scams is important, and I say to my noble friend Lady Altmann that the Government take it very seriously. Anyone who has served in another place will have seen at first hand the devastating impact that this can have on people’s lives. We will come on to cold calling when we reach Clauses 16 and 17.
Ensuring that people have confidence in the financial guidance and debt advice provided by, or on behalf of, the SFGB will be central to its success and to the success of other government policies to improve people’s financial well-being. This is a matter that we have explored in depth with the existing service providers—the MAS, TPAS and Pension Wise. As the noble Baroness said when she moved her amendment, of those three, only guidance provided under the Pension Wise banner is covered by a specific measure making it an offence to falsely claim to give such guidance. The MAS and TPAS rely on existing criminal offences.
In response to the speeches made, we have considered very carefully whether to go down the Pension Wise route and create a new, bespoke offence to cover all the single guidance body’s guidance and advice services. We have weighed up whether there is evidence to suggest that a bespoke offence would have any greater effect than existing criminal offences, taking into account that the Pension Wise offence has never been used in a prosecution.
There are already criminal offences that would cover imitation of the new body; again, the noble Baroness referred to these. For example, if an individual was misled by someone dishonestly claiming to give guidance or advice on behalf of the body with the intention of causing financial loss, this would amount to an offence. In England, Wales and Northern Ireland a person could be prosecuted under Sections 1 and 2 of the Fraud Act, and in Scotland such conduct would likely amount to the common-law offence of fraud.
In addition, under the Consumer Protection from Unfair Trading Regulations 2008, Regulation 9 makes it an offence to advertise or market a service in a manner that deceives or is likely to deceive the average member of the public. If that advertising or marketing causes or is likely to cause an average person to take a decision they would not have taken otherwise, again, this is an offence. This would make it a criminal act, for example, for scammers to use the logo of the new body.
Offences under the Fraud Act are subject to a maximum term of imprisonment of 10 years and offences under the Consumer Protection from Unfair Trading Regulations carry a maximum term of imprisonment of two years. As a deterrent, both maximum terms are significantly greater than the maximum 12 months envisaged by the amendment.
For these reasons, and having listened to the arguments, our assessment is that there are already existing offences which will provide for the single financial guidance body to take action against people claiming fraudulently to be delivering its services or using the body’s brand and reputation to mislead members of the public. Where people seek to scam and defraud by falsely claiming to be acting on behalf of the body, they will be liable to prosecution under existing offences, leading to the possibility of a custodial sentence. We believe that the protections in existing offences are sufficient and I therefore urge the noble Baroness to withdraw her amendment.
I thank the Minister for his response. I am not sure all my questions were answered, particularly on how to protect from the mimicking of existing bodies that go into the organisation, while they still have credibility, until the new body’s name becomes absorbed by the public. However, in responding to his points, I borrow the phrase of the noble Baroness, Lady Kramer: the Bill needs to be belt-and-braces in terms of it being a criminal offence to mimic this body.
The new body’s guidance will influence people’s decision-making—that is why it is being set up. It recognises a market failure and many consumers who would use the guidance service could be at risk if they go in the wrong direction and to an organisation which is mimicking it. I note the Minister’s point that my amendment would not cover all the circumstances of the criminal offence, but the fact that my amendment could be improved is not a reason for not having explicitly in the Bill a provision that expressly says it is a criminal offence to mimic this body.
There are two strands to my argument: first, it should be expressly in the Bill that it is a criminal offence to mimic, impersonate or imitate the service of the single financial guidance body; and, secondly, there must be some reference to the legislation under which that would be an offence. A Bill would normally refer to the legislation or spell out specifically new legal provisions about the criminal offence. At the moment, however, the Bill is silent on the issue. That is a gap in the Bill. I beg leave to withdraw the amendment.
Amendment 62 withdrawn.
63: After Clause 7, insert the following new Clause—
“FCA: requirement to signpost to the single financial guidance body for pension guidance, money guidance and debt advice
(1) The Financial Services and Markets Act 2000 is amended as follows.(2) After section 137FBB insert—“137FD FCA general rules: requirement to signpost to the single financial guidance body for pension guidance, money guidance and debt advice(1) The FCA must make general rules requiring information about the availability of pensions guidance, money guidance and debt advice from the single financial guidance body to be given by relevant organisations to any category of individuals who may benefit.(2) Before the FCA publishes a draft of any rules to be made by virtue of this section, it must consult—(a) the Secretary of State;(b) the Treasury; and(c) the single financial guidance body.””
My Lords, Amendment 63 places a requirement on the FCA to make rules requiring information about the availability of advice and guidance from the new body to be given by relevant organisations to individuals who would benefit from it—otherwise referred to as signposting.
If the new body is to deliver on its function to increase people’s ability to manage their financial affairs, there needs to be public use of the guidance. It has to have extensive reach. Experience shows that simply relying on high levels of marketing expenditure is not a cost-effective way of engaging with the public, although from time to time there may be a good reason for running a focused bespoke campaign and, in certain defined circumstances, there is a role for compulsory referral to the guidance service.
Two effective levers for driving public use—they are not exclusive but they are effective—are achieving high levels of public trust by delivering a service which has a spreading reputation for impartiality and efficiency, and the relevant organisations such as market providers and other key bodies actively signposting those who would benefit from it to the guidance available. Evidence of the public need for guidance has been well rehearsed in this Chamber. Research by the Money Advice Service reveals that across a range of measures, financial capability and resilience has got worse over the past 12 years, and other reputable data sources confirm this. Effective signposting will improve the public use of guidance and, in some circumstances, address the known barriers put in place by some providers who are reluctant to see their customers accessing impartial guidance for fear that it increases the risk that they will not buy a product or a service from them. Effective signposting means not just compliance but organisations actively promoting the guidance service.
The Government expect the FCA to review its rules on signposting, but that leaves room for ambiguity, argument and yet more consultation. This amendment would remove any ambiguity and would put into the Bill a requirement on the FCA to set rules to secure the effective signposting to guidance for those most likely to benefit from it. On pensions guidance there is currently a legal requirement on providers to signpost to Pension Wise. DWP figures show that of the people who use Pension Wise, 58% heard about it from their provider and only 8% from advertising. The take-up of Pension Wise has been modest, but I suspect that that is in part because some providers have not actively signposted and in part because, in the first year of pensions freedom, those accessing pots would have included many for whom their DC or AVC pot would not have been a significant part of their retirement income. That will change over time as DC savings become more dominant. The use of guidance will increase, as indeed the Pension Wise figures are increasing.
Signposting to TPAS dispute services is captured in various occupational, personal and local government pension scheme regulations—some 12 sets in all, I think. My amendment would strengthen the FCA duty to set rules on signposting across the financial guidance space. Signposting needs to happen at the right point for those who would benefit from it and be actively supported by providers and other relevant organisations. The ABI has worked with the existing guidance bodies on signposting, such as on the template for Pension Wise, with the result that more people hear about the service through that route. They have indicated that they want to work with the FCA and DWP to improve communications and promote the use of Pension Wise as the norm.
But there is no unanimity of view in the industry. Some providers set up guidance units as part of their own commercial proposition and not all will want to actively signpost customers to impartial and independent guidance which could impact on their own company sales and customer retention. It is estimated that, by 2030, workplace defined contribution schemes will hold £1.7 trillion, five times the £340 billion held in 2015. As DC savings become the new norm, the need to support consumers will increase. The FCA’s recent Retirement Outcomes Review Interim Report scopes the problem well, observing that pension freedoms have made retirement decisions much more complex than ever before, and that consumers can struggle to understand their options and to think through the implications, leading to decisions which may not be best for them. They can choose the “path of least resistance” on drawdown and stay within the walled garden of their existing provider without shopping around. Some 94% of non-advised drawdown sales were made to existing customers. Some consumers cannot, or will not, engage with these decisions. Not all of them will take advice because of its cost and availability— a market gap.
The FCA expressed concern about whether a competitive market in retirement products can develop in the future and is looking at four areas of remedy, including getting savers to make greater use of the free guidance available from Pension Wise, the Pensions Advisory Service and their successor body. The FCA explicitly recognised the limitations of more disclosure, favouring more support and guidance, but observed that would require co-operation across government, regulators and industry.
The money guidance function of the new body responds to the need for people to take responsibility for their own financial affairs, but an inability to access, engage with or use the financial products and services they need over their lifetime can undermine their ability to do so. Failure to access products and services can arise for a variety of reasons: the complexity of products, processes, inertia, inability to engage with technology and not being wanted as a consumer. Consumers shut out of mainstream financial services are more likely to use the cash and alternative providers, so are more vulnerable; but when it comes to financial products, vulnerability is not restricted to people on low incomes, but includes those with the means to buy the products.
An FCA paper on access to financial services observed that there is a,
“tension here between what consumers are expected to know, find out for themselves or learn through financial education initiatives and what firms are willing to provide in terms of individualised help, advice and information … there are doubts that any amount of financial education can adequately equip consumers to deal with products and services that are diverse, complex and rapidly changing, particularly when consumers’ behavioural biases tend to interfere with rational decision-making”.
The FCA identified for consideration encouraging or requiring firms to signpost customers with problems, or who they have rejected, to other organisations that might help them.
Getting customers to seek money guidance needs a pull where there is no trigger to propel them toward it. The industry can control the experience of the customer, which strengthens even further the need for effective and active signposting to guidance. There is often a trigger for the need for debt advice: lenders insist or credit is cancelled, for example. The signposting needs to be both efficient and sensitive, having regard to the vulnerability of individuals. It will need to involve not-for-profit organisations, including those debt charities working in partnership with the single financial guidance body.
Individuals can be pulled to guidance by compulsion, default or signposting, all of which have a role to play in different circumstances. Amendment 63 places on the face of the Bill the pull of effective signposting to get the consumer to engage with the guidance service. I beg to move.
My Lords, I very much thank the noble Baroness, Lady Drake, for her amendment. I agree with much of what she said, but her amendment would amend the Financial Services and Markets Act 2000 to require the Financial Conduct Authority to create a new rule. That would require all relevant firms regulated by the FCA to signpost their customers to the new single financial body.
The noble Baroness outlined her concerns on the matter on Second Reading. She said:
“There should be a requirement on the industry and relevant players to clearly signpost the services of the new body to the public”.—[Official Report, 5/7/17; col. 919.]
The Government agree with the noble Baroness that signposting has an important role to play in helping to improve public access to guidance. A key challenge for the body will be promoting its services in an effective and efficient way to ensure that those who need support can easily access it.
The new body will need to think creatively about how it works with the financial services industry, the devolved Administrations, and the public and voluntary sectors to target and promote the services it offers. The FCA is clearly a key player in this. Both the Government and the FCA are determined to help members of the public to take advantage of the financial guidance available to them. We envisage that signposting by authorised firms will be a crucial way of encouraging people to engage with the new body.
I should note that the FCA already has some measures in place to ensure that firms promote the Money Advice Service’s guidance offering. To take one example, consumer credit firms cannot communicate a financial promotion with relation to high-cost short-term credit without a risk warning that points consumers to the Money Advice Service. However, the Government believe that the FCA should review its current rules and expand them where necessary. The creation of the new body provides an excellent opportunity for such an exercise to be conducted. Indeed, the Government’s response to the most recent consultation noted that they expect the FCA to review these rules in the light of the creation of the new body so that individuals are signposted to the body by industry at moments when they are most likely to benefit from guidance. I am pleased to say that the FCA has now committed to updating its current measures and, where appropriate, will look into creating new rules to increase uptake of the new body’s services.
I will offer a couple of further examples of current FCA rules that I hope in some way respond to the noble Baroness’s concerns. For example, if the customer falls into arrears on a regulated mortgage contract, a mortgage firm must provide a customer with a Money Advice Service information sheet called Problems Paying Your Mortgage in 15 days. In its first communication with a customer a debt management firm must inform customers that free debt counselling, debt adjusting and provision of credit information services is available and that the customer can find out more by contacting the Money Advice Service. Also, a debt management firm must provide a link on its website to the Money Advice Service’s debt advice locator tool.
In the light of the FCA’s commitment to review its rules, create new rules and increase uptake of the new body’s services, I do not believe that legislation is required to achieve the worthy aims set out in the noble Baroness’s amendment. I am grateful to her for giving me the opportunity to put on record the Government’s view on this very important matter. Having done so, I hope that she will be prepared to withdraw her amendment.
I thank the Minister for her reply. My amendment does not seek to set down in detail what the FCA’s rule should be or specifically cover, or whether it should require signposting in every instance. The driver is that there should be signposting where those individuals would benefit from guidance. That is obviously a judgment to be made in the circumstances that would apply.
Although the Government expect the FCA to review its signposting rules, a review is a review—that is what it is. There will be lots of discussions and consultation. Not everybody in the industry will support active signposting. Putting the duty on the FCA in the Bill removes any ambiguity about the fact that, to get the public to engage with the guidance service, there has to be an effective system of active signposting by providers and organisations relevant to the service. It is a simple proposition: the new guidance body will fail in its strategic objectives if it does not get public use of the service it provides. It would be a wonderful Rolls-Royce service; it is just nobody would be using it. We know in many instances that the behaviour of the provider defines the consumer experience. There is merit in putting in the Bill that the FCA has a duty to come up with signposting rules that will ensure that those who benefit the most from guidance will be actively and effectively signposted. I beg leave to withdraw my amendment.
Amendment 63 withdrawn.
Clause 8: Financial assistance from the Secretary of State
64: Clause 8, page 5, line 16, leave out from “to” to end of line 18 and insert “consultation on the single financial guidance body’s funding settlement and such arrangements with SFGB delivery partners as the Secretary of State thinks appropriate (including conditions as to any loan repayments).”
My Lords, I shall speak also to Amendments 65 and 66. They bear on the financing arrangements for the new single financial guidance body. We have talked about how the money is to be raised and the change from the current arrangements, with a move away from a straight levy system within the financial sector to an arrangement whereby money goes to the Government and into the Consolidated Fund before being paid out in grants.
The amendments are not meant to be taken word for word, but probe the way in which the case for this funding is built up. Amendment 64 would make sure that the single financial body did not underestimate the amount of money it would require by virtue of not having sufficient information to hand about the costs that it would be likely to have to meet given the aspirations for it. An earlier amendment referred to assessing this on the basis of the likely number of those in need of financial advice being the main element in building up the funding envelope. Obviously, there is difficulty in trying to assess that. This amendment adds a little more in terms of the consultation and guidance.
It would be to the advantage of the Bill if it provided for a little more accountability for the funding received. We set out in the amendments the specifics, which may well be covered by other points that the Minister may raise when she responds. At the moment, there is nothing very much in Bill about monitoring the use of the funding and making sure that the information gathered is published, particularly for Parliament, so that due scrutiny can take place.
Amendment 66 deals with how funding is to be established for the national regions. There is nothing exceptional in what is being said in terms of the mechanics—I am sure that the Bill is drafted with due concern for the proprieties involved. A number of the bodies that will be in partnership with the SFGB, or funded by it, already operate in Scotland, Wales and Northern Ireland and offer direct services themselves. If the Treasury is to get information on that, as is specified in Clause 11(1), it will need information which it is not clear that it will be able to get—or, if it is, I have not spotted it—on the costs and expenses of the existing bodies operating existing services in Scotland, Wales and Northern Ireland and how that matches what the devolved Parliaments think should be spent there. There is a lacuna there on which I look forward to hearing a response. I beg to move.
My Lords, it is the co-pilot again. I thank the noble Lord for tabling these amendments to Clauses 8 and 11. Clause 8 provides for the Secretary of State to give financial assistance to the single financial guidance body; Clauses 9 and 10 provide for those expenses to be recovered respectively from the levy on pension schemes and through the financial services levy.
At Second Reading and in earlier Committee debates, the noble Lord has questioned this funding framework and the money trail, suggesting that it represents a fundamental change in the way in which things are done currently and that it would radically alter the way in which people operate, particularly in respect of the services provided by MAS. I am not sure that the changes are that fundamental, but, in any case, we think that they are both necessary and beneficial.
One criticism of MAS made by the Farnish review was that it lacked accountability for the activities it delivered and the money spent. As the noble Lord suggested, we need to learn lessons from our experience with MAS. These funding clauses provide a basis for strong accountability and governance arrangements. We want the body to have a clear focus on undertaking its statutory functions. As happens now with the existing organisations, the body will prepare an annual business plan setting out its planned activities and the associated budget required to deliver its proposals. That plan will be discussed and agreed with the DWP.
Each year, the Secretary of State will instruct the FCA to collect the financial services levy to meet the costs of debt advice as well as specific pensions guidance provided by Pension Wise. It will recover expenses for general pensions guidance from funds collected under the levy on pension schemes. Amounts to be collected under both levies are consulted on. The FCA consults annually on the amounts to be collected from the financial services levy and the DWP consults whenever the Government propose a change in the rates of the pension schemes levy. It is right—I do not think this was questioned—that the body’s activities are funded by the financial services industry and pension schemes. These are the industries that benefit from people being more financially capable and able to make better-informed financial decisions.
Before moving on to the amendments, I correct a reference made in the first Committee session about non-departmental public bodies and reserves. My noble friend previously indicated that NDPBs could not hold reserves. Officials reviewed advice on this and found that there are circumstances where it is possible for some NDPBs to hold reserves. However, the single financial guidance body should not need to hold reserves. It will be expected to properly evidence and forecast its requirements. The DWP will routinely review the body’s financial performance against plans and work with the body to resolve any significant issues as they arise. As such, we would expect the body to remain within its agreed spending limits.
Returning to the noble Lord’s concerns, the DWP learned from its partnership with other arm’s-length bodies that for the stewardship system to work well there must be clarity about expectations and the approach to assurance and accountability. Accountability and governance matters will form the basis of the framework document agreed between the DWP and the body. In very exceptional circumstances, for example to protect delivery where demand unexpectedly and rapidly increases, it may be necessary for the DWP to fund specific pressures. However, the expectation is that any additional funding would subsequently be recovered from the appropriate levy. There is no plan for taxpayers more generally to meet the costs of the SFGB. Conversely, should there be any unspent levy not drawn down by the body, we would expect to reduce the requirement made against the appropriate levy in subsequent years. Money collected from the levies to fund the body cannot be spent on activities unconnected to that body.
On Amendments 64 and 65, Clause 8 enables the Secretary of State to give financial assistance to the body in any form in connection with its establishment and to enable it to carry out its functions. This assistance is subject to conditions set by the Secretary of State. Amendment 64 would place a requirement on the Secretary of State to publicly consult on any financial assistance he intends to provide for the single financial guidance body. It also seems to require the Secretary of State, prior to providing any financial assistance to the body, to consult on the body’s arrangements with its delivery partners. As I indicated earlier, the body will be required to prepare annual business plans setting out its planned activity and proposed budget requirements. Those business plans will be published. In preparing its plans and as part of its strategic function, which we discussed earlier, the body will need to work closely with a range of stakeholders, including its delivery partners, industry, the devolved authorities and the public and voluntary sectors. The body’s assessment of what activities it will need to undertake and the funding it will need to support them will be informed and evidenced by this collaborative work. As a result, further formal consultation seems unnecessary.
Further to Amendment 64, it is not appropriate for the Secretary of State to consult on the arrangements the body makes with its delivery partners. I think we discussed this on Amendment 47A. It is vital that the new body has the autonomy to design and deliver its services to obtain the best outcomes for the public. However, it will not operate in a vacuum. The services it provides will form part of a wider financial guidance and debt advice landscape. Where the body decides to delegate delivery of its guidance or debt advice functions and procure services from other providers, we would expect it to publish its requirements with adequate time for any prospective delivery partner to provide propositions. We will seek a response to the interesting question raised by the noble Lord, Lord Stevenson, on whether this comes under the European public procurement directives and whether others can bid. For these reasons, we do not consider that the proposals in Amendment 64 are necessary or appropriate.
Amendment 65 proposes that the body must monitor its use of the financial assistance it receives, publish the results of that monitoring and then use them to inform the consultation process proposed by Amendment 64. I appreciate what the noble Lord seeks to do here but, again, I do not consider it necessary. Paragraph 14 of Schedule 1 sets out requirements for the body to produce an annual report on the exercise of its functions. It requires the body to,
“keep proper accounting records, and … prepare a statement of accounts in respect of each financial year”,
while the Comptroller and Auditor-General—the NAO—must,
“examine, certify and report on the statement of accounts”.
The report and accounts must be laid before Parliament and the body will be required to publish them. The Public Accounts Committee can, if it wants to, look at how public money has been spent by public bodies and the DWP and Treasury Select Committees could look at the SFGB in the context of the merits of government policy, as the SFGB will support both DWP and HMT policy.
The principles for managing public resources and the requirements placed on departments and public bodies in accounting for expenditure are set out in HM Treasury’s Managing Public Money. It will be for the body’s accounting officer, which is usually the CEO, to ensure that there is appropriate control and accounting for the single financial guidance body’s business. For those reasons, we do not think it necessary to include further requirements as proposed by Amendment 65.
Amendment 66 concerns funding for debt advice delivered by the devolved authorities. Clause 11 provides for HM Treasury to recover the debt advice expenses of the devolved authorities from the financial services levy. This amendment would place a requirement on the Treasury to consult relevant bodies involved in the provision of information, guidance and advice before instructing the FCA to collect funds in connection to the delivery of debt advice in the devolved nations. It may help the Committee if I set out the Government’s rationale for leaving the responsibility and, as a consequence, funding for debt advice with the devolved authorities.
During the public financial guidance review, the Government consulted the devolved authorities about proposals for reforming the public financial guidance landscape. As a result, the Government concluded that decisions on the use of funds for debt advice are best made locally, so that local knowledge is captured in decision-making. The devolved authorities currently deliver, among a broad range of things, guidance on housing and welfare reform. Leaving responsibility for debt advice with the devolved authorities will create opportunities for them to deliver joined-up services that reflect the needs of people in Scotland, Wales and Northern Ireland. This is a change from the existing arrangements but it has been welcomed by the devolved authorities, placing decision-making and accountability for the delivery of debt advice locally in each country.
HM Treasury officials and Ministers are working closely with their counterparts in the devolved Administrations to ensure that the devolved authorities will be appropriately resourced to provide for the delivery of debt advice in their nations. The Government expect to reach an agreement with the devolved authorities on the funding mechanism shortly. I am confident that this will place debt advice funding in the devolved Administrations on a secure footing in forthcoming years.
However, this does not mean that the new body and the devolved authorities will not work closely with each other for the benefit of people across the UK. As part of its strategic function and in exercising all its functions to achieve its objectives, the SFGB will be required to work closely with the devolved authorities. This will include sharing knowledge, insight and research as well as evidence of best practice. The amendment’s proposal that HM Treasury must consult relevant bodies before instructing the FCA to collect the funds in connection with debt advice delivery for members of the public in the devolved authorities is inappropriate. It would not be appropriate for HM Treasury to consult providers of debt advice on the funding settlement that it would already have reached with the devolved authorities.
When it comes to divvying up the costs—I think the noble Lord raised this issue—the body will be expected to monitor and report its spending against the separate expenditure headings. It is perfectly usual for arm’s-length bodies to have to apportion expenditure across multiple budget headings in this way. This will provide transparency about what expenditure is being met from different levies.
I thank the noble Lord for tabling these amendments. If I have not covered all the points, I will, of course, write to him, but they have given me the opportunity to explain in slightly more detail the money trail for the funding arrangements for the single financial guidance body. I am also grateful that this amendment has allowed me to provide the Committee with more detail on the funding arrangements for the provision of debt advice in the devolved nations. I hope that noble Lords are clearer about the provisions in Clauses 8, 9, 10 and 11 and that the noble Lord will withdraw his amendment.
I am very grateful to Minister in his capacity as co-pilot, first for the ministerial looping of the loop to allow him to correct the earlier misstatement about the role of reserves in NDPBs. We were concerned about that issue and we would have come back to it, so I am grateful to have the clarification that in certain circumstances—although he did not disclose them—it is possible for NDPBs to hold reserves. That accords with our experience.
Flying has lots of problems and hazards, and one is undoubtedly fog. The Minister did well when he was soaring high on some of the more general points, and I am very grateful to him for his full responses on the way the funding will operate. When they are read in Hansard they will be as clear as daylight at midday, and I will be very happy with them, but two things occur to me. First, we still have not had a response to a point raised earlier—not explicitly in today’s debate, but it is still part of it—about the way the financing system has been constructed. While many of the companies that will receive the benefits of better advice, more financial inclusion, less financial exclusion and all that goes with that will be funding the SFGB, which will be operating many of the services, not all the companies will. I am thinking particularly about the utility companies, which we have discussed already, for which substantial work is done to help their customers who get into debt problems. I know directly of a number of such cases. I do not want to overegg the case, but increasingly, other organisations such as HMRC, DWP and local authorities are involved in trying to sort out debt problems and do not currently contribute to the way that is funded. The levy system is a clean and efficient way of doing it, and I understand all the points made by the Minister, but it misses out a sort of “polluter pays” principle, and it might have been rather more satisfying had we been able to include that. Individual organisations and companies receive funding from other bodies involved in debt advice and other money guidance operations, but not all of them, and a little more pressure and help from the Government on this would have been helpful.
My second point in this general whinge on fog is that I am not sure whether we got to the bottom of where UK national bodies operating in Scotland, Wales or Northern Ireland—whether or not based in Scotland, Wales or Northern Ireland—are going to get their funding from. If Scottish Ministers, for example, are shortly—is that the same as “soon”?—going to agree a system in which funding for debt advice operating in Scotland is to be funded through the Scottish block grant, does that mean that funding will not be available to UK national bodies such as the Money Advice Trust, which operates in Scotland but is currently funded from England? It is probably too complicated an issue to get an answer to at the Dispatch Box, so I would be very grateful if the Minister wrote to me. There is logic in trying to align geography with the funding settlement. But it would be perverse if, as a result of the good and effective work done by StepChange, which runs an office in Glasgow and in Wales and has a franchise arrangement in Northern Ireland, it was unable to be funded and had to be shut down or taken over by somebody else. I am sure that is not the intention, but it is an implication of what is being said.
The situation in Scotland is relatively well developed: there are good systems operating there, a long history of funding from the Scottish Government and local authorities for good debt advice, and good education and training for the advisers. I am sure that will continue and that the Scottish Government, who have always been in the lead on this, will want to see it continue. However, I hope it will not be at the expense, for instance, of work directly funded by MAS and the organisations themselves in Scotland in recent years.
Wales is different because there is no history of a funding operation for debt advice. It has always been done from an England and Wales perspective, and I hope that the sense of what the Minister is saying is that that will be allowed to continue under these arrangements and there will be an allocation of funding which matches up locations. But it is very hard to operate. I do not want to go into too much detail here and am happy to brief the Minister separately, but the StepChange team in Cardiff, for instance, operates a specialist service for the whole of the United Kingdom, dealing with vulnerable customers who are having everyday difficulties. When any of the advisers in StepChange comes across somebody with a particular physical or mental capacity problem, that case is often handled in Wales and paid for out of the Wales funding. It would be wrong if that was to be disturbed, and I hope that consultation can be at the heart of this. I am sure we will be able to get round that.
I have some in-flight refuelling. We are working with the devolved authorities on a final agreement and will write with more detail once discussions with the devolved authorities are completed.
Gosh—that was worth waiting for! I look forward to any information that can be provided on a more direct basis, preferably soon, but I think we have covered enough ground there.
Finally, some good points were made about the need for flexible funding solutions when there are crises, and I would like to read those in Hansard. This is very recent history, so it will be in the forefront of the minds of the bodies concerned. When the FCA was going through an accreditation process regarding debt management companies, it became fairly clear that about 50% of them were going to go out of business, leaving many people with debt management plans paid for through these commercial companies, but which those companies were going to withdraw from. MAS was able to organise substantial additional funding to all the bodies concerned to cope with that. That would not neatly fit into an annual financial cycle, so it is important that we have flexibility at the edges. I am completely open to that being done by government grant or by the holding of reserves, but it is important that it be built into the systems. However, as long as that point has been taken, and I gather it has been, I beg leave to withdraw the amendment.
Amendment 64 withdrawn.
Amendment 65 not moved.
Clause 8 agreed.
Clauses 9 and 10 agreed.
Clause 11: Levy under FSMA 2000 for debt advice expenses of devolved authorities
Amendments 66 and 67 not moved.
Clause 11 agreed.
Clauses 12 and 13 agreed.
Schedule 3: Minor and consequential amendments relating to Part 1
68: Schedule 3, page 24, line 21, leave out paragraph 12 and insert—
“12_ For section 3S (the consumer financial education body) substitute— “3S Duty of the FCA in respect of the single financial guidance bodyIn discharging its duty to approve standards set by the single financial guidance body under section 6(2) of the Financial Guidance and Claims Act 2017, the FCA will act in the interests of consumers and promote financial inclusion.””
My Lords, Clause 6 requires the single financial guidance body to set and publish the standards that it will meet in the provision of information, guidance and debt advice. It is specifically required to obtain the approval of the FCA to those standards. Clause 7 requires that every three years the FCA must review whether those standards are appropriate, review how they are being monitored and enforced, and make recommendations. Amendment 68 would place a requirement on the FCA that, when discharging its duty to approve these standards, it will act in the interests of consumers and promote financial inclusion. The intention of the amendment is to strengthen the remit of the FCA, in this instance, to act in the consumer’s interests.
The single financial guidance body is an organisation whose function is expressly to support individual members of the public. Its objectives are to improve individuals’ financial capability and their ability to make informed decisions and to manage debt. Problems of access undermine the general principle that consumers should take responsibility for their own decisions. People cannot reasonably exercise that responsibility if they struggle to understand the nature, processes, terms and conditions of products and services.
The financial guidance body standards have to be approved by the FCA, whose remit is different—its remit is to ensure well-functioning competitive markets. If there is a gap in the market, the FCA often does not have the power to fill it, and if there is a market failure it seeks to address it by improving competition, even though in many instances the weakness of the consumer buy-side market forces cannot exert the necessary force to achieve a well-functioning market in parts of the financial services industry. The FCA acknowledged in its Retirement Outcomes Review Interim Report that competition is not working well for consumers who do not seek advice; it has concerns about whether a competitive market can develop in future; and consumers can struggle with the complexity of decisions. This echoes the view of the OFT, in its 2013 report on workplace pensions, that the buy side there was one of the weakest that it had ever encountered.
Competition will not always be an effective way to overcome access problems; the very creation of the financial body is a recognition of that fact. As for the wider market, in its paper on Access to Financial Services in the UK, the FCA observed that,
“left to the market, some consumers will be unable to access the products or services they want or at a price they are willing or able to pay”.
The market can go only so far in addressing the various financial needs of people.
The FCA is an economic regulator with a statutory objective to secure an appropriate degree of protection for consumers of financial services, which is largely focused on the provision of information and disclosure, given the general principle that consumers should take responsibility for their decisions and providers should give consumers a level of care that is appropriate, having regard to the capabilities of the consumer. However, the FCA does not have a specific objective or duty relating to consumers’ access to financial services or financial inclusion. The extent of the FCA toolkit in assisting vulnerable customers can appear uncertain.
The single financial guidance body, by comparison, is created to focus expressly on the needs of the public and the consumer, to improve their financial capability to make informed decisions. It is given the power in Clause 2(3) to do anything that is conducive to the exercise of its function.
So there is clearly a potential for tension between the remit of the FCA, when it considers whether to authorise the guidance body standards, and the aspirations of the guidance body on how to support the public when setting those standards. The objectives of the FCA and the financial guidance body need to be aligned when the standards for the provision of service by the new body are set and approved. That is the purpose of my amendment, which would give the FCA the duty to act in the consumer’s interest when authorising those standards.
The standards are a matter for the new body when it is set up. I do not seek to debate what the standards should be, but as a way of illustrating my point I could speculate on matters where tensions could arise: the qualitative standards for the guidance and how far guiders can go in their role in enhancing individuals’ ability to manage their financial affairs and make informed decisions; the guidance output given to the customer; standards for determining when the provision of guidance and debt advice are considered lacking such that the new body has a locus; the consumer’s journey, including how they get the guidance; the ability of vulnerable customers to access financial guidance; and the extent of active promotion of the financial guidance service by relevant organisations.
The answers to the questions of what the standards should be on these and other matters may be different depending on whether they are looked at wholly through the lens of the individual—the consumer’s interest—or from the perspective of a competitive, well-functioning market. The FCA and the new financial guidance body should look at these standards through the same lens, that of the consumer’s interest. That is what my amendment seeks to do. I beg to move.
My Lords, I will speak in support of this very important amendment moved by the noble Baroness, Lady Drake. Much of the difficulty in the conversations we have had around this Bill has come over the role and obligations of the FCA. If the Minister or her officials care to look at the FCA website, they will understand that consumer protection is very much interpreted in the realm of preventing mis-selling and preventing scams; it is not a broader protection of the consumer in the way that some might interpret that language—for example, to make sure that the consumer has successful routes to navigate financial services.
I can give the Minister one simple example of which she will be aware. Many of us around this Committee—and, indeed, probably the Minister herself—believe that a breathing space scheme would be very advantageous in helping people to move through debt management to restore their finances. However, the FCA cannot mandate such a thing. It cannot act, as it were, to protect the consumer even though one might consider, if using just the English language, that such an action would be captured by the words “consumer protection”.
In the same way, on the issue of access the FCA can try and act so that a banking institution, for example, does not put up barriers that would discriminate or set itself up in such a way that people could not get on to the relevant website to access the service, but that is not access as in, “What financial services do members of the public require, and are those kinds of services being provided by the financial service sector and industry?”. So it cannot gap-fill. Actually, it is quite unusual to have an arrangement where such gap-filling is not possible. For example, in the United States, that may be done indirectly through things such as the Community Reinvestment Act, so there are paths by which that kind of back-filling can be pursued by the regulator.
I hope very much that the Government will understand that, in terms of providing advice and guidance, the FCA in looking at the standards that have been set cannot operate within the usual realm of an economic regulator of essentially promoting market efficiency or market fairness, which is its fundamental and underlying approach and responsibility. That is why the inclusion of language that talks about acting in the interests of consumers and about promoting financial inclusion is very appropriate when the FCA is now engaged in something that steps outside its traditional, typical overarching role.
My Lords, I too support the amendment moved by the noble Baroness, Lady Drake. It is an important amendment, and it would be most welcome if my noble friend would seriously consider extending the protection for consumers that this Bill is rightly aiming to achieve. I echo the comments of the noble Baronesses, Lady Drake and Lady Kramer, in terms of focusing on the FCA promoting the interests of consumer protection, perhaps in new ways from what has happened in the past.
My Lords, like other noble Lords who have spoken, I speak in support of my noble friend’s amendment. As ever, my noble friend has been very concise and focused on this key issue about how we can get the FCA in these arrangements to be seen to act in the interest of consumers and financial inclusion. There is a tension between the FCA as a regulator of the market and what we seek through this Bill—an improvement in financial capability and for guidance to be given to people so that they can make better-informed financial judgments.
My noble friend at an earlier point quoted the FCA’s evidence to the Select Committee. It said that when considering what degree of protection for consumers may be appropriate, the FCA must have regard to, among other things,
“differing degrees of experience and expertise of different consumers”.
That is all very good. It is also required to have regard to the,
“general principle that consumers should take responsibility for their decisions”,
and can recognise that,
“consumers can only do this if they have access to appropriate financial services that meet their changing needs”.
Clearly, there is a market focus, but there are also opportunities to go more widely under the responsibility to deal with the protection of consumers. That is exactly what my noble friend’s amendment does. That potential tension needs to be sorted, rationalised and clarified in the Bill so that we are clear that the FCA has to act in these circumstances in the interests of consumers.
My Lords, there is much agreement around the House about this issue. I am hoping to persuade noble Lords that, while absolutely agreeing in principle, I believe that it is unnecessary to have this provision in the Bill.
I thank the noble Baroness for her amendment, which would impose a legislative requirement on the Financial Conduct Authority to act in the interests of consumers and to promote financial inclusion while discharging its duty to approve standards set by the single financial guidance body under Clause 6(2). We have discussed the setting and publication of standards and the monitoring and enforcement of those standards in our useful debate on Clauses 6 and 7. The standards are designed to provide ongoing assurance to members of the public about the quality of the services provided by the new body. Those standards will apply to the body itself when delivering its services directly, and to any delivery partner organisations that it engages to deliver services on its behalf.
We have already covered the role of the FCA in the standards-setting process. The FCA will add value by providing useful independent scrutiny, and the standards will benefit from the FCA’s expertise in relation to the debt advice sector and its experience in setting the standards for Pension Wise. We are confident that the FCA will, of course, act in the interests of consumers throughout this process; as noble Lords may know, the FCA already has a statutory objective to secure appropriate protection for consumers.
On the topic of financial inclusion, I am aware that the statutory objectives of the FCA were of some debate during the Lords ad hoc Select Committee on Financial Exclusion. One of the committee’s recommendations included giving the FCA a new objective to promote financial inclusion. As the current amendment touches on the subject, I observe that the FCA has already taken several steps to promote financial inclusion. Access to financial services is already written into its competition objective, which states that the FCA may have regard to,
“the ease with which consumers who may wish to use”,
“services, including consumers in areas affected by social or economic deprivation, can access them”.
Indeed, noble Lords will be aware of the good work that the FCA has done to promote financial inclusion through its occasional papers on vulnerability and access, as well as through its work to promote financial technology. To take one example, the FCA’s TechSprint events have brought together teams from the technology industry and across financial services to develop ideas and proof of concepts. The first of these events focused on identifying potential solutions to improve financial inclusion and access to financial services. In light of that work, I do not believe it necessary to amend the FCA’s objectives or specify financial inclusion in the context of the body’s standards. Indeed, I have provided definitions of financial inclusion and capability on other occasions, as has my co-pilot, and I hope that these definitions have convinced noble Lords that it would be unhelpful to connect financial inclusion to the new body within legislation.
In relation to the previous amendment I made reference to the fact that the FCA has committed to creating new rules on access, to increase uptake of the new body’s services. The new body will be focused on financial capability, and the standards are very much focused on the body’s ability to deliver high-quality guidance, information and advice that will help members of the public to make informed financial decisions. To be clear, the standards do not concern financial inclusion, which is about the supply of useful and affordable financial services and products by the financial services industry.
In response to my noble friend Lady Altmann, I absolutely agree that the focus for the FCA in terms of the new body has to be protection in new ways of the interests of consumers. In our negotiations and discussions with the FCA, we feel very much that that is the way forward. It is correct that the FCA has a number of objectives, of which consumer protection is only one. Given the strength of the debate, I shall of course consider this fully between now and Report. It is important that maybe we think about this a little further, in terms of the relationship between the FCA and the new body, because clearly it raises concern across your Lordships’ House.
It is important to note that the FCA has a lot of relevant expertise in setting the framework for the financial advice provided to consumers and setting standards for the Pension Wise service—just two examples. However, given the strength of the debate, if noble Lords are supportive, it would be sensible for us to have the opportunity to consider the matter between now and Report. Perhaps we could have another meeting with all interested Members to discuss this very important issue. The relationship between the two bodies will focus on the consumer, and I am working hard to persuade noble Lords that that will work—but, clearly, they feel that there is more to be done and more reassurance to be given. I am very happy to be able to do that before Report. I hope on that basis that the noble Baroness will withdraw her amendment.
I thank the Minister. I am very pleased that she has agreed to consider the matter further before Report. I stress that this is not a criticism of the FCA but a recognition that the creation of the financial guidance body is in part to deal with market failure. Consumers cannot exercise their influence; if the authoriser has to look at functioning markets, but the person seeking the authorisation exists solely to be a consumer champion, there is a dysfunctionality in how standards are assessed and how efficient that guidance body can be in fulfilling its remit. However, I shall not labour the point, because the Minister has very kindly agreed to consider the matter before Report. I beg leave to withdraw my amendment.
Amendment 68 withdrawn.
69: Schedule 3, page 27, line 5, leave out paragraph 33
My Lords, Amendment 69 seeks to remove Clause 33, which proposes to cancel legislation, passed by Parliament only last year, which ensures that the pensions guidance body can help members of the public who have bought annuities they neither want nor need, perhaps having been forced to in the environment which existed before the pension freedoms were introduced. Section 2 of the Bank of England and Financial Services Act 2016 amends Section 333A of the Financial Services and Markets Act 2000 and extends the definition of pensions guidance, expanding the scope of Pension Wise so that pensioners who are able to sell their annuity income can access free, impartial guidance before they make this irreversible decision. Since May last year, when the Act was passed, the Government have unexpectedly announced that they have changed their mind and no longer intended to allow people—who had been assured that they would be able to sell unwanted annuities from April 2017—to do so. This decision will obviously have disappointed many of those people, but I accept that Ministers believed it was right.
However, there are two important reasons why it is unwise and unnecessary to revoke the legislation that was enacted just last year. If we retain authorisation for Pension Wise or the new single financial guidance body and the FCA to facilitate mandatory guidance for people who may, in future, be allowed to sell their unwanted annuities, we will not need to take up precious primary legislative time to introduce the measure once more—that has already been done. We do not need to explicitly remove this measure; it can either be considered redundant or, in so far as it relates to something that already exists but is little known, it could be of use to many members of the public.
No further regulations have yet been laid in this connection. However, it is important that the single financial guidance body and the FCA should still have a remit to inform or guide the public on selling an unwanted annuity. The particular reason is that it is already possible for people to sell their existing annuities if they are under £10,000. Although the Government changed their mind on anyone’s overall ability to sell an unwanted annuity, there is the ability—which is not widely known—for people to sell one valued at under £10,000. It is surely important for the single financial guidance body or Pension Wise still to be involved in this area and ensure that there is public information and guidance about the risks of such a sale. I beg to move.
My Lords, I support the noble Baroness, Lady Altmann, on this. Given that we have loosened up pension provision very widely, and recognised people’s ability to make decisions about their future, I have never understood the Government’s decision on taking away the right to sell an unwanted annuity. There are many reasons why this might be the right and appropriate decision for people in some circumstances. People may be facing large mortgages on which, for historic reasons, they are paying very high interest rates and which could be wiped out, to their overall financial benefit, if they could access their annuity. I could understand it if the Government thought that necessary safeguards should be added. In that case, the answer is to add those safeguards. For example, people could be required to access guidance at the very least, or there could be a much stronger recommendation that they access advice under these circumstances. To choose this vehicle, when this issue has been paid very little attention and focus, seems like an under-the-radar change to something absolutely fundamental. I support the amendment.
We are less than happy with the amendment. The noble Baroness, Lady Altmann, will know that my noble friend Lady Drake and I looked at the issue of the secondary annuity market some while ago, and we paid her a visit in Caxton House when she had another role. At the time, our conclusion was that there is a lot of hassle, expense and complexity in the prospect of selling annuities into a secondary market and there simply have to be other priorities at the current time. If we were to proceed with it, there would need to be full legislation, properly debated. We understand that, in other respects, there is room for legislation in due course that could be applied to the secondary annuity market.
To illustrate some of the complexity, the players in the secondary market would need to include: individual annuity holders; beneficiaries and dependants; purchasers of rights of an annuity under a specific regulated activity; further regulated activities or providers buying back annuities; regulated intermediaries; EFAs providing mandatory, regulated advice; and authorised entities to check that annuity holders have received financial advice, to name but a few. This is a very complex area and we should let it rest where the Government have recently decided it should be. There are complexities and costs. The big risk is an asymmetry of understanding of how the market would work. Other complex issues are pension sharing on divorce and the impact of these arrangements on people in receipt of benefits and social care. It is a minefield: the Government have looked at it, we have looked at it, we are not happy and it should not be resurrected at this time. There have to be greater priorities in the pensions field.
My Lords, my noble friend Lady Altmann has moved Amendment 69, which intends to retain the section of the Bank of England and Financial Services Act 2016 which amended FiSMA to allow Pension Wise to offer guidance to consumers wishing to make changes to the payment of their annuity. Pension Wise was set up with the very specific remit of delivering guidance to help people make decisions on their options following the introduction of the pension freedoms. The Pension Wise remit was subsequently extended to include guidance to people who needed help in considering selling their annuity. This would have supported the Government’s proposals at the time to extend the pension freedoms to those who have already purchased an annuity. The Government decided in October 2016 not to proceed with this proposal because of concerns around consumer detriment.
The new body the Government propose to create in this Bill will inherit the guidance guarantee that Pension Wise provided but will also be able to help with guidance on any pension matters. Therefore, this amendment is not needed. I am particularly grateful to the noble Lord, Lord McKenzie; we entirely agree with the Opposition’s view of these proposals, which would allow those who have already purchased an annuity to sell the income they receive for a lump sum. Following extensive engagement with industry, consumer groups and financial regulators, the Government decided they would not continue with these proposals. Indeed, through discussions with stakeholders it had become clear that, while many annuity providers were willing to allow customers to sell their annuities, it is likely that there would be insufficient buyers to create a competitive market.
In September 2016, Money Observer reported a survey of 10 annuity providers, in which only one firm said it would purchase annuities issued by others and six ruled themselves out. This corresponded with government findings of a lack of interest from potential purchasers of annuities. This could have led to consumers receiving poor value for their annuity income streams and suffering higher costs in the sales process. The Government estimated that only 5% of annuity holders would have opted to sell their annuity and, although some people have been disappointed, consumer protection is a top priority for the Government. As the noble Lord, Lord McKenzie, said, priorities have to be thought through and this was not considered a key priority. Although some people have been disappointed, it would not be acceptable to allow a market to develop that could produce poor outcomes for consumers. I therefore encourage my noble friend Lady Altmann to withdraw her amendment.
My Lords, I thank my noble friend for her response and thank the noble Baroness, Lady Kramer, for her support. This is about consumer protection. Of course, I respect the Government’s decision not to approve a secondary annuities market at this point. However, that does not address the fact that there are people out there with annuities worth £10,000 or less who are able to sell them, whether or not there is a market. They are particularly at risk, presumably, of obtaining very poor value. It is not clear to me why we need explicitly to undo legislation that is already in place to ensure that the financial guidance body can at least help people who might want to sell an annuity understand what the risks are. If the new body no longer has any requirement to inform or guide people on this issue, we still leave those consumers high and dry. As the legislation is already in place, it seems rather strange that the Government explicitly want to repeal it. They could just leave it on the statute book and make sure that there is adequate information as part of the new pensions guidance framework.
My noble friend referenced the possibility of making the legislation redundant in some way. With respect, that is very problematic. The Government have made it clear that they do not believe it makes sense to mandate guidance on a market that no longer exists, and that therefore it is far better to revoke the legislation. However, the broad remit of pensions and money guidance gives the body the option of guidance on this if it is appropriate.
I thank my noble friend. The legislation says that Pension Wise should enable pensioners who are able to sell their annuity income to access free impartial guidance, and some can do so. However, I am reassured to hear that the new pensions guidance body will still be able to carry and promote information and guidance for the public on this matter. I beg leave to withdraw my amendment.
Amendment 69 withdrawn.
Schedule 3 agreed.
Clause 14: Power to dissolve the single financial guidance body
69ZA: Clause 14, page 11, line 1, leave out subsection 6 and insert—
“( ) When exercising the powers granted by subsection (1), the Secretary of State must adhere to the procedures set out in section 11 (procedure) of the Public Bodies Act 2011.”
Clause 14 enables the Secretary of State by affirmative resolution to dissolve the SFGB. The background to this, including the Henry VIII power that it includes, is set out in the Government’s memorandum to the Delegated Powers and Regulatory Reform Committee. That memorandum points out:
“This power will allow the Secretary of State to dissolve the single financial guidance body. The Bill does not provide for a fixed lifetime for the new single financial guidance body. This clause is therefore in line with the Cabinet Office guidance relating to setting up new arm’s-length bodies, which states that:
‘The legislation setting up a new Public Body should contain powers to permit winding up at a later date and for finalising and auditing the closing accounts, if a fixed lifetime is not established at the outset. Departmental legal advisers would need to be involved in this process. Difficulties have occurred in past cases where sponsor Departments have not been able to wind up statutory bodies when their work has been completed due to problems in securing a Parliamentary slot to amend the primary founding legislation. The bodies therefore continue to exist as legal entities even though there is no longer a requirement for them’.
If there is ever a need to dissolve this body, it will be essential to have a range of options and sufficient flexibility to be able to transfer functions, property rights and assets without recourse to primary legislation. This is the point made by the Cabinet Office’s guidance”.
That is all well and good but, as the Delegated Powers and Regulatory Reform Committee points out:
“Although the new single financial guidance body will be created by Parliament, clause 14 allows Ministers by affirmative-procedure regulations to abolish the body and transfer its functions to any other person. The normal principle is that what Parliament has created, Parliament alone should dissolve. In this case, the Minister: does not have to be satisfied as to anything before deciding to abolish the body, does not have to consult, does not have to conduct a formal review, and does not have to wait a certain time before seeing whether the new body works well.
Where Parliament has previously legislated to abolish public bodies it has provided procedural safeguards. Under the Public Bodies Act 2011, a Minister proposing to abolish a public body must consult the body concerned and others affected by the proposal; he then has to allow 12 weeks for responses. The Minister has to lay before Parliament a detailed explanatory document. A committee of either House of Parliament may require an enhanced affirmative procedure and the power to abolish is time-limited. None of these procedural safeguards is included in the current Bill.
The power to abolish the body and transfer its functions to any other person is a very broad power. For example, it is important that the guidance is independent of any commercial interests. However the power to transfer functions to another body is, on its face, unlimited.
The Committee raised similar concerns in its report on the Enterprise Bill, 9th Report of Session 2015-16, where the power was to abolish the Small Business Commissioner by statutory instrument. In response, the Government acknowledged the Committee’s concerns and tabled amendments that made the abolition of the Commissioner dependent on a 12-week consultation, the laying before Parliament of an explanatory document in addition to draft regulations”.
We support the recommendations of the Delegated Powers and Regulatory Reform Committee, which is what this amendment does. We take the view that it is inappropriate for the Bill to confer on Ministers a power to abolish the single financial guidance body. It is all the more unsatisfactory because the power is unaccompanied by the sorts of procedural safeguards found in the Public Bodies Act 2011 and the Enterprise Act 2016. This is exactly what this amendment is about and it seems to me pretty straightforward. Should the Government set their face against this, the noble Lord, Lord Sharkey, has an alternative proposition that the clause do not stand part of the Bill. We would be minded to support that as an alternative. I beg to move.
My Lords, Clause 14 is pretty surprising. It runs entirely counter to normal practice and to the provisions of other Acts of Parliament and is careless of the need for proper scrutiny by Parliament. I entirely support the amendment of the noble Lord, Lord McKenzie. Your Lordships’ Delegated Powers and Regulatory Reform Committee commented on Clause 14 in some detail in its first report of the current Session.
As Clause 14 stands and as the DPRR Committee and the noble Lord, Lord McKenzie, have explained, the Minister does not have to be satisfied as to anything at all before abolishing it, consult anyone at all, have to conduct a formal review or have to wait a certain time to see if the new body is working well or at all. This is all at odds with the provisions of the Public Bodies Act 2011, as well as smacking of hubris and a cavalier disregard for parliamentary authority.
None of the safeguards included in the Public Bodies Act 2011 is included in Clause 14. In fact, in their memorandum to the DPRRC on Clause 14, the Government make no mention of the Public Bodies Act or its safeguards. Why is that? Can the Minister explain what is so special about dissolving the SFGB that it does not merit the safeguards contained in the Public Bodies Act?
The DPRR Committee concluded its consideration of Clause 14 by saying:
“We take the view that it is inappropriate for the Bill to confer on Ministers a power to abolish the single financial guidance body. It is all the more unsatisfactory because the power is unaccompanied by the sorts of procedural safeguards found in the Public Bodies Act 2011 and the Enterprise Act 2016”.
That is of course measured committee language. Another way of putting the same thing is to say that the Government are acting carelessly of the authority and the interests of Parliament.
Clause 14 is wholly unsatisfactory. I hope that when she replies, the Minister will reassure the Committee that the Government will bring forward amendments to the clause to build in the safeguards contained in the Public Bodies Act and in the Enterprise Act. The clause is unacceptable without those safeguards.
My Lords, first, I thank the noble Lord, Lord McKenzie, for tabling this amendment.
The purpose of Clause 14 is to provide for the single financial guidance body to be dissolved and for its functions, property, rights or liabilities to be transferred to the Secretary of State or another body. It provides for wind-up to be effected through affirmative regulations that must be debated and approved by both Houses of Parliament.
We believe that this provision is a pragmatic measure. It seeks to ensure—should it ever be necessary—that there is a smooth transition of the delivery of government-sponsored debt advice, pensions and money guidance from the single financial guidance body to another body or the Secretary of State. I appreciate that as we are here today debating the establishment of the single financial guidance body, it may be difficult to envisage that at some point in the future we may need to revisit again how we deliver government-sponsored financial guidance. Yet, just as we are now looking to meet the needs of members of the public by bringing together three separate services into this body, we may find there is a case to join up financial guidance with other services in the future. This clause would facilitate a smoother transition should we need to transfer the functions, assets and employees of the body to another.
The ambition behind this clause—should it ever need to be used—is to facilitate a more flexible approach to transition that would deliver the best outcomes for members of the public who need financial guidance. There would be no need to find a primary vehicle to transfer functions and to wind up the body. It would provide the opportunity for Parliament to respond more quickly should it be more appropriate for public financial guidance to be delivered by another body. It will be important, should this clause need to take effect, that the service to consumers is not compromised.
Where a Bill does not provide a fixed lifetime for a public body, Cabinet Office guidance states that departments should consider whether legislation should contain powers to permit winding up at a later date and for finalising and auditing the closing accounts. However, I assure noble Lords that this power does not take away Parliament’s ability to scrutinise or reject any proposals. Regulations would be required to dissolve the body, following the affirmative procedure, giving both Houses the opportunity to debate the proposals and—if they see fit—to reject them.
Before taking the decision to repeal the legislation for the Money Advice Service and Pension Wise and establish the new body, the Government consulted three times over a period of two years. We have chosen not to go down the same route as the Public Bodies Act or the Enterprise Act, which were referred to by noble Lords, but I assure noble Lords that in taking this power to wind up the new body by affirmative regulations we were not suggesting that consultation would not happen or that it would not be necessary. We would, of course, want to involve stakeholders and the public in the decision to dissolve the body in the same way that we have involved them in the development of these provisions.
So often in this House I have heard Ministers argue that it is totally inappropriate for Members of this House to support a fatal Motion to a statutory instrument, yet the Minister is here arguing the rights and appropriateness of this House to do just that. I find it somewhat confusing that there is one message on these issues when it appears to suit the Government’s purpose and a completely different message on an occasion such as this.
I reject what the noble Baroness says. For example, with regard to banning cold calling in pension scams we are finding it extraordinarily difficult to find a primary opportunity to introduce that legislation. Here, there is no question of hubris, recklessness or carelessness on the part of government. We are trying to enable a smoother transition if, following consultation some time in the future, it is felt necessary to have a fundamental change to the current body, for whatever reason. At the moment I cannot foresee it, but it could happen.
I serve on the Delegated Powers and Regulatory Reform Committee, whose report has been referred to. Is the Minister saying that the committee has this wrong? Is she saying that there is a precedent for this attempt to shortcut the normal procedure or that it would somehow or other be more convenient for the Government to ignore the precedents that have been referred to by my noble friend Lord Sharkey? I do not quite understand where the Government are on this.
Far from it; we are not ignoring Parliament—indeed, we have listened to the committee that the noble Lord sits on—but we do not always have to accept what the committee proposes. It is important that we listen, but no—we do not always have to accept what the committee proposes. We propose instead that there should be affirmative regulations, with consultation, that would allow a smooth transition if in future we found ourselves in a situation where it was decided that there should be a fundamental change to the make-up of this body. For example, Pension Wise was set up only a few years ago. However, since then it has been decided that it would be far more effective, efficient and supportive of the consumer if we were to have one single body, following considerable consultation both with the public and with stakeholders to ensure that the Government are reflecting the wish of the consumer.
I must question the Minister on this. Is she saying that she wishes that she was in a position to be able to introduce the Bill, in effect, as a regulation rather than as a Bill, and that the Government are frustrated that at present they have three bodies, consider that one body would be better, and that in future they wish such decisions to be made through not primary but secondary legislation?
The noble Lord’s amendment seeks to add safeguards to the winding-up provision by mandating the Secretary of State to undertake procedures set out in Section 11 of the Public Bodies Act before the wind-up can take effect. The power in the clause would mean that the draft regulations would be subject to the affirmative procedure where both Houses of Parliament would have to approve a Motion before the regulations could take effect.
Further, as I have indicated, I can see no reason why—should it ever be necessary—the Government would not consult prior to taking any action to dissolve the body. This would be contrary to the open and transparent culture that we are all committed to. However, as I noted earlier, I have some sympathy with the noble Lord’s intentions on consultation and, in the light of the committee’s comments on this clause, as well as the debate, I will consider further whether there is anything more that we can do to meet any concerns that have been raised. I therefore urge the noble Lord, Lord McKenzie, to withdraw his amendment.
My Lords, I am grateful to the Minister for that. It was a long time coming but we must be grateful for small mercies.
This is an important point and very valid matters were pressed on the Minister, which I hope will help the Government to take this issue back and think again. It seems to me that a proper process is necessary here. As we have argued and as has been argued today, the affirmative process is not sufficient. We know that we cannot vote against it or vote to amend it. The noble Baroness said that it would be accompanied by a consultation. That is fine and we can put that on the record but, as I understand it, it is not mandatory under the processes. There are very important issues here, which the Delegated Powers Committee focused on, concerning a complete lack of knowledge about to whom transfers might be made. Also, important issues of conflict of interest lie at the heart of what the Bill is trying to achieve.
However, I shall quit while I am ahead. I am grateful to the Minister for taking this matter back and I hope that we will revisit it in a positive frame in due course.
Amendment 69ZA withdrawn.
Clause 14 agreed.
Clause 15 agreed.
Non-Domestic Rating (Alteration of Lists and Appeals) (England) (Amendment) Regulations 2017
Valuation Tribunal for England (Council Tax and Rating Appeals) (Procedure) (Amendment) Regulations 2017
Motion to Regret
That this House regrets that the Non-Domestic Rating (Alteration of Lists and Appeals) (England) (Amendment) Regulations 2017 and the Valuation Tribunal for England (Council Tax and Rating Appeals) (Procedure) (Amendment) Regulations 2017 have been introduced without adequate regard for the concerns of experts in rating appeals, following incomplete testing, and on a truncated timescale (SI 2017/155 and SI 2017/156). 30th Report from the Secondary Legislation Scrutiny Committee, Session 2016–17.
My Lords, in moving this Motion, I draw attention to my interests as a vice-president of the LGA, as a practising chartered surveyor and as a former Valuation Office employee. I am very grateful to the usual channels for finding a slot for this, to my two valiant external advisers for all their help and to the Minister for meeting us earlier in the year.
Noble Lords will know that the Valuation Office Agency, or VOA, is an executive agency of HMRC with responsibility for compiling the rating list on which business rates are based. Section 41 of the Local Government Finance Act 1988 stipulates that the list shall be accurate and that revaluations shall take place every five years. Business rates raise, I believe, around £28 billion annually. I am told that the 2010 list has been the subject of more than a million appeals and, at 30 June 2017, 223,430 of them were said to be still outstanding.
When deferring the 2015 revaluation, the Government undertook to have a thorough review of business rates. The deferral was claimed to give business ratepayers certainty. The 2014 Treasury/DCLG discussion paper also stated:
“The next step is to improve the business rates system in England so that it works better in the 21st century. We want to find ways to make the business rates system simpler, more transparent and more responsive to economic circumstances”.
However, ratepayer certainty included continued unfair 2010 rating list levels of assessment based on values at the peak of the market but applied to the economic climate of a crash. The certain purpose was the maintenance of the business rate yield. Furthermore, since 2010 there has been a process of blocking the sharing of valuation information, the shrinking of avenues for challenge and appeal, and an increase in the costs and complexity for ratepayers to the point of “like it or lump it”.
In 2016 a consultation on the check, challenge and appeal, or CCA, proposals received virtually no ratepayer support. Following repeated demands, the Government did not release the responses, as noted rather critically by the Secondary Legislation Scrutiny Committee, or SLSC, in its 30th report of 2016-17, and despite reassurances given to me by the Minister. The responses finally appeared just before the summer recess and only following further freedom of information requests. No matter; the VOA had already embarked on the changes, regardless of views. I suggest that the entire consultation was something of a waste of taxpayers’ money and possibly an affront to public expectations.
On 17 March this year, just two weeks before the new rating lists were due to come into force, the Government laid the two SIs before Parliament to implement virtually unchanged the scheme as first proposed, and, as noted by the SLSC, curtailing parliamentary scrutiny in order to salvage the government timetable.
In theory, a web-based CCA system could and should be relatively simple. HMRC has a good record of building robust online platforms for such things as VAT, PAYE and income tax, so when, still as a beta test, CCA went live on 1 April, rather surprisingly it demonstrated overcomplexity and substandard IT architecture, with inferior user accessibility and convenience.
To access CCA, you first have to create a new Government gateway account. You must provide detailed personal information which relates to your identity and is unconnected with the business ratepayer or the premises. Given that the property itself is fixed and that the billing authority generally knows both its location and the ratepayer identity, this seems excessive and intrusive. Tough luck if you do not have a UK passport, because then it is down to a fully manual process.
The key to checking one’s assessment is adequate information, but online CCA does not apply to all rateable property types. The first stage involves confirming the physical facts, which would be fine were it not for decades of poor data input and property inspections by the VOA. So, from April is added the requirement for the ratepayer to do the job for it, including providing answers to unknown and possibly unknowable construction history matters going back as far as 1900, and topped off with a £500 fine on VOA say-so for any false information, courtesy of the Enterprise Act 2016.
Whatever the business use, one must claim properties individually, and I am told that CCA cannot cater for ratepayers with large numbers of assessments; for them, the system is all but inaccessible, as each property must be separately and manually entered. Only when registered can one obtain the so-called additional information and appoint an agent to handle one’s case. The agent must perform the same sort of account-forming process with proof of identity. I am told that it can take up to an hour for each and that it is an iterative process, to be completed for each ratepayer client. Registration is not instantaneous. Once logged on, the degree of additional information is minimal. So, for a business to get a reasonable sense of whether its rateable value is likely to be correct, the task is labyrinthine, costly of time and inherently uncertain. No wonder the Federation of Small Businesses described the system as a “shambles” in its press release of 25 July.
Suffice to say that the CCA website has met with a hail of complaints: that it simply does not do what it claims, frequently crashes, is full of glitches and involves significant delays in verification of registrations, and so on. For ratepayers seeking temporary reductions for material changes in circumstances, this matters, with a real risk of injustice because of their inability to lodge a challenge within the timescale. For billing authority requests it is the same issue, with potentially costly write-offs. At the beginning of August, four months after the website’s introduction, the VOA admitted that the matter needed attention and brought in staff from HMRC digital to help deal with it. Meanwhile, CCA remains partially operative at best.
Assuming that you achieve the check stage, things can move on to the challenge stage, and that is the prelude to a reference to the Valuation Tribunal for England, or VTE. But here, in SI 156, there is a further hurdle: the need to provide detailed evidence of a valuation. This new requirement now amounts to nothing short of a proof of evidence by or on behalf of the ratepayer sufficient to justify the challenge. The burden of proof is on the appellant; the VOA does not have to prove anything, despite the fact that it has unique access to all rental returns and transaction data to enable it to compile the list. Moreover, the VOA is required to respond only to the matters contained in the challenge deposition. There is no requirement, as in previous times, for it to justify the wider accuracy of the assessment. Newer or additional evidence may not be added at a later date, other than in very exceptional circumstances. So a great deal of up-front work is necessary just to tease out whether the VOA has got its sums right or used acceptable or appropriate evidence.
Worse, the VOA since 2010 cites confidentiality under the Commissioners for Revenues and Customs Act 2005 as the basis for withholding valuation information from ratepayers, notwithstanding the specific provisions of Section 18 which allow disclosure in relevant circumstances. It is a convenient gagging provision. One supposes that the VOA would never knowingly use questionable evidence and that it employs men and women of utmost integrity, but mistakes do happen. Its parent, by contrast, might be disposed towards any other means available to it to maximise revenue.
There is supposed to be a separation of the revenue and valuation functions but I wonder whether that still pertains. The Government, quite reasonably, point to the large number of unmeritorious appeals against 2010 list assessments. Many made by relatively few claims firms were blanket appeals. Some use highly questionable tactics, even leaving ratepayers with large bills for incompetent advice and lousy service. I suggest that poor maintenance and management of the tax base also creates opportunities for such activities. However, apart from that, does abuse on one side ever justify a Government impeding fair redress for the taxpayer in a country where it is supposed that the rule of law prevails? It can only get worse if, as planned, VOA manpower shrinks by 20% in the next three years.
SI 156 also introduces a new system of charges for appealing cases to the VTE. I suppose the Government felt that reducing appeals to employment tribunals by introducing fees was a good precedent but after the recent Supreme Court decision I am doubtful. At least the employee has the alternative of workplace mediation but nothing similar exists for the business ratepayer.
Some rating assessments are very small but none the less highly significant for those who pay the rates and do not necessarily get small business exemption. Even a modest level of fees matters if your business involves a lot of very small assessments. I submit that the new fees are inappropriate and unreasonably fetter access to justice for no demonstrable public benefit, the point made eloquently by the VTE itself in response to the 2016 consultation but apparently ignored.
Additionally, there is a subtle shift in how the VTE is to treat valuation evidence. The VOA is charged with maintaining an “accurate” rating list. Compare and contrast that with the new test of “reasonable” valuation in rating appeals. The VOA maintains these terms mean in effect the same thing, but if this SI passes into law the argument must surely follow from some eminent member of the Bar that Parliament clearly meant something different. After all, the terms “accurate” and “reasonable” are clearly not the same and one can quite reasonably reach a valuation conclusion that later proves manifestly inaccurate, as everyone knows. It is bad policy to leave such things to the courts.
I leave to one side the issue of secondary legislation attempting to overturn a definition in primary legislation, but it looks to me slightly suspect.
In so far as these new factors compound to fetter ratepayer access to a fair means of redress, my attention has been drawn to the case of Daly v the Home Secretary in which the Judicial Committee of this House on 23 May 2001 approved a 1999 Privy Council decision to adopt a three-stage test in determining whether a limitation by an Act, rule or decision is arbitrary or excessive. These stages, in summary, are: first, that the legislative objective is sufficiently important to justify limiting a fundamental right; secondly, that the measures are designed to meet that objective and are relevant to it; and, thirdly, that the means used are no more than is necessary. I find little if any evidence that such tests have been applied to these statutory instruments. Furthermore, many decisions taken by the VOA which are clearly adverse to ratepayers in their implementation appear to be based on VOA policy rather than the law. If this is administrative convenience dressed up as precedent to overcome decades of poor management, then I suggest there is more legal turmoil to come.
This was an avoidable state of affairs that looks like faulty departmental thinking and cost cutting. It is bad public relations, as evidenced by the widespread criticism of the new system, and appears to be designed to frustrate fair redress. It appears to be consistent with a longer-term policy beyond these SIs alone—ergo, not just a bedding-in problem, which I am sure the Minister may wish to pray in aid. It raises doubts over the stability of the tax yield given the likelihood of more concerted appeals in a system seen as increasingly unjust; it necessitates continued large provisions by billing authorities against list alterations—the last figure I was given was £2.5 billion—and it offends the basic understandings between taxpayer and taxman that underpin the rule of law.
Her Majesty’s Government have not addressed unfair transition, the illogical system of reliefs, the several questionable exemptions or the pitfalls for the unwary. Public conveniences and graveyards attract business rates; a public park does not. Charity shops sell new goods, often in direct competition with other high street premises, yet command 80% mandatory business rates relief. Web-based retailers often contribute little or nothing and yet put vans on streets and create waste streams that have to be dealt with. It all shows that little has been done to give effect to any meaningful reform of a creaking business tax, and if not in time for this latest revaluation, then when are we going to see it?
The question remains, “What are business rates for?” That has been ignored and so at present a modest office occupier, as I have said before in this House, still pays more than twice the council tax on a larger and much higher-value home and yet receives virtually no services. This country has the highest such annually recurring business property tax of any of our European neighbours.
This is not an example of pulling together but of tearing apart a once-respected system. It is for these reasons that I have tabled this regret Motion.
My Lords, I defer to the noble Earl’s long experience in dealing with issues of this kind, as would many other Members of your Lordships’ House. His professional background is obviously important.
I declare my interests as a Newcastle city councillor and as an honorary vice-president of the Local Government Association. Over the years as a councillor, like many other of your Lordships who have served in that capacity, I have become familiar with the current rating system.
The complexity of the situation facing us is most clearly illustrated by the title of the documents that we are supposed to be debating: the Non-Domestic Rating (Alteration of Lists and Appeals) (England) (Amendment) Regulations 2017 and the Valuation Tribunal for England (Council Tax and Rating Appeals) (Procedure) (Amendment) Regulations 2017. The titles are enough to deter almost anyone from looking any further into the matter—that, of course, is entirely the Government’s responsibility and not that of the noble Earl.
There is a history to this, particularly to the process we have just gone through. The noble Earl referred to the Secondary Legislation Scrutiny Committee’s report, and it is unfortunate that, once again, the committee has had to draw attention to the Government’s failure, frankly, to behave responsibly in relation to dealing with secondary legislation. I refer to paragraphs 9 and 10 of its report. Paragraph 9 states:
“In our view, now that the Regulations have been laid before Parliament, the Department should make all the consultation responses available”.
It is remarkable that it did not do so at that time. The committee concluded by saying:
“We understand the sequence of events that preceded the laying of the Regulations, but we find it very regrettable that the Government have curtailed the opportunity for effective Parliamentary scrutiny in order to salvage their own timetable”.
Time and time again, Members from all sides of the House have complained about the way in which the Government are dealing with secondary legislation, which is potentially a hot issue given what is happening now at the other end of the Corridor in relation to Europe. I hope the Government will improve on this approach in future.
On the substance of the matters, the noble Earl referred to the substantial amount of money that local authorities estimated had been lost in having still 225,000 appeals outstanding as at 30 June. Obviously, quite a substantial number had been dealt with, but it is a long time since these evaluations were made and it is a terrible failure on the part of the Government not to have been able to ensure that there is a process which councils could deal with. The problem for councils is that they have to put substantial amounts of money aside—some £2.5 billion, according to the Local Government Association—against the risk of losing appeals which have been running on for years. It is an intolerable situation, and one hopes that it will not continue under the new system. Perhaps the Minister can give us some assurances in that respect.
The association asked the Government to ensure that the outstanding appeals would be resolved within 12 months of the new list coming into force, which effectively is 12 months’ time from now. Can the Minister say whether the Government have acceded to that request or will accede to it? It would be ridiculous to have that process ongoing at the same time as the new system is bedding in.
The association also asked for assurances that the Valuation Office Agency would have sufficient resources to deliver the proposals. At the moment, it clearly does not. What assurances can the Minister give in that respect? Have the Government decided on a figure, and if so, when will they announce it? If they are not prepared to make that decision, how on earth are councils and indeed ratepayers supposed to deal with the situation?
The LGA also referred to the time period for the appeal process. It suggested a time limit of six months from the time the list comes into force, albeit with exceptions for any material change of circumstances and new ratepayers. The Government have made no announcement, as far as I am aware, that they will bring in any form of time limit for appeals and no further information has been provided. Again, I hope that the Minister will be able to enlighten us and to clear the way for dealing with these matters expeditiously and fairly to both sides. The association supports a time limit of six months from when the list comes into force, and I wonder whether the Government can give an explicit judgment on that today.
The association also pointed out its concerns about local authorities being unable to make or join proposals which do not relate to their own premises, as had previously been the case. Again, perhaps the noble Lord could say whether the Government are prepared to reconsider that matter.
The association also makes the point that the penalties for submitting false information are very low: £500 or £200 for small businesses. One can sympathise with small businesses, but why should larger organisations face a penalty of only £500 if they submit false information? It seems quite extraordinary.
The association also supported proposals to limit the scope of the Valuation Tribunal Service to cases where the valuation is outside the bounds of reasonable professional judgment. I do not know that the noble Earl is necessarily sympathetic to that, but it is one aspect which the Government seem to have got right among many that they have not.
Perhaps I may address the broader issue here. We are talking here about what the noble Earl referred to as business rates. Of course they are not all business rates; they are non-domestic rates, although essentially the concern is about business rates. We are now at a time when the Government are proposing to devolve the entire business rate income from the centre to local government. I have always had doubts about that process, because it would need a considerable amount of redistribution to ensure that the financial burdens faced by local authorities were being met equitably. It is not at all clear when discussions about these matters will take place, so again I would ask the noble Lord to indicate what the current situation is and whether we might have a resolution of it—one hopes on the basis that there will be a redistributive element within the new system.
Finally, the noble Earl referred to shops in the high street and the like. Of course, one of the major problems for those shops is the very large concerns that operate, generally speaking, in low-rated rural areas where they put up massive sheds and provide their services not across the counter but by mail and delivery. The dreadful outfit which the owner of Newcastle United, I am afraid to say, is involved with is one example. There are others, such as Amazon and the like, which are somewhat more reputable but as a proportion of their turnover are not paying anything like the same percentage as a large store in a town or city is likely to pay. Do the Government have any intention of reviewing a system that affects normal high-street businesses and industrial premises in inner-city areas rather more than it does remote organisations like Sports Direct and Amazon? They pay relatively little in the way of rates, in effect at the expense of other ratepayers.
The noble Earl has given noble Lords an opportunity to speak in this debate and has also given the Minister an opportunity to clarify where the Government are going and, it is hoped, to indicate that the concerns raised today will be taken seriously.
My Lords, I pay tribute to the noble Earl for giving us an opportunity to clarify the current situation on business rates. My noble friend on the Front Bench will know that I have been asking questions about business rates for a decade now, so I have got a little bit of background in this issue.
I am a marketing man by profession: I looked after the advertising and marketing of a number of retail chains prior to coming to your Lordships’ House and, indeed, prior to entering the other place. Twenty years ago, retailing was conducted entirely on the high street or in retail parks; today, one-third of it—and growing—happens online. In this morning’s Daily Telegraph, it is reported that Ipsos MORI has noted that the crash in footfall since 2007 is well over 20%. That is a huge drop. We have seen a number of chains collapse, including Woolworths and BHS. That is a problem. It is that plunge in footfall and the need to invest in digital technology that is creating a big challenge for small and medium-sized retailers. Moreover, there is a forecast from the British Retail Consortium that 80,000 more shops are likely to close. These are horrendous problems.
I will not repeat any of the points made by the noble Earl in his speech except for one, and that concerns the beta testing stage of the online CCA system early in 2017. We know that there were many shortcomings, but amazingly the whole thing has gone live with nothing having been rectified. I do not think that that is acceptable in today’s world, and I hope that my noble friend can reassure me that something is being done to sort it out.
I am not sure whether I am right in saying this, but my understanding from Answers given by my noble friend to earlier Questions was that the net result of the changes would be revenue neutral. Now we read in the newspapers and professional journals that the system may not be revenue neutral but something closer to £2.5 billion to £3 billion to the benefit of the Treasury. So I would ask my noble friend to put on the record whether it is the Government’s objective that this system should be revenue neutral. If that is the case, can we have an assurance that, if the figures show that all of a sudden the Treasury has picked up £2.5 billion or £3 billion, somehow or other the money will be fed back into the system? That is absolutely vital for the future.
I would just add that the latest figures on empty shops, an issue I have raised on many occasions, are now twice as high as they were before the recession and are running at well over 20%, along with store openings and relettings now down by over 20%.
I would like to add one further point. Why does the UK have the highest property taxes in the whole of the OECD? Property taxes are going up in this country and down elsewhere in the OECD. We are in a situation where they are at 4.1% of GDP; in France, they are at 3.9%, whereas they are at 2.8% in the US and 1.9% across the whole of the OECD. In all of those countries, they have fallen: for us, they are going up.
As an applied practical economist, I know that to make economic sense of Brexit the UK will urgently need to become one of the most business-friendly places in the world. Achieving that requires a low-tax deregulatory agenda, but we seem to be heading in exactly the opposite direction with these SIs that we are debating. Frankly, if that is the way things are going, that will create considerable peril to all our businesses, particularly those in the retail trade, which after all remains the biggest employer in this country. Those businesses are the wealth creators for our future.
Before I forget, I must declare an interest, in that I do have a member of my family in the retail trade.
I hesitate to contribute to this debate because I have nothing like the expertise of the noble Earl, Lord Lytton, or indeed the knowledge of the noble Lord, Lord Beecham, of how these systems operate in practice.
The burden of what the noble Earl was saying is twofold: first, the appeals system in England and Wales is verging on out of control, given the huge backlog that he mentioned. That in itself is a real challenge for the Government to sort out. The second point I take from his speech is that the way in which the Government have tried to address this problem is resulting in unfairness to ratepayers and their advisers, in trying to challenge the valuations that the valuation officer has asked to be entered in the roll. In that respect, he raises what I would respectfully suggest is a very serious issue, which I hope the Minister will feel able to comment on.
I have picked up two points, one in each of the regulations, where I am inclined to think that the regulations as drafted point in the right direction. The first is in SI 155. In Regulation 16, which introduces new regulation 13A, the grounds on which a proposer may appeal to the Valuation Tribunal for England are said to be,
“(a) the valuation for the hereditament is not reasonable;
(b) the list is inaccurate in relation to the hereditament (other than in relation to the valuation).”
I may be wrong, but I took from the noble Earl’s speech that he is criticising the use of the language in that provision and suggesting that it is inconsistent with the primary legislation, which, in Section 42, describes what the local rating list is to provide. Section 41(4) says that before a list is compiled, the valuation officer must take such steps as are reasonably practicable to ensure that it is accurately compiled on 1 April.
There are two issues here. The first is the accuracy of the entry in the list, which describes the hereditament itself. I think “accuracy” is a perfectly correct adjective to use. Whichever side he is on, the valuer must know precisely what the hereditament is that is to be valued. The other side is the valuation side, and it is in relation to that aspect that the adjective “reasonable” is used. It seems to me that that is a proper use of language too. To require that the valuation should be accurate may be asking too much, because a valuation is, after all, an expression of the valuer’s opinion, expertly using his art as best as he can to arrive at a valuation that meets the statutory standard. So, with great respect to the noble Earl, I think that the language in SI 155 is correct and I do not see any grounds for criticism.
SI 156 contains a provision in Regulation 9 that inserts a new regulation, 17A, on the admission of new evidence on appeal. I suspect that this is where the noble Earl is saying that the lines are being so tightly drawn that the appellant is in difficulty in mounting his appeal. My impression, although I speak as a layman in this regard, is that the regulation is quite carefully drafted. It says,
“the VTE may only admit evidence that was not included in the notice of appeal or any document accompanying the notice”
in certain circumstances, which include where the additional evidence,
“was not known to the party and could not reasonably have been acquired by the party before the proposal was determined … or (b) all the parties to the appeal agree in writing to the party providing the new evidence.”
I venture to suggest that the two ways in which the sharpness of the provision is modified by that regulation are well drafted. In the first way, the opportunity for the parties to agree to the admission of new evidence speaks for itself. The other way is the test of whether the party knew of the evidence and could reasonably have acquired that knowledge before the proposal was determined. That formula fits very well with the way in which—in the criminal field, for example—additional evidence may be admitted by the Court of Appeal criminal division in looking at fresh evidence in a criminal appeal. The formula is well tested and well known to lawyers who deal with appeals, so although I am sure the noble Earl is right that there are other aspects of unfairness, I do not find that particular provision inconsistent with one’s sense of fairness.
Broadly speaking, the picture presented by the noble Earl is a disturbing one: a system of appeals under real pressure, and the Government trying to react to that pressure in a way that creates hazards for the ratepayer which inhibit the proper and just treatment of the right of appeal.
My Lords, I draw the House’s attention to my interests as a councillor on Kirklees Council and a vice-president of the Local Government Association. I thank the noble Earl, Lord Lytton, for raising these important issues and for describing them in such great detail that we are able to have a good debate.
The regret Motion draws attention to the difficulties that businesses and local authorities have with the current appeal system against valuations. What is more regrettable, in my view, is that a root-and-branch reform of the business rates system is still awaited, despite widespread support for the necessity for a major change in the way in which business property is taxed. The business rating system, which started in Elizabethan England—under the first Elizabeth—was consolidated in 1988 but has failed to reflect the significant changes in the way in which businesses operate, the premises they use and their location, as described by the noble Lord, Lord Beecham. The consequences of a failed system are compounded by the inadequacies of the current appeals process.
The matter is made worse by the extended time between valuations, which has resulted in a significant impact on many businesses which saw their rates rise dramatically. It is difficult for many small businesses, particularly in the retail sector, to plan or readily absorb such increases. It is hardly surprising that more than 1 million businesses have challenged their business rates bills since 2010. The Government’s response has been to impose significant changes to the appeals system with the intention of reducing the number of appeals. They have made it more difficult and put restrictions in the way.
On the other side of the balancing act, local government increasingly relies on business rate income to fund services. The appeals system that existed prior to the April 2017 changes often resulted in many months passing before the appeal was decided. As we heard, this resulted in local government having to set aside £2.5 billion to cover the risks of appeals as local authorities are required to fund half the cost of backdated refunds. This is a very inefficient use of scarce public resources. That has been brought into sharp relief as government grants for local services continue to suffer very deep cuts. Setting aside desperately needed funds to cover the risks of appeals is, in the circumstances, totally unacceptable.
We have a dilemma: businesses need a fairer method of business property valuation and taxation, and local government, which is in receipt of the business rate income, desperately needs to avoid having to set aside significant funding to cover risks of successful appeals. Meanwhile, the appeal system that is devised is seen by many businesses to lack fairness and transparency. Something needs to, and should, change.
The difficulty for businesses, especially SMEs, is that there appears to them to be a lack of clarity as to how valuations are determined, and how these compare with similar businesses in the same location and with those in different parts of the country. Businesses have traditionally resorted to the appeal process in very large numbers, as we have heard. The Government’s decision to impose the new system has inevitably led to scrutiny highlighting the consequent inequities.
It is therefore not surprising that the Secondary Legislation Scrutiny Committee received evidence that,
“the current proposal as to grounds of appeal is unlawful and inadequately drafted”,
and continues by pointing to the fact that the Government have abandoned the principle that the rating list be accurate, rather than have a reasonable valuation as the Government wish. With all due respect to the noble and learned Lord, Lord Hope, who knows much more about interpretation of those two words than I, it seems that the use of those words can lead only to legal challenge and more delay for all concerned—for the businesses appealing their valuations and for local government, which requires the income to provide services for local residents.
All this is the consequence of bolting a more restrictive appeal system on to the business rates framework, which is itself outmoded and broken. The way forward is for the Government to consider a fundamental reform of the business rates valuation system. Perhaps the Minister will be able to indicate whether there is any likelihood of that happening. Not to do so will lead only to increasing disquiet in the business sector and in local government. Both want and need a transparent and obviously fair system.
My Lords, before I make my remarks I shall make a number of declarations of interest. Obviously, I am a councillor in the London Borough of Lewisham and a vice-president of the Local Government Association. I also declare that I am a member of the Co-op, which has a number of convenience stores around the country, and I am a member of CAMRA, the Campaign for Real Ale, an organisation that has been campaigning about business rates, as has the All-Party Beer Group, which I am also a member of.
I thank the noble Earl, Lord Lytton, for tabling the regret Motion. As noble Lords have heard, the noble Earl speaks with great authority on these matters. It is very good that he brought this to your Lordships’ attention so we can have a debate and get a response from the noble Lord, Lord Bourne. As I said, the noble Earl is extremely knowledgeable. We are very grateful to him. We have seen his expertise in this debate.
I say right at the start that I agreed with the noble Baroness, Lady Pinnock, that we need a root-and-branch reform of business rates. In some ways the problems we have heard about are a symptom of the fact we do not have that root-and-branch reform. We are just tinkering with the system and it needs to be dealt with properly.
As we have heard, these two SIs relate to the introduction of the new rating lists, containing the updated rateable values on the basis of which business rates are charged; and the amended appeals process known as check, challenge, appeal or CCA. As the noble Earl has told the House, these SIs were first laid on 17 March. They were intended to come into effect on 1 April. That is an unusually short period between laying regulations and their coming into force. I will come back to that later. The noble Earl tabled his regret Motion. The general election intervened and Parliament was dissolved. Of course, we could not bring these instruments back until Parliament resumed. The noble Earl did that.
There has been considerable press coverage of the new rating lists and appeals. It is fair to say it has not all been positive. We need to look at it very carefully. As we have heard, businesses are very worried about the action the Government are taking in this respect. Claims made by the Government that this is an improved and fairer system are certainly questionable. We have heard a number of contributions from noble Lords that support that. Some businesses are certainly very unhappy with the new system.
The problem is that the entire tax base has not been reviewed at all. The noble Earl raised the question of what business rates are for. As we have heard, they are of course to provide council services. We need to look at that. In many respects they provide services, as does council tax. They have been very welcome in recent years because council tax has not risen very much but, as we have heard, that has not been the case in respect of business rates, which have gone up year on year by quite significant amounts. That is causing problems for businesses.
Many years ago—a very long time ago now—I worked in retail. You have your fixed costs, rent, rates, other utility costs and stuff, then you have your business, you trade and you look to make profit. These constant rises make that difficult because you cannot always be passing them on to your customers. That is a significant problem that the Government need to address. These changes appeared to be only cosmetic and do not raise the important issues we heard earlier on.
The noble Earl raised the issue of check, challenge, appeal, and I hope that the noble Lord, Lord Bourne, will respond. The noble Earl’s points were also raised by the Association of Convenience Stores. As we have heard, it represents 35,000 convenience stores. These small businesses are particularly affected by these things. It is disturbing that we have heard about problems with the website. It is not the first website from a Government or a government agency that has had some problems, but we have heard the following from members of the association. The portal often crashes during working hours, requiring ratepayers to manage the case at impractical times. Presumably that means that they are doing it in the middle of the night. That is not very good. Details about properties, previous appeals and digital certificates are not assessable. Ratepayers cannot search or filter claims or properties, which costs time for retailers with a large property portfolio. Retailers report poor customer support when facing problems with the portal. Ratepayers must manually appoint an agent to each property and cannot do it in bulk for their property estate. Those seem quite shocking. You would hope that any modern-day portal would get those things sorted out—they are pretty basic—but it clearly has not. Given that this is a government agency, it is not good enough. I can certainly see a business being very frustrated by the whole process. I hope that the Minister will tell us what the Government are going to do about it, because it is totally unacceptable for businesses to have to suffer those problems.
The noble Earl also referred to the legal case that came before your Lordships’ House before the establishment of the Supreme Court. I would be interested to hear the Minister’s response on that.
That brings me on to the report of the Secondary Legislation Scrutiny Committee. I am sad to say that this department has a bit of form here. It is not the first time that I have stood here and talked about consultation. I recall all the discussions about the metro mayors, when the consultation was less than adequate. Here we are again: poor consultation, questions raised, one or two weeks given and poor responses. I know that it is not the Minister’s fault—I have a lot of respect for him; he is a very nice man whom I like very much—but I hope he can go back to his department and say, “Look, we’re getting this desperately wrong”. That the Secondary Legislation Scrutiny Committee, a respected committee of your Lordships’ House, regularly has to report that the department fails systematically on these matters is just not good enough. I hope the Minister will agree to talk to whoever is responsible for this and make it much better in the future.
The noble and learned Lord, Lord Hope, talked about “accurate” and “reasonable”. I bow to his experience in those matters, so there is need to go any further there.
The consultation was poor. There were FOI requests and the Government simply refused to release the information. Why have the Government refused those requests? Again, the committee certainly thinks that the information should be released. I hope the Minister can tell us tonight that the Government will now release it or, if not, outline the process.
It is a damning report from the committee. The whole thing has been very badly handled. The Government should go back over this issue very carefully.
My Lords, I thank noble Lords who have participated in this debate and particularly the noble Earl, Lord Lytton, for tabling the Motion on this important topic. I am grateful for the contributions that he and other noble Lords made. I also thank the noble Earl for the helpful discussions we had prior to today’s debate. He is of course a considerable expert in this field and I am very grateful for his views and input.
It is important that we keep this in perspective and do not indulge in what could be interpreted as slightly wild hyperbole in terms of one or two matters that have been referred to. For example, reference was made to a “damning report” from the Secondary Legislation Scrutiny Committee. There are criticisms there, but it states:
“We understand the sequence of events that preceded the laying of the Regulations”.
It is important that we keep these things within acceptable bounds when we look at them.
Perhaps I may deal first with the context of the debate, because much comment was made in relation not to the content of the statutory instruments but to the wider issue of the possible rebalancing of the business rating system. I understand the point made by all noble Lords who participated about online retail and the high street—I pay particular tribute to my noble friend Lord Naseby, who I know has championed this issue well ahead of other people and has been a pioneer in the field. It presents serious challenges. There is an international aspect to it. We are leading with the OECD and the G20 on this matter and have been active in the debate on it. We look forward to receiving a report on it by spring 2018. That may well provide the context that we need to look at this issue. I accept that it needs to be looked at.
I hope noble Lords are in agreement that we need to look at the basis on which we tackle the whole issue of appeals. Under the previous system, large numbers of speculative appeals were made, accompanied by little or no supporting evidence—that is a fact and I see the noble Lord, Lord Beecham, acknowledging it, for which I am grateful. Almost 1.1 million challenges have been made to the 2010 list, covering a huge proportion of the total number of rateable properties, yet 72% of those challenges led to no change to the ratings list, with a large proportion eventually withdrawn. It cannot be right that appeals are made as a matter of routine, often backed by little or no supporting evidence. It clearly cannot be right that a significant number of appeals began with entirely spurious claims that the valuation of a property should be reduced to £1. More importantly, this huge volume of appeals served only to clog up the system—reference was made to that. That has an effect on genuine cases—there are some, of course—delaying receipt of any backdated refunds that they may be due.
The Valuation Office Agency has cleared on average 45,000 appeals per quarter over the past nine months and continues to clear outstanding appeals at a steady rate. The number of outstanding appeals partly reflects the large number of speculative appeals made with limited evidence, and shows why the system was in need of reform.
The noble Lord, Lord Beecham, quite fairly asked whether the Government would introduce a time limit for appeals. The Government’s response to the consultation stated that there are clear benefits to introducing a cut-off point for appeals. We intend to review the early implementation of the new system before bringing forward proposals before April 2018 for setting a fixed time limit for appeals.
It is not just ratepayers who suffer from speculative appeals. Such appeals and the delays that result from them waste public resources in the Valuation Office Agency and Valuation Tribunal, and cause uncertainty for local authorities—a point made very fairly by the noble Baroness, Lady Pinnock—which are heavily reliant on business rates to help fund local services.
The reforms introduced in April this year were an important and necessary step to deal with some of the serious flaws in the previous system. Through the three-stage check, challenge and appeal framework, they provide a more structured process to promote early engagement between the parties and help genuine cases to be resolved more efficiently. This will provide a clear framework for the exchange of evidence between the Valuation Office Agency and the ratepayer so that, where possible, cases can be resolved before reaching tribunal.
Quite rightly, the Government have sought to raise the bar in terms of the need for challenges to be backed by clear arguments and evidence. While there is no charge for engaging with the Valuation Office Agency, the reforms introduce small fees for making an appeal to the Valuation Tribunal—£300 is the standard, with a £150 fee for smaller businesses—to incentivise early engagement and help tackle the speculative appeals driven by the no-win no-fee end of the ratings market. The fees are refundable upon a successful appeal and are reduced from £300 to £150 for smaller businesses.
Regarding the supposedly no-win no-fee sector of the market, noble Lords may be interested in a recent case where an agent claimed a fee from a small business following a reduction in its bill that was entirely a result of the national revaluation. Having signed the ratepayer up to a complex and confusing contract, the agent is now seeking payment of £400, for having done little to no actual work, I expect. These are important reforms that aim to improve the system for all involved.
While I hope that we can agree that change was necessary, I am grateful to the noble Earl, Lord Lytton, and other noble Lords for sharing their views about the new system in this debate. Before turning to some of the themes and issues raised, I should address the specific points raised by his Motion. He contends that the reforms were introduced without adequate regard for the concerns of experts in rating appeals. I take issue with that. I should reassure noble Lords that the policy was developed through an extensive process of engagement with stakeholders. The Government have run and responded to two formal consultations, one on the overall policy approach and one specifically on the draft regulations. In parallel, officials in my department have held a number of formal and informal meetings with groups of business representatives, local authorities and ratings experts. This has included, for example, direct discussions with the CBI, the Federation for Small Businesses, the Local Government Association and numerous major surveying and property firms.
While I accept that there may be matters on which the Government and some representatives of the ratings sector have not reached full agreement, I reassure noble Lords that their views have been given due regard. I do not intend to repeat the detail of all these matters but refer noble Lords to the formal published responses to consultations that clearly set out the Government’s decisions and the reasons for them. I will write to noble Lords with links to the relevant publications.
Secondly, the Motion of the noble Earl, Lord Lytton, suggests that the new system was introduced without adequate testing. I reassure noble Lords that the Valuation Office Agency carried out user research with large and small businesses, and with agents, when building the service. The functionality of the systems was tested prior to launch. However, while pre-launch testing was carried out, I fully accept that there have been some challenges around the online portal of the new system.
As well as these technical IT problems, I understand that there were concerns that the system could work more effectively for some users, particularly ratepayers with large property portfolios represented by agents. The Government’s overriding priority is to make sure the system works and businesses pay the right rates. For smaller businesses, I understand that the system operates effectively to enable them to check their detailed valuation. However, I recognise that there may be scope for further improvements to better support agents acting for larger ratepayers. The Valuation Office Agency is working closely with business leaders and the rating industries to understand their priorities for improving the system. The department and I will keep a close watch on this. The VOA also brought in additional IT expertise from HMRC to assist with the development of solutions and to ensure that they are delivered as quickly as possible. I am happy to engage with the noble Earl on this matter and to ensure that any messages are passed on to the VOA.
Following discussions with rating agents and businesses, noble Lords will be reassured to know that the Valuation Office Agency has now also provided them with a clear plan setting out key improvements over the coming year. This includes, for example, work to develop the necessary software to enable rating agents with large portfolios to exchange information more efficiently with the Valuation Office Agency. As I said, the Government will continue to monitor progress in implementing the new system and expect the Valuation Office Agency to continue to engage with stakeholders to identify and speedily address any delivery issues.
The noble Earl’s Motion refers to the introduction of regulations to a truncated timescale. I expect this is a reference to the breach of the 21-day rule. I do not intend to dwell on this point, given the detailed explanation for the breach provided in the Explanatory Memorandum accompanying the regulations. In summary, however, in the context of significant scrutiny of the business rates system in March, the Government considered it necessary to consider carefully the views and issues raised before finalising the regulations.
It may be helpful if I turn to some of the main themes of the debate and the concerns around the system highlighted by noble Lords. One was the issue in relation to “online”, if I may put it that way, which I have dealt with. It is worth stating in this context that the Government made available £435 million to deal with some of the transitional difficulties and other difficulties experienced by particular industries. I accept that there remain concerns.
On other issues raised, the first relates to the transparency of the information on which valuations are based and an appetite, particularly from the rating agents sector, for much greater disclosure of information held by the VOA. I am entirely sympathetic to the need for businesses to understand their valuation. Under the new system, ratepayers are able to check the valuation of their property online and obtain a detailed breakdown of how that valuation has been made, including the valuation of different parts of the property and any relevant adjustments. They are able to obtain this information without having to make a formal appeal or to incur any fees.
On a specific point about freedom of information raised by the noble Lord, Lord Kennedy, we have of course made the consultation documents available. I am very happy to pick up with the noble Lord if he thinks other matters relating to freedom of information have not been dealt with but I think that answers his point.
Where a business makes a challenge to the valuation, there are then clear legal duties for the Valuation Office Agency to provide the ratepayer with relevant information that it holds. I hope noble Lords would agree that the provision of information needs to be proportionate and balanced with the interests of other taxpayers, whose information may be used to assess values. There is that issue about disclosing other people’s information. That is why the system provides for a structured process of engagement, the disclosure of information relevant to the case in hand and a registration process intended to ensure that information is provided only to those with a valid interest.
The second issue previously discussed with the noble Earl and raised this evening is the concern over the use of the term “reasonable valuation” as part of the appeal process. Noble Lords will know this issue was perhaps the most contentious during the development of these regulations. It led to concerns—unfounded in my view—that the Government were introducing some kind of margin of error for the Valuation Office Agency. There are two important points to make on this matter. First, the Government listened carefully to the concerns raised during the consultation and subsequently amended the regulations to change their original approach by referring simply to whether a valuation is reasonable rather than using the more contentious term,
“outside the bounds of reasonable professional judgment”.
Secondly, all this provision does is make clear that, in determining an appeal, the Valuation Tribunal should consider whether the current valuation is reasonable. There is no fixed margin applied here. It will be for the independent tribunal to assess, based on the available evidence, whether the valuation is reasonable. The noble and learned Lord, Lord Hope, correctly said that it is entirely consistent that the primary legislation refers to the accuracy of the list and that the secondary legislation refers to the fact that it should be a reasonable valuation based on available evidence. As noble Lords will no doubt be aware, the general concept of “reasonableness” is well established and used throughout the law of negligence and in many other areas of law.
I am also grateful to the noble and learned Lord in relation to the issues in adducing fresh evidence. I think it allows fresh evidence to be adduced; it is not a crude, blanket ban. Again, it is consistent with other areas of law that if there is a situation where the party could not have reasonably known about particular evidence, that evidence can be adduced, also with the consent of other parties. This is not unusual and is entirely fair. The early submission of evidence to support a challenge is an important part of the new system and provides the basis for early and meaningful engagement between the Valuation Office Agency and ratepayers. As I mentioned, it cannot be preferable that under the old system thousands of speculative appeals were made with absolutely no supporting facts.
The changes introduced by these regulations were an important step to fixing a previous appeals system that was clearly in need of reform. I recognise the point about the backlog, which I hope I dealt with. I recognise the issue about an appeals limit, which, as I say, we will address in the spring of next year. I hope noble Lords will agree that the new system will deliver an improved process and have been reassured on the specific issues discussed today.
I will pick up one additional point that I just remembered, raised by my noble friend Lord Naseby on whether there will be neutrality. It will be difficult to hit that spot on but it was and remains the Government’s intention.
With the assurances I hope I have been able to provide to the noble Earl of being very willing to look at some of these process issues on some of the IT problems and so on, and to look closely at what the Valuation Office Agency is doing about the concerns raised about the backlog and the computing system, I hope he will be able to withdraw his Motion.
I made some general comments about consultation with respect to the Minister’s department, which perhaps he could address. I also refer him to paragraph 10 in the report of the Secondary Legislation Scrutiny Committee. It said:
“It is clear that many business ratepayers continue to have serious concerns about the nature of the reforms to the business rates appeals system made by these Regulations, despite the consultation processes which”,
“has pursued over the last 18 months. The degree of controversy about these reforms may well explain why the Department was unable to lay the Regulations by the end of last year, as it undertook to do seven months ago, and indeed why it considered it necessary to allow only two weeks between the dates of laying and coming into force”.
The committee went on to say:
“We understand the sequence of events that preceded the laying of the Regulations, but we find it very regrettable that the Government have curtailed the opportunity for effective Parliamentary scrutiny in order to salvage their own timetable”.
That may not be damning but it certainly is not good.
My Lords, I am not sure whether that was a question or just an observation on what I said. But if the noble Lord is asking whether I will look at that report and take it seriously then, as he rightly says, it is a respected committee and of course we take its views very seriously, as indeed we do the views of noble Lords around the House.
My Lords, the Minister did not respond to my request about the funding of the VOA. It seems at the moment unlikely to have sufficient resources to carry out the job that the Government wish it to do.
My Lords, I apologise for missing that point. I am not sure whether it was made when I slipped out—it conceivably was—but it is a fair point anyway. If I may, I will write to the noble Lord about it and copy that to other noble Lords who participated in the debate.
My Lords, I am extremely grateful to the Minister for the comprehensive answer he has given to the Motion. I am also most grateful to all other noble Lords who have spoken in this short debate. I would never go so far as to try to question matters of reasonableness and accuracy, or to cross swords with the noble and learned Lord, Lord Hope, especially as he is the Convenor of our Cross-Bench group—and a much cherished and honoured Convener as well.
However, two things come out of this. First, there is an urgent need to sort out CCA online. I am particularly grateful to the Minister for inviting me to discuss the process issues, because they are numerous. If I could arrange to come and see him with a team of people who could explain what the issues are and why they are so grindingly irritating to ratepayers, and give such a bad impression of the whole thing, then trying to clear the air on that would be very good.
Secondly, yes, the overall system needs fixing and there is to some degree a focus on these SIs in that context. But various things follow from that: there has to be proper finance for it overall—a point mentioned by the noble Lord, Lord Beecham; there has to be a justification of the impost in absolute and relative terms, compared with other things, and we have lost sight of that a little; and there has to be in the change in the style of management. We are to some extent in this together and if the Government are serious in saying, “We are pro-business”, we cannot have a situation where businesses are set on edge by such a system. It is entirely negative and unnecessary, so there has to be a change in the style of management.
Part of the key to this is the transparency of information. As soon as people start thinking that information is being concealed from them, they become suspicious that there is some malevolence hiding behind it. The proof of the pudding will obviously be in the eating here. The whole point about a non-domestic tax, particularly since it affects so many businesses, is that it must rest on the taxpayer’s confidence that it is being dealt with efficiently, expeditiously and, above all, fairly. We should bear in mind that business rates have a long and cherished heritage. When I started dealing with rating matters back in 1975, it was one of the lowest cost and most efficient means of collecting money for local government purposes. If we do not get that right, the alternative is mounting further appeals. If this provision eliminates individual appeals and starts giving rise to a whole series of class actions, the impediment—the drag—that it will cause in the system will be the same.
This has been a very welcome opportunity to air these views. There are certain things that I dare say the Minister and I are probably destined never quite to agree on. It would be almost inconceivable if that were the case. I appreciate that an effort is being made here, but we need the financial resource and manpower to go into that to try to sort this out. If it is not sorted out, it will continue to cause us problems. Having said that, and with thanks to all noble Lords who have spoken and to the Minister, I beg leave to withdraw the Motion.
House adjourned at 7.25 pm.