Doubts that advice bill will achieve its overall aim

The Financial Guidance and Claims Bill had its Committee of Whole House stage in the Lords this week (19 July 2017). This bill will combine three financial advice bodies into one. The aims of the bill are clear but many aspects of it remain unclear to Peers. Most speakers welcomed the changes.

This bill will combine three financial advice bodies into one. The aims of the bill are clear but many aspects of it remain unclear to Peers. Most speakers welcomed the changes.

In general, the Bill will establish a new statutory body, accountable to Parliament, with responsibility for coordinating the provision of debt advice, money guidance, and pension guidance. It will also transfer the regulation of claims management services to the Financial Conduct Authority, and transfer complaints-handling responsibility to the Financial Ombudsman Service. The single financial guidance body will not fund regulated financial advice, with the exception of debt advice, but would signpost consumers to other providers to ensure that consumers’ guidance and advice needs could be met. The body will be set up in the bill as an arm’s-length body, accountable to Parliament, and sponsored by the Department for Work and Pensions (DWP).

No amendments were moved to a vote by Peers during this Committee stage. That is usual in the Lords, where amendments are not usually pressed to a vote until report stage. Some of the debate is captured in the summary below.

Business plans

Labour spokesman Lord McKenzie of Luton spoke on his amendment that requires the production of a three-year business plan as soon as possible after the transfer schemes are completed. At present, there appears to be no formal requirement in the Bill for there to be a business plan. Crossbencher Baroness Coussins and Conservative Viscount Trenchard spoke in support of the publication of the business plan.  Lord McKenzie said: “I am still at a loss to understand the scale or scope of the new body and whether, on day one, it will look like an aggregation of the three existing operations. Will it be half that size or twice that size? We have no sense of that from this debate and it is a germane issue.”

Parliamentary Under-Secretary of State, Department for Work and Pensions Baroness Buscombe responded for the government. She said that the DWP’s arm’s-length bodies are required to produce corporate strategies covering a forward period of three years and must incorporate a detailed business plan for the first year. She added that without consultation on its plans and assessment of consumer needs, the new body would be failing in its objectives. We were also told that Board members, chair, CEO and non-executive members will be elected ‘as soon as the legislative process allows’. As the new body will be a non-departmental public body of central government, it will not be able to hold money reserves. She said: “We cannot predict exactly what the new body will look like, and it would be wrong to try to do so. We do not want to pin down, constrain or compromise the CEO and his board.” She does not know if the appointments will go before the Select Committee. The amendment was withdrawn.

Insolvency regime

Lord Stevenson of Balmacara spoke for two related amendments. He wants to introduce a new function to the body with regard to debt solutions, in addition to requiring it to review the current insolvency regimes available for members of the public in England. This would also apply in Wales, as the insolvency regime is common across both nations. He withdrew his main amendment after the minister said this is already captured by the strategic function of the new body.

‘Free at point of use’

Baroness Drake spoke for a host of amendments, the main one being that the functions delivered by the financial guidance body remain free at the point of use for members of the public. Crossbencher Baroness Coussins backed the amendment but wanted assurances that self-employed people can access it without charge. Baroness Kramer said the Lib Dems support it, too. Baroness Buscombe said it will be a free service; this will include self-employed people but not micro-businesses because ‘the body is focused on individuals’ and ‘my understanding is certainly that we should focus on an individual’s finances, as opposed to finances attached to their business’. The amendments mentioned were not pursued.

State pension

Baroness Drake spoke for two further amendments. The first is that the pension guidance functions should include the state pension. The second is that there should be a single public service dashboard and the new financial guidance body could be allowed to be that dashboard provider. Sweden and Australia both provide their population with access to a clean version of a public dashboard, she said. Baroness Buscombe said it is not appropriate for the new body to become involved in specific issues relating to the detail or the handling by DWP of an individual’s state pension entitlement, for example, where a person has not received their state pension. She added that the drafting of the pensions guidance function as it stands would be wide enough to cover a number of operational options, including hosting a dashboard. The amendment was withdrawn.

Debt advice – or counselling

The Bill is clear that when it comes to pensions, money and other finances, the body will only give guidance, but when it comes to debt, the word used is advice. Baroness Altmann’s amendment wants to change the wording in the Bill which says ‘debt advice’ and instead use ‘debt counselling’

“From what I am told by the (Citizens Advice) advisers that would be better received by those who need help. ​It would also be less misleading to those who might think that somebody can help them with the pension decision when this is not the case.” She actually put forward a number of amendments which replace references to ‘debt advice’ with ‘debt counselling’. Crossbencher Viscount Brookeborough supported the amendment and said ‘we do not want to ask them why they are here and then say, ‘Here is my advice’. It should be about invitation and discussion’. Lib Dem Lord Kirkwood of Kirkhope backed it, saying if the Bill goes on to the statute book with this inherent confusion, ‘the damage will be done’. Lord Haskel also supported it. Lib Dem Baroness Kramer said the as yet unknown name of the organisation can help deal with ‘this language confusion’.  

Labour Lord Stevenson of Balmacara is unimpressed that, at least initially, it will not be possible for the new body to answer direct questions about individuals’ state pensions. “That seems to me a completely useless start for a body that is trying to deal holistically with people’s issues.” Lib Dem Lord Sharkey said if you can give only debt advice, that advice will be defective if you cannot take into account the pension liabilities and pension assets, an issue that is being looked into by the Government.

Baroness Buscombe said that any ambiguity over the use of these terms has been ‘appropriately addressed’ and such detail is best articulated by the regulator rather than through primary legislation. She added that debt advice reflects a broader set of activities than ‘debt counselling’. Debt advice is an activity regulated by the FCA and three consultations covering this issue have found no compelling evidence that use of the term ‘debt advice’ is an issue for consumers. A recent report from the Financial Advice Working Group, which conducted research into the terms ‘advice’ and ‘guidance’, concluded that there was no value in changing the terms. Altmann withdrew her renaming amendment.

Debt moratorium

Lord Sharkey (Lib Dem) spoke for amendments which called for provisions in the Bill for a debt moratorium - a period of up to 12 months during which time interest and other charges on an individual’s debts may be frozen - and a ban on cold calling by debt management companies and pensions-related companies. Crossbencher The Earl of Listowel and Baroness Altmann spoke in support.

Baroness Buscombe said the Government is already committed to developing a ‘breathing space’ scheme. And ‘work is ongoing’ to consult on how to tackle pension cold calling but warned that it is a ‘complex area’. “For example, where the consultation said that the ban would not extend to existing relationships, respondents highlighted the potential difficulty in defining existing relationships and ensuring that legislation is appropriately worded.” There are no plans to outlaw debt management cold calling, however. The amendment was withdrawn.

Care leavers

Crossbencher The Earl of Listowel spoke on a number of amendments, the main one is for the new body to specifically include care leavers within its national strategy to improve financial education. Crossbencher Viscount Brookeborough added that as only 35 per cent of state-funded secondary schools are now maintained schools, the obligation to teach financial education does not apply at all to nearly two-thirds of all secondary schools. Baroness Buscombe said one body cannot deliver to all; it simply would not be practical for that one body to be in charge of every stage in life and said the Government expects the new body to consider further initiatives to support care leavers, but also other young people from marginalised backgrounds.

The full debate can be read here and part two here.

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