Financial Services Bill

My Lords, it is a great pleasure to follow the noble Lord, Lord Barnett. I want to go a bit further on the subject of education, and certainly beyond the position of my own Front Bench. I will confine my contribution to Clause 6, proposed new Clause 6A, which is headed: ""Enhancing public understanding of financial matters etc"," and to proposed Schedule 1A which selectively spells out the detail of the: ""Further provision about the consumer financial education body"." These arrangements are to replace the duty placed on the FSA in the 2000 Act to ensure public awareness of financial matters. In its annual reports, the FSA has faithfully listed that as one of its duties. We can speculate on what has persuaded the Government to drop the FSA’s public awareness duty, as in Clause 6(3), and to substitute that at much greater length and expense the arrangements for a new body—the consumer financial education body. It may just be that the Minister considers that awareness is not enough, and instead we need the seriousness of education, which seems unlikely. It may be that the FSA has said that its awareness effort has been small but without more delegated authority, money and staff it can do no more about it, and that if we want education, we should give the FSA the responsibility and resources to deliver it through a body under its control. The switch from awareness to education needs justification. The banking and credit crisis showed that it was not only the public who lacked awareness, but those in charge in the highest places as well—a point strongly made by the noble Lord, Lord Barnett. It remains true that members of the public are capable of imparting more awareness than was or ever could have been delivered by the FSA. Indeed, who operating from within the financial system was fully aware, or is aware today, dare I say it? What has been illustrated here is the mistake of legislating to give a duty to a public body which it cannot perform, and the reluctance of that body to say so. We then move to the next fallacy, which is that it was not the policy but the chosen method of implementation that was wrong, and that it was not sufficiently rigorous and the resources put into it were inadequate. This leads to the, "If at first you don’t succeed, try and try again" syndrome. It is a favourite response of this Government to policy failure, disregarding the fact that the premises on which the policy was based were faulty in the first place. How can the Government and their agencies expect to compete in the matter of financial awareness and education with all those whose livelihood depends on that? Surely it would be better to leave these matters alone securely in private hands. I suppose the Minister will say that it falls to government to fill a gap because of market failure. However, my questions are as follows. How in the first place is this market failure described? Indeed, do we know how to describe it? And is there any credibility in the description of how the FSA and its subordinate body could correct this market failure, considering exactly what the history of failure has been, is and, as the noble Lord, Lord Desai, said, is likely to be? Whatever history’s full evaluation of our understanding of the financial system turns out to be, we need to be cautious when we claim a high degree of knowledge and certainty about it today. Nevertheless, there is to be this new, expensive and curiously funded body. Given its title, we are left to speculate on the switch from the public as a whole in the 2000 Act to consumers only in this legislation. Is that because the providers are beyond education or is it because there is top-down comfort in a role for the great and good as educators of members of the public in "how to manage their financial affairs"? This mechanistic approach replacing the broadly based "public awareness" is no improvement; it is just another decision to choose process with no measurable outcomes in sight. What is also surprising is the decision to create yet another body with a chair, a chief executive and a board. There will also be a practitioner panel and a consumer panel. The body is bound to be bureaucratic and therefore expensive. That is the price paid for public accountability. This creation of yet another public body is evidence of the residual fly-wheel effect, whereby this Government cannot resist committing ever more resources to the public sector when we all agree that it is only growth driven by the private sector that can return our finances to long-term health. The way in which this body is to be funded also looks curious. In paragraph 14 of Schedule 1, the Treasury is given the power to join in the funding by way of grant or loan, met out of money provided by Parliament. Perhaps the Minister will confirm that Treasury intervention should be seen as a reserve power unlikely to be called upon in the near or medium-term future. However, in paragraph 12 the FSA may make rules determining who should pay the education body’s costs and in what proportion. Now it is true that the FSA has rule-making powers under the 2000 Act but none of these powers has anything to do with payments to the FSA. Giving a public body an unfettered right to demand money cannot be right. Am I correct in thinking that the power in paragraph 12 sets a precedent? In paragraph 13, the OFT has a similar power to impose payments to meet the costs of the education body by general notice to consumer credit licensees. What is the justification for this power? Both those powers seem to be an attempt to transfer the body’s costs on to the private sector, which is an entirely inappropriate idea. We depend upon growth in the economy to restore our finances over time, and that growth needs to be driven by the private sector. It is, in any event, deeply irresponsible to burden the private sector with additional costs in support of an activity wholly unsuited to the public sector. It is amazing to think that the Minister could possibly support these arrangements. Perhaps he will think again. Having, with typically bad husbandry, pulled up the bush of public awareness, he may conclude that it is not such a sorry case after all and so rapidly replant it. Even if the "public awareness" duty has not delivered much, at least it is suitably vague and inexpensive. Dropping the education scheme from the Bill would bring the advantage of shortening the volume of legislation by some nine pages. However, the main issue is the avoidance of yet another cost centre within which inputs will always be more beguiling than measurable outputs.