In moving this amendment, which stands in my name and that of my noble friend Lady Hayter, I repeat my declaration of interest as the retiring chair of StepChange, the debt charity. I make it clear at the start that some of the free debt advice available in the United Kingdom is funded directly by creditors and by charitable donations. For example, StepChange Debt Charity receives the funding for all the work it does through this mechanism. Most of the major creditors, including some payday lenders, pay this fair share contribution, as it is called. Although it is not fashionable to do so, I put on record our thanks to the major creditors, including the banks, for their philanthropic activity, which last year allowed StepChange Debt Charity to offer advice and debt solutions to more than 500,000 people with unmanageable unsecured debts.
Other mainly face-to-face free debt advice services, and some of the telephone advice services operated by six other organisations including Citizens Advice, receive funds from the Money Advice Service via a compulsory levy on FCA-authorised lenders and financial institutions. The FCA collects the levy, but the Money Advice Service determines its size. We understand that it is the Government’s intention that payday lenders should pay this levy, but only when they are fully authorised, which will not be until spring 2016. Our amendment asks why we should wait. Why not now? The amendment would bring into scope creditors that do not yet pay the FCA levy, allow the FCA to vary the impact of the levy in relation to the consumer detriment caused on a sort of “polluter pays” principle and, as a result, increase funding for free debt advice and provide funds for the credit union movement.
Payday lenders cause a disproportionate level of consumer harm relative to the amounts that they lend, so they should, as the amendment suggests, contribute to debt advice a higher amount, proportionate to the greater level of detriment they cause. As high-cost credit providers exist only because there is not enough low-cost credit available in society, it is surely right that payday lenders should also be required to make a contribution to the credit unions, which provide exactly the sort of low-cost credit required but lack the resources necessary to reach out to all who need it.
When the Minister responded to the debate in Grand Committee, she said that the Government already put £38 million into credit unions—but that is a drop in the ocean compared to what is required to transform radically credit unions’ ability to supply low-cost credit where it is needed. I think that most people would accept that there is a greatly increased need here to cover the whole country. Where will that funding come from? A payday lender levy would help, and the next Labour Government are committed to introducing one.
In replying to this amendment in Committee, the Minister also said:
“The Government believe in the importance of free debt advice”.
I am relieved to hear that, but she rather spoilt it by adding:
“Free debt advice is funded by a levy on lenders, once they are fully authorised by the FCA … The noble Lord’s proposal would duplicate the existing funding arrangements for debt advice”.—[Official Report, 3/11/2014; col. GC 619.]
I hope that I have explained that the situation is a little more complicated than the noble Baroness said. Our proposals would add to the current level of funding, not duplicate it. Our argument is that the payday lenders that are causing the most consumer detriment should be asked to pay more and to do so now, so as to increase the pot of money available, rather than waiting until spring 2016, when the FCA authorisation will finally take effect.
I will make one further point. When the Minister comes to respond, could she let us know when she expects the Farnish review of the Money Advice Service to be published? One of the problems that we are experiencing in the debt advice and solutions area is that, following a rather trenchant Treasury Select Committee report, the organisation has been dogged
by criticism and, not unnaturally, that radiates uncertainty about its future. It is in everyone’s interests that we achieve clarity going forward.
The main issues facing debt advice and solution services at present are as follows. The Money Advice Service’s statutory objectives were put in place before the reconfiguration of the regulatory architecture, which, among other things, has put the FCA in the driving seat for debt advice and solutions. It is difficult to see what role the Money Advice Service should play in terms of quality advice and so on going forward, as it would clearly duplicate what the FCA is doing and, in some senses, confuse lines of accountability. That needs to be resolved.
How can we get more people to seek the best advice in a timely manner and to sign up to debt solutions that best suit their circumstances? Given that there is a problem with not enough people coming forward for the debt advice that they urgently need, how can we incentivise people to take action to resolve their debt problems? In Scotland, there is a system which gives legal protection to people who enter a statutory debt-free payment scheme. It is called the debt arrangement scheme and it protects them from further interest or other charges. It is a really good system and it works well. Could we not have something like this in the rest of the UK? It would provide an incentive for those with problem debt to take responsible action.
We need to get more people using telephone and online services, with the latter having the great advantage of being scalable at negligible additional cost. We estimate that the cost ratio of offering a face-to-face service compared to telephone and online services is of the order of 50:5:1—in other words, a very large factor if you go for face-to-face services as opposed to interaction through the internet. We do not believe that the need to channel change is being effectively addressed within the sector at present.
How do we make the best use of the limited funding available to support people dealing with personal debt problems? The Government need to come up with an overall strategy to ensure the optimum use of such funds and to incentivise collaboration between the agencies in the interests of reaching more people in need, making the optimum use of the available resources. This does not need overcomplicated regulatory structures or duplication of co-ordination.
In fact, funding for debt advice and solutions has dwindled under this Government and, indeed, may be cut further if rumours are to be believed. According to recent research on this, the level of personal debt across the economy amounts to £8.3 billion per annum, as mentioned in an earlier debate. Some debt solutions, such as the debt relief order, are run by government but the costs fall to the charity sector. For example, it costs StepChange Debt Charity more than £2 million a year to support clients through this process.
I believe that it is time for a root and branch review of how we deal with personal debt and to integrate the current arrangements better. We need to have statutory insolvency provision, and we need that to be linked to insolvency services so as to provide efficiency and to cut the cost of services to the sector and the public. It is important to help people back on to their feet. It is
also important to make sure that it does not impact on our overall economy. If we had a long-term strategy for the delivery of debt advice and debt solutions, we would be in a better place. I look forward to the Farnish report setting out sustainable principles which will encourage the free debt advice sector to have responsibility and a strategy for the future. I beg to move.
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