My Lords, Amendment 27 adds an objective for the new guidance body,
“to improve the ability of members of the public to plan for and address sudden variations in income”.
Clause 2 sets out that the new body’s money guidance function is to provide,
“information and guidance … to enhance people’s … ability to manage their own financial affairs”,
but the effective exercising of that function must involve improving people’s ability to manage income shock and strengthening households’ financial resilience. Improving resilience includes assisting households both to manage better once in the grip of a financial crisis or debt and to anticipate and protect against financial crisis or shock through a savings buffer, insurance buffer or some other means. Prevention and cure for households in financial difficulty are both within the remit of the financial guidance body and both require attention.
Evidence of weakening financial resilience within the UK population is abundant. Eight out of 10 people have little or no savings to pay an unexpected bill of £300. The Money Advice Service’s Milestones & Millstones report in 2015 showed that 3.3 million people face an income shock each year. The work, health and disability Green Paper, Improving Lives, reveals that each year almost 2 million people suffer a prolonged sickness absence from work caused by cancer, accident or other major illness, which usually leads to a sudden and significant fall in household income; and 1 million experience divorce, separation or death of a partner, again, often leading to a substantial fall in household income.
Many people lack the financial resilience to weather such a storm and consequently any children they have will also be bruised and buffeted. According to the
Children’s Society, financial shocks leading to problem debt have a significant impact on children’s well-being, with many struggling with school and suffering anxiety or depression as a result of enforcement action by creditors. A recent report by Aviva, Protecting Our Families, suggests that three in 10 UK adults have seen their finances hit as a result of temporary or permanent leave from work due to ill health, a cancer diagnosis or death within the family; 31% of adults took forced leave from work, of which 77%—12 million people—saw their income drop by an average of 24%. The Aviva report also reveals that 27% of parents with dependent children have suffered a health crisis, with 91% of these suffering financially. They are quite stark figures. I was quite surprised at the volume when I started to drill down into this.
At Second Reading we heard from the noble Lord, Lord Holmes of Richmond, that by 2020 50% of us will have had or will experience a cancer episode in our lifetime, yet only one in 10 will tell their bank or building society that they have a cancer diagnosis. The noble Lord recounted the experience of John—mid-40s, mortgage, diagnosis of cancer—who can get no engagement from the financial services providers to help him manage through this financial crisis. This experience is consistent with the FCA’s observation in its Occasional Paper 17, Access to Financial Services in the UK, which specifically identified the poor access, particularly to insurance, that people who have experienced serious illness suffer. It cites the statistic that 2.5 million people living with and after cancer—forecast to rise to 4 million by 2030—would find themselves in the non-standard category for a financial services “imperfect customer”. It went on to define what that meant but I think the House is quite capable of determining what a phrase like that means. Lynda Thomas, chief executive of Macmillan Cancer Support, observed:
“Every day, I see people, and I hear of people, whose finances have been really badly hit because of their cancer diagnosis. What our frontline experience shows us is that people affected by cancer find it really, really difficult to access ... all insurance products”.
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So many people do not have a savings or insurance buffer or other back-up. Just over one in four have savings sufficient to cover three months’ loss of earnings. State benefits help but they cannot fill the gap. Housing payments are often restricted and other regular outgoings, such as debt payments, are not covered. In the south of England there are now many towns and cities where housing benefit will not cover the rent of any private property. Three out of four private sector workers now either work for an SME—a small or medium-sized enterprise—or are self-employed so they may lack access to the more generous employer-provided help when illness or bereavement hit. Means-tested benefits provide only limited support for housing costs, with a cap on the amount payable for rent; owner-occupiers get no help with mortgage interest for the first nine months, and imminent changes mean that any help after that will be only a loan. The social security system does not yet fully address the significant changes in the labour market or the lack of support from the financial service providers.
Less job security in the market and lack of financial resilience in dealing with life events can lead to serious financial hardship and further health problems, debt, employment problems and demands on the health service. Again, the MAS financial capability survey reveals how a significant proportion of the population is not prepared for a rainy day or life event. Research by bodies such as the CII and Which? suggests that few people—perhaps as few as one in five—pay significant attention to protecting their income when unable to work, yet the consequences of failing to plan for such income shocks can be severe and long-lasting, often contributing to problem debt. Income shocks and their consequences can hit those who thought they were in a steady job with a steady income.
The new body should engage with the need to plan for such shocks and signpost products, services, information and tools to help the public understand the risk, how to plan for it and how to cope with it when it happens. It could identify the ways in which financial services markets could make a greater contribution to assisting households to manage income shocks, an issue which the FCA has recently highlighted as a problem. As the noble Lord, Lord Holmes, explained so clearly at Second Reading, the market can show little engagement or duty of care when people are at their most vulnerable. Improving the ability of people to plan for and address income shocks is an important part of building financial resilience. The new guidance body can assist in improving the ability of members of the public to plan for and address such variations in income. I beg to move.