Brooks on Financial Services (Low-income Families)
Brooks Newmark calls for an integrated strategy for financial education starting with schools and colleges.
Mr. Brooks Newmark (Braintree) (Con): I congratulate the Leader of the House on choosing a subject for today's topical debate that is both topical and desperately in need of a full debate.
Although I welcome many aspects of the action plan, it underestimates one element of financial inclusion. When we use the term "financial inclusion", it is tempting to focus on those who cannot access mainstream banking and insurance products, but I would prefer a definition that placed equal weight on financial education. It is a little lazy to say that access to mainstream products is the be-all and end-all of financial inclusion. If people do not understand the products to which they have access, they cannot meaningfully be said to be "included". For me, financial inclusion is achieved only with understanding. Only when people's personal finances are flexible, comprehensible and, above all, sustainable, can they be said to be financially included. The Government's favourite fiction, especially now that times are tough, is to pretend that life began in 1997 with a new red dawn-and I do not mean the right hon. Member for Bristol, South (Dawn Primarolo). However, before that date, the Prime Minister and First Lord of the Treasury was proclaiming his prophetic vision to the country:
"We will not build the new Jerusalem on a mountain of debt"
he said in 1996. Yet, 11 years later, a mountain of debt is precisely what we have.
I see the Economic Secretary smiling. She is well aware of my fondness for the vexed question of off-balance sheet public sector debt; at least it vexes her when I raise it with such persistence. However, in the realm of very large numbers that is evoked by the spectre of off-balance sheet liabilities, an even larger number lurks: that for unsecured consumer debt. Unsecured consumer credit is the ticking time bomb that is genuinely worthy of a topical debate. The explosion-and now the impending implosion-of unsecured consumer credit threatens some pretty serious subsidence to the economy, if not to the new Jerusalem itself.
The Government's proposals place, to my mind, more emphasis on access to services than on access to advice, and they must be complementary. The Government's first financial inclusion strategy correctly identified the three key pillars of access: to banking, affordable credit and free face-to-face financial advice. However, the provision of services or credit to those people who have no experience of them is surely tempting fate.
As the Government implement their welfare strategy of "individualised budgets" for care and payment of benefits directly to bank accounts, the most vulnerable people in our society will continue to pay the price of exclusion and of change. One example of that is well known to all hon. Members and has already been mentioned today, but I will repeat it. The loss of the Post Office card account without a viable replacement has hit many of our constituents hard and exacerbated financial exclusion.
Today is a sad day for many of my constituents in Braintree, as Post Office Ltd has confirmed the impending closure of three branches in White Notley, Rocking Church street and Panfield lane. The closures have gone ahead despite all the hard work of parish and district councillors and the residents who relied on post office services to save the branches. So we might be forgiven for thinking that, in some areas, despite the Government's plans for investment in financial inclusion, things on the ground are slipping backwards.
When I was a member of the Treasury Committee last year, it published a series of reports on the subject, which recognised that promoting financial inclusion is crucial to the fight against poverty. While social exclusion reaches far beyond financial exclusion, it is clear that the latter helps entrench the former. That is not an especially new idea, and, to give credit where it is due, the issue has been on the Government's agenda since 2004. However, the timing of the current action plan's publication in December 2007 is significant. Only now, after the credit crunch has started to bite, do the Government genuinely emphasise the importance of the issue. Suddenly, it is a "topical issue" and I hope that we are not too late. For many hard-working families who have got themselves into unsustainable levels of debt, or who have been forced to use non-mainstream sources of credit, the new year may not be a happy one.
Although I wanted to focus on three issues, I appreciate that time is short, so I shall focus on only one: the cost of credit. The Competition Commission's investigation into the cost of home credit found that customers were being overcharged by some £100 million a year. The statistics on home credit companies and doorstep lenders can be truly frightening. Annual percentage rates can range from 140 per cent. to 400 per cent. and illegal lenders can offer APRs in excess of 1,000 per cent.
I welcome the announcement that the Department for Business, Enterprise and Regulatory Reform has projects in all parts of the UK devoted to tackling illegal lending and that it will maintain them until 2011. However, I should be grateful if the Economic Secretary commented on the working of the Consumer Credit Act 2006, which introduced the unfair credit relationships test. It allows consumers to challenge the terms of credit agreements in court. I am also interested in whether the wide licensing and injunctive powers granted to the Office of Fair Trading to address bad practices by lenders under section 38 have been effective in practice. Why is the Department for Business, Enterprise and Regulatory Reform conducting a further review of consumer protection, to report in spring 2008, given that the 2006 Act is not yet fully in force?
I am pleased that the Government aim to double the capacity of third sector lending and have provided £38 million from the financial inclusion fund. However, will the Economic Secretary confirm that the £38 million is new money? When the Select Committee examined this issue, I believe that £36 million had already been committed. If so, an extra £2 million does not seem that significant.
To conclude, I want to revert to the availability of financial education, without which access to credit and savings products will founder. I welcome the commitment of £76 million for providing free face-to-face financial advice to financially excluded people. However, that targeted investment should be the cherry on the top of an integrated strategy, which puts financial literacy at the heart of schools and colleges and ensures that the iPod generation will become the ISA, not the IVA-individual voluntary arrangement-generation.
2.17 pm
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BROOKS' OTHER INTERVENTIONS IN THE SAME DEBATE
Mr. Brooks Newmark (Braintree) (Con): Will the Minister acknowledge that the continued closure of post offices, particularly in rural areas such as those in my constituency, will only exacerbate the problem of financial exclusion, particularly for elderly people?
Kitty Ussher: I am not sure whether the hon. Gentleman listened to my response to the hon. Member for Angus (Mr. Weir). I do not accept that financial exclusion will be made worse. The Government have tried every single avenue to ensure that avoidable closures in rural areas are indeed avoided, with some considerable innovative successes. Post offices have moved into other businesses and so on.
Mr. Newmark: I want to follow up on the interesting point made in the intervention about Christmas schemes. What lessons have the Government learned from the failures in relation to the Farepak disaster last year? Those lessons would be helpful in dealing with this issue.
Kitty Ussher: I am sure that a large number of Members will wish to mention Farepak, but the hon. Gentleman has been the first to do so. I was coming on to that point. We initially took steps to provide better protection and information for consumers. We have worked with the other hamper companies to put in place effective protection for customers' pre-payments. We welcome the action by the industry to put in place independently controlled accounts to protect customers' funds. We gave the Office of Fair Trading £1 million for an initial marketing campaign. The figure will be £2 million in the financial inclusion plan for the next comprehensive spending review, which I announced a couple of weeks ago. Specific action is being taken by the companies investigation branch and the liquidators with regard to Farepak. We have not ruled out further regulation once that process is complete. I am happy to return to this matter.