Financial Services Bill

Public Bill Committee, 7 January 2010.

Clause 6

Mark Hoban (Conservative, Fareham)

I beg to move amendment 40, in clause 6, page 4, line 15, leave out subsection (3).

Amendment 40 is one of a series that considers the work of the proposed consumer finance education body. Rather than have a stand part debate on the subject, I thought it might be helpful to make some general remarks on the clause and schedule 1 at the start of this debate.

We welcome the work that has been done to tackle financial education. A large number of bodies are involved, and that predates the involvement of the Financial Services Authority. A number of voluntary groups, including the National Association of Citizens Advice Bureaux, have done a great deal of work on the subject. A large number of private-sector organisations have funded work on financial education, supporting third-sector organisations or funding information packs, advice programmes and so on that can be made available to their customers or more generally. Indeed, at one point in the middle of last year we could barely move in the House for launches of various information packs by banks, building societies, insurers and others. I welcome the private sector’s recognition that it has an important role to play in improving the level of financial education among the population.

All of us, to a greater or lesser extent, support financial education; the premise is that if people have better levels of financial awareness and literacy, that will flow into improving financial outcomes for individuals. That principle is at the core of support for financial education. If people lack the confidence to engage with the financial services sector, and they do not have the savings or protection products that would provide support and security for their families in the short, medium or long term, they may face greater challenges in managing their finances, so we are talking about an important aspect of the work of the financial services sector.

As I say, a great deal of work has been devoted to raising levels of financial literacy. Prior to the introduction of a coherent strategy, much of that work was piecemeal; it was not done consistently throughout the country. However, in trying to bring some coherence to the process, we must ensure that the good work that is taking place is not squeezed out of the system.

We should be sanguine about the extent to which financial education will solve the problems that we see in society—the low savings ratio and the number of people without protection products. We want a move from information to action, but there are many barriers in the middle, which means that no matter how much financial education there is, there will be some limitations on people acting on the information that they receive.

All sorts of aspects of human behaviour can be a barrier to acting on that information, including inertia and the trade-off between short-term gratification and meeting longer-term needs. For instance, many people put off saving for a pension, using money that they would have put aside for a pension to meet other needs. Although I am very supportive of choice in many aspects of activity, for some consumers the huge choice on offer is so bewildering that it inhibits them from taking action. Some good studies in other jurisdictions have shown that restricting the amount of choice has led to an increase in take-up of financial services products. We should not be under any illusion that providing education will solve the problems of financial illiteracy and of people being ill-prepared to face some of the financial challenges faced by their families.

So where are we at the moment, in terms of people’s financial awareness? In 2006, the FSA published its baseline survey on financial capability. It was a helpful piece of work that demonstrated how financially illiterate we are as a nation. The problem can be broken down into two components—how little we know, and what impact the lack of knowledge has. I can give three stats from the report showing how little some people know. Some 40 per cent. of people who own an equity individual savings account are not aware that its value fluctuates with stock market performance, and 15 per cent. think that it does. It is a major savings vehicle. The fact that people are so unaware of its components should be a concern. The finding that I like most is that 50 per cent. of people surveyed did not know what 50 per cent. means. That reflects a failure of the education system, with regard to people’s ability to deal with percentages and understand what percentages mean.

I came across another survey finding recently; I think it was in a conversation I had in Gateshead, which I will come back to. Teachers were comparing credit cards and assumed that the higher the annual percentage rate, the better the card was. There is some way to go in explaining the basic concepts of finance to people. If they understood those concepts more easily, they would be in a better position to manage their finances.

The lack of knowledge means that many people cannot or do not act on what they know. The baseline survey found that 81 per cent. of pre-retired people think that a state pension will not provide them with the standard of living that they hope for in retirement. Nevertheless, 37 per cent. of those people have not made any additional pension provision.

Despite the wealth of advertising for comparison websites, 33 per cent. of people who hold no more complex products than general insurance bought their policy without comparing it to even one other product. They are not shopping around for the best deal. One of the financial benefits that the impact assessment seeks to quantify is people shopping around for a better deal for products by using comparison websites.

According to the baseline survey, in 2006 there was a great deal of work to be done to raise levels of financial literacy and to increase people’s preparedness for the financial issues that they face in future. The FSA is just one of the bodies that has collected data. More recent data demonstrate that the magnitude of the task has not diminished. According to the Scottish Widows savings and investment survey, 27 per cent. of 18 to 24-year-olds have no awareness of ISAs or their functions. In October last year, the Association of British Insurers savings and protection survey found that 27 per cent. of working people save nothing at all in a pension.

We also know that the savings ratio has dropped from about 9.6 per cent. in 1997 to about 1.8 per cent., although it is creeping up again because of the economic recession. The Government's own impact assessment states:

“Levels of financial capability among the UK population are low and over-indebtedness is a major problem. Around 19m people in the UK are especially vulnerable to the consequences of poor financial decision making but are least likely to seek out financial advice.”

The importance of the issue should not be understated. Personal debt has boomed as the savings rate has collapsed, exacerbating the impact of the economic cycle rather than dampening it. We need to make sure that we get the policy responses right.

The evidence is clear that there are low levels of financial literacy and of take-up of financial products. The principle underpinning support for the initiative is that boosting education will boost take-up and preparedness. As I said earlier, however, we should be careful about drawing a direct causal link, assuming that better financial literacy will automatically flow through to better preparedness.

John Howell (Conservative, Henley)

I am aware of some of the surveys mentioned by my hon. Friend. We know about the extent of the lack of financial awareness, and have done for some time. However, I am concerned by the comments made in some of the witness sessions, and I wonder whether my hon. Friend shares that concern. It was commented that part of the problem was that although the FSA knew about the issue, it was not providing feedback to the organisations providing the training, including those in the private sector. As a result, there is no learning loop among the trainers that would lead to action and improved financial knowledge among those who receive the education.

Mark Hoban (Conservative, Fareham)

My hon. Friend makes an important point. There has been widespread awareness of the problem for some time. Part of the challenge is to understand the best way of tackling it.

The FSA has been working over a prolonged period to identify ways of raising financial awareness. Its workplace programme attracts a certain group of people, and it has considered innovative ways of getting financial information to people at the various points in their lives when they will need it. Indeed, there was discussion in the evidence sessions about the packs that are given to expectant mothers. The hon. Member for South Derbyshire and I expressed a degree of scepticism about that. However, having pursued this point with the FSA and Chris Pond, its director of financial capability—he was once Member of the House and a Minister—I understand that it is welcome and effective.

Part of the challenge is trying to find points in people’s lives when they will be receptive, and discovering the best way of getting that information across. We need also to know how big the problem is. We want to encourage people to save. We talk about percentages and interest rates on credit cards and so on, but if 50 per cent. of people do not know what 50 per cent. means, there is an underlying problem with numeracy. That needs to be tackled if we are to move on to the next stage, which is trying to get people to engage with financial services, as many features of products are expressed numerically.

There is a strand of scepticism out there that says that we are trying to patch up the outcome of the education system, but we are trying to improve financial literacy more generally. There has been a lot of debate about how effective that can be, and what the best approach is. To an extent, it is relatively new territory. That is probably why there has been a disconnect. It is also why a number of organisations have been going off in various directions, taking different routes and often reinventing the wheel in the process.

That may not be the most effective use of business resources, but it is seen by a number of financial services organisations as an important part of their corporate social responsibility programmes. They also see it as a tool to help their business, as it is about ensuring that people are better prepared to understand credit cards, overdrafts, bank accounts or debt products, and may act as a route to encouraging people to buy more savings products. That takes us back to the core of the argument, which is that increasing financial education should have a knock-on effect on the extent to which people are able to manage their finances to save both for short-term, rainy-day needs and for the long term. However, we need to be careful about that.

The FSA commissioned research in 2008 to examine behavioural issues relating to financial services. It was entitled “Financial Capability: A Behavioural Economics Perspective” and the opening statement was this:

“Financial capability involves knowledge and skills, but attempts to improve these may not lead to better outcomes. What people choose to know and what they do with their knowledge may primarily depend on their intrinsic psychological attributes ...Psychological rather than informational differences may explain much of the variation in financial capability reported in the FSA (2006) Baseline Survey...If poor financial capability is mainly a matter of psychology, the information-based approach of the National Strategy for Financial Capability is likely to have only a modest effect in improving outcomes.”

There is a note of caution to be sounded. People are well aware that financial education is not a universal panacea; it is not a silver bullet to tackle some of the issues about people’s financial outcomes. We should be wary of overselling it as the solution to all our problems. However, rather than saying, “The strategy is doomed to failure and we should not proceed beyond this point,” I would argue that we need to be aware of its limitations and look to other ways to improve people’s financial outcomes.

A good example is auto-enrolment for personal accounts. Underpinning that is the sense that, although we may give people information to enable them to make the right decision about whether to enrol, inertia may mean that they do not. Even for pension schemes with no requirement for employee contribution, the take-up rate is not 100 per cent., which is rather odd. Auto-enrolment gets people to do the right thing automatically, recognising that, behaviourally, that is the best way to boost take-up. It reflects the fact that there may be occasions on which, despite all the information being given and people understanding it, there is still a barrier to the next step. The transition from information to action can be quite a long process.

Part of the concern—I shall touch on this later under one of my amendments—is where we draw the boundary on what is advice. How do we try to minimise the gap as far as possible between information and action? The wider that gap is, the lower the likelihood is of someone acting on the information that they have received and on what they have found, because it is simply too difficult to get them from where they are now to the point of making a decision and purchasing a product.

To tackle the issue of financial capability, we need to ensure that there is long-term sustained support, that the information and advice that people receive is consistent and that, where possible, the gap between information or advice and action is narrowed. It is a multi-generational challenge; the issue will not be tackled overnight. The Government re-announced last week their plans to make financial education a core part of the personal, social, health and economic education curriculum. A lot of work has been going on in schools, led by PFEG—the Personal Finance Education Group—and supported by a number of private-sector organisations. However, we should recognise that that is rolled out bottom-up; we need to ensure that it is implemented properly across all schools.

A 2008 Ofsted report said that less than a quarter of schools monitored or assessed the impact of the provision of financial education, so we need to ensure that where we see financial education playing an important role, there is consistency in its roll-out, and that high-quality materials are used, whether in schools, colleges or workplaces. It is important to ensure that there is a proper, well thought out approach under which people are getting the right information that will lead to the right decisions being taken.

The plethora of initiatives suggests the need for a proper strategy, and the consumer financial education body is ideally placed to ensure that there is consistency of messaging and co-ordination of coverage. I welcome the fact that its remit under the Bill enables it to subcontract some of its responsibility to others; there is a partnership model, and I think that that is the right approach to take. I think that that body will try to ensure that none of the existing provision is squeezed out of the market, but it will also try to ensure that, where funding is available for provision, that funding is used in a way that maximises its benefit.

The model that the Government have adopted requires a number of different channels to be used, including telephone, face-to-face and online communication. The approach that the Government have adopted and set out in the impact assessment is one where the emphasis is very much on face-to-face advice; that is seen as the best way to help the people who are most vulnerable to deal with their financial issues.

I will just flag a concern about that focus on the vulnerable. There are a large number of people across the income divide who have problems managing their finances. We will all have experience from our own constituencies of people who are on reasonable incomes but who still find it very difficult to manage their money. We need to ensure that the service has wide appeal, is not narrowly targeted, and is not seen as developing a brand that is solely aimed at helping people who are in vulnerable situations. It must not be seen as a service for “that group over there”’; it must have wide appeal. There is a broader benefit to that approach: if the service is seen as having wide appeal, it is more likely to receive industry funding and the support of industry, and money will be given willingly, rather than reluctantly.

That partnership element is very important. I just want to reflect on a visit that I made in December, when I went to Gateshead to see how the roll-out of the national money guidance service in the north-east was working in practice. I visited the Help the Aged and Age Concern office in Gateshead, which is one of the partners of the FSA in the roll-out programme.

That visit illustrated the importance of working together. One of the points made to me by the people providing support was that, in terms of what they were permitted to do under their contract with the FSA, they gave some good advice, but through the other services that they offer, they are able to move people further down the track of taking action. They provided a casework facility as well, which fell outside the remit of their contract with the FSA. So there was a synergistic benefit in the FSA working with existing partners on the ground, who effectively were able to supplement what was being offered through the FSA. That was a very powerful message about how we can harness the existing skills and talents of organisations and leverage off them to improve people’s financial outcomes.

Of course, the other advantage of using partners such as Help the Aged or Age Concern is that they can market the service to their existing—I hate the phrase, but I will use it—“client base”, the people who come to one of their centres, perhaps for advice on welfare benefits. With the resources that are available to those people from the money guidance scheme, they are able to look at other aspects of their financial affairs, too. So there is a benefit there. Not only can we leverage off the existing support and advice that such partners give, but we can attract new people to using the service.

Of course, as I have already said, it is not just the third sector that is involved in the process. Angela Knight gave evidence on behalf of the British Bankers Association, and when she was questioned about financial capability, she said this about the contribution of the private sector:

“what is being done at the moment is actually pretty significant. There are individual programmes done by individual banks, both in schools and in areas, and various other initiatives provided through a number of organisations, such as Moneymadeclear and the Personal Finance Education Group...There is a plethora of different programmes and initiatives focusing on the business of financial education both in and out of schools.”——[Official Report, Financial Services Public Bill Committee, 10 December 2009; c. 76, Q11.]

One challenge that the new consumer finance education body will face is developing a clear idea of where it sits in that landscape. The Minister might want to expand on that. Does it see itself as an umbrella body co-ordinating the different streams of activity, or as a provider? How does it judge where it sits on the continuum between being simply a commissioner and being a provider? The closer it is to being a provider, the more it will squeeze out some of the current voluntary efforts; the closer it is to being a commissioner, the greater the risk of inconsistent coverage and messaging. There is a delicate balance to be struck, but getting it right is important if we are to maintain the current richness of provision and ensure that we maximise the chances of people acting on information.

We support financial education. We said some time ago, before the Government made a similar commitment, that we would support a national roll-out of the money guidance project within a year of the next general election, because we see the importance of tackling the high levels of financial illiteracy and improving people’s skills in order to try to improve outcomes. The FSA has happily done that under its remit on public awareness, which brings me to amendment 40.

Clause 6(3) omits section 4 of the Financial Services and Markets Act 2000, which deals with public awareness. That creates the assumption that the FSA does not need to do anything else relating to public awareness. If that objective is removed, does the FSA lose that need? At the start of this Committee, we discussed raising awareness of the regulatory process, penalties and fines and making information available. Although public awareness has been used as an objective under which financial education sits, public awareness is far broader than financial education alone. People need to know the limits of what a regulator can do and understand the broader regulatory issues. I am concerned that the omission of the public awareness objective will allow the FSA to wash its hands of its role in improving awareness of how it operates.

If the FSA loses that objective, what does the Minister think its role will be in terms of informing consumers about its objectives, what it does and how it performs its tasks? I am just probing. Having moved the responsibility for financial education away from the FSA in the Bill, are we really saying that it has no further public awareness responsibilities? Consumers will wonder what the FSA does. Do the Government expect the new consumer financial education body to undertake that role?

Andrew Love (Labour, Edmonton)

I do not wish to encroach on my own speech, which will follow the hon. Gentleman’s, but one concern about public awareness is that

“the provision of appropriate information and advice”

will be removed from the FSA’s remit. There is considerable concern among consumer advocate bodies about that, so I will be interested to hear the Minister’s reply.

Mark Hoban (Conservative, Fareham)

In the recent financial crisis, people’s awareness of the compensation limits increased significantly. Does the task, in relation to awareness of the limits of the Financial Services Compensation Scheme, fall to the consumer financial education body or to the FSA, which devises the rules for the scheme? We need to clarify some of the issues on the margin about what the FSA is still responsible for doing, and what responsibilities the new consumer financial education body has. There is a danger that in the transfer of responsibility the FSA may lose sight of its remit to make sure that people are aware of its activities and we need to understand exactly what the consumer financial education body sees as its parameters.

Mark Todd (Labour, South Derbyshire)

I have not previously welcomed you to the Chair, Mr. Benton, and I do so now.

The hon. Member for Fareham has made a rather thoughtful speech, and that is not unusual; most of what he says is well worth listening to. I shall reinforce some of his points and add one or two additional dimensions. Reflecting on my adult lifetime, which I think is that of everyone in this Room—or not quite—the range of financial products available to us, and the complexity of choice for consumers, is by a quantum much larger than it was when I was 18. Then it was a matter of sorting out a bank account—I do not think credit cards existed, and I certainly could not get one—or worrying about some of the more complex areas: insurance and investment products. Savings were very straightforward. It is a world that has utterly changed.

That shows one of the strange things about this subject: poor financial education, leading to poor decision making, is not necessarily related to education. There are significant generational issues involved. Like most hon. Members I have had highly intelligent constituents of a certain age coming to see me after moving into an area of financial products completely outside their experience. It is nothing to do with how they were originally educated. Often they were educated to degree standard. It is simply that the matters were outside their compass, and they had trod waters far too deep for them.

Neither, as the hon. Member for Fareham has said, is the problem always related to income. It may concern people with significant sums of money—I have, for example, dealt with some of those who have, sadly, put substantial sums at risk by investing in the Isle of Man—who have not done the necessary research to understand the risk they might be taking, and who have given themselves much greater exposure than they imagined.

This is a far more complex subject than it is often portrayed to be. It is not about helping poor, ill-educated people to deal with the crises in their lives; that is part of it, but quite often poor people make sharp and necessary judgments and are instinctively cautious about some of the more foolish things that one can get into. It is much more nuanced.

The hon. Gentleman also said, rightly, that the response to the challenge—perhaps understandably, bearing in mind what I have said—has been disparate, incoherent and confused, with a large number of initiatives in the private and voluntary sectors and, latterly, sponsored by the public sector, to address the problem. That has meant often patchy coverage and extraordinarily little quality analysis of what is being done.

My biggest anxiety, therefore, is that we, collectively as a society—some of the money comes from the private sector, but an increasingly large sum is from the taxpayer purse—are distributing a large amount of material without a great deal of understanding about its effectiveness in addressing the problems that we think we are seeking to tackle. We all know that there are problems there, and the response I am afraid in some cases has been to turn on a hose of money and point it vaguely at what we think the problem is, without attempting to work out what tools might work best, then testing and applying them to the rather different audience sets that are undoubtedly there for what we are seeking to offer.

I want to illustrate that. Two members of the Treasury Committee are here today and they will know that I questioned the FSA at its last appearance before us. In the FSA annual report is an evaluation of what it has been doing on financial education. There was quite an impressive list of statistics at the back of the report, saying, “We have done this, this and this.” I picked out one example of the FSA approach, in which it said, “We have got a target to reach this number of pupils in schools.” The FSA had exceeded that target, because the method used to count how it had done so was the number of schools that materials had been sent to and the number of pupils in those schools. I pointed out that that did not tell us a great deal.

I shall come back to why I think such an approach of simply sending large packs of materials into schools is unhelpful, but those of us who know schools well, know that they receive a lot of material for free, from Government and from other well-intentioned agencies. Some of the materials end up in the round filing cabinet and others, more commonly, end up in store rooms or teachers’ bookshelves. There was no attempt to work out whether pupils had been reached by the initiative, as opposed to the post room of the school being reached by the initiative.

That was one example and there were, sadly, many. When I went through the list of achievements, I think there were only four occasions when there was any sign of an evaluation of what had actually been done. Otherwise, all of the work was quantitative—“We have sent all of this stuff out, so we have reached the target.”

That is a worrying state of mind which, I am afraid, applies not just to the FSA. I have had a number of discussions with PFEG—acknowledged in the speech of the hon. Member for Fareham—which was the distributor of the packs. PFEG took a somewhat similar view. When I used in evidence the constituency that I serve and the schools in it, saying, “Well, there is precious little evidence that what you are sending out has actually produced an outcome,” it had to concede that that was true, because the test done on engagement with schools showed that in the entirety of my constituency, the actual engagement of any solidity beyond sending a piece of paper to the school was virtually nil. We are in a position in which we appear to be doing rather a lot—it is certainly costing quite a lot of money—but without any evidence that it is actually producing substantial outcomes.

Another worrying thing, again focusing on the school environment, is that the quality of material, to the untrained eye, would appear excellent. It often looks impressive; it is a well-presented pack of apparently good teaching materials. I have the advantage—or disadvantage, depending on how you look at it—of having worked in the educational publishing industry for a large chunk of my life. Therefore, I can view the material from the perspective of how it would work in the school environment, as that was how the business I worked in survived or failed. Many of these materials have a strong resonance with some of the products that, sadly, led the part of the company that attempted to sell to schools into steady decline during the time that I worked there. I moved out of the school section fairly early in my career towards other parts of what was a large business. We declined from being No. 1 in the school marketplace when I first joined the company in the mid-70s, to being about No. 4—which in those terms meant nowhere—by the time I left at the end of 1996.

The materials that we produced were often excellent and sold extremely well at the top end of the school market, which was relatively small. If someone sought to provide materials for a more harassed school environment with a harder-to-persuade pupil clientele, that was often regarded as inappropriate. We tended to get lots of plaudits, and people saying “Marvellous”, from grammar schools—where they existed—public schools, and the top end of the comprehensive system. It was the same for some of the primary materials. Often, however, such materials were not the product of choice for those at the coal face of education. A quick look through some of those materials indicated that we were in the ballpark of producing what appeared to be excellent materials, but as soon as they were tested in the school environment it became harder to see whether they would work.

My knowledge of this is out of date, but I have some experience from some time back, which is probably greater than that of other members of the Committee. However, it worried me that we were in that mode, which led me to think about our approach.

Mark Hoban (Conservative, Fareham)

I am following what the hon. Gentleman says carefully. Is his argument that the content is not geared to the full range of schools that this material is for? This initiative goes across the board to all schools, but the level of engagement with financial services and knowledge of budgeting may well differ from school to school. Is the material aimed at too high a level?

Mark Todd (Labour, South Derbyshire)

That is broadly what I am saying. The generic material that I saw would have been suitable in some schools but not in many others, and that would have been a barrier to its wider use and adoption. That is why my approach is fundamentally different from what is being done now because I wish to use the market. At the moment, we wholly fund free materials that are provided to the educational system or, more broadly, to the voluntary sector so as to provide support for financial education. In my experience, having worked in a pedagogic marketplace environment, we will not get the highest quality materials with that approach. We need greater competition between providers in the marketplace, and we should produce price indicators among consumers, and some measure of choice between the various products available. As I have said, those products will vary in how they fit the communities that they serve.

Therefore, to take up a point raised by the hon. Gentleman, I would wish for the body that we are seeking to set up, which I welcome, to be very much a commissioner of services rather than a provider of products, and a commissioner in a competitive environment. It should provide an opportunity to tender for the products that it seeks to make available, and one assumption in distributing those products should be that they might not always be free. I take the somewhat old-fashioned view that if one sends people free things, quite often they do not attach as much value to them as one does oneself. By introducing some market tools into the provision, we will create a sharper, better-informed marketplace with more providers who are more incentivised to make a substantial difference to the education landscape with which we are contending.

I hope that that is what the new body will do, so I hope that it will evaluate with a sharp focus what has been done until now. The hon. Gentleman referred to the pack given to expectant mothers. That falls exactly into the category that I described. It is a beautiful thing—I dread to think how much it cost to produce and distribute to all expectant mothers—but it most strongly resembles an extraordinarily impressive doorstop. It is bulky, it contains a large amount of information that is not necessarily attuned directly to its recipient and it is unvariegated. The only commonality among the recipients is that the circumstances of the birth of their children will vary dramatically, as will their need for information.

I have been a harsh and relentless critic of that and other FSA products—I am sure that if I was ever on Chris Pond’s Christmas list he has removed me—but one must be tough about such things. In answer to my evaluation questions during the question and answer session at the start of this Committee, the FSA produced statistics as evidence that at least sometimes, the pack appears to have some use and people make something of it. However, I would be interested to see the evidence base and data that produced that information. I suspect that the sample might be rather small and might not represent the entire community of those who received that extraordinarily impressive package. My unscientific survey of women who had been through that experience indicates that they made little or no use of it. The FSA’s survey was more robust than mine, but I would like to know more about the evidence.

I have spoken at some length because, although clause 1 might appear to be the most significant and certainly deserves significant debate, clause 6 will probably be the Bill’s major initiative, in terms of its lasting implications, if we get it right. As with many things, because it is consensual—we all think that it is a good thing to do—it risks not being evaluated sharply enough or subjected to proper test. I look forward with interest to the Minister’s response. While I continue in the House, which will not be for long, I will continue to take an active interest in how the matter is pursued.

John Howell (Conservative, Henley)

It is a great pleasure to follow the speech from the hon. Member for South Derbyshire, which was very informed. I found myself agreeing with most of what he said, because the big issue here is not the need for financial education—the Committee has no doubt that there is such a need—but whether the Bill takes it forward in the right way and delivers it so as to produce a lasting effect.

I start by picking up a point made by my hon. Friend the Member for Fareham and, indeed, picked up by the hon. Gentleman, about the confusion over the role of the new body. That was summed up admirably in the terms of whether the body was a commissioner, an umbrella organisation or, as one of the witness submissions said, nothing more than another financial watchdog, or whether it is actually going to do things. It is instructive that not just members of the Committee are confused, but the witnesses themselves. Their interpretations were very different, a few of which I want to tease out as we go along.

The Bill definitely contains power for the new body to delegate—to commission—although, practically, the only thing in the clause amounting to any concrete activity is the issuing and production of publications. Everything else is much more general promotion. I completely concur with the hon. Gentleman’s concerns about that being one of the key things to be done if we do not understand what is going to happen.

Also missing, which was picked up by the CBI for example, is any mention of tackling the issue of risk. We seem to have a number of different levels for which education is provided; our baseline is the educational need. It would be interesting to know whether the hon. Gentleman, with his experience, has seen that level of general baseline ignorance—if I can use that term—change over the period. Has the gulf between that level of ignorance and the difficulty of coping with ever more complicated specific instruments grown wider or narrower? However, we certainly have a general level of financial ignorance with which to cope. Overriding the specific education about individual products—the example of ISAs, given by my hon. Friend, was a good one—is the understanding of what risk is within financial services and individual instruments, and how to appreciate and manage that risk. As many of the witnesses said, it is a great regret that there is no mention of that—certainly nothing in the Bill.

The lack of clarity about what the new body will do and how it will do it, I found to be one of the determining factors in our questions in the evidence sessions. A number of us tried to tease out of various witnesses what success would look like to the new organisation. I am not sure that any of us got a very good answer to that or that the additional memorandum by the FSA takes us much further along the way.

I appreciate the difficulty of measuring success with such a wide audience and when the idea of success in such an environment is, inevitably, somewhat intangible. However, for the ultimate test of success—certainly from the FSA’s point of view—not to be known until a new base survey is done, which could be 2016 at the earliest, is not an acceptable way of assessing the success of a body that is going to play a major and important role in taking us forward in the financial services area. The Committee may recall what Angela Knight said was needed: careful scoping of what the body is going to do; clarity at the start; a review process; proper understanding of what the targets are; and measurement of the outcomes.

If one of the issues is about the internal structure of what the new body will do, the second issue created is that of boundaries with a number of other organisations, in order to maintain confidence in the financial system. I was fascinated by Andrew Whittaker’s view that the new body would not have told people to pull out of Northern Rock even if it had known that there was a problem there, because of the effect that that would have had on financial stability overall. We may argue about whether that would have been a sensible and right thing for the new body to do, but it goes to the heart of a debate that needs to take place about the extent to which the new body will be able to take action and provide information on an event-by-event basis.

That also raises questions about the level of detail that the new body will get into. As was suggested in the evidence sessions, will it be simply reduced to what I think one witness described as issuing pamphlets and telling banks how quickly they should reply to customers’ complaints? If that is the ultimate outcome for this new body, we need to think carefully about whether it is worthwhile.

Another boundary issue relates to the question that has been raised by some hon. Members about what is already being done in this area. I seem to recall from an evidence session that Angela Knight tried to put a figure on how much is being done in the private sector compared with what is being done with Government money. She thought that the amount being spent by the private sector was certainly no less than the amount of Government money being spent and I seem to recall that she thought that it was several times larger.

As others have pointed out, that creates huge potential for duplication. I would never like to see duplication and a waste of resources in the whole of the system, but there is actually a much greater risk than duplication. That is that the banks and building societies involved in the current programmes simply say, “We are duplicating our costs and therefore we will pull out.” I do not think that that would be useful for the market or open it up to the type of products that we need there.

In some ways, the FSA’s additional memorandum makes matters worse. Paragraph 6 lists the number of Government Departments that will consult on the FSA’s budget, but we are left with the clear indication that that is not an exhaustive list and that the FSA will continue to discuss its budget with others. That opens up a number of boundary disputes with those organisations, particularly with the OFT. Again, that was an issue that was raised by many witnesses.

As I mentioned earlier, that confusion can be seen in some of the submissions by witnesses from organisations. Many of the organisations, such as Catch-22, Citizens Advice and Age Concern, raised questions about targeting and the need to target the vulnerable, which is another issue that we have already touched on. However, there are questions to be asked about the extent to which what is being delivered is actually providing real help and whether help is reaching vulnerable people deliberately or by accident. There is confusion over whether we are giving advice and what that advice would be. There is also a big issue about establishing the boundaries of what will be covered.

I recognise that organisations involved in this process will be pulled in several directions. There will be a need to focus, to justify the use of what is a finite amount of money. However, there is a desire, which we saw in many of the submissions that we received, not to focus and reduce the scope of this new body but to widen the focus and include benefits advice, tax advice and advice on general financial well-being. That advice certainly needs to be given within the educational framework for the financial services system, but the question is whether it is appropriate for this new body to give that advice specifically.

Of course, we can see from the witness statement of Adrian Coles that 38 per cent. of people are getting face-to-face contact and that those people are dealing with tax and benefit issues, not issues relating to financial services. Given that situation, he asked why banks and building societies should pay to provide that information rather than something more specific. That is a question that needs to be answered.

Matthew Fell of the CBI said that he was not sure who derives the benefit from providing the information and therefore who should pick up the tab. He also admitted that there is a broader public interest in improving financial literacy among the public, but his view was that that aim does not come across in the Bill and therefore it was very difficult to establish a balance. Age Concern also picked up on that issue, asking questions about whose interest the new body would act in. There are several boundaries that need to be clarified in order to find out how it will work and what it will do.

There is also a question of credibility. We saw from the comments of Adam Phillips that the FSA has a history of over-claiming its successes. It is essential that whatever staff it takes on will overcome that. However, although we were told that the new body will choose its staff, that will happen only after the existing staff have been TUPE’d over from the FSA to the new body. It will start with a group of people who, over the years, have clearly developed an expertise; the question is whether that expertise will be delivered in the right way.

We do not want the new body to find that whatever it does is blighted by the FSA’s track record. As I said in an intervention on my hon. Friend the Member for Fareham, a big gap in the FSA’s activities has been providing feedback on what has been found during its educational activities. As a result, there has been a cut in the loop that would normally allow the education system to move on. Feedback means learning from mistakes and being able to target better.

The FSA’s additional memorandum gave a number of examples of the educational activities that have been undertaken. It also set out an overall approach to assessing them, based on four key criteria—reach, content, process and impact. I have no difficulty with those criteria being considered as reasonable indications of success, but I would be worried if all four were given equal weighting. It would have been interesting to know whether a weighting had been given to them so that some were above others. To my mind, the most important is impact—whether we see any real change in behaviour—as that will be the most lasting effect and the one with the most benefit to the financial services sector.

I have great enthusiasm for the idea of continuing and ramping up the educational aspect needed by the financial services sector, but I am less convinced that it is set up in a way that will deliver it in an enduring manner or deliver the success required to take things forward.

Joe Benton (Labour, Bootle)

Before I call the Minister to respond, I take this opportunity to say that although we have two further amendments to debate I am already of the opinion that we have adequately discussed the clause in general terms. I draw that to the attention of those Members who have not yet spoken because they will have the opportunity to refer to the clause. I do not propose to allow a clause stand part debate.

While I am on my feet, I am happy to say that this afternoon’s sitting will take place in Committee Room 11; it might be a bit warmer.

Ian Pearson (Labour, Dudley South)

I am glad that the debate has demonstrated cross-party support for work on financial education. It is an important area, and a lot is going on.

I begin by acknowledging the contribution of my hon. Friend the Member for South Derbyshire. He has a lot of experience in this area, and he was right to point out that as work has developed in the field of financial capability, many lessons have been learned. Not all initiatives have been fully or properly evaluated, and not all have been successful, but there has been a lot of learning. I believe that the body that we seek to establish will take the game to the next level. I hope to say a little more on that.

I also welcome the Opposition’s acknowledgment of the work that the Government have done in putting financial education into the school curriculum, which is an important initiative. The Government have done more in the area of literacy and numeracy than any Government since the one that produced the Education Act 1944. Greater financial literacy is an unalloyed good thing. It may lead to better financial decisions, but I accept that it will not always do so. I take the point made by the hon. Member for Fareham, which I think is widely accepted in the financial advice community, that this is not a panacea, but it is an important area of work for the future.

The hon. Gentleman set out at some length the context for the establishment of a financial body, quoting a variety of statistics. I do not need to do that in my contribution. However, I note that there is widespread support for the principle of establishing a consumer financial education body. I can confirm that its remit is not only to help the financially vulnerable but to improve financial capability.

There has been a lot of discussion about what the new body will do. Will it have a co-ordinating role? Will it be a commissioner? Will it be a direct provider?

Mark Hoban (Conservative, Fareham)

I want to clarify the Minister’s view on whether the service is aimed at a broad base or targeted at the vulnerable. Three approaches are set out in the impact assessment. Approach 1 aims to reach those most vulnerable to the consequences of poor financial decision-making. Approach 2 aims to maximise take-up, reaching the highest number of people. Approach 3 aims to reduce overall costs by reducing marketing or narrowing engagement. Page 19 of the impact assessment says:

“The preferred option is Approach 1”,

which is aimed at the most vulnerable, so there seems to be a slight disconnect between the Minister’s statement that it is aimed at a broad base and what is in the impact assessment.

Ian Pearson (Labour, Dudley South)

The Government will expect the new body to prioritise the most financially vulnerable. There is no conflict between that and saying that it must have a wider role as well. As the hon. Gentleman will be aware, the FSA currently provides a broad range of information through the moneymadeclear website, which will transfer to the new consumer financial education body. That information is useful and welcome and will continue under the new body.

As an aside, my understanding is that the hon. Gentleman referred to the money guidance service. The remit of the consumer financial education body will be wider, as I have indicated.

My hon. Friend the Member for South Derbyshire made an interesting contribution. We all remember the plain vanilla world of the financial products of our youth. We have moved to a Ben & Jerry’s era of complicated financial products, which makes it all the more difficult when individuals are making the important choices that they do not make on a regular basis. The hon. Member for Fareham made an interesting contribution when he talked about auto-enrolment and the extent to which choices can be edited. That area has been developed in other fields and we should take account of that as part of policy development. It will also be an issue for the new consumer financial education body.

My hon. Friend mentioned the different approaches that have been taken on financial capability. As I indicated, I have some sympathy with his view that some initiatives were not properly thought through in the first place or properly evaluated afterwards. The Government welcome the shift in the FSA’s evaluation approach from output measures to outcome measures. We expect the establishment of the new body and the requirement for new, clear, outcome-based success measures to act as a catalyst for improved devaluation of financial education.

The hon. Member for Henley said that there is confusion about the role of the consumer financial education body. I do not see it that way. As the hon. Gentleman will know from the detail of the legislation, we are establishing a new body that will have a chairman, chief executive and board. It will have clear aims and objectives and will produce an annual plan and budget, and an annual report that will provide all the evaluative information that my hon. Friend wants to see.

As part of producing its annual plan, the body will want to review the landscape of existing activity and make decisions about how it can best deploy its resources to meet its stated objectives. I expect that to involve making decisions and working closely with those organisations that already operate successfully in the field. That will undoubtedly involve the commissioning of new activities, and also carrying on with some existing activities and with the programme of work that has been developed in response to the Thoresen review, with which we are familiar.

Mark Hoban (Conservative, Fareham)

My point is about who this body is for. Who will it act on behalf of? Is it an independent, neutral body that will act impartially in the interests of the industry and of consumers, or is it a consumer champion? If it decided that a product on sale was not in the consumer interest, would it be able to say that, or should it avoid commenting on products in that context?

Ian Pearson (Labour, Dudley South)

We will discuss some of those issues shortly when we discuss the hon. Gentleman’s amendment about whether the consumer financial education body can give regulated financial advice. We will come on to that, but our view is strongly that it will provide information and general advice, but that it will not give regulated financial advice.

During my previous experience as a Science Minister, I spent a lot of time having discussions with professionals in the field who were looking to promote science and engineering as careers. There were—and indeed still are—a wide variety of initiatives in that policy space, some of which come from different Departments and some of which come from the private sector. The development of work on financial capability has a lot of similarities in terms of what has happened. There are many private sector initiatives. My hon. Friend wants to encourage those, and the Government want to see a strong private sector role in this area. As in science and engineering, co-ordination is needed, and the new consumer financial education body is ideally placed to try to bring greater coherence to the wide range of initiatives already in place. That will be a major benefit of it. My hon. Friend is right to say that what we propose in the Bill could be a very important and enduring initiative.

Andrew Love (Labour, Edmonton)

May I take my hon. Friend back to a remark that he made in relation to the Thoresen review and the activities that have been going on in the north-west of England? Clearly, as has already been indicated, Thoresen will be involved in generic financial advice, not the giving of specific product advice. Some of the concerns relating to clause 6 are about the publicising of information and advice that is currently carried on by the Financial Services Authority. Can the Minister confirm that the new education body will be able to publicise widely information and advice about the financial services sector?

Ian Pearson (Labour, Dudley South)

My hon. Friend raises an important point. As he knows, the money guidance pilots operate in both the north-west and the north-east. The hon. Member for Fareham mentioned that he had been to see some of the initiatives taking place in the north-east. I have seen some of them in the north-west. These are important areas. The other thing that I stress in response to my hon. Friend’s point is that the consumer financial education body will want to work closely with the Financial Services Authority. We need to ensure that there is proper and adequate provision of information in the marketplace more widely.

I think that that is one of the points behind amendment 40, which seems to seek to probe the Government’s thinking in that area. I would not want to encourage hon. Members to support the amendment. I think that it has been tabled as a probing measure. As the hon. Gentleman will know, it would be duplicative and likely to lead to confusion. However, I support the intention behind the amendment if the intention is to ensure that the FSA’s responsibility to consumers is not diminished, which is the concern that my hon. Friend the Member for Edmonton has. I assure him and other Committee members that that is certainly not the intention.

The FSA retains its regulatory objective to protect consumers. As part of that, it must consider the risks for the consumer associated with financial products and dealings; consumers’ experience, expertise and responsibilities in regulated matters; and what information and advice they might need. The Government are convinced that that puts sufficient statutory obligation on the FSA to ensure that the consumer’s interest is considered and safeguarded, and that it provides an appropriate counterbalance to the FSA’s other regulatory objectives.

The establishment of the consumer financial education body will give the FSA more scope to focus on protecting consumers through its market-facing activities and to ensure that firms are treating their customers fairly. It will make it all the more important that there is a wide range of information channels through which the FSA can communicate where consumers face undue risk and intervention is required. One way it will do that is through collaboration with the consumer panel.

The consumer financial education body will be expected to raise with the regulator potential risks to consumers. That is made clear in proposed new section 6A(2)(c), which states that the function of promoting the benefits and risks of different kinds of financial dealing includes highlighting such risks to the FSA and other bodies. A constructive link between the proposed new body and the FSA’s consumer protection work is built in through the legislation. That is an important point to recognise. I do not believe that amendment 40 is necessary or helpful, but it has been helpful in prompting this wide-ranging debate.

Mark Hoban (Conservative, Fareham)

I am grateful to the Minister for his comments on amendment 40. They have helped clarify that there is a role for the FSA to undertake in terms of public awareness. The amendment might be deficient; I take on board his comments that it is duplicative. Some tailoring might get around that. The FSA must recognise that it has a continuing role to play in providing information to consumers that is not linked to financial education.

In terms of the broader debate, there is one point to which we will return often during debate on later amendments. Will the consumer finance education body be impartial between consumers and the industry, or will it be a consumer champion? I will return to the questions of who will be on the board and its responsibilities in terms of financial stability, market confidence and advice. Who will it exist to work for and represent? We will also return later to the issue of measuring the body’s outcomes. After it has set its objectives, how will we know whether it has achieved them? A lot of input-based measurement is going on at the moment; we will talk more about that in the context of the additional memorandum lodged by the FSA and related issues.

The hon. Member for South Derbyshire made a point about differentiation and reach. There is a challenge. To use the Minister’s analogy, which I rather liked—it worked more effectively than the football team analogy that he used during the evidence session—we are moving from a plain vanilla world to a Ben & Jerry’s world. How do we ensure that the material that people access reflects equally that complexity and the nature of their circumstances?

When the hon. Member for South Derbyshire discussed whom the material was aimed at, I thought about some areas of my constituency where the choice in terms of consumer credit is between the Provvy and the credit union, not between a credit card and a bank loan. If the material is aimed at a middle-class market, there is a danger that it will miss out some of the most vulnerable. On his comments about the information supplied to expectant mothers, producing a printed document is an attempt to reach as many people as possible. Extending reach is one of the four objectives by which the FSA measures its effectiveness. To the extent that we can use web-based services to help tailor information to different circumstances, we might be able to get people to engage more with that information.

However, differentiation requires a series of different channels for reaching the population. For some of the most vulnerable people, the face-to-face channel is effective. That is certainly my experience from my visit to Gateshead, where face-to-face communication was very important, as the people involved did not trust financial services as many people do, were not familiar with the complexities and needed a guide to help them through the process. A variety of different means of engagement are needed. The effectiveness of that engagement is not measured by how many people are engaged with but by how that engagement affects their lives. We will return to that later during our discussion of objectives, but I beg to ask leave to withdraw the amendment.

Andrew Love (Labour, Edmonton)

I beg to move amendment 42, in clause 6, page 4, line 15, at end insert—

‘(3A) In section 5(2) (matters the FSA must have regard to in considering what degree of consumer protection may be appropriate), insert at end “, including—

(i) advice and information about regulatory action taken in pursuance of this objective, and

(ii) any needs for advice and information identified by the consumer financial education body.”’.

As this is the first time that I have spoken in this Committee today, may I welcome you to the Chair, Mr. Gale? It is a pleasure to serve under your chairmanship. As we heard this morning, clause 6 is one of the most important in the Bill. It is entitled “Enhancing Public Understanding of Financial Matters”. That is to be done primarily through the setting up of the consumer financial education body. We had a wide-ranging discussion this morning on that subject—almost a stand part debate—and I do not intend to delay the Committee by referring to what was said, other than by saying that both sides of the House supported the setting up of the body, although concern was expressed about how it will operate. Its creation recognises the need to consider the real problems caused by lack of financial understanding, especially given the complexity of the marketplace.

In this morning’s debate, a number of concerns were raised, particularly about the removal of the Financial Services Authority’s public awareness objective. It is on the impact that that may have on the activities of the FSA that I wish to speak. Amendment 42 is designed to address that problem. I hope that it will strengthen the consumer focus of the FSA. It would amend section 5 of the Financial Services and Markets Act 2000, which relates to the FSA’s objective to protect consumers—another issue that was mentioned this morning.

The amendment would incorporate in that objective the fact that information and advice about the regulatory action of the FSA should be included. That subject was missing from our discussion this morning. The amendment would also mean that information and advice relating to matters identified by the new consumer financial education body was included; we had a debate about that body this morning. The amendment will ensure clarity about the objectives of the FSA and the new education body. To refer back to the title of clause 6, the amendment will also enhance “public understanding” of the FSA’s regulatory reviews and of the new education body.

The amendment is important because of the need for transparency. Transparency is critical, because it is the key to better public understanding of the complex issues that we discussed this morning and, through that, better consumer protection. To achieve that, the FSA will need to work hard to inform consumers about a variety of issues.

The first is poor practice in the marketplace and some of the poor products that are available. In the House, we often speak of the real difficulties in the mortgage market, in terms of the quality of the products available. The FSA has not always delivered that transparency, or worked hard on behalf of consumers. We touched on how balance is to be achieved between the Financial Services Authority’s role representing the industry and its role representing consumers. Although there have been real difficulties in the past, recent work such as the mortgage market review has been widely welcomed on both sides of the divide. Consumer representatives welcomed it as an insight into the FSA’s thinking on how it could regulate that marketplace better.

That is important, because better transparency and understanding give the consumer greater confidence. As we have all admitted, we are talking about a technical and complex subject. Greater confidence allows consumers to challenge bad practice in the marketplace and seek redress, which is the critical factor.

I have had discussions with consumer advocacy bodies that have expressed considerable concern that if clause 6 remains unamended, several things will happen. The first, as I mentioned earlier, is the removal of the FSA’s public awareness objective, about which Members on both sides of the House are concerned. Also, there is concern that certain activities currently undertaken through the public awareness objective will not be covered by the new consumer finance body. There will be a hole in the net that protects consumers. The combination of those two issues led to amendment 42.

I am worried that some of the activities undertaken by the FSA in recent times, when its track record has been much better, will go by the wayside. Highlighting problems in the marketplace for consumers may well be downgraded. Information and advice, in the specific words used in the public awareness objective, will no longer be a central activity for the FSA, and some of that will not be picked up by the new consumer body.

I will give two examples of the activity that I mean. First, the FSA website, Moneymadeclear, has been widely welcomed, particularly among consumer bodies. It does a fantastic job. Consumers and consumer bodies can access it, and it is widely recognised to contribute to better consumer understanding. Secondly, the FSA’s annual report, a comprehensive document, is perhaps not the sort of thing that an ordinary consumer would read, but advocacy bodies certainly make great use of it, and it keeps them up to date with the latest thinking at the FSA. The worry is that without the objective, the site and those activities might be downgraded.

Mark Hoban (Conservative, Fareham)

I am not sure that I entirely buy the example. Given that Moneymadeclear is the brand used in the financial capability work, I assume that it would be run by the consumer finance education body. As for the annual report, the FSA is required to publish annual reports, and that will continue to be a requirement even if the FSA loses the objective.

I am concerned about what will happen to things such as the FSA’s thematic reviews on mortgages or payment protection insurance. They offer opportunities for industry to learn and consumers to recognise the issues arising from the sale of such products. I am concerned that the FSA will not publicise such reviews as widely as it should. I do not think that it publicises them sufficiently widely as it is, and it might go backwards. In those areas of regulatory activity, I am concerned that the FSA might not be as forthcoming, in terms of publicity, if the objective is dropped from the Bill.

Andrew Love (Labour, Edmonton)

I certainly agree with the second part of what the hon. Gentleman says: the reviews are critical, not only for the FSA in undertaking its activities and regulating the market but, as has been mentioned, in publicising that as widely as possible. The work of the FSA has undoubtedly improved in that area, especially with reviews such as the mortgage market review, which was particularly warmly welcomed. That has been publicised well, but the worry is that the publishing of such information will become less of a priority.

The worry is not that the examples that I gave of the website and the annual report will disappear—of course they will not. The worry is that they will not be as comprehensive or be modelled on the ability of the consumer, and consumer organisations, to make use of such mechanisms to get better protection and support, and achieve a better understanding of what is happening in the marketplace. We do not think that the FSA will entirely run away from its responsibilities of providing information and advice, but we are worried that it will downgrade what is currently happening, which has been warmly welcomed over the past couple of years. Amendment 42 would ensure that the responsibility to provide information and advice was not lost.

That leads on to the other objective of the FSA, which is to protect consumers. I believe, as do consumer advocacy bodies, that the amendment would enhance the transparency of the FSA’s activities because it imposes that duty of consumer protection. It does that by enhancing the publicising of the FSA’s regulatory actions, which is the critically important feature. We do not think that the FSA is likely to be less robust in its regulatory actions; the credit crunch and the recession have seen to that. However, we are worried that publicising those activities might not get as much priority.

Under amendment 42, the FSA must also publicise issues that are brought to its attention by the new consumer finance education body. That is also critical. The Minister referred earlier to proposed new section 6A(2)(e), which states that the consumer education body would provide

“information and advice to members of the public.”

Through the amendment, I seek clarification from the Minister about whether that wording specifically relates to the provision of generic financial advice through the Thoresen review and to what has been happening in the north-west with the pilot schemes, or whether it refers to a continuation of the publicising of FSA reviews of activities, undertaken by the new consumer finance education body. We are particularly concerned about that widespread publicity.

Let me briefly sum up my point. Amendment 42 would ensure maximum transparency for consumer benefit and redress, and it would clarify and publicise the important work that will be carried out by the consumer finance education body. I hope that the Minister will look kindly, if not on the specific wording of the amendment, then at least on the spirit in which it is brought forward—the spirit of ensuring that consumers are adequately informed.

Colin Breed (Liberal Democrat, South East Cornwall)

May I also, in my first contribution on the clause, pay tribute to the work undertaken by a lot of bodies in recent years to address the issue of consumer financial education? Many other countries have been at it far longer than we have. As the hon. Member for Fareham probably knows, we have about 25 times as many accountants in the UK as there are in Japan, even though Japan has far more businesses. That is principally because the Japanese have financial education very much embedded in their school and education curricula, which means that almost everyone leaving school can not only read and write but do such things as calculate profit and loss, produce balance sheets and everything else. That is an interesting way of going about it. There are some disbenefits, because in Japan, of course, all those knowledgeable people decided to save all their money for about 20 years and locked up the whole economy, so perhaps sometimes that is not quite so useful.

We had some very good contributions from hon. Members this morning on an important subject. All contributions were very worth while. I have a couple of concerns different from those expressed this morning. “Education”, if that is what it is, comes seemingly more and more often as unsolicited promotional material, which bangs through our letterboxes in ever-increasing amounts and sometimes slips out of magazines and things. I think there should be greater control over some of that material because, frankly, it is sometimes considerably misleading, but regretfully it provides a sort of education.

Secondly, the “education” often provided through large newspaper adverts—often in the Sundays, sometimes even supported by articles in those very publications—is not capable of properly differentiating and identifying the needs of the individual readers. It is sometimes enormously misleading. Regretfully, that is the sort of thing that people read, getting completely the wrong information and advice. We need to encourage the appetite for professional financial education in advance. I suspect that we have all had far too many constituents coming to us, seeking information and advice, when they have already made the decisions, sometimes with catastrophic outcomes for the their finances and those of their family. It is important, therefore, that the education is timely, so that people make the right decisions.

To be effective, information and advice have to be trusted and independent, and have to use language that is easily understood, rather than legalese. As for people who give advice, among the more difficult issues is that of being very careful about the legal aspects. We need to address that, so that people have much more easy-to-understand language in the information and advice that they need. The information and advice have to be appropriate to people’s particular circumstances, which differ significantly, as we indicated this morning. Whether we are talking about savings, mortgages, credit cards or pensions, everyone’s circumstances are different and cannot easily be handled in a rather huge and across-the-board way.

I am also concerned about the boundaries between the consumer financial education body and the FSA, which I think the hon. Member for Henley mentioned. If in the next few years we see a modest rise in inflation—as is predicted—and savings institutions continue to provide minimal savings rates of interests, so that savings could in effect be losing purchasing power or value, is anyone likely to tell everyone to take all their money out of the banks at a time when the FSA is trying to get the banks to build up their capital, liquidity and everything else? We have conflicting aspects; what may be right for the consumer may not necessarily be right in other respects. There might also be issues to do with the “relevant matters” that are, I think, mentioned in the Bill somewhere.

What does the FSA do with its education policy? Does it tell people that having their money sitting in a bank is not a good idea, and to take it out immediately and put it somewhere else? Would it then have to say to the banks, “Why haven’t you attracted far more deposits?” It is difficult.

When I was with what is now HSBC, the position was clear: bank managers gave customers advice that was in their interest, even if it was against the interests of the bank. They do not do that now. If they started doing that now, they would be given short shrift. We have moved away from the idea of people trusting in proper information that is in their interests rather than in the interests of something else. If we are not careful, we will be advising consumers in the interest of the national economy rather than in their own personal interest.

I agree with the hon. Member for South Derbyshire that a range of people need advice. I found that out recently when I looked at what happens when I leave this place. What I thought might be the case was clearly not the case. I thought that I might have at least some idea of what was going on. People who think that they know a little bit can be more dangerous than those who accept that they know little, but who pretend that they know nothing and get some proper advice. A little information is a dangerous thing.

What might be termed the vulnerable young people sector—the 16 to 25s—needs very specific advice as early as possible. I am amazed at how many people in that age group are already borrowing significant sums on credit cards or from relatives. Before they have even begun to earn much, they already have pretty large debts, and we do not help with things such as student loans. I hope that the sector will receive attention, because debt can determine people’s life chances and opportunities for a long time. If they find themselves in severe debt and even going bankrupt at an early age, it can have all sorts of repercussions, not least homelessness and family breakdown, and can perhaps even result in people resorting to crime. That sector needs specific attention.

I agree with the hon. Member for Edmonton, who talked about clarity and objectives: it is important to get clarity and transparency, so that the public begin to have a greater understanding of what the FSA and the Financial Ombudsman Service do. The FSA has been seen more as a regulator than as a consumer protection body. Separation, transparency and clarity will be helpful. The removal of public awareness is a concern of mine. We need to listen to what the Minister says about that, and I look forward to his remarks.

Mark Hoban (Conservative, Fareham)

I want to pick up the point made by the hon. Member for Edmonton. Amendment 42 is a good way of tackling one of the issues raised in the previous debate: how the Bill equates public awareness and financial education by removing the public awareness objective. There is a risk that we potentially throw out some of the work that the FSA does. Whether it is necessary to reinstate wording along the lines outlined in his amendment depends on the importance of the objectives set for the regulator. Those objectives are important, because they determine how the regulator operates, give structure to its activities and act as a prompt.

There has been some elasticity in the objectives of the FSA. On Tuesday, we debated the financial stability objective, which was implicit under the market confidence objective but has now been made explicit. If there is value in making that explicit, is there not value in ensuring that the FSA recognises that public awareness responsibilities continue, but perhaps in a more limited way than set out in the Financial Services and Markets Act 2000?

A link is also important to new section 6A(2)(c), under which the consumer financial education body will not only promote consumer awareness of the risks and benefits associated with different kinds of financial dealing, but have a duty to inform the authority and other bodies of those benefits and risks. That will close a loop by saying that if the consumer financial education body identifies risks and benefits that it feels are so important that they need to be notified to the authority, the authority should feel under some obligation to consider whether they should be disclosed. Hence, there would not be a sense that the information passed to the authorities reaches a dead end or cul-de-sac, and that there is a further stage.

The hon. Member for Edmonton has done great service by tabling the amendment, which reminds the FSA that it has a continuing role, which goes beyond the minimum that one would expect from a statutory body regarding the information that it is required to put in the public domain. It also encourages people to be aware of the FSA’s activities; in a complex world, it is important that consumers know exactly what it does. Given the additional requirements under amendment 42, some work is needed to establish in public awareness the boundaries between the FSA and the consumer financial education body.

Ian Pearson (Labour, Dudley South)

I thank my hon. Friend the Member for Edmonton for initiating the debate. I support the spirit of his amendment—that consumers should be made aware of problems in the market. Although I understand his concerns, the amendment is not necessary. There are no holes, as some might fear, in the net, to which he alluded. I also acknowledge the cross-party support, from the hon. Member for South-East Cornwall, for what we are trying to achieve by setting up a consumer financial education body and, as I indicated, upping our game in financial capability.

I assure my hon. Friend that the FSA will not lose its obligation to make consumers aware of problems in the market as a result of removing its public awareness objective. As I suggested this morning, the obligation is already covered by the FSA’s consumer protection objective. As part of that objective, the FSA has an existing requirement under section 5(2)(c) of the Financial Services and Markets Act 2000 to have regard to consumers’ needs for accurate advice and information.

As well as publishing the information for consumers, the FSA will want to work with the new consumer financial education body—again, as I made clear this morning—to help it to convey important information to consumers. The new body will build recognition and trust among consumers and interact with them frequently through initiatives such as the money guidance service. It will therefore be instrumental in helping the FSA to take messages to consumers. The Government want to see the FSA and the new consumer financial education body working closely together.

Turning briefly to the detail of the amendment, its first provision would require the FSA to make public the information and advice about the regulatory action it has taken to protect consumers. I recognise that transparency is a key principle of any regulatory system. However, the FSA’s obligation under section 5(2)(c) of FSMA already includes making the public aware of any regulatory action that may affect consumers. We want the FSA to continue to perform that role and duty.

The second provision of the amendment would require the FSA to consider any need for advice and information identified by the consumer financial education body. If the body identifies a specific need for information and advice from the FSA, it has an obligation to flag that up with the FSA. That is already enshrined in our proposals. The FSA, in turn, should consider that need for information and advice under its consumer protection objective. I argue strongly that the requirement on the FSA to consider consumer needs for information and advice is already covered under the Financial Services and Markets Act 2000, which refers more widely to any information or advice needs raised with the FSA by any organisation. Clearly, the new consumer financial education body would be included in that.

It is right to raise the issues and I am happy to put it on record that there is every desire on the part of the Government to see the FSA and the new consumer financial education body working closely together. However, I believe that the provision in legislation is correct and sufficient for our purposes. There is not the hole in the net that my hon. Friend thinks might exist, but of course we need to ensure that the messages that consumers need to receive are made available by the FSA and the new consumer financial education body as appropriate.

Given those assurances, I hope that my hon. Friend will withdraw the amendment. We are not taking our eye off the ball. Nor are we sending any signals to the FSA to do anything other than actively make consumers aware of problems in the marketplace. That will continue.

Andrew Love (Labour, Edmonton)

I thank the Minister for that considered and detailed response. I am somewhat reassured in relation to the activities of the consumer financial education body. We need to see it working in practice, and therefore I take the point. Although I would have preferred the wording in new section 6A(2)(a) to (e) to be slightly strengthened, I am reassured by the Minister’s comments about the body’s objective to protect the public and to publicise matters drawn to its attention in its work.

My bigger concern when tabling the amendment related to the Financial Services Authority and its activities in the past. I said that the activity of the Financial Services Authority had improved substantially in recent years as a consequence of events. I would be the first to praise both its regulatory reviews and how it seeks to publicise them, so I would have no difficulty in being reassured by the Minister that at present the FSA is unlikely to downgrade any of those activities. It has been part and parcel of its pitch, if I can put it that way, that it is a reformed regulator and that it does undertake those activities. My concern relates to some future point when perhaps other pressures, instabilities or difficulties in the market might lead it to think that “public awareness”—I specifically use those words because that is being removed from its objectives—is not as big a priority as it has been recently.

However, I accept what the Minister says: the Financial Services Authority has done a much better job, certainly in the last year or year and a half, and it is very aware of its public awareness responsibilities. On that basis, I beg to ask leave to withdraw the amendment.

Mark Hoban (Conservative, Fareham)

I beg to move amendment 43, in clause 6, page 4, line 36, leave out ‘and advice’.

I have tabled this probing amendment to understand how far the new consumer financial education body can go in giving advice. Advice is an important term to define in the context of a consumer financial education body. One can get to a point in the continuum of information when one is giving regulators advice. It is difficult to draw the line between simple information and advice that can be used to sell a product. I might go to John Lewis to buy a vacuum cleaner—[Hon. Members: “Bad example.”] Actually, the example is relevant because if someone were to go to John Lewis to buy a vacuum cleaner, they would be given quite a lot of information about it. However, if they went to Comet, they would not be given much advice at all—that is if they could find a member of staff to help them. The information that John Lewis supplies may well be deemed to be encouraging someone to make a purchase, so it moves from simple information to advice. It becomes, “This is the best vacuum cleaner to buy.” There is a distinction between the service that one gets in John Lewis or other major department stores and the advice or information that one gets elsewhere.

When it comes to advice in the financial services world, it does not take long in a conversation to find out what an independent financial adviser means by advice. They mean advice about the provision of a service or a product. Moreover, it is the outcome of a fact find, and it is heavily regulated; it is regulated advice. They are giving advice on a specific product or providing a particular service. As far as I am aware, the consumer financial education body will not give that level of advice—a specific product recommendation from a specific provider.

To be effective, the body needs to go further than simply providing information. As I mentioned earlier, there is a big gap between giving someone a piece of information and someone making a purchase of a financial services product. The further one gets along that continuum from information to regulated advice, the higher the chances are of a call to action or purchase taking place and of a positive outcome from financial education.

I know that there is a boundary between regulated and unregulated advice. Where does the generic financial advice stop? Where do we draw the line in terms of what the body does? Otto Thoresen explored those questions in his review, because there was concern about that line. The review concluded:

“Money Guidance will guide the user to the point where they can choose between a small number of options, and where they also understand the consequences of doing nothing.”

There may be a point at which one can say, “There is a range of saving products out there. These are their characteristics. We leave it to you to take the next step.”

Under generic advice, individuals can be referred to external services. I go back to my experience at the Help the Aged centre in Gateshead. The centre gave examples of when it had referred people to other providers. It signposted someone to an IFA, who is in a position to give regulated advice. According to Thoresen’s view of money guidance, generic advice

“will not make recommendations to buy, surrender or change a specific product from a specific provider.”

Again, that falls within the definition of regulated advice. That last point on regulated advice is important, because the definition is broad. The UK definition is wider than that encompassed by the markets in financial instruments directive. For example, MiFID refers to a personal recommendation in respect of one or more transactions relating to investment instruments, whereas the UK definition is potentially broader as it refers to advice on the merits of entering into transactions.

It is important to know exactly where the boundary is drawn. In its representations, the CBI said:

“We believe the new authority should be limited to the provision of financial education and generic advice.”

My interpretation is that it does not mean regulated advice. Those giving regulated advice need much more information than is available to bodies operating under the umbrella of consumer finance.

I have talked to lawyers about where the boundary lies. As they see it, the boundary between regulated advice and generic advice is somewhat closer to regulated advice than can be delivered under the current structure, which stands quite a way back from that boundary. The lawyers say that one can advise someone to buy life assurance but not which product or from which adviser. That would still fall under the definition of generic advice, but it would not be regulated.

I come back to the point about how to get people to do things. Are we pushing the envelope of generic advice far enough to narrow the gap between being told about something and being told to do something about it? Are we being too timid with this model of advice that the CFEB can provide? We want to steer as far away as possible from the definition of regulated advice, so that there can be no doubt whatever about what the body is doing.

The Bill does not deal with the definitional question of what the body can do, where the boundary lies between regulated advice and generic advice and what it means in practice for the service providers under the scheme. Are we being too cautious in setting the CFEB’s operational parameters by using the Thoresen definition of guiding users

“to the point where they can choose between a small number of options”?

That is well within the perimeter of generic advice, but it could go further if that was the intention behind the scheme. On the operation of the CFEB, clarification of where the Government see the boundary in law and in practice would be helpful.

Ian Pearson (Labour, Dudley South)

The boundary in law is quite clear. The hon. Gentleman will be aware from what we propose that the new consumer financial education body will not be authorised by the Financial Services Authority to undertake regulated activities. It will therefore not be able to give regulated financial advice. Any advice that it gives will be unregulated generic advice, or what has become known as money guidance since the Thoresen report was published. It goes further than information, but it clearly is not regulated financial advice on individual products or services.

When giving guidance and advice, the new body and its partners will seek to explain an individual’s options, and may guide them to the point at which he or she can make a confident and informed decision. In contrast to regulated advice, a specific product or provider will never be recommended. That is the boundary between money guidance and regulated advice.

The hon. Member for Fareham tried to probe whether we are going far enough, but I do not think that he suggests that the new body should offer regulated advice or recommend particular products, as that is not its role and remit. The body must provide information and advice as in the commonly accepted dictionary definition of the term. That can help an individual, and it is part of the way that the new body and its partners will help people to make the informed decisions that we all want to see. There is a clear boundary between regulated advice and the advice that the new consumer financial education body can provide.

Mark Hoban (Conservative, Fareham)

Is it the Minister’s view that the scope of the advice given by the new body goes up to the boundary of regulated advice, or is it well within the definition of generic advice? My sense is that the parameters of the Thoresen review were well within what could be classified as generic advice. It took a cautious interpretation of what was generic advice, rather than a more aggressive or expansive approach that would go right up to that boundary.

Ian Pearson (Labour, Dudley South)

I suspect that I have a different view from that taken in the Thoresen review. I thought that Thoresen’s vision was about going up to the boundary, and providing advice at the stage where somebody can make decisions, without crossing the boundary to providing regulated advice. Both Thoresen and I want the new body to be as helpful and useful as possible to those individuals who need help, so going up to that boundary seems the appropriate thing to do. Clearly, that boundary will be different for different financial areas.

I know that this has been tabled as a probing amendment, but were it to be agreed, the consequences for the new consumer financial education body could be severe. Removing its ability to provide advice would mean that we could not get close to the boundary of regulated financial advice, and we would not have the sort of service that we want the new CFEB to provide. It has been helpful to have this debate, and to make that clarification between regulated financial advice and advice, so that the distinction is clear and well understood. We look forward to the new consumer financial education body providing that service. As the hon. Member for Fareham indicated from his experiences in Gateshead, this sort of advice must be taken to the appropriate level if it is to be useful. That is why we have framed the legislation in this way.

John Howell (Conservative, Henley)

My comment was in relation to the CAB evidence, because the boundary was not clear. The CAB talked about, and expected the provision to

“promote solutions which meet consumers’...needs”.

That seems to include more than just advice; it is a package of measures for people to adopt in order to change fundamental aspects of their lives. That showed that those who might participate were, and still are, genuinely confused as to where the boundary is.

Mark Hoban (Conservative, Fareham)

That was a brief but helpful speech by my hon. Friend, because it suggests that there is a lack of clarity about where, in practice, the boundary is. Promoting a solution goes beyond what the Thoresen review says about guiding the user to a point

“where they can choose between a small number of options.”

That is very different from a solution. I do not think that a solution is necessarily a package; it may be advice such as, “You should get some life assurance.” This is one of those areas where we will have to see how it develops in practice. People will find different ways of delivering generic advice and have their own view about where the appropriate operational boundary is given the expertise of the people involved. What expertise may be available from one provider may be very different from that from another. The purpose of the amendment was not to prevent advice being given, but to trigger a debate. I suppose that the hon. Member for Wolverhampton, South-West would have tabled a much more elaborate amendment around definitions to tease out a debate, and that is certainly an alternative to this. None the less, it has been a helpful debate. There is some uncertainty about what advice is. We know where the hard edge of regulated advice is, but it is difficult to work out how far we can go to get to the point where we are on the right side of that boundary. Having had the debate, I beg to ask leave to withdraw my amendment.

Schedule 1

Mark Hoban (Conservative, Fareham)

I beg to move amendment 47, in schedule 1, page 52, line 31, at end insert—

‘(4) The board must include at least two members who represent the interests of consumers.’.

The amendment seeks to reserve two places on the board of the new consumer financial education body for people who represent the interests of consumers. The board composition set out in the Bill is very permissive. It states that the body must have,

“a chair; a chief executive; and a board (which must include the chair and chief executive)”.

In a body that is aimed at helping consumers and improving financial education, there should be someone who is there to represent the interests of consumers. The FSA board has no predetermined places for consumer representatives. The Consumers Association has campaigned for two places to be set aside for its representatives. The Government have gone part of the way down that route by appointing Brian Pomeroy and Mick McAteer to the FSA board, but there is no statutory requirement for the FSA board to have two consumer representatives. Arguably, the FSA’s consumer panel, which is chaired by Adam Phillips, is a way of ensuring significant consumer input into the work of the FSA. Moreover, the FSA has two practitioner panels—one deals with larger practitioners and the other with smaller practitioners—to provide an input along with the board members who come from the financial services industry. The appointment of consumer representatives would be a significant advantage for the consumer financial education board because it would give it a very clear and distinctive consumer voice on the board. It would also help to demonstrate a degree of independence from the FSA. A demonstrably independent board would ensure the credibility of the authority. Consumer groups want a dedicated body, and Citizens Advice and others have commended that. However, there will be some who ask, “Can the body be truly independent of the FSA, given that the power of appointment of board members rests with it?” I can see the basis of that argument: if someone is appointed by the FSA, would they be beholden to it? However, the experience to date of the Financial Ombudsman Service and the Financial Services Compensation Scheme, where the same power of appointment exists, suggests that both bodies are robustly independent of the FSA. There is no reason why the new body should not be similarly independent.

However, if one accepts that the body will be seen to be independent in practice, the next question is, “What other guarantees of its independence are there? What guarantees are there that it will have a wide range of people on its board, reflecting a whole range of different stakeholder interests?” I think there will be interest from people in the industry and asset paymasters of the CFEB, but it is important to have people who are clearly representative to be the voice of consumers. That is the purpose of amendment 47.

Ian Pearson (Labour, Dudley South)

I assure the hon. Member for Fareham and others that the Government expect the CFEB board to have, without question, wide-ranging representation, including a significant number of board members who bring consumer insight and propose consumers’ perspectives. However, my difficulty with the amendment is that I do not believe that it is appropriate to specify that on the face of the Bill, as it does not allow flexibility in the future. Given that no other elements of the board’s composition, such as its overall size and the representation of other interests, are prescribed in the approach that we have adopted, I do not think that it is appropriate to do so in this case.

As I said, there is every expectation of strong consumer representation on the new body. It is, after all, called the consumer financial education body, and it would be absolutely amazing if it did not have strong consumer representation. However, I do not believe that we need to provide for that on the face of the Bill. If we did, we would have to put many other measures on the face of the Bill as well. Having given the Committee those assurances, I hope that the hon. Gentleman will withdraw his amendment.

Mark Hoban (Conservative, Fareham)

I am not sure I am minded to withdraw my amendment on this occasion. One would have expected the FSA’s board to have consumer representatives, yet the appointments of Brian Pomeroy and Mick McAteer were held as a great advance.

The amendment would send a clear signal that there will be consumer representatives on the board rather than simply an expectation of such representatives. As I said, one would have expected the FSA board to have consumer representatives, but the appointment of the two new directors was clearly to make sure that consumers are heard, implying that they were not heard in the past.

The Minister could have been much more positive about the amendment than he proved to be. His view shows that consumer voices can be overlooked. They are not as numerous as industry voices, and do not necessarily have the same clout in lobbying and profile. Given that we have a body that will work on behalf of consumers and represent their interests, their voice should be heard loud and clear, and there should be a statutory requirement for them to be there. I am not minded to withdraw the amendment on this occasion and would press it to a vote.

Mark Hoban (Conservative, Fareham)

I beg to move amendment 46, in schedule 1, page 53, line 30, leave out paragraph 6.

The amendment refers to the market confidence and financial stability paragraph. It is a probing amendment, which seeks to understand how the paragraph will interact with the activities of the consumer financial education body, because it says that the body should exercise its function with

“regard to the importance of...maintaining confidence in the UK financial system; and...maintaining the stability of the UK financial system.”

In a way, paragraph 6 acts as a constraint on the activities of the consumer financial education body.

On Tuesday we discussed whether one FSMA objective took precedence over the others. The structure of FSMA is that various objectives are set, and it is then subject to other factors. Paragraph 6 mirrors that approach by saying that the objective of the consumer financial education body, which is set out in the first part of the Bill, is then limited or constrained by the duty to maintain confidence in and the stability of the UK financial system. In part, that goes back to the debate that we touched on this morning and this afternoon about what the consumer financial education body is for. Whose side is it on? Is it a consumer champion, or is it impartial when considering the interests of individuals and those of the industry sector? How will that be reflected in its work?

We have identified situations in which there are, perhaps, products with a particular problem or risk, and one of the objectives of the consumer financial education body is to advise consumers about the risks and benefits of certain financial products. If we go back to the example of payment protection insurance, the FSA’s thematic review indicated that there was a problem with the sale of such products and questioned whether they were being sold appropriately, identifying some significant flaws with the sales process. The consumer financial education body could look at the outcome of the thematic review of the sale of a product and decide that the risks were so great that it wanted to tell consumers, “We don’t want you to”, or even, “You shouldn’t buy these products”, giving clear and explicit advice through its website or face-to-face discussion with clients that the particular product should be avoided. That might be a reasonable step to take, but what happens when we then have the overlay of paragraph 6?

Such products might be fundamental to the profitability of individuals and financial institutions. Sounding some clear warnings about the products might undermine confidence in the UK financial system. A consumer financial education body might, if we consider the recent example of the bank charges, advocate that people should claim compensation for the mis-selling of products. It might see that as being part of its remit. I do not know whether it is. Part of this debate is to help tease that point out. If the financial consequences of a large number of complaints are possible multi-billion pound claims against financial institutions, does that undermine the stability of the UK financial system?

I have presented some pretty extreme cases to make my point. How does clause 6 constrain the role of the consumer financial education body? Is it there as a consumer champion? Is it there to highlight the risks and to encourage consumers to take action, or does it adopt a more neutral position on the more difficult areas around consumer finance? Where the boundary will be set is the point that I am trying to tease out of the debate. We could argue that if we said people should not buy payment protection insurance, that would go beyond the role of generic financial advice. There should not be recommendations to buy, surrender or change a product from a specific provider. That might be going beyond its remit. Or is it within the remit of the consumer financial education body? It might be prevented from doing so where there is seen to be a wider risk of making that sort of information known, and the consumer financial education body would be constrained by paragraph 6.

Consider the run on the Rock. If at a time of financial crisis the consumer financial education body felt that it should advise consumers about the deposit protection limits, and that led to people shuffling around their deposits in bank accounts and triggered a run on a small bank, would that be putting the stability of the UK financial system at risk? I am trying to work out where the boundaries are between what the consumer financial education body can do in terms of fulfilling its core objectives of advising on risks and ensuring people understand the risks associated with particular transactions or services, and how that might then, in the sort of circumstances that we have seen relatively recently, have an impact on financial stability and market confidence. We need to understand how paragraph 6 is meant to work in practice and what it might prevent the consumer financial education body from doing.

Ian Pearson (Labour, Dudley South)

Let me try to shed some additional light on matters for the benefit of the Committee. The consumer financial education body will have one sole function and objective, which is to increase consumers’ understanding and knowledge of the financial system and help them to manage their financial affairs more effectively. As has been pointed out, the Bill also requires the new body to have regard to the importance of maintaining confidence in the stability of the financial system. Let me emphasise that the CFEB’s consumer financial education remit will always be its primary consideration, and it will be accountable for delivering that function.

In contrast, the have-regards in the legislation are designed to inform that function, so that the CFEB considers wider market issues when performing its functions. The have-regards allow it to consider the issues on its own terms, protecting its operational independence while also ensuring that the body links into the wider financial architecture. The have-regards will give the CFEB a broader and rational frame of reference when making policy, which we think is important. They will allow it to legitimately take into account any broader market consequences of its actions, as of course a stability crisis could ultimately have far profounder consequences for consumers. However, I strongly want to emphasise again that the primary obligation for the new body will be to consider how to help consumers better manage their financial affairs. It is designed to do what it says on the tin; it is about consumer financial education.

The have-regards also give the new body a duty to raise any potential issues that it identifies that could affect market confidence or stability with the FSA and others as appropriate. Hence it could potentially act as an important source of market intelligence for the regulator. That flagging role should complement its consumer awareness function, not compromise it, and is a useful addition. The Government are clear that the requirements to consider financial stability and market confidence are an important counterbalance to the CFEB’s overall objective. We are very clear about the primacy of the overall objective.

The hon. Member for Fareham again raised the issue of whether the new body will be neutral or a voice for consumers. He will be aware that the majority of respondents to the “Reforming financial markets” consultation said that they thought that the new body should focus on consumer education, and not pursue consumer advocacy. There are other bodies, such as Consumer Focus, that already act as consumer advocacy organisations, and they are playing their role effectively at the moment. Obviously, the CFEB will want to work with them where appropriate. It will also liaise and work with other bodies, such as the Office of Fair Trading, and it will want to work in a collaborative way. I think that there is strong role clarity in the body’s remit, which is enshrined in legislation.

I hope that those clarifications are sufficient for the Committee, and that the hon. Gentleman will withdraw his probing amendment.

Mark Hoban (Conservative, Fareham)

The Minister is right to point out that there is a dual nature to paragraph 6. It gives the body a reason to report issues up to the FSA where it feels that they will impact on market confidence and financial stability. Equally, it provides a broader framework for the body’s activity. My concern is that a tension could emerge between the role of the consumer financial education body and some of the wider objectives that the FSA has set up regarding market confidence and financial stability. That tension is not a bad thing, because it will provoke debate on some of the issues to do with the two bodies and how they work.

There is a fine dividing line between providing financial education, information and advice on the one hand and acting as a consumer advocate on the other. There are difficult boundaries regarding products and hot issues in the financial services. We have seen that in the work of some voluntary groups, whose experience of difficulties that they and their clients have identified, and that arose from their casework, flowed into a campaigning issue. Some of those difficulties revolve around financial services. As the consumer body develops its identity, persona and remit, there is a challenge as to where it draws the boundaries. It has to be trusted by consumers, and has to be seen to be credible by them if its work is to have value. We need to be careful that it does not compromise that by being cautious in how it approaches its remit. However, having had that debate, I beg to ask leave to withdraw the amendment.

Mark Hoban (Conservative, Fareham)

I beg to move amendment 48, in schedule 1, page 54, line 32, at end insert—

‘(d) the quantitative and qualitative measures it will use to determine whether it has met its objectives.’.

This morning we discussed how we measure or evaluate the performance of the consumer financial education body. The hon. Member for South Derbyshire talked about the Treasury Committee evidence session with the FSA, at which he probed the people from the FSA about how they calculated some of the measures of success that they had used in evaluating financial education. The example he gave was that when they talked about the number of schoolchildren they had reached, it turned out to be the number of schools to which they had sent packs multiplied by the number of pupils at those schools. He suggested that the information they sent may have been put in the bin or left lying on the shelf—there was no guarantee that, having sent the information to all those schools, it would have been read, digested and used in lessons. The risk is that the focus is on input and process rather than on outcomes.

The hon. Gentleman not only raised the topic at the Treasury Committee but also expanded on it at our Committee’s evidence session. The FSA, in its additional memorandum to the Committee, talked about how it assesses or evaluates the impact of the financial capability work. Four main areas were referred to, namely reach, content, process and impact:

“Reach—the number of people reached by a programme...Content—satisfaction with, and quality of, the information and guidance received...Process—appropriateness and efficiency of the intervention; and...Impact—the intention to act and/or the actions that have been taken.”

Going back to the hon. Gentleman’s example of packs being sent to schools, the FSA would have achieved a great deal in terms of reach, and the content box may well have been ticked—there may have been a good standard of content—but I am not so sure about process and, certainly, there would have been very little impact if the information packs had all ended up in the bin. We need to make sure that there is good evaluation of the work done by the consumer financial education body, so that it can demonstrate progress—ultimately, I suppose, against the baseline study of 2006. People could then see a demonstrable level of progress. It is important to make sure that the right sorts of measures are being made of its success.

The appendix of the supplementary memorandum submitted to the Committee looks at various activities that the FSA has undertaken as part of its consumer education programme, and gives some measurements relating to what people have done as a consequence. Thus as a result of the “Parent’s Guide to Money”, which I suspect is the publication given to expectant mothers, 43 per cent. of people took action, rising to over half of people on low incomes; 67 per cent. reviewed their monthly spend and income. Some 91 per cent. of those involved in workplace seminars reported that the seminar made them better at finding financial information, and 87 per cent. reported that it had made them better at comparing prices.

The measurement made of the “Learning Money Matters” pack for schools, delivered through the Personal Finance Education Group, is as follows:

“The majority of teachers are very satisfied with the support provided by pfeg consultants”.

That sounds good, although it does not necessarily lead to actions that young people might take to manage their money. The evaluation continues:

“Involvement in Learning Money Matters often acts as a catalyst to encourage teachers to initiate or expand the teaching of Personal Finance Education in their schools.”

“Money Doctors”, the higher education programme, is making sure that it reaches out to students. Interestingly, that demonstrated some success, in that after attending the seminar, students were more likely to check their balance before withdrawing cash. The 50 per cent. of

“students who had not attended a session reported that they were constantly or usually overdrawn on their main bank account,”

but

“this dropped to 40 per cent. for those students that had been to a session.”

That sounds like a bit of progress.

My point is that we need to ensure that there are good measures available to help us evaluate the work that the consumer financial education body does, and the measures should be transparent.

Amendment 48 adds to paragraph 8(4) of schedule 1 a requirement that

“the quantitative and qualitative measures it”

that is, the CFEB—

“will use to determine whether it has met its objectives”

be set out in the annual plan that the CFEB publishes, so that we can see clearly not only the objectives and their relative priority, and the allocation of resources between the objectives, but the measures that will be used to determine whether they have been met. I recognise that some of the measures are long term. Some 97 per cent. of people might become more aware of financial matters and might find out financial information now, but what proportion of people will use that to improve their pension provision, for example, in 10 or 15 years’ time? How do we track the long-term benefits of what they have done?

Simply ensuring that people are more comfortable finding financial information might not lead to the step change that we want in people’s preparedness for retirement, or ability to withstand a shock to their income or unexpected expenses. The real measure of success is whether it actually changes people’s outcomes. Are they better off as a consequence of being given financial education? As well as setting out its objectives, it is important that the consumer financial education body tells us in its annual plan how it will achieve and measure those objectives. That will give people more confidence in its work, and will increase transparency in measuring how successful it has been. Given the significant sums of public and private money that the body will benefit from over the years, it is important that there is proper discipline, so that we know exactly what it is doing and how well it is doing it.

John Howell (Conservative, Henley)

I want to follow up on a couple of points, but I spoke earlier and do not want to duplicate what I said this morning. We need to make a more subtle distinction than we have done so far. We are talking about two different things. The first is how to measure the success of the body as a whole, in terms of increasing financial capability. The additional memorandum from the FSA sets out five tests:

“being able to make ends meet, being able to keep track of finances, planning ahead, staying informed—

that is, individuals staying informed—

and being able to choose financial products”.

Those are all soft targets and difficult to evaluate. It would have been helpful if the FSA had been able to provide a little more behind that. I assume that the main way in which it will measure that is through differences between the baseline survey in 2006 and the next survey, whenever that takes place. Those surveys are useful, but there comes a point when we need further qualitative information beyond that.

As for evaluating the individual projects that the new body will undertake, my hon. Friend the Member for Fareham set out four tests: reach, content, process and impact. How do those four tests for individual projects relate to the overall tests being set for the organisation as a whole? We seem to have two sets of tests, and yet there must be a sense in which the overall success of the body is represented by the cumulative success of the individual projects that it has taken up. Reach is clearly an important part of assessing a programme’s value for money, but the weight given to that in the past has led to suggestions that there has been an over-claiming of success for the projects undertaken to date.

On content, the FSA says:

“satisfaction with, and quality of, the information and guidance received satisfaction.”

From whose standpoint is that being asserted? On the basis of the material that we have been provided with, satisfaction with the content is the FSA’s view of satisfaction, whereas it should be from the consumers’ point of view. Process comes down to the appropriateness of the channel used. Again, it is not clear how that will be integrated and managed.

Lastly, impact is defined as

“the intention to act and/or the actions that have been taken.”

Ultimately, that is about behavioural change. It is only of short-term interest to talk of people’s intentions to do something. For example, when I read something I am often inspired to go off and do something—that is partly due to the sort of things that I read. However, in many cases those intentions do not get turned into action because of other things that occur in life. Intentions are great, but let us have the actuality. We do not see that happening. Where there are glimpses of that, they are only short term. For example, if we look at the money guidance pathfinder, we find that there is only two months to go back and look at its impact. A longer-term approach would have been nice.

Earlier this week, my hon. Friend the Member for Fareham mentioned how much German he had forgotten. I was very enthusiastic about ancient Greek, but I can barely understand any now except for the well known Homeric phrase, “rosy-fingered dawn”, which these days is hard to see. We forget things, and a repeat process is necessary to determine success. Therefore, the amendment is very important. It is crucial to have determinants of the quantitative and qualitative success measures that will be included for this body. Without them, we will still be asking what success looks like in a year and two years’ time.

Ian Pearson (Labour, Dudley South)

My point about the amendment is that although it is useful in specifying some things that will aid evaluation, that will happen anyway. For more than 20 years, I had an interest in evaluation. Unlike the hon. Member for Fareham and his German, I have kept up an interest in the literature. I am talking here about the link between inputs, outputs, outcomes and impacts and how effectively policy evaluation methodologies can be designed.

On Second Reading my hon. Friend the Member for South Derbyshire and others raised a number of concerns about how evaluation has been performed to date. The Committee will be aware that the FSA has set out the tools that it uses to address its financial capability work, and the evaluation methodology—both qualitative and quantitative—employed to measure the effectiveness of the money guidance pathfinder. For the money guidance pilot, the FSA and the Government commissioned an independent evaluator, studying both short and longer-term effects of the service, including actions taken by consumers as a result of using the service. They were trying to look at impacts, but as the hon. Member for Henley pointed out, they need to be considered over different periods. This is a complex area, but the baseline work stands comparison with that which has been done internationally. In evaluation, the game has moved on.

With the annual plan and annual report process in place, I am confident that there will be appropriate mechanisms by which we can judge the new consumer financial education body’s success and impact. Of course, we will want to ensure that the new body has clear targets to meet against its objectives, and we will also want those targets properly evaluated. I want to highlight the fact that the Bill also gives the FSA the power to commission an independent review of the economy, efficiency and effectiveness of the new body in discharging its consumer education function. That independent review would have the right of access to documents and information held by the new body that would be reasonably required. Furthermore, we would expect the National Audit Office also to play a role, certainly in reviewing the use of Government resources. Given that the FSA has recently called in the NAO to review its operation, it is also likely that the new body would be subject to NAO review at some point in the future.

I do not think that there is any difference of substance between us on this issue. We want quantitative and qualitative evaluation of the new body, which we hope will be successful. We want to examine the new body closely, but the amendment, which would put that function in the Bill, is unnecessary.

Mark Hoban (Conservative, Fareham)

I am grateful that the Minister keeps up with the literature on evaluation. It should reassure us all that the methods that will be followed by the FSA and the consumer financial education body will be up to date, modern and efficient. That is good.

The consumer financial education body will undertake a great deal of work to assess its effectiveness and to establish to what extent it achieves its objectives, but one challenge is to ensure that the right type of measurement is used; earlier, I referred to the example given by the hon. Member for South Derbyshire. The consumer financial education body will need to consider very carefully how it chooses to measure success, because the targets and goals that it chooses need to be credible if they are to command the confidence of the people who fund the body. Of course, there is a distinction between how effective somebody is in undertaking those tasks and whether the money is being spent wisely. I want to raise in the stand part debate an issue about funding for the new body.

However, I take on board the Minister’s remarks about what the new body will do. Therefore, I beg to ask leave to withdraw the amendment.

Mark Hoban (Conservative, Fareham)

This is quite an important schedule, although I have not tabled many amendments to it. Nevertheless, I want to ask a question about the funding of the new body and how it will work in practice.

The schedule effectively sets out three sources of funding for the new consumer financial education body. The first is funding by authorised persons—people who are currently regulated by the FSA. Of course, the FSA’s existing work on financial capability is funded through the levy, so there is a continuation of the existing arrangements.

The second stream of funding comes from those who hold consumer credit licences. That is a new form of funding. It may not be welcome to people who hold credit licences, but I welcome it because one of the new body’s roles will be to help educate people on consumer debt, and not all who provide consumer credit are regulated by the FSA. There are about 120,000 consumer credit licences at the moment, which is many times the number of people who are regulated by the FSA.

The third source of funding is the Government. The Conservative party believes that consumer finance education should be funded entirely by the private sector, but that is not the reason for my speech. The Minister and I are veterans of many pieces of legislation, one of which is the Dormant Bank and Building Society Accounts Act 2008. One priority for the Government when making that legislation was financial capability; it was the second of three priorities that they set. Will the Minister say whether any of the money released from dormant bank and building society accounts will be used to fund the initiative? Is it one of the grants or loans to be made by the Treasury? I know that the funds identified under the 2008 Act will be distributed by the Big Lottery Fund, but the Bill does not refer to funding from that source. Will that emerge under paragraph 14 to schedule 1?

I turn to the other two sources of funding. A table published at page 30 of the impact assessment, which was extracted from information in the Thoresen report, sets out some of the contribution levels for various types of funds—independent financial advisers, insurance brokers, general insurance and so on. It is based on data from 2008.

The FSA will produce rules to calculate contributions, but what will be the scope of those rules? Will the contribution of the banks need to be determined by their activities in the retail market? The activities of a number of banks regulated by the FSA take place in the wholesale markets, and they might not have a retail deposit base. The activities of some banks based in the UK are predominantly overseas. Will they be required to contribute to the levy in the same proportions as banks whose operations are predominantly UK-based? What factors will determine the amount of levy that an authorised person will contribute? I am interested in contributions relative to the size, nature and location of activities.

On consumer credit licences, it is not clear from the impact assessment or the Bill whether contributions will be made per licence or whether they will be based on the turnover of the licence holders. Dentists that offer their patients a Denplan agreement are authorised by the Office of Fair Trading to offer consumer credit. Will they have to pay the same contribution towards the scheme as a consumer finance house that lends many millions of pounds to consumers? Will there be a simple differentiation? Will the amount of consumer credit activity that the licence holder undertakes determine how much the consumer credit company should contribute to the scheme? Clarification of how that will work would be helpful.

Again on the topic of funding, paragraph 7(4)(b) states that the consumer financial education body must consult the Secretary of State. Will the Minister clarify which Secretary of State that will be? One would assume that it refers to the Chancellor of the Exchequer, but the Treasury is referred to in paragraph 7(4)(a). Does it refer to the Department for Business, Innovation and Skills, as the Department responsible for the OFT? Is it the Department for Work and Pensions, as it also has an interest in financial literacy? [Interruption.] I refer to paragraph 7(4)(b). I mentioned the Department for Business, Innovation and Skills, the sponsor of the OFT, because the OFT is listed as a consultee under paragraph 7(4)(c). I am not clear which Secretary of State is meant to be involved in the matter. I hope that there is some clarification on the points about funding and who will be consulted.

Rob Marris (Labour, Wolverhampton South West)

I want to make some brief remarks on paragraphs 3, 15, 10 and 5. Paragraph 3 will set up the consumer financial education body as something divorced from the Crown, to the point where its members, officers and staff are not to be regarded as Crown servants. It is supposed to have considerable autonomy via the FSA, another quango—regrettably, though it may be desirable in this case. We then move on to paragraph 15, which sets out that the FSA can appoint an independent person to conduct a review.

Not long ago, when we were debating amendment 48, the Minister quite understandably trotted out the line that is often used by Ministers, “Something is quite interesting and may be worth while, but we do not need it on the face of the Bill.” Under paragraph 3, an independent body is set up that is divorced from the Crown, but then in paragraph 15, continued in paragraph 16, there is a bunch of stuff about how the FSA “may”—the provision is permissive, not mandatory—appoint someone to conduct a review. Although a review might be desirable to consider how the body is functioning, I fail to see why that power needs to be on the face of the Bill. Is it because paragraph 3 divorces the CFEB so much from the FSA and the Crown?

When we were debating amendment 46, the Minister said that the CFEB will “do what it says on the tin” and that it is not a consumer advocacy group. Under paragraph 10, however, it is exempted from the Consumer Credit Act 1974 with regard to getting a licence. That suggests that the Government anticipate that the body might give advice for which it would otherwise, but for paragraph 10, require a licence. Therefore, there appears to be a contradiction.

Mark Hoban (Conservative, Fareham)

Perhaps it is not so much about giving advice, but offering loans to its customers.

Rob Marris (Labour, Wolverhampton South West)

I very much doubt that the body will be offering loans. However, it is curious that while it seems clear to the Minister and the Government what the body will do—what it says on the tin—we have on the face of the Bill specifically an exemption from the requirement for a consumer credit licence.

Paragraph 5 seems quite extraordinary, and I would like the Minister to explain it a bit more. It is almost an “Alice in Wonderland” provision. For anything that would be against the law, the consumer financial education body can say, “It is not against the law.” The body is one that, as I adverted to earlier, under my reading of paragraph 3, is pretty much divorced from the Crown—it is a kind of super quango. As I read it—I may be misreading it—pursuant to clause 5, the body can make up its own laws, in the sense that it can say whether a person is exempt from the laws under the Consumer Credit Act 1974. Paragraph 5 seems a strange provision, and I hope that the Minister can say a little more about the rules of law that could be waived by that fairly independent body, the CFEB.

Ian Pearson (Labour, Dudley South)

Let us mop up all these points, shall we? First, with regard to the financing of the new consumer financial education body, the hon. Member for Fareham mentioned the Dormant Bank and Building Society Accounts Bill, for which we both served on the Committee. As he is aware, one of the intentions of that legislation is that money from dormant accounts will be made available to the new consumer financial education body, and I confirm that that remains the case.

In the pre-Budget report, we announced a joint Government-FSA commitment to provide £20 million for the roll-out of the money guidance project in 2010-11, enabling it to reach 1 million people during its first year. The PBR also announced dormant account funding of at least 25 per cent. of available funds, up to £100 million, over a number of years. Regarding the funding specifically, the hon. Gentleman will be aware that paragraph 12 gives the FSA—

Mark Hoban (Conservative, Fareham)

Is the Minister saying that paragraph 14 enables the Big Lottery Fund to make grants to the consumer finance education body?

Ian Pearson (Labour, Dudley South)

It is certainly my understanding that under the dormant accounts legislation, money would go from the reclaim fund to the Big Lottery Fund and then out to good causes, which include consumer financial education. That is the route by which funding will be provided. My officials are nodding, so my memory must be correct.

Mark Hoban (Conservative, Fareham)

But the funding comes from authorised persons, consumer credit licensees and

“Funding by grants or loans etc. made by Treasury or Secretary of State”.

The Big Lottery Fund is distributed to good causes, but it does not feature at all as a source of funding in the funding regime set out in the schedule, unless the intention is that the Big Lottery Fund should give back money to the Treasury, which will then make the grant to the consumer finance education body.

Ian Pearson (Labour, Dudley South)

The hon. Gentleman is absolutely right that paragraph 14 allows the Treasury and the Secretary of State the power to make grants, loans or other financial assistance to the consumer finance education body. It does not refer to the Big Lottery Fund. The intention has always been that money from the reclaim fund will go to the consumer finance education body. I will check the exact route by which that will happen, but the policy intention is clear.

The hon. Gentleman also mentioned the FSA’s power under paragraph 12 to levy persons authorised under FSMA. The FSA must take into account

“other anticipated sources of funding”

when deciding how much to levy firms. As he is aware, the FSA has a duty to ensure that the new body can function. The FSA already levies firms. It is up to the FSA to make its rules, but that is not something with which the FSA is unfamiliar. Nor, indeed, are the firms.

Paragraph 13 gives the Office of Fair Trading powers to levy Consumer Credit Act 1974 licence holders, which the hon. Gentleman welcomed. The OFT levy is exercisable by way of a general notice from time to time, and both the FSA and the OFT will be able to except certain categories or types of person partially or fully from the levy. The OFT will issue a general notice. I think that that will be sufficient explanation for him.

The hon. Gentleman asked who the Secretary of State mentioned in paragraph 7(4)(b) would be. I can confirm that the Secretary of State in that instance is the Secretary of State for Business, Innovation and Skills, because that is the sponsor Department for the Office of Fair Trading.

My hon. Friend the Member for Wolverhampton, South-West raised a number of questions. The answer to the one on paragraph 15, in short, is yes. He asked why that should be in the Bill and whether it was because we were setting up an independent body. We believe it is right that the FSA has the powers to have an independent review. They are useful backstop powers. We have every confidence that the new body will be set up so as to operate effectively and that will be demonstrated. It is useful to take the powers in legislation, so that if the FSA felt it necessary to conduct a review, it would be able to do so and have the co-operation of the new body.

Paragraph 10 exempts the new body and those acting on its behalf from certain requirements under the Consumer Credit Act. My hon. Friend probed me on why that is the case. The exemption is needed as there may be occasions when the new body or its agents could engage in financial education activities that fall within the Consumer Credit Act. We have in mind that, in the course of a money guidance session, an adviser might take an individual through how to enter their details into an online credit card comparison tool. That would constitute an activity caught by the Act. There is no intention, as I said earlier, for the new body or its partners to offer regulated financial advice and I am happy to reinforce that point. It is clear that where the new body might be caught by the Act is very limited and incidental to its activities.

I am afraid that I do not have an immediate answer to my hon. Friend’s question about paragraph 5, but I will endeavour to write to him, if he will permit me.

Rob Marris (Labour, Wolverhampton South West)

I am grateful to my hon. Friend for agreeing to write to me. That is quite satisfactory because, in terms of what he said about paragraph 15—stressing it was an independent body—we have an independent body that apparently can waive the rules, for example, for an organisation with a royal charter or with charitable status, and that is rather odd. Perhaps when he writes to me he can let me know parallels elsewhere in the law where some independent body, such as the CFEB, has the ability, in my words, to re-write the law.

Ian Pearson (Labour, Dudley South)

It has come back to me—with the help of a scribbled note—and I remember the background to it, as well. Paragraph 5 enables bodies to work with the consumer financial education body, even in circumstances where their constitution might not otherwise allow them. We specifically have in mind areas where a charity might be concerned whether the activity is wholly within its charitable status. That is the only particular area of concern that I am aware of. There are charities that want to work with this new body that believe they should be helping particularly vulnerable people improve their levels of financial literacy and make better decisions. The provision enables them to do that without having concerns about their charitable status. I hope that sufficiently clarifies matters.

Rob Marris (Labour, Wolverhampton South West)

I hope that my hon. Friend will write to me.

Ian Pearson (Labour, Dudley South)

My hon. Friend wants me to write to him and I am more than happy to do so.

Clause 7

Mark Hoban (Conservative, Fareham)

I beg to move amendment 44, in clause 7, page 5, line 18, leave out paragraph (b).

Clause 7 makes some changes to some aspects of the Financial Services and Markets Act 2000. I particularly want to focus on clause 7(3)(b), which inserts a new subsection in section 45 of FSMA. Subsection (3) refers to:

“(variation or cancellation of Part IV permissions: FSA’s own-initiative power)”.

This is not the first time in our deliberations on this Bill that section 45 of FSMA has cropped up in debate. When we had the discussion at the start of our deliberations about the FSA’s disciplinary powers, we talked about what the Government were seeking to achieve in clauses 14 to 16. It was very clear from that debate that these powers were to be used in the event that disciplinary action had been taken against a regulated firm and that these powers were penalties that could be used as part of the FSA’s enforcement powers.

The discussion that we had then was also about how consumers are protected when a disciplinary action has been taken, given the constraints upon the transparency of the disciplinary process that are built into FSMA, and about how we protect people who are current customers of a firm that is subject to disciplinary action. The example that was given then was a mortgage company that was subject to enforcement action by the FSA at the same time that some of its customers were being taken to court by the mortgage company, and furthermore the issue that had led to the enforcement action being taken against the firm was about how the company handled mortgage arrears. The question was how do we ensure that existing customers are protected while disciplinary action is taking place. The response from the Minister then was the FSA has powers to stop an activity, as a preventive measure rather than as a penalty. They were powers under section 45 of FSMA:

“(variation or cancellation of Part IV permissions: FSA’s own-initiative power)”.

The change that the Bill seeks to make is to give the FSA the ability to use its powers under section 45 of FSMA where the people whom the FSA is seeking to protect are not actually customers of the firm that the FSA is taking action against. Therefore, the FSA is not only trying to protect the firm’s existing customers but people who have no relationship whatsoever with the firm. It is not clear to me why the FSA needs those powers. If the FSA sought to act now to vary the permission of that firm to prevent it from dealing with existing customers, by definition people who might be customers in the future but who do not have an existing relationship with the firm will automatically benefit from the exercise of those powers by the FSA.

I wondered if this measure aims to prevent a firm from commencing an activity, so the firm would have no existing consumers at all and the FSA is only trying to protect prospective consumers. However, if that is the case why would the FSA have given that firm permission to undertake those activities in the first place if it did not think that it was fit to undertake them?

So I am not quite sure what we gain by adding this extra power. Who are we trying to protect who is not already protected by the existing powers set out in section 45 of FSMA?

Ian Pearson (Labour, Dudley South)

The amendment would delete proposed new subsection (1A) to section 45 of FSMA. That subsection has the purpose of continuing to allow the FSA to vary the permission of a firm to protect the consumers of a different firm. The FSA already has that power, as provided for by subsection (1C) of the existing section 45, so the proposed new subsection is not giving the FSA a completely new power. Instead the provision will extend protection to consumers of unauthorised firms as well as of authorised firms. I want to explain to the Committee why we think that a good idea.

The provision needs to be stated explicitly in such a way mainly as a technical consequence of the drafting of the previous subsection, which extends section 45 to cover all the FSA’s objectives. A good example of why the power exists and needs to continue to exist is outsourcing. Sometimes a firm—let us call it firm A —outsources back-office functions to another authorised firm, firm B. In such a situation, firm B has a contractual relationship with firm A, but may have no contractual or other relationship with the customers of firm A. If firm A fails, it may be necessary for the FSA to impose requirements on firm B, to assist in the protection of the customers of firm A. The option is useful for the FSA to have at its disposal, and the motivation for the proposed new subsection is in maintaining that option.

I want to stress that, of course, the FSA needs to use all its powers in a proportionate and reasonable manner. Although the proposed new subsection may appear very wide, I assure the Committee that it does not create an unrestrained power for the FSA that might be open to abuse. Indeed, I am not aware of any suggestion that the FSA has abused the power in the past, so the provision is very much more a technical consequence of the drafting of the previous subsection. I hope that the example is sufficiently realistic that the hon. Gentleman and others can appreciate why it is necessary.

Mark Hoban (Conservative, Fareham)

I am grateful to the Minister for that explanation, and for the acknowledgement that the power appears rather broad. His example is helpful in illuminating how the power could be used in practice. With that reassurance, I beg to ask leave to withdraw the amendment.

Clause 8

Mark Hoban (Conservative, Fareham)

I beg to move amendment 45, in clause 8, page 6, line 7, leave out ‘financial stability objective’ and insert ‘objectives’.

With your agreement, Mr. Gale, it may be helpful if I wrapped up my stand part remarks with my amendment.

One of the consequences of the financial crisis that we have been through is an increased appreciation of the consequences of globalisation. We see that many of the financial services businesses operate on a global basis. They operate not just in their home market, but overseas as well. We know that when a global banking business goes sour, the domestic Government and their taxpayers pick up the bill for bad lending decisions, whether the loans were made in Dudley or Dubai. That has been one of the messages that has come home for Britain, re-emphasising the consequence of the financial crisis. That means a tension, because banks are operated on a global basis but regulated in the individual jurisdictions in which they act. We recognise that some of the risks taken overseas can have a profound effect at home.

Such a consideration has underpinned a great deal of the work that the FSA has been doing in recent years. For example, it works with other regulators in supervisory colleges—a group of regulators of particular institutions come together and work together. That is a very good example of international co-operation and something that the FSA has been very good at doing over recent years. It does not work only in regulating financial institutions; it works in many other ways in different organisations. Lord Turner, the chairman of the FSA, said in a speech in October last year:

“There were many different causes of that crisis and many aspects of the reform programme needed in response. But among the most important and most difficult are those related to the international nature of the financial system. The essential challenge is that we have a global financial system...but that governments, regulations and supervisory approaches are national, and that when banks get into trouble it is national fiscal resources which are employed to rescue them or compensate depositors.”

One might think that that was a new insight that has driven the need suddenly for the FSA to act on an international basis; it lacked the remit to do so in the past and therefore needs the insertion of a new duty in the Bill. In reality, it has been operating on an international basis for years, and not just in the supervisory colleges—it has been acting in other international forums. Indeed, Lord Turner has become the chairman of the Financial Stability Board’s Standing Committee for Supervisory and Regulatory Co-operation, so he has gone in advance of the duty that has been imposed on the FSA in the Bill. We know, for example, that the FSA has been co-operating for some time with international institutions through the EU. Its chief executive, Hector Sants, was until recently a member of the CEIOPS steering committee, which deals with insurance and occupational pensions.

We know that the FSA regularly gives evidence to the European Parliament as well as negotiating technical aspects of European directives, so we see already that there is an engagement from the FSA from the very highest position through all its departments and divisions. It is difficult to understand why we have proposed new clause 6B in the Bill, because the FSA is already fulfilling the duty. What more is added by including proposed new clause 6B? As with financial stability, is it simply making the implicit explicit? Is it to create an illusion of activity on the part of the Government? It is hard to understand what the objective of having the new clause in the Bill is, because the FSA has already been taking seriously its duty to promote international regulation and supervision.

The amendment asks whether the new clause goes far enough. I am sure that the Minister will explain why it is needed and why it is additive rather than a restatement of what happens already. Why is the FSA’s responsibility limited to the financial stability objective? There are other objectives that have an international impact. If we consider the nature of markets, they are not defined by national boundaries any more; they are international. Why are the market confidence and consumer protection objectives not covered? I am keen to understand from the Minister why the duty is limited to only one of the FSA’s objectives and not to others.

Consider the financial crime objective, where money laundering takes place on a global basis and where the FSA needs to co-operate with international authorities. Why is that objective not covered by the new duty in new clause 6B? I am probing why we need it in the first place. If we do need it, why is it not more broadly drafted?

Ian Pearson (Labour, Dudley South)

The hon. Member for Fareham is right when he says that the FSA already engages in international forums. Clause 5, which we have already discussed, provides the FSA with an explicit financial stability objective. Subsection (2)(c) of the new section 3A establishes that the FSA, as part of its new financial stability objective, must have regard to the impact of wider European and international issues on the stability of the UK financial system.

It is very apparent to all members of the Committee that the global financial crisis has demonstrated the need for strong domestic regulatory systems to be complemented by enhanced supervision of international firms and markets through more robust international standards, closer co-operation between authorities and a more coherent international regulatory architecture. As we have already discussed, the FSA already operates at an international level. The purpose of the new duty, therefore, is to formalise, clarify and strengthen the FSA’s efforts to work internationally.

There is a global agreement that a strengthened regulatory system requires greater consistency and systematic co-operation between countries, and a framework of internationally agreed standards to ensure a robust global financial system. The existence of effective international regulation and supervision will contribute to the stability of the UK financial system by providing a robust framework for our own regulatory structures and also by reducing the risks of international instability, which could in turn affect the UK. That is why clause 8 inserts new clause 6B to FSMA—to provide the FSA with a new statutory duty to promote international regulation and supervision.

In its forthcoming Bill, the US is proposing similar measures for an enhanced international role related to financial stability for its regulators. Hong Kong is already doing that and, in line with international partners, we also want to impose a specific duty in legislation. Clarifying the FSA’s international position in that way is something that has been widely supported by respondents to our public consultation, as the hon. Gentleman is aware. I do not think that I need to read out the quotations from the British Bankers Association and others who have supported this measure, but it is very clear that the steps we are taking are widely welcomed.

With regard to the specific amendment raised by the hon. Gentleman, he questioned whether we are going far enough through what I envisage is a probing amendment. The Government’s view is that it is not necessary to widen the duty to promote international regulation and supervision to cover all the FSA’s objectives, as he suggested. The proposed legislation will ensure that the FSA takes into account international regulatory developments on financial stability and that that should be the main focus of its international duty. In fulfilling that, the FSA will increasingly be involved in the large volume of G20 and European work relating to financial regulations and stability.

The hon. Gentleman will be aware that the FSA already participates in the Lamfalussy level 3 committees and will be involved with the new European supervisory authorities, the European systemic risk board’s work and the three committees that are also being established. It is important that it continues to play that role. We do not think that it needs to play a role in other areas, as suggested by his amendment. For example, protecting consumers in another country, which is one of its objectives, may not necessarily protect consumers in the UK. While there might be instances where that is the case, it would not be desirable to make that a central concern of the FSA at the risk of diverting resources and attention from more pressing international work relating to financial stability.

We think that focusing the FSA more narrowly on financial stability is the right thing to do. However, there is nothing in what we propose that will prevent it from pursuing its existing international role in other areas. The FSA currently has to have regard to the principles of good regulation, one of which is the international character of financial services and markets. The hon. Gentleman makes some valid points on financial crime; the FSA already plays an international role in seeking to combat such crime. Focusing narrowly on financial stability with this new power and acting in co-ordination with other international jurisdictions that are introducing similar powers is sensible. It sends the right sort of signal and is appropriately targeted. That is why I urge the hon. Gentleman to withdraw the amendment.

Mark Hoban (Conservative, Fareham)

The longer the Minister spoke, the more apparent it became that the new clause, although it may be welcomed by many, is redundant. The FSA is already fulfilling that aspect in much of its work. The Minister said, when arguing against the amendment, that the FSA can already act under its existing remit. In reality, the FSA has been working for some time on an international and European basis to promote regulation and supervision without the benefit of the new clause. The Minister did not make a particularly strong argument as to why the new clause was necessary or why it was anything more than cosmetic.

Part of the challenge in much of the Bill is that the FSA is already doing these things. To use the Minister’s words, the Bill is making the implicit explicit. We want to see the FSA and successor bodies and regulators working on a European and international basis, but they are already doing so effectively. The challenge is for our regulators to use their leverage to ensure that standards are raised across the world, in order to ensure better supervision and greater consistency in other jurisdictions. There are other markets, and for all the regulatory failings that we have seen in recent years, there is still a lot that we can teach other jurisdictions about what can be done.

As the focus of regulatory activity in determining the regulations moves from the UK to Brussels, it is being increasingly informed by the conclusions of the G20. We want regulators to play an important role in that debate. We need to ensure that our voice is heard. It is in our interests that the UK should have a strong, clear voice in those discussions; the UK has the greatest interest in the regulations that affect wholesale financial markets across Europe.

Ian Pearson (Labour, Dudley South)

That is why we want to enshrine the FSA’s international role in legislation. It clearly needs to participate, and although it has been participating in international forums the hon. Gentleman will appreciate the growing importance of its continuing to do so. That therefore needs to be reflected in the FSA’s objectives.

Mark Hoban (Conservative, Fareham)

I am not sure that I entirely buy that argument. The FSA is already doing so without the need for an explicit objective, and it will continue to do so. The Minister suggests that Lord Turner will wake up one day and say, “You know, I’ve had enough of this European lark; I’m not going to Brussels this week.” He may say, “I’m not going to take part in the work of my sub-committee, the financial stability board, because it is not worth the candle.” The FSA will then have to turn off all its activities, because it has no explicit duty under FSMA to take part.

There is no need to include that duty in the Bill given that the FSA is already devoting significant resources to its interactions in Europe and internationally. Whenever I talk to Hector Sants, it seems clear that resources are being made available to do that.

Ian Pearson (Labour, Dudley South)

I do not want to prolong the debate, but surely the hon. Gentleman appreciates that the FSA has to make decisions on the resourcing of particular activities. It will therefore be most helpful for resourcing decisions to be based on the objectives of the organisation. All businesses need to update their objectives. Given the increase in prominence of international negotiations and forums, it is right and proper that that is reflected in the FSA’s plans and its resourcing decisions. It therefore makes sense to have the new clause, which makes the organisation’s objectives more explicit.

Mark Hoban (Conservative, Fareham)

I do not wish to extend the debate either, but I point out that the FSA seems entirely capable of acting internationally and of devoting resources in respect of such matters without this duty. Therefore, I do not get the sense that there are insufficient resources or that the FSA feels that it needs a new statutory duty to enable it to spend more money and time on this area. If there is a duty on international co-operation to be imposed, it may be on the Treasury. Certainly, the Treasury demonstrated last year that although it put a great deal of time and effort on the G20, it perhaps spent insufficient time and effort on our relations with our European counterparts when it came to the reform of the financial regulatory system. That issue, however, goes wider than the new clause.

I have made my point. I think that the new clause is cosmetic and does not add much to what the FSA is able to do. I do not think that the lack of such a new clause has inhibited the organisation in the past. The Minister has reassured me that under the FSA’s existing objectives, it is able to pursue the international dimensions of other aspects of its objectives without widening the duty any further. Therefore, I beg to ask leave to withdraw the amendment.

Clause 9

Mark Hoban (Conservative, Fareham)

I beg to move amendment 52, in clause 9, page 7, line 5, leave out paragraph (a).

Roger Gale (Conservative, North Thanet)

With this it will be convenient to discuss amendment 53, clause 11, page 8, line 28, leave out paragraph (c).

Mark Hoban (Conservative, Fareham)

We now move to three clauses that deal with remuneration, which has been a significant part of the debate on the causes of the financial crisis. Clauses 9 and 10 relate to remuneration reports and clause 11 relates to the rules that the FSA can make about remuneration.

I will make some wider remarks about remuneration when we reach clause 11, since it is that clause that refers to international standards that have been developed in the context of remuneration. Clause 9 deals with the provision of regulations on the preparation, approval and disclosure of executive remuneration reports. One can see from clause 10 that there is already a requirement for directors’ remuneration to be disclosed, which arises from the Companies Act 2006. I know from my time as a practising chartered accountant that, as time has passed, more and more detail is required to be disclosed in the remuneration reports. There are much more complex sets of disclosures now than there were 20 or 30 years ago, giving people a better understanding of the remuneration packages of directors.

One of the interesting aspects is that if someone was not a director, their remuneration package did not have to be disclosed in the accounts. That led to an interesting situation for financial service businesses, where some of the highest paid employees were not directors, and their packages were not disclosed. Indeed, it was suggested in the case of one institution that a senior employee chose not to become a director so that his remuneration would not be disclosed, suggesting the sensitivity around the number involved.

Clause 9 would extend the requirement to produce a remuneration report to executives. It is an enabling provision and the regulations have yet to be developed. I understand that they are quite complex, but it is disappointing that the Committee has not seen the draft regulations prior to this stage of the Bill. I do not know whether there is the intention to produce them in time for Report, which I suspect may be later this month, or whether they will be available for scrutiny only by members of the other place.

Andrew Tyrie (Conservative, Chichester)

Given the implications of these clauses for the long-term competitiveness of the UK industry, whether synthetic or not, and given the huge row that is likely to be generated if it turns out that the regulations are not framed adequately, is it not essential that they are available to us while the Bill is in the House of Commons?

Mark Hoban (Conservative, Fareham)

I would rather they were available to us at this stage. In the past the Government have sought to make draft regulations available prior to the consideration of the appropriate clauses in Committee so that there can be a proper debate and so that we can also understand what matters should be in the Bill and be capable of amendment rather than being stuck in secondary legislation with all the restrictions that are involved with that. The Minister is usually accommodating on this point, so it is a rare and unusual diversion for him not to have the draft regulations available for us at this stage.

Andrew Tyrie (Conservative, Chichester)

The more I think about this, the more surprised I am that we do not have the regulations before us. After all, it is not a shock for the Government to find that we are asking for them. Perhaps this legislation is being prepared in a rush, but we have had some time to work up what should be required. I hope that my hon. Friend will press the Minister vigorously to ensure that we get a chance to see the regulations before scrutiny in Committee is completed.

Mark Hoban (Conservative, Fareham)

I share my hon. Friend’s wish, but I suspect, given that the Committee’s scrutiny of the Bill will conclude by 5 pm next Thursday, that the chances—

Andrew Tyrie (Conservative, Chichester)

What about next Tuesday?

Mark Hoban (Conservative, Fareham)

I suspect that the chances are limited, given the time scale. There are some complex technical issues to do with this matter that deserve some discussion and exploration in Committee. It is harder to discuss those issues without sight of the relevant regulations.

Andrew Tyrie (Conservative, Chichester)

Or at least a draft.

Mark Hoban (Conservative, Fareham)

Indeed.

I want to highlight some of my concerns in my remarks on amendments 52 and 53, because the clause is drafted rather widely and its definition of what might be included in regulations is quite comprehensive. For example, subsection (3) states:

“The following are relevant executives of an authorised person”,

and (3)(c) says:

“other individuals who have a prescribed connection with the authorised person.”

That is a broad definition to set out in regulation. It has been suggested that that could encompass a firm’s advisers, its lawyers and auditors and the management or regulatory consultants it uses. That is an extensive provision. As a consequence, that coverage is more intrusive than one might expect. Are we really expecting the employees of an insurance auditor to have their remuneration disclosed in this executive remuneration report? I cannot imagine that that is the intention behind the breadth of this drafting, but that is the potential coverage that the clause encompasses, and we need to think carefully about that.

Amendment 52 removes subsection 4(a) from the clause. The clause already includes

“other individuals who have a prescribed connection with the authorised person.”

Subsection 4(a) talks about

“individuals who provide services, or whose services are provided (directly or indirectly), to the authorised person”.

That definition picks up people who could be accountants, lawyers, the person who delivers the coffee or the man who sells sandwiches at lunchtime. There is no restriction on who such a measure applies to in practice. That suggests an unprecedented intrusion into the affairs of people whose only connection with the firm is through the provision of services. They are not people who are employed by the firm; they are contracted to them for the provision of a service.

The same issue arises in line 28 of clause 11. I propose that we delete “other persons”, because of its breadth. When the Bill was published, the breadth of the provisions triggered significant concern. Unfortunately, because the regulations have not been published, it is difficult to know how they were intended to work in practice and whether they will offer sufficient safeguards to the accountant, the solicitor and the sandwich delivery man.

As my hon. Friend the Member for Chichester said, it would have been better if draft regulations had been available to us beforehand. I suspect that the Minister will argue that the clause is drafted widely as an anti-avoidance device. There may be individuals who are currently classified as employees of institutions who would seek to use a change of contract or status from an employee to an adviser as a means of exempting themselves from the provisions of clause 9. I suspect that that is the comment that the Minister will make. My hon. Friend the Member for Chichester was right. The Bill was published on 19 November 2009, which is over six weeks ago. The Treasury obviously gave some thought to this clause when it drew it up. It is on a complex issue, but we expected to see more definition about who is within or without the scope of the clause.

This is an opportunity for the Minister to provide reassurance about the intention of the regulations, as regards where the exemptions will be and where the line will be drawn. Unless that is clear, the Bill will create more concern and confusion about its coverage, instead of reassuring those who assumed that they would be outside the scope of the Bill that they are indeed outside it.

Amendments 52 and 53 are aimed at trying to get the Minister to be much clearer about the scope of the provisions in the absence of the regulations, and offer us a chance to debate those regulations fully. Although these are probing amendments, they merit a serious answer—which the Minister invariably gives—as there is a wide degree of public interest in who is caught by the measure, and who ultimately will have to make sure that details of their remuneration are made available in a report for a business with which perhaps their only connection is through a normal commercial contract.

Ian Pearson (Labour, Dudley South)

I will address the hon. Gentleman’s amendments directly, but before doing so, it might be helpful if I said something about the context and clause 9 more broadly. The clause gives the Government the power to make regulations requiring increased disclosure of the remuneration paid to the officers, employees and other specified persons at any firm that is an authorised person under FSMA 2000, or any specified class of such firms.

That power, and the regulations that are currently being drafted to implement it—I will say something more on that in a moment—are part of a wider Government agenda to reform corporate governance practices in the financial services sector. Disclosure is an important component of those reforms, as increased transparency should lead to more effective shareholder oversight of the relationship between remuneration and performance.

It has been mentioned that David Walker was commissioned by the Government to review the governance framework in the banking sector and to look particularly at the problems that contributed to the financial crisis. His final report was issued only on 26 November, but it set out a number of detailed recommendations for governance improvements in banks and other financial institutions, including increased disclosure of the remuneration paid to high earners in the financial services sector.

Sir David recommended that disclosed details include the main elements of salary, cash bonuses, deferred shares, performance-related long-term awards and pension contributions, all aggregated and reported in bands. In addition, the Financial Stability Board, in its “Principles for Sound Compensation Practices—Implementation Standards”, which were agreed by G20 members at the Pittsburgh summit in September 2009, has called for aggregated and banded disclosure of remuneration. So there is consensus internationally and domestically that improving the transparency of remuneration is an important component of the reforms that are necessary to ensure that the events of the past couple of years are not repeated and, in particular, that remuneration is consistent with value creation and does not incentivise excessive risk taking.

The Companies Act already includes legislative requirements for the disclosure of remuneration paid to executive and non-executive directors of public companies. As hon. Members are well aware, company directors have a fiduciary duty to act in the interests of shareholders, and disclosure of the kind required by the Companies Act facilitates oversight of that duty.

However, as the recent financial crisis illustrates, the remuneration paid to employees outside the boardroom can also have an impact on the well-being of a business. Pay policies should align employees’ interests with shareholders’ interests and should encourage long-term value creation. Increased levels of transparency and greater oversight will play an important role in ensuring that that is the case.

It is the Government’s view that banks are unlikely to release that kind of information voluntarily, so we need a legislative mandate to compel them to do so. Clause 9 provides the Government with the necessary powers to implement the appropriate regulations. Those regulations will follow Sir David Walker’s recommendations for aggregated banded disclosure. Large banking and other financial institutions that operate in the UK will have to publish a report detailing the quantum of salary, cash bonus, deferred shares, performance-related long-term awards and pension contributions paid to employees whose gross remuneration and benefits are above some minimum threshold.

Those amounts will be aggregated and reported in bands, details of which will be set out in draft regulations consulted on and debated in both Houses. The report will not show the amounts paid to individuals, and individual employees will not be named. It is likely that the measures will go further than Sir David’s recommendations by implementing a lower minimum threshold—below £1 million—and narrower reporting bands.

On the timing of the preparation of the draft regulations, I appreciate the comments made by the hon. Members for Chichester and for Fareham. Ideally, I would have liked the regulations to have been available now, but the Government wanted to ensure that changes were made in the light of the consultation that led to Sir David’s final recommendations. Given that the Bill was introduced prior to the release of Sir David’s final report, which, as I said, was at the end of November 2009, it has not been possible to introduce draft regulations with the Bill. However, we are in the process of preparing the regulations and we want to release them for consultation as soon as possible.

Mr. Tyrierose—

Ian Pearson (Labour, Dudley South)

I will happily give way to the hon. Gentleman, but I hope that that response answered his first question.

Andrew Tyrie (Conservative, Chichester)

A raft of questions are being thrown up, which, frankly, we would and should have had the time to think about if we had had the information that the Minister is now making available. That information is basically a preliminary summary of what appears likely to turn out to be a memorandum, which we have not had an opportunity to see.

One of my many questions is about the phrase that the Minister used a moment ago: he said that it was important that the remuneration does not incentivise excessive risk taking. Will any effort be made to distinguish between risks that affect all of us—risks that have contagious effects—and risks that a business might decide it has incorrectly incentivised employees to take, and that are to its detriment and at the expense of a competitor?

Ian Pearson (Labour, Dudley South)

There will always be an analysis of risk that needs to be made. What we have been talking about with regard to excessive risk taking in general is instances where that excessive risk taking would threaten financial stability because of decisions being taken by banks.

I want to make the point that although we do not at the moment have draft regulations that can be made available, they will eventually be consulted on, and in due course they will be debated in both Houses. I believe that we have sufficient detail in the Bill to make a decision on the principle, which is what we are required to do in primary legislation.

Andrew Tyrie (Conservative, Chichester)

May I reframe the question more crisply? Will the transparency requirements be limited in their effect to trying to expose remuneration that potentially generates risks that would have a bearing on financial stability, and only that?

Ian Pearson (Labour, Dudley South)

As we have previously announced, what we are doing is accepting Sir David Walker’s recommendations with regard to disclosure, and I think that the hon. Gentleman is aware of that. Indeed, there has been a debate—

Andrew Tyrie (Conservative, Chichester)

Will the Minister give way?

Ian Pearson (Labour, Dudley South)

Let me make a bit more progress. Indeed, a number of people have expressed the view that they would like to see the remuneration levels of individual employees made public. We are of the opinion that named disclosure will not be necessary. From the perspective of shareholder oversight—

Andrew Tyrie (Conservative, Chichester)

Will the Minister give way?

Ian Pearson (Labour, Dudley South)

In a moment; let me finish my point. From the perspective of shareholder oversight, it is valuable to know the structure under which remuneration is paid out by a firm, but not to whom it is paid.

Let me give an example. The relationship between a firm’s risk appetite and its remuneration policy can be effectively evaluated by assessing the quantity, structure, rationale and distribution of remuneration paid by the firm in a given period as against the profit generated. The names of individuals in receipt of remuneration payments are not relevant to that analysis and including named disclosure would add nothing to the strength of shareholder oversight.

The measure is not intended to single out for criticism high earners within a firm. It is designed to illustrate where the remuneration paid by a firm is not consistent with effective risk management and value creation, thus providing shareholders with the information that they need to take appropriate action. I will happily give way to the hon. Gentleman.

Andrew Tyrie (Conservative, Chichester)

A moment ago, the Minister said that I need not be concerned because we are only implementing what Sir David Walker has said. However, he also said that the Government will go further than the Walker proposals in at least one respect, and that recommendation—that threshold—was a crucial part of the Walker recommendations. I remember Sir David justifying those recommendations before the Treasury Committee, in turn. Are there any other areas in which the Minister is going beyond the Walker recommendations in the memorandum?

Ian Pearson (Labour, Dudley South)

With regard to bands and the £1 million limit, I have indicated that the Chancellor has already announced that we want to go further in that area. That covers the points that I wanted to make on that subject.

It is worth noting that oversight of the relationship between risk and remuneration is quite different from the oversight of directors’ remuneration. As I indicated previously, directors are in a different position. While the evaluation of a director’s fiduciary performance can be done only on the basis of named disclosure, evaluation of the relationship between a firm’s remuneration policy and risk tolerance does not require the disclosure of names, for reasons that I explained.

John Howell (Conservative, Henley)

There are two issues. The first is the impact of excessive risk remuneration on the health of the individual business and the issue of how that could cumulatively affect financial stability as a whole. Secondly, the question that, to my mind, has never been answered and is not answered by the academic research that I have looked at is whether an excessively risky remuneration culture drives an excessively risky financial culture, or whether it is the other way round. Does the Minister have a view on that?

Ian Pearson (Labour, Dudley South)

I have views on many matters here. What we are trying to do through the proposed new section—I shall move on to the amendments of the hon. Member for Fareham shortly—is ensure that there is disclosure of the remuneration of all employees who earn over a certain limit. We would certainly expect a correlation between greater levels of remuneration and greater levels of responsibility within a firm but, as Sir David made clear, that is not the ultimate objective of his recommendations. The Government’s clear intention is to ensure greater transparency and to provide sufficient information for shareholders and others to be able to make appropriate decisions.

Andrew Tyrie (Conservative, Chichester)

Before the Minister moves on to the amendment, may I intervene again? I hope that all the interventions can be a substitute for something more substantive.

It is absolutely crucial that we have clarity about what exactly we are trying to tackle in the clauses. The Minister talked about risk appetite a moment ago. The risk appetite is, of itself, irrelevant. What matters and what counts is whether a given risk affects financial stability. Is that risk being incentivised by excessive or distorted bonus or remuneration schemes? Specifically, will what the Minister is working on at the moment, which unfortunately we have not had a chance to see, address the need to distinguish those two types of risk?

Ian Pearson (Labour, Dudley South)

The point that I have been making about what the Government are doing is to do with disclosure. The hon. Gentleman is making rather a different point, which is not really covered under clause 9. Essentially, the clause is about disclosure of pay above certain levels. We intend to establish the general principle in the Bill, then to consult on detailed regulations for that disclosure. We believe that greater disclosure helps in ensuring transparency, which aids decision making and accountability. That is the Government’s argument.

Collectively, the amendments tabled by the hon. Member for Fareham would create significant loopholes that might be exploited by high earners who did not want to disclose their earnings publicly.

Without subsection (4)(a), regulated firms would be able to restructure their employment arrangements so that individuals who perform significant risk functions, for example, could provide services as consultants rather than employees of the firm in order to be exempt from the disclosure requirements. Paragraph (a) is necessarily drafted broadly to enable the Government to limit opportunities for firms to avoid the effect of the regulations.

I reassure the hon. Gentleman and the Committee that it is not the Government’s intention to impose disclosure requirements on individuals with little or no impact on the risk exposure of the regulated firm, such as auditors or independent advisers. I am happy to clarify that. Regulations made under the powers will be drafted to ensure that firms are required to provide information only on the remuneration given to consultants who fulfil the same role as an employee of the firm. They will not be required to provide information on fees paid to independent consultants such as auditors or legal advisers who are not performing an employee’s role.

I emphasise that the text of the draft regulations will be subject to full consultation and submitted to a debate in each House under the affirmative resolution procedure. In addition, any subsequent amending regulations to extend the scope of disclosure requirements imposed under the powers will be similarly subject to affirmative resolution.

The second of the hon. Gentleman’s amendments relates to clause 9. Without subsection (2)(c), regulated firms could restructure employment arrangements to exempt individuals who perform significant risk functions from the requirement to act in accordance with remuneration policy. The FSA will be responsible for identifying the specific employees and individuals within the specified firms to whom the requirement to have a remuneration policy will apply. However, it is important that we do not unnecessarily limit its ability to operate in that area by giving firms the option to avoid remuneration policy requirements. Removing the paragraphs would provide a clear opportunity for avoidance of important remuneration measures, so I urge him to withdraw his amendments.

Mark Hoban (Conservative, Fareham)

I have two points to make. First, the Minister said yesterday that the measures flow not only from Sir David Walker’s report but from the agreements reached at Pittsburgh. I hope that we monitor carefully global compliance with international agreements, because some have expressed a concern that we will, as ever, be in the forefront of applying the rules while others lag behind, and that some may find the UK an unattractive place to do business in consequence of the disclosure. We must ensure that the playing field is level.

Secondly, it is because the regulations are not before us that we must table amendments such as mine to probe the Government’s intentions. The Minister has set out clearly on the record what behaviour he is trying to stop and who he thinks should fall outside the measures. That is welcome, and those assurances will be heard outside this room. I understand exactly what sort of behaviour he is trying to stop, but I think that producing primary legislation without secondary legislation beyond it creates a gap that causes confusion and concern. There is also, of course, a deficiency in the process for secondary legislation, as it cannot be amended. That is why it is often helpful to have amendments so that we can discuss the regulations at this point. However, given the Minister’s assurances, I beg to ask leave to withdraw the amendment.

Roger Gale (Conservative, North Thanet)

It is now 4.55 pm. It is a convention, although not a firm one, that Members try to terminate business at a reasonable hour on a Thursday. It is understood that some have long journeys back to their constituencies. On the other hand, we are here to consider a Bill, and that is the overriding matter before us. If at 4.15 pm we have not concluded what the usual channels feel to be satisfactory business, I shall suspend the sitting for half an hour, as I am not prepared for the staff to have to sit here for more than three and a half hours without a break. I shall not be dogmatic about it if we are within five minutes of the end. However, I want all Members to understand the position.

I made the offer the other day—I reiterate it now—that I am prepared to chair a sitting between 8 pm and 10 pm on Tuesday next, as I imagine that there will be a Division, and if necessary thereafter. I and the staff are quite prepared to sit through the night if we have to, because that is our job, but Members need to understand the position in which we find ourselves. The Bill is running behind schedule; it is an important piece of legislation, and it is important that is properly debated. We behind this table will do our best to facilitate that, and I ask hon. Members on the other side to do the same.

Mark Hoban (Conservative, Fareham)

I beg to move amendment 50, in clause 9, page 7, line 11, leave out ‘first’.

Roger Gale (Conservative, North Thanet)

With this it will be convenient to discuss amendment 51, in clause 9, page 7, line 13, leave out subsections (7) and (8).

Mark Hoban (Conservative, Fareham)

I do not need to say this too often, because there is a perpetual call by the Opposition for greater parliamentary scrutiny. I am wary of trying too often to insert into Bills the need for secondary legislation to go through the affirmative resolution procedure, as Oppositions can overuse the tool. However, in this instance, given the nature of the regulations proposed by the Government, it should not be only the first regulations that are subject to the affirmative procedure. Subsequent regulations should be subject to the same procedure.

Subsection (7)(b) states:

“otherwise render the requirements imposed as a result of this section more onerous”.

To my mind, it is a matter of judgment; one can decide for oneself whether or not something is onerous. There is no cast iron test of what is or is not onerous. What is onerous to one person may not be onerous to another. It is not a good test to use in determining whether subsequent regulations should be subject to the affirmative resolution procedure. I believe that all the regulations produced under clause 9 should be subject to the affirmative procedure and not the carve-out proposed in subsection (7).

Rob Marris (Labour, Wolverhampton South West)

Amendment 51 would amend section 9(7)(b). Who will decide what constitutes “onerous”, and if there is a dispute who will resolve it?

Ian Pearson (Labour, Dudley South)

I do not want to make too much of this either. We can talk about the onerousness—or is it onerocity?—of the legislation, but in all cases when regulations require additional disclosure or otherwise impose more onerous requirements on firms, we propose that the affirmative resolution procedure be used. Only when regulations made under clause 9 do not do that—in other words, they reduce the disclosure requirements on firms—will the negative resolution procedure apply.

What we are doing here is the exactly the same as the procedure that applies under section 473 of the Companies Act 2006 to regulations made in relation to directors’ remuneration reports or that require disclosure of information about directors’ benefits. There are other examples. It is a standard part of FSMA that extending the scope of regulation, for example by amending the regulated activities order, requires affirmative resolutions of Parliament, whereas reducing the scope of regulation can be done by negative resolution.

In response to my hon. Friend the Member for Wolverhampton, South-West, “onerous” is a word that has been used elsewhere in legislation. The Government of the time must make the judgment whether it is more onerous or not, when deciding whether it should be through affirmative or negative procedure. We are following established principles that have been applied without controversy elsewhere, so I hope they can be accepted here.

Mark Hoban (Conservative, Fareham)

I am not entirely sure about that. I can understand the argument the Minister made where under FSMA the regulatory boundary has been expanded. I think one knows when the regulatory boundary has been expanded. It is hard to know when something is onerous. I am also surprised that a flagship measure in the Bill can simply be disposed of, if one were inclined to do so, through the negative procedure, without having to justify why it was no longer appropriate to have an executives’ remuneration report. I would have thought that moving away from that position would be quite significant, requiring parliamentary debate rather than simply going through on the nod if no one spotted it on the Order Paper. I am surprised that the Minister has been so laid back about the way in which the provision could be removed from the statute book, but that is his choice. I will give him the opportunity to re-think that. I beg to ask leave to withdraw the amendment.

Clause 10

Mark Hoban (Conservative, Fareham)

I want to raise a question about the meaning of subsection (2)(b). It reads that the

“remuneration report includes...information comparing the remuneration of relevant executives of an authorised person with the remuneration of employees of the authorised person who fall within a prescribed description.”

I suspect that the disclosure is trying to establish the proportion of remuneration that goes to the higher earners in the firm. I should have thought that once the table or the disclosure that the Minister referred to in the discussion on clause 9 had been produced, it would be relatively easy, given that total remuneration for the firm is disclosed in the company’s accounts, to work out what is left and, therefore, to whom it is paid. It would be helpful if the Minister would clarify what is meant by clause 10(2)(b).

Ian Pearson (Labour, Dudley South)

Clause 10 builds on powers provided in clause 9, which, as we have discussed, gives the Treasury the power to make regulations requiring the preparation of a report that discloses information on remuneration paid to officers and employees of any organisation within the definition of that authorised person under FSMA; or a prescribed class of authorised person and others with a specified connection to the authorised person.

Clause 10 details supplementary provisions related to the powers provided. Specifically, subsection (2) clarifies that the Government can require the inclusion of any information in an executives’ remuneration report that could be required for inclusion in a directors’ remuneration report. That does not limit the information that may be required to be included in an executives’ remuneration report. The subsection also provides for the Government to call for comparative statistics, such as the ratio between the highest and lowest earners, to be included in the executives’ remuneration report. Subsection (3) states that the Government can require that executives’ remuneration reports are filed with the registrar of the company in question, or the FSA. The Government may also provide that the FSA may publish reports filed with it. With reference to the hon. Gentleman’s specific query with regard to subsection (2), additional clarification is provided by indicating that comparative statistics such as the ratio between the highest and lowest earners can be included in the remuneration report. Those statistics can also be called for for inclusion in the directors’ remuneration report, under the provision of the Companies Act 2006. If there is any further information that I can provide to answer the hon. Gentleman, I will be happy to write to him.