Finance Committee, 15 Dec 2009

Meeting date: Tuesday, December 15, 2009

Official Report 235KB pdf

---

Financial Services Bill

Item 3 is to take evidence on the legislative consent memorandum for the UK Financial Services Bill. Members will have in their papers a copy of the LCM and a short note by the clerk explaining the procedure. Accompanying the cabinet secretary for this item is Dorothy Ogle, policy manager in the financial inclusion team—welcome to the meeting. I invite the cabinet secretary to make a short opening statement.

The motion seeks approval for the United Kingdom Parliament to extend clause 6 of the Financial Services Bill to Scotland.

The Financial Services Bill sets out a number of reforms to strengthen financial regulation and restore market confidence. The bill will protect and empower consumers, support better corporate governance and strengthen regulation. To contribute to that objective, the bill proposes to remove the

"promoting public understanding of the financial system"

objective from the Financial Services Authority. The FSA will be required to establish a new consumer financial education body to raise the understanding and knowledge of members of the public on financial matters and improve their ability to manage their financial affairs.

The public awareness role for the new body that is outlined in new section 6A of the Financial Services and Markets Act 2000, which is inserted by clause 6 of the bill, relates to personal finance and consumer education on financial matters in the round rather than the regulation of financial services. It is therefore considered that the purpose is devolved.

In addition to the public awareness role, the new body will have powers to provide a nationwide money guidance service, as outlined by the Thoresen review in 2008. The service will provide impartial sales-free financial advice that is tailored to the needs and circumstances of the users. The aim is to raise levels of financial capability so that people gain the maximum benefit from their income and fewer people take on unsustainable levels of debt. In time, that will ease demand on debt advice and other types of crisis intervention and it will benefit the wider economy, because consumers will be better informed. A money guidance service is currently being piloted in the north of England with positive results and roll-out across the rest of the UK is planned for 2010.

As part of its duty to promote public understanding of the financial system, the FSA is already delivering a substantial financial education programme in Scotland under its national strategy for financial capability and a joint plan with the Treasury, "Helping you make the most of your money: a joint action plan for financial capability", which includes targeted work with new parents, young people and vulnerable groups, such as offenders and people with learning disabilities who are moving to independent living. The new body will take on that work alongside the roll-out of the money guidance service.

The consumer financial education body will give the financial capability agenda a higher profile, allow the relatively seamless transfer of the national strategy and address barriers such as flexibility to receive funding from a range of sources. There are significant potential benefits for Scottish users from the services that the consumer financial education body will provide. In particular, the roll-out of the money guidance service should help to fill a gap that was recently evidenced by the impact of the recession on individuals. If the bill and the roll-out proceed according to the current timetable, the money guidance service will provide a valuable service for those rethinking their finances as a result of the recession.

The work of the new consumer financial education body will support Scottish work on financial inclusion and is likely to make a positive contribution to achieving national outcomes. Recent research by the FSA has identified strong links between improved financial capability, wellbeing and mental health. There are obvious links to wider resilience, employability and tackling poverty.

The Government believes that the activities of the proposed consumer financial education body, in particular the money guidance service, represent an improvement on the current national arrangements to support financial capability and should have a significant positive impact in Scotland.

The rest of the Financial Services Bill, which also extends to Scotland, provides for matters that are reserved to the United Kingdom Parliament by schedule 5 to the Scotland Act 1998. I believe that there is no added value in separate legislation, as Scottish interests are reflected in the bill and a separate process would be complex and would require further time and resources to achieve the same policy aim. It is with that in mind that I make those remarks to the committee on the draft legislative consent motion.

Thank you. Greater financial awareness and financial education are objectives that are close to the heart of the committee and its work. I invite questions from members.

I have two points. First, how will the work of the new body interact with the existing Government programmes in Scotland, such as funding for support provided by citizens advice bureaux or the enterprise in schools agenda? Will there be duplication? Will the new body be able to do work that is already being done or funded by the Scottish Government?

It is difficult for me to give a definitive final answer to Mr Purvis's question just now, because the contracting arrangements are still under discussion. I referred to some of the pilots from which lessons will be learned. Our assessment is that there is no significant overlap between the money guidance service and existing services. The research that has been undertaken has identified a gap in the marketplace for dispassionate financial advice. We have certain interventions, through financial education, that lead to improved financial capability, mainly for school pupils and certain vulnerable adults. The money guidance service is more comprehensive.

We have received assurances from the United Kingdom Government that every effort will be made to ensure that roll-out of the money guidance service will take into account existing infrastructure and the particular needs of Scotland, especially in terms of geography. However, we want to avoid any duplication or potential contradiction in the services that are available.

My second question is political and relates to the consequences of decisions that are taken on the bill. Scottish National Party MPs voted against the bill at second reading. Ultimately, they do not want the bill to progress, so the consequence of their actions could have been that Scotland would be required to set up a separate body. It is a bit odd that SNP MPs voted against the bill but the SNP Government is prepared to let the Westminster Government legislate for it.

Far be it from me to suggest that there are occasions when it is necessary or inevitable for political parties to take one stance in the House of Commons, to promote their political agenda, and a different stance in the Scottish Parliament, to ensure the orderly execution of Government responsibility. I would not be so unkind as to suggest that that trait would be familiar to the Liberal Democrats; I will leave the matter there.

The Liberal Democrats are in favour of Scotland regulating the area independently. The Scottish Government is proposing that the matter be legislated on at Westminster, but the consequence of SNP MPs voting against the bill could have been that it would not progress. Is that not correct?

The last time that I looked, there was no evidence of a rebellion on the Government benches in the House of Commons and it was likely that the bill would proceed, unless there is an early general election. I do not know whether Mr McCabe, Mr Whitton or Mr Chisholm can tell me otherwise—Mr Chisholm has form on the question of rebellion. In order to take forward policy initiatives in an orderly fashion within the current constitutional arrangements of the United Kingdom, we have decided to lodge a legislative consent motion on one limited provision of the bill, relating to financial education. As Mr Purvis knows, I wish to change the current constitutional arrangements. However, while I am a minister in the Scottish Government, I will always act with absolute responsibility on these matters.

From my long acquaintance with Westminster, I know that such apparent paradoxes are not uncommon.

As there are no further questions, I thank our witnesses for attending today's meeting and for the evidence that they have given. As our agenda is quite heavy, the cabinet secretary will forgive me for moving straight on. Do members wish to raise any specific issues in the committee's report?

I heard the assurances that the cabinet secretary gave regarding duplication, but I am not satisfied with them. As the cabinet secretary said, it appears that the consumer financial education body's work on financial advice and support in Scotland will be outsourced, through a UK Government contract. There is considerable merit in the suggestion that the Scottish Government should deal with the matter, as this is a fully devolved area. I do not accept that what is proposed is simply the orderly conduct of business. Under what is proposed, a private agency could be contracted to undertake devolved functions in Scotland without this Parliament having any oversight. I have considerable concerns that should be expressed to the Parliament as a whole.

Are you disagreeing with facts that have been given or are you recommending a course of action?

I recommend that we raise with the whole Parliament the concern that a potential consequence of agreeing to the LCM and allowing Westminster to legislate is that a private organisation will be authorised to carry out devolved functions with which this Parliament will have no involvement. Therefore, the report that we make should express that to the Parliament.

If the Liberal Democrats have concerns about this, surely their MPs should have raised them at Westminster.

They voted against the bill, as did SNP MPs.

Thankfully, our concern is our national Parliament here, not what is happening in Westminster. I suggest to Jeremy Purvis that the concerns that he raises can be included in the committee report, if he so wishes and if the committee so agrees. That would probably be the best way to do it. We can circulate a draft and find out what the committee thinks.

Why do we not just decide now?

Do you have a suggestion?

I am just a bit confused, because only one member has concerns. Normally, we would just decide whether to agree to the LCM. Am I right?

We could so do if that is the committee's mood or we could circulate a suggestion among members. I am in members' hands. Are there strong views on the matter?

The debate was had at Westminster and a decision has been taken. We are now talking about a small and limited intervention in Scotland resulting from that.

We could acknowledge Jeremy Purvis's views in the committee report, if you wish, although he can withdraw them.

Again excuse me because I have not been a committee member for that long and there have not been many LCMs in that time, but am I right in thinking that the report should be about whether we agree that the LCM should be implemented and that the matter will then go to the Parliament for it to make its decision?

The clerks can give us some advice on the matter.

It would probably be helpful if I were to clarify the situation for the committee. It is for the Parliament to decide whether it wants to agree the LCM; the committee can decide whether it wants to comment on the LCM. I suggest that, in reporting to the Parliament, the committee simply attaches as an appendix the Official Report of this item.

Does the committee make any recommendation to the Parliament or do we just say, "This is our view of the LCM"?

That is entirely a matter for the committee. There is no requirement for the committee to make a recommendation.

That being so, can we now move on?

Have we agreed anything?

I suggested that you could simply include in your report a reference to the Official Report of this discussion.

But what are we reporting about the LCM?

The report will include Jeremy Purvis's remarks. It is open to the committee to disagree with that suggestion; otherwise, Jeremy Purvis's remarks will be part of the report. If there is a strong feeling that the remarks should be expunged, it is in the committee's hands. However, Mr Purvis has made his comments, which will be in the report—

I am sorry, but I am still confused—what are we saying in the report?

The committee is agreeing that the LCM should go ahead.

So that is the report, with Jeremy Purvis's remarks included. That is fine.

The committee can vote on whether my remarks should be in its report, but I would prefer that the committee notes them and, if it wishes to add the Official Report as an appendix, that is fine. I still have considerable concerns about the LCM.

Jeremy Purvis is entitled to have his concerns and we should do our best to accommodate the fact that he advanced them at committee, but that should not influence the committee's decision on the LCM. With the exception of Jeremy Purvis, the committee is content with the LCM, which is what we should say in our report.

We therefore agree to the LCM.