Economy, Jobs and Fair Work Committee

Meeting date: Tuesday, January 16, 2018

Official Report 576KB pdf

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Financial Guidance and Claims Bill

I welcome Keith Brown, the Cabinet Secretary for Economy, Jobs and Fair Work, along with members of his team from the Scottish Government: Lorraine King, head of the consumer, competition and regulation unit; Denise Swanson, head of the access to justice unit; Greig Walker, a solicitor with the legal directorate; and John St Clair, a senior principal legal officer.

The cabinet secretary is here to speak to us about a legislative consent memorandum on the Financial Guidance and Claims Bill, which is a piece of United Kingdom Parliament legislation. I invite Mr Brown to make an opening statement.

Thank you for the opportunity to speak in support of the LCM, convener. The Financial Guidance and Claims Bill makes provision for establishing a new financial guidance body, including provisions on cold calling and a debt respite scheme; the funding of debt advice in Scotland, Wales and Northern Ireland; and the regulation of claims management services.

The bill’s overarching focus is on ensuring that members of the public are able to access free and impartial money guidance, pensions guidance and debt advice. It also has an access to justice purpose, ensuring that members of the public are able to access high-quality claims handling services by strengthening the regulation of claims management companies.

The bill enables that in two ways. First, it creates a single financial guidance body, or SFGB, and makes provision for the funding of debt advice in the devolved Administrations. Secondly, it transfers claims management regulation from the claims management regulation unit in the Ministry of Justice to the Financial Conduct Authority.

The bill also makes provision for two connected purposes: the creation of a debt respite scheme, also known as a breathing space scheme, through regulations; and the introduction of a ban on cold calling through regulations.

The SFGB will replace three publicly funded services that are currently provided by the Money Advice Service, pension wise and the Pensions Advisory Service. It will be responsible for delivering debt advice in England and money guidance and pensions guidance across the UK. The provision of debt advice has already been devolved, and the bill devolves the levy funding that is associated with that debt advice provision. Those moneys are gathered from an existing levy on the financial services sector under the Financial Services and Markets Act 2000. However, under the terms of the new funding formula for devolved levy funding for debt advice provision in Scotland, the Scottish Government has negotiated an improved allocation that will ensure that Scotland’s share takes account of our adult population share and the levels of indebtedness in Scotland. Accordingly, without the LCM, the provision for levy funding for that advice provision would not be devolved to Scotland, meaning that the existing, less favourable, financing arrangements would continue to apply.

As outlined in the legislative consent memorandum, other provisions under part 1 of the bill will have a bearing on Scotland. For example, it talks about the

“statutory objective on the SFGB to work closely with the Scottish Government on the provision of information, guidance and advice”

and the requirement on the SFGB

“to work with the Scottish Government in co-ordinating the development of a national strategy to improve: the financial capability of Scottish citizens”

and

“their ability to manage debt ... as well as the provision of financial education to children and young people”.

Beyond the specific core functions of the SFGB, the Scottish Government has also obtained agreement on certain wider principles that shall apply in respect of the new body. First, it must take greater account of differences in the money and debt advice landscape in Scotland to ensure that available resources are pooled effectively, delivering a more holistic and joined-up advice landscape. It must also establish a committee with membership drawn from representatives from each of the devolved Administrations, thereby embedding the Scottish Government in its governance arrangements, providing the Scottish Government with influence and ensuring that collaborative working is achieved in practice across money and pensions guidance. Finally, it must be capable of channelling funding in a way that best ensures effective oversight and co-ordination or delivery of debt advice in light of the devolution of levy funding.

Part 2 of the bill extends the regulation of claims management companies by the Financial Conduct Authority to Scotland, in a development that was sought by the Scottish Government and welcomed by the Justice Committee in its stage 1 report on the Civil Litigation (Expenses and Group Proceedings) (Scotland) Bill.

I hope that the committee supports our view that an LCM is necessary. I am happy to answer any questions.

Thank you. I will start with a question about timing. The bill was introduced at Westminster on 22 June 2017. In normal circumstances, an LCM would be lodged no later than two weeks after the introduction of a bill but in this case, the LCM was lodged much later—on 13 December 2017. First, can you explain how that delay came about? Secondly, when do you envisage the provisions coming into force in Scotland, and is everything being set up and prepared so that it can take effect and be effective for those who need debt advice and so forth and for claims management companies here?

I wrote to you on the first point. As I mentioned in my opening statement, the delay has been down to the discussions about the levy funding. Having come to the issue afresh, I was not willing to accept the level of funding that applied to Scotland. That initiated a series of discussions not just between us and the United Kingdom Government but with the other devolved Administrations. Because the UK Government’s discussions on the bill were multilateral and involved different Administrations and different interest groups, the process has taken longer than we expected, but the delay is mainly down to the discussions that we have had about the levy funding. As a result of those discussions, our levy funding will increase—from around £2.2 million to more than £4.7 million, I think.

When the bill will be enacted is a matter that lies with Westminster, but I understand that the UK Government intends the bill to go through its next stage after the February recess. My officials might be able to give more clarity on that and the process that will follow.

The second reading in the House of Commons will take place around 22 January and royal assent will be given at some point after the February recess; obviously, we do not know exactly when that will happen. The report stage and third reading will take place after 20 February, after which the bill will go through the House of Lords before receiving royal assent. We do not have the final timings for that process, but we expect the second reading and the committee stage to take place later this month.

What about implementation?

We are taking forward the bill’s provisions, which build on the current provision. As you will know, we will introduce legislation to establish a consumer body. The consultation on that will take place over the next few weeks and months, and the proposals will evolve during that process. Grants are given to different bodies by the Scottish Legal Aid Board. The infrastructure is already there, but it will be developed over time.

Some committee members have questions.

I have one or two questions about the funding provision. Will the funding that is based on the new formula directly replace the existing funding, or is it additional funding?

It will be raised through the same process—through a levy—but it will completely replace the existing funding.

What is the formula for raising the levy from the financial services sector? It is easy to talk about imposing a levy on financial services, but on what basis will it be calculated? Will it be a turnover tax or a transaction tax, or will it be a fixed sum, depending on the type of company?

I will let my officials answer that. The formula for its disbursal operates on a population basis. The population of England is extrapolated and applied to the devolved Administrations. Crucially, account is also taken of the levels of indebtedness in the parts of the UK that are covered by the different devolved Administrations.

The levy is set out in the Financial Services Act 2010, and I believe that it is based on the turnover of the companies that are covered by that act, but I will have to check. I could write back to the committee later today, if you would like more information on that.

I am interested in the language that is used. The levy has been described as a direct levy on financial institutions in Scotland, but it is clear that it is not—it is applied across the UK, and we receive a proportion of that. Is that correct?

Yes, it is levied on all UK financial services companies, and it is collected by the Financial Conduct Authority, after which it goes to the Treasury.

Will the new system be better than the existing one?

I can think of a couple of million reasons why it will be better, which relate entirely to the additional funding—the funding will be almost doubled.

As I said, we have new consumer protection powers in relation to guidance and so on. In using that mix of new powers, it will be helpful to make sure that we have a debt advice and consumer advice landscape that is as rational as possible.

I understand that there are about 400 different advice bodies in Scotland, although obviously they are not all to do with finance. The additional resource will help us to ensure that we can dovetail as best we can with the work that Citizens Advice Scotland and other bodies do. I think that it is an improved basis on which to go forward.

09:45  

Obviously, the increase from £2.2 million to £4.7 million is a tremendous plus point and will enable a better service. Will there be any transitional arrangements as we move from one service to the other? How will that work?

Obviously, we are involved in discussions with bodies such as Citizens Advice Scotland on the bill and on potential changes under the legislation that we intend to bring forward for a consumer protection body. However, the day-to-day services will be relatively unchanged.

I do not know whether the officials want to add anything to that.

We are in discussion with the Money Advice Service. We have a partnership agreement with MAS under which it puts money into a grant funding pot to which the Scottish Government also contributes, and that grant funding programme is operated by the Scottish Legal Aid Board on behalf of MAS and the Scottish Government. During the final part of last year, we had discussions with MAS on how we manage the transition from having MAS direct funding to a situation in which the Scottish Government has the funding directly in its budget. Those discussions are continuing.

Given that the levy appears to be a turnover tax, is there potential for the amount raised to go up or down and, if so, how will that impact on us?

If the quantum that is taken in increases, the formula that I mentioned will apply. For Scotland and the other devolved Administrations, a share according to the adult population and levels of indebtedness would apply to whatever the quantum is. That is how the share would be flexed, if you like, if the quantum goes up or down.

Will the Scottish Government have on-going discussions with the Treasury to manage how the levy is being allocated?

Yes, we will do that directly, as necessary, and, I imagine, through the representative on the SFGB committee that I mentioned. We will have those channels of communication with the UK Government.

I have specific questions on the provision of debt advice services, but I think that we will get to those a bit further down the line.

On the overall principle of the UK legislation applying in Scotland, are you in any way worried about the potential for inflexibility? When I read the papers, I was struck by the point that, if there is a specific problem in Scotland with claims management companies, we might not have the flexibility to address that. For example, if a company such as Scottish Provident, which is very prominent in Scotland and Northern Ireland but less so in England, perhaps mis-sold a product, would we have the flexibility in Scotland to respond to that under the arrangements?

I think that we would. You are right that, up to this point, we have had a very different landscape in Scotland in relation to claims management companies. Again, the officials will be better versed in this than I am, but claims management has largely been done through legal companies such as Digby Brown Solicitors, which means that there have probably been lesser requirements in monitoring their behaviour. However, the situation is changing and claims management companies in Scotland are now more like those that operate elsewhere in the UK. For that reason, I do not think that there should be a problem.

I do not know whether the officials want to come in on that point.

The FCA already has a UK-wide remit, so it is familiar with the Scottish landscape. It has already been in contact with the Scottish Government, and we have had discussions with it on how it might properly address the Scottish context with regard to the new regulatory power that it will have. I will meet with it again later this week. The FCA is keen to ensure that the Scottish landscape is well accommodated in the way in which the body regulates claims management companies here.

Subordinate legislation will be required to implement the main provisions of the bill. Again, we are working closely with HM Treasury on the development of that subordinate legislation, so a lot of the detail of how the approach might be delivered, and how it needs to be delivered for the Scottish context, will be dealt with by the Treasury. That is an on-going process that we are already drilling into.

I would like to ask about indebtedness, or overindebtedness, which you have mentioned a couple of times. The amount of debt that someone is in does not necessarily correlate proportionately with the amount of help that they need. If somebody is in a part-time job and on a low wage, they might have one pay day loan that is causing them no end of trouble, and they might need serious long-term debt advice that covers more than the sum of the debt that they actually owe. Is that built into the formula, or is the way that it works based purely on the amount of money that people owe? Does that make sense?

It is a good question. I think that the level of indebtedness relates to the number of people rather than the actual quantum of the debt, but my officials can tell me if the position is otherwise. However, your point is that the situation can be very different for different individuals, and although that is not necessarily an issue for the UK Government or the FCA, it should be reflected in how we figure out what debt advice we are able to provide in Scotland through various agencies. The documents that I have seen refer simply to the level of indebtedness, so it will be interesting to get an answer to that.

The level of indebtedness comes from a formula that the Money Advice Service currently collects data on, based on a range of criteria, including deprivation indexes, level of debt, income and other factors that are brought together to come up with an indebtedness ratio. It is not just the quantum of debt that an individual has.

Are you confident that, if debt in Scotland is predominantly low level but hard for people on low incomes to deal with, that will be incorporated into the amount of money that we will receive in Scotland?

Yes, we believe that it will be.

That is helpful.

Cabinet secretary, you mentioned that the amount of money that we will get from the levy is double what we have previously received. Can you give debt advice services the assurance that they will see double the money in return?

No. We have a proposal to establish a consumer protection body, so it will depend on how that progresses. If we have more resource, we obviously do not intend to shovel it off to some other function. This is the purpose that we want to put it to, but exactly how it will be disbursed remains to be seen.

You asked about our ability to influence the legislation, and the response is that we will continue to have discussions with the Financial Conduct Authority. It is worth pointing out for the benefit of the committee that we made representations on that last year, when I came into post, and the Financial Conduct Authority now has a full-time person in Scotland. It is also the case that the Competition and Markets Authority—its initials are CMA, but it is not to be confused with the Country Music Association awards—is about to substantially increase its presence in Scotland, creating a potential 35 positions here, and we have also made representations on that. We are keen that the FCA and other regulatory bodies should have a presence in Scotland, as that means that we will get a better fit, not just in terms of an improved financial situation for debt advice but in relation to how we reflect what we do in Scotland in the practices that we can get the UK Government and its agencies to follow. It is a promising picture on the regulatory front.

The first issue that I wanted to ask about has largely been covered by Colin Beattie. However, the cabinet secretary also mentioned cold calling. I appreciate that the details have yet to come on that, but given that quite a lot of the regulations around telecoms and cold calling are reserved, what can we do differently here to protect people?

We cannot legislate or bring in regulations in relation to cold calling, but it is specifically laid out in the legislation that the new body will be able to take action on that, so it could ban cold calling, or particular types of cold calling.

I have written to the UK Government on a number of occasions asking it to take a tougher line on nuisance calls. Through the processes that I have mentioned, not least through the SFGB committee, we will have a direct line to continue to seek the UK Government’s support for taking stronger action on cold calling. Cold calling on pensions is one particular bane but there are others, as you know. The new body will increase our ability to put pressure on the UK Government to take action on cold calling, which is a huge issue for people.

The review of regulation of legal services is due to report later this year. It may propose ideas on how to regulate claims management companies, but we will already have ceded authority to the UK Parliament to legislate on that. Are you comfortable that there will be sufficient flexibility to incorporate any of the review’s recommendations—for example, in any necessary secondary legislation?

We have discussed the matter with legal colleagues in the Government and other officials and have listened to what the Justice Committee has to say on the issue. We want to stay in touch with, and go with the grain of, what is being said. To quote somebody else, devolution is a process, not an event, so future change is always a possibility. The case will have to be made if we want any recommendations to be reflected. If that is how the situation develops, we are open to dealing with it.

So we will have maximum flexibility. A UK regime will be in place but we will be able to amend that in future if you see fit.

I concede the point that we are dealing with a set of powers that, if not extremely complex, are interrelated. Some, such as those on pensions, are clearly reserved and some, such as those on debt advice, are devolved. The matter is complex and I do not pretend that the two Governments are completely of the same view as to what will be devolved and what will be reserved. That discussion has been going on and I am sure that it will continue. Depending on other developments, if it seems best to move forward in the way that you describe, we will do that. We have already signalled that to the UK Government.

As there are no other questions from committee members, I thank the cabinet secretary and his team for coming. I suspend the meeting for a few minutes to allow our next witnesses to take their places.

09:57 Meeting suspended.  

09:59 On resuming—