Lord Pitt-Watson (Lab)

I am grateful to noble Lords for raising these issues around financial inclusion. The Government fully recognise the importance of improving access to appropriate and affordable financial services—particularly those for people on low incomes and in vulnerable circumstances—and of improving the financial education of the nation. We support the intention behind many of the amendments, but we are not persuaded that putting this measure into primary legislation is necessarily the right way forward. I hope to describe what the Government are doing, including actions that we have taken as a result of some of the issues raised in Committee. I start with Amendment 11, which would measure what banks and building societies are doing about affordable credit then set standards for them; for example, setting up something such as a CDFI would count against what they would be required to do. I would like to take a step back because quite a lot is already happening and there are important things that the Government are doing, as was articulately described by the noble Lord, Lord Holmes. Let me start with small businesses. In the Mansion House speech in July, the then Chancellor announced the expansion of the British Business Bank’s growth guarantee scheme, doubling SME lending to £3.5 billion. I share the focus of the noble Baroness, Lady Kramer, on community development through financial institutions. Through the Community Finance Taskforce, we have brought together banks, community finance advisers and the Government. At Mansion House, more than £10 million of philanthropic funding from JPMorgan Chase and support from BNY was announced for the sector. The taskforce will publish a road map early next year to support the ambition of unlocking a further £1 billion of SME lending over five years. The British Business Bank’s Community ENABLE Funding Programme committed nearly £120 million of funding, with a second phase intending to grow that to £500 million. We are improving competition and supply through the enhancement of commercial credit data sharing in order to strengthen bank referral arrangements. On personal lending, the Government’s financial inclusion strategy includes measures to strengthen community finance and partnerships between mainstream lenders and CDFIs. We are supporting practical interventions, including a small sum credit pilot in which Monzo has already announced it will be the first participant, as well as a transformation fund for credit unions alongside the common bond reforms—those are even part of this Bill—to make sure that credit unions can do their job better. I was quite taken by what the right reverend Prelate the Bishop of Manchester said about the centrality of being able to provide this sort of fund; I note that the only businessperson to receive a Nobel Peace Prize was someone who did that by finding a way to lend unsubsidised money to poor people in Bangladesh. This is important, but a lot is already going on, and I wonder whether supporting that might be something that we would want to think about. The amendment would require the FCA to act against firms that do not meet minimum lending standards. However, do we not want customers and businesses to access appropriate credit and balance that with risks of overindebtedness? The noble Baroness, Lady Kramer, is right that what gets measured gets managed; equally, we need to be worried about creating a system where people are hitting the target and missing the point. For these reasons, the Government are not persuaded that these amendments are the right way of improving behaviour or pricing. I ask the noble Baroness to withdraw her amendment and, please, support the other actions that are being taken by the Government to address this critical question. Amendments 57 and 61 concern how the regulators report on financial inclusion. Amendment 57 seeks to require the FCA and PRA to publish annual reports on how they have advanced financial inclusion. Amendment 61 seeks to require the FCA to publish an annual report on financial inclusion detailing how it has had regard to financial inclusion in exercising its functions and assess the impact of its activities on financial inclusion outcomes. These amendments would impose new statutory reporting duties that risk duplicating existing arrangements for how the FCA reports about the state of financial inclusion and its impact on it. Amendment 57 would also place reporting duties on the PRA, whose statutory duty is prudential regulation. This would create uncertainty about the PRA’s remit and what it would be expected to report against. Financial inclusion is a shared responsibility across government, regulators and particularly the industry rather than a matter for regulators alone. We know that exclusion is driven by a broad range of complex and overlapping factors, including wider economic conditions, technological change and behavioural drivers. Accountability for improving financial inclusion should therefore remain a collective effort rather than being placed on one or two institutions whose powers extend to only part of the challenge. The Government have set out this collective approach through our Financial Inclusion Strategy. We continue to work closely with regulators, firms and consumer groups to improve access to financial services and support those who are underserved. The strategy is subject to a public review, which will take place next year, to assess the progress that has been made through this collective effort and where further work is needed. I look forward to the input of Members of this House when that is published. Amendment 60 concerns child trust funds, which have been spoken about passionately and very articulately by a number of noble Lords, including the noble Baroness, Lady Altmann, and the noble Lord, Lord Holmes. Decisions about who may act on behalf of persons lacking capacity are governed at bottom by the Mental Capacity Act 2005 and determined by the courts. The Act provides a well-established framework, including oversight by the Court of Protection, to ensure that access to and management of a vulnerable person’s account takes place where appropriate safeguards are in place and in that person’s best interest. This reflects the very real need to safeguard and protect vulnerable people. This amendment seeks an alternative route of access outside that framework. However, it is difficult to ask the FCA to put that court protection aside—and the FCA does not even have the power to do that. Legislating to permit that would require giving the FCA the power to alter the effect of primary legislation through its rules via a Henry VIII power but without the same degree of oversight. That cannot be the right way forward. As the noble Baroness, Lady Kramer, mentioned, on 8 July the Ministry of Justice convened a round table on mature child trust funds and young adults who lacked the mental capacity, not least because of debates in your Lordships’ House. That meeting was attended by the noble Baroness, Lady Kramer, other stakeholders and the previous Economic Secretary to the Treasury, Rachel Blake. My noble friend Lady Levitt spoke directly with the noble Baroness, Lady Kramer, and members of the public, and she made it clear that any solution to this issue would likely need to be delivered through primary legislation. Ultimately, this cannot be resolved through the FCA rules or changes to tax legislation. Primary legislation would be required. However, we do take this matter very seriously, and I have raised it with the Ministry of Justice. I reassure the noble Baroness, Lady Kramer, that it is exploring how the Government can best facilitate access for parents and carers to child trust funds on behalf of their children. I do not have a solution, but we are trying. In the meantime, the FCA is conducting a review into provider practices under child trust fund accounts, including on whether there are barriers to vulnerable young adults accessing their money. We welcome this review. However, as I said, the underlying issue lies in the Mental Capacity Act, and it is not possible for the FCA to substitute or override the primary legislation in that Act. Amendment 70 would require the FCA to ensure that financial institutions that are registered or regulated by the FCA facilitate the payment of inheritance tax by executors, before probate is obtained, through direct payment schemes. I thank the noble Lord, Lord Mackinlay, for raising this question. I am sorry to hear of the difficulties that he experienced. The duty of administering an estate often arises at one of the most difficult times in a person’s life, and I understand the noble Lord’s desire to ease that process for people who face similar circumstances. The noble Lord has previously acknowledged that the direct payment scheme generally works well in its existing voluntary form and that it is rare to come across a case where an institution refuses a request to pay tax that is due. Following our debate on this amendment, we asked HMRC officials to contact the company where the money was lodged to understand more generally its policy on the direct payment scheme. The company confirmed that it does in fact facilitate direct payments to HMRC, normally through investment holdings, but there were some types of investment products that it did not consider suitable for release directly to HMRC before grant of probate. These included certain types of bond products. That is as far as we have got on this. However, the noble Lord’s amendment proposes to mandate the use of the direct payment scheme by FCA-regulated institutions. Our experience—and, I think, his experience—is that most financial institutions facilitate direct payment schemes most of the time. There may be certain types of financial product where releasing funds to HMRC before the grant of probate presents a particular legal and technical complexity. Perhaps we can write to people who are not following the voluntary scheme well, but the advantage of a voluntary scheme is that institutions can assess the level of risk involved and make payment only if they are satisfied that they are releasing those funds correctly. The amendment as drafted would not allow for that to happen. The noble Lord suggested that this change be made through FCA rules. However, changes to primary legislation may also be required to make this change. FCA rules do not generally displace the private law framework. Making this change through FCA rules could leave financial institutions on an uncertain legal footing. However, we have taken most seriously the points that the noble Lord has raised. They are good points and this area may still need to be addressed, but not by this amendment.