Treasury Committee 

Oral evidence: Household finances: income, savings and debt, HC 565

Tuesday 8 May 2018

Ordered by the House of Commons to be published on 8 May 2018.

Watch the meeting 

Members present: Nicky Morgan (Chair); Rushanara Ali; Charlie Elphicke; Stephen Hammond; John Mann; Catherine McKinnell; Wes Streeting.

Questions 248 - 348

Witnesses

I: Christopher Woolard, Executive Director of Strategy and Competition, Financial Conduct Authority; Nisha Arora, Director of Market Intelligence, Data and Analysis, Financial Conduct Authority.

II: John Glen MP, Economic Secretary to the Treasury and City Minister, HM Treasury; Guy Opperman MP, Parliamentary Under-Secretary of State for Pensions and Financial Inclusion, Department for Work and Pensions; John Owen, Deputy Director, Assets, Savings and Consumers, HM Treasury; Charlotte Clark, Director, Private Pensions and Stewardship, Department for Work and Pensions.

Examination of witnesses

Witnesses: Christopher Woolard and Nisha Arora.

Q248       Chair: Thank you both very much indeed for coming into this first panel this afternoon as part of our household finances inquiry. Just for the benefit of the recording, can I ask you both to introduce yourselves?

Christopher Woolard: I am Chris Woolard. I am Executive Director of Strategy and Competition at the Financial Conduct Authority.

Nisha Arora: I am Nisha Arora. I am director of Market Intelligence, Data and Analysis at the Financial Conduct Authority.

Q249       Chair: Thank you very much for coming in. After this session we have two Ministers, John Glen from the Treasury and Guy Opperman from the DWP. Where we wanted to start was looking at the FCA’s strategy and mandate for addressing issues around household finances. I know that you have recently been doing significant work on things like consumer credit and pensions. It has also been clear, probably from evidence Andrew Bailey has given to this Committee before, there are some areas that will require intervention from Government. I wondered if perhaps you could just start by setting out how the FCA interprets its mandate for improving the health of household finances and the point at which Government have to step in and take responsibility.

Christopher Woolard: Obviously, we start from our statutory duties. In terms of how we interpret them, last year we published a document on the FCA mission, and then beneath that, in the area of consumers, our approach document on consumers. I will not go into those because obviously they are on the public record. In broad terms, they mean that, as a regulator, we act where we see the most harm and we particularly prioritise those who are vulnerable. If we want to translate that into the specifics that relate to households, we have looked at a number of the major markets that most affect households, so credit cards, mortgages, retirement income, asset management, which sits behind pensions that people have, and things like the payday cap and high-cost credit.

When you want to think about the overlap between ourselves and Government, again, our duties and powers set a limit on what we can do. They give us pretty broad discretion, but they do set that limit. Clearly, when I think we are approaching questions of what you might describe as social policy, we very much look at Government. If I maybe gave three very quick examples, that might just illustrate the point.

If you look at the work that we do around innovation, we are looking at that from the point of view of increased competition. It may have a knock-on effect on inward investment, which is a Government objective, but we do not take that into account in what we do. That is a very clear area of separation. If you look at something like high-cost credit, there are things we can do as a regulator, but then there are clearly things that both Government and Parliament might want to set as norms across an industry. That is very much in the realms of social policy.

Then there are places where the system overlaps. For example, we look at what might be the causes of market failure. Certainly when we look at a subject like rent to own, one of the things that is relevant there is the fact that we find many people who are in social housing and moving in at very short notice, often into what are unfurnished premises. It is not surprising that they then go and look to rent to own as a market in which they can obtain white goods. A lot of what happens there actually relies on Government guidance that is given to social landlords. How we can join that up is something we are talking to officials about, and indeed Ministers, fairly soon.

The final example is something like mortgage prisoners. On Friday, we published our interim document on our market study around mortgages. We identified there are 30,000 people who are in regulated mortgages who are so-called mortgage prisoners. There are then about 120,000 who are in unregulated mortgages. That is something where we would have to work with the Government and get the Government to help us, if we are going to deal with that particular problem. Hopefully that gives a sense of the landscape.

Q250       Chair: That is very helpful. Ms Arora, do you have a view on this balance between regulator and Government responsibility?

Nisha Arora: Nothing more than Chris has said. When we come to talk about debt, one of the observations we have come across is obviously, when people are suffering debt, it is a whole range of debts, both regulated and unregulated. Again, the boundaries cross over, meaning that cross-organisational work is a useful thing.

Q251       Chair: Are there any regulators that have a responsibility or a view on promoting the overall health of the UK’s household balance sheet? Do you think that is very much a responsibility for Government, in terms of the positive health of balance sheets?

Christopher Woolard: When you look across the regulators, there are specific things that the Bank of England does, that the PRA does, that we do, and indeed some of the other utility regulators may do, that can contribute to this. When you look at the balance sheet in the round, and in particular some of the big questions like intergenerational issues, they are clearly matters principally for Government, even though regulators may contribute to some part of that.

Q252       Chair: One of the things we are going to talk about this afternoon that has come out in evidence already is the problems people have about council tax and utility bill arrears. I just wondered if there was any concern that any action the FCA takes in tightening up credit standards could overspill into these non-credit arrears, where the treatment of vulnerable debtors could be even worse.

Christopher Woolard: There are a number of angles to this. If we go back pre-payday cap, so three years ago, when people were arriving for debt advice at Citizens Advice or a similar body, they were, roughly speaking, turning up with about £5,000 worth of debt. That was the problem they found themselves in. What we have seen over time, particularly as we have introduced the cap on payday lending and a number of other things have tightened up in this space, is the average point at which someone seeks debt advice is now roughly closer to £2,500. The amount has halved.

However, the proportion of people who are arriving as what Citizens Advice calls no‑credit clients—in other words, their debts are about utility bills, council tax and those kinds of things—has gone up. That has gone up to somewhere possibly in the region of about 20% of their client base. Undoubtedly, we are seeing some shifts there. You can either regard that as, if you like, moving the problem from one place to another, or possibly what was happening previously, when perhaps credit was more easily available, is that people were able to dig themselves in more deeply before they had to go and seek help. That is probably a better reading of what is going on here, but it is a complex picture.

Q253       Chair: Do you think people were using their credit in order to satisfy those bills, and then the lesser availability of that credit means that the amounts they owe on those kinds of bills are becoming clearer more quickly?

Christopher Woolard: Yes.

Q254       Chair: Your consultation paper, Our Future Approach to Consumers, says you will always be “clear on where we feel we can act and where there is a need for action from others, for example Government.” Are there any particular areas where the FCA has said to the Government, “Over to you. This is for you to set the framework or to intervene specifically”?

Christopher Woolard: There is a piece we are working on at the moment around high-cost credit that I mentioned a moment ago. Where we are talking about the advice and the guidance that is given by central Government to social landlords, only central Government could do that, so we very much expect that to happen. Where there are debates that say there should be a minimum level that runs throughout a market, for example, of what good or bad looks like, again, that is very difficult to ask us to do with the powers that we have, when we have to look at each individual market on a case-by-case basis and look at the cost-benefit. If there is a social norm to be set, that is absolutely a matter for Government and absolutely a matter for Parliament to take a view on.

I also mentioned mortgage prisoners a moment ago. Last Friday we said we very much need Government to help us with that question of 120,000 people who are in an unregulated part of the market at this moment in time. Similarly, again, when you go back to the work that we have done on asset management, one of the things there is the role of investment consultants in helping direct very large pots of pension money, potentially, who are currently outside of regulation. Again, we have said to Government, “You either need to take action or you need to put them inside our regulatory boundary, subject to whatever comes out of the CMA inquiry”.

Nisha Arora: I have two things to say. I know we are going to talk later about the Financial Lives survey work that we have done. One of the reasons we have done that is not only to inform our interventions but to publish the data tables to make them available to others, so others in Government, policy makers and charities. I hope that will mean that we can all work more closely together and understand some of the common problems. For example, we have been working with Pension Wise recently to give them some of the data, share that to increase their understanding of the pension situation.

Again, when it comes to matters of policy and Government, where we are crossing the unregulated/regulated boundary—for example, with debt, where the FCA do not have the whole answer—we are very pleased to help and support. For example, on the breathing space proposals that are currently being considered, FCA officials have been working with policy officials from Government to try to give some advice, support and assistance. That is particularly because, for example, the FCA requires firms themselves to have an element of forbearance for consumers in difficulties. We try to use some of our experience where matters are broader and beyond our remit.

Q255       Chair: You have talked to us there about the data and where that is leading in terms of conclusions. The FCA’s 2018-19 business plan includes high-cost credit, long-term savings, pensions and intergenerational differences as two of the cross-sector priorities. I know, Ms Arora, you have only just joined the FCA, so this might be more for Mr Woolard. Have these priorities come about as a result of things that the FCA have seen not working, or has it been pressure from others that means that these have become priorities for the FCA? Just talk us through how these things have risen to the top of the FCA’s inbox, if you like.

Christopher Woolard: We have a fairly well organised system for trying to set our priorities. We cannot be everywhere at once. We divide the territory that we regulate into essentially eight sectors. For each of those sectors we produce a sector view, which we publish as well. We publish those alongside our business plan. That tries to identify where we see the principal causes of harm and where we see the growing problems, maybe, in particular markets. As part of our strategy process, we will then put those alongside each other and say, “Which ones here can we address most quickly that need addressing the most quickly?” Those are the subjects that you have seen come out of them.

High-cost credit is absolutely a piece of work that we have had running for about a year now. We are taking it to a conclusion at the end of this month, but we suspect there will be a number of things that we need to do post that conclusion. When we think about some of these others, in particular there is the intergenerational piece. Frankly, were it not for Brexit—I know Andrew has said this to you before now—I suspect that would be the biggest set of issues that we are trying to tackle as an organisation.

Q256       Charlie Elphicke: Can I just follow up on mortgage prisoners? You say there are 120,000 mortgage prisoners. My understanding is the FCA says, “This is all the fault of Europe”, and Europe says, “It is nothing to do with us”. Could you just explain where the buck stops?

Christopher Woolard: We have 150,000 mortgage prisoners in total. 30,000 are within the regulated space. In other words, they are holding mortgages with firms that we regulate. 120,000 hold them in unregulated entities, which is perfectly legal, by the way. Their mortgages were, effectively, sold on, mainly around Northern Rock and those kinds of questions at the time.

In terms of the 30,000 we are talking about—and I think this is the question and debate you are referring to—in 2014 there was a change made to the FCA’s rules. That reflected the Mortgage Credit Directive from Europe. That meant that, if you were moving from one provider to another for your mortgage—not if you were moving within that provider, but to another provider—you had to have an assessment of affordability conducted. Prior to that, in theory, you could, as a firm, take that person simply by saying, “Look, you have been paying a mortgage for some time. I will take you as a customer”. Interestingly, only two firms—two quite small building societies—ever took advantage of that rule anyway when it existed. Everyone else was checking affordability as a matter of course anyway before that date.

There is a debate running around that says certain people in Europe may have told certain campaigners that their rule did not mean this and did not mean that this affordability check had to be done. That is certainly our reading of that particular rule, and I think it is also the Treasury’s reading of that particular rule. However, we are where we are.

The point of the work that we did and published on Friday is very much around “We have to sort this out”, because it is clearly a nonsensical situation that you can have someone who has met their payments, met them over a period of time and done so at what would be a higher rate than a deal they might otherwise be able to get in the market, and yet they are effectively trapped on a higher rate product, because their current set of circumstances suggests that otherwise it would be unaffordable. Clearly, in practice, they have proven they can meet those costs.

Q257       Charlie Elphicke: To have a situation where there are so many mortgage prisoners is a failure of regulation, is it not? As a regulator, what can you do to deal with that?

Christopher Woolard: We have two things we can do to deal with that. No one has ever sized this problem before. The work that we did that we published on Friday actually puts a size around it. Some people have estimated that there were millions of people potentially in this position. We know it is actually quite a small number, relative to the rest of the market. Therefore, it is eminently dealable with.

Our first approach to this is, in the next few weeks, we are getting together representatives of the industry and saying to them, “How can you sort this? Is there anything you need from us in order to give you the comfort to sort this?” If that approach does not work, obviously we can reach for our rulebook and we can amend our rules accordingly, which we would intend to do. I would hope this is something that is fixable in a much shorter period of time, rather than going through a full consultation and a change in our rules.

Q258       Charlie Elphicke: There are 150,000 mortgage prisoners. There are many in my constituency who raise this issue with me. How long is it going to take? They are stuck paying through the nose unfairly. They are looking to you to fix this problem. How long?

Christopher Woolard: In terms of the 30,000 who are within our regulatory remit at this moment in time, as I said, we are hoping that we can arrange some kind of voluntary action. If we cannot do that, we will obviously need to look to our rulebook. We are publishing the next stage of our work around five months from now. I would want us to have that solution fixed by then. In terms of the 120,000 who sit outside of our remit, again, I would hope there is some kind of voluntary solution there. If there is not, we will need, essentially, help from Government around this space. Obviously, that could take longer, particularly if legislation is involved.

Q259       Charlie Elphicke: Thanks on that. Can I move on to consumer credit? The head of the FCA told this Committee he did not think that we have a sustainable means of providing poor people with credit at the moment in this country. What are we going to do about it?

Christopher Woolard: The way I put this is, if you have a good credit rating, it is relatively easy to get cheap credit at this moment in time. If you have a poor credit rating, it is less easy, but it is still relatively easy to obtain quite expensive credit. What is missing when you look at the market is effectively the bit in the middle. Where is the mid-cost credit offering? You can see that offering in other countries sometimes.

Credit unions are clearly part of that picture, but they are only one small part. CDFIs, community finance organisations, are also part of that picture. Just to give you a sense of the scale, CDFIs lent £22 million last year. The high-cost credit sector lent £1.9 billion. It is tiny actually, in terms of that sort of mid-cost credit that is happening at this moment in time.

There are a number of things we need to think about when we think about a sustainable market there. One is what the supply of capital for that market is. In so much as the Government have said already they will provide some money from the dormant assets fund to stand behind capital going into this market, that is a positive thing. That will definitely help part of the issue. We need to think quite creatively about the role of credit unions and what they might be able to do more here with the capital they have in reserve. We also need to think about market failure in this market overall.

To go back to the point I made to the Chair in my opening remarks, when we look, for example, at some of these markets, like rent to own, part of the demand here is driven by the way the current system operates. If you are told on Wednesday to collect the keys to a property that you need to move into on Friday, and it is unfurnished and you are in social housing, and probably therefore have a low income and very few possessions to begin with, it is inevitable you need to go and find some way of cooking the kids’ tea, a fridge and maybe a bed to sleep in. In that circumstance, inevitably you almost veer towards going into a rent-to-own scheme. Yet, in 10% of the country—but only 10% of the country—we see schemes where social landlords and local authorities do provide some of those basic goods. There is no one silver bullet here, but there would need to be a range of things.

Q260       Charlie Elphicke: Let us look at rent to own. We have companies like BrightHouse that are fleecing our poorer constituents with inferior goods at massively high rates of interest. Are you going to put a cap on rent to own, as exists for payday lending?

Christopher Woolard: We have our final report on this area coming out at the end of the month. As Andrew said, all the tools are on the table for this one. Obviously, we will say more then, I am afraid. It is undoubtedly the case that, when you look at the cost of buying through a rent-to-own provider, as opposed to even taking a high-cost loan from another source, the cost of total ownership is very expensive indeed.

Q261       Charlie Elphicke: Your review of the payday loans cap found no evidence of widespread harm for consumers or that those being turned down for a payday loan moved into high-cost or illegal lending. What wider lessons do you draw for the market for consumer credit and high-cost credit from this in particular?

Christopher Woolard: The work that we did around the review of the effect of the payday cap showed us that there was no real appreciable evidence of people moving into illegal money lending. You have to be careful with that, because clearly, by its nature as an illegal activity, it is very hard to measure. Indeed, people will not always tell you whether they are doing it or not. We worked very closely with people like the illegal money lending team, and they have given us good evidence that suggests they are not seeing a significant rise in any of that.

What people actually told us happened was, in about 60% of cases, people found a way of coping when refused credit. Indeed, the evidence from the first time around when we did the payday cap said that people marginally refused credit actually ended up with better economic welfare over time than those who did get the credit in the first place on payday lending. We had around 15% who did look at other high-cost or other credit products. The remainder turned to other sources, including family and so forth. We are seeing a range of coping mechanisms deployed there.

Perhaps most interestingly, for about 64% of people who we surveyed, they said that was the moment where they effectively said, “Right, enough is enough”. They described being refused as actually being beneficial. We have to be a bit careful about all of that, but the evidence so far suggests to us that we are seeing people change their habits.

The piece of evidence that we also have to be careful about is the one I mentioned to the Chair earlier. We are seeing people obtaining less debt, so they are turning up for debt advice with about half the debt they had in the past. Nevertheless, they are turning up with more council tax and other arrears as well. There is clearly a degree of laying off expenditure, if you like, by not paying bills that maybe have been settled before.

Q262       Charlie Elphicke: I am not sure if you are the right person to ask this, but what is going on in consumer credit? One moment there seems to be a massive bubble building up and they are worrying about a pocket of risk, and the next report is that consumer credit lending seems to have dried up altogether. What is your analysis?

Christopher Woolard: The picture is the one that I have said to a number of people that we have had fairly consistently for the last few months. There has been a recovery in the level of consumer credit lending and that was quite a sharp recovery. I think that is what drove many of those headlines, so the numbers did not lie, as it were. The place it returned to, though, was just underneath the 30-year average, and we have seen a bit of levelling off in the last month’s figures from the Bank of England.

We need to be careful about the actual overall total stock of debt, and say, “Okay, it appears to be running at a long-term average”. In fact, it has recovered to the 2008 number, and it was probably running at an average just before the 2008 number as well, so that is where some of those headlines come from. The piece we need to be careful with though, and where we get concerned, as a regulator, is that is not an evenly distributed pile of debt. In particular, our research shows that disproportionately sits with a younger group of people in society, so there are reasons to be cautious. At the same time, that kind of long-run average seems to be there.

Q263       Rushanara Ali: I had one supplementary on the unregulated mortgage market. Have you done any analysis on what borrowers have had to pay, given the higher rate of interest they were paying? Is there any chance or scope for them getting some of that money back, particularly those who should not have been charged that sort of rate in the first place?

Christopher Woolard: We have obviously, particularly in the rent-to-own space, which I think you are referring to, looked at those who were historically lent to unaffordably. That is why there has been £14.8 million of redress, in respect of BrightHouse in particular, but other lenders as well. We do not have the ability to look at contracts that were legal at the time and retrospectively then reopen those contracts. As far as I am aware, there is nothing that is effectively illegal in the rates of interest that have been charged on what may be very expensive contracts at the time. It is only where that is being lent unaffordably that we have been able to apply and get redress for those people.

Q264       Rushanara Ali: Moving on to the Financial Lives survey, what are the key issues and concerns emerging from the findings of the survey about the health of household finance balance sheets across age groups?

Nisha Arora: This is our biggest survey that we have done, with just under 13,000 consumers, both face-to-face and online. It is a rich source of data. Our first cut was by age, and I will give you a bit of an overview of what we are seeing in different generations. We also got an overall understanding of vulnerability, the people who were potentially vulnerable, and then the people who are really in difficulty now.

Just turning to the age picture, if we take the younger generation, so our 18-to-34 group, what we are seeing is fledgling earnings, low saving levels, and, as Chris said, a higher average debt level. If we look at the 25-to-34 age group, 23% of that age group are over-indebted. That is the highest proportion in any of the age groups we looked at. That group is also facing problems around housing affordability. We have a high proportion of renters there. In the 25-to-34 group, half the people are renting. We are also seeing that they are less financially resilient and few renters have any form of protection cover. There are a number of problems emerging there.

On the plus side, the younger people are benefiting from auto-enrolment. In even our youngest age category, the 18-to-24, we are seeing 30% of those people with a private pension now. That is a benefit that we are seeing in that age group.

If we move into the middle age group, 35-to-54 group, we are seeing increasing incomes, increasing levels of savings, but also this is the age group where they have the highest level of unsecured debt. The income and the cash savings are increasing, but there is also a high level of unsecured debt. There is also a high level of mortgage debt. Home ownership has increased here, but there is a high level of mortgage debt. One of the problems we are seeing is 15%, for example, of the 45-to-54 group have interest-only mortgages. Many of the consumers we spoke to had not planned and had not thought about how they are going to repay the capital.

Q265       Rushanara Ali: Is that radically different from, say, 10, 15 or 20 years ago?

Nisha Arora: This is the first survey of its kind. We will be tracking the survey every two years to see how things change and emerge and understand how the picture is changing. This is the picture we see now.

Q266       Rushanara Ali: Then there are the over-55s.

Nisha Arora: They are less indebted overall. They are much more financially resilient because at this point their debts are largely paid off and their mortgages are largely paid off. They are starting to plan for pensions, but overall one of the pictures we are seeing in Financial Lives is a lack of good planning for pensions. Even at this late stage in life, there are quite low engagement levels and quite low knowledge about pension choices and pension planning. Again, in this age group we are seeing health problems emerging, increased longevity and people underestimating longevity, and high care costs also emerging.

Q267       Rushanara Ali: Preparing for living longer is the big challenge for them, then interest-only mortgages and unsecured loans for the 35-to-44 group, and the 18-to-34 group seem, despite these comparisons, completely stuffed, would you not say?

Chair: It is a technical term.

Nisha Arora: I do not think we use that in the report. There is a high level of indebtedness and of course the preponderance of debtors are in that lower age group. That is also because of the fledgling earnings. As earnings grow, as cash levels grow, and as people then put aside money for their pensions, we may see greater levels of financial resilience as people grow older. We have not yet tracked what that will look like in years to come.

Q268       Rushanara Ali: I have quite a few questions, so I am going to ask for quick-fire answers now. This inquiry has been told that the focus of our inquiry should be around debt that has significant consequences, rather than aggregate debt levels. Can you tell us what those are? You have already referred to some of them. How worried should we be, as a country, and what should be done about it? You have touched on some of those points.

Christopher Woolard: I am trying to think of what debt without significant consequences actually means. For many of the products that we see, they will carry some form of consequence.

Q269       Rushanara Ali: It is the trigger effects if you are not able to pay your rent or your mortgage—those kinds of debts.

Christopher Woolard: Yes, exactly. Clearly, one of the things that is in Financial Lives is, if you look at that younger age group, you have about 49% who are renting. When we look at people who are renting generally, they tell us that an increase in their overall household bills of around £100 would potentially leave them with a problem. Clearly, if that problem leads to people not paying their rent or not paying their council tax, that becomes a real problem in their life, in terms of losing the home over their head. There is a similar picture with mortgages. For about a third of people who have a mortgage at the moment, some of those are very high in terms of loan to value. The question there is about what would happen to them in those circumstances, if they are unable to pay, and if they would move.

It is quite a dangerous distinction to make between, if you like, your rent and your mortgage and a number of other things, like high-cost products. If you are in a situation where you are renting and you do not have a lot of income, if you are using a number of high-cost products, in theory any one of those could be something you could get out of fairly easily, but actually, cumulatively, they could be the thing that sinks you on your rent. Personally, I find that distinction quite dangerous.

Q270       Rushanara Ali: It is better to pay attention to all the different forms of indebtedness, rather than the ones that are categorised in this way. You have touched on some of the things that cross-governmental working can do to help. Do you have any other suggestions on what could be done to deal with whatever you want to focus on, whether overall the indebtedness of these groups or the fact that debt that has significant consequences? If you had to suggest to other Government Departments what they should be doing, what are the two or three things that could really make a difference?

Christopher Woolard: As I said, one of them is, for a particular group of people who are reliant on rent to own, actually not necessarily having to get into that situation in the first place would be an important thing where you could join up. Nisha, I do not know if you want to add more to the list from any we have said already.

Nisha Arora: Not to those. On Financial Lives, these are not specific suggestions, but although you cannot divvy up and categorise different types of debt, I guess it tells us who are the most in difficulty, the most vulnerable and the most likely, when they do fall into debt, to then suffer a more disproportionate effect.

Q271       Rushanara Ali: Your survey found that 50% of UK adults display one or more characteristics that signal their potential vulnerability. That is 25.6 million people. In relation to some of the points you have already made, what are the other determinants of this vulnerability? What is different from what was the case, say, 10, 15 or 20 years ago? Have you done some work around the changes?

Nisha Arora: We have not done comparative studies. We have taken that overall picture of potential vulnerability. As you say, that is 50%, a very high proportion. Those are people who are showing characteristics. It does not mean they are currently suffering harm, but they are at risk.

Q272       Rushanara Ali: The characteristics will be household costs—

Nisha Arora: The key characteristic, which I can explain a bit more in a minute, is low financial resilience. That might be because people are over-indebted. We found 15% who were over-indebted. It might be that, if there is a small financial shock, they would suffer. As Chris said, they would not be able to pay. They would not be able to pay the next bill. Financial resilience is a key one. That means they are at more risk of harm and if things do happen they will suffer disproportionately.

There are then people who also have low financial capability, who might have health problems. For example, 5% of people have health problems that affect their day-to-day activities. There are also people who suffer serious life events. For all those people, that is going to make engaging with financial services much harder. It will limit access to financial services. It can mean people cannot plan properly, and it might mean people cannot make the right choices. When they have to make these really complicated choices and take various options, it inhibits that.

That is the overall picture, but then within that there are people who have low financial resilience and then, within that, arguably the worst-off are what we call people in difficulty. We found that 8% of the population are in difficulty. That is people who, in the last six months, have failed to pay a bill or a credit commitment three or more times.

Q273       Rushanara Ali: Agencies like the Money Advice Service and others can play an important role.

Nisha Arora: Yes.

Q274       Rushanara Ali: This survey is really powerful, because, as you say, it is revealing some of the big challenges. One of my concerns is that, although the evidence is there, there is a risk that you will not get the cross-governmental co-ordination that is required to deal with some of these underlying points—any one of them. What are you doing to try to ensure that happens? Who do you think should be in the lead in driving forward an implementation programme to make sure that some of the things that are coming through this survey are then acted on? We can then prevent some of the worst effects of over-indebtedness and so on.

Nisha Arora: We are using this data. As Chris said, we are using this data to prioritise our business plans, prioritise where we work, feed into things like the Mortgages Market Study. Not only that, we publish the data tables. We have also made sure that the raw data is available for people who want to access it. The reason we have done that, and the reason that is important, is so that other Departments, charities, policy makers and industry can use that data, which will mean that we can work together.

Q275       Rushanara Ali: Do you think there should be a particular Department that leads the co-ordination, or someone in particular in Government? Do you have any suggestions for this Committee that we can pick up on to encourage a particular Government Department to co-ordinate and make sure that they actually react on it? You might be able to do more on your points about things like over-indebtedness, but there are other areas that require Government Departments to take a lead.

Christopher Woolard: There are a few things to say on that. First, from our perspective, our lead Department is normally the Treasury. That is where we tend to have most of our policy interaction. Where we have done work in the past—for example, we have done a piece of work on ageing population, on some of the challenges that are faced by people with longer-term care costs—we will co-ordinate with other Government Departments that are relevant, such as the DWP and the Department of Health.

It is also fair to say that certainly in some aspects of this, when we talk about financial inclusion, there are now inter-ministerial bodies that are meeting. On financial inclusion, we have your next two witnesses plus DCMS actually working together around how they can have a co-ordinated strategy on that. The difficulty of having one place is, having worked in Government, how you start the conversation. Is it the needs of older people? Is it the needs of younger people? Whatever it may be, that simply determines how you could cut the cake a dozen ways. It is about people joining up.

Q276       Rushanara Ali: Is that not why things do not actually get acted upon? Perhaps this Committee can ask the Ministers.

Can I just move on to pensions and savings? Again, we have been told it is manifestly the case that so many people simply do not have enough pension savings. Does the FCA data back this up? Obviously auto‑enrolment plays an important role. What are your thoughts on this, particularly in relation to the gender imbalance, with women still less likely to be able to have the equivalent amount?

Nisha Arora: I will start with the data and then pass over to Chris. Our survey found that 13% of adults had no cash savings at all, and 56% of adults had no savings or savings less than £5,000. We are finding people with low or no savings are the people reaching for the high-cost credit products and the unauthorised overdrafts. In terms of pension savings, two thirds of UK adults have private pension provision, but that leaves a third without. We have seen a high reliance from current retirees on the state pension: 44% of retirees rely on the state pension for their main source of income. We are also seeing the people coming up to retirement relying less and less on the state pension.

The people we spoke to feel that they have relatively little in their pots. Of the people, for example, who accessed a DC pension in the last two years, half agreed the pension income they had was not sufficient to live on. The survey tells us exactly what you said. As we say, younger people are hopefully being encouraged to save through auto-enrolment. With women, you are right. More women than men are relying on the state pension. That is both retirees and those due to retire. Fewer women—60%—have a private pension, compared to 70% of men. Average saving levels for women are less than for men. All this means that women told us they were less happy with the pension arrangements and more likely to worry they will not have enough money to last them into retirement.

Q277       Rushanara Ali: I have one last brief question. The Bank of England has indicated that interest rates will go up at some point. Have you done much thinking about the implications of that of people who are likely to be vulnerable? You have a figure of 50% at the moment. Do you see that going up quite significantly?

Christopher Woolard: It is how that manifests itself in terms of actual total living costs. Around 80% of people with a mortgage at the moment are fixed. Therefore, a short-term rise in interest rates is not going to be felt by them immediately. That will be a bow wave type effect as they come to the end of their terms. If you are principally using credit cards or something like that for borrowing, 0.25% on interest rates versus a 16% to 17% spread is not going to be material in the short term. Again, the actual immediate effect may not be that instant.

It does come through where you see possibly rent increases or those kinds of things playing out. If £100 is the buffer zone, there is a bit of room in that. We will not see things happen immediately, but clearly things will get tighter. I suspect it will get tighter for the people who are in that 50% in the first instance though, rather than that 50% figure growing.

Rushanara Ali: You are making a case for rent caps.

Q278       Catherine McKinnell: I want to touch on unsolicited credit limit increases and the call by Citizens Advice and others for there to be more than just a voluntary agreement, so that it covers those who are existing credit card customers. I am just wondering what the thinking behind accepting the voluntary agreement is. Do you have any plans to review whether or not it does need to go further to protect existing customers as well?

Christopher Woolard: In the work that we did around our credit card market study, we actually looked at the issue of UCLIs. Somewhat counterintuitively, there is not a particular link between having had UCLIs, particularly if you are on one of these so-called low and grow cards, and people subsequently having some sort of problem or being in persistent debt. I rather expected we would find that when we looked for the evidence and we actually did not see that pattern particularly emerge.

However, we did the see the number of people who have had an unsolicited increase has gone up from 10% the year before to about 18% last year. Rather than completely wait for a problem, we were proposing that there should be some action in this space. The industry—in the form, at the time, of the UK Cards Association, now part of UK Finance, and then the FLA, have come forward with a voluntary scheme that achieves what we would like to see. In other words, people would have a choice around unsolicited increases. We think that has the potential to be an effective scheme. Because it is voluntary, it starts a lot quicker than if we had to go through the process of consulting. It achieves what we need to achieve.

In other spaces, where the industry could not agree, for example on what they need to do about people in persistent debt, we have obviously imposed rules. It is really about us saying what the tool is that will get there, to achieve what we think needs to be done, the quickest that we can get it done. That is why we accepted the voluntary scheme. As we go on, a year or two from now when we review the impact of this, if this is not having the effect that we want, clearly we will return to regulation. At the moment we think we have something that will work.

Q279       Catherine McKinnell: You will understand there is some scepticism out there about the voluntary agreement. There is scepticism that the reason for entering one is that it then prevents regulation that would obviously be wider reaching and could potentially restrict some other activities. I presume that you will be keeping that under review. As you have said, in the future you will potentially look to regulation if it does not achieve it. You are right not to wait for there to be a big problem but to identify these things and head them off at the pass.

One of the other concerns is about the 0% balance transfers and some of the very obvious traps there are for consumers. What is the FCA’s thinking about that? Is there any potential regulation in the pipeline to try to deal with some of the worst pitfalls for consumers?

Christopher Woolard: On the previous question, can I just say two things? First, if we did not believe that the voluntary agreement was meeting the needs that we saw there, we would never have accepted it. That is the first thing. The second thing is I understand the cynicism. Partly, this is about us doing something pragmatic that we think will work, and we will keep an eye on it.

On the 0% piece, there is a difficult picture here. As you say, there are certain traps that people need to avoid. In particular, it is when you are coming to the end of an agreement, making sure that people have good notice of that, that they can make other arrangements, that they can find another deal and try to move on. That is why we have sought to change the rules in that space. However, for a lot of people, 0% is a relatively cheap—it obviously comes with a fee upfront—way of borrowing. It has actually driven some quite good deals for quite a lot of consumers. That is why we have had to really strike a balance there in the market, rather than simply go for something that was driving through the middle of that.

Q280       Catherine McKinnell: You said that you had looked at changing some of the rules. I would assume that the business case for the 0% balance transfer card market is partly based around the default of some customers and that they do fall into the trap. For those that do, the consequences can be very severe. Do you think it complies with the fair treatment of consumers?

Christopher Woolard: When we looked at the credit card market there are, broadly speaking, three groups of consumers. There is a bit of a myth here about who the card companies make money out of. There are people who pay their bill off every month. Actually, they are quite profitable customers because you make on the interchange fee on their purchases on the other side. There is a group of people who occasionally borrow on their cards. Again, they are pretty profitable as well, but they tend to spend a bit less, so you make less on the interchange, but you make more on the interest. There is then a group of people who are pretty much always in some kind of credit, paying debt at the other end, and there is a group of people within that cohort who are really in trouble who are the most profitable customers of all. Our rules around persistent debt are about taking away those incentives at that end.

For those on 0%, it is actually quite a complicated picture. There are quite a lot of people in there who simply use it as a credit facility and pay it off, but then will often convert into being those “pay it off all the time” type customers, who are very profitable even though they do not appear to be. Clearly, there will be others who fall into such a period at the end of paying credit, and that is why we have taken the action that we have. That is about saying, “Let us make sure that people do not come off the end of that period almost by accident or almost by falling into some kind of trapdoor”. They have to have proper notice at the end of their interest-free period.

Q281       Catherine McKinnell: What is the action that has been taken to prevent that?

Christopher Woolard: Essentially, we have tightened up on the rules that are around how you give notice at the end of the interest-free period.

Q282       Catherine McKinnell: There should not really be anyone that falls into that pit at the end.

Christopher Woolard: At least unintentionally, yes.

Q283       Catherine McKinnell: The payday loan cap has had a significant impact. I have seen some of the figures produced by Citizens Advice that payday loans in arrears have fallen by 50%. Over the same period, they have seen those in debt as a result of payday loans almost halved. It is a really positive outcome. Clearly, there is a very strong case for imposing a cap on rent to own, on doorstep and on other kinds of high-cost credit. Does the FCA support that view? If so, does it have any plans to widen the cap approach to other areas of high-cost debt?

Christopher Woolard: I am afraid I am going to have to be slightly enigmatic. As I said to Mr Elphicke, we have our final report coming out at the end of this month. As we have said on the record, all the tools are on the table as far as we are concerned. We can think of any of the tools and measures that we have at our disposal for these kinds of markets.

Catherine McKinnell: I see what you mean. You are saying it could be out there.

Q284       Chair: Because of the publication date, once the report has been published, if there are additional points that you want to make that you are not able to make today in response to the questions, then please feel free to write to us.

Christopher Woolard: Yes. I would be very happy to do that.

Q285       Catherine McKinnell: I wanted to ask about credit unions. To what extent do you think they could or should take a bigger role in providing lending to consumers?

Christopher Woolard: When we are talking about credit unions, we need to remember it is a very broad group of firms. The largest ones are absolutely the same kind of size and scale as the larger building societies, all the way through to two, three, four people running a very small credit union. Certainly for the larger ones, we are seeing some quite encouraging signs of, for example, partnerships with CDFIs, so community finance organisations. They are looking at how they can be quite imaginative about filling the so-called mid-cost gap that we see in the market. Credit unions will be part of the answer, but they will be part of what will need to be many different solutions to this. I do not think we can pin the whole thing on credit unions.

Q286       Catherine McKinnell: Is there something that the FCA, the Government or other regulators could do that would encourage more of a proliferation in that market? Is that not something that you see as particularly desirable in any event?

Christopher Woolard: Most of the legislation governing credit unions is primary legislation. The basic rules of the game, the common bond and those kinds of things, are set out in primary legislation. In January we said that, as part of trying to find some of the answers to how you get the sustainable mid-cost market, we would welcome, and indeed we positively want, credit unions and others to be part of our sandbox programme. That is normally associated with fintechs and those kinds of firms. It is the space where, if people have an innovative idea and they want to try something out that is a bit different and does not quite fit within the rules, we would be willing to listen to the ideas that are there. There are one or two who are trying to talk to us about those at the moment.

Q287       John Mann: First, on actual literacy, is it not about time that actual literacy was defined as an issue of client or customer vulnerability within the sector and therefore by yourselves?

Christopher Woolard: What sits behind that question is we know the average reading age and the average maths age of someone in the UK is around 12 years old. Most of the customers and most large institutions are going to be equipped in that way. When we talk about treating customers fairly, that is certainly something that needs to be taken into account.

Q288       John Mann: You are generalising. On client vulnerability, let us talk about those people who are well below 12, not the average, so those individuals who have barely any literacy at all. They buy products, use services and get sent lots of paperwork they cannot read. I deal with these kinds of people on a regular basis. I repeat my question: when is actual literacy going to be defined as client or customer vulnerability when it comes to the sector, and your organisation specifically?

Christopher Woolard: One of the things we pick up in the work that has been done around our consumer approach, and one of things that sits inside that 50% of people who might be vulnerable, is that that includes the group of people who have a low educational attainment. They may even have some sort of physical or mental disability that gets in the way of them understanding things. One of the things we are doing in our consumer approach is dealing with vulnerability, really for the first time, in terms of how it gets into our rulebook. We will have an expectation of firms that, where someone has, essentially, a vulnerability, firms have to adjust towards that, in terms of their dealings with them.

Q289       John Mann: If they do not, and the Financial Ombudsman Service does not have literacy as a specific factor looking at vulnerability, there is a problem. If there is mis-selling or other mis-advice in any way, you are saying that should be a factor that is taken into consideration. I am saying at the moment it is not.

Christopher Woolard: We are talking in generalities here, which is always slightly dangerous.

John Mann: I could give plenty of specific incidents.

Christopher Woolard: I can think of some of the specifics I have been involved in. For example, a few years ago I got involved in the case of a young man who was very clearly mentally impaired and yet had managed to get five payday loans, including three of them over the phone. The online ones maybe would have been difficult to detect, but the over-the-phone ones would have been obvious.

If you look at some of the cases the ombudsman has dealt with recently, they do go to, “Is the individual vulnerable in terms of their circumstances?” Maybe what is sitting underneath this is whether that is being done consistently. Is that the question? There is a question there, when we look at vulnerability, about how clear we are about the definition of that.

Q290       John Mann: The question will be thrown back: what are you going to do about it? Let me ask a second question that could take that one away. That is an issue that has not been addressed properly. The fact that the Financial Ombudsman Service does not have that as one of its criteria for vulnerability demonstrates the nature of the problem in the sector.

Let us come to advice on annuities and advice on drawdown pensions. Is it not about time that there is a specific requirement made by you that advice must be given? That is so that, for example, somebody who draws down on their pension three times in a year—three times—without advice, is in fact given advice. They then make a rational financial decision, rather than an ignorant and irrational one that leads to them coming to me because of problems. Is it not time that you built into regulation for annuities and for drawdown pensions a requirement that there has to be advice?

Christopher Woolard: For this space, we have a piece of work that reports in June that is around retirement outcomes. One of the things we have already said is we are looking at the question of advice and guidance within that and the degree to which you try to make sure everyone who is in that position basically gets advice and guidance.

There are some complexities at the edges of this. If we look at the group that have already just come through the early stages of pension freedoms, we have around 40% or so doing that without advice or guidance. On the other hand, 64% of them have small pots. There may be certain circumstances—de minimis type situations—where you would say it is not reasonable to make someone jump through all the hoops, because actually they are dealing with quite a small amount of money, relatively. There is a question on the table, and it is one we are trying to answer, which is about what the appropriate amount of advice and guidance that someone gets is before they make what could be significant decisions about their life.

Q291       John Mann: We will see after June on that one then. I could ask lots more questions now, but I will wait until June. That would be fairer and more constructive.

My final question is on Solvency II and matching adjustments. I allege that there are some pension funds and some pensioners who are not aware of the crisis that is going to occur because of the use of matching adjustments. Would you agree with me on that? Would the British Airways pension fund, one of the biggest in the country, be one that is particularly vulnerable? Is there a current threat to British Airways pensioners and other pensioners because of the way in which matching adjustment has been used when it comes to equity release?

Christopher Woolard: I have to say I do not know about the circumstances of the British Airways pension fund, nor would we obviously comment on that even if I had the answers immediately at hand. In terms of Solvency II and matching adjustment more generally, obviously there has been quite a lot of work, mainly led by the PRA, on the insurance side of the house, but with colleagues in the FCA involved as well to try to make sure that pension funds transition in a suitable way. On the specifics, probably the best thing to do is to take that one away and for me to write you something.

Q292       John Mann: It would be helpful to get a detailed response on it from you. Your answer itself demonstrates the problem, does it not? If you are a member of a pension fund and your pension fund is not aware of how matching adjustment has been and is being used, you are not being consulted on decisions that directly impact on your pension and on your income. Is it reasonable that that situation continues, considering that a number of independent academics and analysts are suggesting there is a major problem in the sector with the use of matching adjustments, and that at least two funds are technically insolvent now?

Christopher Woolard: As I said, let me take that one away and give you a proper answer. I am not even going to try to speculate on the health of a particular fund, because I do not think that it would be appropriate for me to do so.

Q293       Rushanara Ali: Just on John’s questions about vulnerable customers, is there any thinking going on about the equivalent of, say, health advocates who advocate for those who need extra support? Is there an equivalent for a financial advice advocate, especially for those who have disabilities or learning difficulties as well as literacy issues? If it does not exist, is that something you could take away and look at, in terms of what the scope is for having something like that? Especially with technology and your point about somebody being able to ring up and arrange a loan and then you later discover that there is a major problem, and especially given that FOS is struggling to deal with the remit it has already, should there not be something in the preventative arena?

Christopher Woolard: There is work around things like power of attorney, which has existed for many years, but—

Rushanara Ali: But there is scope for abuse there as well.

Christopher Woolard: Yes, there is scope for abuse there. There is a question that has come up in the work we have done more generally around mental health and how you help people who have particular mental health conditions, about the concept of having this trusted adviser or trusted third party that could play a role, but we are at quite early stages in terms of how that could work and how you avoid the same kind of abuses that you see—

Rushanara Ali: Are you looking at developing something like this?

Christopher Woolard: Yes, we are looking at that as part of the wider work we are doing around mental health.

Q294       Chair: Thank you both very much indeed for the session; it has been fascinating. If there are things that are published later that are relevant to what we have discussed today, if you can fill us in, we would be very grateful.

Christopher Woolard: We would be very happy to.

Examination of witnesses

Witnesses: John Glen MP, Guy Opperman MP, John Owen and Charlotte Clark.

Q295       Chair: Thank you very much indeed, all of you, for being here this afternoon for the second panel on household finances. Just for the record, for those who are listening, I am going to ask you to introduce yourselves. Ms Clark, let us start with you.

Charlotte Clark: I am Charlotte Clark. I am the Director of Private Pensions and arm’s length bodies at the DWP.

Guy Opperman: Guy Opperman, MP for Hexham, and Minister for Pensions and Financial Inclusion.

John Glen: John Glen, Member of Parliament for Salisbury, and Economic Secretary to the Treasury and City Minister.

John Owen: I am John Owen, and I am Deputy Director in the Financial Services Group in the Treasury.

Q296       Chair: Thank you very much, all of you, for being here. I suspect we will direct questions at Ministers, but please, officials, feel free to contribute very much as well. I want to start with John Glen and ask whether the Treasury gives weight to the health of the household finances of the nation as well as the public finances when forming economic strategy.

John Glen: Absolutely we do. There is a whole series of data that we can cite and I would, if I may, just start with a few of those, but I would also like to try to paint a balanced view of where I see things at the moment. If we look at household net wealth as a share of income and we compare it to where we were in 2007 at 287%, it is now 354% in Q4 2017. If we look at household debt as a share of income, it is below the pre-crisis peak again, at 138% in Q4 2017 as opposed to 160% in Q1 2008. Even if we look at debt interest payments as a share of income, they are a record low of 4.2% in Q4 2017 as opposed to 10% in Q1 2008.

I would also acknowledge that, if we look at savings, they are at a significantly lower level than they have been historically. From the evidence that you have seen from Governor Carney and others, that is a function, paradoxically, of being in a situation where people tend to save more when the economy is in a worse state, because they feel vulnerable and they cannot access credit, and also it is a function of their confidence levels in low interest rates.

In terms of what we have done to safeguard, just five years ago we set up the Financial Policy Committee, which was designed in a specific way. The two main things it did were to stipulate that there has to be some controls when you are assessing people’s worthiness for mortgages—there is a stretch target of 3% above the base rate—and only 15% of new mortgages would be more than 4.5 times the multiple of income.

There are a range of figures. I would acknowledge that it is not a universally glorious picture, but there are some positive signs and we have to keep an eye on all the different dimensions across all income groups as well.

Q297       Chair: Thank you for that. You are right to have mentioned the household saving ratio. I suppose I was also driving at looking at more granular detail at household finances rather than the overall numbers as well. You talked about the Financial Policy Committee. One of the points we were talking about earlier on with the FCA is that the Bank of England has a mandate to monitor the impact of household saving and debt on stability. The FCA ensures consumers are properly protected and there is choice and competition. I suppose the question is: who does take responsibility for the impact of, for example, low savings on long-term structural economic stability and on the future living standards of households? Does that responsibility lie with the Treasury?

John Glen: Ultimately, of course, it does, and we make decisions and the Chancellor makes decisions every fiscal event about making adjustments to how we raise money and how that affects different cohorts in the population. Of course, it is also true to say that recently we have been very aware of the challenge of financial inclusivity. Guy and I lead the Financial Inclusion Policy Forum, which has a very wide-ranging membership—and many organisations I see have provided written evidence and oral evidence to your Committee—which is designed to look at some of the big challenges.

The first focus that we have in our workshop in October is on credit and how we deal with some of the challenge of people accessing high-cost credit. I have also taken forward my predecessor’s initiative on the Rent Recognition Challenge, which will develop a solution so that those people who traditionally have difficulty proving their creditworthiness will be able to use the data derived from their consistent paying of rent to allow them to access more affordable borrowing, which they are presently unable to do.

Q298       Chair: Is the Government going to support Lord Bird’s Creditworthiness Assessment Bill in the House of Lords?

John Glen: I have met with Lord Bird and I am in active conversation with him. Where we would be with that is that we agree with the aims of the Bill, but we think imposing an across-the-board obligation is probably not going to be cost-effective. What I hope will happen is that we will see the Rent Recognition Challenge develop a product that is widely applicable. We are looking to make sure that financial institutions use the product that that challenge develops to make sure it allows more people to access it. I am very supportive of his instincts, but I do not think it is necessarily what we need to do.

Q299       Chair: You mentioned the Financial Inclusion Policy Forum. Perhaps it would be helpful to hear from both of you about how the responsibilities are split. I am also keen to know—the FCA was just talking about their Financial Lives survey, which is very impressive—if you have both seen it. Is it something that is going to inform the work of the Financial Inclusion Policy Forum?

Guy Opperman: If I take the first point, I will let John come in on the second. It is always the case that every Government have been utterly joined-up throughout history, and it is always the case that all the Departments are utterly joined-up and never exist in their own silos. We all know that from our own bitter experience. There is a massive effort being made, though, to try to join these two Departments up on the issue of financial inclusion, and that dates back from the recommendations made by the House of Lords, the Commission itself, reports by this Select Committee, and the efforts that the two of us are making. You are coming on to your second question about the single financial guidance body. We made deliberate efforts that we both did the Bill, when Steve Barclay was originally the Minister; then John came in and took it over. There is genuinely a desire that we both tackle financial inclusion from both different Departments and that there is a joined-up approach.

Ask me again how it is going in a year’s time, of course, but I cannot stress enough how much we are trying to do that. There is a series of 15 or 16 different organisations on the forum, who are coming together to try to provide individual solutions. Again, it is sometimes the case that Government create forums that are very worthy organisations that do nothing and are tick-box exercises. We are doing everything possible to ensure that is not the case. John is right to say that we have identified a number of specific tasks that we are going to do on an ongoing basis. The first is to have a serious look at credit and what we are going to try to do with it. There are other things that we are going to take going forward and identify individual players—lots of them have reported to you, I know, from Toynbee Hall to MAS and others—who are then going to take these things forward and come up with actual solutions.

I genuinely think that we have identified the problem, as have various others, tried to come up with steps to do it, and then to try to do it in a joined-up approach. Thus far, it is going very well.

John Glen: The other point I would make is that the FCA is involved in that as well. We recognise there is regulatory oversight, dialogue and observing of that. In terms of the point, we exchanged letters in March about the responsibility of the single financial guidance body; ultimately one Department had to be responsible. The lesson is that DWP have greater experience. They have a unit that is capable of managing and is managing a number of arm’s length bodies.

Some of the lessons in this sector around the need to have clarity of governance and accountability mean that it would rightly sit with DWP but, in terms of financial capability and consumer debt policy, that will reside and continue to reside in the Treasury. I would expect to be accountable for that, but there is genuine merit in us working together, drawing the best out of the sector and working with the regulator to effect the policy outcomes that we share.

Q300       Chair: Just before I hand on, have you both seen the Financial Lives survey and the work that the FCA has done? Is it informing the work of the Financial Inclusion Policy Forum? Has the FCA yet said, “This is where we cannot do any more. We need Government to intervene”?

John Glen: I cannot recall seeing the full report, honestly.

Chair: Guy, have you seen it?

Guy Opperman: I am aware of it. I have not gone through it in copious detail but I have to say that, when the FCA came along to the forum, they were making the case that they had capabilities going forward. Clearly, there are a number of different reviews on an ongoing basis, whether it is on the Retirement Outcomes Review, whether it is on credit; there are a variety of things. They have a number of balls in the air. I suspect, by the end of the summer, things will be an awful lot more crystallised.

John Glen: They are responsible. They had the report from the FCA two months ago in February on credit cards and we have some ameliorative measures there. We will see how those work. They are also coming up with another report on problem debt and how we deal with that. We work very closely with them, with lots of side conversations, Minister to regulator, saying, “These are the things we are picking up from debates and from colleagues”.

Q301       Chair: On the single financial guidance body, I asked about regularly reviewing the allocation responsibilities. Is that something that you will keep under review as to who is best placed?

John Glen: There is no turf war going on here. There is an attempt to try to see what makes sense. We will do a number of visits together over the next six months, but it is a positive message to the sector for us to be working very closely together and held accountable for the appropriate elements that we are responsible for.

Q302       Wes Streeting: Good afternoon. I want to talk to you about the pensions gap. The 2017 Automatic Enrolment Review conducted for DWP found that 38% of people, which is 12 million, are still under-saving for their retirement, which is down since the introduction of auto-enrolment but only by seven percentage points. Bearing that in mind, I wonder where the Government see this in terms of policy priority and what you plan to do to eliminate that gap.

Guy Opperman: You will be aware that the 2017 review was an interim review to assess what our particular position was. We take the view that this is a cross-party success story. It was conceived under the Labour Government, expanded upon by the coalition, and then has been successfully taken forward by the Conservative Government. It has outperformed everyone’s expectations, on any interpretation. With 9.5 million people signed up to auto-enrolment, it has transformed the way that private pensions are. There is much to be pleased about in terms of what we have done so far.

If you asked me what my single biggest job was when I got this job last summer, it was to ensure that the April increase in auto-enrolment that took place a matter of weeks ago would be a success. Although it is early days, by and large it seems to be a very much a success. The level of opt-outs in relation to auto-enrolment—people who decide they do not want to be part of a private pension—is very low, way lower than everyone’s expectations. You see the success: the first tranche has gone up. It will go up again in April 2019 to 8%. While 8% may not be the panacea and the solution to the long-term savings problems, it is absolutely the case that you have 9.5 million now saving in a private pension who were not saving before. You also have a situation where 54% of eligible employees are paying above the minimum rate, which is a fantastic success story, and 64% of eligible employees are getting above the minimum rate from their employers.

People are engaging with saving in a long-term pension through the nudge element where a multitude of efforts by successive Governments have failed before. Auto-enrolment and nudge theory have been absolutely a success and have addressed that particular problem of pension savings. Is it the ultimate solution? We only have, so far, the first tranche of increases. No, it is not the ultimate solution but we are heading in the right direction.

Q303       Wes Streeting: Are you similarly cheerful about progress made so far—sailing on, no need for any further intervention, all going really well?

John Glen: As Guy acknowledged, it is a long-term change that moved more slowly at times in order to bring everyone together. In terms of the long-term aspirations and international comparisons and what would be ideal, there are conversations to be had about that, but we have to do it in a way that chimes in with the economy in terms of what is affordable.

Q304       Wes Streeting: I am not knocking the progress that has been made; I am being slightly flippant. We still have a problem, have we not? It is not solved, so I am just wondering, in terms of how you see the direction of travel, what further interventions you plan to deal with the gap we have.

Guy Opperman: I will happily come in on that. The review itself, which we have adopted, sets out the particulars whereby it is reducing the age rate from 22 down to 18, changing the LEL, changing the £10,000 limit down to the first pound and addressing things in relation to low earners in particular. We believe those are the next steps and I have to say that, in my view, the crucial test is not right now. It is entirely right for us all to be looking at this and it is constantly kept under review. Charlotte has been involved in the policy for about 13 years, and can give you the ongoing review basis, but the serious point is we need to get past 8%. We need to get to April 2019, get to 8% and review where we are in terms of opt-out. We have a 9% opt-out rate at the present stage, with 5% of population opting in who are not eligible.

Those are very good signs. As long as they are maintained, we can then review where we are going. I would mention that there are plenty of other Governments who have ducked this—the Irish, for example, are not engaged with auto-enrolment at all—and we are in a position that we have got this far. We have further to go, but we have a review and we have next steps planned.

Q305       Wes Streeting: This is where some of my anxiety kicks in. To pick up on a couple of the points you made, expanding auto-enrolment by lowering the earnings and age thresholds kicks in in the mid-2020s, but the analysis finds this will only make a dent of around 200,000 in terms of the number of under-savers. You mentioned the 8% figure. Is there a risk that opt-outs will rise as contributions rise to 8% and beyond? All the while, this is taking time and we are left with a position which Baroness Altmann described in quite strident terms when she gave evidence to the Committee, as you would expect, that the longer the amount of time it takes for these interventions to kick in, there will be significant numbers of people, including some of the lowest earners, who simply will not have enough money when they hit retirement, and we will not be able to haul you in front of the Treasury Committee to explain it then because, however great your ministerial careers pan out, you will hopefully not still be here in front of the Treasury Committee when some of these people in their 20s are retiring. That is the anxiety.

Guy Opperman: We would be very old then.

Wes Streeting: I do not know. The retirement age is going up and we might still be here. Seriously, though, are we going fast enough and far enough?

Guy Opperman: There is a legitimate point. All of us accept that we have not solved the problem. Everybody realises that, but having got to a situation where we conceived this in 2004, started it in 2012 and then have worked everybody in—we have 1 million employers on board and 9.5 million people—we have now jumped a very significant jump from 2% to 5%, which has an impact on both the employee and the employer. We are about to do it again in less than 12 months’ time now. We are going to go from 2% to 8% of earnings within, effectively, a year and a month. That is a very significant jump. To ensure that that goes right, that there are not the opt-outs and that people continue to buy into the fact that savings is the right thing, both personally and for a pension, we need to keep making that case.

We cannot go any more quickly right now. After we get to April 2019, there is then a perfectly legitimate argument around where we are, what the particular situation is in terms of earnings and what the situation is in terms of the living wage, which by then will have gone up to £9. We will still be in a situation with relatively a low tax threshold, which has been a huge help. There are other levers that you can pull but still we have to get to April ’19 first.

Q306       Wes Streeting: One area that we have not touched on yet is the whole issue of the self-employed and the gig economy. If predictions are correct—and even some of the most modest predictions—this is going to be an incredibly significant section of the future workforce. It is a significant section now, but it is going to be even greater. Why did the Government duck the opportunity to expand auto-enrolment to those groups of workers in the way that you have done for others?

Guy Opperman: We have not ducked the opportunity. I would make a couple of points here. The long and short of it is it is part of the Government’s manifesto, so it is something we are going to do. We are working together as two Departments to try to assess exactly what we are trying to do. We had a two-day innovation event. There is no one solution to the individual self-employed.

The traditional vision of the self-employed was your individual plumber or painter and decorator working with a van, and that is him being a self-employed, one-man band. That is now very different. There are well over 4 million self-employed in very diverse and different sectors, with different employees and different businesses, so there are going to have to be a variety of solutions on an ongoing basis. We are working on a variety of solutions.

I would make the point that the self-employed individuals under HMRC data—on page 58 of the AE review itself—shows that the average individual contribution for the self-employed has gone up massively by certainly over 50% since 2010. It is still low and it is still the case that individual self-employed can opt in to various things. You will be aware that there is the sidecar, which has been proposed by NEST, which is a secondary form of savings.

I also believe very strongly that fintech is going to address many of the issues. If you had asked me a year or two ago whether I would expect that there would be a whole bunch of micro-saving apps that would be transforming savings in both of our particular portfolios, I would have, frankly, laughed at you because I did not think there would, but I now look at Monzo, Starling, Moneybox, Plum, Chip and Squirrel. Various other animal names will, I am sure, jump up at various stages in the future, but the point is that they are hoovering up customers and people are not going to Hargreaves Lansdown on a long-term basis to sign up for—

Wes Streeting: You will get a letter from them.

Chair: I am sure they are watching. They will launch an app soon.

Wes Streeting: Tom will be on the phone.

Guy Opperman: There is a group who are still going to them very strongly, and they are a very worthy firm, providing such products, but the younger people, in my experience, are going to a whole host of different types of phone-based micro-apps. You are right to address the fact that there are long-term savings problems and long-term issues on this, but I believe that that is the future because people are saving in a totally different way, in a way that our parents and our grandparents just did not know.

John Glen: I agree with what Guy said. The fintech opportunity is significant, but the lack of clarity over what single intervention and policy innovation can sort out, given the diversity of the population, means that it is challenging, but it is a challenge that we are actively engaged together in trying to find a solution to. Open banking and fintech together are changing the way that we operate, and it is creating an enhanced level of transparency over our personal finances and our need to make provision. That is going to be particularly true for the self-employed sector.

Q307       Wes Streeting: Has the Treasury considered bringing self-employed people into auto-enrolment using self-assessment and NICs, for example?

John Glen: We look at all options but, at the moment, that is not something that we are minded to do.

Q308       Wes Streeting: I just have a final one, if I may: finding 12 million people are under-saving is assuming that the triple lock remains in place. Under earnings uprating only, a further 1.2 million people were under-saving. Is this influencing the Government’s thinking on the triple lock?

Guy Opperman: The triple lock, I can tell you, stays for the lifetime of this Parliament. That has been made crystal clear.

Can I just come back on tax and NICs? The simple point I would make is that Making Tax Digital is a massive project that is on an ongoing basis, but clearly that is going to be one of the greatest levers that we can utilise to address the self-employed in particular because, once your tax return is done on a digital basis and in a totally revolutionary way, your ability to do nudges and sidecar versions of savings through a tax return will massively go through the roof. That is, however, for the future.

Q309       Wes Streeting: Finally, on the Treasury’s long-term thinking and going back to Baroness Altmann’s point about under-saving, do you think that, decades hence, this area is a significant risk for the public finances as it stands?

John Glen: All Governments have to balance the mandate they have from the electorate and looking at future, long-term things. What I would say is that, in this area, we have to think about a whole range of options to encourage savings, from Help to Save to long-term ISAs to increasing the ISA allowance to £20,000 and increasing the provision for interest to be free from tax, which means that 95% of people’s personal savings allowance will not pay any tax at all.

I recognise the distinction with pensions, and then we also have the enhancements that we have made, as a Government, to the basic state pension, and we have to look at these things in the round. Yes, it is right that we should be taking a very long-term view but I would look at the range of interventions that we have made and that will evolve to get an overall picture. In terms of commitments, we are not capable of going beyond the duration of this Parliament.

Q310       Chair: Thank you. I am going to bring Stephen in but, just on that long term, it was only launched this morning but the Resolution Foundation has published its Intergenerational Commission, a final report, which I recommend to everybody. It is incredibly important, although some of the options are less palatable than others. One of the points made was about auto-enrolment: that there has been success in terms of the numbers of people being auto-enrolled, but that the pension risk has changed for younger investors, just because the nature of pensions has change from defined benefit to defined contribution, and the investment risk. I just wondered if that was something that DWP officials have a particular view on. It is good that people are saving but, at the end of the day, they are also still reliant on what they invest producing a return that they can live on in 40, 50 or 60 years’ time.

Charlotte Clark: I agree with you about the Resolution Foundation. The report is really interesting and, again, will obviously influence thinking going forward. One of the things that I think is really good about it and one of the things that it shows about auto-enrolment is that auto-enrolment and new state pensions bring pension savings back to the current level. We think of pension savings at the moment as being almost a golden age of pension savings for people retiring at the moment. What auto-enrolment does is bring that back but it does take time for these things to feed through.

On your point about investment, I would mention things like the reforms we are doing to master trusts and making sure that the governance of these schemes is right. Not many people want to make investment decisions, although there are some people who do. NEST and the People’s Pension are very well run pension schemes that are thinking about what the appropriate investment is for people who are being engaged in saving for the first time. That is where we have put a lot of effort, into making sure that the governance of these schemes is right.

John Glen: It is relevant to say that I chair the Asset Management Taskforce, and one of the things that we raised last week was the need to look at the stewardship responsibility of asset managers. That drives awareness and behaviours. One of the things that the single financial guidance body is responsible for is financial education and literacy.

Chair: You heard the question from John Mann.

John Glen: I did, and there is a real challenge to improve and enhance that. I always believe that, if you could get every 12 to 14-year-old to understand compound interest both in terms of debt and savings, we would be making a massive impact for the public finances and for household finances.

Guy Opperman: I cannot let John make that point without making the point that Treasury already funds an amazing project called LifeSavers, which provides—and it certainly does in my community—financial education in primary schools and sets up banks in local schools. The bank I set up—the Northumberland Community Bank—is the provider of that in two of my local schools. There are great examples out there already, which the Treasury fund.

Q311       Stephen Hammond: Good afternoon, and thank you for giving evidence this afternoon. A point was made about the number of different products that are available, and the subsidies and incentives. Could we additionally talk about pensions incentives? When Baroness Altmann, the former Minister, was in front of us, you will be aware that she told us that tax relief is poorly understood and poorly targeted. In fact, she said you normally want to incentivise those who have the least ability to save, and yet the argument being made to us is that most of the benefits accrue to those who are most engaged. Do you think that tax relief is poorly understood and is it poorly targeted?

John Glen: If I take the lead on that, Mr Hammond, the challenge is for us to understand this in the context of what has happened historically. When we came into office as a Government in 2010, we had a cap at £1.8 million. We have progressively brought that down, and we have brought down the annual allowance from £255,000 to £40,000. The cap this year is, using CPI, £1.03 million. That means that the most you can save will broadly give you an income that is less than what the annual higher rate tax bracket is.

That is a significant journey to change the whole incentives and tax relief. I recognise that there are a range of opinions about how much further that could go and what the appropriate contribution is that the state should be making to incentivise, but we have to see it against that starting point. There is also diversification into complementary but additional measures in terms of the ISA allowances, which have been significantly inflated, and the LISA, which gives another savings vehicle.

You are right to say that there are other ways of looking at this in terms of whether it should go further or whether it should be a flat rate. These debates have been out there for a long time. There is, however, also an issue around stability, and we have got to a place now where we are saving, I think, £6 billion from the changes that we have made and, arguably, a lot of that was going to subsidise wealthy people’s pensions.

Q312       Stephen Hammond: Could I pick up on a number of points that you just made? First, how much is the Treasury spending on tax relief on pension savings and ISAs? Do you have a distribution of allowances that you could provide to the Committee of that?

John Glen: Not here now, but maybe John can.

John Owen: We do have those numbers back at the Treasury, but not in front of us.

Stephen Hammond: Perhaps you could write to us with them, stating the number.

John Owen: Absolutely.

Q313       Stephen Hammond: Can I pick up on the point you made early in that first answer on the lifetime allowance? You have talked about the progressive journey downwards but there is quite a view around at the moment that people on a modest or average salary are now hitting that cap. Steve Webb, in response to several of my questions, made the point that the Government would be better now to abolish the lifetime allowance and bring the annual allowance down again as a much fairer way of increasing and incentivising savings. Is the Treasury thinking about having another look at that proposal?

John Glen: I am not aware of an explicit piece of work that is going on to look at that, other than every fiscal event and lots of options are looked at in terms of their costs and impact. I would imagine that that would be something that would be looked at in common with all reviews that are undertaken before Budgets. However, I cannot say that there are papers that have reached my desk on that in my first four months in office.

Q314       Stephen Hammond: There is quite a good case for lowering the annual allowance again significantly and raising the lifetime allowance significantly as a method of incentivising pension savings, if you want to use that wrapper.

John Glen: Yes.

Charlotte Clark: That works very well in a defined contribution system. Part of the problem at the moment is that the tax system has defined contribution and defined benefit. With defined benefit, when you have a very low annual allowance for somebody—

Q315       Stephen Hammond: I absolutely understand that argument and you would make a big, one-off annual payment as it suits you, generally for small businesspeople, of course, as well, but the reality is that they are a relatively small number of people and more and more pensions are defined contribution. Looking forward, then, it would be much more sensible to look at a defined contributions world rather than a defined benefits world.

Guy Opperman: I can see the summons already going straight to Mel Stride, the tax Minister, personally.

Q316       Stephen Hammond: I do not think that would cost the Treasury very much at all. That is the whole point. I just raise that issue. You also talked about Help to Save taking a different way of looking at incentivising, because that is a bonus system. Can you give us any view on how that is working and the monitoring of that?

John Glen: A lot of work was undertaken to align it to best practice in terms of what has happened in other countries. We have seen the trial happen in the first quarter of the year, and 10,000 people have signed up to it. We anticipate that 350,000 will use it. It has the advantage of being open for five years, so, if somebody receives universal credit just once during the five years, they are able to then join it for good. As you will know, it will give them £1,200 over four years and it is a 50% bonus. It will not be the right option by design for everyone but, for the poorest, where we want to target it, we have seen indications that it will be a significant and meaningful intervention.

Q317       Stephen Hammond: Is it the Treasury’s view that you will provide an annual progress statement on the effectiveness of this?

John Glen: I am not aware of any commitment made but I would imagine that, in the due process of scrutiny, it would be entirely appropriate for you to bring me here to account for the progress. I would be happy to.

Chair: Very well volunteered.

Q318       Stephen Hammond: Yes, I am looking forward to that. Also in your first answer, you talked about the LISA, which has had a disappointing or poor level of take-up, whichever way you look at it. Again, both Sir Steve Webb and Baroness Altmann were fairly critical of it. Steve Webb said it was snatching defeat from the jaws of victory. Baroness Altmann said that you should scrap it. Why do you think it has had such a poor take-up? Is it because it is so poorly understood? Do you not think it is just adding some confusion to the landscape of saving initiatives?

John Glen: The Lifetime ISA, as I think I mentioned earlier, is a complement to the pension system, not a replacement. I was on the Work and Pensions Select Committee in 2015-16, where there was this confusion argument made. It is an alternative vehicle that is designed for saving for home ownership and for a pension, and that is beginning to be understood well. As I made the point to Mr Streeting earlier, there are a range of options available and it is a supplementary, different vehicle that is available for a different cohort of the population.

Q319       Stephen Hammond: I understand that point but if we go into the specifics of the LISA, you receive a bonus if you stay in it but, if you leave it early, there is a fine.

John Glen: Yes. I think it is a 6% reduction.

Stephen Hammond: A 6.25% fine. It is true, is it not, that that size of fine will be larger than the bonus. If that were a standard financial product, you would have to disclose that. Why do the Government not make that disclosure?

John Glen: I am not familiar; I cannot answer that question, I am afraid. John, can you help me with that?

John Owen: Could you just unpack that a little bit more?

Q320       Stephen Hammond: At the moment, you receive a matching bonus of 25%. If you were to take the money out early, you would get a fine of 25%.

John Glen: If I may, you do not receive the £5,000. If you invest £4,000 for five years, you get £20,000. You have a notional £5,000 that you would receive on exit; you do not ever see it.

Stephen Hammond: True, you do not see it but, effectively, it is a fine if you leave early, is it not? You do not receive the bonus, so there is a penalty.

John Glen: It depends how you want to see it. The point is that the incentive is designed for people to keep it in there and to exit on those two purposes.

Q321       Stephen Hammond: Do you think enough people understand the point? The point I was trying to make is that, of course, if this were a standard product, you would have to make that disclosure more explicit. If you were Mr Glen plc as opposed to HMT, you would have to have that explicitly on your literature, and I am just wondering why the Government do not do the same.

John Glen: I am sorry. I cannot answer that directly.

John Owen: What I would say is that we have worked with the FCA on this to ensure that the information that we are putting out is the right information and that the right level of detail is there. We have also put quite a lot of factual information on gov.uk to try to get some of that out there as well.

Q322       Stephen Hammond: When people take it out, is that explicitly on the documentation that they take out?

John Owen: I could not comment on that but we can check.

John Glen: We are happy to look at it.

Chair: You can write to us about that.

John Glen: Yes, I will write to you.

Q323       Rushanara Ali: I have some questions on pensions freedom and then some broader ones about financial exclusion. When the chief of The Pensions Advisory Service, Michelle Cracknell, appeared before this Committee, she gave us a concerning picture of people’s understanding of pensions, with some being about 15 years out of date, mistrust and a lack of a sense of ownership, which was leading them to swap pensions with cash savings. Do you think that pension freedoms can be made to work with these levels of distrust and misunderstanding? Who would like to kick off?

John Glen: There is a job of work to be done generally in terms of financial awareness and education, and that is why one of the statutory functions of the single financial guidance body will be to raise the quality. However, there are different levels of understanding in different parts of our population, and we will have to work hard to do that. That is a fair observation on her part.

Q324       Rushanara Ali: We were told that The Pensions Advisory Service does not have a mandate or a budget for outreach activities. Does this need to change for the single financial guidance body?

John Glen: There will be consultations on how they spend their budget and how they need to spend their money to effect the policy objectives we have asked them. That is a matter for discussion over the coming months and we are keen to accelerate.

Q325       Rushanara Ali: Is that code for saying you are going to do something about it, Minister?

John Glen: It is code for saying I am keen to listen to the three bodies that are coming together. We have not yet appointed, although we are urgently seeking to appoint, a person in charge and it would not be right for me, as we have resisted through the passage of the Bill, to prejudge the outcome of those considerations. It is clearly a very important one.

Q326       Rushanara Ali: But hang on a minute: Michelle Cracknell raises concerns about mistrust and a lack of public awareness. Education and outreach is a partial answer to that. Why can you not just say, “Yes, we are going to make this”—

John Glen: I have tried to indicate I am very sympathetic to it but the specific way it is applied will be a matter for the body to examine.

Rushanara Ali: Yes, but if you are serious about addressing these issues, why can you not just say, “This is going to be a priority”?

Guy Opperman: Let me try to address that—I think there are two points to make—and I will let Charlotte come in on the specifics. Pension Wise has been looking at this and providing assistance on an ongoing basis. The stats on that are pretty clear that they have gone from 61,000 phone and face-to-face appointments in 2015-16 and they have increased that by over 25% in 2017-18. There have been 7 million visits to the Pension Wise website since launch. There has been a huge amount of work increasing the number of people, whether through face-to-face, digital or telephone. That was launched a number of years ago specifically to address this sort of problem. It has expanded its remit. The Treasury Select Committee, the Farnish review and various reviews wanted to have the single financial guidance body to be the one-stop shop to address these particular issues, so the answer to your question is yes”. The fair point to make is that it is not possible for us to predetermine what the body itself is going to do on an ongoing basis.

Rushanara Ali: Good. That is all we need to hear.

John Glen: Sorry, I did not mean to appear evasive; I just equally do not want to appear prescriptive to them.

Rushanara Ali: Sometimes prescription is helpful.

Charlotte Clark: I was going to say, just in terms of Michelle and TPAS, I cannot recall them coming forward with a proposal of, “We really want to do this”, and us saying, “We do not have the money for it”. If there was a proposal there, we would be really interested in looking at it. Pension Wise is working with Tesco in terms of outreach to employers for people who have defined contributions, so we are trying to increase the take-up of it.

Q327       Rushanara Ali: Thank you. I am just going to move on to the broader debate about financial exclusion. You have heard some of the comments that were made by the FCA earlier on—I think you joined us towards the end—in relation to the survey, and you can see some of the areas where Government, particularly Treasury but also working with other Government Departments, is driving and leading the charge to make sure some of these gaps are addressed, where they are looking to try to co-ordinate Government Departments. How confident are you that you can do that? With respect, earlier on, when you were being asked about the Financial Lives survey, it sounded like you had not really had a chance to look at some of the evidence, but it is very strong and powerful. Is this something that you are going to look at closely?

For instance, there are specific issues facing 35 to 54-year-olds. Obviously, 18 to 34-year-olds have the highest level of financial vulnerability against some of the indicators they have mentioned. Even the older age profile, of 55 and up, faces some areas of concern. Should you not be giving much more attention to the evidence coming through? If you have not had a chance, will you use it to drive cross-governmental action on those issues that the FCA does not have remit to do and it is better for Government to do?

John Glen: On the FCA, I meet with Andrew Bailey regularly. I have met with him on a number of issues. They have a piece of work that is coming out later this month, as I mentioned earlier, on high-cost credit. The issue that Chris did not raise, the duty of care, came through when we took the Bill through. They are bringing a paper on duty of care forward two years earlier, on how you actually deal with vulnerable people.

The core point I would make is that the setting up of this body is designed to harmonise and give a universal high level of financial education and advice. How they deliver that in a way that is acceptable into different communities is critical.

Q328       Rushanara Ali: I had actually moved on to a different topic, which was the Financial Lives survey. It found 50% of the UK population display one or more characteristics that signal their potential vulnerability. When you look at the age breakdown of those groups, there are specific areas.

Guy Opperman: We utterly accept that. That is why, for example, the Bill, under its objectives and strategic outcomes, specifically addresses vulnerable people. Clause 3(4) of the Bill is absolutely focused on that.

Q329       Rushanara Ali: Brilliant. I am very glad you have memorised the sections. I am very impressed, Minister.

Guy Opperman: Fortunately I have it here with me. The simple point is particularly made clear at clause 2(1)(d): “To ensure that information, guidance and advice is available to those most in need of it (and to allocate its resources accordingly), bearing in mind in particular the needs of people in vulnerable circumstances”. I could go on. There is a variety of other parts.

Q330       Rushanara Ali: It is 50% of the population. Assuming that you are in your post for the coming years—and of course we very much hope that you will be—what would success look like in terms of tackling vulnerability and financial exclusion? What are your KPIs, Ministers? Both of you have financial inclusion in your remit. It is something obviously that we care deeply about. What would success look like? Let us say you are in your jobs for the next two to three years. What would you like to achieve and be remembered for?

Guy Opperman: Massive enhancement of pension provision, auto-enrolment second roll-out and third roll-out to be a success, Pensions Dashboard to work properly and to be the provider in line with Open Banking in the financial sector, the single financial guidance body to be up and running and providing the exact points that you want to be doing, mid-life MOT to be addressing people of a certain age—you are not quite there yet; I and certain other members of the panel are—which will then provide that sort of advice and guidance.

Q331       Rushanara Ali: As we have 50% of the UK population, 25.6 million, who are deemed to be in potential vulnerability, in terms of outcomes, how far down do you want to see that number brought down? What would you like to achieve?

Guy Opperman: We would like to build upon what the Treasury Committee and the Farnish review said in relation to the single financial guidance body. That was the specific reason that we had gone down that route. I will not give a specific number—to halve it by 50%, or whatever. The key point, though, is that there is action being taken to address the exact points that you rightly identify.

Q332       Rushanara Ali: Okay, Minister, it is your turn. Focus on outcomes, not inputs or institutions.

John Glen: I am not going to extrapolate from one survey to give you a figure here today, but I would think that the big problem that needs to be—

Rushanara Ali: I am just asking you about your ambitions for the job, which is a great position.

John Glen: I will tell you what my ambitions are. We need to have a better series of metrics for looking at the population as a whole. One of the things we did in the Bill is that we made a concession on the cross-party amendment that actually recognised that people with mental health problems in our society need better help. I would wish to see a better metric there. You are absolutely right that financial inclusion is a focus. I would say that it is one of the three top focuses of my job. I want to see that the first piece of the work that the forum is doing is to look at credit and how we can make people with the lowest levels of income able to access affordable credit in ways that they cannot at the moment. That is a massive priority for me.

Q333       Rushanara Ali: I just have a couple of financial questions relating to the poorest. How many people in the UK live in poverty?

Guy Opperman: Pensioner poverty is down dramatically from 40%.

Rushanara Ali: What is the overall number of people who live in poverty?

Guy Opperman: Do you have the specifics?

John Glen: No, I do not have the specifics.

Rushanara Ali: You do not have the specific figures.

Guy Opperman: I do not have the specific figures with me. I know the pensioner figures, which I have given to you, but I have absolutely no doubt that we can get them in relation to the poverty stats from the FCA.

Q334       Rushanara Ali: It is 14 million people who live in poverty in the UK.

Guy Opperman: Are we talking about absolute or relative poverty?

Rushanara Ali: Relative poverty. For the purpose of what you are doing it is particularly important because it is related to savings, capacity to save and so on. That is a very significant group. In terms of the changes, some reports suggest that changes to welfare policy, particularly in the last three years, have actually made matters worse for that section of the population. Minister, do you think we are putting plasters on the wound, in a way, if we do not address the underlying issues around welfare as well as pay?

Obviously some progress has been made recently around pay freezes and so on, which should take some pressure off. However, going back to the point about joining up across Government, and given that you are both here, is there a case for looking at the relative poverty levels people are facing, which have grown, and high levels of child poverty—I have the highest level of child poverty in my constituency, over 54%—where families who are facing poverty are going to struggle to pay the bills and make ends meet, never mind save or save for a pension? If we are really serious about supporting those families to be able to do those things, we need to review welfare policy as well as looking at continually working towards improving their conditions at work and pay.

Perhaps I can start with Mr Opperman first. Do you see what I am getting at? I am not trying to have a go at you. I could, given the numbers in my constituency, but I just want to get you thinking about the interconnections between these issues.

Guy Opperman: No one disputes that this is an issue that needs to be addressed. We tried to set out some of the things that we are trying to do. Government would point to the living wage going up in terms of wages, the rise of the tax threshold and the changes in welfare announced in the last Budget, where there were increases in advances and work being done to make things better in that respect and to make the system work better. Of course there is more to be done and great effort is being made to do that.

Q335       Rushanara Ali: Would you say that, looking at the welfare system, and looking at income levels there, you could be reviewing what sort of welfare policies are helping and which ones are hindering people? Continuing to look at that so that we are not seeing so many people in relative poverty is a really important part of this equation around people’s earnings during their lifetimes and their ability to save for later.

Guy Opperman: I am happy to write to you with the Department’s view on those particular points. It is not my specific portfolio.

Rushanara Ali: But it is connected, is it not?

Guy Opperman: It is connected, to a degree. It is not specifics in terms of pensions as such, but it is definitely the case that we, as Ministers looking at financial inclusion, are trying to do everything possible, hence why we are trying to make the specific efforts, whether it is on credit or where we are trying to enhance the amount of savings or enhance the amount of pensions.

Q336       Rushanara Ali: You have been raring to go. You wanted to say something.

John Glen: From the Treasury point of view, one of the big interventions we need to make is to deal with the productivity challenge. The £31 billion in the National Productivity plan and the investment in Transforming Cities are designed to create a situation where wages can rise. Of course, I recognise the challenge for the poorest, but there is a series of interventions and it will be across a number of policy areas, affecting many Departments.

Q337       Stephen Hammond: There is one question I wanted to ask Mr Glen. He said that the LISA and the pensions policy were not the same or complementary. It is true that if you use the 25% bonus under the LISA, it is equivalent to the 20% basic tax relief paid if you save via a pension. There is no advantage to using a LISA as a pension saving.

Charlotte Clark: I would say there is an advantage on the pension side because there is an employer contribution.

Chair: Having a pension rather than an LISA. It is the other way around.

Stephen Hammond: The other way around: there is no—

Chair: There is no advantage.

Q338       Stephen Hammond: Inspiration has just reached me as well on one other point. I am told that the gov.uk, which we talked about at the end, website page on LISA actually only mentions the 25% bonus and the 25% charge. It does not make it explicit that that amounts to a net 6.2% charge. Is that something you think, Mr Owen, you should correct on that page?

John Owen: Presumably that is compliant with the FCA. We have worked with the FCA on that, but I can take that point back to the team in the Treasury.

Stephen Hammond: We would appreciate that, and we would appreciate hearing a response from you on that. I understand it may be compliant, but it is a concern.

John Owen: Yes, I understand exactly what you are getting at.

Q339       Catherine McKinnell: I just have one supplementary question about pensions for you, Minister. Do you have concerns that the treatment of 1950s-born women has the potential to, and has for many people already, completely undermine their faith and trust in the pension system overall?

Guy Opperman: As you will be aware, this was a policy originally introduced and announced in 1993, brought in in 1995—

Q340       Catherine McKinnell: In answer to the question though, do you not share concerns that their treatment could undermine people’s faith and trust in the pension system?

Guy Opperman: The fair point to make is that the state pension age was reviewed by a variety of Governments between 1995 and 2011, under the Conservative Government up to 1997, the Labour Government from 1997 to 2010—

Catherine McKinnell: Fast-forwarding to the modern day though—

Guy Opperman: Bear with me. You have asked me a question. Let me try to give you the answer. Rightfully, the state pension age was reviewed and the state pension age was changed. It is unquestionably the case that that has been adopted by all Governments on an ongoing basis. I accept entirely that there is a significant campaign that has arisen in the last couple of years, but I do not accept that it was the wrong thing to do by either the Conservative Government in 1995 or the Labour Government, which reviewed it and passed the 2007 Act. I have to say, I think it is the wrong thing for the Labour Opposition—not to be too party political about this—in their manifesto to say that the state pension age should be 66 on an ongoing basis for forever and a day. That is the wrong approach. It is the wrong approach in relation to life expectancy and it is wrong compared to what life expectancy is.

Q341       Catherine McKinnell: That did not really answer the question, but thank you. Going back to consumer credit, and particularly on breathing space, which is obviously a very welcome policy that has been accepted by the Government, there is some concern that the six-week limit is just not enough for people who are in requirement of that breathing space. What evidence do you have that the six-week period is sufficient?

John Glen: One of the key drivers of the evidence was the conversations with the Scottish Debt Advisory Services, which iterated a number of times—I think 11 or 15 times—and have a situation where they keep it at six weeks. We were desperate, through the passage of the Bill, not to commit to any broad change, because we feel it is important that we consult thoroughly on it. Where we did make a concession, very happily, was on the recognition that people with mental health conditions need longer. We are going to do that in parallel. It is a complex subject in terms of what you include and what processes you put in place.

One of the principles I want to observe is that if you extend it too far, you end up extending the period for which an individual’s life is left on hold. I think there is a responsibility to see whether we can develop a process that is quick and effective in getting people back into a state where we can say, “This difficult period of your life has been dealt with. Here is a plan of how to move forward”. I acknowledge the very well-researched, deep experience of many contributions across the House from all sides on this, and I am sure they will be considered in due course.

Q342       Catherine McKinnell: There are two pieces of information that I have gleaned today that leave me even more concerned about the situation in terms of the number of people that will be requiring breathing space or, indeed, help with debt services. One is the report out today from the credit rating agency, Fitch, on the level of borrowing that households are now taking in relation to their savings. It is the highest since the late 1980s. There is also evidence that we took from the FCA just previously when Christopher Woolard told us that the use of debt advice for non-credit-bill arrears has risen after the payday loan cap has been implemented. Were you aware of that and are the Government doing something in response to that?

John Glen: There is an increase in the Money Advice Service’s funding for next year of 15% so that there will be more sessions available. I am very sympathetic to further well-evidenced interventions in respect of credit that is really exploitative of individuals who are in a very vulnerable state. However, I want to do that based on evidence and I am looking forward very much to the FCA’s review in a few weeks’ time. The concerns that were expressed around the payday loan cap were not in the end proved to be as true as many imagined, but I want to make sure that whatever we do does not have an adverse consequence. There are relationships between different financial products that are available. People could get into a situation where they borrow money to pay off credit card interest and suchlike. We have to make sure that we do it well.

I acknowledge the article today. As I said in my opening remarks, I do not pretend that the savings ratio is at a low level at the moment. There are macroeconomic explanations for that and there is a series of interventions we have in place to encourage saving.

Q343       Catherine McKinnell: We have also taken advice from debt charities, which have set out very clearly some of the challenges that families face and some of the terrible situations that people find themselves in. One of the problems that seem to be apparent is that actually Government and local government arrears seem to be some of the most harshly pursued for people who have found themselves in credit difficulty. For example, on council tax and welfare overpayments local authorities can make a “quick jump to the use of bailiffs”. That is a quote that has been given to us. Is this something that you are aware of? Is it something you are concerned about? Is there more that the Government can do to specifically include these types of debts within the breathing space scheme to make sure that there is not a disparity in terms of the treatment that people are facing from Government debtors as well as private creditors?

John Glen: I will answer the first question about local authority experience. Across Government there are a number of initiatives. HMRC has Time to Pay; there is a support service available for people who find themselves in debt. The Cabinet Office has established a Fairness Group to try to give advice on this. We also have the reform to the bailiff law in 2014 to provide protection against aggressive recovery. It is not a universal problem, but I acknowledge that it exists.

In terms of the way that we are going to deal with this through the single financial guidance body, there is a piece of work to be done to look at what is included, because we cannot have perverse outcomes where, if we prioritise certain levels of public sector debt, we end up stopping an individual paying child maintenance, for example. It needs a lot of thought about what we include and how do we deal with that. We do want to have continuing clarity for those individuals that they have a scheme that is actionable and will be working for them to get their lives back on track.

Q344       Catherine McKinnell: You referenced earlier the mental health crisis and getting the breathing space applied to those who need that support, or an alternative mechanism to access the breathing space scheme. Can you say what specifically the Government are going to do to ensure that this is implemented?

John Glen: We will have a parallel process for people who are experiencing mental health crisis. We will listen very carefully to the charity that officials have met with already and whose chair I have met.

Q345       Catherine McKinnell: It is work in progress at the moment.

John Glen: It is work in progress. I do not think we quite have Royal Assent yet, but we are very clear that a parallel track must be developed that recognises the specific vulnerabilities associated with people in mental health crisis.

Guy Opperman: You might want to look in detail at clause 7 in particular of the Financial Guidance and Claims Bill. That sets out the processes by which the SFGB will be taking this forward. There are also the regulations that follow on debt respite. It is fairly set out both in Committee and thereafter, which gives quite a good guide. StepChange is very involved in this and Lord Stevenson, whom you will know, in the Lords is obviously very actively involved in StepChange. We met with him on a repeated basis so that there was hand-in-glove involvement on that.

Q346       Catherine McKinnell: I have one more question about credit unions. I have asked a number of people about this. What is the Government’s thinking about credit unions? The FCA has responded this morning that they are very much within Government statute. I would be very interested to know if any scaling up, if that is desirable, is something the Government are looking at. Do the Government have any plans or intentions to facilitate that or is that something that the Government do not see as desirable at this time?

John Glen: As you will know, in the autumn Budget last year we extended the common bond from £2 million to £3 million. Three years ago we increased the total interest on loans from 2% to 3%. There is such a range of size of credit unions, as I think Chris mentioned earlier—some with 300 people, some resembling a building society. I made an announcement two weeks ago with respect to loan sharks and, as part of that announcement, we have incentivised people to be referred to credit unions. They are very much part our thinking. It is something that is very well-represented within the Financial Inclusion Policy Forum, and we need to look at the number of asks that have come from a call for evidence four years ago. We are looking to do what we can to address the concerns and opportunities that they wish us to take.

Guy Opperman: Can I just add that I would love to see more happening with credit unions? As you know, I set one up in Northumberland. They are fantastic things. Community banks, in particular, are the next step, in my humble opinion, and the opportunity to function like a bank and provide the sort of support that is necessary.

Q347       Rushanara Ali: Will there be some joined-up thinking?

John Glen: As always.

Guy Opperman: There is. We made the serious point that there is a credit union on the Financial Inclusion Policy Forum, which we are working together on. Representations are made through them.

Q348       Chair: Finally, on the subject of joined-up thinking, I want to go back to one of the points that Catherine raised about the Government as creditors. At the start of this session I asked what weight the Treasury gave to the health of household finances, as well as public finances, in forming its economic strategy. We have heard very clear evidence that Government, particularly relating to council tax for example, is much worse about how that debt is repaid than some of our utility companies, for example, like mobile phone companies. That came as a surprise to those of us who spoke to Citizens Advice. In terms of joined-up thinking—and this is perhaps more for the Treasury than it is for the DWP—part of the Government’s economic strategy has been related to local authority finances, which then drives the behaviour of chasing bad debts, which leads to the early calling of bailiffs, which leads to more household debt problems, which then lead to the issues we are seeing about low savings and everything else. You can be assured that this will be something the Committee absolutely will pick up on in our report.

On that joined-up thinking, Mr Opperman, you drily remarked that you hoped it was happening. Those of us who have been there all know what a challenge it is, but this is something where actually the Treasury is in the driving seat on local authority finances, on the issues around bailiffs and on household finances. There is no excuse for not-joined-up thinking because it is all within one Department. I hope that is a message you can take away and the Financial Inclusion Policy Forum can really do something on. It is that Government tackling of debt that is driving households into problems. It is not saying that people do not want to pay those bills, but if they cannot pay council tax or other bills to local authorities that is a pretty serious state for those households, and that is a difficult choice for them to have had to make. I think probably the state needs to show some forbearance. Do you have any final comment on that?

John Glen: That is a very fair assessment of where we are at in terms of the challenge that is outstanding. I think we are well-configured to examine that and, as you say, the challenge is the co‑ordination across different Departments. I referenced the Cabinet Office initiative, but I can concede that there is work to be done. You are right and I expect to be brought back here again to be challenged.

Chair: It is particularly within the Treasury in this particular example.

John Glen: Yes, that is why I answered.

Chair: You have already volunteered several times to come back. You have not quite volunteered, Mr Opperman, but never mind; we might see both of you before the Committee.

John Glen: Goodness knows how many times I will be back here.

Guy Opperman: I would be delighted to return on any occasion.

Chair: Thank you both very much indeed for your time this afternoon. It has been very interesting. Thank you to your officials as well.