New Clause 4

Financial Services Bill – in a Public Bill Committee at 1:00 pm on 14 January 2010.

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Duty regarding socio-economic inequalities

‘(1) The Financial Services and Markets Act 2000 is amended as follows.

(2) In section 2(1) (the FSA’s general duties), after paragraph (b) insert—

“(c) which when making decisions of a strategic nature about how to exercise its functions the Authority considers desirable so as to exercise them in a way that is designed to reduce the inequalities of outcome which result from socio-economic disadvantage.”’.—(Mr. Love.)

Brought up, and read the First time.

Photo of Andrew Love Andrew Love Labour, Edmonton 1:15, 14 January 2010

I beg to move, That the clause be read a Second time.

I am not sure whether there is such a thing as a probing new clause, but this is an attempt to probe an issue that will be of increasing importance. New clause 4 is designed to address inequality and unfairness in financial services. It is particularly timely, as inequality and unfairness are more prevalent currently, what with the turbulence that we are going through following the credit crunch and the recession that we are suffering.

New clause 4 would introduce a new duty to tackle systemic problems of socio-economic disadvantage. I would like to pray in aid a debate that I heard this morning on the “Today” programme, featuring the Secretary of State for Communities and Local Government. The debate was primarily about 10 years of the Race Relations (Amendment) Act 2000, but the thrust of what the Secretary of State was saying was that, with the economic difficulties that we are facing, we will come to deal more with inequality, because that will be at the centre of our concerns. That is very much at the centre of the concerns expressed through new clause 4.

The reason why I suggested that this might be a probing new clause is that it draws on the work done in the Equality Bill, which is currently before Parliament. On Second Reading, it was illustrated just how important such a clause can be in an Act, with a number of examples being given of how such a clause might operate to protect those who suffer inequality and unfairness. If we take the example of disadvantaged communities, where smoking is much more prevalent than it is across the community at large, it could be argued that smoking-cessation programmes would be particularly appropriate, to address the significant health inequalities resulting from the high incidence of smoking in those areas.

Such clauses could deal with educational disadvantage. Many people in communities, including my constituency, feel that they do not get treated equally with regard to access to the best schools in the local education authority area. Often the problem is down to their lack of knowledge and information on how to go about the application process. One of the ways that we could reflect the provisions in such a new clause would be by ensuring that that information and support was given to the most disadvantaged—to those families suffering from educational inequality—in order to give them an equal opportunity.

I do not really have rural areas in my constituency, just a few small parks, but there are areas across the country where there are low car-ownership levels and  where the public transport system is rudimentary to say the least; sometimes it is non-existent. Local authorities or central Government might want to subsidise the provision of a bus or other types of transport services in order to move the balance. The arguments for addressing such socio-economic difficulties are many and strong.

Photo of Colin Breed Colin Breed Shadow Treasury Minister

I listened carefully to what the hon. Gentleman said and it contained a great deal of sense. For instance, the closure of a bank branch in a relatively remote rural setting, or in a suburb of a larger city, could cause real socio-economic difficulty, financial exclusion and so on. Might the FSA have powers, if not to veto the closure, then at least to require the bank to make a good case for seeking to remove that facility?

Photo of Andrew Love Andrew Love Labour, Edmonton

Perhaps the hon. Gentleman ought to have declared an interest, as a former bank manager, in raising that issue. He gave a good example, because there is a strong argument to be made when it can be shown that the alternative ways in which we can access services provided by a bank branch—through the telephone, the internet and other mechanisms—are not available to the community that the branch serves.

Through the new clause, we are trying to draw out the kind of situations in which it would be appropriate to take such concerns into account before a decision was made. I do not think that anyone is suggesting that we should be able to veto an organisation’s decision to close a branch, but we could inform that decision, so as to make sure that the widest possible worries were taken into consideration.

The issues that I have dealt with so far relate to the Equality Bill, a measure that introduces the same socio-economic duty as is suggested in new clause 4. However, that duty applies only to central and local government, and does not go any further. I tabled the probing new clause because it sets out an attempt to extend that duty to the Financial Services Authority. There is also a strong argument for extending it to all economic regulators. I believe that the subject has come up in debate; no doubt it will feature in the Committee stage discussions on the Equality Bill in the Lords. I was somewhat surprised that the FSA and other economic regulators were not included, because they would have a much greater, more direct impact on the inequality and unfairness suffered by many people in the marketplace.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

I am trying to follow the hon. Gentleman’s argument. Will he give us some examples of what the FSA might do in pursuit of such an objective? I can understand the allocation of, say, resources for financial education to more deprived areas; that is already envisaged in the way in which the consumer financial education body will implement the Moneymadeclear service. However, I am not sure where his proposal is heading and what he means by outcomes in the context of the financial services sector.

Photo of Andrew Love Andrew Love Labour, Edmonton

The hon. Gentleman must have been reading my mind, as I was about to focus on that. Earlier, I focused on a wider range of services not particularly related to the FSA in order to set the backdrop—to explain why I tabled new clause 4 and why it is important that the socio-economic duty be extended to economic regulators. I think that that would bring a number of benefits. I shall now focus on the FSA, as requested.

The new clause will encourage the FSA to use its existing powers to focus on areas of concern to vulnerable consumers. For example, the FSA has the power to look at markets, but it often does so without considering how those markets impact on different parts of the marketplace, particularly vulnerable consumers. In the FSA’s investigations into markets, much greater priority should be given to how markets impact on vulnerable and poorer sectors.

The reality is that the FSA’s primary objective is consumer protection, which is often seen through the narrower lens of competition. The new duty would widen the lens so that there was an impact on the most vulnerable consumers, who lack consumer power and who are often marginalised. They are not helped by the FSA’s exclusive focus on competition. I am anxious for the Minister to consider that in his response on the new clause, because of the issue of how disadvantaged consumers experience the marketplace.

For example, we all have stories of being bombarded with offers of loans and of being subject to various other kinds of blandishments from the financial services market, yet we know that there are many disadvantaged consumers who do not get those offers. They find it difficult to access credit and are forced into loans at very high rates of interest, or are forced into the illegal credit market. It is important that the FSA considers not only the more general competition issues in that sort of marketplace but the specific needs of disadvantaged consumers. That will happen only if we engage with new clause 4 and give the Financial Services Authority that socio-economic duty.

New clause 4 will also address the shortcomings in the Financial Services Authority’s conduct of business regulations. It is criticised for not placing enough emphasis on the relative disadvantage faced by vulnerable consumers. Sub-prime mortgages, for example, are mainly taken out by middle and lower-income consumer groups; very bad practices have emerged in that particular sector of the mortgage market. Take, for example, the right to buy: many people exercising that right have been sold mortgages that they simply cannot afford in the longer term. That has not been experienced particularly in the rest of the marketplace, but it is a feature among the disadvantaged groups. New clause 4 would have led the Financial Services Authority to act sooner and would have prevented many consumers from experiencing events that were to their severe detriment.

I conclude by suggesting that we need a combination of the Equality Bill’s provisions for central and local government and a socio-economic duty on economic regulators such as the FSA. Working together, they could have a significant impact on the experience of many disadvantaged and vulnerable consumers in the marketplace and in the provision of public services. As I say, new clause 4 does for parts of the private sector what the Equality Bill will introduce for public sector bodies.

Photo of John Howell John Howell Conservative, Henley

The hon. Gentleman has mentioned the Equality Bill on a number of occasions. I sat on the Equality Bill Committee, and I remember the discussion about the socio-economic duty. The difficulty is that that Bill deals with discrimination. The unhelpful nature of the socio-economic duty blurred the distinction between discrimination and disadvantage, with the result that it tackled neither. The disadvantage element was  handled in many other ways by many other different pieces of Government legislation. Blurring the two led to feelings of confusion in the Committee on whether the duty would achieve anything.

Photo of Andrew Love Andrew Love Labour, Edmonton 1:30, 14 January 2010

I accept that there are dangers. Indeed, the discussion on this morning’s “Today” programme touched on a number of cases where discrimination is still very much a factor. Because of the economic circumstances, disadvantage is now coming to the fore.

The new clause may go part of the way to addressing the disadvantage element, but we should not lose our concern about discrimination. Indeed, there are many groups that would ensure that we do not lose it. Discrimination still exists for women in equal opportunities, and for ethnic minority communities. It is often the case that people who are discriminated against are also to be found among disadvantaged and vulnerable consumer groups, so it is not always easy to tell whether it is discrimination or disadvantage that is acting against them. It will often be a combination of both.

The point is valid, but I want to ensure that economic regulators—in this instance, the Financial Services Authority—have a duty to ensure that disadvantage is taken into account in their consideration of the reviews or actions that they are likely to take to support consumers.

I believe that by using both the Equality Bill and, if it is accepted, new clause 4, we can begin to address some of the more severe disadvantages that many vulnerable consumers face in the marketplace. I therefore commend it to the Committee.

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

I thank my hon. Friend for what he calls a probing new clause. Of course, the Government do not disagree with the spirit in which it has been proposed. The Government believe that tackling socio-economic inequality is of great importance. Over the past 12 years, we have demonstrated our commitment to creating a fair society with fair chances for everyone. We are proud of our record on reducing inequality, and we are putting further measures in place to deal with it.

My hon. Friend will be aware that a 2008 report by the OECD showed that income inequality and poverty fell faster in the United Kingdom than in any other OECD country between 2000 and 2005. For the first time since the 1980s, the UK poverty level is well below the OECD average. In short, the Government are, and always have been, a champion of greater equality. However, although we fully support the spirit of the clause, it is not necessary or appropriate, and I doubt whether it would in practice have the effect that my hon. Friend intends.

I shall give my reasons for reaching those conclusions. First, the services provided by the entities that the FSA regulates are, in many cases, essential to people's lives, and lack of fair access to them may well influence socio-economic outcomes. The Government believe that the best way for the FSA to contribute to tackling these issues is by focusing on its day job as a specialist financial services regulator. Overarching social issues are matters for the Government, and we are dealing with that. We are addressing socio-economic equality in financial services in other ways, too: we have a financial inclusion strategy to ensure that everyone has access to appropriate financial services.

To support that strategy, the banks have made a commitment that basic bank accounts will become universally available, which will reduce the number of adults not having access to a bank account, and to take action to support the growth and development of third-sector lenders. I applaud the work of credit unions and community development financial associations in the UK, and their valuable contribution to helping people in vulnerable circumstances.

My hon. Friend uses the term,

“decisions of a strategic nature”.

Under the new clause, the FSA would be required to address that through its detailed day-to-day regulation of banks. However, imposing a duty on the FSA is not the same as imposing a duty on the firms that it regulates. Extending the duty to the FSA would be effective only if we also extended statutory responsibility for tackling socio-economic inequality to private sector companies such as banks, investment firms, insurance companies and so on. That would hugely expand the nature of the duty, and we are not minded to go down that route. To improve financial inclusion, for example, we have not legislated for specific outcomes or responsibilities, but sought to take a collaborative approach to working with the financial services industry. We believe that that is bearing fruit, as shown by the recent announcement that the banks have met our shared goal of halving the number of people living in households without access to a bank account.

In addition to the points I have just made, I do not believe that reducing inequality, or pursuing other socio-economic outcomes, is an appropriate objective for the FSA or any other specialist regulator. My hon. Friend mentioned the discussions taking place on the Equality Bill. The Government’s view is that regulators should not be subject to that duty, which is why they were intentionally left out of that Bill. The Committee might be aware that the Government resisted an amendment similar to the new clause during the House’s consideration of the Equality Bill for the reasons that I have outlined.

I do not believe it to be appropriate for a non-elected regulator with extensive rule-making and other compulsive powers to be given a mandate to pursue core questions of social policy, however much we might agree that such issues need to be tackled. The discretion to make rules that promote socio-economic equality should remain with democratically elected Governments, and I believe strongly that it is up to us to take decisions in those areas. I hope that my hon. Friend will be persuaded that his probing new clause is unnecessary, and that it would not be right to impose such a duty on the FSA. I also hope that he understands and supports—as I am sure he does—the Government’s commitment to promoting greater social equality in this country. I therefore hope that he feels able to withdraw his new clause.

Photo of Andrew Love Andrew Love Labour, Edmonton

I am not surprised by the Minister’s response. As I understand, a similar response was given during discussion on the Equality Bill. Although I accept the argument that it is primarily for elected bodies rather than non-elected regulators to implement such a duty, it is somewhat surprising and less than consistent to introduce it to local government, for example, where regulators such as local trading standards officers will have such a  duty imposed on them, but national regulators will not. It is a somewhat inconsistent argument, but I will let that stand.

Not introducing a new clause of this nature will weaken our ability to address some of the significant disadvantages that vulnerable consumers experience. However, we must allow the Equality Bill to be enacted to see how that develops over a number of years. I hope that the Minister responsible will monitor the situation to see whether the terms of the Equality Bill rise to the needs of the most vulnerable people in our society. If not, I hope that the Government will come back to this in the future, because it is critical that we address some of these points, particularly at this difficult economic time. If we do not, the inequality and unfairness in our society will play out in a way that is not to the benefit of major sections of our community. Although I accept the Minister’s argument and the Government have a good record in this regard, we need to consider these points very carefully in the future.

However, on the basis of the Minister’s contribution to the debate and the argument that he made about the impact that new clause 4 would have on the FSA, I beg to ask leave to withdraw the new clause.

Clause, by leave, withdrawn.