Clause 29 - Matters to consider when making rules

Part of Financial Services and Markets Bill – in a Public Bill Committee at 2:15 pm on 27 October 2022.

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Photo of Angela Eagle Angela Eagle Labour, Wallasey 2:15, 27 October 2022

It is a pleasure to follow my hon. Friend the Member for Kingston upon Hull West and Hessle, whose comments I wholeheartedly support. I suspect there will be widespread support among Committee members for the objectives of her amendment. Perhaps the Minister will argue that a “have regard” to financial inclusion is the wrong way to go about it, but I would argue that not having these things in mind when an industry is being regulated can make a situation worse.

We know the level of financial exclusion because my hon. Friend mentioned the figures. I do not intend to go over all that, but essentially what we have—this has developed because of the way the market works—is a retail financial services sector that is very focused on a set of quite complex products. It is also very focused on its distribution networks and not so much on the customer. Retail financial products have often focused on the relationship between those who introduce products and those who sell them on to the ultimate customer, often with quite rewarding levels of sales commission. The bad end of that kind of financial services model is that we get a structure that is not focused enough on consumers, and a range of ever-increasing complexity that costs more and excludes more people who might be on basic incomes.

Over time, the dynamic of that structure means that the financial services sector gets more and more complex, more and more focused on the distribution networks, and less and less focused on the end customer. One understands that when the industry starts complaining about the lack of financial education. There is some truth in that, but there is also truth in the fact that the opacity of the price mechanisms and the complexity of the products that the industry comes up with make it confusing, and of course that increases the cost base, which excludes more low-paid people.

A previous Administration that I might have been a member of tried to address the issue with stakeholder products that were meant to be much simpler with very up-front but capped pricing that everybody would understand. Those were throttled out of existence because the industry did not really want them to succeed, and what has happened since—not by anyone’s design but by the dynamics of the way the market works—means that there is less and less available for those who have small amounts of income because the products are simply not profitable in the current structure of our retail financial services.

This is a systemic issue that needs to be solved, because we need a financial services retail sector that serves everybody. We do not have one, and we are getting to a stage where market dynamics make it less and less likely that we will have one; they are actually excluding more people. I think that a “have regard” that prompts thought about structures and, perhaps, about the regulation of some simpler products that could be made available is a really important part of addressing that market failure.

Like my hon. Friend the Member for Kingston upon Hull West and Hessle, I am worried that the Minister will say that we have consumer protections in place. This is not about those who are currently consuming the products; it is about those who cannot even afford to have basic bank accounts, those who have to go to money lenders because they are in such precarious circumstances, and those who pay the poverty premium because accessing financial services costs so much more as a percentage of their overall income than it costs someone on a higher income. I can tell the Minister—I am sure he has come across this in his own constituency—that many people who exist on very tight incomes, and who really have to budget, shy away from having basic accounts because they cannot afford to go into deficit and be charged a fee. That would destroy all their very careful balancing.

This issue is particularly important for people who are on benefits and have them paid into a bank account at a set time, but who have bill payments coming out at a different time. I would really appreciate it if the Minister would think profoundly about how the problem can be solved, so that our financial services sector can get to a stage where it can make profit—a modest profit perhaps, but some profit—out of dealing with people on much more modest incomes. After all, there are millions of them, and the dynamic of the market structures we have at the moment is moving provision away from people on lower incomes.