HMT Review of the Money Advice Service
Introduction
This is an important and timely review. The Low Commission, which was
established by LAG in 2012 to independently review and make
recommendations about the advice landscape in light of legal aid and other
funding changes, views the development of a statutory levy funding as a
positive innovation and good example of applying a “polluter pays” principle.
However in our final report, the Commission concluded that “We consider that
an increase in the levy should be accompanied by a review of how MAS
operates, including looking at how money is divided between financial
capability and debt advice work. Such a review should be conducted in
conjunction with other organisations such as Citizens Advice to avoid
duplication and to ensure best use of resources.” This review is an opportunity
to address these issues.
For more about the Low Commission see http://www.lowcommission.org.uk
Questions 1 to 4: Consumer Needs
All the evidence from different sources suggests that consumer needs remain
extremely high, from financial capability, to generic money advice, to more
specialist help required to address complex or multiple debt issues. However,
two trends and risks stand out – firstly the growth on non-credit debt to pay for
essential services or what one might call “cost of living” debts, and secondly
the vulnerability of mortgaged households to any slight variation in interest
rates.
On the first issue, there has been a 156 per cent rise in cost-of-living related
debts according to the most authoritative debt data.1 Stepchange also
estimate that 15 million people across the country are currently falling behind
on bills and using credit to pay for essential costs.2 The changing anatomy of
personal debt should itself open up questions about how debt advice is
funded and delivered; a recent Centre for Social Justice Report Restoring the
balance: Tackling problem debt for example has suggested that a wider body
1
2
Money Advice Trust, Changing Household Budgets, London: MAT, 2014
StepChange.
of creditors (ie not just the financial industry) should be contributing to the
funding of money and debt, and that such funding should be built into existing
and new regulatory structures.
Secondly, the risks that future interest rates decisions pose to the destabilisation of an overly leveraged mortgage market has been explored by
the Resolution Foundation3 and other financial think-tanks, and whilst the
Bank of England are clearly aware if the risks, they may not be able to delay
interest rate rises in perpetuity. This combination of cost of living debts and
interest rate rises triggering a massive deleveraging of consumer debt is a
potentially explosive cocktail, especially at a time when social security
entitlements and job security protections have been weakened. Many of the
worst impact predictions associated with the recent financial crisis (which
many commentators believe have only been delayed rather than mitigated or
resolved by policy interventions since 2008) could yet come to pass.
Question 5: Financial education
We welcome that more guidance and information is being funded by the
financial services industry both as part of everyday dealings with customers,
and a commercial or voluntary basis to third parties, and that interest in the
financial education agenda has led to it now forming part of the National
Curriculum for maintained English secondary schools. Financial capability
programmes and consumer education have both developed very significantly
over the past decade, and have also spurned some innovative partnerships
between commercial and public sectors, and sites like Martin Lewis’
www.moneysavingexpert.com have also demonstrated the huge reach and
potential of consumer focussed online tools.
However, prevailing models of financial education often have little if any
content about the law or legal processes. Financial education would be
greatly improved and enhanced if both supported and supplemented by Public
Legal Education (PLE). It is important to build in the basics; currencies are not
just a means of exchange, but also of contract. All debts are legal obligations,
and consumers need to be aware both of their rights, their obligations and the
legal consequences of these. Inclusion of PLE within financial education
would help debtors for example to distinguish between priority and non-priority
debts, and consumer empowerment in respect of creditor behaviour and
responsibilities and would make creditors far more wary of over-stepping the
mark by using legally threatening language etc, and short circuiting pre-action
protocols. Bailiffs in particular, as well as other debt collection agencies, pay
day loan companies etc, have been shown to habitually overstate and overstep their legal powers – empowering citizens to challenge such routine
illegality should be a specific objective of financial education.
3
http://www.resolutionfoundation.org/publications/hangover-cure-dealing-with-the-household-debtoverhang-as-interest-rates-rise/
Given the intersection between financial and legal industries, there is also
even greater opportunity for the private sector to play a role in the delivery of
financial education, guidance and advice.
Question 6: The market for debt advice work
The landscape for information, advice and guidance on financial services is
certainly evolving, as third sector bodies adapt their roles and as commercial
intermediaries offering web based information, product comparisons and click
through services grow their markets. However, the most significant and
important change that this review fails to highlight is that the market is still
having to adjust to the loss of two key sources of public funding – legal aid
and the financial inclusion fund, which amounted to some £50 million of debt
advice funding annually.
It would also be a profound mistake to view the market for debt advice work
only within its own silo – debt advice like other forms of advice takes place
within a wider context. Advice on effectively dealing with debt and money
management, will also involve income maximisation strategies, savings,
employment rights and benefit/pension entitlements, as well as dealing with
housing costs and issues. Again the link between debt and civil law issues
needs to be made, as evidenced by the Legal Services Research Centre’s
extensive body of work.4
It is within this context that MAS should engage with the work of the Low
Commission in shaping the market for debt advice work and its delivery.
Questions 7 to 11: MAS Strategy and Priorities
Broadly, we have been extremely concerned – as have the National Audit
Office and Treasury Select Committee – that MAS strategy and priorities,
especially in the first two years of its operation, have been overly focussed
and pre-occupied with expensive advertising and growing it own brand, and
its own executive pay and structure, at the expense of commissioning and
delivering much needed money guidance and debt advice services on the
ground. The approach pursued, especially under initial start-up plans, has
been extremely wasteful and has in part triggered this review; for example
MAS budget for 2012-13 showed over £20 million communications and
advertising spend – we believe that ever £ of this spend would be better spent
on frontline advice.
There is little to add to what the Treasury Select Committee has already
concluded. Lack of recognisable advice “brands” was never the problem with
plugging ‘gaps’ in public access to money advice, however the funding,
spread and sustainability of these existing services has been. It is important
4
http://webarchive.nationalarchives.gov.uk/20130315183909/http://www.justice.gov.uk/publications/re
search-and-analysis/lsrc
that MAS sticks to its key role as co-ordinator and commissioner, building on
and around the existing brands and services like CAB and Stepchange etc
rather than attempting to duplicate or re-invent them. As salutary lesson from
experience of the Legal Services Commission (when it attempted to invent a
new model of “Community Legal Services” centres and networks) has been
that problems arise when public bodies of this type attempt to construct their
own branded service.
Question 12: MAS model of consumer financial education
As in our response to question 5 above, we consider PLE to be a crucial
missing component. The content of MAS’ web based platform however is
largely devoid of PLE content. We would suggest that MAS should work with
the Legal Action Group, the Legal Education Foundation and other
partnerships with the legal services industry to promote PLE.
Question 13: MAS’s operating model for debt advice
Our overall concern with MAS’ delivery model is that it is predicated on
increasing the delivery targets for debt advice, but without any increased and
often decreased resources. In the longer term this will prove unsustainable
and is likely to lead to a lowering in both quality and standards. The operating
model must build in the maintenance of specialism and quality as an
objective, drawing on best practice in the sector (for example from MALG and
the IMA.)
Secondly, we believe that MAS’ debt advice model needs to be much clearer
that the objectives of debt advice should not just be about liaising, negotiating,
reconciling and making agreements with creditors, but also actively
challenging creditors and enforcement agencies where appropriate.
However, we do welcome the recent developments in MAS debt advice remit,
which has seen a shift to a delivery model of providing grant funding to third
party “lead organisations” to support their provision of primarily face-to-face
advice and guidance directly to the public under their own brands.
Question 14: MAS Stakeholder engagement
In our view MAS engagement with stakeholders has been extremely poor; the
Treasury Select Committee has also observed how service has failed to
effectively consult and build relationships with existing organisations,
sometimes leading to duplication what is already being provided in the private
and charitable sectors.
Our experience would corroborate this. MAS’ engagement with the welfare
rights and legal sectors has simply been non existent despite the clear and
obvious overlap of interests – no roundtables, no forums, no bulletins, no
outreach, nothing! This needs to be addressed as a matter of priority.
Question 15: MAS Budget
In our view the funding total for debt advice remains inadequate. In our final
report we recommended that the Financial Conduct Authority should increase
its levy on financial institutions from £80m to £100m pa to reflect the high
incidence of debt and the demand for advice this produces. We also
recommended that the FCA should use its powers under the legislation to
impose a greater levy on payday loan companies to fund debt advice
services, to reflect the greater consumer detriment that occurs in the high cost
credit market.
Ultimately, we would like MAS to explore how it could co-commission services
with other public funding streams for advice provision (eg lottery etc).
Questions 16-19: MAS efficiency and functionality
The restructuring of MAS in 2011-12 saw the loss of a great deal of expertise
from the FSA’s CFEB teams, which is regrettable. This loss of expertise
included for example practical youth-work expertise, expertise on older
peoples’ pension and care cost issues, and many staff from the voluntary
sector backgrounds who had been specifically recruited for their hands-on
practical knowledge. It is vital that MAS is able to develop practical knowledge
of “what works” in debt and money advice, and so should consider offering
secondments from relevant agencies – the right expertise both in
commissioning policy and operational delivery issues, would help MAS to
improve both its efficiency and functionality.
Question 20: Accountability
The questions about MAS’s governance and accountability largely relate to its
status as a public body, its relationship to the FCA and its reporting
requirements. An open question remains over whether MAS functions could
be equally, if not more effectively, fulfilled as an NGO – especially for the
delivery of its consumer/financial education remit and prevention strategies.
Question 21: Public Policy
We welcome the question being asked about should MAS devote resources
to public policy issues such as the tax and benefits system. On one level MAS
is inhibited from doing so by its public body status, but conversely it is
precisely this status that makes it an important stakeholder and policyholder in
tax and benefit system policy debates. MAS could be well placed to feedback
aggregated data and insight from debt advice services to HMT policymakers;
policy decisions on tax allowances and credits for example need to be taken
with reference to their real impact on household budgets.
Also the whole question of the financial sector’s role in funding advice and
meeting consumers’ advice needs is a debate that cannot take place
separately from other policy developments, debates and initiatives on reform
of the financial services sector (such as community banking, finance and
credit etc).