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
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 ReportRestoring the balance: Tackling problem debt for example has suggested that a wider body 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 de-stabilisation of an overly leveraged mortgage market has been explored by the Resolution Foundation[3] 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’ have also demonstrated the huge reach and potential of consumer focussedonline 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 over-step their legal powers – empowering citizens to challenge such routine illegality should be a specific objective of financial education.
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 alsoinvolve 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 that MAS sticks to its key role as co-ordinator and commissioner, building on and around the existing brands and services like CABand 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 thelegislation to impose a greater levy on payday loan companies to fund debtadvice 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. Thisloss 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).
[1] Money Advice Trust, Changing Household Budgets, London: MAT, 2014
[2]StepChange.
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