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HC 457

House of Commons

Treasury Committee

Money Advice Service

Seventh Report of Session 2013–14

HC 457 [Incorporating HC 271, Session 2012–13]

Published on 3 December 2013 by authority of the House of Commons London: The Stationery Office Limited

£0.00

House of Commons

Treasury Committee

Money Advice Service

Seventh Report of Session 2013–14

Report, together with formal minutes and oral evidence

Written evidence is available on the Committee’s website at www.parliament.uk/treascom

Ordered by the House of Commons to be printed 20 November 2013

The Treasury Committee

The Treasury Committee is appointed by the House of Commons to examine the expenditure, administration, and policy of HM Treasury, HM Revenue and Customs and associated public bodies.

Current membership

Mr Andrew Tyrie MP (Conservative, Chichester) (Chairman) Mark Garnier MP (Conservative, Wyre Forest) Stewart Hosie MP (Scottish National Party, Dundee East) Andrea Leadsom MP (Conservative, South Northamptonshire) Mr Andy Love MP (Labour, Edmonton) John Mann MP (Labour, Bassetlaw) Mr Pat McFadden MP (Labour, Wolverhampton South West) Mr George Mudie MP (Labour, Leeds East) Mr Brooks Newmark MP (Conservative, Braintree) Jesse Norman MP (Conservative, Hereford and South Herefordshire) Teresa Pearce MP (Labour, Erith and Thamesmead) David Ruffley MP (Conservative, Bury St Edmunds) John Thurso MP (Liberal Democrat, Caithness, Sutherland, and Easter Ross) Michael Fallon MP (Conservative, Sevenoaks) was also a member of the Committee during the inquiry.

Powers

The Committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No 152. These are available on the Internet via www.parliament.uk.

Publication

The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the Internet at www.parliament.uk/treascom. The Reports of the Committee, the formal minutes relating to that report, oral evidence taken and some or all written evidence are available in printed volume(s). Additional written evidence may be published on the internet only.

Committee staff

The current staff of the Committee are Chris Stanton (Clerk), Anne-Marie Griffiths (Second Clerk), Jay Sheth and Adam Wales (Senior Economists), Hansen Lu, Gregory Stevens (on secondment from the Bank of England), and Callum Saunders (on secondment from the NAO) (Committee Specialists), Steven Price (Senior Committee Assistant), Lisa Stead and Paul Little (Committee Assistants) and James Abbott (Media Officer).

Contacts

All correspondence should be addressed to the Clerk of the Treasury Committee, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 5769; the Committee’s email address is [email protected]

Money Advice Service 1

Contents

Report Page

1 Introduction 3 History of the Money Advice Service 3 Purpose of the Money Advice Service 5

Financial capability 6 Debt problems 6 The “advice gap” 8

Financial education in schools 8 Changes in the course of our inquiry 9

2 Review of the Money Advice Service 10

3 Money advice and debt advice 11 Introduction 11 Effectiveness of a “primarily digital” strategy 11

Financial Health Check 13 Spending on marketing 14 Developments in 2013 15

Debt advice 17

4 Engagement with existing providers of money and debt advice 19 Introduction 19 Consultation 19 Duplication 20

5 Financial education in schools 23 Role of the Money Advice Service 23 Training of teachers 24 Developments in the course of our inquiry 25

6 Accountability and governance 27 Remuneration and staffing 30

7 Conclusions 32

Conclusions and recommendations 33

Formal Minutes 37

Witnesses 38

List of written evidence 39

List of Reports from the Committee during the current Parliament 40

2 Money Advice Service


1 Introduction

1. The purpose of this inquiry has been to assess the effectiveness of the Money Advice Service, a statutory body established with the following objectives:

• To enhance the understanding and knowledge of members of the public about financial matters;

• To enhance the ability of members of the public to manage their own financial affairs; and

• The responsibility for the co-ordination and provision of debt advice.1

2. The total budget of the Money Advice Service in 2012/13 was £80.8m. The Service is funded by an allocation from two levies on financial services firms regulated by the FCA—one for the delivery of money advice and the other for the coordination and provision of debt advice. The Service’s total budget for money advice in 2012/13 was £46.3m, which came from FSMA-authorised firms, payment institutions and electronic money issuers. The Service’s debt advice budget for 2012/13 was £34.5m. 15 per cent of this came from deposit acceptors and 85 per cent from home finance providers and administrators. We have been mindful throughout our inquiry that the Service is funded by these businesses and their customers.

3. Our inquiry was completed in two phases: three initial hearings in June and September 2012 during which expert witnesses, the Money Advice Service (MAS, or the Service) and the Financial Services Authority (FSA)2 gave evidence, and two further hearings in November 2012 and June 2013 with the then Economic Secretary to the Treasury and the Money Advice Service following the appointment of both a new responsible Minister and a new Chief Executive. We are grateful to the witnesses who participated in these hearings and to all those who submitted written evidence to our inquiry.

History of the Money Advice Service

4. The Financial Services and Markets Act 2000 set out the general duties of the FSA, which included “public awareness”. The Act defined the “public awareness objective” as follows:

(1) The public awareness objective is: promoting public understanding of the financial system.

(2) It includes, in particular—

(a) promoting awareness of the benefits and risks associated with different kinds of investment or other financial dealing; and

1 Money Advice Service, About us, www.moneyadviceservice.org.uk

2 The FSA was replaced by the Financial Conduct Authority and the Prudential Regulation Authority in April 2013.


(b) the provision of appropriate information and advice.3

5. From November 2003, the FSA led and co-ordinated the National Strategy for Financial Capability, under a Steering Group chaired by the then Chief Executive of the FSA, John Tiner. During our predecessor Committee’s inquiry into financial inclusion, the FSA told us that the Steering Group had decided in October 2005 “to take forward into implementation a set of priority projects: schools; higher education; the workplace; maternity/paternity leaver resources; FSA information campaigns; development and roll-out of the Debt Test; and further work on whether there is a commercial case for the wider delivery of generic advice”.4 The FSA had also established an Innovation Fund to support “new and innovative financial capability projects run by voluntary and community organisations” and had embarked on a “Baseline Survey” which would “describe and measure the state of financial capability in the UK, including consumers' knowledge and understanding, skills and confidence and attitudes.”5

6. In written evidence to our inquiry, the United Kingdom Shareholders’ Association told us that the FSA had introduced a “consumer section” to its website in 1999, and noted that: “Over the period to 2005 a range of initiatives were mentioned; among them: ‘Education for Financial Capability’; ‘Adult Learning Programme’; ‘Consumer Publications’; ‘Consumer Help Website’; ‘Consumer Campaigns’; ‘Consumer Research’; Consumer Helpline; ‘Comparative Tables’; ‘Interactive adult learning programme’; and ‘tools to analyse consumer products and their inherent risks’.”6

7. The FSA launched the “implementation stage” of the National Strategy for Financial Capability in 2006 with the publication of a report, Financial Capability in the UK: Delivering Change. This report established “a road map for delivering a step change in the financial capability of the UK”.7 The report set out a seven-point programme to improve financial capability, as follows:

• Translating the Government’s intention, that the National Curriculum should contain high quality and comprehensive personal financial education, into real change in the classroom.

• Ensuring that students in Higher Education institutions, and young adults who are not in education, employment or training, have access to guidance on managing their money.

• Providing general financial education to employees in their place of work through accessible resources, and seminars delivered by trained professionals from the financial services industry and elsewhere.

3 Financial Services and Markets Act 2000, s.4

4 Treasury Committee, Twelfth Report of Session 2005–06, Financial Inclusion: credit, savings, advice and insurance, Ev 307

5 Treasury Committee, Twelfth Report of Session 2005–06, Financial Inclusion: credit, savings, advice and insurance, Ev 308

6 Ev w15

7 FSA, Financial Capability in the UK: Delivering Change, March 2006


• Fundamentally revamping the FSA’s consumer communications and information to make them more targeted, engaging and accessible. Includes a revised distribution strategy for the FSA’s tools and resources, to increase significantly their reach and impact.

• Developing, and making more widely available, online tools to help people to assess their financial situation and, if necessary, to take action and get further help.

• Developing and distributing a Money Box containing information for new parents, better equipping them to take on the additional financial responsibilities of parenthood.

• Working to ensure that consumers have access to money advice that is relevant, engaging and good quality.8

8. This report was followed in 2008 by the publication of the Thoresen Review of Generic Financial Advice, a review commissioned by HM Treasury. The Thoresen Review argued for a national money guidance service and recommended that a “pathfinder” body be created, which would test and refine the “high-level blue-print” for a money guidance service set out in the review.9 In April 2009 the pathfinder was created under joint control of the FSA and HM Treasury, and ran a pilot service in the North East and North West of England under the brand moneymadeclear. Following completion of the pathfinder phase, the Consumer Financial Education Body (CFEB) was created with a statutory underpinning in the Financial Services Act 2010. In 2011, the service was rebranded as the Money Advice Service. In April 2012, the Money Advice Service also assumed responsibility for co-ordinating free debt advice, a role previously performed by the Department for Business, Innovation and Skills.

Purpose of the Money Advice Service

9. The Thoresen Review concluded that a generic financial advice service would bring significant benefits to individuals and the UK’s economy as a whole. Its final report recommended that this service should deliver information and guidance on the following:

• how to budget weekly or monthly spending;

• saving and borrowing;

• protecting and insuring the individual and the family;

• retirement planning;

• understanding tax and welfare benefits better; and

• translating technical financial language into something that people understand– “jargon busting”.

8 Ibid.

9 HM Treasury, Thoresen review of generic financial advice, March 2008


10. The Money Advice Service also took on responsibility for commissioning and co-ordinating debt advice in April 2012.

Financial capability

11. In its 2006 publication, Delivering Change, the FSA noted that:

There is a clear need to act to improve the UK’s financial capability. Individuals are being required to take on more responsibility for their financial decisions. Yet many lack the skills or knowledge to do so, and some groups appear particularly vulnerable.10

Recent scandals such as the misselling of payment protection insurance and interest-rate swaps have demonstrated some potential consequences of this vulnerability. Sue Lewis of stl consultants, an independent consultant specialising in financial education, said that:

Research has established that more financially capable individuals plan ahead, save more and invest more in pensions. It is also likely that they would shop around more for products, use less revolving credit, or become overindebted, and be less likely to be vulnerable to product misselling.11

Martin Lewis of MoneySavingExpert.com told us that:

Right across society, we struggle from genuine consumer illiteracy, if I can take the broadest term possible, where I would say 60% to 70% of the population simply do not understand many of the products that we have.12

12. Witnesses supported action being taken to improve financial capability. For example, Joe Garner, Chair, Financial Services Practitioner Panel, told us that “There is a big savings gap. There is a big pensions gap in this country. Between us we can’t do enough in this area.”13 The Institute of Chartered Accountants in England and Wales (ICAEW) predicted that financial capability was something that would become even more important in future:

In a context of an ageing population and the possibility of low growth for years to come, governments will look to individuals to make greater personal provision for retirement and other requirements, such as healthcare. For this to work, the general population needs greater financial capability.14

Debt problems

13. Problem debt appears to affect a growing proportion of the population, a situation which may have been exacerbated by the recent financial crisis. In August 2013, the Money

10 FSA, Financial Capability in the UK: Delivering Change, March 2006

11 Ev w30

12 Q 67 [Martin Lewis]

13 Q 53 [Joe Garner]

14 Ev w50


Advice Service published a review which indicated that “the proportion of people who are struggling to keep up with their bills and credit commitments in 2013 has risen by 17 percentage points—up from 35 per cent in 2006 to 52 per cent in 2013.”15 According to Credit Action, Citizens Advice Bureaux in England and Wales dealt with 7,824 new debt problems every working day during the year ending March 2013, and UK banks and building societies wrote-off £3.67 billion of loans to individuals over the four quarters to Q2 2013.16 Advice UK told us that:

The global financial crisis highlighted an absence of responsible financial management by business, governments and consumers. While there is some evidence that consumers in the UK are starting to pay down their debts in the aftermath of that crisis, the Office for Budget Responsibility (OBR) predicts that total household debt will exceed £2 trillion by 2017.17

14. In April 2013, Step Change (formerly the Consumer Credit Counselling Service), a debt advice charity, reported that “average total arrears on household bills rose from £2,134 in 2011 to £2,258 in 2012”, and that “over the same period the proportion of [Step Change] clients with arrears on at least one household bill has increased from 27 percent to 35 percent.”18 The Money Advice Trust told us that “The YouGov Debt Track survey indicates the prevalence of problem debt in the UK is increasing and found in late 2011 that approximately 10 million individuals in the UK describe meeting their debt commitments as a ‘constant struggle’.”19

15. These trends suggest a growing need for those struggling with debt to receive advice on how to manage it. Advice UK told us that “there are 4.3 million overindebted households in the UK but only 2.1 million actively seek debt advice. The problem for advice centres is capacity, i.e. meeting client demand”.20 Unlike generic money advice, debt advice is provided on an individual basis to address particular problems specific to the individual. David Hawkes of Advice UK told us that money advice and debt advice formed “a whole package [...], what we call a ‘whole person’ approach so that you are looking at generic financial advice as part of a preventative agenda in addition to debt advice as part of crisis intervention.”21

15 Money Advice Service press release, New study shows UK developing positive money habits despite money struggles,

2 August 2013

16 Credit Action, Debt Statistics: September 2013, http://www.creditaction.org.uk/

17 Ev w9

18 StepChange press release, UK household crisis: Dramatic rise in families seeking help for utility bills, council tax and rent arrears, 23 April 2013; http://www.stepchange.org/Mediacentre/Pressreleases/priorityarrearsrise.aspx

19 Ev w1

20 Ev w9

21 Q 9


The “advice gap”

16. The term “advice gap” refers to the number of people who are unable to access financial advice. In its written evidence, the Money Advice Service quantified the problem as follows:

Some 23m people do not know where to go for impartial advice on credit and borrowing, only 15% has a financial adviser and one in five people have someone they trust to confide about money.22

17. In July 2011, the Committee reported on the Retail Distribution Review (RDR), a major reform by the FSA of the regulation of retail investment advice. During our inquiry, we heard evidence that the RDR could increase the ‘‘advice gap’’. In our report we expressed our concern that “the loss of advisers, particularly individuals and those in small firms, will disadvantage smaller savers by reducing choice and competition.”23 As a result of the RDR, the Financial Services Consumer Panel commissioned research to “look at the ‘advice gap’ in the UK”. This research concluded that “there were a number of factors which were increasing the advice gap, which can, in part, be met by a generic advice service such as the MAS.” The Chair of the Panel, Adam Phillips, told us:

I think [the Money Advice Service] definitely play a role. We did research five years ago, talking about the initial consultation on the RDR, where we said it was essential that generic advice was brought in if the RDR was to go ahead, simply to deal with this issue.24

Financial education in schools

18. One of the objectives of the Money Advice Service is to enhance the understanding and knowledge of members of the public about financial matters. Financial education in schools is one way of improving financial capability and reducing the likelihood of debt problems arising. The Personal Financial Education Group (pfeg), a financial education charity, told us that:

Prevention is better than cure. Personal finance education is a fundamental building block for life. pfeg believes that by educating children and young people to understand and manage their finances, we can build a generation of empowered consumers able to deal with financial challenges such as student debt, unemployment, pregnancy, negative housing equity and loss of income due to ill-health.25

19. While witnesses differed in their views of whether the Money Advice Service should have a greater role in financial education, there was broad agreement that financial

22 Ev w26

23 Treasury Committee, Fifteenth Report of Session 2010–12, Retail Distribution Review, para 79

24 Q 2

25 Ev w43


education for young people was an important strand in improving financial capability and debt problems in the UK. Since this inquiry began, the Government has announced that financial education will be included in the National Curriculum for secondary schools.26 Financial mathematics will form part of the maths curriculum and, under the draft proposals, citizenship classes will teach:

• the functions and uses of money, the importance of personal budgeting, money management and a range of financial products and services at Key Stage 3 (years 7–9); and

• wages, taxes, credit, debt, financial risk and a range of more sophisticated financial products and services at Key Stage 4 (years 10 and 11).27

The Money Advice Service has indicated that it intends to develop its work on financial education in schools, which has the potential to help address low levels of financial capability in the long term. We have therefore considered this matter as part of our inquiry.

Changes in the course of our inquiry

20. We announced our inquiry in May 2012 and concluded our evidence gathering in June 2013. During that period, some of the key office holders have changed:

• In November 2012 it was announced that a new Chief Executive of the Money Advice Service, Caroline Rookes CBE, had been appointed in place of Tony Hobman. Ms Rookes took up her post in February 2013.

• In September 2012 Sajid Javid MP was appointed as Economic Secretary to the Treasury, the Minister responsible for the Money Advice Service, in place of Mr Mark Hoban MP, who had held the post of Financial Secretary to the Treasury. On 7 October 2013, Mr Javid was appointed Financial Secretary to the Treasury.

• It was announced in March 2013 that the Chairman of the Money Advice Service, Gerard Lemos, would be standing down. Andy Briscoe took over as Chairman on 2 September 2013.

26 Department for Education, The National Curriculum in England: Framework document for consultation, February

2013, p 149

27 Department for Education, The National Curriculum in England: Framework document for consultation, February 2013, pp 150–151


2 Review of the Money Advice Service

21. In its written evidence, the Money Advice Service told us that it would be “subject to an HM Treasury-led review of the Service to ensure that it remains a suitable model to deliver consumer financial education and support the wider consumer protection agenda. This will take place in 2013–15.”28 The Economic Secretary to the Treasury told us that his intention was to have a review “before the end of this Parliament”.29

22. We asked the Economic Secretary whether he believed that the Money Advice Service was the best platform for providing debt advice. He told us: “I think MAS has an important role in this area and, from what I have seen so far, it is carrying that out effectively, although it is early days with this new mandate.”30 We also asked him about the effectiveness, and in particular the cost-effectiveness, of the Service. He responded:

I have looked at their business plan. I do think it is effective. It is important to bear in mind, of the total budget they have, which is approximately about £80 million this financial year, they are spending about £35 million or thereabouts on debt advice and, of that £35 million, my understanding is that well over 90% is money being given to third organisations to provide debt advice, often face-to-face. I think that is probably one of the most effective ways, but not only face-to-face. I think that it is effective.31

23. We are concerned on two fronts about HM Treasury’s planned review of the Money Advice Service. First, given the then Minister’s endorsement of the role of the Service and of its effectiveness, we are concerned that the Treasury may already have decided that the Service should continue to exist in its current form. We therefore recommend that, rather than conducting a review itself, HM Treasury commission an independent review of the Service. Secondly, we consider that 2013–15 is too long a timescale for a review. This should be considered a matter of urgency and an independent review should be completed, and its findings published, by the summer of 2014.

24. In addition, the National Audit Office is expected to publish a review which will “assess how effectively the MAS uses its resources to engage with its customers and stakeholders in order to achieve its statutory objectives.”32 We would expect the NAO’s work to inform the independent review of the Service.

28 Ev w26

29 Q 434

30 Q 425

31 Q 426

32 National Audit Office, Work in Progress, Money Advice Service: Empowering consumers of financial services, www.nao.org.uk/press-releases


3 Money advice and debt advice

Introduction

25. In our initial hearings in this inquiry, witnesses raised a number of concerns about the way in which the Money Advice Service was developing. The consistent themes were that it was not clear what the Service was for, that it had not yet successfully carved out a role for itself, and that, where it had, this was not necessarily the right role. As Gillian Guy, Chief Executive of Citizens Advice, told us, “it is perhaps undertaking the wrong job with the wrong focus”.33

Effectiveness of a “primarily digital” strategy

26. The “money advice” provided by the Money Advice Service is known as “generic financial advice”. The Treasury sdefines this as “unregulated advice which takes account of the specific financial circumstances of an individual, but which does not result in a product recommendation. Generic advice helps individuals to understand their current financial position, their available choices, and how to take steps to meet their needs.”34

27. In its 2012/13 Business Plan, the Money Advice Service explained that “The extensive new elements of our Service will be primarily digital, and increasingly mobile, reflecting the growing prominence and relevance of digital media in people’s lives. We remain committed to advice in person and over the phone”.35 This digital service centred around the Service’s website, which included “budgeting and planning tools[, ...] action-orientated articles [and ...] comparison tables”.36 The strategy to develop a predominantly web-based offering was the result of an attempt to provide generic advice to a huge number of people. The Money Advice Service told us that:

Whilst our research suggests that up to 19m people could benefit from generic money advice annually, we are configuring a transformed Service to reach more than 11m people each year by 2016–17, recognising that other information and advice will continue to be available.37

Gerard Lemos, the then Chairman of the Service, explained that anything other than a web-based service would limit the number of people who could access its services:

If we spend our entire budget—except for staff and operations, which comes to about £9 million or £10 million—which is £36 million, entirely on giving face-to-face advice, we would reach—and we have calculated our unit costs, which are extremely good compared to other people’s—around 600,000 people. If we put all our funds in

33 Q 330

34 HM Treasury, Financial capability: the government’s long term approach, 2007

35 Money Advice Service, Business Plan 2012/13, p. 1

36 Ev w26, paragraph 17

37 Ev w26


the same way into telephone advice, we would reach about 3 million people. I think the choice we have to make—I entirely accept it is a choice—is whether we want to invest at this stage in reaching a lot more people with a much better service, or whether we want to concentrate on smaller numbers but fill much less of this huge advice gap.38

28. However, some of our witnesses expressed concerns about the likely effectiveness of this approach. Some suggested that any attempt to provide advice to such a large number of people would not have a significant impact on those it was trying to reach. The Association of Independent Financial Advisers told us that it was:

keen to see more evidence of who MAS is reaching and the longevity and effectiveness of its relationship with its users. We remain unconvinced MAS will develop sufficient relationships with the 11.3 million people a year (from 2016/17) to have a material impact on their behaviour.39

Similarly, the UK Shareholders Association pointed out that:

The word ‘reaching’ has never been defined. It is not clear in what way the ‘reaching’ of 11 million people in 2016 differs from the ‘reaching’ of 10 million people in 2011 sufficient to justify a likely spend of £250million (excluding debt advice) in that time.40

29. A number of bodies expressed concern that those most in need of advice might not be able to access it. Moneysavingexpert.com commented upon:

the lack of resource being directed at those groups who need most assistance, e.g., the financially excluded and the financially incapable.41

Delroy Corinaldi of Step Change, a debt advice charity, suggested that those seeking advice needed a more personalised service than that proposed by the Money Advice Service. He told us that:

When they are in that crisis zone and they feel like bricks are falling on their heads, what they want is help. I think they associate advice and help as being one and the same, and what they look for is a trusted advisor to take them through that.42

Adam Philips, the Chair of the Financial Services Consumer Panel, also suggested that, while there were many instances where general information was sufficient, “At various points in those periods you may well need face-to-face or some kind of human interaction with somebody to help talk you through your particular issues.”43

38 Q 163

39 Ev w37

40 Ev w15

41 Ev w60

42 Q 11

43 Q 13


Financial Health Check

30. The Financial Health Check is an online questionnaire which generates generic advice based on the answers given. The Service’s 2012/13 Business Plan referred to the Health Check as “a major gateway into our Service”.44 Mark Hoban MP, while Financial Secretary to the Treasury, singled out the Health Check as a particularly useful feature of the Money Advice Service, saying:

last year I launched the Money Advice Service to offer free and impartial guidance on financial matters. In particular, through its Financial Health Check, individuals and families have the opportunity to identify their financial needs, understand the range of products available and find out where to get further advice.45

31. However, evidence received by the Sub-Committee suggests that the Health Check had serious flaws. Martin Lewis of Moneysavingexpert.com told the Sub-Committee that “If the product wasn’t crap, I would think it might be a good idea, but the product is abominable, and I would be embarrassed to put most of their tools on my website.”46 He believed that 80,000 people had taken the Health Check since it was launched. By comparison, he told us that an online product his company had produced in association with Trading Standards had been downloaded 150,000 times in one day.47 Adam Phillips, the Chair of the Financial Services Consumer Panel, told us that the Health Check might be “very useful” for a customer who was “interested”, but that for the “uninterested”:

[the MAS] do have to do more thinking about how they can help people who don’t want to spend a lot of time reading through stuff but nevertheless have a question like, “I have £8,000 in my deposit account, it is not producing any income at the moment, it is what I supplement my basic pension with. What should I do?”

32. A study carried out for the Money Advice Service by an external body concluded that:

Most of the outcomes tested for at either the Immediate or Longer-term stage indicated that the Health Check has had no impact. The only two outcomes that showed a difference between the test and control groups across the two experiments showed a negative impact with the control group more likely to have taken action than the test group.48

Despite this evidence, the Economic Secretary to the Treasury defended the Health Check, saying it was “very good”, and “a very useful tool”.49 He did, however, add that “to be fair, I did not feel that I needed financial advice myself.”50

44 Money Advice Service, Business Plan 2012/13, p.5

45 Speech by the then Financial Secretary to the Treasury, Mark Hoban MP, Simple Products launch, 8 February 2012

46 Q 68

47 Q 70

48 Research Report: Health Check Evaluation, prepared for Money Advice Service by IFF Research and the Policy Studies Institute, p. 6

49 Q 453


Spending on marketing

33. In our hearings with the Money Advice Service, we repeatedly expressed concerns about the large amounts being spent by the Service on marketing. In its 2012/13 Business Plan, the Service published plans to spend £20.084 million of its £46.255 million budget on “Consumer communications and marketing”.51 Lord Turner explained that the large amounts spent on marketing:

almost automatically come from a decision to go down a web-based route. Having decided to go down a web-based route, you do need to build initial awareness of that so that people come to those websites and use them but, broadly speaking, the approach that Gerard Lemos and Tony Hobman have pursued is to reduce the element of direct labour cost through—indeed—making a number of people redundant and investing more in web delivery and communication.52

Gerard Lemos defended spending this amount on marketing, explaining that it was as a result of the decision to attempt to reach as many of the population as possible, which necessitated a web-based approach. He said that:

We are spending a lot on marketing and that goes back to this massive advice gap. [...] In its model, the CAB currently reaches 2 million people, [...] and only one in seven of the population has an IFA, so there is the huge gap in the middle, and that is the one we are seeking to address. That is the rationale for our marketing spend and also for beefing up our digital strategy.53

34. However, several witnesses were sceptical of the need for the Money Advice Service to build a brand. Credit Action told us that:

If it is to succeed in the digital arena, MAS is likely to need to expend substantial resources on advertising and marketing, in order to drive traffic and take on more established brands. Given that the concentration of online providers means that there is significant potential for unnecessary duplication, we would question the wisdom of such expenditure.54

Citizens Advice questioned the wisdom of building a brand when consumers were already aware of existing bodies:

In 2012/13 MAS will spend circa £20 million on consumer communications and marketing. There are already many existing providers of advice and financial education with strong brands and good public awareness of the services they offer—

50 Ibid.

51 Money Advice Service, Business Plan 2012/13, p.13. £20.084m figure is the total of the three sums spent on consumer communications and marketing.

52 Q 99

53 Q163

54 Ev w99


97 per cent of people in the UK have heard of the Citizens Advice Service and 76 per cent trust us.55

Gillian Guy, Chief Executive of Citizens Advice, elaborated on this view, suggesting that the Money Advice Service had the wrong focus. She told us that:

the fundamental issue here is the focus of the Money Advice Service [...]. That is about building a separate and new brand, and marketing financial capability, particularly. Our argument, which is quite clear to the Money Advice Service, is that that is not the right focus. There are plenty of things that can be done in this area that an organisation that does not deliver could do.56

Moneysavingexpert.com also argued that the brands with which the Money Advice Service might be competing “substantially exceed the offering of MAS,” and suggested that “Instead of reinventing the wheel and spending millions of pounds in brand building to unnecessarily compete with these sites, it would be more efficient for MAS to evaluate the information provided on such sites to ensure it is of benefit to the consumer.”57 The Building Societies Association (BSA) pointed out that the Service’s efforts to build a brand were in fact a “re-branding”, as a service was already provided by the FSA under the brand moneymadeclear.58 The BSA continued:

We are concerned that significant time and money has been spent on re-branding, rather than on embedding MAS as an organisation, getting the infrastructure right and importantly, agreeing on the action plan to deliver the core objectives over a period of time.59

35. Lord Turner indicated that the FSA board had had some doubts about the Service’s strategy, saying:

we did go through that in the FSA board. We asked questions about it. There was an acceptance that there was a reasonable case in principle of why that was the correct way to go, but we are not the board of the MAS itself, so we did not subject it to the same degree of precision that you would expect of the MAS board itself.60

Developments in 2013

36. In June 2013, the Chief Executive of the Service, like her predecessor, defended a predominantly web-based service for money advice, saying that this was the only way to reach a sufficiently large number of people.61 She did, however, also emphasise the fact that

55 Ev w95

56 Q 333

57 Ev w60

58 Ev w102, para 5

59 Ibid.

60 Q 99

61 Q 528


the Money Advice Service provides money advice over the phone and face-to-face. She argued that this strategy meant that it was necessary to carry out marketing or engagement work because “It is essential as a way of getting people to our site for us to help them.”62 In this respect, the Service’s approach is very similar to its strategy when we first launched our inquiry. Ms Rookes told us that the Service planned to spend £12.5 million on marketing in 2013/14.63

37. The Money Advice Service appeared in our later hearings to have adopted a more targeted approach which was based to a greater extent on research into where help is needed most. Ms Rookes told us that:

We have assessed the size of the three particular groups we are focusing on to try to get real behaviour change, because we need to assess the size of the challenge in front of us. That is the group that we have estimated to be around 10.2 million. You will have seen that we have estimated our starting point this year as half a million outcomes towards effecting behavioural change.64

She said that the three groups identified by research as being of most concern to the Service were “young people; families with young children; and [...] those with older children.”65 While the 10.2 million target appears to be a highly ambitious number, we also note that the Service has carried out more work to determine where its resources should be focused. Ms Rookes gave two examples of pieces of research that were being carried out:

What that has done is it has surveyed 5,000 people to ask them about their money and how they manage it. Of those 5,000 people, 800 of them are Money Advice Service customers, and our intention is to continue to carry that survey out on a quarterly basis so that we can build up a picture of the financial capability of the UK.

[...]

We have carried out [...] an ethnographic survey, where 72 families have been followed [...] for a year, and filmed in their money dealings, so that we can get a better understanding of what people do with their money and why they do it, rather than what they say they do. The idea for us is to pull all that together into a research report into a baseline survey of the financial capability of the country, which we will then use going forward to assess how effective we are being.66

38. While we note the planned reduction in marketing costs for 2013–14, the amounts spent on marketing by the Money Advice Service have been a source of concern throughout our inquiry. This spending arises from the Service’s decision to adopt a “primarily digital” approach to the provision of advice. While we accept that some

62 Q 585

63 Q 541

64 Q 483

65 Q 479

66 Q 477


marketing activity is necessary to build a brand and to encourage people to visit a website, the very large amounts that have been spent on marketing in the Service’s early years suggest that the strategy to build a separate brand, and in particular to rebrand as the Money Advice Service when the moneymadeclear brand was already in use, was misguided.

Debt advice

39. The Money Advice Service took over the role formerly performed by the Department for Business, Innovation and Skills of commissioning and co-ordinating debt advice in April 2012, very shortly before our initial hearings in this inquiry. It was not therefore possible to make an assessment at that time of the Service’s debt advice role. In its 2012/13 Debt Advice Business Plan, the Service summarised its work on debt advice as follows:

All but a modest proportion of the £34.5m budget in this plan will go to ensuring continuity of frontline service. We will fund six delivery organisations across England and Wales that provide debt advice face-to-face and contribute funds proportionately towards debt advice provision in Scotland and Northern Ireland. The remaining £2.2m will be used in development work towards a new and more coordinated system for the delivery of debt advice—one that will enable more people in debt to find the right sort of help for their needs more quickly and easily.67

40. When the Money Advice Service published its annual report for 2012/13, we noted that of its £34.5 million debt advice budget, £30.2m had been spent on delivery of face-to-face debt advice.68 We are concerned that, at a time when there is a huge and urgent need for debt advice, some £4.3 million was not spent directly on providing that advice. Moreover, we are concerned by the lack of flexibility available to the Service in determining what proportion of its funding to allocate to debt advice. We have already noted in paragraph 15 above that debt advice and money advice form “a whole package” in which money advice is preventative, and debt advice is needed for crisis intervention, and that debt problems appear to be exacerbated during economic downturns. Indeed, we heard that in recent years some advice centres had had difficulties meeting demand.69 However, funding for money advice and for debt advice is raised by means of two separate levies, and the Money Advice Service’s spending on each is allocated accordingly.70 In our view, it is unnecessarily prescriptive separately to ringfence spending on debt advice and on money advice. We were pleased to hear the then Economic Secretary to the Treasury advocating some flexibility in the allocation of funding between money advice and debt advice.71

41. During economic downturns, demand for debt advice is likely to increase. We recommend that during difficult economic circumstances such as those following the

67 Money Advice Service, Debt Advice Business Plan 2012/13

68 Money Advice Service, Annual Report, Accounts and Financial Statements for 2012/13, p 39–40

69 Q 332

70 Financial Conduct Authority, How we raise our fees, July 2013, para 7.29

71 Q 460


financial crisis of 2008, the Money Advice Service’s resources should be focused on helping those in crisis. Funds may therefore need to be reallocated from money advice to debt advice. In more favourable economic circumstances, it may be preferable to focus more on the prevention of future financial problems through money advice. We recommend that the Service be given greater flexibility on the proportion of its budget that it spends on money advice and debt advice respectively, responding to changes in demand.

42. In our early hearings, we heard concerns about the way in which the Money Advice Service was working with those from whom it commissioned debt advice services. Gillian Guy, Chief Executive of Citizens Advice, told us that:

we had some difficulty in a contract that was presented to us that had a 50% increase in output with no additional resources. Looking underneath that, it was quite clear it was less contact with individuals that was to give that rise in throughput.72

We were therefore concerned when Caroline Rookes listed as a “real achievement” that: “On the debt advice side, last year we increased productivity by over 50 per cent”,73 and we note with caution the Service’s objective “to raise standards across free debt advice.”74 Taken together with the evidence from Citizens Advice, Ms Rookes’s statements may indicate that the Service intends to continue with an approach to the commissioning of debt advice which risks reducing the quality of the service provided.

43. Efficient provision of debt advice services is a laudable aim. Nevertheless, when seeking to increase productivity, the Money Advice Service must be mindful of the need to maintain the quality of the service it provides. The Committee is sceptical that productivity can have been increased by 50 per cent in a single year without some resulting reduction in quality of service. We urge the Service to be mindful of its relative inexperience in the sector compared to many of the bodies from which it commissions services, and to seek to agree common standards in collaboration with those bodies. We recommend that the Money Advice Service establish a working group, composed of representatives from the debt advice sector, to agree a set of service standards for debt advice and a strategy for achieving those standards.

72 Q 373

73 Q 473

74 Q 480


4 Engagement with existing providers of money and debt advice

Introduction

44. In his Review of Generic Financial Advice, Otto Thoresen wrote that:

I believe that Money Guidance can be delivered most cost effectively in partnership with existing service providers. The third sector has responded enthusiastically to the review—they are eager to see progress. I envisage a central organisation, setting policy and strategic goals for the service, managing relationships and working with delivery partners. With a network of partners and referral agencies delivering Money Guidance locally face-to-face, over the telephone, through the web and as technology evolves, through other media. And I envisage a bigger network of intermediaries, people trusted by local communities, who would be able to ensure that those who would benefit most have access to the service.75

45. In both its role as a provider of money advice and a co-ordinator of debt advice, the Money Advice Service must engage with other providers or money and debt advice. This is for a number of reasons: it needs to learn from more established providers; it needs to avoid unnecessary duplication of services; and it needs to ensure it has effective professional relationships with those bodies with which it has formal relationships, for instance bodies from which it commissions debt advice services. It is clear from the evidence we received that the Service embarked on an approach very different to the “partnership” described by Otto Thoresen. He told us that in the early stage of the Service’s development, “I was very disappointed in the level of engagement and the openness and the transparency around what was going on.”76

Consultation

46. Witnesses almost all suggested that the Money Advice Service had started badly when engaging with the existing advice sector, but in our early hearings in 2012 many felt there had been a recent change. David Haukes, of Advice UK, summarised the view of a number of witnesses when he said “There has been a lot of talk about constructive engagement with stakeholders. I am not convinced that that has been borne out in practice until [...] recently when there seemed to be more signals.”77 Delroy Corinaldi, of StepChange, supported this view, saying “at the beginning the level of engagement was not that great, but I think most organisations that we talk to would say there has been a noticeable change over the last

75 HM Treasury, Thoresen review of generic financial advice, March 2008, p. 2

76 Q 73

77 Q 20


month to two months”.78 Some witnesses felt that the Service had begun to engage more constructively with other advice providers following the announcement of this inquiry.79

47. When we put these concerns to Gerard Lemos, the then Chairman of the Service, he told us that “We will certainly consult more than in the past. We have learned that lesson for sure.”80 Shortly after giving evidence, Martin Lewis described a meeting with the Money Advice Service in the following terms:

I’m pleased to say we actually ended up having a really positive meeting, focusing on shared aims and brainstorming where there was room to work together or just support good work being done on important projects.81

48. In June 2013, Caroline Rookes, Chief Executive of the Service, told us that part of its role was “to draw the organisations that are working in this space together and to try to ensure that we are moving forward as efficiently as we can, without too many overlaps and gaps, so that we are actually working together.”82 The Service also published a draft of business plan for consultation in December 2012 before publishing a final version in March 2013.83

49. The way in which the Money Advice Service initially engaged with the wider advice sector was a matter of grave concern to the Committee during the first phase of our inquiry. As a newly-created statutory body, entering a sphere in which there were already a number of well-respected, well-established and successful bodies in the private and voluntary sectors, it should not have begun its work without properly consulting those bodies and without taking the work of those bodies into account.

50. We welcome the emergence of an approach which appears to be more firmly based on forming constructive working relationships with existing advice providers. We recommend, however, that the independent review we have recommended of the Money Advice Service should seek the views of other bodies in the sector on the way in which the Service is engaging with them and take account of these views in reaching its conclusions.

Duplication

51. A number of witnesses raised concerns about the Money Advice Service duplicating the work of other advice providers. The Financial Services Consumer Panel told us that:

[T]he Money Advice Service [...] inevitably threatens to duplicate existing services. Having multiple ‘competing’ organisations in this area offering similar advice to

78 Q 19 [Delroy Corinaldi]

79 See Q 83 [Otto Thoresen] and Q 76 [Martin Lewis]

80 Q 214

81 http://blog.moneysavingexpert.com/2012/08/06/smoking-peace-pipes-with-the-money-advice-service/

82 Q 481

83 Money Advice Service, Draft Business Plan 2013/14


overlapping groups of people would be wasteful. Given that the bodies providing the advice are often industry, taxpayer or charity funded, there is an opportunity to consolidate, improve outcomes and reduce costs.84

Martin Lewis of Moneysavingexpert.com suggested that the private sector was providing better resources already, saying “the so called advice gap won’t be solved by adding another website to an already crowded marketplace”.85 Gillian Guy of Citizens’ Advice suggested that the duplication of provision represented a missed opportunity to bolster services that lacked resources, saying “we do not really need another telephone service and we do not really need another web service. We need capacity within the existing services.”86

52. Witnesses told us that, rather than duplicating existing provision, the role of the Service should be to co-ordinate and fund this work. Credit Action argued that “the most suitable role for MAS is not for it to undertake direct delivery (as a range of providers already exist), but rather in funding and helping existing providers to operate strategically, so that their initiatives complement each other.”87 Gillian Guy, of Citizens Advice, said: “No one is currently operating effectively, including Citizens Advice, on bringing the whole sector together”.88

53. Gerard Lemos, then Chairman of the Service, denied that it was duplicating resources that were already in existence. He told us that:

We do hand off to lots of other websites, including MoneySavingExpert and the CAB service. We do not want to compete or duplicate. A challenge was put to you last week, was it not, that we are competing and duplicating things that already exist? I do not think that is true, frankly. The issue is that we are seeking to fill this advice gap and to reach people.89

54. The National Association of Student Money Advisors (NASMA) gave an example of where constructive engagement had been effective, saying that “The frequent and on-going discussions between the Money Advice Service and NASMA ensured that work undertaken by both parties contributed to and complemented each other, rather than a duplication of effort and resource provision.”90 A number of witnesses suggested that the Service might play a greater role in co-ordinating and signposting other services.91

55. The initial failure effectively to consult and build relationships with existing organisations in the sector resulted in the Money Advice Service duplicating what was already being provided in the private and charitable sectors. The independent review

84 Ev w78; see also Ev w9.

85 Qq 68–70

86 Q 362

87 Ev w99

88 Q 362

89 Q 165

90 Ev w47

91 See, for example, Q 44, Q 70


we have recommended should examine the extent to which the work of the Service unnecessarily duplicates existing provision and should establish clearly what the role of the Service should be in each of the areas in which it operates.


5 Financial education in schools 56. Many witnesses spoke about the importance of financial education in schools. Martin Lewis of MoneySavingExpert.com told us: “If you look at the general financial and debtor literacy across the nation, we need [financial literacy] to be taught and we need it to be taught to every child.”92 Adam Philips, the Chair of the Financial Services Consumer Panel, Delroy Corinaldi of StepChange and Joe Garner, the Chair of the Financial Services Practitioner Panel all agreed that financial education in schools was crucial to avoid problems in the future. Mr Corinaldi added that, “if you educate children, they can educate their parents”, a view supported by Mr Garner.93 Written evidence from pfeg, a financial education charity, told us:

pfeg believes strongly that if we are to enable future generations of young people to manage their finances well, those under 16 years must be given high quality financial education in school so they can make informed choices and take responsibility for their own actions. Prevention is better than cure, being both cheaper, effective and potentially less damaging.94

Role of the Money Advice Service

57. At the time of our early hearings, the Money Advice Service had a very limited role in contributing to financial education in schools, although it was already undertaking research into the services that were currently being provided.95 Tracey Bleakley, Chief Executive of the Personal Financial Education Group (pfeg), a financial education charity, suggested that the Money Advice Service could play a role in co-ordinating the delivery of financial education in schools. She told us:

I think the Money Advice Service is incredibly important in terms of giving us a national voice and giving us that feed into the Department for Education and informing exactly how that curriculum should work and what the content should be.

[…]

[…] The role that MAS can do is to pull all of the different projects together to make sure that they all fit into a coherent strategy, so that we are not picking off some bits and pieces but leaving a whole big area over here that is not addressed.96

On the question of the standard of provision, she told us that she would like “to see that we are measuring finance education in schools year on-year, because I would like to be held accountable in my organisation [pfeg] that we are helping and that standards are

92 Q 58

93 Q 39

94 Ev w43

95 Money Advice Service, Annual Report and Accounts for 2012/13, p. 7

96 Q 59, Q 60


improving in schools.” The then Economic Secretary to the Treasury echoed this view, saying:

I have discussed this with the Chair [of the Money Advice Service] and I would like to see what they come back with in terms of how they can work with organisations. They pointed out to me, if I remember correctly, that there were about 25 financial organisations that are involved with schools on a voluntary basis and providing help with financial capability to school children. MAS sees their role as being one where they can co-ordinate that and make sure it is being done more effectively and also to have some basic standards, code of conduct, so there are some basic principles that everyone can meet. I think all that is a good thing.

58. In its written evidence, pfeg said that the Service should have “a greater role in financial education in schools by:

• Offering national leadership on a financial capability strategy which is internationally credible; advising the Department for Education on curriculum content, delivery, initial teacher training and continuing professional development

• Spearheading a drive for the UK to participate in the 2015 PISA assessments of financial literacy without delay

• Providing UK wide guidance, oversight and coordination of personal finance resources aimed at children and young people in schools.”97

59. The then Economic Secretary to the Treasury suggested a number of co-ordinating and guiding roles the Service could play in financial education, including: co-ordinating the numerous financial institutions active in schools, banks and other companies; providing a voluntary code of best practice; and discussing with Ministers in the Department for Education whether elements of financial education could be inserted into other core subjects, such as mathematics. 98

Training of teachers

60. During our hearings we heard evidence about the need to train teachers to deliver financial education in schools. Martin Lewis, of MoneySavingExpert.com, told us:

We talk about the capacity of teachers. It is not right to assume that teachers you think may be able to teach this subject, perhaps because they do economics or mathematics, have an easy read-across.

[...]

What we have to understand is this is a new subject. There are certain skills and abilities such as mathematical numeracy and understanding of business remits that

97 Ev w43

98 Q 462


are important, but it is something new and challenging. It is not enterprise, and it is not business studies; it is consumer finance.

In written evidence, MoneySavingExpert.com told us: “Teachers need to be properly trained and resourced to teach the subject effectively and MAS could play a role here.”99 Tracey Bleakley, of pfeg, said that “this should be a finite project because the schools network should be self-sustaining in a few years’ time, if we can get this right—if we can get teacher training, continuous professional development, the resources that we need, the evaluation embedded.”100

61. We also heard evidence about the funding of teacher training. Tracey Bleakley did not argue that such training should be wholly funded by the Money Advice Service, but did say that: “We have some very keen industry funders, but I think there is a place for funding and certainly to embed this in schools it is going to need to be paid for, so I would like to see MAS take a role in that.” For her part, Caroline Rookes, the Chief Executive of the Service, told us:

Our view is that the Department for Education probably should be funding teachers’ training for that, and that is what we have been talking to it about. So far we have not had any success in getting them to sign up to that.101

Developments in the course of our inquiry

62. As we have noted in paragraph 19 above, the Government announced in the course of our inquiry that financial education would be included in the National Curriculum for secondary schools.102 In its Business Plan for 2013/14, the Money Advice Service said:

“We will work alongside the Department and providers of financial education in the run-up to the implementation deadline of September 2014 to equip secondary schools to deliver this. We will also work with academies, independent and free schools, that are not required to deliver the National Curriculum, to help embed financial literacy in their own curricula.

We will work with the Department for Education and others on how best to deliver the financial education component of the new Curriculum as well as strategies that ensure that the knowledge delivered by curricula across the UK is effective in enabling people to develop positive financial behaviours in the long term.

We will work with partners and convene a national forum of stakeholders to promote best practice and innovation in delivery and assessment.

99 Ev w60

100 Q 60

101 Q 560

102 Department for Education, The National Curriculum in England: Framework document for consultation, February 2013, p 149


We will also map existing provision and seek to identify gaps based on geography, age and need to inform future investment and support the development of resources and projects by ourselves and partners.”103

We were encouraged to note that the Service planned to play a co-ordinating role rather than attempting to deliver financial education in schools itself.

63. Financial education for young people is vital. If pupils receive high-quality financial education, then the next generation may not suffer many of the financial capability problems that are experienced by the adult population of the UK. We welcome both the recent inclusion in the National Curriculum of financial education in mathematics and citizenship classes, and the stated intention of the Money Advice Service to develop its work on financial education in schools as a co-ordinator of provision rather than as a direct provider. The Service should work with providers of financial education in schools and with the Department for Education to establish standards to be met by all providers. We also recommend that the Service should provide funding from its existing budget for the training of teachers to deliver financial education in schools, in addition to the funding already provided by the private and voluntary sectors.

103 Money Advice Service, Business Plan 2013/14


6 Accountability and governance 64. The Financial Services Act 2010 set out the legal responsibility of the FSA (“the Authority”) for oversight of the Money Advice Service (“the consumer financial education body”). This responsibility has now been transferred to the FCA. Schedule 1 of the Act provides as follows:

1(1) The Authority must take such steps as are necessary to ensure that the consumer financial education body is, at all times, capable of exercising the consumer financial education function.

[...]

Budget

7(1) The consumer financial education body must adopt an annual budget which has been approved by the Authority.

[...]

Annual plan

8(1) The consumer financial education body must in respect of each of its financial years prepare an annual plan which has been approved by the Authority.

15(1) The Authority may appoint an independent person to conduct a review of the economy, efficiency and effectiveness with which the consumer financial education body has used its resources in discharging the consumer financial education function.

(2)The Authority must consult the Treasury before acting under this paragraph.104

65. The Act also provides that the board members of the Money Advice Service are appointed, and can be removed, by the Authority. For the Chair and Chief Executive, such action requires the additional approval of HM Treasury. The Authority also approves the remuneration of all board members.105 But the Act also provides that the terms of appointment of members of the board, and in particular those governing their removal from office, must be “such as to secure their independence from the Authority in the exercise of the consumer financial education function”.106

66. The evidence taken by the Sub-Committee in June 2012 suggested that the arrangements for the Service’s accountability to the FSA were, in practice, confused and ineffective. Lord Turner, then the Chairman of the FSA, told us that:

104 Financial Services Act 2010, Schedule 1

105 Financial Services Act 2010, Schedule 1, para 2

106 Financial Services Act 2010, Schedule 1, para 2


there is also concern on the part of the FSA board, which I expressed in a letter to Mark Hoban immediately after the board meeting in December, that our responsibilities at the moment put us in a sort of betwixt and between stage, and the board has clearly expressed the view that, going forward, we would like either to move in the direction of the MAS becoming a fully independent body directly accountable to this Committee and the Treasury, or to have more oversight at an earlier stage. We have clearly expressed the view that we would like to head in one or other of those directions.107

In a letter of 14 February 2012 to Mark Hoban, then Financial Secretary to the Treasury, Lord Turner wrote:

Existing legislation requires the FSA to take necessary steps to ensure MAS is capable of exercising the financial education function but powers to support this duty are limited. We are required to approve the MAS business plan but are not empowered to question operational issues such as outsourcing proposals, provided those proposals appear reasonable, and the Financial Services Bill did not increase those powers.

In his response to that letter, Mark Hoban MP, Financial Secretary to the Treasury, wrote that:

MAS will remain directly accountable to the FSA, and in future the FCA, including for approval of its budget and annual plan. I am confident that incentives on MAS to provide efficiency and value for money will be strengthened by subjecting the MAS to NAO audit. The FSA will, of course, have the option to notify the NAO of any areas of concern regarding MAS’s efficiency and economy.

67. The Sub-Committee heard from Lord Turner on 20 June 2012. Shortly afterwards, on 26 July 2012, the FSA Board established a sub-committee “for the purpose of providing support and advice to the [FSA] Board on its relationship with MAS and its obligations under FSMA in respect of MAS.”108 In November 2012, the Economic Secretary to the Treasury indicated to us that the problems we had observed with accountability existed not because, as the FSA had told us, the powers given to the FSA were not sufficient, but because the FSA had not used them properly:

They have put more staff in the FSA working on the MAS mandate. They have increased scrutiny of the information they get from MAS and they have conducted their own internal risk review. I am pleased that they have done this, but they could have done it before. I did not need to give them more powers to do this. I think, with the powers that they have, there is a lot that they can do.109

He was clear in his view that the FSA’s powers were adequate:

107 Q 97

108 Financial Services Authority, Committee of the Board for the oversight of the Money Advice Service, Terms of Reference

109 Q 430


I am satisfied that the powers that already exist for the FSA to oversee MAS and its functions are adequate. Just to summarise, FSA has always had the powers since MAS was created. It had to sign off on its budget. It has to sign off on its business plan. It has the power to appoint and dismiss directors. I think that in itself is sufficient power.110

68. The Financial Services Act 2012 made some changes to the governance arrangements for the Money Advice Service. It provided for the transfer to the Financial Conduct Authority (FCA) of the oversight role previously carried out by the FSA. It imposed a duty of co-operation on the FCA and the Service. It required the Service and the FCA to prepare and maintain a memorandum describing how they intended to comply with this requirement. To this end, a framework document setting out the roles and responsibilities of the Money Advice Service, and the roles and responsibilities of HM Treasury and the FCA in respect of the Service, was signed in March 2013.111 In addition, the Act provided for the Service’s accounts to be audited by the National Audit Office and laid before Parliament. The FCA established a sub-committee of its Board to “to provide support and advice to the Board on its relationship with the Money Advice Service (MAS) and its obligations under FSMA in respect of MAS.”112

69. In June 2013 we asked Caroline Rookes, the Chief Executive of the Service, whether there was now clarity about the accountability arrangements. She told us that:

There is a clear understanding between the FCA, the Treasury and ourselves. One of my directors meets regularly with the team that is responsible for oversight of the Money Advice Service and we exchange information on a monthly basis. We have very, very close working relationships. I am satisfied that the relationships and the accountabilities are clear.113

70. The new Chief Executive of the Money Advice Service articulated a clear understanding of the accountability of the Service to the FCA and HM Treasury. This is welcome. However, it does not seem plausible that arrangements which the FSA considered inadequate in June 2012 became adequate with no change other than the appointment of a sub-committee of the FSA’s board. It is clear that the FSA’s Board believed that it did not have sufficient powers effectively to hold the Money Advice Service to account. The independent review we have recommended should therefore consider specifically whether the FCA needs additional statutory powers to hold the Money Advice Service to account—for example, whether the FCA should have powers to intervene on operational matters and whether it needs additional powers to scrutinise the Service’s budget.

110 Q 429

111 http://www.fca.org.uk/static/documents/mou/mas-fca-hmt-framework-document.pdf

112 Financial Conduct Authority, Corporate Governance of the Financial Conduct Authority, April 2013

113 Q 484


Remuneration and staffing

71. Concerns about the high pay of the then Chief Executive of the Money Advice Service, Tony Hobman, were raised by the Business, Innovation and Skills Committee in March 2012.114 The Committee noted that the Chief Executive of the Service received total remuneration in excess of £350,000, and concluded that “At a time of pay restraint we do not believe that the head of a comparatively small organisation should receive a salary £100,000 in excess of the Prime Minister.”115 Lord Turner explained that the Chief Executive’s salary had been set:

in the light of his previous remuneration and with a point of view on what was required to persuade him to move to this job. It was also set by cross-reference to the then salary and remuneration of the head of the FSCS, which was seen as the nearest comparable body.116

72. Mr Hobman’s basic salary for the last year in his previous role as Chief Executive of the pensions regulator was £175,000 to £180,000, meaning that his salary at the Money Advice Service represented a considerable pay increase.117 The Chief Executive of the Financial Services Compensation Scheme (FSCS), described by Lord Turner as “the nearest comparable body”, earned approximately £275,000 in 2011–12.118 However, the logic of this comparison with the FSCS is not clear: in our view, a more appropriate comparison would be with other bodies in the advice sector, where pay is generally lower than in the financial services sector. For example, in 2010–11 the five Executive Directors at Citizens Advice earned in the region of £80,000 to £110,000.119 We also note that the Permanent Secretary of HM Treasury, the Government department with responsibility for the Money Advice Service, earned between £175,000 and £180,000 in 2012–13.120 In this context, the decision to pay the Chief Executive of this organisation such a large amount seems to have been ill-thought out.

73. In November 2012 it was announced that a new Chief Executive of the Money Advice Service, Caroline Rookes CBE, had been appointed. Ms Rookes took up her post in February 2013. Alongside the FSA’s announcement of the appointment, it was announced that the new Chief Executive would receive a base salary of £140,000 and a package of benefits comprising life assurance, private medical insurance and a pension. A “performance-related reward” could be recommended on an exceptional basis, but there was “no expectation that any bonuses will be considered or awarded.”121 We note that this is still a considerable salary for the Chief Executive of a comparatively small body whose

114 Business, Innovation and Skills Committee, Fourteenth Report of Session 2010–12 Debt Management, HC 1649

115 Business, Innovation and Skills Committee, Fourteenth Report of Session 2010–12 Debt Management, HC 1649, para 143

116 Q 100

117 The Pensions Regulator, Annual Report and Accounts for 2010/11, p. 69

118 Financial Services Compensation Scheme, Annual Report and Accounts for 2011/12, p. 113

119 Citizens Advice, Annual Report and Accounts for 2010/11, p. 37

120 HM Treasury, Annual Report and Accounts for 2012/13, HC 34, July 2013

121 Letter from John Griffith Jones to Andrew Tyrie and George Mudie, 23 November 2012


total budget in 2012/13 was £80.7m, and that it is only £2,500 below the salary of the Prime Minister.

74. We also noted from the Annual Review published in June 2013 that two members of staff continued to be paid more than the Chief Executive.122 Ms Rookes explained that this was “[b]ecause they were recruited some time in the past on those terms. I cannot alter those.”123 She added that “As and when directors leave and come to be replaced, we will look at the prevailing conditions and the job, and then consider what the rate of pay should be”.124 Commenting on pay at the Money Advice Service more generally, the then Economic Secretary to the Treasury said that he expected the Service “to show proper sensitivity to pay and to take into account that many people who are paid either directly or indirectly through taxes are subject to public sector pay restraint.”125

75. In appointing a new Chief Executive on a salary considerably lower than that of her predecessor, the Money Advice Service, the FSA and the Treasury appear to have recognised that the remuneration of the former Chief Executive of the Money Advice Service was excessive. We welcome this. We regret, however, that the decision to reward the previous Chief Executive so excessively was taken in the first place and that two members of staff continue to be paid more than the current Chief Executive. These decisions risk undermining the credibility of the organisation. We urge the Service, the FCA and the Treasury to exercise the appropriate restraint when determining the future remuneration of senior staff. The independent review we have recommended should examine the remuneration of the Service’s senior staff and should seek legal advice, which should be published with its report, about whether existing salaries could be reduced.

122 Money Advice Service, Annual Review, Directors’ Report and Financial Statements for the year ended 31 March

2013, June 2013, p. 46

123 Q 519

124 Q 520

125 Q 446


7 Conclusions 76. The Money Advice Service was created in a well-intentioned attempt to address a serious problem: many people lack the financial capability and the guidance they need to help them to manage their money. We are, however, unconvinced that the Service has adopted the right strategy or that it currently performs the correct role. The evidence we heard in our initial hearings caused us to question whether the Service should continue its work at all, and we have considered carefully whether we should recommend its abolition. We recognise, however, the attempts of the Service in recent months to improve its service and the way it works. In view of this, we will await the findings—which should be no later than summer 2014—of the independent review we have recommended.

77. The independent review must seek to answer the following questions:

• Should the Money Advice Service—or something like it—exist as a statutory organisation?

• If so, what should the role and strategy of such a body be? Should it be a co-ordinator, commissioner or direct provider of advice? What channels should it use?

• If not, should the FCA take responsibility for the objectives of the Service?

These questions are in addition to those we have already set out in this report, namely: • Does the FCA need greater statutory powers to hold the Money Advice Service to

account?

• What are the views of other bodies in this sector about the way in which the Money Advice Service is now engaging with them?

• To what extent does the work of the Money Advice Service unnecessarily duplicate existing provision? What should the role of the Service be in each of the areas in which it operates?

• Is the remuneration of the Service’s senior staff set at an appropriate level?


Conclusions and recommendations

Review of the Money Advice Service

1. We are concerned on two fronts about HM Treasury’s planned review of the Money Advice Service. First, given the then Minister’s endorsement of the role of the Service and of its effectiveness, we are concerned that the Treasury may already have decided that the Service should continue to exist in its current form. We therefore recommend that, rather than conducting a review itself, HM Treasury commission an independent review of the Service. Secondly, we consider that 2013–15 is too long a timescale for a review. This should be considered a matter of urgency and an independent review should be completed, and its findings published, by the summer of 2014. (Paragraph 23)

2. We would expect the NAO’s work to inform the independent review of the Service. (Paragraph 24)

Money advice and debt advice

3. While we note the planned reduction in marketing costs for 2013–14, the amounts spent on marketing by the Money Advice Service have been a source of concern throughout our inquiry. This spending arises from the Service’s decision to adopt a “primarily digital” approach to the provision of advice. While we accept that some marketing activity is necessary to build a brand and to encourage people to visit a website, the very large amounts that have been spent on marketing in the Service’s early years suggest that the strategy to build a separate brand, and in particular to rebrand as the Money Advice Service when the moneymadeclear brand was already in use, was misguided. (Paragraph 38)

4. During economic downturns, demand for debt advice is likely to increase. We recommend that during difficult economic circumstances such as those following the financial crisis of 2008, the Money Advice Service’s resources should be focused on helping those in crisis. Funds may therefore need to be reallocated from money advice to debt advice. In more favourable economic circumstances, it may be preferable to focus more on the prevention of future financial problems through money advice. We recommend that the Service be given greater flexibility on the proportion of its budget that it spends on money advice and debt advice respectively, responding to changes in demand. (Paragraph 41)

5. Efficient provision of debt advice services is a laudable aim. Nevertheless, when seeking to increase productivity, the Money Advice Service must be mindful of the need to maintain the quality of the service it provides. The Committee is sceptical that productivity can have been increased by 50 per cent in a single year without some resulting reduction in quality of service. We urge the Service to be mindful of its relative inexperience in the sector compared to many of the bodies from which it commissions services, and to seek to agree common standards in collaboration with those bodies. We recommend that the Money Advice Service establish a working group, composed of representatives from the debt advice sector, to agree a set of


service standards for debt advice and a strategy for achieving those standards. (Paragraph 43)

Engagement with existing providers of money and debt advice

6. The way in which the Money Advice Service initially engaged with the wider advice sector was a matter of grave concern to the Committee during the first phase of our inquiry. As a newly-created statutory body, entering a sphere in which there were already a number of well-respected, well-established and successful bodies in the private and voluntary sectors, it should not have begun its work without properly consulting those bodies and without taking the work of those bodies into account. (Paragraph 49)

7. We welcome the emergence of an approach which appears to be more firmly based on forming constructive working relationships with existing advice providers. We recommend, however, that the independent review we have recommended of the Money Advice Service should seek the views of other bodies in the sector on the way in which the Service is engaging with them and take account of these views in reaching its conclusions. (Paragraph 50)

8. The initial failure effectively to consult and build relationships with existing organisations in the sector resulted in the Money Advice Service duplicating what was already being provided in the private and charitable sectors. The independent review we have recommended should examine the extent to which the work of the Service unnecessarily duplicates existing provision and should establish clearly what the role of the Service should be in each of the areas in which it operates. (Paragraph 55)

Financial education in schools

9. Financial education for young people is vital. If pupils receive high-quality financial education, then the next generation may not suffer many of the financial capability problems that are experienced by the adult population of the UK. We welcome both the recent inclusion in the National Curriculum of financial education in mathematics and citizenship classes, and the stated intention of the Money Advice Service to develop its work on financial education in schools as a co-ordinator of provision rather than as a direct provider. The Service should work with providers of financial education in schools and with the Department for Education to establish standards to be met by all providers. We also recommend that the Service should provide funding from its existing budget for the training of teachers to deliver financial education in schools, in addition to the funding already provided by the private and voluntary sectors. (Paragraph 63)

Accountability and governance

10. The new Chief Executive of the Money Advice Service articulated a clear understanding of the accountability of the Service to the FCA and HM Treasury. This is welcome. However, it does not seem plausible that arrangements which the FSA considered inadequate in June 2012 became adequate with no change other than the appointment of a sub-committee of the FSA’s board. It is clear that the


FSA’s Board believed that it did not have sufficient powers effectively to hold the Money Advice Service to account. The independent review we have recommended should therefore consider specifically whether the FCA needs additional statutory powers to hold the Money Advice Service to account—for example, whether the FCA should have powers to intervene on operational matters and whether it needs additional powers to scrutinise the Service’s budget. (Paragraph 70)

11. In appointing a new Chief Executive on a salary considerably lower than that of her predecessor, the Money Advice Service, the FSA and the Treasury appear to have recognised that the remuneration of the former Chief Executive of the Money Advice Service was excessive. We welcome this. We regret, however, that the decision to reward the previous Chief Executive so excessively was taken in the first place and that two members of staff continue to be paid more than the current Chief Executive. These decisions risk undermining the credibility of the organisation. We urge the Service, the FCA and the Treasury to exercise the appropriate restraint when determining the future remuneration of senior staff. The independent review we have recommended should examine the remuneration of the Service’s senior staff and should seek legal advice, which should be published with its report, about whether existing salaries could be reduced. (Paragraph 75)

Conclusions

12. The Money Advice Service was created in a well-intentioned attempt to address a serious problem: many people lack the financial capability and the guidance they need to help them to manage their money. We are, however, unconvinced that the Service has adopted the right strategy or that it currently performs the correct role. The evidence we heard in our initial hearings caused us to question whether the Service should continue its work at all, and we have considered carefully whether we should recommend its abolition. We recognise, however, the attempts of the Service in recent months to improve its service and the way it works. In view of this, we will await the findings—which should be no later than summer 2014—of the independent review we have recommended. (Paragraph 76)

14. The independent review must seek to answer the following questions:

• Should the Money Advice Service—or something like it—exist as a statutory organisation?

• If so, what should the role and strategy of such a body be? Should it be a co-ordinator, commissioner or direct provider of advice? What channels should it use?

• If not, should the FCA take responsibility for the objectives of the Service?

These questions are in addition to those we have already set out in this report, namely:

• Does the FCA need greater statutory powers to hold the Money Advice Service to account?


• What are the views of other bodies in this sector about the way in which the Money Advice Service is now engaging with them?

• To what extent does the work of the Money Advice Service unnecessarily duplicate existing provision? What should the role of the Service be in each of the areas in which it operates?

• Is the remuneration of the Service’s senior staff set at an appropriate level? (Paragraph 77)


Formal Minutes

Wednesday 20 November 2013

Members present:

Mr Andrew Tyrie, in the Chair

Mark Garnier Stewart Hosie Andrea Leadsom Mr Andrew Love Mr Pat McFadden

Mr George Mudie Mr Brooks Newmark Jesse Norman David Ruffley John Thurso

Draft Report (Money Advice Service), proposed by the Chair, brought up and read.

Ordered, That the draft Report be read a second time, paragraph by paragraph.

Paragraphs 1 to 77 read and agreed to.

Resolved, That the Report be the Seventh Report of the Committee to the House.

Ordered, That the Chair make the Report to the House.

Ordered, That embargoed copies of the Report be made available, in accordance with the provisions of Standing Order No. 134.

[Adjourned till Tuesday 26 November at 9.45 am


Witnesses

Wednesday 13 June 2012 Page

Joe Garner, Chair, Financial Services Practitioner Panel, Adam Philips, Chair, Financial Services Consumer Panel, Delroy Corinaldi, Director of External Affairs, Consumer Credit Counselling Services, and David Hawkes, Advice UK Ev 1

Tracey Bleakley, Chief Executive, pfeg (Personal Finance Education Group), Otto Thoresen, Director General, Association of British Insurers, and Martin Lewis, MoneySavingExpert.com Ev 10

Wednesday 20 June 2012

Lord Turner of Ecchinswell, Chairman, Financial Services Authority, and Martin Wheatley, Managing Director, Conduct Business Unit, Financial Services Authority Ev 19

Gerard Lemos, Chairman, Money Advice Service, and Tony Hobman, Chief Executive, Money Advice Service Ev 28

Wednesday 5 September 2012

Gillian Guy, Chief Executive, Citizens Advice Ev 46

Wednesday 28 November 2012

Sajid Javid MP, Economic Secretary to the Treasury, and Alison Cottrell, Director of Financial Services, HM Treasury Ev 56

Monday 24 June 2013

Caroline Rookes CBE, Chief Executive, Money Advice Service Ev 68


List of written evidence

Published on the Committee’s website www.parliament.uk/treascom

1 Money Advice Trust Ev w1

2 Advice UK Ev w9

3 Unbiased.co.uk Ev w13

4 United Kingdom Shareholders’ Association Ev w15

5 Money Advice Service Ev w26; Ev w114 & 115

6 Sue Lewis, stl consultants Ev w30

7 Ifs School of Finance Ev w33

8 Partnership Assurance Ev w36

9 Association of Independent Financial Advisers Ev w37

10 TaxAid Ev w39

11 Pfeg Ev w43

12 National Association of Student Money Advisers (NASMA) Ev w47

13 Association of British Credit Unions Limited Ev w48

14 Institute of Chartered Accountants in England and Wales Ev w50

15 Council of Mortgage Lenders Ev w53

16 AgeUK Ev w56

17 Moneysavingexpert.com Ev w60

18 Toynbee Hall Ev w63

19 Marketguard Ev w67

20 Financial Services Practitioner Panel Ev w68

21 Investment and Life Insurance Group Ev w71

22 Investment Management Association Ev w73

23 IFA Centre Ev w75

24 The Financial Services Consumer Panel Ev w78

25 National Housing Federation Ev w83

26 Arrow Global Ev w84

27 British Bankers Association Ev w86

28 British Insurance Brokers’ Association Ev w89

29 Consumer Credit Counselling Service Ev w90

30 Citizens Advice Ev w95

31 Credit Action Ev w99

32 Building Societies Association Ev w102

33 Association of British Insurers Ev w106

34 Which? Ev w108

35 Otto Thoresen, Director General, Association of British Insurers Ev w110


List of Reports from the Committee during the current Parliament

Session 2010–12

First Report June 2010 Budget HC 350

Second Report Appointment of Dr Martin Weale to the Monetary Policy Committee of the Bank of England

HC 475

Third Report Appointment of Robert Chote as Chair of the Office for Budget Responsibility

HC 476

Fourth Report Office for Budget Responsibility HC 385

Fifth Report Appointments to the Budget Responsibility Committee HC 545

Sixth Report Spending Review 2010 HC 544

Seventh Report Financial Regulation: a preliminary consideration of the Government’s proposals

HC 430

Eighth Report Principles of tax policy HC 753

Ninth Report Competition and Choice in Retail Banking HC 612

Tenth Report Budget 2011 HC 897

Eleventh Report Finance (No.3) Bill HC 497

Twelfth Report Appointment of Dr Ben Broadbent to the monetary Policy Committee of the Bank of England

HC 1051

Thirteenth Report Appointment of Dr Donald Kohn to the interim Financial Policy Committee

HC 1052

Fourteenth Report Appointments of Michael Cohrs and Alastair Clark to the interim Financial Policy Committee

HC 1125

Fifteenth Report Retail Distribution Review HC 857

Sixteenth Report Administration and effectiveness of HM Revenue and Customs HC 731

Seventeenth Report Private Finance Initiative HC 1146

Eighteenth Report The future of cheques HC 1147

Nineteenth Report Independent Commission on Banking HC 1069

Twentieth Report Retail Distribution Review: Government and FSA Responses HC 1533

Twenty-first Report Accountability of the Bank of England HC 874

Twenty-second Report Appointment of Robert Jenkins to the interim Financial Policy Committee

HC 1575

Twenty-third Report The future of cheques: Government and Payments Council Responses

HC 1645

Twenty-fourth Report Appointments to the Office of Tax Simplification HC 1637

Twenty-fifth Report Private Finance Initiative: Government, OBR and NAO Responses

HC 1725

Twenty-sixth Report Financial Conduct Authority HC 1574

Twenty-seventh Report Accountability of the Bank of England: Response from the Court of the Bank

HC 1769

Twenty-eighth Report Financial Conduct Authority: Report on the Governments Response

HC 1857

Twenty-ninth Report Closing the tax gap: HMRC’s record at ensuring tax compliance

HC 1371

Thirtieth Report Budget 2012 HC 1910


Session 2012–13

First Report Financial Services Bill HC 161

Second Report Fixing LIBOR: some preliminary findings HC 481

Third Report Access to cash machines for basic bank account holders

HC 544

Fourth Report Appointment of Mr Ian McCafferty to the Monetary Policy Committee

HC 590

Fifth Report The FSA’s report into the failure of RBS HC 640

Sixth Report Appointment of John Griffith-Jones as Chair-designate of the Financial Conduct Authority

HC 721

Seventh Report Autumn Statement 2012 HC 818

Eighth Report Appointment of Dr Mark Carney as Governor of the Bank of England

HC 944

Ninth Report Budget 2013 HC 1063

Session 2013–14

First Report Appointments of Dame Clara Furse, Richard Sharp, and Martin Taylor to the Financial Policy Committee

HC 224

Second Report Appointments of Dr Donald Kohn and Andrew Haldane to the Financial Policy Committee

HC 259

Third Report Spending Round 2013 HC 575

Fourth Report Re-appointment of Professor Stephen Nickell to the Budget Responsibility Committee

HC 688

Fifth Report Appointment of Sir Jon Cunliffe as Deputy Governor of the Bank of England

HC 689

Sixth Report Re-appointment of Dr Martin Weale to the Monetary Policy Committee

HC 313

Seventh Report Money Advice Service HC 457

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