The Economic Secretary to the Treasury (John Glen)
I congratulate the hon. Member for Airdrie and Shotts (Neil Gray) on securing this debate, and I thank him for all the work that he has done on this topic with his colleagues. I hope that today marks a significant moment, following the excellent work that he has undertaken. I acknowledge the ambiguities that exist at this time. Although I will try to address a number of them in my response, I invite him to meet me and officials to go through them in detail so that we can fully absorb his concerns.
I also acknowledge the work that has been undertaken by other Members who have spoken in the debate, including, in particular, that done by the hon. Member for Swansea East (Carolyn Harris), who has an ongoing interest in this topic. I mention particularly the work that she has done with the children’s funeral fund. I hope that her Adjournment debate on 1 May, with the Under-Secretary of State for Justice, my hon. Friend the Member for Charnwood (Edward Argar), was of assistance.
On Sunday, I launched a consultation that outlines the Government’s proposal to bring all funeral plan providers within the remit of the Financial Conduct Authority. I will take this opportunity to outline the rationale behind that announcement and do my best to respond to the questions that have been raised.
Sadly, many of us in the Chamber will have had to plan a funeral for a loved one. It is a difficult, emotional and expensive experience, with an average funeral costing between £4,000 and £6,000. For the last 14 years, funeral costs have been rising at twice the rate of inflation—about 6% per annum—so it is understandable that people wish to make some of the arrangements in advance, giving them the peace of mind that their loved ones will not be left with difficult decisions or a large bill after they have passed on. Funeral plans allow people to make these arrangements, to pay for their funeral in advance and to lock in a price. The market for funeral plans has grown considerably in recent years, with sales rising by nearly 200% between 2006 and 2018. Almost 1.4 million plans are now held by individuals up and down the country.
The hon. Member for Airdrie and Shotts asked about the Government’s perception of what this intervention will do to the market. That is difficult to anticipate at this point, but we will look carefully at the responses throughout the consultation, which runs up to 25 August, and will be alive to those concerns. The huge growth in the market, combined with a largely voluntary regulatory framework, has given rise to some pretty shameful practices, with some companies taking advantage of people only trying to do the right thing by their families. It is clear that the market has outgrown the 18-year-old legislative framework and that more robust regulation is needed, as the hon. Gentleman explained to the House more than two and a half years ago.
I will briefly describe the current framework. At present, funeral plan providers who offer plans backed by either a trust or an insurance contract are excluded from FCA regulation. It appears that all funeral plan providers have structured their business such that they benefit from these exclusions. A system of voluntary regulation has been established by the FPA, which has done some good work covering about 95% of the market, as the hon. Gentleman pointed out, but the reports of poor practice have largely come from providers that are not FPA members. A system that allows market participants to choose whether to be regulated cannot be sustainable for a market of this size and nature—we are talking about £3.5 billion being invested by 1.3 million people—because only the reputable firms will choose to comply.
For these reasons and following reports of poor practice, I launched a call for evidence in June last year on the regulation of the funeral plan market. The Government sought views and evidence on how the market was operating and on the Government’s initial policy proposal to bring funeral plan providers within the FCA’s remit. In the light of the evidence received, it is clear that consumer detriment is present in the market, both at the point of sale and afterwards. At the point of sale, some providers and their distributors use high-pressure and misleading sales tactics to promote and sell funeral plans. Given the context—what these individuals are trying to do at a difficult time in their lives—that is particularly unacceptable. Standards of disclosure are also poor, leaving people unsure of what is included in their plan.
We have also found that after a plan has been purchased some providers remove high upfront costs in the form of commission or administration fees, which have been as high as £800, leading to concerns about whether there will be enough money left to pay for the funeral. Some funeral directors have also been named on plans without their knowledge or prior consent, and in some circumstances this has led to an alternative funeral director being appointed, with customers at that vulnerable time left confused about who will conduct the funeral service. There is also anecdotal evidence of conflicts of interest within some trusts’ investment strategies, and there are clear signs that consumers are being disadvantaged.
Perhaps the most striking finding, however, was that 84% of respondents agreed that regulation must be made compulsory, so there is clear demand from the market itself for enhanced regulation. Action must and will be taken. Consumers need to understand the products they buy and be confident they are well regulated. This should have wider benefits beyond the immediate funeral plan sector. Research by the CMA, which is investigating the wider market, has found that the vast majority of people do not shop around for a funeral, which is entirely understandable following a bereavement. A properly regulated funeral plan sector that enables people to plan ahead with confidence and shop around should have knock-on effects for competition in the wider funeral sector.
The FCA is best placed to take on responsibility for regulating the sector, although I acknowledge the concern about the cost and nature of that regulation and would be happy to discuss that with the hon. Gentleman in a meeting. We need to get that right, given the wide range of small family providers, and to make sure it is appropriate. The FCA would be obliged to consult on that. It is none the less a well-established regulator, accustomed to taking strong regulatory action when necessary, and it has the appropriate rule-making powers to tackle the conduct and prudential concerns that are identified in the market. It will be able to develop a targeted and proportionate approach to regulating the market, in line with its statutory objectives.
My Department has developed a full legislative proposal to bring funeral plans within the FCA’s remit. That framework will ensure that the Government meet their three stated objectives for the regulation of the funeral plan market. First, all funeral plan providers and their distributors will be subject to robust conduct standards via FCA rules. Secondly, the FCA will have the necessary powers to tackle the prudential concerns in the market. Finally—this was raised by the hon. Gentleman—consumers will have access to the Financial Ombudsman Service if things go wrong.
Jim Shannon
The hon. Member for Airdrie and Shotts (Neil Gray) referred to compensation. I want to ask Minister about this because it was discussed at the working group today. If someone pays for a funeral plan and the firm that takes the money goes bust or ceases to operate, will there be a method whereby people can get their money back?
John Glen
That would be resolved by the process in which we are currently engaged—the consultation process, and the proposals for legislation in the autumn—and my expectation is that that is what we shall be aiming for.
We should set the framework for a market that functions more fairly and in the interests of consumers. The future regulatory framework for funeral plans was set out, in detail, in a consultation that I launched on Sunday. The consultation will run for 12 weeks, and it will give stakeholders an opportunity to comment on the proposed legislative framework before the Government consider the responses and finalise their proposed approach.
The hon. Member for Airdrie and Shotts asked an important question about what would happen during the gap between now and the introduction of the full new regulations. Whatever regulatory route is chosen, a transition will be necessary. FCA regulation can be carried out via secondary legislation and will therefore be quickest. The membership of the existing regulatory authority—the self-defining one—clearly has some reputational benefits in the interim, and I would encourage consumers to use the FPA-regulated providers during that period. I recognise that there is a dispute about the most appropriate way forward. That is what the consultation will be about, and the Government will reflect carefully before presenting proposals.
I hope that I have responded adequately to the points that have been raised. I thank colleagues on both sides of the House for their contributions to the debate. This is a very important issue involving real human misery, and as the hon. Gentleman has said, what was happening was an outrage. I am determined that we will get this right for our constituents across the country and leave the market in a far better state.
Question put and agreed to.