Finance (No. 3) Bill

Yvonne Fovargue Excerpts

Monday 4th July 2011 Commons Chamber

[Chris Leslie]

I did indeed know of the hon. Gentleman’s announcement of some time ago—not quite a full year yet. We are now into July, and the funding is due to run out next April, expiring at the beginning of the financial year 2012-13. Many advice agencies are quite anxious about what will fill the gap. It is clear that he has kicked the issue to the Money Advice Service, although we do not yet know what its approach will be. One crucial point is whether it will be interested in face-to-face advocacy and supporting such activity.

[Yvonne Fovargue (Makerfield) (Lab)]

Does my hon. Friend agree that the Money Advice Service now constitutes an online source of advice for those who have money on where to invest it and does not address the issue of people who are in debt?

[Chris Leslie]

My hon. Friend makes an important point. In addition, it does not necessarily address the face-to-face advice that is given by many citizens advice bureaux and other agencies that have been reliant on the financial inclusion fund. The Minister says sotto voce that it will do face-to-face advice as well; I will be interested to see whether the £26 million of investment is maintained. No doubt he will want to clarify that when he addresses the new clause.

I pay tribute to my hon. Friend the Member for Walthamstow (Stella Creasy), whose tenacity is to be commended for the fact that this issue remains front and centre on the political agenda. The Back-Bench motion that was passed last February called on the Government to introduce measures to increase access to affordable credit and to take regulatory action to control non-competitive examples of excessive charging, but we still have not seen any action since then. That is another reason why it is important to move forward and get a sense of priority and urgency into this issue, and this Bill is a good opportunity to consider these matters.

My right hon. Friend the Member for Sheffield, Brightside and Hillsborough (Mr Blunkett) spoke earlier about why some of this action is needed now. The changes to the social fund and crisis loans that were announced in March—after the Back-Bench motion was passed in February—mean that social fund crisis loans will no longer be available to pay for basics such as cookers and beds, and the living expenses rate is being cut from 75% to 60% of the benefit rate, thereby limiting the number of loans that can be applied for. In addition, there is a backlog of unprocessed claims and the Government are planning to cut the discretionary social fund from £872 million last year to just £183 million this financial year—all under the axe of a Liberal Democrat Work and Pensions Minister of State, the hon. Member for Thornbury and Yate (Steve Webb).

At the same time, thousands, if not hundreds of thousands, are being disfranchised from access to credit. After the credit crunch, as the banks recapitalise, we see withdrawal from anything vaguely “sub-prime”, as it may be categorised. However, it is also known that there is money to be made from vulnerable customers. Many hon. Members will have experienced pushy sales calls, which are randomly generated, and text messages, which many people are receiving. It is about the desperate customers that I worry most and their responses to some of those apparent offers of help and assistance. It is all part of the allure of high-cost credit, which we need to regulate far more effectively.

It had been hoped that the promises of mutuality and support for the credit union movement in the coalition agreement would by now have tried to make some inroads into this problem, but despite the promise in the coalition agreement that

“detailed proposals to foster diversity in financial services, promote mutuals and create a more competitive banking industry”

would be brought forward, all we have seen from the Government so far is the Northern Rock trade sale, local authority discretionary help for credit union squeeze because of the cuts to their budgetary position and, of course, the Treasury’s pre-emption of the Lloyds Banking Group disposal. The Vickers commission was looking at how to handle that particular issue, but Ministers have pressed on with the disposal of 620 branches rather than pausing and waiting for that report.

At the same time, funding for advice and financial education is falling away, as we have been discussing, as local authorities cannot pick up the tab. The basic problem is that not all customers are informed and logical when it comes to financial issues. The Money Advice Service, as my hon. Friend the Member for Makerfield (Yvonne Fovargue) mentioned, may well be there as a guide for people who have the time and space to make those decisions, but many of our constituents are not only busy but often confused about financial services. They can be distracted and stressed and in many cases they have an aversion to small print. Coupled with that, there is massive inertia in credit services.

There are some fantastic charities, such as Citizens Advice, which I have mentioned, and the Consumer Credit Counselling Service, of which I was a board trustee for five years. They pursue a number of ways to help those in most distress. Creditor-funded consolidation is a very good approach, but we need other reforms in the sector; facets include, for example, the fee-charging, customer-charging debt management plan providers. Charging customers rather than looking to the creditor to cover the administrative costs is an unacceptable business model in this day and age. The practice should be phased out and I hope the Minister agrees.

--- Later in debate ---

[Andrew Percy]

Of course that is what we all want to see, but we await the response of the Minister. At one point, some Opposition Members seemed to be saying that the Government were going to announce something at the Liberal Democrat conference, suggesting that it would no doubt be a well attended—I will not be going —and joyous occasion. Indeed, the hon. Member for Walthamstow seemed to suggest that the Government already had a solution that they were about to announce in October, so we all look forward to hearing what they have to say.

To end where I began, this is a hugely important issue for a lot of my constituents, as it is for constituents up and down the country, and it is time that we did something about it. It is appalling that people end up on a conveyor belt and seem unable to get off it. I therefore look forward to the Minister’s response, and I genuinely hope that we have some action soon, in the interests of all our constituents.

[Yvonne Fovargue]

At any one time there are 5 million to 7 million people in this country who are unbanked or who do not have a credit history. In the main, they are the people who turn to high-cost lenders, because they do not have a credit history and they have nowhere else to go. Personal debt is rising, with 46% struggling until pay day, up 8% this year. Again, they are the people turning to the payday lenders.

I take issue with the claim that the rate has grown in the last decade. When I started in the advice field 20 years ago, there was one high-cost lender, Provident, which targeted a specific market. Provident went round the estates, using neighbours and talking to people. The company would go in—here I also take issue with the claim that people use the money on luxuries—and find people who needed to replace their broken cooker. The neighbour would come in, look at the cooker and say, “Oh yes, I can lend you that money.” When the loan was nearly repaid, Provident would come back and say, “Tell you what, your sofa’s looking a bit shabby. It won’t cost you much more to get a sofa,” and people would get trapped in a cycle of debt. However, in one respect, Provident was reasonably easy to deal with, because there was one company with a specific target group. It was possible to go round and talk to individuals, target schools and visit the residents groups that the people concerned attended. It is much more difficult now. The explosion of advertising and the normalisation of the process have made it so much more difficult to control the market and tell people what the dangers are.

I had a constituent come to me in February, as soon as he realised my interest in the subject. He could not quite manage to the end of the month—I think his car tax was due—and he had taken out a payday loan. The company immediately took the payment and the interest out of his bank account the next month. He realised that he could not get to the end of that month either, so he took out another payday loan. That carried on and in the end he had 10 payday loans and all his salary was being taken from his bank account. That was a man who was working. Such companies are supposed to check that people can afford to pay the money back and that they do not have other credit, but that did not happen in this case. For such companies, self-regulation absolutely is not working. That company was not an illegal loan shark: it was a legal company and it did not threaten to break the man’s legs, but it left him in a cycle of stress and depression that he found very hard to get out of.

I am also concerned about the double whammy that these companies are operating, as many of the companies that put people into debt are opening debt-management arms to get people out of debt as well. When the financial inclusion fund was finishing last year, those companies were circling like sharks. I cannot tell hon. Members how many companies contacted me basically gloating and saying, “There will be no, or very limited, free debt advice, so people will have to turn to us and you will have to deal with us now.”

I welcome the Money Advice Service because any advice on budgeting is welcome, but that service does not replace face-to-face debt advice. There is a need for that kind of service to be available—and more freely available than it is now. People have what I call behind-the-clock syndrome. They get into debt and cannot face opening the letter about their debt so they put it behind the clock. When they get the next letter, that also goes behind the clock. I cannot tell hon. Members the number of people who used to come into the bureau with a carrier bag whom I would look at and think, “They are in debt”. They would have a carrier bag full of letters that they could not face opening. People are not going to deal with a telephone or online service if they cannot even open a letter. There is a need for free, impartial, face-to-face debt advice and for regulation of debt management companies. Self-regulation is not working. It did not work in America, and when America regulated, those companies started coming over here because they like what they see.

[Damian Hinds]

Does the hon. Lady agree that while the availability and accessibility of free debt advice are important, visibility is also important? When people do get around to opening letters and starting to seek help, if they search on internet search engines for debt advice, Citizens Advice and the Consumer Credit Counselling Service ought to come at the top of the list even though they cannot afford to compete with debt management companies on pay-per-click rates. Should we not exhort Google and others to make sure that those services are duly highlighted?

[Yvonne Fovargue]

I think that is an excellent suggestion, but there also have to be appointments available when people need them. It is no use searching for citizens advice bureaux if appointments are not available for six to eight weeks because funding to provide the very specialist advice that is needed has dried up. We have to make sure, first, that people get information about where they can go, and, secondly, that appointments are available.

Regulation of debt management companies is needed. They come at the top of Google and other search engines on the basis that they will be going out of business in two years’ time anyway, so they might as well make as much money as possible by charging up-front fees and charging as much as they can. If they do go bust, as two have recently, it does not really matter to them. I had a client come to me who had been paying £40 a month to a debt management agency for 18 months, at the end of which he owed his creditors more than when he had started. Those companies need to be regulated.

The new clause is one of the range of measures we need. We have to keep this issue high on the agenda because the longer we leave it, the more people will go to high-cost lenders and debt management companies and the more people will get themselves into a spiral of unaffordable debt. We have to act now. It is no use leaving this for another five or six months—how many thousands more will have got themselves into debt in that time?

[Oliver Heald]

In the circumstances, I shall not trespass on the House’s good will for too long.

I want to start where the hon. Member for Makerfield (Yvonne Fovargue) did by making the point that if a child of people on low incomes or on benefits needs a pair of trainers or some piece of equipment is broken, it is often a disaster and the money is needed right away. That is the background to this issue. The social fund does a good deal. [Interruption.] I think the hon. Member for Makerfield would acknowledge that 400,000 people a year make more than three claims on the social fund, so they are obviously finding it useful. It is important that a credit facility is available, and it is excellent that in Northern Ireland mutuals and credit unions are so well established. We need to do more in this country to develop that idea; otherwise, we will be in the hands of the high-cost operators we have been hearing about.

[Yvonne Fovargue]

Does the hon. Gentleman agree that many people do not realise that some credit unions offer loans to people who have not saved with them? The growth fund has been very useful in that regard, but many credit unions do not have access to the growth fund with which people have to save before they can get a loan. That makes the situation impossible for many people.

[Oliver Heald]

The hon. Lady makes an important point, which I imagine will be considered by the consumer credit review. I am a member of a credit union, and I think that all MPs should be because it is a good way of illustrating—

Basic Bank Accounts (Scotland)

Yvonne Fovargue Excerpts

Wednesday 19th January 2011 Westminster Hall

[Sheila Gilmore]

I very much do. At present, only two of the mainstream banks allow undischarged bankrupts to open a basic bank account, and that creates a difficulty in Scotland in particular. One is the Co-operative bank, but it has few branches in Scotland, even with the merger with Britannia; the other is Barclays, which does not operate in many places in Scotland. In Edinburgh, there are only two Barclays branches. They are near each other in the centre of the city, so it is difficult for people to access any bank in Edinburgh that would enable them to have a basic bank account if they are an undischarged bankrupt.

There are also issues around high bank charges, which can lead people to abandon their bank accounts. For instance, a direct debit comes in at a time when there is no money in the account. They are unaware of that, and a bank charge is levied. Ironically, some people found that doorstep lenders who would be more expensive in the long term were more sympathetic and easier to use. They would allow a payment to be missed occasionally. We know that that is an expensive way of working, but the inflexibility of banks and an automatic bank charge when one is on a marginal income anyway put people off.

[Yvonne Fovargue (Makerfield) (Lab)]

Recent research has found that 60% of people go to the high-cost pay-day lenders to consolidate their borrowing. Does my hon. Friend agree that access to a bank account may prevent some of that from happening?

[Sheila Gilmore]

I agree that we need to stop that happening, and bank accounts are one way of doing so, although we must also take other measures.

How can we make further progress? My submission is that banks should be legally required to offer a basic bank account when an application for a current account has been refused. That was proposed in the March 2010 Budget and was a commitment in Labour’s 2010 election manifesto.

The Government also have a role in encouraging mainstream banks to use all the best practice and not to introduce obstacles such as those that several of my hon. Friends and I have discussed. That includes ensuring that undischarged bankrupts are allowed to open bank accounts and that people with no credit history are given access. Banks should market such basic accounts fully, and staff should be trained and encouraged to do so. The ID requirement should be reviewed and, again, staff should be clear about what is necessary; they should not over-ask, which puts people off. If, even with such changes, banks have to or feel that they have to refuse an application, they should at least be obliged to give people information about alternatives.

The Government need to support alternative providers for people on low incomes, including credit unions and community development financial institutions such as Scotcash in Glasgow, which not only offers loans but has been giving people assistance with basic bank accounts. In its second year of operation, Scotcash assisted 553 individuals to open a basic bank account. However, such organisations depend on a relatively high degree of public support, and it is important to consider ways of helping those institutions to grow further. Many were able to get started because of the previous Government’s £100 million growth fund. If that fund does not continue, many will have to reduce their operations in future years. Reforming community interest tax relief would assist them, as would keeping mainstream banks to their previous commitment to help such community financial institutions—most have not kept that commitment. The debate is not primarily about savings or credit, but such points illustrate how all the issues are linked and how the Government need to have an overall financial inclusion strategy and to act upon it.

I have some specific questions for the Minister. First, will the Government commit to establishing a universal right to a basic bank account? Secondly, will they continue the work of the Treasury’s Financial Inclusion Taskforce after the end of the current financial year, because it has been behind so many measures? Thirdly, how will they encourage banks to remove current obstacles to securing a basic bank account, as outlined? Fourthly, how will they support alternative mechanisms for those for whom a bank account may still be impossible or undesirable?

I have a couple of specific proposals for the Minister. What practical and financial support can be given to enable post offices and credit unions to enter partnerships? In the short time that I have been in the House, there has been much discussion but no specific action allowing that to happen. If post offices do that, there is a cost, which the post office network perhaps feels is difficult to meet at this stage in its operations, but the Government could assist.

Savings Accounts and Health in Pregnancy Grant Bill

Yvonne Fovargue Excerpts

Monday 22nd November 2010 Commons Chamber

[Paul Maynard]

I thank the hon. Lady for that intervention. One of the joys of the Bill is that I have learned so much from her about progressive universalism. She is right that the progressive element is being removed. However, it has struck me that it is as though I have been locked away on Moonbase Alpha for the past fortnight, because there seems to have been no recognition on the part of the Opposition that we are operating in a much more stringent financial climate. The hon. Member for Wirral South (Alison McGovern), who is no longer in her place, dismissively said at one point in Committee, “I recognise that there has been a debate about the deficit and all that sort of thing.” I found that regrettable.

We are operating in a situation in which we have to make financial savings. Rather than having a discussion about whether the child trust fund is the most appropriate use of public money, we have continually debated why we should do this, and this, and this, and then something else, and something else again. At no point did we discuss the crux of the issue: whether the child trust fund was the best use of public money to help those most in need in our society.

I welcome the fact that the Minister is having discussions with the right hon. Member for Wythenshawe and Sale East (Paul Goggins). I hope something comes of that, but I remain concerned that the Opposition’s determination to try to save child trust funds is based on an outdated notion that only those savings vehicles provided by the state can provide a solution. That is not the case.

[Yvonne Fovargue (Makerfield) (Lab)]

The child trust fund has a dual purpose—not only to give the young person a lump sum, but to nurture in them a savings habit for life. Some 74% of those eligible have taken up the responsibility of the child trust fund account. It is the most successful savings product on the market; ISAs and pensions fall well behind that figure. It is simple—much simpler than opening a deposit account—and it gives people a nudge to save.

Nearly a third of parents and grandparents have added to the fund, and the poorest 20% have added a higher proportion of their income to it. However, even for young people whose families do not contribute, the practical demonstration of saving in the account is invaluable. Organisations such as the Personal Finance Education Group, which works in schools, structure their lessons around it, certain in the knowledge that all pupils will have received a statement annually on their birthday, and that all pupils have such an account.

The very universality of the scheme provides a useful and practical foundation for learning and for influencing behaviour. In addition, it is especially useful for looked-after children and children with disabilities, who receive extra premiums. For looked-after children, it is a practical example of the state acting as parent and attempting to improve their prospects at 18—an ambition that all parents have for their children—by providing a lump sum at one of the most difficult periods of their lives, a time of transition that is difficult for any teenager, but especially for those leaving care.

For children with disabilities, the scheme provides an asset that allows them to take advantage of life opportunities or to invest in whatever they see as their priority. It is unfair to remove the scheme without a full impact assessment of groups who may be disproportionately affected, such as families with disabled children and people with disabilities, especially as the Demos report showed that the emergency Budget had a substantial financial impact on families with disabled children.

It has been suggested that a junior ISA may replace the child trust fund, but I cannot believe that it will provide an adequate replacement, even if a seamless transition in January 2011were possible, which has been disputed by a number of experts in the savings field. An ISA primarily benefits taxpayers and higher-rate taxpayers in particular, so what advantage does an ISA offer to a non-taxpaying family? Equally, the simplicity of the child trust fund product has been praised.

I have worked with people to whom ISAs and other financial products have little relevance, with people who need support to open a basic bank account and with people who have no notion of opening a deposit account. I urge Members, therefore, to retain the scheme in some form—even if only for looked-after children, children with disabilities and the poorest third of families—and not to scrap it completely. I urge Members to support the amendments.

[Kate Green]

I shall speak strongly in support of amendments 51 and 52, which my right hon. Friend the Member for Wythenshawe and Sale East (Paul Goggins) has tabled. As he says, Members from all parties share a deep concern about the continuing very poor outcomes that we, as corporate parents, deliver for children in the care of the state. Those children suffer difficult childhoods, often arriving in care in traumatic and traumatising circumstances. They are therefore significantly unsettled and disadvantaged in their childhoods, and that disadvantage continues, to our shame, into their adult lives.

Such children all too often achieve poorer outcomes in education and health: in adult life they are less likely to move into sustainable employment or further or higher education, and they are more at risk of poverty. I know all hon. Members feel deeply that that is wrong, so I shall speak strongly in support of my right hon. Friend’s amendments, because they open-mindedly ask us to address that endemic disadvantage. If Opposition Members are offered assurances that other financial instruments can meet those concerns, we will of course consider them, but we are clear about what those alternative instruments must deliver if they are to receive our approval tonight. They must deliver some of the advantages that the child trust fund was able to deliver for looked-after children—advantages that sought to some degree to adjust and compensate for the disadvantages that such children face as they embark on adult life.

The first important thing about a payment mechanism specifically designated to meet the needs of looked-after children is that it represents a signal from us as a community that we care about such children—that they are valued, and as precious as any child living with his or her family is to his or her parents. Too often, looked-after children feel that our society does not value or recognise them and that nobody has an interest in them, so a financial contribution to a savings fund for them is one of a number of steps that we can take to show that those children and their futures are important and matter to us all.

The child trust fund, in its design, also delivered much more hard-edged benefits to looked-after children. As Members have said, it put extra money aside for children through double payments, and in responding to my right hon. Friend’s questions it is important that the Minister should address how we ensure that those children do not suffer further financial disadvantage and inequality in adulthood by embarking on adult life with a significantly smaller asset than many other children. Adjusting wealth and asset inequality was one of the intended bonuses of the child trust fund—one that was particularly important for looked-after children, and one that I hope the Minister will address.

My hon. Friend the Member for Makerfield (Yvonne Fovargue) pointed out that the fund sought to meet costs at a time of transition, and reaching 18 is a particularly difficult time for children leaving care, because we leave them at the mercy of adult life as no familial parent would with her or his child. No mum or dad would throw their child out of the family home without so much as a kettle or an offer to underwrite the gas bill if they struggle as they set up home, but that is what we do to too many children who leave the state’s care. By providing those children with a financial asset, the child trust fund helped to smooth some of the extra costs that they faced at transition points, with which no other family member might have been available to help them. The fund therefore enabled those young people to embark on their adult life with the confidence, certainty and stability that other young people often draw from family support.

I hope the Minister will reassure me that any alternative financial model will replicate two other in-built advantages of the fund, one of which is the product’s relative simplicity. It was fairly clear what sums were going in, and it was fairly clear when they could be drawn out. Junior ISAs might offer more flexibility and allow more contributions and different points of withdrawal, and that might bring some advantages, but we must not set up a product that is too complex for corporate parents and others who might wish to donate to the funds of looked-after children to access readily and save within. I look forward, therefore, to the Minister’s assurances about how the product will prove accessible to anyone who wishes to save for a looked-after child or young person, and in particular how a corporate parent will be able, without unnecessary bureaucracy and expense, to make contributions for children in their care.

Right hon. and hon. Friends have mentioned how the child trust fund offered consistency throughout the country, between local authorities and in all four parts of the United Kingdom, ensuring that every looked-after child left care with the same opportunity of an asset with which to start adult life. Can the Minister assure us that the alternative mechanisms and products that he might bring forward will deliver such consistency? We do not need to perpetrate inequalities among children leaving care as we do between children leaving care and other young people as they start out on adult life.

My hon. Friend the Member for Makerfield rightly pointed out that the junior ISA offers little that is intrinsically attractive to savers who do not benefit from a tax break. By definition, that includes corporate savers who invest for the future of children leaving care. I very much want to hear how the Minister will at least incentivise, more than that exhort, and—preferably—insist that corporate parents save adequately and equally for every child who falls within their care. If those assurances are forthcoming this evening, like my right hon. Friend the Member for Wythenshawe and Sale East, I will be able to look again at his amendments. If we do not receive satisfactory assurances, however, every young person and every child who has been in care will expect the House to support the amendments, and I for one certainly will.

--- Later in debate ---

[Paul Maynard]

Unfortunately, the hon. Gentleman’s point was not borne out by the evidence of Mark Lyonette of the Association of British Credit Unions Ltd. He was quite clear when he said of the saving gateway:

“None of the credit unions built their business plan around it, so I don’t think its withdrawal is a threat to the health of credit unions.”––[Official Report, Savings Accounts and Health in Pregnancy Grant Public Bill Committee, 2 November 2010; c. 52, Q149.]

It is important to ensure that we give credit unions what they want, and that is why we are seeing reforms to the Credit Unions Act 1979 enabling them to work with more than just individuals—they will now be able to work with interest groups, social enterprises and the like. We should not therefore allow the Opposition’s statement that credit unions have to be involved to obstruct the fact that this scheme will cost £300 million to continue. This might cause some Opposition Members to roll their eyes and shake their heads, as they did earlier in response to my hon. Friend the Member for Truro and Falmouth (Sarah Newton), but we are now living in a very different fiscal situation. The shadow Minister was quite right: the Government have changed, and we now have to take tougher financial decisions. We cannot justify spending £300 million on a saving gateway that will not be universally accessible across the country because there simply are not enough commercial providers willing to provide it. This is not a debate about a group hug, or about trying to encourage everyone to save more. We all know about those things.

I have been delighted to hear the hon. Member for Makerfield talk about Brighthouse, of which there is a branch in my constituency. I almost thought that she must have sneaked into my surgeries, because her tales about her voters’ problems with Brighthouse were the same as mine. However, I do not think that the saving gateway is the answer to the problems that many poor people face in getting access to cheap credit. It is not the answer to the problems we have been discussing. It fails the test that I raised on Second Reading—a test that I call my rhododendron test. The Opposition have a tendency to fixate on a single item of legislation that they believe will somehow solve all the problems in the world, but I am afraid that the saving gateway, however popular the pilots might have been, has not been popular enough with the providers that we need to ensure its success. That is why I support the Government’s decision to remove the scheme.

[Yvonne Fovargue]

I want to talk about the abolition of the saving gateway and the disappointment felt not only by the putative savers but by the credit unions, which thought that it would have a massive impact on the sector. The credit unions put a large amount of time and money into designing and introducing their product because they believed that the scheme had cross-party support. While matching the money is important in incentivising savings, it is not the only factor involved; in fact, it is not always the most important factor in influencing people to save. As we have heard, ease of access to a financial institution cannot be overstressed, and to use the existing credit unions at the heart of the community and to encourage the growth and development of the sector via this product was seen as vital. Indeed, Mark Lyonette said that encouraging people to save with credit unions was the issue. People are used to credit unions giving out loans, but the important thing is to provide them with products that encourage people to save.

The message that has been endorsed by the Government via the scheme is that even a small amount of savings matters, and that cannot be overstated. Most people do not deliberately set out to be in debt, but life events—such as the loss of a job, accidents, disability or even something as simple as the cooker breaking down—can cause debt. A small amount of money saved can act as a buffer, and people can then feel more in control and have more confidence. The value of that feeling cannot be overestimated.

It might be conventional wisdom that people should pay off all their debts before they start to save, but I take issue with that, as do people from the credit unions. As I said, events happen. The washing machine might break before someone has paid off the cooker, and if there is nothing to fall back on, the spiral of debt gets faster and deeper. That is when people turn to the legal loan sharks who charge more than 2,000%, or the actual loan sharks who prey on the vulnerable who have no resources. It is vital to provide a mechanism to remove people from the spiral of debt and make it easier to save. We know that people want to save for such events. Otherwise, why would so many people have saved with Farepak, a scheme that they believed was safe? If we could provide a trusted, easily accessible, local savings vehicle to encourage saving, we would prevent a considerable amount of human misery as well saving the health service a considerable sum for the treatment of depression and, in some cases, attempted suicide due to debt. A small amount of investment now could prevent a huge amount being spent later, and I urge the Government to reflect on that.

[John Hemming]

The Government have to look at what can be done when resources are limited. It is generally accepted that we need to enable people on lower incomes to save, and access to bank accounts and credit unions are important in that regard. We had an evidence session in Committee, which was quite useful. The Institute for Fiscal Studies has no axe to grind in this regard, but its acting director, Carl Emmerson, said that

“perhaps the £115 million should just be spent on boosting the incomes of these individuals.”

I then asked him:

“Or potentially on a system with more crisis loans?”––[Official Report, Savings Accounts and Health in Pregnancy Grant Public Bill Committee, 2 November 2010; c. 19, Q47.]

His response to that question was yes.

There is no question but that people need to balance their costs when they have to replace a washing machine, for example, and need the resources to do that. There is an issue there, but the Government need to look at the best way of helping people in those situations.

VAT (Charities)

Yvonne Fovargue Excerpts

Tuesday 19th October 2010 Commons Chamber

[Mr Gauke]

I am grateful to the hon. Lady for raising that specific point. I can assure her and other hon. Members that the Government will continue to look at options for cost sharing within the VAT system where these are available to us and where they represent an effective and efficient means of delivering support to the sector. We are currently looking at the implementation of the EU VAT exemption for cost sharing. The Government recognise efficiencies that can be achieved by organisations such as charities working together efficiently, but we also recognise the potential VAT barriers such organisations face when they share services in exactly the way the hon. Lady mentioned. We said in the Budget that we would work closely with charities and other affected sectors to consider options for implementing the exemption, which would help to remove some of the barriers ahead of a formal consultation that we will launch later in the autumn. I hope that that provides some reassurance to the hon. Lady.

Returning to the issue of zero rates, as the hon. Member for Wrexham will be aware it is not open to us under our European agreements to extend or amend the zero rates, but we recognise how valuable they are to charities, so we are committed to retaining the zero rates that we already have. Charities also benefit from certain specific VAT exemptions that apply to goods and services used in connection with fundraising events, providing further support for all charities.

VAT reliefs are just one element of the support that the Government provide through tax. Within the wider tax system, existing reliefs for charities are worth something like £3 billion a year, of which gift aid is the largest single relief. Gift aid is now worth nearly £1 billion a year to charities, and such payments to charities are increasing. Gross donations made under gift aid amounted to almost £4.6 billion in 2009-10—an increase of 6.5% over the previous year. We fully recognise the importance of improving gift aid. Charity representatives have been exploring proposals for reform with Treasury and HMRC officials on the gift aid forum. We will be exploring the forum’s recommendations before deciding on the best way forward.

The hon. Member for Wrexham wants us to go further and provide support for all charities to relieve them in respect of their irrecoverable VAT. As I have already explained, there is realistically very little that can be done within the VAT system itself. It is possible in principle to introduce a measure that would deliver refunds of VAT to charities in respect of their non-business activities. However, such refunds, which are a matter of Government expenditure rather than taxation, would represent a very significant cost to the Exchequer, especially given the current fiscal position.

We also have to consider that many charities are engaged in activities where they are in direct competition with private sector organisations, such as in the provision of care and welfare services, and it would be difficult to refund VAT that charities incurred in respect of those activities, as that would represent an unfair distortion of competition. Any scheme that could be devised might well be complex and administratively burdensome for charities to operate. In our view, it is far better for the Government, instead of introducing further complexities for charities, to focus on improving charities’ capabilities to improve their own affairs, and I will turn to this in more detail shortly.

[Yvonne Fovargue (Makerfield) (Lab)]

The charities that are engaged in competition with the private sector tend to be the larger ones, which go for contracts and are registered for VAT on their services It is the smaller charities which cannot get the VAT exemption that need the VAT to be paid back, because they are the ones that are suffering.

[Mr Gauke]

The hon. Lady is right to suggest that the problem is most acute for the smaller charities, but I do not think that that entirely detracts from the fact that in some circumstances those charities may well be in competition with the private sector in the delivery of welfare and care services. There may be a distortion of competition, and we ought to examine that very closely.

We fully recognise that the increase in the rate of VAT is unwelcome, but it is necessary to sustain public finances and ensure long-term fiscal stability. The burden of deficit reduction must be shared. It simply would not be right to single out one sector over another for special treatment, especially in view of the generous tax reliefs that have already been provided.

The hon. Gentleman and his party oppose the increase in VAT to 20%—which will raise £13.5 billion—but want to do more to reduce the deficit by raising taxes, which leads to the question of how those taxes should be raised. The last Government’s proposed solution in the form of a tax rise—which has been reversed—was the increases in national insurance contributions, which would also have affected charities.