§ 8.4 p.m.
§ Lord Carr of Hadley rose to ask Her Majesty's Government, particularly in the light of the annual report of the Director General of Fair Trading for 1987, what steps they are taking to improve money management education in schools and elsewhere.
§ The noble Lord said: My Lords, my interest in the subject of money management education stems from my experience as a director and chairman of the Prudential, which in turn led me into being one of the patrons of the Money Management Council. It also comes from having been for several years the president of the Birmingham Settlement. It was from the experience of social conditions in that part of Birmingham that the settlement became so acutely aware of the problems and evils of debt and pioneered a debt counselling service. Its work as a settlement in setting up a money advice centre, which was a development that was only made possible by public money to top up its own charitable funding, led to the wider development of money advice centres throughout the country.
At this stage—and I shall come back to the point briefly at the end—I want to suggest the importance of this aspect of partnership between a voluntary body and the public which has brought about the advance in debt counselling. Based on that interest my action in tabling this Unstarred Question for short debate was triggered by having my attention drawn to the opening section of the 1987 Annual Report of the Director General of Fair Trading. Sir Gordon Borrie. Perhaps I may quote brief extracts from his remarks in the introductory section:
Without any doubt, the twin subjects of consumer credit and debt loomed large on my working horizon last year".
Somewhat later on he says in a slightly longer passage:
Many individuals and many families have increasingly found themselves in a financially catastrophic situation. Young people with dependent children, single parents and the unemployed seem, not surprisingly, to feature heavily within this population … Recent research showed that nearly two-thirds of all adults in the United Kingdom had credit commitments of one kind or another—apart from mortgages. A sample survey carried out for my Office … suggests that over two million adults felt they were over-committed in their borrowing, while over three million adults admitted that they had experienced difficulties in keeping up debt repayments during the past five years. The results of debt crises are often clear enough—marital and family breakdowns, social and health problems, withdrawal, inertia, despair".
He then goes on to say:
Since the vast majority of consumers use credit wisely and derive considerable benefit from it, the right policy is not to restrict their freedom of access by administrative and legal measures but to help the minority who innocently get into trouble to manage their financial affairs more successfully … The basic principle of social policy must … be to reduce the number of defaulting debtors … This is in everybody's interest".
Further on he makes the statement that:
It is clear that an educational task of formidable proportions faces us all … Massive efforts have gone into the selling of credit facilities of all types. But there has been precious little attention to giving basic education to the general public on the art of wise borrowing … What appears to be needed is a massive general effort to bring home to potential borrowers a better understanding of the best ways to choose and use credit whilst remaining alert to its dangers".
§ I believe that Sir Gordon Borrie's report brings out very clearly that there is an urgent social and economic problem here. That national overview by Sir Gordon Borrie is fully borne out by the experience of the Birmingham Settlement over the years in its local area of Birmingham.
§ What has been done for the casualties? There are money advice centres in which the settlement had a pioneering role, and of course Citizens' Advice Bureaux. There are indeed large numbers of other advice-giving agencies, a number of which have written to me in the last few days telling me of their work. They are in the front line dealing with the casualties. They are giving an excellent and increasing amount of help to large numbers of people. I strongly echo and support the plea made by Sir Gordon Borrie to the major providers of credit that they should give much greater material assistance to these voluntary agencies.
§ However, they are dealing with casualties. The real need is to reduce the number of casualties. What we want is much more prevention so that there is less need for cure. I hope that that is the thrust of our debate tonight. It illustrates the need for a massive increase in money management education. Complete money education is not confined only to the handling of credit, although that is no doubt the most vital part of it. Education in schools and colleges of further education for all ages in a modern society is an essential requirement of citizenship and of preparation for life.
§ Of course it can and will be said that action has already been taken—and so it has—on a valuable but still limited scale. Teaching materials for secondary schools are being produced by the banking and insurance industries and by the building societies. The subject is included in local education authorities' social and development guidelines. For upper age groups the practice is growing of pre-retirement courses in which I am glad to say that the insurance industry has played a substantial part in giving a lead.
§ Then there is the Money Management Council of which I have the honour to be a patron in England and Wales. There is a Scottish Money Management Association to which the noble Earl, Lord Elgin, has given such strong leadership and about which he wrote to me yesterday. Among other things he said how sorry he was that it was impossible for him to be here tonight to take part in this debate.
§ All this is excellent, but the scale is much too small. Existing standards as well as the scale of education are too low, as is evidenced by the large numbers of people who get into financial difficulties or become victims of fraud, as in the Barlow Clowes affair recently. Moreover, we are aiming at a moving target because the gap between the actual and the desirable is widening, not closing, as financial services become accessible to a larger proportion of the population while simultaneously proliferating in their complexity and competitiveness. I hope therefore that your Lordships' House and the Government will strongly support Sir Gordon Borrie's plea when he says that he is looking for a dramatic increase in the commitment of the finance industry to all these 310 activities. Although the industry is doing quite a lot, it must do a great deal more.
§ This brings me finally to the role of the Government. I agree with Sir Gordon Borrie when he says in his report that this massive education task is not one which should or could be left to government. This is why I support so strongly his appeal for a dramatic increase in support from the finance industry. However, I also feel strongly that the Government have a vital supporting role to play and that if they do not play it the effort of the voluntary sector, however well supported, will not succeed on its own.
§ What must government do? I suggest that first they must show that they are aware of the problem and of the urgent need to solve it. They must consider how to build money education into the general teaching curriculum and into teacher training. I am not talking about highly specialised teaching of the subject, but of the A-B-C aspect. It is not great academic material. The Government must also review with local education authorities what teaching materials are already available and what are the priority needs for further materials. Finally they must provide some funds to match, not necessarily by any means in equal terms, the contributions of industry and charitable trusts.
§ Perhaps I may recall what I said at the beginning. The Birmingham Settlement pioneering of money advice centres would not have been successfully carried through with voluntary funds alone. It was made fruitful by the topping up of those voluntary funds with some annual grants from government—if 1 remember correctly, from the DHSS, if that is what it was called at the time. This partnership between public and charitable funding is an essential ingredient. Many private sources, including industrial sources, will certainly give more if they know that the Government are also giving.
§ I do not expect my noble friend Lord Davidson to give specific answers to these points tonight. However, I strongly hope that he will be able to give an assurance that the Government do take and will continue to take a positive attitude and show a positive acceptance of some responsibility in this field. I believe that any government should do this. I wish to suggest to my noble friend that above all this Government should do so. It has been a mission of this Government to increase self-sufficiency, for example, by encouraging home ownership, by encouraging wider share ownership, by switching from state to personal portable pensions, by reducing income tax and leaving more money in individual pockets and by introducing both social fund loans and student loans. Those are controversial matters. I support them all in principle. It is a mission that I strongly support. However, to allow people to go out into this kind of society without being taught how to handle money is as cruel and sucidal as letting them jump into the deep end of the pool without having taught them to swim. If we must have education for road safety, so must we have education for money safety. I beg the Government to take this very big social and economic problem extremely seriously.311
§ 8.18 p.m.
§ Baroness Phillips
My Lords, this is one of those occasions when, if I were in a committee, I should simply say, "I second that," and sit down. However, the conventions of your Lordships' House forbid that.
Many years ago when I was the general secretary of a woman's organisation I discovered that one of the various problems with which young wives had to contend was shopping. I am speaking of the period when suddenly we had all these marvellous help-yourself opportunities. As a young wife, I grew up at a time when one shopped at a corner Co-op shop and the person behind the counter was not only knowledgeable about the products but would help and advise one on the various items to buy. These young wives were completely at the mercy of a market which they did not understand.
It became apparent to me that we had to find some way in which we could give them what one can widely call "education" on how to be a good consumer. This was popular with the young ladies whom we were trying to help. It was not very popular with the government of the day because, in my judgment as a teacher, education has always been taken in a very narrow sense. I remember on one occasion when I was teaching infants a mother complained that her child had learned a swear word—a rather mild one by today's standards. I said, "You have to agree that he has learned something. It may not be the kind of education you wished but it is education". In other words, education must be interpreted very much more widely than it is.
I learned a great deal from working in the consumer field. One of the things that I learned was that if people are armed with knowledge they are not so likely to make a bad buy. They are not so likely to get into difficulty. That is better for both parties to the contract. One may say that we are not talking about that scene, but I believe that it is an exact parallel with the situation that we have now with consumers. In this instance they may be called investors. But whatever they are called, it still comes back to them being customers in a two-sided relationship.
The report speaks very sharply about people, particularly young people, and consumer debt. In the Mail yesterday, in rather dramatic terms, one reads:Youngsters are falling blindly into debt, hoplessly hooked on Britain's credit card boom".But the rather disturbing thing is that:many people believe nowadays that it is socially acceptable to be overdrawn and living in debt".The article goes on to elaborate the kind of debts that these young people have taken on and it blames the situation on intense advertisements, on the fact that there is every opportunity for credit, that it is too easy, and so on. I would not dispute that in any way. I do not believe that anybody would dispute it. However, it is always unfortunate to take a purely negative point of view.
I remember saying about shopping that one could say to people "Do not buy anything and then you will not be cheated". How much more sensible it would be to learn something about it and then people could be 312 sure to get value for money. That is not always the cheapest way.
That is equally true, if not more true, of the handling of money. The system under which we are now living will be with us for quite a long time. I noticed that in an earlier debate somebody asked: why should we not make the best of the world in which we live? I believe that that was said in the Scottish debate; I am not sure of the context in which it was used, but I am using it in that context now. How best can we prevent people getting into these kinds of situations? To be in debt is very frightening. It suddenly comes home to people.
I am always puzzled by the attitude of people who have taken credit or borrowed money from a bank, thus creating an overdraft. They seem amazed that they have to pay for the privilege. Speaking as a Londoner, I believe that the words of Lionel Bart are very true—"You don't get nothing for nothing, mates". If we were to have real money management education, it would have to be started very early in life. I know that people will ask "Is this the job of schools?" It is certainly the job of someone and it could very easily be worked into certain subjects which are now being pressed. But we have to convince the Government.
I was involved when the Money Management Council was first set up. I remember it being set up; money was obtained from trusts, the credit industry, banks and so on. It was reckoned to be very laudable because the council was attempting to help people who were engaging in its industry. That always makes sense if one thinks about it. The government of the day—I believe it was three or four years ago—did not evince a great deal of interest in it. But I am hoping that now they have seen the great value of the Money Management Council, which is struggling to get into the schools. It has been accepted in very many places. It is struggling to carry out what has been valuable adult education work and it is struggling to raise money. That is always one of the hazards. If one has a good idea and starts it off by funding it, one is continually often left to fund it no matter how great the stress.
I should like to emphasise what the noble Lord, Lord Carr, has just said. As the Government recognise that education is extremely important in all fields—Mr. Kenneth Baker has shown clearly that he is interested in changing the curriculum and the structure of the syllabus—can we hope that they will regard this as being one of the very important aspects of education which should be included? If only they could learn to match the contributions. When I was involved in getting grants from the Department of Education I would hear the cry, "Provided that you can produce a certain amount, you can rely on the department to match it". The Acts of Parliament which have been introduced to protect the investor are not actually known by the investor so there must be a way in which we can widen the whole sphere of knowledge.
That is my plea tonight. Here we are discussing a mundane subject but a very vital one. If we are to show that people can get real value out of the system, they will need to have far more help in this field.
§ 8.25 p.m.
§ Earl Russell
My Lords, I should like to thank the noble Lord, Lord Carr of Hadley, for introducing an interesting, important and rather far-reaching topic. I should also like to thank him for inducing me to read the report of the Director General of Fair Trading which I have found a little classic. One of the items that will stick in my memory from that report is the moneylender who was charging an APR of 18 billion per cent. That kind of thing has happened before; it has been a problem before. The scale of the problem has become a great deal more severe in recent times. Speaking from these Benches, I should like to join the all-party unanimity in saying here that we have something which needs a great deal of serious thought.
Information about credit is coming over in an advertising form all the time. That information is designed to portray credit in the most attractive light. It always seems to carry the innuendo that if you go along with these people, you just might somehow get something for nothing. That is a very old illusion, but it does not become any less tempting with the passage of years. It does not seem to be entirely clear that people are weighing up this information with quite as much care as they might. Sir Gordon Borrie remarked that the interest rates on credit cards, which are extremely high, do not seem to bother people very much until they end up in difficulties.
I speak about all this with some sympathy because I must admit that I have a great deal of trouble in working out exactly how an APR comes to be what it is. All the detailed problems of the compounding and the dates and so on sometimes puts me out of my depth. I should have been glad had it been otherwise. Here we have something that needs serious attention for the benefit of individual citizens. We have also a question of national interest. I am reminded of remarks made in the debate on the Finance Bill by my noble friends Lord Ezra and Lady Seear. The increase in the weight of private debt should be causing us some concern. According to Sir Gordon Borrie, it increased by 18 per cent. during 1987. It seems that we now have a mortgage debt of £200 billion and a consumer credit debt of £36-4 billion. That must be having inflationary effects of one kind or another. It seems to be reaching the point where it is becoming necessary to issue warnings that the private purse is not inexhaustible.
It is vital to the progress of the national economy that people should approach the jungle of credit with a certain amount of informed scepticism. I have wondered also, although this is a slightly different issue, whether education in money management should also take in economics. That is something which involves practically anybody who casts a vote. If we consider most of the issues that were argued at the last election, or are likely to be argued at the next, they tend to involve matters such as the judgment of what should be the proper level of public spending. Not all of us have the theoretical framework to tackle that.
A few years back when I was teaching undergraduates suffering from the perennial illusion that everyone who lived through the Reformation 314 knew whether he was a Protestant or a Catholic, I used to ask for a show of hands from those people present who knew whether they were a Keynesian or Friedmanite. Very few hands were raised. Possibly the matter is worth further thought in the same context.
Having joined in the universal sympathy, and having done so quite strongly, I should like to express one hesitation in the most sympathetic way possible. As anyone who listened to the speeches from these Benches during the passage of the Education Bill may have anticipated, it concerns the problem of the inflexibility of the national curriculum. It is the problem of what can be put into it. Proverbially, the Devil may quote scripture; and therefore I hope that I may quote Sir Rhodes Boyson. He once said:For everything that goes into the curriculum something has to come out".I should like to raise the question of what will come out. We have a set of fixed subjects laid down by statute. We have an entirely unofficial estimate that it will take 70 per cent. of schoolchildren's time. I shall not go into the doubts that have been expressed about that estimate. Essentially, they concern the question of testing and for understandable reasons, the propensity of schools to spend their time on the subjects which will be tested. We have considerable fear that many subjects, not only money management education but also classics, for example, may find themselves being squeezed out.
The first question that we should ask is: how far can the noble Lord's request be fitted into the framework and the testing of the national curriculum in mathematics? I am quite certain that some of it can, and I should view attempts to do so with a great deal of sympathy. I hope that the question is one to which Mr. Baker will give fairly immediate thought because it is now on the agenda.
I hope that when the question is pursued—as I hope we shall within this House and outside—we shall allow to be raised the wider question of whether the national curriculum necessarily leaves enough room for subjects which it has not officially prescribed. With that one reservation, I should like to join in the support that has been expressed, and I hope that something comes of it.
§ 8.32 p.m.
§ Lord Elton
My Lords, I rise briefly to add a few words to what has been said by my noble friend Lord Carr, the noble Baroness and the noble Earl. As chairman of one of the five self-regulating organisations set up under the Financial Services Act 1986 I have a fairly good view of what is happening in the world of private investment. I share my noble friend's concern that people should learn more about money than they now learn before they become investors. If they do not, many who might otherwise have done so will not become investors.
The availability of credit is now as great or greater than it has ever been. The blandishments of those offering it are as sweet or sweeter and as loud and frequent as they have ever been. The whole of one's daily experience bears out what was said in the 315 passages of Sir Gordon Borrie's report from which my friend quoted.
Credit is a good servant but used too much it changes its name to "debt" and becomes a terrible master. Commercial pressures on impressionable people to take up credit are enormous. At every delivery the postman is bowed down with invitations to some advantageous form of borrowing.
The first element in financial education—and some would rightly argue that it is the most important in its effect on people's happiness and security—must be the management of credit. People need to know how much it is sensible to borrow, what it costs and what the consequences are of borrowing. Very often they do not have such knowledge when entering into contracts. I have no specialist knowledge in that field. I merely observe that obtaining too much credit brings with it sorrow and anxiety to the borrower as well as frequent disappointment to the lender; that they are social evils and they should be tackled. I also observe that those who learn to save rather than borrow become investors. The Government wish to create a share-owning democracy and therefore they have both a social and a political reason for intervening in some way.
As soon as the saver becomes an investor he comes under the protection of the Financial Services Act in a different way. The Act was drafted to protect the investor but it has not made investor education unnecessary. Even if it were perfect it would not have done that. I should briefly remind your Lordships that the Act laid upon the Secretary of State the duty and the power to regulate the whole of the financial services industry. It gave him the authority to delegate most of those powers and duties, which he has done, to a designated body: the Securities and Investments Board. The board had first to construct a rulebook for the whole industry. It had to reflect precisely the provisions of the Act. It was empowered to delegate its powers and duties, which it has done, to a variety of bodies, principally the five SROs.
Their rulebooks must also precisely reflect that part of SIB's large rulebook which is relevant to their particular section. The requirement for precise reflection at each stage means that self-regulation is not quite the independent exercise of virtue which the name implies. It is the responsible delivery of a protective regime devised by the Government. The new system is one of self-regulation backed by statute. In my view that combines the best of both worlds and self-regulation is flexible enough to respond to changing circumstances, of which we have seen more than enough during the past year. The statutory framework provides sanctions against offenders and ensures that the self-regulatory bodies do not become the captives of their own members and desires.
The requirement of reflection also means that the rulebooks look like statute and are beyond the grasp of the average unsophisticated new investor, as well as that of some practitioners. We are trying to remedy that; but however successful we are the investor will be unable to be guided by the rulebooks or by the 316 statute. It would be useful if they were given the general idea of their purpose and provisions.
It is at a more serious level that I wish the Government to be persuaded of what my noble friend asks of them. I can best do that by reminding your Lordships of an obvious fact which is sometimes forgotten. Passing the Financial Services Act and inventing the Securities and Investments Board can no more abolish negligence and fraud in the financial world than passing many Criminal Justice Acts and inventing the Metropolitan Police can put an end to criminal negligence and crime in Greater London. Protection has been increased by the Act. The system has been in operation for a little more than eight months, a fact which is sometimes forgotten. During that time a number of firms have been closed down or refused authorisation to conduct business.
Sadly but inevitably investors have lost money. That has occurred not because the Act is unreasonably tough and not because self-regulation has failed. It is because the firms in which, or through which, they invested were fraudulent or incompetent. The new regime revealed their shortcomings and gave the regulators the power to act against those firms.
I have spelt out the new regime in some detail in order to demonstrate that my organisation, FI M BRA, perhaps more than other regulators is directly in touch with the general public. In the past eight months it has received many thousands of letters and innumerable telephone calls from the public inquiring about our members and the standards which they must observe. Therefore we are in a good position to assess the level of understanding of investment and money matters among the general public. The news is not good. More and more we see that the more modest people's circumstances are and therefore the more they need a safe home for their savings, the more likely they are to lack even the rudimentary knowledge which would enable them to judge, for instance, the scale of risk arising from a deposit in a bank or a building society through the purchase of unit trusts or unit-linked life assurance and going on to participation in a business expansion scheme. Indeed, ignorance is so widespread that it engenders what I can only call investment fear. Sufferers are so lacking in confidence in dealing with money that they are vulnerable to the first authoritative adviser who comes along. That is all well and good so long as he is honest and competent, but all too often in the past he was not.
This Government are rightly proud of all the reforms they have carried out which give freedom and responsibility back to the individual. However, financial freedom and responsibility can only be exercised by people who have a working knowledge of the system. From the correspondence we receive at FIM BRA I draw the conclusion that most people do not have that knowledge. Many people do not even have the rudimentary knowledge which discourages them from putting all their eggs in one basket.
Using the Financial Services Act the regulators can do, and already have done, a great deal to prevent the worst rip-offs in the investment business. We have outlawed cold calling of most investments and laid down detailed rules for canvassing where it is 317 permitted. Our rulebooks insist that an adviser must know his client's circumstances and recommend suitable investments. There are no more open-ended commodity investments for Aunt Agatha or long-term life policies sold to a student who is saving for a car in three years' time.
Many investment advisers have since last year chosen never to handle the clients' money, thus reducing both the risk of fraud and of loss as a result of incompetence. In exchange for this restriction those firms are subject to a lower level of financial regulation. Those who handle clients' money are subject to new and very detailed rules. However, the value of regulation is undermined if the investor is totally unaware that it exists. Therefore, FIMBRA, like the SIB with its "Self Defence for Investors", has produced guides and has embarked on an information programme targeted on consumer groups and advisory services such as the Citizens' Advice Bureaux.
I can never imagine a situation in which we could or should abandon either prudential regulation of investment business or the setting and enforcement of standards of conduct and competence. However, I firmly believe that an informed investor is his own best protection. To paraphrase Professor Jim Gower's report which shaped the new framework for investor protection: no one can prevent a fool and his money being parted but education and regulation can, between them, prevent people being made fools of.
Therefore, I hope that Her Majesty's Government will encourage financial education in its widest sense. They will not wish to undertake it themselves but there arc voluntary agencies mentioned by my noble friend, such as the Money Management Council, which are well equipped for the effort needed, and I support the calls for support of those organisations of which we have heard this evening.
I end as I began by saying that I believe that the most urgent priority, if there must be a priority, is to teach young people the very simplest elements of financial management so that they do not fall into the trap of unmanageable levels of debt, which can lead to ruin.
§ 8.42 p.m.
§ Lord Taylor of Blackburn
My Lords, I am grateful to the noble Lord, Lord Carr, not only for raising the Question this evening but also for directing our attention to the director general's report. Like the noble Earl, Lord Russell, I do not believe that I would have read it had I not been directed to it by the stimulation of this Question.
I believe that at the time of the raising of the school leaving age from 15 to 16 we missed a glorious opportunity for tackling this problem. A report was published at that time called Half our Future which encouraged schools to use the new opportunity of this additional year at school to teach children what certain aspects of life were about. To some extent in education we failed to do that. We failed to use that opportunity to get certain aspects over to the children of our country which they really need to know about at this time.
318 One thing which I wanted—and I did quite a lot of propaganda work in schools with teachers and teachers' organisations at that time—was to forget about the high flyers and the children who would be going on to college and university and to try to teach certain fundamental principles to those children who really needed training. I wanted and still want to keep it simple; for example, what a bank book is really about; how to use a cheque book; what is a credit card. In those days credit cards were not as popular as they are today. Indeed, I wish that they were not so popular today. I wanted to teach them about what was a mortgage and about mortgage repayments. 1 wanted to teach them about insurance. To many of us those matters are common sense but to many youngsters they are matters about which they know very little. However, it is important that those matters should be kept simple.
I do not believe that we should bother too much about the national curriculum and finding time to fit in these matters. Even with all the subjects which we now have in the national curriculum and those which are left out of the national curriculum, 1 believe that many of these basic matters can be fitted into the curriculum. I say that because I was one of those people who left school at the age of 14 and I had a first-class art master who taught me more about the basic facts of life than any master in that school. He was also a very good art teacher. He managed to do that because he was a good teacher. Good teachers can teach their pupils what things really mean. If we can communicate those simple matters, many of the problems to which the director general draws attention in this report and many of the matters to which the noble Lord, Lord Carr, has referred in his Question will be answered. We do not need to train people for a Bachelor degree. It is the simple awareness of what really happens which matters; for example, how to buy goods and to live within one's income.
I am a great believer that the best place for that teaching is at home; but when I read some reports in our newspapers I wonder whether home really is the best place for that. With due respect to our colleagues in the teaching profession, I wonder whether teachers can always get across those basic matters. However, there are many experts prepared to come into schools—managers of building societies, bank managers and trade unionists—who will teach them about what it is to be members of a provident club and matters of that sort. Those are important aspects.
I do not wish to enter into all the high arguments. I believe in keeping matters simple. If the sample basic facts are taught to our children in schools, many of the problems will disappear. I support all that the noble Lord, Lord Carr, has said. When the Minister replies I hope that he will not fob us off. I am sure that he has listened and I am sure that his right honourable friend will read what we have said; namely, keep it simple but get the message across.
§ 8.48 p.m.
§ Lord Peston
My Lords, I also echo the remarks of thanks to the noble Lord, Lord Carr of Hadley, for introducing this debate. I certainly agree with the 319 noble Earl, Lord Russell, who has referred to the director general's essay as a little classic because it is an extraordinarily interesting essay, not least in view of its title. To have an essay produced by the Office of Fair Trading which is entitled Credit, Debt and Morality is of enormous interest to me as an economist.
If we look through the language of the essay, we see such words as "responsible" and "blame". "Moral" appears in more than one place. There is reference to the "highest standards", "moral and social responsibility", "feelings of honour remain strong in our country" and then on to the word "education". As someone who practises the dry as dust subject of economics, I am most heartened to think that the director general has approached the matter in that way. Indeed, viewing this as an educational task, that itself, as it were, is intrinsically interesting—the combination of the theoretical side, the practical side of borrowing and lending and also, if I may say so, the side of morality. That is an aspect I most appreciate because it also makes clear that this is a matter for our schools as well as other bodies.
I was particularly pleased that the noble Lord, Lord Carr, mentioned not merely the young in discussing education in terms of preparation for life but, in what was nearly a throw away line, he referred to pre-retirement and pre-retirement courses. It is true that our society becomes richer and richer. For the very first time people have a capital sum when they retire. It is important not to forget how unusual that is. In the past the overwhelming majority of people had nothing on retirement but now they have a capital sum. Therefore, in considering education in money, credit and finance 1 am glad that the noble Lord, Lord Carr, mentioned the elderly.
I occasionally speak on pre-retirement courses. Just as I am struck, as we often are, by the ignorance of the young in this respect, I am equally struck by the ignorance of the elderly. The noble Earl, Lord Russell, referred to getting something for nothing. Certainly I worry that the old believe that it is easy to speculate and to make money. I suppose that I am pathological in my aversion to risk-taking and when I lecture to them I probably go to the other extreme; but I point out that it is not easy to make money and that acting with prudence and care is sensible. Therefore, it is right that we have mentioned the old as well as the young.
The report is right. I am struck by its balance in referring to both lender and borrower. I can be critical of the banks and financial institutions, as noble Lords know, but I entirely agree that responsibility does not lie just on their side. There is a responsibility on the part of the borrower. If we want to go into the praise and blame business the borrower must occasionally be blamed. Whether or not we accept the philosophy of this Government—I do not intend to introduce that note into the debate—it is true that people must stand on their own feet in such matters, especially if they are properly informed and guided. Therefore, I am glad that Sir Gordon has not taken an entirely one-sided view of the credit problem.
I am also glad that noble Lords have not made the mistake of either arguing that money and credit are 320 unimportant or that somehow they are immoral. In saying that we worry about excess borrowing or excess credit, we have not made the mistake of saying that we are opposed to borrowing. That would be an absurd position to take. Nor has anyone said that we are opposed to people wishing to bring forward their expenditure.
What unifies us is our concern in respect of profligacy. People who borrow occasionally forget that what they borrow they have to repay. We worry about decisions which may be irrational because the costs are not properly calculated. If I may once more echo the noble Earl, Lord Russell, it is important to calculate the APR, and that is a difficult calculation. I do not think that I have ever succeeded in doing it longhand. Happily, calculators enable us to do this and some even have built-in programmes to make the calculation. However, it is a difficult calculation and in my view that makes it even more important to introduce it into courses in our schools. It is a good intellectual test for the young, given a set of figures, to work out the APR. Therefore, I am certainly not among those who say that that is not a proper role for our schools. Clearly it is. As my noble friend Lord Taylor pointed out, it has a practical side as well as a perfectly reasonable educative aspect.
I am probably less optimistic than is the noble Lord about the national curriculum. I remain concerned, as I was in our debates, that there will be insufficient room in the curriculum for such subjects. However, we can deal with that because if influential people, not least Ministers, say that they think there ought to be room—which I take to be much of the thrust of the argument put forward by the noble Lord, Lord Carr—and it is indicated that that is what should happen, then to some extent it will. Therefore, although I worry about whether we can find the space, I still believe that if we are determined to find it we shall do so.
I recall our debates in the past on these matters. Ministers were saying that the national curriculum could be met, so to speak, in an inter-disciplinary way and that one could cover the relevant matters jointly. In this case we are discussing some economics, some mathematics and some philosophy and morality. Therefore, although I am pessimistic, there is no necessity for the subject to be crowded out, provided we are determined to do something about it.
Many topics have been raised in the debate and I should like to pursue them if we had more time. I hope noble Lords will accept my apologies if I do not deal with them all simply because there comes a time when we must think of going home. However, I should like to say a few words about funding. This is where, as the noble Lord rightly said, there is an area of jointness. Clearly one would be delighted if the financial institutions could produce the appropriate funds. That is in the national interest but it is in their interests too—which is essentially what Sir Gordon Borrie is saying. It is much better to have enlightened borrowers than to have people who make stupid mistakes. Therefore, I should like to see funds from the financial institutions made available. Equally, it is true that if the Government were to join in to some extent, if only as a gesture, it would illustrate their seriousness in supporting such education.
321 In referring to the Government I do not mean only central government. I believe that the local authorities have a role to play. I do not know whether the local authority in Birmingham joined in but it seems to me an entirely appropriate way to use local authority funds. As I said earlier, I do not want to introduce a political aspect but people like myself who believe in the mixed economy and in, so to speak, jointness by the public and the private sectors, can think of no better example than this to illustrate the advisability of a mixed economy and how we ought to arrange our lives. However, 1 draw back from that because I do not want to start another philosophical argument this evening. Nevertheless, that is my view.
This is an important debate. It is useful for us to signal to people in education at all levels, from the Secretary of State down to the ordinary working teachers who my noble friend Lord Taylor of Blackburn reminds us will be doing the job, our interest and warm support in these matters. 1 look forward very much to what I hope and am confident will be an encouraging reply from the noble Viscount, Lord Davidson, from the standpoint of the department.
§ 8.59 p.m.
§ Viscount Davidson
My Lords, this has been a short but fascinating debate and I agree with the noble Lord, Lord Peston, that it has been an important one. I am most grateful to my noble friend Lord Carr of Hadley for tabling this Unstarred Question. He and I both had the privilege of attending the same public school—one of the oldest scholastic foundations in the country. So far as I, and no doubt my noble friend, was concerned, the management of money was not, as a subject, included in the curriculum. On the other hand, we learnt the parable of the talents, we learnt how to add and subtract and how to multiply and divide. There was certainly no question of spending more at the tuckshop than the money we happened to have in our pockets at the time.
However, those were the days before borrowing became part of our way of life. They were the days when one was brought up to earn before spending and to save for the rainy day. Now all that has changed. To quote from the annual report to which this Question refers, at the end of 1987, we the British public collectively owed £36 billion under various consumer credit agreements with banks, building societies, finance companies, credit cards, etc. These figures ignore the much larger sums involved in house purchase. Consumer credit has become a significant element in the national economy. This debate is therefore most timely and I am grateful for being given the opportunity of setting out the Government's views on the subject at this time.
My noble friend referred to the particular difficulties which can arise from consumer credit, as indeed does the report from the Director General of Fair Trading. The Government believe that the ready availability of credit is a good thing provided that there are the kinds of safeguards we have in this country.
Nevertheless, despite these considerable safeguards, it is inevitable that some people will get 322 into difficulties. More often than not, this is caused by events which happen after the consumer has taken out a loan, used the credit or mortgaged the house. Events like divorce, redundancy, separation, injury, serious illness and death can seldom be planned for, but they can have a devastating effect on the income of a family or an individual.
I want to say something about the help and advice available to those in debt in a moment. But I will deal first with the educational aspects of the question. As my noble friend said, prevention is always better than cure and I agree entirely with his comment that that has rightly been the theme of this debate. I am pleased to be able to assure my noble friend that there is a good deal of such education already taking place in our schools and colleges. The preparation of young people for adult life is one of the functions of the education system. There are many courses which have that in mind which include aspects of money management. They often appear under the general heading of life skills providing young people with useful knowledge, help and advice about a variety of situations in everyday life.
Pupils taking courses in home economics or business studies will also cover topics which benefit their understanding of the need to manage their resources and the implications of credit. The GCSE criteria for home economics—a subject taken by almost a third of pupils—include the requirement that courses should,develop the knowledge and skills required for the effective organisation and management of family resources in relation to the needs and life-styles of family members".Knowledge and skills taught in other subjects also contribute. For example, an understanding of the basic principles of interest can be developed through practical work on percentages in mathematics. Such work is indeed included in one of the attainment targets in mathematics under the draft order on the national curriculum for that subject.
I can also tell the noble Earl, Lord Russell—and I know that the noble Lord, Lord Taylor of Blackburn, will be pleased to hear this—that the whole question of personal and social education within the national curriculum is a matter on which my right honourable friend has asked the National Curriculum Council to offer advice. In addition there is already in place a national project on economic awareness for school pupils which was established by the former School Curriculum Development Committee at the Government's instigation.
Your Lordships will be aware of the importance which this Government attach to encouraging links between industry and schools. In the case of this aspect of the curriculum there are good examples of such links. For many years the Association of British Insurers in particular has been producing teaching material and offering advice to teachers. More recently the Building Societies Association has also started to produce materials for schools. The Bankers in Schools Service involves practising bankers visiting schools and colleges to talk about a variety of financial topics. There are other initiatives that I could mention. We very much welcome them and hope that other institutions will follow. We also very much appreciate the efforts of the Money Management Council to encourage such a response 323 and to act as a channel through which money can be translated into concrete help and advice on financial matters.
The Money Management Council is concerned to help adults as well as children. There are others actively seeking ways of educating those who have left school or college. The Economics Association has established a working party to develop activities which will improve the economic understanding of adults and the Department of Education and Science has held discussions with them about this. The Office of Fair Trading has published a number of booklets and posters about credit.
The Government consider it important that those people who get into serious difficulties with personal debt through no fault of their own should be able to get good independent advice and help with their problems. It is in everyone's interest that someone with multiple debt problems should be helped to rehabilitate himself and the debt counselling services provided by the Citizens' Advice Bureaux are extremely valuable in that respect. The Government not only value very highly the advice and help provided by the bureaux but we support the service in a very real way by financing the costs of the National Association of Citizens' Advice Bureaux and its sister organisation, Citizens' Advice Scotland.
But that is by no means the full story, particularly where money advice is concerned. The National Association of Citizens' Advice Bureaux has had some notable successes in persuading the private sector to contribute towards the costs of money advice services. To date, four money advice support units have been set up or are in the process of coming on stream. They provide expert back-up services to the local bureaux and other advice agencies in the areas they serve. The various contributors, including Mercantile Credit, Barclaycard, Citibank, TSB and the Finance Houses Association, have committed over £300,000 per year for the next three years to their funding. More recently, the Finance Houses Association has announced that it will be doubling its contribution next year to £50,000 and there are signs of an increasing willingness on the part of the lending institutions to fund the provision of independent advice and help for people with personal debt problems. I think that these trends are very encouraging and are a cause for optimism and not for the wringing of hands.
Before I finish it would be remiss of me not to mention the steps which are being taken by the credit industry itself to deal with some of the concerns which have been expressed by your Lordships today. Of course lenders have a responsibility to adopt sensible lending policies. It cannot be in a lender's interest to lend to borrowers whose ability to repay is doubtful. Lenders are adapting their methods and introducing further safeguards to avoid overlending. For example, Barclaycard rejected some 36 per cent. of applicants in 1987, compared with 29 per cent. in the previous year, as a result of applying stricter criteria. Most lenders now inquire about borrowers before offering credit, using credit-scoring techniques or by consulting credit reference agencies. There are moves currently to broaden the scope of the information held by these agencies to include details 324 of individuals' current commitments. This will enable lenders to identify cases of multiple debt and should enable better informed lending decisions to be made.
Lenders are also taking a number of steps to improve their own procedures. The Visa credit card issuers have adopted a code of practice to govern their lending, and a number of major retailers have combined to form the Retail Credit Group to promote higher standards in retail credit. Also, the main trade associations of lenders have adopted codes of practice, endorsed by the Director General of Fair Trading, which commit their members to observe the highest standards in their lending.
The Government recognise that it is necessary to have an aware and informed public who can manage their affairs properly, that problems can arise and that help and advice are needed for those in difficulty. At the end of the day it is the individual who must take personal decisions. The initiatives which the Government are supporting and encouraging will help to ensure that they have had access to the right information and, when difficulties do arise, access to appropriate advice.
I hope that what I have said will reassure your Lordships that the Government are fully aware of the problems and are taking the necessary action to resolve them.