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2.45 pm

Ian Murray (Edinburgh South) (Lab): I, too, congratulate my hon. Friend the Member for Walthamstow (Stella Creasy). Since we became Members, she has been a stalwart campaigner on the issue, and to have a political issue of such like trending on Twitter-if Government Members would like to look up that term later, they are very welcome to-is a great credit to the campaign that she has run and to her for representing not only her constituents, but the constituents of all of us.

Many people on both sides of the House support the measure, and I was interested to hear the hon. Member for Chippenham (Duncan Hames), who is in his place, bring to the Chamber his great deal of experience on the issue. I am disappointed that he is going to put that all to the back of his mind when wandering into the Lobby this afternoon, but I hope that in the next hour he will change his mind and support what is one of the most valuable things that we can do in the Chamber.

The issue affects many of my constituents and constituents throughout the country. Debt breaks up families, demolishes relationships and, all too often, leads to suicide and death, something that has not been highlighted this afternoon. Rarely are high-interest services used as a one-off; the spiral of debt, through chasing the tail of debt as others have said, can lead to families throughout the country becoming caught in a debt trap and, all too often, a death trap.

I have been struck by the APR and total credit costs that we have heard about this afternoon. My hon. Friend the Member for Glasgow Central (Anas Sarwar), who is not in his place, spoke about 4,000% APR, and although I appreciate that the motion is not just about capping APRs, but about the total cost of credit, I think that such figures should send a shiver down the spine of every Member in the Chamber.

Moreover, the hon. Member for North Swindon (Justin Tomlinson) explained that a mere 17.9% APR can take up to 40 years to pay off if someone makes just the
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minimum payment, so even small APRs, which attract people to credit, can have significant consequences if there is no education to resolve the issue.

Short-term credit companies advertise aggressively. We just have to walk down our local shopping streets to see posters, advertising boards and window displays publicising payday loans and credit. Many of us know about such aggressive advertising, and Members have already described how lenders can create relationships in a person's own living room, but the main concern about advertising is that many people look for authorities on the issue and then give the adverts credence because of them. Indeed, adverts for payday loans with APRs of almost 3,000% have been carried on the website of the Department for Communities and Local Government-an authority to which people might look and say, "If they're saying it, this must be acceptable."

Rising unemployment, housing costs and the VAT increase could leave families and ordinary people in a far worse situation, pushing them towards higher credit costs when paying for birthdays, Christmas, household repairs or just everyday living.

Helen Goodman: My hon. Friend mentioned the significance of the personal relationships that firms build up with borrowers. Does he agree that the network of people who are on incentivised contracts with the companies, and incentivised to maintain people in debt, is one of the biggest market barriers to the conventional banks coming into the sector?

Ian Murray: I am grateful to my hon. Friend for mentioning that. One would think we had rehearsed it, because I was about to go on to say exactly that. The chief executive of the country's largest payday lender, Peter Crook, recently said that he was likely to see a large increase in his target audience owing to the rising levels of unemployment. That highlights the relationships that are created not only to keep people in the spiral of debt but to keep the people who are pushing the debt in the spiral of commissions and maintaining their own lifestyles. That shows that strict regulation is required, not a code of conduct that could easily be dismissed by some of the more unscrupulous lenders. It also shows that those who are least able to pay are being charged the most at a time when they are least able to pay for this kind of credit.

Of course, capping the total cost of credit is not an idea that has been plucked out of the air. As my hon. Friend the Member for Walthamstow demonstrated, there is evidence from around the world showing that it is perfectly possible to regulate the payday and home credit markets without adverse effects-all it takes is the political will to do so. There are undoubtedly detailed issues that would have to be resolved, but we are elected to this House to find solutions to problems, not to find problems to stop solutions, which is how I read the well-intentioned amendment. The political will is in the Chamber today to do something about this, and we should all grasp the moment and do what is right for our constituents.

2.51 pm

Richard Graham (Gloucester) (Con): Today we have gathered in all parts of the House as the champions of sensible consumer credit for the most vulnerable in our
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communities. It is interesting that so many of these champions are new Members of this House. Among our company, I pay tribute, as many others have done, to the hon. Member for Walthamstow (Stella Creasy) and to my hon. Friends the Members for North Swindon (Justin Tomlinson) and for East Hampshire (Damian Hinds) who have been leading the way in setting out our concerns about consumer credit.

The hon. Member for Erith and Thamesmead (Teresa Pearce) referred to snakes and ladders and concluded that the motion was all about increasing the ladders of opportunity for her constituents. In truth, it is about the other side of the equation: reducing the number of snakes, reducing the amount of credit that is made available through payday lending, and ultimately putting a squeeze on the loan sharks-the one species of fish which we might all agree we would not mind if the beastly EU fisheries legislation sorted out for ever.

The motion proposed by the hon. Member for Walthamstow calls on the Government to introduce caps on prices. Interestingly, when she introduced the motion she called for the regulator to put these caps in place. All that is at stake in terms of whether we vote for the motion or for the amendment is the narrow issue of whether it is the place of the Government to impose caps on prices or whether it is the responsibility of the Government to encourage a regulator to do so. In that respect, it is relevant that the snappily named "son of OFT"-the consumer markets protection agency, if that is to be its final name-is the relevant body that should be putting caps on prices. The consultation is out there, and we should all be participating in it and encouraging the new agency to do so, as the motion and the amendment suggest.

The other side of the equation, which is all about the ladders of opportunity, comes back to the other issue dear to the hearts of many of those in the Chamber-how to provide sensible credit to these vulnerable constituents. I declare an interest, as have many hon. Members, as a member of the Gloucester credit union. I pay tribute to the Government, specifically the Department for Work and Pensions, for funding a post to enable five small credit unions to form together into a Gloucestershire-wide credit union, which will be launched in March. It is through credit unions that we will make credit available to such constituents. I hope that it is part of the Minister's plans-no doubt he will tell us more-for credit from credit unions to be available through the network of 11,500 post offices.

The final point I would like to make about the ladders of opportunity is on financial education. I pay tribute to my hon. Friend the Member for North Swindon on the new all-party parliamentary group on this matter. Although it is a less attractive game than bashing bankers, I urge all Members to work with the financial services institutions in their constituencies, many of which provide considerable free financial education.

Mark Durkan: The hon. Gentleman compared the motion and the amendment and suggested that the motion called on the Government to introduce caps. It actually calls on the Government to introduce regulatory powers that would allow the introduction of caps. The amendment calls on the regulators to consider introducing caps. Do the regulators currently have such powers? If they do not, the amendment is specious.

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Richard Graham: I thank the hon. Gentleman for that contribution. The amendment encourages the Government to introduce


caps on prices. I believe that that is precisely the form of words that is appropriate. That is why I support the amendment. It recognises that 95% of the motion is right, but that it needs a significant but small fine tuning.

2.56 pm

Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab): I, too, praise my hon. Friends the Members for Walthamstow (Stella Creasy) and for Darlington (Mrs Chapman) for their hard work on this issue and for securing this debate through the Backbench Business Committee.

In the poorest communities in my constituency and throughout Teesside, the most vulnerable people are being preyed on by loan sharks and payday lenders. That is especially true in these difficult economic circumstances. The two councils in my constituency offer financial advice services that provide free support to people who need it, with support from Citizens Advice and the credit unions. Those services are well used by local people and sometimes they are the only accessible source of advice and support. Such services could be developed if post offices worked alongside credit unions as a post bank. I believe that the Government have a role in regulating to prevent vulnerable people being targeted and taken advantage of.

It is no surprise that among the only businesses to have consistently benefited from the credit crunch are pawnbrokers and cash-for-gold shops, which offer quick-fix financial solutions for those in need of money. As the Office of Fair Trading and the Competition Commission have said, the fact that customers seeking short-term loans cannot afford to shop around has meant that there is little competition in the sector, which has inflated rates artificially.

In my constituency, the north-east illegal money lending team has worked tirelessly in communities such as Easterside to drive out illegal loan sharks who have been taking advantage of vulnerable people. It helped to set up sustainable lending and saving by community-based credit unions. The Minister has decided to withdraw funding for such teams and expects a national body based in Birmingham to replace them. I can only guess that that is part of the new consistent localism agenda that the Government have displayed.

The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Mr Edward Davey): The hon. Gentleman will know, I would have thought, that an independent study was done on how best to use the funding for illegal money lending teams. We have taken on the broad recommendations of that study. It suggested that a central team would be more effective and use the money better. The people in the north-east will still have the services of the illegal money lending teams.

Tom Blenkinsop: I do not accept that evidence, because the new team will not do the follow-up work that helped to set up the credit unions in those communities. A
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team in Birmingham cannot have the relationships with local people that can defeat the local illegal moneylenders who people know on their estates. I have campaigned hard against this decision, which I believe will leave communities in my constituency vulnerable to illegal loan sharks, after all the hard work that has been done to rid us of such criminal moneylenders.

I back the motion because, contrary to the opinion of the hon. Member for Solihull (Lorely Burt), it is not true that regulating the lending market will push people to use illegal loan sharks. In the real world, evidence shows that high-cost lending may be a precursor to illegal lending because people get into such a financial mess, and have such poor credit ratings as a result, that they turn to illegal lenders. And not only that: they are often dragged into criminal activity themselves as repayment by favour or in kind, such as hiding fenced goods, drugs or weapons. When they get caught, they lose their job and spiral downwards.

With rising unemployment, the increase in VAT and the high cost of fuel, I genuinely fear that more and more of my constituents may feel that their only option is to turn to high-cost lenders such as payday, doorstep and hire-purchase lenders. The Government have already committed to regulating excessive interest rates on credit and store cards, and it is now time for them to focus on higher-cost unsecured lenders. That is why I support the motion. Now more than ever, it is absolutely necessary to protect vulnerable and often desperate people who turn to companies for credit that could destroy any hope of their having financial security in future.

3 pm

Craig Whittaker (Calder Valley) (Con): I assure the hon. Member for Walthamstow (Stella Creasy) that although my grandmother was called Crook, neither she nor I are related to the person whom she named earlier. I thought I should put the record straight on that one.

In Calder Valley, we have the fantastic Calderdale credit union of which I must declare I a member. It does some great work in combating doorstep lending and has achieved much in the local community of Todmorden to offset those lenders' high interest rates. It has done so through a great education programme and, of course, through providing small loans at a much lower rate, in line with that of most banks and reputable high street lenders.

Last week, I attended our local Sure Start centre in Todmorden, at which Barclays bank held a money skills training programme for a group of young people and young parents. It explained the many aspects of finance and, importantly, the value of saving, and it became clear that the majority of the group of about a dozen young people had already come into contact with doorstep lenders.

Some of the stories that we heard around the table were absolutely horrendous, and three key points came out of the discussion. First, young people are dealing with incredibly high interest rates from doorstep lenders. Secondly, those lenders' tactics are horrendous, with some of them knocking on the door at 4 am or 5 am to collect overdue money. Thirdly, as has been mentioned
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today, the most vulnerable sometimes enter a vicious cycle in which they are encouraged to extend loans time and again, or to add a television or washing machine.

As has been mentioned several times, many Members attended the launch of the all-party group on financial education, which was set up by my hon. Friend the Member for North Swindon (Justin Tomlinson) and attended just last Monday by Martin Lewis. There is a real desire among all MPs to bring back financial education for our young people at school. Gone are the days when banks promoted bank accounts and the concept of saving to our young people at an early age through schools. We need to bring back a robust system in which our children are educated in finance in a consistent way.

The education programmes of our high street banks, to which many of the banks' staff dedicate their own time, such as the Barclays money skills programme, are having an impact where they are targeted. The great results provided by credit unions such as Calderdale credit union in tackling doorstep lenders are leading to progress, albeit with very limited funds, through high levels of dedication from their staff. Sadly, however, there is not enough progress and far too many doorstep lenders continue to target the most vulnerable with well advertised, huge APRs, often in the thousands. That is not only obscene but immoral, and we need to take steps to introduce measures to increase access to affordable credit. We must also urge regulators to consider putting in place a range of caps in parts of the market in which immoral and often unscrupulous operators target the most vulnerable people.

Ben Gummer (Ipswich) (Con): My hon. Friend talks about some of the positive things that the banks are trying to do, but the vast majority of debt cases that I have seen in my surgeries have originated in appalling lending decisions by high street banks. It is important to stress that now while we are hitting everyone else.

Craig Whittaker: My hon. Friend highlights a serious problem, but it is important to appreciate that some of our high street lenders have recognised, in the light of what has happened, that they must do more to target the most vulnerable to highlight financial issues, as they are doing.

I support the amendment because it is important to have a widespread review and not just a prescriptive briefing, particularly given that unscrupulous companies currently get around advertising the high cost of credit by massively increasing the base price of goods on offer, examples of which were given by my hon. Friend the Member for Thurrock (Jackie Doyle-Price) and the hon. Member for Glasgow North East (Mr Bain). I urge hon. Members to support the amendment.

3.5 pm

John Woodcock (Barrow and Furness) (Lab/Co-op): It is a pleasure to speak in this debate and to follow the hon. Member for Calder Valley (Craig Whittaker), who spoke well about an area that I know well and where I have relations. I add my congratulations to my hon. Friend the Member for Walthamstow (Stella Creasy) on showing the leadership to get this motion on the Order Paper today and to publicise it. She has been an example to us all.

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This has been a good debate. Many hon. Members have spoken well and made excellent points. If the vast majority of hon. Members accept that there is a significant problem, it is a question of what the Government can and should do about it. As one hon. Member said, there is a legitimate argument in favour of funding financial inclusion education in early years education. Partly because of the progress made in recent years, that is necessary, but it is not sufficient on its own. We should welcome the fact that 350,000 loans have been made by the not-for-profit sector, but that is not enough, and the enormous problem of people being charged appalling rates of interest remains.

The question is this: if the Government decide that they cannot allocate the funds that they have allocated previously, can they take regulatory action to improve the situation and make a genuine difference? That is why I am disappointed by the response of some Government Members. They have a far greater grounding in such matters than I do and have spent much of their previous careers and parliamentary time in dealing with this issue, but they have not grasped the nettle, and they will not support the motion. Instead, they are taking a course of action that will ultimately delay things and put the matter in the hands of a regulator that has not been given sufficient political direction to tackle the problem head on.

Lorely Burt: Will the hon. Gentleman give way?

John Woodcock: If the hon. Lady does not mind, I will not take interventions because we need to hear as many speeches as we can.

The Conservatives and Liberal Democrats, when they were the opposition, spoke well of the need to tackle the level of debt in society and pointed out some faults in the previous Government's policies. Now is their chance to do something.

Labour must accept that although we must protect people's right to choose, we must not continue to give unscrupulous companies a means to exploit people. I hope that the Consumer Credit (Regulation and Advice) Bill, which my hon. Friend the Member for Walthamstow introduced, promotes credit unions. I am deeply proud of Walney Island credit union, which was set up by churches in response to mass redundancies at Barrow shipyard to help people through those enormously difficult times. We should no longer tolerate the gap being filled in this way while alternative forms of credit are introduced.

In our privileged financial position, we have no need of loans of the kind regularly taken out by the poorest members of our society, but my hon. Friend the Member for Erith and Thamesmead (Teresa Pearce) spoke so well about the choice that she would probably have ended up making in desperation had she been in a situation in which she did not have enough money to get through Christmas.

The freedom to make choices is important, but it is ultimately part of the Government's role to prevent us from being exploited and making the wrong short-term choices when in a desperate situation. That is what this debate is about, and I hope that Members on both sides of the House will support the motion.

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3.11 pm

Mark Durkan (Foyle) (SDLP): I join others in commending the hon. Members for Walthamstow (Stella Creasy) and for North Swindon (Justin Tomlinson) for securing this debate, even though they differ on the amendment.

Many hon. Members have described the problems in their constituencies. The problem is that firms in the credit market are able to exact credit terms that are lucrative for them but punitive for their customers. When we hear of some of the eye-watering interest rates that end up being charged, it is natural to think that there should be a law against it, and people look to this House to provide some sort of bulwark against open-sky exploitation. The motion asks the House to give the Government a mandate-although it is not a prescriptive mandate-to put regulatory powers in place that would provide caps that would be sensitive to the circumstances and needs of those who are in dire straits and otherwise financially excluded. Those caps would also be sensitive to the dynamics of different parts of the markets and sub-markets-

Damian Hinds: Will the hon. Gentleman give way?

Mark Durkan: No, because-

Damian Hinds: On the wording.

Mark Durkan: Well, I am addressing the wording. Many people are misrepresenting the motion and the amendment.

The motion would not put prescriptive caps in place or require the Government to do so immediately. The hon. Member for Solihull (Lorely Burt), who supports the amendment, said that a Government consultation is under way. But that consultation is not just asking the regulators what they think: it is rightly asking all of us what needs to happen to provide properly regulated financial services and proper protection to customers, both business and personal. Instead, the amendment says that we do not even want the Government to consider the question of regulatory powers that would protect those customers-we should ask the regulators to consider that question instead. Who are the regulators? The very consultation that the hon. Lady was talking about is about who the regulators will be in the future and what powers they will have. So the amendment is an evasion and dereliction of parliamentary responsibility, because it would simply ask the regulators to think about the issue-when we are still thinking about who the regulators should be and what powers they should have. It is a case of "There's a hole in my bucket, dear Liza." If people want an answer to this problem, they should not back the amendment.

Damian Hinds: Will the hon. Gentleman give way?

Mark Durkan: No, because I want to give other hon. Members a chance to speak. The hon. Gentleman is supporting the amendment and he ended up pleading with the Minister to consider what he called "twin caps". I do not know why he did that when he is backing an amendment that says that the Minister should not consider anything to do with caps. So the hon. Gentleman
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does not want the Minister to have anything to do with this and instead it should be unspecified and unknown regulators.

There is even more uncertainty about who the regulators in Northern Ireland would be. If I, as a Member representing Northern Ireland, was to support the amendment, I would be asked by my constituents, "Well, who are the regulators in our country?" It is unclear who the regulators would be in Northern Ireland. That is why I cannot join others in sidestepping the main point of the motion by backing the amendment.

I would like to join my Celtic colleague, the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards), in making a point about debt management and debt management plans. There are not only loan sharks out there, but debt sharks, who pose as debt dolphins coming up to help people who are deep in dire debt. We need clearer regulation. We know that an Office of Fair Trading report found that more than 129 companies were engaged in various questionable practices; and we know that there are models for statutory schemes, not just in other jurisdictions such as the south of Ireland and elsewhere across Europe, but even in Scotland, where there is a debt arrangement scheme that provides a good model for protecting consumers in dire need of credit but being exploited in the name of debt management plans.

The term "flipping" was used during the parliamentary expenses scandal to describe MPs changing houses. In the debt management plan arena, of course, we have flipping as well, with companies sucking customers in with unsustainable terms then flipping them on to more exorbitant terms in the future.

3.15 pm

Mr Chuka Umunna (Streatham) (Lab): I also congratulate my hon. Friend the Member for Walthamstow (Stella Creasy) on securing this debate, which I think has been a very good one. I also endorse the comments of the hon. Member for Foyle (Mark Durkan) about the amendment.

In the little time available, I want to widen the debate to talk about financial exclusion in general. We have discussed these issues over the past few weeks, and in the coming months, when we will be talking about some of the big macro-prudential issues relating to the financial services sector, we will be considering whether to separate out our banks between investment and retail; and we will also be considering banks' loss-absorbing capacity, risk assets and such like. However, it is extremely important that we do not forget some of the issues presenting challenges for the people we represent. The hon. Member for Ipswich (Ben Gummer), who is no longer in his place, referred to the raw deal that many of our constituents are getting from the big retail banks. I endorse what he said.

A 2004 investigation by The Guardian found that payment protection insurance, for example, was being widely mis-sold by many of the banks to customers who would not be able to claim under the terms of the insurance. Banks were making profit margins of up to 80% on those products. I am a member of the Treasury Select Committee, and last November I took the chief executive officer of Lloyds Banking Group to task for
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charging extortionate rates of interest for arranged overdrafts. He was levying a charge of 19.3% on his customers-more than 38 times the bank of England base rate. Last month, Barclays was fined £7.7 million by the Financial Services Authority for misleading savers, and RBS was fined £2.8 million by the FSA for its inadequate handling of customer complaints.

The increase in personal debt has been mentioned. It is not coincidental that, since 2000, productivity has risen at double the rate of wages, which have in some sense stagnated. As a consequence, people have borrowed and household debt has exploded. That might also explain why we have seen an explosion in the demand for short-term credit. It has already been mentioned that in 2009 the payday lending industry was worth more than £2.2 billion-more than 3.5 times what it was in 2006. However, we are where we are, and the need for credit has now become a basic essential of everyday life. I would be prepared to bet that most people in the Chamber have a credit card. We all come under different stresses when we go through different things in our lives-for example, moving home.

One of the problems is that it is often the poor and the vulnerable who are most in need of credit. That was one reason I wanted to participate in today's debate. I represent a constituency that is varied but has pockets of severe deprivation, and we find that it is those people who are struggling to gain access to credit and struggling with financial issues. In the past four months, my local citizens advice bureau has dealt with well over 400 debt advice queries. Despite that, however, those poor and vulnerable people are the very ones getting the rawest deal from the sector in terms of the services they are being provided with. Three million people in this country do not have a bank account, and 35% of those in deprived communities do not have access to simple banking services.

I think that the hon. Member for Eastbourne (Stephen Lloyd) mentioned the fact that the industry has pointed to all that it has been doing since 2003 to introduce basic bank accounts. Typically, the bank accounts that have been introduced since that time allow customers to receive their pension or benefit payments and perhaps have a debit card, but they do not offer overdrafts and the often do not provide access to a cheque book. They do not provide the full menu of services that we would all expect.

For me, this is simple: the industry is failing to do anything about financial exclusion. With the present voluntary commitment, the sector lacks sufficient incentive to dedicate its resources to help to address the issue, not least because of its obsession with maximising shareholder value. Yes, it has a legal duty to do that, but that sometimes goes against its obligations to society, which has provided £1.3 trillion of support to the sector since the global financial crisis came to a head. In addition to supporting the motion, I would like us to introduce a universal banking service obligation, to prevent people from needing to go to the doorstep lenders in the first place.

3.21 pm

Sheila Gilmore (Edinburgh East) (Lab): I want to thank my hon. Friend the Member for Walthamstow (Stella Creasy) not only for securing this debate, but for
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the campaign that she has been waging on this subject since she was elected. Mention has been made of the review of consumer credit, and of the consultation, which closed some time ago. It is important to remember that that review would not even have looked at some of these issues if my hon. Friend had not pushed for them to be examined, so we are here today in part because of her efforts.

It always worries me when people say things like, "We don't need to regulate yet" or, "We're all in agreement with this, but-".

Lorely Burt: The Labour Government had 13 years in which to regulate, and they conducted three investigations into this very subject. They did not bite the bullet, however, so the hon. Lady should not be criticising us. We are conducting a consultation nine months into this Government.

Sheila Gilmore: The hon. Lady has been told on several occasions by various Members that the proposal in the motion is different from some of the proposals that were not taken up by the previous Government. If I had been in this place then, I would have been pushing my Government to do exactly what the motion proposes. It is not good enough to say, "If your Government did not do this, you should not propose it now." For how long does she think should we be disbarred from making such proposals? One year, two years, 13 years? On that basis, we might as well not be here at all, but perhaps some Members on the Government Benches would prefer that.

Craig Whittaker: I understand the party politics involved, but does the hon. Lady acknowledge that we have already heard a lot of evidence today about how these unscrupulous companies get around the process anyway simply by increasing the base price? We need to take time out to have a look at this in a proper, regulated manner.

Sheila Gilmore: I am not convinced that we have heard assertions or evidence that that could happen. If we always decided not to legislate because someone could get around the law, there might be a case for not legislating.

I should declare an interest as a solicitor, and one of the things that drew me to the law as much as to politics was my belief that the law is a valuable tool to help those who are more vulnerable. The law is a lever to create a better balance of power between those who have power and assets and those who do not.

I am not saying that we should regulate on absolutely everything, but regulation is necessary if we are to deal with a problem that has expanded greatly, partly but not entirely because of the recession. The industry is incredibly seductive for people; it offers them attractive places to go and produces attractive adverts that make everything seem very easy. There is widespread agreement on the need to help people and to make changes, provided that that is not done through regulation, but we must will the means, not just the end. It is not enough to have warm words and to keep talking about how important it is to have measures to deal with financial exclusion and vulnerable people. We have to will the means to do that.

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There was a recent Westminster Hall debate on basic bank accounts, in the course of which it became clear that, for all the espousal of financial inclusion, there is a growing inability to will the means that are needed. The measure before us is one of them, and there are several more. In my earlier intervention I referred to the growth fund. Every Member wants there to be more sources of affordable credit. We are all great supporters of credit unions-indeed, I am a member of my local credit union-and we want their lending to be expanded.

One practical recent measure that led to that expansion was the growth fund. As a result of it, lending by credit unions and other community-based financial institutions was able to expand greatly. That will end in March this year, however. Some people might say, "Well, that's the date your Government set for it to end." I must say yet again, however, that had my party been re-elected last May, I would have been pressing them to extend the growth fund because it has built up many credit unions and other community-based financial institutions to provide an alternative for people. Without that lending capacity however, many such organisations will have to reduce their lending activities substantially; that is what they are telling me. The alternatives that people often say should be in place before we legislate will therefore not be in place if we do not go on expanding through the growth fund.

I was also concerned to hear that the financial inclusion taskforce within the Treasury, which the previous Government set up, is, in effect, being wound up. Several of the people who were working in this field have already been redeployed to other activities.

If we want to put our money where our mouth is, we need to put in the financial resource and the legislation. Even at this stage in the debate, I hope that Members are willing to decide to vote for the motion and not support the amendment, and to put pressure on the Government to continue the work that the previous Government did in a variety of fields. This is part of the big jigsaw puzzle that we have to address when dealing with financial inclusion and the problems some people face. We need all the following measures: we need credit unions, but we need the resource to go with them; and we also need community-based financial institutions and other sorts of credit unions.

There is one further small provision that the Minister might want to consider: reforming and extending community investment tax relief. Many community development financial institutions-community-based lending institutions that lend to individuals and businesses-would like that, and I hope that the Government are prepared to consider this further measure that is part of the wider jigsaw puzzle.

I commend the motion, and I hope the consensus that has been apparent will translate into support for it.

3.28 pm

Nia Griffith (Llanelli) (Lab): I congratulate my hon. Friends the Members for Walthamstow (Stella Creasy) and for Darlington (Mrs Chapman) on proposing today's motion. I especially congratulate them on recognising the complexity of the problem and on presenting us with a practical and realistic proposal for cracking down on the excessive fees and costs charged by doorstep lenders. The Opposition Front-Bench team is pleased to support the motion.

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I also pay tribute to my hon. Friend the Member for Walthamstow for using parliamentary procedures and organised campaigning so effectively to highlight this problem and for seeking to find a workable solution. It is a tribute to her that her work has inspired so many other hon. Members to prioritise the issue, to do their own research and to try to think through workable ways of cracking down on extortionate charges. She is fully aware of the reasons why a single cap on interest rates-perhaps an arbitrary figure plucked out of the air-would not be the solution and could have unintended consequences.

My hon. Friend has understood the evolution of our thinking, from first having reviews when we were in government, to the position in our manifesto in which we pledged to clamp down on such practices. She has used her own research and has come up with a practical solution, which she has explained in her speech and the motion, which comprises a range of powers that the regulator needs to tackle the problem. As my hon. Friend the Member for Streatham (Mr Umunna) has said, we are asking the Government to consider the matter now precisely because they have been looking at regulation. Those are the reasons why it is particularly appropriate that the motion should have been brought forward today, with its practical solution to the problem.

Many of those on low incomes have no reserves to help them get through difficult times. They struggle to make ends meet and pay their bills. Any loss of income or small change in circumstance can lead to their having to choose between putting the heating on and putting food on the table, driving them into the hands of those offering payday loans. It is therefore not surprising that there has been a particularly rapid increase in the payday loan market over the past few years. In 2009, the payday lending industry was worth more than £1.2 billion, more than three and a half times what it was worth in 2006. There are now some 1.2 million people using the payday lending market and more than 3 million people using the home credit market. The problem has been further exacerbated in the past couple of years by the tightening up among mainstream lenders. People have found their credit limits from mainstream lenders suddenly curtailed, and they have been forced to look elsewhere, thereby swelling the numbers of those relying on high-cost doorstep borrowing or home credit firms.

Those on low incomes often have the least choice. Those with the lowest incomes often end up paying the highest prices for goods and services. They often do not have the spare cash to bulk-buy or take advantage of special offers; nor do they have the credit ratings to walk into high street stores and use a credit card. Many on low incomes do not have access to the internet, and even if they do, many do not have the credit cards to enable them to go internet shopping. It is the lack of choice that makes people particularly vulnerable. They have no option but to turn to the doorstep lenders and home credit companies, which charge exorbitant rates on their cash loans or hire purchase agreements. The lack of choice or competition in the market makes it particularly important that the Government should step in and regulate.

There is a parallel between this debate and what we did in government to tackle the scandal of the high unit cost of electricity charged to those who pay using
3 Feb 2011 : Column 1108
prepayment tokens. When we were in government, my right hon. Friend the Member for Doncaster North (Edward Miliband), the then Secretary of State for Energy and Climate Change, put considerable pressure on the regulator Ofgem to tackle the energy companies with sustained pressure itself. The energy companies eventually reduced the unit costs paid by those using prepayment meters-reduced, yes; but admittedly not reduced to the very cheapest rates, which are paid by those who can shop around and choose to pay by direct debit, in recognition of the fact that, as the energy companies pointed out, there is a higher cost involved in the administration of prepayment meters. Nevertheless, there was a recognition that the charges had been too high, and they were reduced.

The motion that we are debating today asks the Government to intervene in a similar way in the high-cost doorstep lending market. By introducing new regulatory powers, a regulator can work with the industry, taking account of the legitimate extra costs of collecting frequent small payments in person, and can work to achieve realistic reductions in exorbitant interest rates and charges. This is not about imposing an arbitrary interest rate cap that would drive companies to slap on other charges; nor is it about driving legal companies out of the doorstep-loan markets, leaving vulnerable customers prey to the illegal loan sharks. This is about working with the industry to reduce the overall cost that the customer has to pay for payday loans and home credit.

As the hon. Member for South Norfolk (Mr Bacon) has so forcefully reminded us, regulators need teeth, and it helps if they also have strong backing. That is precisely why it is so important to have the stronger wording of the motion proposed by my hon. Friend the Member for Walthamstow, which refers to

rather than the weaker wording suggested by the amendment. Our experience with prepayment meters was that it took strong leadership and firm pressure to effect the necessary changes. I strongly suspect that tackling the excessive charges of doorstep lenders and home credit companies will also require strong powers and political will.

As the motion says, it is important to increase access to affordable credit. When we were in government, we took concerted action to promote access to alternative sources of credit through the growth fund. That increased the availability of affordable personal loans by third sector not-for-profit lenders such as credit unions and community development finance institutions. Between 2006 and 2010, 350,188 loans were approved and payments amounting to £152 million were made. I hope the Minister will tell us whether the Government plan to continue that provision beyond April 2011.

Let me return to the issue of regulation. As my hon. Friend the Member for Streatham pointed out, this is a particularly appropriate time for the Government to introduce regulatory powers. It is bad enough that low-income communities are bearing the brunt of taxation changes and the Government's savage cuts in entitlements and public services. The very least that the Government could do is accept our modest proposal, and protect people from excessive charges for doorstep loans.
3 Feb 2011 : Column 1109

What we are asking today is for the Government not to pass by on the other side of the road-not to ignore those who are being ruthlessly exploited-but to take some simple, straightforward steps to clamp down on this callous exploitation.

3.36 pm

The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Mr Edward Davey): I congratulate the hon. Member for Walthamstow (Stella Creasy) on securing a debate on this important subject, on which there is so much common ground. I believe that there is a consensus across the House that we need to protect vulnerable people, especially those on low incomes, from irresponsible and, worst of all, illegal lenders.

There is, of course, some debate about how we should protect consumers from exploitation. Although today's discussion has rightly ranged widely, the motion and many contributions have focused on one particular option for credit regulation, namely a cap on the total cost of credit. I shall deal with that specific point in some detail later, but in order to do justice to a number of the excellent speeches that we have heard, I shall begin by responding to some of the many points that have been made.

One of the huge benefits of a debate such as this is that the House has a chance to contribute actively to the Government's ongoing work and, in particular, to our two ongoing consultations. However the House votes this afternoon-and I strongly urge all Members to support the amendment tabled by my hon. Friend the Member for Worcester (Mr Walker)-I assure Members that we are in listening mode. We have not reached our final conclusions, not least because one consultation has not closed and we have yet to analyse all the submissions made in response to the call for evidence. Let me, however, tell the House what the Government have been and are still doing, and how we have learnt from the previous Government's attempts. Of course, they rejected proposals for caps on consumer credit not once, not twice, but three times.

The previous Government were not shy or inactive in this regard, and some of their policies were good. We are continuing those policies and hope to improve on them. Let me give two examples. The first relates to illegal moneylenders-the loan sharks who will use intimidation and even violence to collect their money. They are criminals, and they need to be identified, caught, charged and imprisoned. The previous Government set up illegal moneylending teams whose job was to help to enforce the law in communities throughout the country. They are specialist teams consisting of trading standards officers and seconded police officers who are taking the fight to the loan sharks. Despite the cuts that we are having to make, we have maintained spending in that area, and we hope to make the money go further and work harder against those criminal loan sharks by reorganising the teams and following the recommendations of an independent study.

My second example relates to the availability of more affordable credit. We are actively trying to make some of these high-cost credit markets more competitive so that people on low incomes can have more choice and credit can be affordable and accessible. I have made no secret of my support for credit unions and the building
3 Feb 2011 : Column 1110
of closer links between them and the Post Office, enabling more people to take advantage of their services. I am pleased that we have seen real progress in that regard, and that many credit union customers who sign up for the service can now pay in and withdraw money at their local post offices. I am working with others across Government to establish where and how we can go further. I hope that we shall be able to proceed with new measures, but we must work out the details.

We are doing other things, and other things are happening. We have seen the vital development of better education about credit and about finance more widely. The Consumer Financial Education Body is funded in full by a Financial Services Authority levy on the financial services industry. It will provide Britain's first national financial advice service, which will offer a free, impartial financial education to all along with an annual financial health check. That will enable people to manage their financial affairs better. Clearly we can and should do more, and I particularly welcome the setting up of the all-party group on financial education for young people by my hon. Friend the Member for North Swindon (Justin Tomlinson).

In addition, this very week, the consumer credit directive came into force, which introduces new and powerful regulations for consumers that will have far-reaching consequences for the high-cost credit market. I know that not everyone in the House shares the same view on Europe and European legislation, but I am sure that we can all agree that the new requirements on lenders to undertake a creditworthiness assessment before any loan is made and the new 14-day cooling-off period for consumers, allowing them to withdraw from any credit agreement, are welcome. Under the directive, pre-contractual information for the consumer will now have to show the total cost of credit and how much has to be paid back. I believe that the new regulations and their changes will make a real difference.

From that list it should be clear that the Government have been active and lots of new measures have just been implemented, but I want to go further. That is why, jointly with the Treasury, my Department has launched two reviews that will be fundamental to the regulation of consumer credit in future. First, the Government are reviewing the framework for financial services regulation, including the two current consumer credit regulators, the Office of Fair Trading and the Financial Services Authority. The review is an opportunity for us to look at how best to regulate consumer credit and who should have responsibility for that. We are consulting now and any new regulator may well end up with greater powers to intervene in the consumer credit market to introduce the powers that many here today are seeking.

The FSA has already made its thoughts known on this subject in a discussion paper about "Product Intervention". Chapter 6 deals with product intervention options for the new regulator and mentions price capping. Paragraph 6.40 states:

3 Feb 2011 : Column 1111

The Government have also launched a review of consumer credit and personal insolvency, which takes an end-to-end view from the decision to borrow to how we support people in difficult circumstances and help them to resolve their debt. It looks, for example, at the advertising of credit, which has been mentioned by several hon. Members.

I cannot give any undertakings today about what will emerge as a result of those reviews, because we are still considering the evidence. Nothing has been decided and it would be irresponsible of me to stand here today pre-empting their results, but we are not afraid of taking action where the evidence justifies doing so. We will not hesitate to act where there is evidence of detriment to consumers or exploitation of them. The Government want poor households to be able to strike a better balance between how they save, insure and access credit, and we are looking at a lot of ideas.

For example, we believe that there are great gains to be had from collective purchasing. We are working with the insurance industry and social landlords to develop and promote affordable home contents insurance for social tenants. If those products succeed, they will enable many more households to claim back the cost of household emergencies, rather than relying on high-cost credit to replace essential goods if they are burgled or a high-cost item, such as a washing machine, if it breaks down. We hope that the trials of such products will commence in March or April this year. Such measures will not be an immediate solution, but they could help those on low incomes even more than caps on high-cost credit.

I come to the one specific issue that the hon. Member for Walthamstow wishes us to focus on: a cap on total credit. The motion calls on the Government to consider introducing a cap on the total cost that lenders can charge for credit. At first glance, that appears sensible. Yet, despite what she said, the evidence base for her new approach is limited, to say the very least. What seems sensible at first glance could have huge unintended consequences for those we are trying to help. Without a proper assessment of the evidence it would be rash and frankly negligent to rush into this proposal. We know that there have been studies carried out that show that an interest rate cap could have very detrimental impacts on the vulnerable-that was accepted by the previous Government. This year's OFT review of the high-cost credit market ruled out not just interest rate caps, but any price controls in the market. The EU review that the hon. Lady prayed in aid is ambiguous on this, to say the least.

A forthcoming study, which has not yet been published, has been undertaken by Policis. It has had the advantage of collaborating with Claire Whyley, chair of the credit sub-group of the Financial Inclusion Taskforce and chair of the FSA consumer panel, and Paul Jones, who is the leading expert on social lending. The study concludes by saying that if a cap were to be constructed to take in the total cost of credit, including penalty charges and similar, more of those on low incomes would be likely to find access to mainstream options restricted or curtailed altogether. That is the only evidence I have seen that deals with this issue in detail. We have to assess these issues, because the hon. Lady's proposals do not do
3 Feb 2011 : Column 1112
what she claims. We need to gather evidence and properly assess it, and I reassure the House that we will do that. When we have analysed the evidence and got the results of consultations, we will report back to the House. We will not be afraid of taking tough measures if they are required.

3.45 pm

Stella Creasy: I want to put on record my thanks to all Members who have taken part in today's debate. The fact that 21 Back Benchers have come to speak and that there has been broad agreement suggests that this issue cannot be ignored any longer. I note the exceptions of the hon. Members for Solihull (Lorely Burt) and for Eastbourne (Stephen Lloyd) and their concerns. They might want to reflect on their ability to add heat to a subject that requires light. That is the challenge we face today.

I am deeply disappointed by the Minister's approach to the debate. He offers so much and at the last minute takes it away. To talk about the discussion on total cost credit and then quote from an industry-led report that has been funded and supported in that way is a shame. Notwithstanding that, I hope he will accept that the broad support from Members today shows that there is agreement that there is a problem that needs to be addressed, and that the measures brought forward so far have not been satisfactory. The issue, then, is how we should proceed.

I had hoped to convince the Minister today that the Opposition's proposals, to which the motion speaks, are rooted in evidence-recent evidence that he has previously put forward to me to support his case. I note that he has changed his mind now, but perhaps he will change it again. The big truth at the heart of this issue is that the longer the Government linger, the more problems will deepen. I go back to the point that nearly half of households, as a direct result of the economic conditions we are in, are struggling to make ends meet, and that 10% of them are borrowing from the people we have been discussing. The longer we fail to act, the more these rates will cripple families across the country, so I urge him not to reject the proposals simply because of an ideological objection to regulation. Regulation done well has been supported by Hayek.

I also urge the Government not to reject the proposal simply because it comes from the Opposition. I say to the Minister: "You may have used your party to delay progress to date, but you will not stop the pressure from the people of this country for something to happen. That has been very clear today. You have left your own Back Benchers uncomfortable by forcing prevarication, but please do not leave that wound to fester. Work with all of us who would support and encourage a form of capping. We will not let you throw these proposals out and we will do what we can to continue this debate and keep this issue alive. We will hold you to account because our constituents demand and need nothing less. If only the Government stand in the way of progress, I urge them to reconsider. Please support the motion as it is and do not amend it. Please show clear leadership and send a clear signal to our constituents that you are not in the pocket of the legal loan shark industry but that you stand as we do with the poorest consumers in this country, seeking action now." I tell the Minister
3 Feb 2011 : Column 1113
honestly that if he does that and makes a clear commitment to doing that today, we will applaud him; if he does not, we will never forgive and we will never forget.

Question put, That the amendment be made.

The House divided: Ayes 271, Noes 156.
Division No. 190]
[3.48 pm


Adams, Nigel
Aldous, Peter
Amess, Mr David
Andrew, Stuart
Arbuthnot, rh Mr James
Bacon, Mr Richard
Baker, Norman
Baker, Steve
Baldwin, Harriett
Barclay, Stephen
Barker, Gregory
Baron, Mr John
Bebb, Guto
Beith, rh Sir Alan
Bellingham, Mr Henry
Beresford, Sir Paul
Berry, Jake
Binley, Mr Brian
Birtwistle, Gordon
Blackman, Bob
Boles, Nick
Bone, Mr Peter
Bottomley, Sir Peter
Bradley, Karen
Brady, Mr Graham
Brake, Tom
Bray, Angie
Brazier, Mr Julian
Bridgen, Andrew
Brine, Mr Steve
Brokenshire, James
Brooke, Annette
Bruce, Fiona
Bruce, rh Malcolm
Buckland, Mr Robert
Burley, Mr Aidan
Burns, Conor
Burns, Mr Simon
Burrowes, Mr David
Burt, Lorely
Byles, Dan
Cairns, Alun
Campbell, rh Sir Menzies
Carmichael, rh Mr Alistair
Carswell, Mr Douglas
Cash, Mr William
Chishti, Rehman
Chope, Mr Christopher
Clappison, Mr James
Clark, rh Greg
Clarke, rh Mr Kenneth
Clifton-Brown, Geoffrey
Coffey, Dr Thérèse
Collins, Damian
Cox, Mr Geoffrey
Crabb, Stephen
Crockart, Mike
Crouch, Tracey
Davey, Mr Edward
Davies, David T. C. (Monmouth)
Davies, Glyn
Davies, Philip
Davis, rh Mr David
de Bois, Nick
Djanogly, Mr Jonathan
Dorries, Nadine
Doyle-Price, Jackie
Duddridge, James
Duncan, rh Mr Alan
Dunne, Mr Philip
Ellis, Michael
Ellison, Jane
Ellwood, Mr Tobias
Elphicke, Charlie
Evans, Graham
Evans, Jonathan
Evennett, Mr David
Fabricant, Michael
Featherstone, Lynne
Foster, rh Mr Don
Francois, rh Mr Mark
Freeman, George
Freer, Mike
Fullbrook, Lorraine
Garnier, Mark
George, Andrew
Gibb, Mr Nick
Gilbert, Stephen
Glen, John
Goodwill, Mr Robert
Graham, Richard
Grant, Mrs Helen
Gray, Mr James
Grayling, rh Chris
Greening, Justine
Griffiths, Andrew
Gummer, Ben
Gyimah, Mr Sam
Hames, Duncan
Hammond, rh Mr Philip
Hammond, Stephen
Hancock, Matthew
Hancock, Mr Mike
Harper, Mr Mark
Harrington, Richard
Harris, Rebecca
Hart, Simon
Haselhurst, rh Sir Alan
Hayes, Mr John
Heald, Mr Oliver
Heath, Mr David
Heaton-Harris, Chris
Hemming, John
Henderson, Gordon
Hendry, Charles
Herbert, rh Nick
Hinds, Damian
Hoban, Mr Mark
Hollingbery, George
Hollobone, Mr Philip
Holloway, Mr Adam
Hopkins, Kris
Horwood, Martin

Howarth, Mr Gerald
Howell, John
Hughes, rh Simon
Huhne, rh Chris
Hunter, Mark
Huppert, Dr Julian
Hurd, Mr Nick
Jackson, Mr Stewart
James, Margot
Javid, Sajid
Jenkin, Mr Bernard
Johnson, Gareth
Johnson, Joseph
Jones, Mr Marcus
Kelly, Chris
Kirby, Simon
Lamb, Norman
Lancaster, Mark
Latham, Pauline
Laws, rh Mr David
Leadsom, Andrea
Lee, Jessica
Lee, Dr Phillip
Lefroy, Jeremy
Leigh, Mr Edward
Leslie, Charlotte
Letwin, rh Mr Oliver
Lewis, Brandon
Lewis, Dr Julian
Liddell-Grainger, Mr Ian
Lidington, rh Mr David
Lilley, rh Mr Peter
Lloyd, Stephen
Lopresti, Jack
Lord, Jonathan
Loughton, Tim
Lumley, Karen
Macleod, Mary
Main, Mrs Anne
Maude, rh Mr Francis
Maynard, Paul
McCartney, Karl
McIntosh, Miss Anne
McLoughlin, rh Mr Patrick
McPartland, Stephen
McVey, Esther
Menzies, Mark
Mills, Nigel
Milton, Anne
Mordaunt, Penny
Morgan, Nicky
Morris, Anne Marie
Morris, James
Mowat, David
Munt, Tessa
Murray, Sheryll
Murrison, Dr Andrew
Neill, Robert
Newton, Sarah
Nokes, Caroline
Nuttall, Mr David
Ollerenshaw, Eric
Ottaway, Richard
Parish, Neil
Patel, Priti
Pawsey, Mark
Penrose, John
Percy, Andrew
Perry, Claire
Phillips, Stephen
Pincher, Christopher
Poulter, Dr Daniel
Pritchard, Mark
Raab, Mr Dominic
Randall, rh Mr John
Reckless, Mark
Rees-Mogg, Jacob
Reevell, Simon
Reid, Mr Alan
Rifkind, rh Sir Malcolm
Robathan, rh Mr Andrew
Robertson, Hugh
Robertson, Mr Laurence
Rogerson, Dan
Rosindell, Andrew
Rudd, Amber
Ruffley, Mr David
Russell, Bob
Rutley, David
Sanders, Mr Adrian
Scott, Mr Lee
Selous, Andrew
Shapps, rh Grant
Sharma, Alok
Shelbrooke, Alec
Simpson, Mr Keith
Skidmore, Chris
Smith, Miss Chloe
Smith, Henry
Smith, Julian
Smith, Sir Robert
Soames, Nicholas
Soubry, Anna
Stephenson, Andrew
Stevenson, John
Stewart, Bob
Stewart, Iain
Stewart, Rory
Streeter, Mr Gary
Stride, Mel
Stuart, Mr Graham
Stunell, Andrew
Sturdy, Julian
Syms, Mr Robert
Thurso, John
Tomlinson, Justin
Tredinnick, David
Truss, Elizabeth
Turner, Mr Andrew
Tyrie, Mr Andrew
Uppal, Paul
Vara, Mr Shailesh
Vickers, Martin
Villiers, rh Mrs Theresa
Walker, Mr Charles
Walker, Mr Robin
Wallace, Mr Ben
Walter, Mr Robert
Ward, Mr David
Watkinson, Angela
Weatherley, Mike
Webb, Steve
Wheeler, Heather
White, Chris
Whittaker, Craig
Whittingdale, Mr John
Wiggin, Bill
Williams, Mr Mark
Williams, Roger
Williams, Stephen
Williamson, Gavin
Willott, Jenny
Wilson, Mr Rob
Wollaston, Dr Sarah

Wright, Jeremy
Wright, Simon
Young, rh Sir George
Zahawi, Nadhim
Tellers for the Ayes:

Andrew Jones and
Andrew Bingham

Abbott, Ms Diane
Abrahams, Debbie
Alexander, Heidi
Ali, Rushanara
Anderson, Mr David
Bain, Mr William
Balls, rh Ed
Barron, rh Mr Kevin
Bayley, Hugh
Begg, Dame Anne
Benn, rh Hilary
Benton, Mr Joe
Betts, Mr Clive
Blackman-Woods, Roberta
Blears, rh Hazel
Blenkinsop, Tom
Blomfield, Paul
Blunkett, rh Mr David
Bradshaw, rh Mr Ben
Brown, Lyn
Brown, rh Mr Nicholas
Bryant, Chris
Buck, Ms Karen
Burden, Richard
Cairns, David
Campbell, Mr Alan
Chapman, Mrs Jenny
Clark, Katy
Coaker, Vernon
Coffey, Ann
Connarty, Michael
Corbyn, Jeremy
Creagh, Mary
Cruddas, Jon
Cunningham, Alex
Curran, Margaret
Dakin, Nic
Davidson, Mr Ian
Dobson, rh Frank
Docherty, Thomas
Donaldson, rh Mr Jeffrey M.
Doran, Mr Frank
Dowd, Jim
Doyle, Gemma
Dromey, Jack
Durkan, Mark
Eagle, Ms Angela
Edwards, Jonathan
Efford, Clive
Elliott, Julie
Engel, Natascha
Esterson, Bill
Farrelly, Paul
Field, rh Mr Frank
Fitzpatrick, Jim
Flello, Robert
Fovargue, Yvonne
Gapes, Mike
Gardiner, Barry
Gilmore, Sheila
Glindon, Mrs Mary
Goggins, rh Paul
Goodman, Helen
Greatrex, Tom
Green, Kate
Greenwood, Lilian
Griffith, Nia
Hain, rh Mr Peter
Hanson, rh Mr David
Harman, rh Ms Harriet
Healey, rh John
Hendrick, Mark
Hepburn, Mr Stephen
Hillier, Meg
Hilling, Julie
Hodge, rh Margaret
Hoey, Kate
Hopkins, Kelvin
Howarth, rh Mr George
Hunt, Tristram
Irranca-Davies, Huw
Jackson, Glenda
Jamieson, Cathy
Johnson, Diana
Jones, Helen
Jones, Mr Kevan
Jones, Susan Elan
Jowell, rh Tessa
Keeley, Barbara
Kendall, Liz
Lammy, rh Mr David
Lavery, Ian
Leslie, Chris
Lewis, Mr Ivan
Lloyd, Tony
Llwyd, Mr Elfyn
Lucas, Caroline
MacNeil, Mr Angus Brendan
MacShane, rh Mr Denis
Mactaggart, Fiona

McCabe, Steve
McCann, Mr Michael
McCarthy, Kerry
McDonnell, John
McFadden, rh Mr Pat
McGovern, Alison
McGuire, rh Mrs Anne
Meacher, rh Mr Michael
Meale, Mr Alan
Michael, rh Alun
Miliband, rh David
Miliband, rh Edward
Morden, Jessica
Morrice, Graeme (Livingston)
Mudie, Mr George
Murray, Ian
Pearce, Teresa
Perkins, Toby
Pugh, John
Raynsford, rh Mr Nick
Reeves, Rachel
Reynolds, Jonathan
Robinson, Mr Geoffrey
Ruddock, rh Joan
Sarwar, Anas
Seabeck, Alison
Sheerman, Mr Barry
Shuker, Gavin
Singh, Mr Marsha
Skinner, Mr Dennis
Slaughter, Mr Andy
Smith, rh Mr Andrew
Smith, Angela
Smith, Nick
Soulsby, Sir Peter
Spellar, rh Mr John
Sutcliffe, Mr Gerry
Tami, Mark
Thornberry, Emily
Timms, rh Stephen
Turner, Karl
Twigg, Derek
Twigg, Stephen
Umunna, Mr Chuka
Vaz, rh Keith
Vaz, Valerie
Watson, Mr Tom
Weir, Mr Mike
Whiteford, Dr Eilidh
Williams, Hywel
Williamson, Chris
Wilson, Phil
Winnick, Mr David
Winterton, rh Ms Rosie
Wright, David
Tellers for the Noes:

Stella Creasy and
John Woodcock
Question accordingly agreed to.
3 Feb 2011 : Column 1114

3 Feb 2011 : Column 1115

3 Feb 2011 : Column 1116

Main Question, as amended, put and agreed to.


3 Feb 2011 : Column 1117

Legal Aid Reform

4.3 pm

Yvonne Fovargue (Makerfield) (Lab): I beg to move,

I thank the Backbench Business Committee for agreeing that this important topic be debated prior to the closure of the consultation on proposals for the reform of legal aid in England and Wales. The consultation paper proposes to cut an estimated £350 million from the civil legal aid budget. Roughly two thirds of those cuts are directed at people who are currently legally aid-able, and one third will come from remuneration cuts to providers, who are expected to do the same work but for less money.

Some £279 million will be cut from civil legal aid, and about half a million people will lose their entitlement to legal aid. The majority of them come from low- income households, and the Ministry of Justice's own equality impact assessment acknowledges that they will be predominantly women, black and minority ethnic people and ill and disabled people. However, while the consultation acknowledges this, it also says that it is not just about cost but is the "right thing to do". I believe that I can demonstrate that both the cost argument and the statement that it is the "right thing to do" are incorrect, and that the implementation of these proposals to reduce civil legal aid will hit the poorest hardest, increase the cost to other public bodies, and have a potentially catastrophic effect on not-for-profit advice agencies, including citizens advice bureaux and law centres.

Keith Vaz (Leicester East) (Lab): I congratulate my hon. Friend on securing this debate. Does she agree that one of the issues that should be addressed is poor decision making by public authorities, particularly in immigration, where the UK Border Agency fails to make good decisions based on good evidence? That is why people have to go to the tribunal, and that is why they need legal aid.

Yvonne Fovargue: I thank my hon. Friend for that comment. I will come to that later when I suggest some ways of saving money in the system.

Whole swathes of advice areas are removed from the scope of legal aid, particularly the social welfare law category. Welfare benefit is removed completely from legal aid. According to the Ministry of Justice's own equality impact assessment, 63% of clients who received legal aid in this category had a disability, 54% were female and 27% were from a black and minority ethnic background. However, this is justified by stating that the

It also states:

So people who have had their claim refused by Jobcentre Plus or the Benefits Agency are to go to them for
3 Feb 2011 : Column 1118
support in challenging the decision and they will help them. I have to say that that is not the experience I had when I worked for an advice agency.

Stephen Lloyd (Eastbourne) (LD): On the basis of what the hon. Lady has said, which I support entirely, would she be interested to know that Brighton Housing Trust's Eastbourne advice centre deals with at least 800 specialist housing cases per year and anticipates that this will fall to about 100? Are we really expecting Jobcentre Plus to take up the slack?

Yvonne Fovargue: Yes, I totally agree. In fact, my local citizens advice bureau has phoned the Benefits Agency 100 times and has had no response apart from saying that everyone is busy.

These issues are not considered of sufficiently high importance, but when a person is ill or has a disability one of their major concerns is having an adequate income to enable a decent quality of life. The early advice available under this funding can save money. Some 80% of social welfare legal aid cases have positive outcomes for clients. In the agency where I worked, 70% of our reassessment appeals were successful, and that negated the need for a costly tribunal.

I would like to debunk the myth that these cases are not complex. My own CAB in Wigan dealt with a case for three years where the Department for Work and Pensions asserted that a couple were living together as man and wife, despite evidence from a neighbouring local authority that Mr M was resident there and receiving benefits, and that he merely visited to look after his disabled daughter, assisting with her care on occasion. Mrs M was summonsed for benefit fraud, convicted, and ordered to repay £27,000. The CAB continued with the case, appealed three times, and went to the Secretary of State. At the final appeal, Mrs M was found to owe £236-a reduction of more than £26,500. Was that a complex case? Would it be suitable for a telephone helpline? I do not think so. That client needed the face-to-face help given by a skilled CAB adviser and was funded by legal help.

Lilian Greenwood (Nottingham South) (Lab): I congratulate my hon. Friend on securing this debate. Does she agree that the suggestion that legal advice could be provided over the phone fails to understand the level of support that is provided by many legal representatives, particularly when they are dealing with vulnerable groups such as asylum seekers and refugees-often people who face persecution, are separated from their family, and perhaps do not have English as a first language?

Yvonne Fovargue: I agree with my hon. Friend. In times of stress, people often need the support of a friendly face.

For every £1 of legal aid expenditure on welfare benefits in the Wigan borough, £20.50 per year of additional benefit is obtained for clients. Nationally, for every £1 of legal aid expenditure on welfare benefits, the state potentially saves £8.80.

Paul Farrelly (Newcastle-under-Lyme) (Lab) rose-

Yvonne Fovargue: I would like to make a little progress, because the debate is quite late.

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Debt is another area that will be removed from the scope of legal aid, except for cases in which the client's home is at immediate risk. The impact assessment shows that 55% of debt clients are female and that 30% are likely to have a disability. Yet again, the consultation paper states that, although debt problems are important to the individual, they are not important enough to warrant legal aid funding.

I have seen the effects of debt on individuals, and the cost-both human and to the state, including to the NHS-of not resolving debt issues at an early stage. A project that I was involved in used a recognised NHS scale to monitor stress levels before and after the advice process dealing with unsecure debts. The primary care trust believed that in the first nine months of the project, three suicides had been prevented. At what cost? In Wigan, the citizens advice bureau deals with 616 debt clients per year at a cost of £123,000 to the state. It reschedules £4.83 million worth of debt and writes off £3.47 million worth. For the expenditure of £123,000, £367,000 is saved.

I support the expansion of financial education into schools and communities, but that will not assist people who are in debt now. My experience is that when the issue is raised in schools, more parents arrive at the advice agency's door because they are made aware that there is somewhere to go. They almost feel that they have got permission to go there.

Paul Farrelly: Every conscientious MP knows the value of citizens advice bureaux. Quite simply, without them, our offices would be swamped. That prospect awaits us. My hon. Friend has highlighted the situation in Wigan. Citizens Advice has highlighted that 730 fewer people will receive specialist debt advice in Stoke-on-Trent, 1,280 fewer in my area of Newcastle-under-Lyme, and more than 1,500 fewer in north Staffordshire. Does she agree that this is not only a false economy, but a heartless cut?

Yvonne Fovargue: I agree with my hon. Friend. I will go on to give some figures on the impact that the proposals will have on advice agencies.

Agencies that provide telephone advice such as National Debtline have a great role to play, but they cannot replace face-to-face advice, as my hon. Friend the Member for Nottingham South (Lilian Greenwood) said. The reality is that people need to sit down with an adviser. They need the reassurance and trust of a relationship that is built up over time.

There is a reason why social welfare law problems, including employment, housing, debt and benefits, were given primarily to advice agencies: the interlinking of those problems. Limiting the scope and the type of the problems that advisers can deal with limits their ability to deal with the whole person and with all their issues. For example, legal help might prevent somebody from losing their home because of debt, but it will not address the causes of that debt, such as unfair dismissal or a refusal of sickness benefits. I could give examples of many areas that are taken out of the scope of such help, but I believe that colleagues will mention them. The list is extremely long and access for the most vulnerable is severely curtailed in many cases.

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I shall turn now to the effect on citizens advice bureaux and not-for-profit providers. The Ministry of Justice estimates that this sector will lose 97% of its legal aid funding. Currently, local citizens advice bureaux receive £26 million of legal aid funding, with the largest amounts being spent on debt and benefits. If the proposals are implemented, £20 million will go in one fell swoop and there will be a significant impact on the ability to deliver not only legal aid-eligible services but all other client services. A survey undertaken by Citizens Advice showed that if the proposal went ahead, 80% of local bureaux would have to withdraw specialist services, 85% would have reduced capacity to meet clients' needs and, most shockingly, 51%-more than half-felt that there would be a risk to the continuation of the whole CAB service in their borough.

Legal aid funding cannot be treated in isolation from other sources of advice funding, especially as the consultation assumes that people can access other services to pick up the slack. The free advice sector is suffering disproportionately from public funding reductions, and even agencies such as the Royal National Institute of Blind People, which have no legal aid funding, have approached me saying that they could not deal with any increase in demand for their services due to the impact of the proposals.

Sir Alan Beith (Berwick-upon-Tweed) (LD): The hon. Lady is making an eloquent case, particularly on behalf of organisations that are currently giving evidence on these matters to the Select Committee on Justice. Does she recognise that there ought to be some scope for funding to be provided for an examination of the sources of some of the problems on which advice is being sought, whether they are public bodies that make poor decisions, as the right hon. Member for Leicester East (Keith Vaz) rightly pointed out, or the banks?

Yvonne Fovargue: I totally agree that there is scope for other funding provision, but that has not been available yet. In fact, provision is being withdrawn because of the withdrawal of funding for face-to-face advice from citizens advice bureaux.

Kate Green (Stretford and Urmston) (Lab): Does my hon. Friend also accept that the need for advice is rising in the current economic climate, particularly on employment, social welfare benefits and debt?

Yvonne Fovargue: I completely agree. This is a time of great change for many clients, and the need for legal help is even more vital.

The suggested resolution to the problem is the community legal advice helpline, the gateway to civil legal aid services that will offer non-eligible clients access to paid services. First, I wish to take issue with the premise that the legal aid scheme has expanded beyond its original intentions. Actually, the Legal Aid and Advice Act 1949 was promoted with very wide objectives, which were explained as being intended to provide

I am not convinced that a gatekeeping telephone helpline will promote that.

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Access to telephone advice is important, and I would welcome any expansion of it, but it has to be implemented in tandem with face-to-face services. Clients need to have that choice. The community legal advice helpline uses an 0845 prefix, which is very expensive from a pay-as-you-go mobile. Many people with learning disabilities or mental health issues prefer to attend in person, to pick up on non-verbal signals and build the trust necessary to tell the advisers their problem. Citizens advice bureaux make a particular effort to reflect the communities that they serve, and that is why people use their services.

As an aside, I should like to mention volunteers, who are mentioned in the consultation paper as another way for people to pick up advice if the proposed changes are made. However, I do not believe that that is true. Volunteers work best and most confidently when they are supported and encouraged by specialists. It was only when that support was provided that the number of volunteers and the depth of the work that they undertook increased significantly in the bureau that I managed.

There are opportunities to save money in the justice sector without placing the burden on front-line services. The Ministry of Justice intends to reform the Legal Services Commission, and there is a large amount of bureaucracy in the administration of legal aid. I spent 60% of my time managing 30% of the money that I got. A lighter-touch procurement, auditing and payment mechanism could be found, and that needs to be considered seriously.

Karl Turner (Kingston upon Hull East) (Lab): On the point about volunteers, many of my colleagues in my chambers, and in local firms of solicitors, volunteer their services to advice bureaux regularly. The incidence of that will diminish given the dreadful cuts to those firms' legal aid and the fact that they cannot take on trainees as a result of the cuts. Advice is diminishing drastically as a result of the Government's cuts.

Yvonne Fovargue: I agree with my hon. Friend that pro bono advice provision is important, but it is not available in all places. In fact, in the conurbation that I served, there was no pro bono advice.

It is also important to decrease the need for civil legal aid by addressing poor decision making by public bodies and avoiding the need for tribunal. We should take the lawyers out of tribunals, make legal processes simpler and improve public legal education. Early advice saves money and keeps cases out of the courts. We should look to fund that kind of advice instead of salami-slicing and looking at administratively convenient categories of problems. Advice provision needs to be organised around people's real needs and their need to be treated as an individual, not as an individual problem.

Access to justice is one of the cornerstones of a free and civilised society. It is vital that everyone, particularly the most vulnerable, has equal access to the law, no matter who they are, where they live or how much money they have. The Government's consultation proposes to remove access to justice for the most vulnerable. Is that access to justice, or justice denied?

Several hon. Members rose -

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Mr Speaker: Order. More than 20 hon. and right hon. Members have applied to speak in the debate, as a result of which I have imposed a limit of five minutes on each Back-Bench contribution. I simply remind Members that they are not obliged to use their full five minutes if they do not wish to do so. I am keen to get everyone in, but Members need to help me to help them, and to help each other.

4.21 pm

Anna Soubry (Broxtowe) (Con): I declare an interest at the outset, because as you and others may know, Mr Speaker, until my election in May, I worked for 16 years as a criminal barrister in Nottingham and other places such as Leicester and Derby.

It is important to remember that there is a need to make cuts in public expenditure-that is common ground in the House. We have had many debates on where the blame for that lies, and we could continue them, but I suggest that that would not be helpful this afternoon. We are where we are. No Government Member welcomes having to make such cuts, but we have the largest deficit of any G20 country and, with considerable regret, the Government have been left in a position in which they have no alternative but to make severe cuts in public expenditure, including on legal aid.

Debbie Abrahams (Oldham East and Saddleworth) (Lab): Does the hon. Lady accept the Citizens Advice report that says that the Government's proposals will not only limit access to justice but increase public expenditure?

Anna Soubry: I do not know about the latter point. I have been in contact with the citizens advice bureau in Broxtowe, and I have made it very clear to Nottinghamshire county council that it is imperative to exercise great care in cutting back the budget of that CAB. The Prime Minister and the Lord Chancellor have spoken about that and it is recognised that citizens advice bureaux do a magnificent job. Every Member of the House knows that, because their case loads would increase enormously without them. There is a danger that in these difficult times, they will have to deal with more cases, and it is imperative that they have the resources they need.

Stephen Lloyd: Does my hon. Friend agree that the role of citizens advice bureaux is preventive and enabling? They focus not on generating unnecessary litigation, but on preventing crisis. Therefore, properly resourced citizens advice bureaux will actually save money.

Anna Soubry: Good point, well made, if I may say so, Mr Deputy Speaker. [ Interruption. ] Sorry, did I say Mr Deputy Speaker? [Hon. Members: "Yes!"] That is outrageous. I apologise most sincerely, Mr Speaker.

I ask the Minister carefully to consider these cuts in legal aid. Many would agree with me that it is imperative that we ensure that the most vulnerable people in our society do not suffer when we make these sorts of cuts. It is also important to protect the interests of those citizens who cannot protect themselves, and I have two examples regarding the reduction in eligibility for legal aid in the family division.
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A father who is denied contact with his children will no longer be eligible for legal aid. I submit that that cannot be right, not only because of the father's rights to see his children but because of the rights of the children, who have no access to justice. Their interests must be protected by society-they need to see their father. Likewise, if a mother has separated from the father of her children and he then threatens to take them overseas, she too will no longer be eligible for legal aid. That is not only unfair on her as she will not want her children taken overseas, but not fair on her children who will want to have contact with both their parents.

Former colleagues of mine at the Bar have told me that they have many concerns, including in the area of housing. Somebody who is living in squalid housing conditions will more than likely have been eligible for legal aid in the past. That will continue to be the case in many circumstances. However, my concern is that legal aid will no longer be available so that people in that situation can force a landlord to make repairs-to begin to solve the problem before it becomes the sort of problem that would still be eligible for legal aid.

I am told-I am grateful to my hon. Friend the Member for South Swindon (Mr Buckland)-that we are paying £24.7 million in legal aid for welfare claims. In my time in this House, it has struck me that one reason why so many people come to their MPs and to the CABs with their cases-and eventually have to go to the law-is the profound failings of the Department for Work and Pensions. One of the best things that we could do is ensure that that Department is working properly, efficiently and effectively, because that would save us considerable amounts of money. As a new Member, I found it astonishing that we actually have MP-dedicated hotlines for our caseworkers to ring to sort out problems that should never have arisen but have done so because of the ineffectualness of the Department. I urge the Government to ensure that we sort that out.

Finally, I make a plea for the Bar, which has had no increase in fees for decades. Yet again the criminal Bar is being asked to reduce its fees by 10%. Prosecuting counsel who are prosecuting a rapist or a persistent dwelling house burglar will be paid a fixed fee of £60. Sometimes members of the criminal Bar work for less than the interpreter in court, and invariably they are paid considerably less than the medical expert who may be assisting them in their work.

I am grateful for the opportunity to contribute to the debate. I am sure that the Minister will have heard all these points and I look forward to the action that will result.

4.28 pm

Ms Karen Buck (Westminster North) (Lab): I congratulate my hon. Friend the Member for Makerfield (Yvonne Fovargue) on introducing this debate. She spoke with enormous clarity and mapped out the ways in which the cuts in legal aid will have an impact on our constituents. I also congratulate the hon. Member for Broxtowe (Anna Soubry) who made many points with which I agree, including a warning to beware labelling
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all lawyers as fat cats. Legal aid lawyers work extremely hard for relatively modest remuneration, and we should remember that.

I do not wish to repeat the key points that these cuts represent a false economy; that there are real dangers in taking whole areas out of the scope of legal aid because so many cases are complex, and cases such as debt and housing run into each other and cannot be separated out; or that there are limits to the value of phone advice. These are very important points, but I will not dwell on them further.

I want to make three further points. First, if there was ever a time to be scaling back on legal aid, particularly in civil and social welfare law, this is not it. We are seeing massive upheavals in public service delivery: in education, to which I will return; in housing, through the proposals in the Localism Bill, which will introduce short-term tenancies; in welfare, with £18 billion being taken out of the welfare budget through the cuts in housing benefit; in disability benefits; and, as mentioned, in rising unemployment and the broader economic context.

Rehman Chishti (Gillingham and Rainham) (Con): Does the hon. Lady not accept that the current cost of legal aid is unsustainable? We are spending £38 per head of population on legal aid, whereas in Australia it is £9, and in France £3. These reforms are therefore essential to get our economy back on track.

Ms Buck: There are so many points with which to respond to that intervention. We cannot compare systems between countries. It is not helpful because the legal systems and the delivery of legal aid support are so different. The Labour Front-Bench team are willing to discuss the legal aid budget, particularly in some aspects of criminal legal aid. There are areas in which savings can be made, but I am particularly concerned about civil and social welfare law.

My second point, which was made strongly during an earlier Westminster Hall debate, concerns the impact of these cuts-given the speed and depth at which they are being made-on the legal aid firms, law centres, citizens advice bureaux and other advice agencies. In many cases, they draw on legal aid for part of their funding. The removal of legal aid funding is like a game of Jenga: we start pulling out the sticks and the whole edifice is in danger of collapse. I think we will see a massive, unplanned spate of service closures across the country, and we will not be able to control where they happen. There will be advice deserts, and many of our constituents will struggle as a consequence.

I will provide an example of what I am talking about. This reform is being delivered at the same time as cuts in local authority spending. The London grant scheme is being repatriated to the boroughs without ring-fencing, which means that advice services in London are at the whim of local boroughs that are themselves under pressure. Therefore, the grant funding that should complement the Legal Services Commission funding is unlikely to be there. That will clearly impact severely on citizens advice bureaux and law centres. As has been said, politicians will regret taking this decision. I am already seeing-I am sure that other hon. Members are seeing it too-people coming to me for what should be a legal advice and representation service that in many cases we are not qualified, and certainly not resourced,
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to provide. I predict with absolute certainty that our surgeries will be flooded with more and more desperate and angry people who cannot get the proper representation they should.

Finally, I want to touch on the disproportionate impact on women, children, people with disabilities and people from black and minority communities. We know from the scope of the areas affected that these cuts will fall most heavily on them. We have heard about family law and asylum-seeking communities, particularly asylum-seeking children, who will be left at risk because of these cuts. However, I want to make a particular case for education and special educational needs. In my borough there is a particular problem of children without school places-350 were without a place before Christmas. Those children and their families need advice and representation, and the parents seeking to take action against their local authority for denying them a statement of special educational needs are a particularly vulnerable group. We know from the number of tribunals that succeed that 82% of parents' appeals that reach tribunal are upheld. The removal of assistance from those parents, many of whom simply do not have the skills or resources to make their own case, will mean that their children will not get the education to which they are entitled.

I urge the Minister to rethink many aspects of the proposals, in particular the narrowness of the scope that is being applied to legal aid cases and the arbitrary way in which the services are being withdrawn.

4.35 pm

Tom Brake (Carshalton and Wallington) (LD): I congratulate the hon. Member for Makerfield (Yvonne Fovargue) on opening the debate and on setting out her genuine concerns about the impact that some of the changes could have on her constituents. I accept that, as a new Member, she can to some extent deny responsibility for what came before, because she was not a Member under the previous Government. I look around her, however, and see ex-Ministers who know full well that they would have been taking the same decisions as we are, and I find their tutting and shaking of heads intellectually extremely dishonest.

Mr Robert Buckland (South Swindon) (Con): I should like to reinforce that point. There were no fewer than 30 consultations on legal aid between 2006 and 2010, which gives the lie to the argument that there is a divide on this matter. Both parties were faced with the same challenges, so let us approach the debate on that basis.

Tom Brake rose-

Mr Speaker: Order. Before the hon. Gentleman responds to that intervention, I hope that he will confirm to me that he is not accusing any Member of being personally dishonest, because we cannot have that in the Chamber.

Tom Brake: Of course I am not accusing any ex-Minister of being personally dishonest.

I thank the hon. Member for South Swindon (Mr Buckland) for his intervention. I think that Members on both sides of the House regret the decisions that are having to be taken, but it is incumbent on Ministers and
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Members on this side to come forward with solutions. If the Opposition want to be taken seriously, they need to offer solutions as well.

Kate Green: Does the hon. Gentleman not agree that the solution that the Government are proposing-namely, the wholesale removal of significant categories of social welfare law-is the most damaging and unsatisfactory way to proceed?

Tom Brake: I hope that the Under-Secretary of State for Justice, my hon. Friend the Member for Huntingdon (Mr Djanogly), is listening carefully and that there might be some adjustments to what is being proposed. We need to hear solutions, however. We do not need to hear a list of concerns without its being followed by solutions. We all face this problem.

I want to use this debate as an opportunity to raise a couple of specific points, about which I have written to the Minister. I thank him for meeting me, Steve Triner and other representatives of my local citizens advice bureau to discuss their concerns about the proposals. I have also recently had meetings with three solicitors in my constituency office. Like other Members on both sides of the House, I too have received a wide range of briefings from various organisations. I received a briefing yesterday from the Equal Rights Trust, and I want to raise a specific point in that regard. I hope that the Minister will be aware of the points that have been raised with me, as I have already written to him about them.

The first point relates to medical negligence. There is concern about the impact that the changes could have, and whether particularly difficult and complicated medical cases for which the NHS would previously have taken responsibility might be passed over to social services, resulting in their having to take on the financial costs of, for example, the most serious obstetric mistakes involving brain damage in very young children. That is a very specific issue, and I hope that the Minister will be able to respond to it.

My second point relates to family law. Interestingly, in my meeting with the solicitors, they were not particularly concerned about the idea of a telephone helpline. They were, however, concerned about what would happen beyond that stage, in regard to referrals. They wondered whether there would be a means of identifying at the beginning of the process that someone could not be dealt with by telephone and that a face-to-face meeting would be required.

Annette Brooke (Mid Dorset and North Poole) (LD): Does my hon. Friend share my concern that people with mental health issues might not get equal access to justice when they are involved in family disputes?

Tom Brake: My hon. Friend makes a strong point, and I hope that Ministers will listen to such points in the debate and during the wider consultation.

In family law, people are rightly encouraged to pursue mediation in cases that are currently supported through legal aid. During the meeting, the point was made to me that Government bodies and associated organisations are often unwilling to pursue a route that involves mediation. Government, Government Departments and associated bodies will be required to show a willingness to engage in mediation, if that is now the direction the Government are moving in.

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I have already made a couple of points about telephone advice, but there are also concerns about whether any local knowledge will be embedded in any telephone advisory service, and about conflicts of interest that may arise as a result of that, particularly if there are a limited number of suppliers to whom a case can be referred.

During the meeting, CAB representatives expressed the concern that they would now be in the position of having to take up very personal cases, and therefore be very much in the front line rather than acting as an independent body, so they might end up having to represent a particular individual against the other party in the case. They are worried about how that would impact on their independence. They are also worried that a lot of court time would be lost, particularly if more people ended up representing themselves. There is a good job to be done in making that process clearer and simpler, so that if more people do represent themselves there is less risk that they fail to turn up with the right papers or on time.

Mrs Helen Grant (Maidstone and The Weald) (Con): The hon. Gentleman says these changes rely on people being able to help themselves, but what about people with learning difficulties or mental health problems, or people who cannot speak English very well, and what about people who are too frightened to face their opponent?

Tom Brake: I thank the hon. Lady for that intervention. The Minister has heard those concerns, and I hope he will seek to address them.

The chair of my local CAB has highlighted the fact that the financial inclusion fund will close at the end of March. I understand that transitional funding proposals are being looked at, and perhaps the Minister can respond on that point.

The Equal Rights Trust raised with me the issue of stateless people, who will now be unable to claim legal aid unless they apply for asylum. Some unexpected consequences may flow from that. I hope the Minister will respond to that point at the end of the debate.

This is clearly a very difficult issue for the Government, and I know the Minister will do everything he can to address it effectively. We do not like being in the position we are in, but we have to address this issue now.

4.42 pm

Mr Ben Bradshaw (Exeter) (Lab): I congratulate my hon. Friend the Member for Makerfield (Yvonne Fovargue) on securing this important debate and commend her for her excellent speech.

Given the welcome fact that so many Members want to contribute, I will confine my remarks to the impact of the Government's proposals on my local citizens advice bureau in Exeter, whereby it would lose all its welfare benefits funding, and funding for debt cases would be restricted to instances where there is an "immediate risk" of homelessness. Taken together, my CAB estimates that the changes will affect up to 700 cases a year in Exeter alone. The director of Exeter CAB, Steve Barriball,
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has described as "perverse" the fact that the Government are proposing to fund debt advice only when the client faces an immediate risk of homelessness. He says:

As other Members have said, these changes represent a terrible false economy, and in the case of Exeter they come at the same time as the local authority, Devon county council, is proposing to cut its support to the CAB by a massive 20%, as part of its attempt to grapple with a 27% reduction in funding from central Government. Yet it is estimated that for every pound of public money spent on CAB services, the CAB saves the public purse £12.20.

Mr Pat McFadden (Wolverhampton South East) (Lab): I appreciate what my right hon. Friend is saying about his local citizens advice bureau. In Wolverhampton, the citizens advice bureau handles some 1,600 cases a year that are funded by such help, involving 26 employees. The local director has said:

if the current proposals go through. In response to the hon. Member for Carshalton and Wallington (Tom Brake), who spoke a few moments ago, would my right hon. Friend care to contrast those proposals with the record of the Labour Government, who increased the funding to citizens advice bureaux when the recession was coming, precisely because we knew that there would be a greater need for debt advice as economic times got tough?

Mr Bradshaw: My right hon. Friend is exactly right. Indeed, I was about to make the point-gently, I hope-to the hon. Members for Broxtowe (Anna Soubry) and for Carshalton and Wallington (Tom Brake) that it is not good enough for Government Members to excuse every cut that this Government are implementing by talking about the need for fiscal consolidation. There is a clear choice to be made about the speed and degree of fiscal consolidation, and there is growing evidence that the speed and degree of fiscal consolidation being pursued by this Government is not only damaging important services such as the CAB, but damaging our economic recovery. All hon. Members need to do-

Rehman Chishti rose -

Mr Bradshaw: No, sit down.

All hon. Members need to do is look across the Atlantic at the example of the United States under Barack Obama, who is pursuing a Keynesian economic policy, like the one that we advocate, where growth was 3.5% in the last quarter, as opposed to a 0.5% contraction here. So please, let us have no more lectures from Government Members about there being no alternative to these savage cuts.

For all the Government's rhetoric about the big society, the CAB is the big society in action. It is staffed mainly by volunteers, helping everyone, and in particular the vulnerable, and saves the state millions of pounds in the process by ensuring that people in difficulty do not fall into crisis, the fallout from which the state then has to pick up. The Government's proposed changes to legal aid and their impact on the work of CABs such as mine
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in Exeter will have a deeply damaging impact on the fabric of our communities and will cost us all far more in the long term. I therefore urge the Government to think again about this short-sighted and false economy.

4.46 pm

Paul Uppal (Wolverhampton South West) (Con): I, too, thank the hon. Member for Makerfield (Yvonne Fovargue) for introducing this debate. In the spirit of the sentiments expressed by my hon. Friend the Member for South Swindon (Mr Buckland), I want to take part not in a partisan way, but on the basis of trying to progress the debate. Other Members have spoken about employment, welfare benefits, education and immigration, but it is on clinical negligence that I wish to express some of the views that I have encountered at my weekly surgeries.

The Government's view is that if legal aid for clinical negligence cases is removed, alternative funding will be available in the form of conditional fee arrangements, which will be funded on the basis of a success fee and after-the-event insurance. Under Lord Jackson's reforms, such fees will be unrecoverable from the losing party. The point that has been made to me, which I wish to highlight to the Minister, is that if legal aid is withdrawn and cases have to be funded by conditional fee agreements with insurance, there will be instances where the cost to the public purse may well be higher. For example, a solicitor at my surgery told me about a cerebral palsy case that settled for more than £3.75 million. The costs involved were more than £100,000. The case was legally aided, but if it had been funded through a conditional fee arrangement, with, say, a recoverable success fee of 60%, the total costs would have been £160,000. There would also have been a substantial after-the-event insurance premium, so the case would have cost the public purse far more than if it had been funded by legal aid. That is the position where cases are successful, and where the Legal Services Commission does not pay anything.

I appreciate that some Members may have not followed the full argument, and I apologise for using legal jargon, but the fundamental point remains that although we may be saving legal aid costs, we may end up paying more into the national health service budget to cover legal fees and insurance premiums. In essence, we will have public money chasing public money, in a circle that will not deliver legal justice on a value-for-money basis. The counter-argument is that if Lord Jackson's recommendations are implemented in full, there will be no increase in costs, as success fees and after-the-event insurance premiums will not be recoverable from the losing party. However, Lord Jackson has recommended that damages be increased by 10% to make up for the shortfall in solicitors' costs, with a 25% cap to be deducted from damages. In the cerebral palsy case that I have mentioned, that means that the damages would have increased by £375,000, which would be an alarming escalation in public funds paid.

I appreciate the difficulties caused to the Government by the escalating drain on the public purse, and I suspect that many measures relate to concern about the costs incurred by solicitors who are chasing ambulances or investigating spurious, unviable and unsuccessful cases. However, I will say to the Minister, who I know has a great deal of expertise in this field, that clinical negligence cases are now conducted by a small group of
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specialist solicitors who focus on dealing with complex cases. It is increasingly rare for solicitors to tread the old route of simply applying for investigative help certificates for every client who walks through the door with a potential claim, because the cases are just not viable.

The special cases unit of the Legal Services Commission, which is based in Brighton, now seems to apply a robust criterion to all applications for LSC funding in order to ensure that cases with merit are granted funding. David Keegan, director of the commission's high cost cases unit, has said:

I would add only that those objectives must be reconciled in the most cost-effective way possible.

I think it pertinent that Lord Jackson's objective in conducting his year-long costs review was to make recommendations for the promotion of access to justice. If legal aid is no longer available, the costs may become disproportionate.

I am acutely aware of the Government's laudable intentions, but I worry about unintended consequences. The point that has been made to me most forcefully, time and again, is that if we genuinely want to save costs, it is imperative for the national health service litigation authority to make early admissions of liability rather than protracting settlement of cases. What tends to happen is that no one in a hospital wishes to admit negligence, and a game of bluff develops. Solicitors and the NHSLA conduct a legal battle, which is often settled at the last minute. That is why we see headlines about cases involving liability claims amounting to tens of thousands of pounds running up legal bills of hundreds of thousands of pounds. Like most people, I cannot understand the logic of that. In such cases, early settlement would avoid a pointless game of poker with our money, the emotions of patients, and the good will of staff in the NHS.

4.51 pm

Mr Elfyn Llwyd (Dwyfor Meirionnydd) (PC): I congratulate the hon. Member for Makerfield (Yvonne Fovargue) on securing time for this important debate. I declare an interest as one who has in the past undertaken publicly funded work both as a solicitor and as a barrister.

I am a member of the Select Committee on Justice, which is ably chaired by the right hon. Member for Berwick-upon-Tweed (Sir Alan Beith) and which is currently conducting research into this issue. We have received an unprecedented amount of evidence from concerned groups, and I shall voice some of their concerns in the limited time available to me.

I believe that the proposals in the Government's consultation document are unethical, and will have long-standing and drastic effects on the make-up of our legal system. They will effectively pave the way for the creation of a "market" for the supply of legal assistance, and I believe that the quality of the assistance that is available will decrease. As a result, the wealthiest in society will be OK while those who are not wealthy will not.

The consultation document notes-with, I believe, unintended irony-that

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We must do all we can to uphold that principle, but the proposed reforms will cause the legal aid market to be driven by cost rather than by the needs of clients and the quality of advice that they are given. I believe that a move to fixed fees for all cases will result in suppliers taking only the least complicated cases, which will mean that the most vulnerable will be more frequently left without legal advice. The need to generate profits will lead to firms taking on unqualified staff, which in turn may well lower the quality of service.

Gwynedd Law Society has written to me drawing attention to a real danger in Gwynedd and Anglesey, where, for a population of approximately 190,000, only 10 firms currently provide civil legal aid. There are no large firms in the area. Most of those firms assist clients in both Welsh and English.

The cuts in legal aid will be felt deeply in many areas of society, but the worst effect will be on the most vulnerable, which is extremely worrying. There is a letter in today's The Times signed by a number of experts in family law, among them Stephen Cobb QC, chair of the Family Law Bar Association, and David Allison of Resolution. I cannot read the letter into the record, much as I should like to, but I commend it to Members.

Family lawyers will undoubtedly be giving up in droves, creating advice deserts, and it is our children who will suffer. I have with me several case studies showing that under these proposals mothers will be able to do nothing where children are not returned to them in certain circumstances. I find it very worrying that legal aid will be removed for ancillary relief in divorce cases. Most pressingly, ancillary matters such as child custody and maintenance will not be dealt with sensibly, and it is difficult to overestimate the devastating effect this will wreak on children caught up in these disputes. Indeed, the psychological effects that can be wrought on children when care is not taken in resolving disputes can be deep and long lasting. The justice system has a duty to protect the most vulnerable in our society-that was, of course, one of the founding principles of legal aid. Who are the most vulnerable in society? I would say that it must be our children. Overwhelmingly, the impact of the proposals on the most vulnerable members of our society will be catastrophic. I am talking about people receiving advice on debt, housing and welfare, as well as children standing in the middle of these disputes.

We must not allow these changes to be made. In the name of decency, ethics and providing decent cover for those less able to look after themselves, we cannot allow them to be made. We must not hold such an integral component of our justice system hostage to efficiency savings. If we do so, the effects we will see will be brutal.

I ask the Minister to respond to one last point. I hope that this consultation will be a real one. The one on court closures left me underwhelmed, because it was deeply unimpressive, flawed and probably pointless.

4.56 pm

Guto Bebb (Aberconwy) (Con): It is a privilege to contribute to this debate. I wish to discuss the impact on rural areas, including my constituency in north Wales. I also wish to associate myself with the comments
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made by my hon. Friend the Member for Broxtowe (Anna Soubry). I could just replicate a lot of what she said, but I wish to concentrate on the issues specific to north Wales.

One of the concerns among people in north Wales and certainly among people in my constituency is that these proposals have the potential to be another attack on services available in rural areas. Only one firm not based on the north Wales coast offers legal aid in my constituency. Therefore, inland only one firm offers such services. The consultation document would result in that firm giving up that provision, which would be a loss to the area, because people would have to travel to gain access to legal advice and legal services. In this age of high fuel costs and so on, there would, thus, be an added burden before people could even access services that might be available on the coast. People in rural areas are concerned about whether the proposals are, again, an indication of a Government retreating from offering services across the whole of this country, and that is an issue to address.

Another specific issue affecting my constituents in north Wales relates to the fact that they often try to access services in Welsh. This is a crucial point, because my constituency is fully bilingual. On the coast, 20% to 25% of people speak Welsh as a first language, but inland the percentage is significantly higher. When people are dealing with real issues of concern and are trying to access support at crucial times in their lives, their ability to access those services in their mother tongue is very important. The impact assessment highlighted that issue in relation to services in cities in England and in south Wales, but I wish to ensure that the Department is aware that there is an issue to address in relation to services provided in Welsh.

One of my concerns relates to the consultation document's reference to the need to provide a direct telephone line service. I am sure that the hon. Member for Dwyfor Meirionnydd (Mr Llwyd) is well aware that, although Welsh speakers would often prefer a service to be provided in Welsh, when they access services by telephone they almost feel that they have to speak in English first. When the service is available in their locality and they are able to walk into the offices of a firm that they know and have used in the past, they are able to talk to the solicitors in Welsh. The fact that we are proposing to offer so many legal aid services through the medium of a telephone line raises concerns about the provision of a fully bilingual service in a Welsh context.

Since I was elected in May, I have been astounded by the amount of quasi-legal casework. I find myself dealing with cases on which I am not qualified to offer advice or guidance. Before coming to the Chamber this afternoon, I asked whether my insurance as an MP would be sufficient to cover me when I am asked to offer legal advice and guidance. I have a real concern that as we are dealing with these significant changes to the provision of legal aid services, we are also looking at a significant reduction in the funding of citizens advice bureaux. As a result, MPs will end up dealing with cases that they are not qualified to deal with in a way that will be very unsatisfactory to the individuals seeking advice and guidance. That will also be very unsatisfactory for MPs, who could damage their reputation by offering advice and guidance that they are not qualified to give.

3 Feb 2011 : Column 1133

I recognise that the Government have to deal with the deficit. I am very pleased that the issue we are debating is currently under consultation, but that consultation has to be real. I shall certainly contribute to it, as will many members of the law profession in my constituency. My real concern is that if the proposals are not amended we will end up with a situation in which people in many parts of rural Britain and rural Wales do not have access to legal services. I am seriously concerned that some of the most vulnerable people in my constituency will have to access legal services only by telephone in a language that is not their mother tongue. I would find that unacceptable.

Several hon. Members rose -

Mr Speaker: Order. I remind colleagues that Front-Bench speakers will be called from 5.38 pm or thereabouts, so there is real pressure on time.

5.1 pm

Mrs Mary Glindon (North Tyneside) (Lab): First, I congratulate my hon. Friend the Member for Makerfield (Yvonne Fovargue) on securing the debate. Unlike her, I do not have any experience of giving legal advice or doing legal aid work, but I did benefit from the legal aid system many years ago when I successfully pursued maintenance payments for my daughter.

My reason for speaking in the debate is that I was alerted to the Government's proposed reforms by a constituent of mine who practises as a solicitor in a well-respected law firm in Newcastle upon Tyne. She spelled out to me just how devastating the cuts would be for many of my most vulnerable constituents who need legal aid now or might need it in future. The Government claim that they want to be fair, but removing the right to help with legal costs from those who need it to obtain appropriate representation when they are making a legal challenge is overtly denying those very people a right to justice. Indeed, the chairman of the Bar Council of England and Wales, Nicholas Green, QC, has described the cuts as a "shrinkage of justice".

Like many MPs, I have been contacted by a number of organisations on this matter, each making a case for retaining the £350 million in the legal aid budget. They were all concerned about the range of areas being taken out of scope because of the huge cut in funds being made towards 2014. The Law Society has stated that

That is borne out by the information I have received from the director of the citizens advice bureaux that operate across the borough of North Tyneside, serving the constituencies of both North Tyneside and Tynemouth. He advised me that the cuts to legal aid are a double whammy, as the Government have just announced the end of North Tyneside CAB's financial inclusion fund from April this year. So, with cuts to legal aid, North Tyneside's CAB will lose two and a half debt specialist posts and one and a half benefit specialist posts, and the end of the financial inclusion fund means that a further four and a half posts will go.

Last year, our CAB handled more than 72,000 cases. Staff dealt with cases involving £25 million-worth of debt, not including mortgages, and managed to write off £4.5 million-worth of that debt for local people.
3 Feb 2011 : Column 1134
Furthermore, with work carried out on benefits this year, the CAB in North Tyneside is projecting benefit gains of nearly £900,000. In the light of those figures, it is easy to imagine the hardship that will be caused by the loss of funding that to date has made such a difference to constituents, whose only avenue of help is the legal aid route.

Rehman Chishti: On page 5.5 of the 2010 Labour manifesto, on which the hon. Lady stood for election, her party committed to

How does she intend to satisfy that commitment if she does not support the changes that the Government are bringing in?

Mrs Glindon: Our Front-Bench team do not deny that certain efficiencies had to be made. In fact, as was said previously, they committed money to help during the recession.

Ms Diane Abbott (Hackney North and Stoke Newington) (Lab): The problem with the proposed cuts in legal aid is that they are wholly counter-productive. The Government may save money in the legal aid budget, but they will incur expenditure in other budgets. There are ways to save money in the Ministry of Justice budget, and I will touch on them in my speech.

Mrs Glindon: Mark Almond made it plain to me that the work carried out by the citizens advice bureau with the help of legal aid funding definitely helps the most vulnerable-those whose lives are the most chaotic, or who have literacy and other language problems. Self-representation, as proposed in the Bill, is a non-starter for that group of constituents.

In debt advice, private debt advisers are not the answer. The Government's own study on private debt advice found that more than 80% of those businesses provide incorrect and inappropriate advice, often at a cost to the client, and that they refer clients to advisers who are, in fact, debt collectors. Do the Government really want to impoverish the poorest more by directing them down that path?

The most vulnerable would, again, not benefit from the proposed telephone helpline. In North Tyneside, it is estimated that less than 10% of citizens advice bureau legal aid clients would be able to access the system, because of literacy or language problems. Such a system could be considered only as an adjunct to the present system.

Through the work of Lord Carter's review, the Labour Government made efforts to find savings, always with the aim of striving to protect social welfare law. Labour Members believe that savings could be found in other areas to continue that protection. As the director of North Tyneside CAB told me, although losing jobs and expertise is a massive problem, his biggest regret is that the changes to legal aid will fail clients. The coalition Government need to take heed of this debate and of the views expressed by the many experts who are making the case for the 500,000 people who will lose out as a result of the cuts. The cuts are not fair and definitely not just.

3 Feb 2011 : Column 1135
5.7 pm

Amber Rudd (Hastings and Rye) (Con): It is interesting to observe in the remarks made by those on both sides of the House that we are not talking about lawyers. As the hon. Member for Makerfield (Yvonne Fovargue) said in her opening remarks, this debate is more about trained, local, part-time and sometimes voluntary advisers who step in to help the vulnerable in need of advice. They work in citizens advice bureaux and other organisations in the voluntary sector and, in my opinion, although often not lawyers themselves, they are a rare example of legal provision at a low cost to the public purse.

I accept that reductions are necessary in expenditure and in the deficit that is, as we know, costing us £120 million a day-a point well made by my hon. Friend the Member for Broxtowe (Anna Soubry). I am sorry the right hon. Member for Exeter (Mr Bradshaw) is not in his place, as I am sure he would challenge me on that and we could have an interesting debate. However, as each of us has only a few minutes to speak, I will plough on. The problem with the proposed cuts is that they will be expensive in the long run and that, as set out, they will not do what the coalition Government have set out to do, which is to protect and help the vulnerable.

I represent a town, Hastings, that is wonderful in many ways but deprived in others. The unemployment rate is high at 5.6%, compared with a UK rate of 3.5%, and we need the support of agencies to advise those on low incomes and the unemployed. In my town, agencies have formed consortia to win social welfare law contracts. They have vocal and powerful advocates who have been to see me. I mention in particular Julie Eason and, from the citizens advice bureau, Dina Christadoulis. They have convinced me of the need for the service that they provide. The average cost of what they provide to clients is £200 or less. Even if what they do takes three times as long, that is the cost-it is really good value. We need to make cuts, but that area of the front line is not the place for them. We should not be taking social welfare out of scope.

Stephen Timms (East Ham) (Lab): I find myself in agreement with what the hon. Lady is saying. If legal aid is to be withdrawn as a source of funding for exactly the kind of work that she describes, does she accept that the Government really must find an alternative source elsewhere?

Amber Rudd: I am grateful to the right hon. Gentleman for that comment. I am speaking up on behalf of the agencies in Hastings precisely because I value the work that they do in helping the vulnerable there. I also make the point, as several Members have done, that removing the funding is not efficient for costs. He is absolutely correct that we need to find another source of funding in order to continue to protect those services.

The advice from those agencies is crucial to the clients, who in many cases cannot represent themselves. The agency I spoke with had kept records that showed clearly that 56% of its clients have long-term illness or disability and that 68% have long-term mental health problems. I am worried that some of my most vulnerable
3 Feb 2011 : Column 1136
constituents may really struggle to manage their casework and prepare for a tribunal hearing without the help of legal aid-funded services.

I welcome the simplified welfare system that the Government are working on. My right hon. Friend the Secretary of State for Work and Pensions has some excellent proposals that will be coming through, which I hope and believe will make the welfare system much simpler. Until then, we must recognise the situation we are in and acknowledge that errors are made and that vulnerable people who cannot represent themselves must be able to have some representation.

Another benefit of having agencies work with those clients is that they can recognise when there is no case. If we allow individuals to represent themselves entirely, some will clog up the tribunals. The agencies are very effective at discouraging people who do not have a case from progressing with it, so only the cases that merit the sort of attention that the clients are seeking actually get it. In Hastings, for instance, the consortia to which I have referred have not lost an appeal for a client for employment support allowance or incapacity benefit since last April, which is testament to their right choice of clients and their professionalism. Last year they provided a service to around 20,000 clients in my area, and collectively they have more than £270,000-worth of contracts, which represents more than half the advice sector in Hastings.

We all know that local government funding is under pressure, and a key element of the funding it provides is to citizens advice bureaux. Given the cuts to local funding and the proposals for legal aid, I am worried about the future viability of the agencies that do so much work and whose advice is critical in a town with above-average needs. The social welfare contracts account for only 4.5% of the total legal aid bill. The early intervention that they provide is critical; if the advisers get involved early, they can stop things escalating and stop individuals getting to the stage where they might lose their houses.

I urge Ministers to consider the costs and consequences of the proposed changes to legal aid. We need to find alternative sources of funding to support the agencies if they are no longer to receive funds from that source. I associate myself with the argument made by other Members that, unless we find alternative funding, those of us who, like me, are not lawyers will have to train up pretty quickly because of the size of casework that we will receive.

5.13 pm

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