In the recent Treasury Select Committee report, it states that responsibility for improving overall levels of household net saving sits “more appropriately” with the government and HM Treasury, rather than the financial regulators.
Treasury Committee chair Nicky Morgan highlights that: “Many households are facing challenges that are putting pressure on the health and sustainability of their finances. Over-indebtedness, lack of rainy day savings and insufficient pension savings are some of the weaknesses in the household balance sheet identified in this inquiry.”
The Committee’s report makes recommendations for the government to consider what would be more beneficial to households, allowing them to ensure that their finances are as resilient as possible, instead of handing that responsibility to the regulators.
“Whilst financial service regulators and guidance bodies have important roles to play, the government should not pass the buck to them,” Morgan concludes.
However, Altus Consulting director Kevin Okell says that, while the regulator may not have the power to directly increase net saving, they can “certainly discourage it with onerous suitability rules”.
“There is currently little regulatory difference between advising on a low-cost tracker fund in an ISA or a hedge fund in an offshore bond. That makes it very difficult to design the kind of simple online journeys necessary to guide would-be savers to low-risk investments. Some part of the government machinery needs to acknowledge there is a realistic middle ground and create a safe set of investment solutions which can be sold with far less red-tape (and cost). It’s true that Stakeholder Pensions tried something similar and never took off but that was before RDR when adviser incentives looked very different.”
Hargreaves Lansdown head of policy Tom McPhail states that the Committee deserves “great credit” for “pinning the government down” on its responsibility for long-term savings, investment and financial resilience.
“The proposal this should form part of the annual Budget reporting process to strengthen this accountability is an excellent one; it would do the government no credit if it now ducks this challenge.”
It seems as though this opinion is popular among experts, with StepChange Debt Charity chief executive Phil Andrew echoing the comments from McPhail.
“The Committee’s report shows a clear understanding of the debt landscape, a keen awareness of where problems lie, and a robust identification of who has the power to solve them. In many cases, it is the Government who needs to take action,” he added.
“We agree wholeheartedly with the conclusion that the breathing space scheme should include non-credit arrears and with the Committee’s incisive comments on how the over-zealous approach to enforcing government debt, including the routine recourse to bailiffs, should be addressed.”
Furthermore, Money Advice Trust chief executive Joanna Elson commends the Committee for doing a “good job” in putting the issue of household finances “high on the agenda in Westminster, where it belongs”.
“This report contains welcome calls to action across a range of really important issues affecting households in financial difficulty – including the need to increase the supply of free debt advice, improve debt collection practices across the public sector and expand access to affordable credit,” Elson adds.
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