Target financial advice where it’s most urgent: the City

Yesterday the Commons public accounts committee delivered a devastating indictment of the Government’s ‘complete failure’ to tackle high levels of consumer debt. The Committee found no one holding the reigns on the Government’s money guidance service, which aims to educate people to avoid debt problems. While advice is available at crisis point in the UK (the CAB soldiers on!), there is virtually no independent financial advice.

Given the public purse is cash-strapped it makes sense to target financial education to those who need it most.

Statistics show that debt problems are most common in low income households. But dig deeper and you find few examples of risk-taking behaviour. The number one cause of over-indebtedness is not ‘bad’ behaviour but job loss. The explosion of personal debt was driven in the main by the over-mortgaged middle classes who gambled on the buy-to-let bubble.

Looking further afield it becomes clear where money mismanagement is most problematic. A friend once met a City trader at a party. Politely making conversation, he said it must be a difficult job, derivatives sound so very complicated. ‘It’s easy really’, the trader replied, ‘you don’t have to understand them to sell them.’ Feckless bankers and overpaid traders repackaged, relabelled, and sold on shed loads of debt – and the entire country now faces a decade of high unemployment and savage cuts to public services as a result.

To be really effective money guidance initiatives could target the City regulators, MPs, and the bright young things in the Treasury. It’s a shame they weren’t implemented earlier. A cross-party class to advise Ken Clarke and Gordon Brown may have covered the perils of a cavalier attitude to regulation. The late Eddie George would have benefitted from homework on the importance of capital ratios in the banking system. Surely report cards for the Woolworth’s management – who wiped out 25,000 jobs in one swoop – would have read ‘could do better’.

The City offers one clear lesson: advisers on commission tend to give bad advice. Former RBS chief Fred Goodwin and his contemporary Victor Blank at Lloyds TSB were both ‘advised’ and ‘guided’ by advisers who made vast profits on the toxic takeovers of ABN-AMRO and HBOS. Better money management won’t help ordinary households to avoid spiralling debt. Sir Fred and his pals, however, should surely be first on the list for independent money guidance.

See our blog post on basic bank accounts Read our report Strength Against Shocks

Tess Lanning