One might assume that Treasury Ministers and I would have approached this debate with a somewhat heavy heart, as there must surely be better ways of spending a sun-drenched Thursday afternoon than debating an uncontentious?or relatively uncontentious?Bill such as this. Our cheerful countenance owes more to the fact that the alternative attraction for us this afternoon would be poring over yet more clauses of the Finance Bill in Committee. Make no mistake, the lottery of parliamentary timetabling sometimes produces winners.
I am delighted to lead for the Opposition on this Second Reading debate. I welcome the Chief Secretary to his place in the Government’s Treasury team. As was pointed out earlier, he is deputising?if that is the right word?for the Economic Secretary, who is attending his sister’s wedding. My only hope for the rest of the Lewis clan is that he will not make a long speech at that happy family occasion, or if so that equity release and home reversion schemes will not feature as part of it.
In this illustrious Treasury team there is also a Financial Secretary who, with a name like Healey, was always destined to make his name in that great Department of State. But to really get on, as the Chief Secretary will confirm, he will need to change his name by deed poll to Brown. For my part, at 40 in this relatively youthful shadow Treasury team, I am something of a veteran, in age if not experience. As someone who is already over the hill, I am a warning to all new Members present about how quickly one goes from being a young Turk to an old stager.
Let me get on to the business. I should say at the outset that, in principle, Conservatives support the proposals in the Bill. We welcome any move that will increase public confidence in home reversion or equity release schemes, which have been the subject of a stream of adverse publicity in the financial press over recent years. We accept the proper desire of Government to facilitate consumers making better, more informed choices and to create a level playing field in this rapidly evolving market. As life expectancy increases, Conservatives welcome innovative new ways for people during their lifetime to utilise the equity that they have accumulated in their main residential home. As the Minister said, this should help the elderly to live with dignity and independence. Naturally, we shall want during the passage of the Bill to examine the proposals carefully to ensure that any new rules are not overly complicated and achieve their goal with the minimum of regulatory burden. Above all, we need a flexible approach.
I entirely accept my hon. Friend’s concerns. I assume that he is not making a bid to serve on the Bill Committee, as despite the Bill’s having only two clauses, proceedings might take longer than we had in mind.
As the Minister pointed out, the Financial Services and Markets Act 2000 provides consumer protection by defining a "regulated activity" in the United Kingdom. The purpose of the Bill is to bring home reversion schemes under the umbrella of section 22 of that Act, which covers contractual rights in respect of loans secured on land, but not other types of finance provided in connection with the acquisition or disposal of land.
As hon. Members will be aware, the Financial Services Authority has regulated activities relating to mortgages since last October. That reflects the reality of the world in which we now live, for the initial exclusion of mortgages from financial services oversight seemed strangely perverse. After all, for the vast majority of the population mortgages are the largest single financial investment they are likely to make in the course of a lifetime. Buying an equity release scheme has financial planning, tax and inheritance implications, and the group most at risk is the elderly.
In due course, I want to deal with a few of our concerns about the operation of the Financial Services Authority, especially in the light of?how should I put it??creative tensions between the Prime Minister and the Chancellor on its role and importance as regards the global competitiveness of the UK financial services sector.
I want first to make some observations on the contemporary importance of these schemes. Equity release allows a home owner to sell all or part of his or her house at a discounted rate to a regulated provider in return for either a lump sum or income while continuing to live in the house rent free for life. There is little doubt that such schemes will become increasingly prevalent. That fact alone should never be regarded as a reason in itself to regulate, but it is important that we examine equity release schemes in the context of fast-changing demographics. However, in regulating we must not stifle innovation and flexibility, which I hope will continue to be the watchwords of success in the financial services field.
Thankfully, people are living longer. Countless millions of Britons are building up personal wealth, predominantly in bricks and mortar, in a way that was unthinkable only a generation ago. Many, as they get older, are naturally reluctant either to sell off a long-cherished family home full of memories of a life well lived. Similarly, others wish to avoid the disruption and displacement of a house move in later life. Nevertheless, as pensions returns?whether state, occupational or personal?become ever more unreliable, there will be an increasing clamour from home owners to utilise some of the equity they have in their home to cover the cost of day-to-day living.
That, I suspect, will not apply only to the retired or semi-retired. I think that in many ways it is a welcome trend. I must confess that I have always been a little uneasy about forcefully defending either side of the argument in the debate on the funding of long-term residential care for elderly home owners. The current arrangements allow only a very small holding of financial assets before deductions on a pound-for-pound basis for the cost of care. Naturally, that is a tremendous disadvantage to lifetime saving and the taking of individual financial responsibility. By the same token, it is rather perverse to spend public money to enable the beneficiaries?generally a younger generation?to inherit an estate intact, while being unwilling to take on some of the responsibility for elderly relatives during their later years. I fear that equity release schemes alone will not be enough to solve that long-standing conundrum, but I hope that they will go some way towards reflecting the reality of modern living.
It should be emphasised that such schemes will not only benefit the elderly who wish to live in dignity and independence. They will also be employed by middle-aged parents who have paid off all or most of their mortgages, but now want to help their children to get on to the housing ladder. I think that over the next few years we will hear much more about the difficulties facing those who are currently in their 20s, and other young people who are yet to enter the workplace. What worries me in the current debate about pension provision, for example, is that most current thinking across the political spectrum amounts to little more than a pyramid sales scam against the young.
I am acutely aware that I am at the youngest end of a very fortunate financial generation. I am just old enough to have benefited from university education at a time when getting a full student grant for fees and maintenance was the norm. I entered the workplace in the late 1980s, when tax rates were in a post-war trough and?by current standards, at least?it was relatively inexpensive to get on to the property ladder. When I speak to today’s students?as I am sure other Members do?or deal with constituents who are only a few years out of university, I am struck by the fact that many of their generation are almost uniquely likely to be markedly worse off financially than their parents. More often than not, people in their late 20s find themselves with five-figure student loans still to be paid off. In London and the south-east in particular, it is almost impossible for such people to get a foothold on the first rung of the property ladder, even when their salaries are well in excess of the national average.
While today’s young work force are funding the current state pension scheme, they know, and I think all of us here know in our heart of hearts, that that will be unsustainable in the long term. In a sense, the financial interests of one generation are being pitted against those of another. I think it inevitable that equity release schemes will increasingly be demanded by a generation of home owners who are keen to provide capital so that their offspring can buy homes of their own during their lifetimes. If that social trend is to be encouraged, as I believe it should be, it is all the more important for there to be general confidence in this rapidly evolving market.
During the Government’s open consultation on whether activities relating to home reversion schemes should be regulated by the FSA, some attention was also paid to flexible tenure products. Such schemes allow home owners to increase or decrease equity ownership by transferring interests in a property to and from financial providers such as local authorities or housing associations. There is, I believe, an acceptance that they should be included in the scope of the Bill, although I understand that that is not the intention. The Government’s reasoning is that neither local authorities nor registered social landlords should be subject to FSA regulation. I realise that the intention of the draftsmen was to keep an eagle eye on the development of the equity release markets. Nevertheless, I wonder why it was felt that local councils and registered social landlords?often the most important players in the development of the housing market in some of our cities?should be exempt at this stage.
It is essential for any regulatory framework to give the consumer of financial products legitimate protection. That must be the overwhelming objective if there is to be sensible regulation. We were rather disappointed by the Prime Minister’s off-the-cuff criticisms of the FSA, which seemed to play to the gallery while missing the serious point. Incidentally, does the Chief Secretary
consider the FSA an inhibitor to business, or does he prefer the Chancellor’s view that it is a beacon for the rest of the world? Certainly, many financial institutions report feeling increasingly intruded on by the over-burdensome regulation of the FSA, but there seems little cause for complacency such as that expressed so recently by the Chancellor. We need to engage in a more serious debate about the FSA’s future in an increasingly innovative competitive and global financial services sector.
We remain determined to protect investors, savers and home owners comprehensively from the mis-selling of financial services and products. In an Adjournment debate on 4 April, however, my hon. Friend the Member for South Norfolk (Mr. Bacon) exposed the FSA’s inability to deal rapidly with fraud in the cheque clearing system, even when the institution concerned was one of the UK’s largest banks, Abbey National. In the case to which he referred, the FSA clearly failed to monitor the bank’s compliance with rules relating to money laundering. Moreover, having lodged a complaint with the FSA, the victims’ group has spent more than 12 months waiting in vain for the regulator to begin an investigation. That does not inspire the highest level of consumer confidence. We believe that maintaining growth and competitiveness must be at the heart of the regulator’s agenda. There is no reason why that should be at odds with concern about financial stability and consumer protection.
The ability to be flexible is vital to all participants in an open marketplace. We can be assured that some of the providers creating new products under the Bill will be innovative and fast-moving, and that consumers will acquire?and require?a commensurate level of protection. However, if the regulatory regime is too onerous we will risk losing such financial services-related business to beyond these shores, to the detriment of the creation of UK jobs and tax revenues. The consumer stands to suffer too, as the costs of regulation will run up the costs of the new products, and will limit not just the number of new entrants, but the range of equity release schemes.
As we made clear before the election and I am keen to reiterate today, any future Conservative Government, while perhaps not going quite as far as my hon. Friend the Member for Sevenoaks (Mr. Fallon) might wish, would want to give the FSA an additional remit by placing competition and competitiveness at its heart. It must be made plain that institutional business?professional to professional?needs only prudential oversight. Similarly, private client businesses with a high net worth which do not deal with the general public should be regulated with a lighter touch. Even some equity release schemes might come into the latter category. However, I fully appreciate that in the main, although not exclusively, products being sold under the Bill will require more substantial regulatory protection.
I hope that the Minister will be able to confirm that he will authorise a review on the anniversary of mortgage activities coming under the auspices of the FSA this October. We would want it to include a detailed investigation of the workings of mortgage regulation to ensure that it has not been unduly burdensome, while maintaining essential protection for the consumer. Assuming that the Bill completes its passage successfully, I also think that it would be helpful to have a commitment to an early review of its operation. Above all, it should be borne in mind that in expanding the power of a regulator such as the FSA, we must always investigate any unintended consequences of the legislation, not only for consumer protection, but for product innovation and market profitability.
With those reservations, we are happy for the debate to continue. I hope that we shall hear from a number of Members, new and old. This is an important Bill that will affect countless numbers of our constituents. I trust that by the time its passage is completed we shall have ensured that the necessary protections are in place.