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Mr. Radice: I congratulate my hon. Friend on that brilliant mini-speech in which she encapsulated her arguments--or perhaps trailed the arguments that she will use on another occasion. She is absolutely correct: they are the proper arguments to deploy.
I have now come around to the view that bank supervision should be conducted by a separate body. I do not know the Labour party's position in that regard, but the Government continue to support the Bank of England and its view that banking supervision should not be separate. I think that it would be better for the Bank of England, for banking supervision, banks and the general public if we were to make that reform.
I think that I have spoken quite long enough. This is my last speech in the House as a member of the Select Committee--I had my last hurrah in Committee when the Chancellor appeared before us yesterday. I believe that Select Committees perform good work. The Treasury
and Civil Service Select Committee comprises a curious body of men and women who have very different and disparate views on many matters. It is quite remarkable how, more often than not, we manage to produce agreed reports. A key feature of the Select Committees is its power to send for persons and papers; that is what makes Select Committees powerful. Mr. Andrew Marr, the brilliant columnist for the Independent--
Mr. Nigel Forman (Carshalton and Wallington):
Brilliant?
Mr. Radice:
Yes, I think that he is brilliant. He wrote a book entitled "Ruling Britannia", in which he makes the enormous error of playing down the role of Select Committees. He says that interviewers on programmes such as "Newsnight" are much more powerful interrogators than Members of Parliament. That may be so, but they do not have the same powers. They cannot send for the head of the civil service or the Governor of the Bank of England and question them. They cannot call people from Lloyd's to appear before them. Select Committees have an enormous advantage which we must put to good effect because that is what makes our work valuable.
Mr. Douglas French (Gloucester):
Under class XVI, vote 1, no fewer than 12 documents are listed on the Order Paper as relevant to this debate. Of those documents, the sixth report of the Treasury and Civil Service Committee is unquestionably the most important.
The Committee was ably chaired by my hon. Friend the Member for Hazel Grove (Sir T. Arnold), and other hon. Members who are present in the Chamber served on it. I congratulate them on what is undoubtedly an excellent report. It contains a mine of evidence and information and reaches a number of very sound conclusions--although I am not entirely sure that it would serve the purpose of the hon. Member for North Durham (Mr. Radice), who seems to believe that a future Labour Government could use the report as a basis for financial services legislation. I do not think that he will find himself in that position, but were he to do so, I suggest that the matter be viewed in a rather wider historical perspective. He vouchsafed that he learned things when serving on the Committee, and I am sure he did, but I wonder how much attention he paid to the long history of the subject, and in particular, the long history of the retail side.
The sixth report is the most up to date, but in considering the insurance, savings and investment side of the industry, we must go back to 1982 and 1984, when the Gower report was produced. We have debated the subject almost continuously for more than 10 years, and a number of substantial reports have been published during that time: the Gower report, the Securities and Investments Board report in 1989, the Clucas report in 1992, and Andrew Large's report in 1993. Each was regarded at the time as the report to end all reports, but the debate has continued nevertheless.
During those 10 years, there has been a significant restructuring of self-regulatory organisations. During a five-year period following the Financial Services Act
1986, it was continually said that the Act was not working as well as people had hoped. The Treasury said that such legislation should be given time to "bed down": that was its favourite expression.
When the "bedding down" period became too long to be credible, we were told that it was not appropriate to embark on new primary legislation, because that would send the prospect of a solution to the perceived problems too far into the future. We have been stuck in a limbo, in which practitioners in particular recognise significant deficiencies in the workings of the Financial Services Act, but there is a difference of opinion on how those deficiencies should be rectified and on whether primary legislation is required.
Meanwhile, during those 10 years, the poor practitioners have been trying to run their businesses. They have been faced with rule books and practice directions that have changed, and with consultation papers heralding further change; they have been buried under an enormous burden of constantly changing regulation. That is not the sort of environment in which any business-- particularly the savings, investment and insurance business--can hope to prosper.
It is easy to lose sight of the original purpose of the Financial Services Act. I can sum up that purpose in six words, although many volumes have been published that say the same thing: "Sell something suitable and be honest." The attempt to implement that principle, however, has gone seriously wrong. The original intention was laudable, but its execution has backfired and, in some respects, has proved self-defeating.
The original principle was that the client must have a proper choice of product, accompanied by independent advice that came to be described as "best advice". That is a praiseworthy aim in itself, but major institutions found it impossible to implement. Soon after the Financial Services Act, many institutions with household names endeavoured to offer independent advice and a proper choice from a range of products, but one by one they dropped out.
The last two big names to provide such a service were the National Westminster bank and the Bradford and Bingley building society; I believe that the Bradford and Bingley is now the last major institution that is still clinging to the principle of offering independent "best advice". The requirement to offer clients that service has been made so difficult to deliver that institutions have abandoned any hope of doing so. Surely that is contrary to the original intention of the Act.
Another principle was that the client must be given good value. There have been many examples of clients being sold poor-value products. They had been sold life insurance or investment policies whose returns were unreasonably low, or whose surrender values were discounted to a ridiculous extent.
The worst abuses appear to have been removed at the expense of giving everyone poorer value: the overall costs of compliance, especially in the insurance sector, have become massive. Institutions have huge compliance departments devoting their efforts to ensuring that no rules are broken, and ensuring that lengthy procedures are followed. They impose spot checks themselves, or try to ensure that, when such checks are imposed by visiting regulators, they measure up to requirements.
That has used up a large amount of management time in an unproductive way. Moreover, the process has been so costly that products offered by some institutions have become considerably less competitive than they would otherwise have been. After all, the costs of compliance-- the costs of the whole regulatory regime--are ultimately borne by the investor or the policy holder: they will come out of his premium or deposit. That is the part of his money that is not invested, which means that investment returns are worse than they would otherwise have been.
That is one reason why business has become so much more difficult to write for the retail sector and the life insurance companies. The institutional compliance costs have become greater than is justified, which detracts from the potential value of the product.
Ms Abbott:
The Select Committee has already heard all this heart-rending stuff about the tremendous burden of regulation. Before Opposition Members all break down in tears, will the hon. Gentleman answer a question?
If the problem is too much regulation rather than too little, why have we seen the horrendous scandal of mis-selling of personal pensions, home income plans and endowment mortgages?
Mr. French:
I do not mean to sound heart-rending; I think that I am reflecting the views of the management of most leading life insurance companies. Such companies can make an important contribution to our economic life and our business potential overseas.
The hon. Lady picked on three examples. It is true that the industry has failed in those cases, but they do not remotely represent the way in which the industry conducts its business generally. It is possible to identify shortcomings in almost any industry, and the hon. Lady has identified three important shortcomings, but in the context of all the business undertaken by those institutions, even those shortcomings--heart-rending though they may be--are comparatively insignificant.
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