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Mr. Butterfill: Will the hon. Gentleman give way?
Mr. Darling: No, I shall not give way as I want to give the Minister time to reply. I am not being unfair to the hon. Gentleman, as he has not been present for the debate.
The regulatory system has gone completely wrong. The Government are mistaken to think that, by working with the industry and hoping that something will turn up, the position will improve. A radical rethink to this country's approach is required, particularly at the retail end of the market.
As the hon. Member for Gloucester (Mr. French) said, the costs are substantial. The other day, I spoke to a large institution, which reckoned that some 5 per cent. of the cost of selling a product arose because of compliance. Given that it takes some six hours to sell a pension policy, one must wonder whether we are going down the right road. I asked a life assurance office to try to sell me a policy to demonstrate the difficulties. After an hour, I was bored and fed up. I wanted to hear no more about the financial services industry or pensions, and we had not even begun to discuss the product. We were still struggling with how much we spent on groceries each week. I am bound to ask whether that is how to sell a pension. I wanted to know about the product; what happened if I gave it up too early; how much I would receive; what expectations were reasonable.
I often visit institutions where the compliance department is growing faster than the marketing department. That cannot be right. Whenever I attend meetings or lunches, I notice that the compliance officer is always in attendance. I do not know whether that is to watch what the directors say to me or whether it reflects the compliance officer's growing importance. I make those points to show that compliance is getting out of hand. I would tolerate that if the public were happy with it and felt that it was a price that people had to pay. But neither the public nor the industry has confidence in the system, which is why I believe that radical change is necessary.
The system is also irrational. For example, personal equity plans, which are widely sold, have no disclosure requirement on management fees, whereas the sale of pensions and other savings products is regulated and subject to disclosure. I agree with the Select Committee's comments in paragraph 60 about the inclusion of lending within the purview of the Financial Services Act. That is extremely important, and mortgages are a case in point. The selling of a mortgage is often the starting point of the sale of many other products, which is why in the 1980s institutions thought that it was a good idea to buy estate agencies. They thought that if they could collar people at the start, they could sell them everything under the sun.
It so happens that many estate agencies are now on the market, if anyone is looking for one. The selling of mortgages is not regulated, whereas everything else that follows from it is regulated--that cannot be right.
Many institutions are going for execution-only sales, not because that is necessarily what the customer wants, but to avoid the burden of compliance. The entire market is being distorted by a regulatory system that does not work. On a serious note, I have already mentioned that 2.5 million people are employed in the industry and it is an open secret that there will be job losses in the next year or so--perhaps a great many. One of the drivers of job losses is the compliance cost. If we can lift the burden of compliance, some individuals may keep their jobs. We should take that option extremely seriously.
I believe fundamentally that the approach to compliance, in particular the advice by box ticking, is misconceived and wrong. If the late Robert Maxwell had still been with us, he would have ticked every single box that was ever thrust in front of him. Nick Leeson completed compliance forms. In neither case did that stop what eventually happened.
A problem with the self-regulators is that they are becoming increasingly defensive and are producing more rules and regulations to protect their own position. The approach to compliance through box ticking must come to an end. Instead, one should concentrate on education and training. One of the best protections for a lawyer or a doctor is their own professional qualification. They know that if they do anything wrong they will be struck off.
The answer to many of the problems in the financial services industry is to concentrate on education and training, and, having done that, to trust the individual. We will always have problems somewhere, because it is impossible to have a foolproof system, but we should opt for a system based on education and training. We will not get the necessary change unless there is a change in the structure and culture of regulation. Many people look to a Government to give a lead.
We must also look at the role of management. It was management as much as unscrupulous salesmen who sold the personal pensions. It is management that insists on selling targets and which sometimes has a commission structure that makes mis-selling more likely than not. The nature of regulation has not been concentrated on nearly enough and it is something that the Select Committee might like to consider.
The consensus is that the present system is not working and that primary legislation is needed to change it. This is an extremely light Session of Parliament. I understand the Minister's difficulty, because she has been given an instruction from above that the only legislation that the Government will contemplate is that which puts what they call "clear blue water" between them and us. The result is that we have one vote a week. Many people outside who depend on the industry for their livelihood and members of the public who want to use that industry will wonder why the Government are not legislating when such a political and industrial consensus exists about the direction in which we should go.
I must ask the Minister, how many more reports and failures will there be before we get the Government to act? I do not accept the Government's wait-and-see approach, and their hope that something will turn up. That is not the correct approach. Radical change is needed.
The Economic Secretary to the Treasury (Mrs. Angela Knight):
This has been a particularly useful debate. I congratulate my hon. Friend the Member for Hazel Grove (Sir T. Arnold) on introducing it. I notice that he said that the Select Committee's report provides a quarry of useful evidence for the future. The hon. Member for North Durham (Mr. Radice) said that the report provides a mine of information. Clearly the consensus in the Committee runs to the phrases used in the House. I should also like to take the opportunity to congratulate the hon. Member for North Durham on his last hurrah. I hope that he enjoys his spell on the Public Service Select Committee as much as he has enjoyed his time on the Treasury and Civil Service Select Committee.
Before answering the specific points raised in the debate, I should like to comment on the financial services industry of the United Kingdom. London, Tokyo and New York are the three largest financial centres in the world. In Europe, Edinburgh is the fourth-largest centre after London, Frankfurt and Paris.
Therefore, while we are here today to discuss financial regulation, we must all remember that we have a fine success story and a thriving industry about which we should all be proud and positive. It would not be so if our regulation were too harsh or if our regulation were too light. We would not have as many foreign banks as we do; we would not have £666 billion under fund management; we would not have the largest and liveliest futures and options market in the United Kingdom if it were not an attractive and effective place in which to operate.
We also have in the City of London a foreign exchange market that is 50 per cent. larger than that of anywhere else, a domestic equity market that is three times the size of Paris or Frankfurt and the greatest concentration of insurers, pension funds and foreign bankers in the world. That good success story does not make me either complacent or blind to glitches or unaware of the need to look to the future, but it means that criticism of our existing system should be balanced, as should be calls for change. The essential combination, as my hon. Friend the Member for Fulham (Mr. Carrington) said, is to have a regulatory system that catches and deals with fraudsters quickly, protects investors and ensures quality professional standards while avoiding a bind that is so tight that the average man, woman or company finds it difficult to operate within it.
My hon. Friend the Member for Hazel Grove raised a number of issues, the first of which was his concern that regulators need properly motivated staff. I agree: it is a professional industry and professional regulators are required. The movement from the industry into regulation and out again, as part of a career projection, is happening. That means that new blood from the industry, well versed
in the clever tricks of the trade, is coming into regulation. That process will benefit not just regulation but the industry as a whole.
Many hon. Members have mentioned the structure of regulation. There is more than one view on it in the House and, more to the point, there is more than one view from those who work in the industry. I agree that there are problems that must be tackled, but I question the call for structural change. First, as soon as open season was declared on the regulatory structure, it would divide both the industry and the regulators between those who wanted change and those who wanted to stick with the status quo. This summer we saw some skirmishes in that sphere, which gave us a flavour of what would happen if the proposal were implemented.
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