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Mr. Paul Tyler (North Cornwall): I thank the hon. Member for Corby (Mr. Powell) for the way in which he has led our little informal group on this issue. I underline the point that he was making, and ask him to extend it one step further.

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Is it not true that the perception outside this place and outside Government is that this exercise has been one of prevarication, procrastination and gagging, and that it involves some frail and vulnerable people, whose livelihoods, security and homes are at stake? As the case of the West Bromwich building society indicates, the system has not worked for some of our most frail and vulnerable citizens.

Mr. Powell: The hon. Gentleman is absolutely right: I am quite certain that, if thousands of depositors in the West Bromwich building society knew the truth about the way in which the managers and directors of the building society have behaved, they would shift their money out of it and hang their heads in shame that a building society could behave like that.

Until recently, I had assumed that the chief executive was the principal villain in this matter and that the board of directors was incapable of controlling a chief executive who was clearly out of control. There is some evidence--I put it no higher than that--that I may have been unkind about the former chief executive, Mr. Elliot, who has now left the West Bromwich building society.

There is no decisive evidence that I am wrong, but one of the ways in which Mr. Elliot can seek to redeem his reputation is by lifting the veil on the true relationship between the West Bromwich building society and Fisher Pruw Smith. He can do that by going to the police. He can spell out exactly what the secret commissions were, and why Fisher Pruw Smith was constantly putting those who sought to borrow in this way under greater pressure to borrow larger sums of money. At no stage was it spelt out that these bond-based plans could never succeed. It has been claimed that a collapse in the housing market and in the stock exchange is why it went wrong. That is not true.

I shall outline a case for hon. Members. A couple borrow £18,000 and, under the bond, in the first month and ever thereafter they have to repay at least £400 per month. If they fail, the shortfall is met out of capital. Meanwhile, if power of attorney is given--whereby the managers of the fund can reinvest it in whatever way they choose to maximise the amount of money that they receive for the investment--each time a reinvestment in different stocks, shares or whatever is made, the managers take 1 per cent. and the building society takes 1 per cent.; that is, 2 per cent. is taken immediately. It is exactly like churning in the Lloyd's market--one does this as often as one possibly can. The capital that was supposed to produce the income that would pay the mortgage was constantly being reduced and, often, fines were added on top. It is small wonder that so many of our constituents now find themselves with debts that cannot possibly be repaid.

The West Bromwich building society has gone out of its way to avoid accepting the moral responsibility it faces for allowing Fisher Pruw Smith, Aylesbury Associates and others to behave as they did. It failed to recognise that it was the principal in all this. In the circumstances, any building society concerned about its reputation would have acted at once to put right the wrong that had taken place. In these cases, the borrowers did not know the truth, and it was never spelt out. The West Bromwich building society took no steps whatsoever to ensure that the truth was spelt out. That is why it deserves our contempt.

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Beyond our contempt, and beyond the police action that needs to take place in relation to the directors and the senior managers of the building society, we need to recognise that bodies such as the SIB and others who have the responsibility of making the best they can of our legislation, have stretched the elastic--if I can put it that way--as far as they possibly can. Even then, they have not reached a settlement, because the Financial Services Act 1986 did not contemplate or allow for that position; those who saw teh opportunity to drive a coach and horses through investor protection did so by stealth, and often dishonestly.

I hope that my hon. Friend the Minister, having regard to the report of the Treasury and Civil Service Select Committee, will take urgent steps to introduce legislation as soon as possible to fill the gaps that have been revealed in this case, and to ensure that a similar scandal can never happen.

1.19 pm

The Economic Secretary to the Treasury (Mrs. Angela Knight): I thank my hon. Friend the Member for Corby (Mr. Powell) for initiating the debate and for drawing attention to important points. He has worked hard and assiduously on behalf of his constituents and all those who have home income plans. The hon. Members for Birmingham, Selly Oak (Dr. Jones) and for North Cornwall (Mr. Tyler) have also played a valuable part in ensuring that the matter is discussed continually in the House and elsewhere, so that the cases of the many people who have been affected are properly and thoroughly considered.

The story of home income plans has been a long and unhappy one for many elderly people. I recognise that it continues to be a worrying time for a considerable number of those who took out such plans. I sympathise deeply.

The schemes were attractive in their time to a specific vulnerable section of the community. Retired people tend to live on a fixed income, which they have little opportunity to augment. Members of that generation believe in helping themselves, and the schemes appeared to offer a way to do just that.

Home income plans were associated with a range of deferred interest mortgages offered by mortgage lenders in the late 1980s. As the term implies, equity release schemes were devised to enable borrowers to release some of the capital from their houses to spend on something specific, to improve their income or for other purposes. In the case of home income plans, which were often targeted at the elderly, the borrower used the proceeds of the loan to purchase a bond or other investment instrument, often from an independent financial adviser, to provide that additional income.

As my hon. Friend the Member for Corby has ably shown, difficulties have arisen for a sizeable number of elderly people who purchased home income plans in that period, for a combination of reasons that I do not propose to go into, as they have been described so well.

The Securities and Investments Board and the other financial services regulators, the Building Societies Commission, and the Investors Compensation Scheme Ltd. have made strenuous efforts to help. To a large degree, they have been successful in dealing with the investment element of those schemes and encouraging many lenders involved to put in place measures that go some way to reassuring people.

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The financial services regulators issued strong warnings from 1989, and effectively put a stop to investment-based schemes in 1991. In addition, the Building Societies Commission gave prudential guidance from September 1989 onwards, warning societies of the special problems associated with the equity release loans offered to older people.

Dr. Lynne Jones (Birmingham, Selly Oak): Does the Minister agree that, although those home income plans were fundamentally flawed, the West Bromwich building society continued to process applications after the Building Societies Commission had issued those prudential notes? We agree that the regulatory bodies have done their best to encourage the West Bromwich building society to shoulder its responsibilities.

Will the Minister join me in urging the West Bromwich building society today that, if it does not accept any legal obligation toward those borrowers, it should accept a moral obligation? Those elderly people would not have taken out those loans had they not been associated with the good name of building societies, so the West Bromwich building society has a moral obligation to compensate those people and put them back where they began--and certainly not charge premium rates of interest, as it continues to do.

Mrs. Knight: I cannot comment on the reasoning of every individual who took out such a scheme, but, like the hon. Lady, I am worried that some building societies--she mentioned the West Bromwich building society specifically--may not have granted terms similar to those that other building societies have granted in dealing with customers with those plans. The legal position must be considered in detail, but there is a moral obligation.

I hope that the hon. Member for Selly Oak will agree that the meetings that she has had with the Building Societies Commission and the Securities and Investments Board, which have been offered to the three hon. Members who take a special interest in this problem, have been satisfactory--indeed, helpful. I hope that hon. Members will join me in congratulating those two organisations on the help that they have given and the efforts that they have put into this case.

Compensation totalling about £67 million has been paid, which has covered claims from 2,700 investors. I accept that it is not a perfect solution for those who feel themselves victims of home investment plans, but without the compensation arrangements under the Financial Services Act 1986, their position would have been even more difficult. Considerable resources have been deployed by regulators to try to help with these problems.

The subject of the debate is home income plans and West Bromwich building society. The SIB has worked hard to make an arrangement with the society, and is satisfied that the agreement reached is the best that could be achieved in the circumstances.


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