House of Commons Hansard Debates for 22 May 1996 (pt 12)

Mr. Steen: I congratulate my right hon. Friend on his achievements with the new fire regulations. I know that he has fought long and hard and he has managed to put out most of the fires. If his Department does not have sufficient staff, could he not ask other Government Departments that have tens of thousands of officials to help? Each of his Cabinet colleagues could be responsible for looking at the past three years gold plating in the directives relating to their Departments.

Mr. Freeman: Yes, I shall, but not necessarily in that precise way to that or time scale. It is important that we review what has happened in the past.

Sir Donald Thompson (Calder Valley): I admire the way in which my right hon. Friend has stuck to his task of deregulation, which often resembles wading through treacle. Perhaps one of his civil servants could make a list of our successes--telephones, airways and even lifts come to mind--to be circulated among our partners in Europe to show that deregulation really works.

Mr. Freeman: I gratefully accept my hon. Friend's excellent suggestion. I had it in mind to produce something during the summer describing exactly what we have done so far and our plans for the future. I might consult my hon. Friend on its exact form and content.

Mr. Duncan Smith: Will my right hon. Friend give way?

Mr. Freeman: Perhaps my hon. Friend will allow me briefly to make progress as I would like to outline our plans. We need to review existing directives. I would single out the electromagnetic compatibility directive, which is causing many problems.

I would like to lay shortly our model appeals order, which will be open to Departments to include in their own primary legislation so that we have a sensible procedure for appealing to tribunals. I take the interesting point made by my hon. Friend that there could be an anomaly in respect of his constituent's oyster farm. We are proposing a new procedure to appeal to tribunals, but not to magistrates courts. I believe that my hon. Friend's constituent has a right of appeal to a magistrates court under the food safety legislation, but only on a point of law and not on the merit of the case. So the debate has raised an important matter that I shall now review.

Mr. Duncan Smith: As my right hon. Friend the Leader of the House is sitting next to him on the Front Bench, perhaps my right hon. Friend could pass on to him the suggestion that the House should have a better mechanism to slow down the process of debate, which is not good enough. If the statutory instruments procedure allowed for a further stage of consideration, that would help.

Mr. Freeman: I take that point. I am grateful to my hon. Friend for putting it on record once again. I know that my right hon. Friend the Lord President will read the record of the debate and note that point.

Let me deal with two final points, both of which are extremely important. The first relates to enforcement and the right of appeal--not necessarily in a legalistic sense--and to the problems of disproportionate enforcement at

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the point of the consumer and how the average citizen is affected by an enforcement order or procedure initiated by a trading standards officer, an environmental health officer or a health and safety executive officer. We have in place, by following the procedures of sections 5 and 6 of the Deregulation and Contracting Out Act 1994, a mechanism by which one can ask the official for a written explanation of the procedures, but we should consider going further. I should like to consider carefully, possibly with the advice of my hon. Friends who take an interest in deregulation, how we can empower the citizen and give the citizen the right to raise quickly and automatically a concern about the method by which a regulation is enforced.

On the flow of legislation, I am not convinced that we need a single conduit through which all statutory instruments flow in the Cabinet Office. That would be unwieldy, although I shall reflect on it. I would like all Departments to use the compliance cost assessment and risk assessment principles properly, and all Ministers to be satisfied in all instances of statutory instruments affecting business and industry that proper procedures have been followed.

I should like to reflect further on the general procedures through which we handle statutory instruments. There are 3,000 a year, although probably no more than 1,000 affect businesses and industries. I am grateful to all my hon. Friends who, unlike Labour Members, take an interest in deregulation. I look forward to working with them.

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Motability

1 pm

Mr. Alan Simpson (Nottingham, South): I make just one apology for bringing this matter back before the House--a very sad and belated apology to David Whitton, a remarkable, extremely bright and extremely principled campaigner for disability rights, who suddenly and tragically died quite recently. I apologise to David because, when he first contacted me about Motability--it seems a long time ago--I promised him that I would undertake to get Parliament to take action on what he believed was a quite unprincipled scam being perpetrated by a cartel of high street banks. He believed that the banks were exploiting many disabled people, the allowances made to them through the mobility component of the disability living allowance, and the public, because the scheme is centrally funded. I am very sad that I have not been able to honour the promise in David's lifetime, but it does not deter me in the slightest from continuing to pursue the matter until I am certain that it has been resolved in the terms that he would have wished.

David's belief about what is wrong with the relationship between Motability the charity and Motability Finance Ltd., the private, for-profit financial arm, is very simple. He believed that up to £100 million which rightly belonged to disabled people had been inappropriately syphoned off by the banks into their private profits. I will explain how that might have come about.

It is important to distinguish between Motability the charity and MFL the private company. Motability the charity encompasses a wonderful idea. I have no complaints about the way in which it is run. But there are major differences between the two bodies. One is that of scale. The charity has a turnover of £3 million, while MFL, the finance company, has a turnover of£375 million, assets of £1 billion and credit at any given time of up to £1.5 billion. I understand that MFL is the biggest car-leasing business in the world.

I initially became aware of the matter through another campaigner for disabled rights, my constituent Mick Reynolds, who was in the bizarre position of being pressured by the finance company to accept a vehicle under the scheme which did not meet his needs and would have cost him more than a vehicle which did meet his needs and that he would have preferred. We fought a long battle to reverse that decision, during which he educated me about some of the things going on behind the scenes in MFL and introduced me to David Whitton. It was from there that my real education in the behind-the-scenes activities of Motability Finance Ltd. took off.

All questions on the matter boil down to four basic questions: who controls whom; whether the arrangements between a charity and a private company offer the best deal for disabled people; whether excess profits and charges are being made; and whether the stranglehold of the banking cartel is corrupt and unaccountable.

I have made a considerable effort to find out what is going on inside MFL, but its organisational structure makes a masonic lodge look like open government. I suspect that the House could find out more about foreign spy rings than it could about the internal goings-on in the Motability Finance Ltd. empire and how the firm manages public money.

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There have been a series of internal reports on MFL and Motability, all of which have been undisclosed and have criticised the level of profits and the relationship between Motability the charity and MFL the private monopoly. The first report that I came across was one picked up by the accountancy firm KPMG, in which it suggested that the banks were making a 30 per cent. return on capital. That is more than double the rate of return of private car-leasing companies.

When MFL was challenged, it said that the figures were notional and that the report was an exercise. Yet the exercise was conducted by KPMG on the basis of figures provided by MFL. If a company provides figures from which such a conclusion is drawn, it should accept the validity of the conclusion reached by a reputable firm of accountants.

The second report I came across was commissioned by an equally principled and wholly praiseworthy civil servant, Simon Willis, who was seconded into the Motability scheme. He had the sense to bring in a company of charity solicitors, Birchams, which conducted a report on the way in which the relationship between the charity and the finance company was working. It made the most profound criticisms of that relationship. It said that

"the Governors of Motability have no clear picture of the effective rate of return being earned by the banks or the current position on surpluses since MFL's accounts reveal nothing on these lines and the management accounts of the banks relating to the Motability scheme have never been disclosed.

We consider it imperative that the Governors of Motability now require the banks to disclose the relevant accounts so as to provide a full picture of their trading position, profitability and accumulated reserves and surpluses. Without this information, the Governors are incapable of performing their duty to satisfy themselves that there are no alternative funding sources which could provide better value for money to Motability's customers."

Birchams had no axe to grind. It is important to note that, having issued the report that it was commissioned to produce, it was immediately decommissioned; the rest of the processing of its report remains a mystery, having been handled internally within Motability Finance Ltd.

The report commissioned by Simon Willis came on the back of an earlier and in many ways much more damning internal letter written by someone who ought to have known exactly what was going on in Motability--Alan Outten, who was not only a banker and a member of the board of directors of Motability Finance Ltd. for 15 years, but had been deputy chairman of Motability Finance Ltd. He said:

"Some 2 or 3 years ago the banks reduced their gross margin to 1.5 per cent. gross, made up of 0.5 per cent. over cost of funds plus 1 per cent. profit margin . . . Somewhere along the line, MFL 'shifted the goal posts' without the agreement of the Charity, so that each bank received a flat management fee of £50,000 each plus an additional funding margin of 0.1 per cent.

This change effectively increased the 'management charge' from a maximum of £600,000 to £1 million . . . It is surely an anomaly that the board of MFL should be paid £1 million per annum (and increasing) by the Charity for representing the interests of the banks, which are not consistent with the objects of the Charity."

I suspect that that letter was one of the factors that prompted Simon Willis to call for the independent report by Birchams.

Since that time, a further report has been commissioned. Schroeders merchant bank was asked to look at profitability levels within the company. Again,

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I have been unsuccessful in getting a full copy; I have managed to get only an executive summary of the bank's report, but the bottom line is simple. Schroeders bank says:

"The current margins, which were agreed in the autumn of 1993, appear now to be out of line with the market. The margins charged by the Partners should therefore be revised in the light of this benchmarking exercise."

In practical terms, that comment amounts to a statement by Schroeders that the margins to which the banks have been working are probably twice as high as could legitimately be justified.

There have been changes in the charging regime only as a result of public pressure from disabled people, from organisations representing disabled people and from campaigners in this House and in the other place who have sought to raise the matter in both Houses. Since the matter was raised, MFL has made a series of reductions, but all have been designed simply to forestall further criticism.

The whole structure of MFL is based on obsessive secrecy and obsessive control. The company has seen not only the Birchams report and the Alan Outten letter, but a letter sent by Simon Willis to the chairman of Motability pointing out his concerns about the extent to which a public charity was effectively owned by a private, for-profit company and about the fact that that company had no accountability to the charity or, ultimately, to the Government who fund it. In his letter to the chairman, Simon Willis said:

"All suppliers to the scheme are subject to continual or periodic competition except the banks . . . Not only are they exempt from market pressures; the governors of the charity have repeatedly been denied access to the partnership accounts which underpin the scheme's financing.

The charity commissioners run an annual profitability study to determine the appropriateness of the profit margins . . . The 1992 study was shown briefly to the governors but all copies were then recalled. Among several recommendations which have not been pursued, it concluded that 'higher than envisaged returns appear to be being made by the Banks.' For some reason the 1993 study was not shown to the executive governors. I only saw it in draft and I seem to recall a surplus approaching £100 million and a return on capital of over 20 per cent. to the funding banks."

That is not a picture of a charity being able responsibly to oversee its stewardship of the allocation of public moneys and to fulfil the goals of a laudable scheme which gives disabled people the mobility to which they are entitled.

We are currently waiting for the report by the National Audit Office. I believe that the delay in issuing that report is probably a result of its having been nobbled. I am led to believe that there are aspects of the relationship between MFL--with its beneath-the-surface partnership accounts--and Motability that will not be allowed to be properly explored.

Throughout this time, as the contingency funding is allowed to remain in the banks' hands and MFL is driven by the banks' priorities, I have had a constituent, Liz Carr, whose physical condition has changed dramatically since she acquired a vehicle. She now finds that she is unable to get a change in her lease to entitle her to a more appropriate and adapted vehicle because, she is told, adaptation funds are not there. The fact that some£100 million is sitting in an account somewhere else suggests that the funds are indeed there, but that moneys belonging to disabled people are not being allowed to be used in the interests of disabled people.

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Although I said that MFL had not been unresponsive, it is worth bearing in mind its first response. The first criticism produced a remarkable change in the company. The chair of the company wrote back to the charity at the end of 1993 saying:

"I am delighted to inform you that at the meeting on the7th December there was unanimous support from the banks to make a donation to the charity of fifteen million pounds in March 1994, with a commitment to advance a further ten million pounds in March 1995."

What a generous offer. Ignoring for the moment the fact that the company was giving back disabled people's money to disabled people, what troubled me most were the strings attached to the offer. The chair went on to say:

"Given that such a donation will result in an initial insufficiency of reserves, it was also felt necessary that certain assurances should be sought from the charity."

The most important of those assurances was that

"the charity will not, without the partners' prior consent, seek to admit any other lessors into the scheme."

Thus the terms on which money would be handed back was a guarantee that the banks would be offered a perpetual monopoly so that they could continue to milk a no-risk leasing scheme, using public money to provide themselves with comfortable private profits. That is a wonderful and unique example of public money being used to provide a banking cartel with money for nothing and perks for free. There is no way in which the Government--or Motability--can either test the value for money offered by the banks or renegotiate terms on the basis of clear knowledge of the charges being made. The current arrangements are untenable and unprincipled.

That is not just my view; I believe that the Minister also takes that view. I am grateful to whoever it was who supplied me with a copy of a letter sent by the permanent secretary at the Department of Social Security. On3 February 1995, he wrote to Gerry Acher, the vice chairman of Motability, saying: