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11 Jun 2002 : Column 208WH

Financial Services Industry

11 am

Paul Flynn (Newport, West): Some of my colleagues suggested that a debate on the integrity of the financial services industry would be a brief affair. Perhaps the full title should have a question mark, as we will debate the quest to find integrity in the industry rather than concentrating on something that is a rare commodity in the relevant companies.

I do not introduce the debate because I have specialist knowledge in the subject, although many distinguished colleagues are present who have contributed to such debates from their knowledge. My interest is as a Member of the House for 15 years. In that period, I have seen a procession of constituents whose financial lives have been damaged by the work of the financial services industry. This morning, I want to detail many of the scandals that have taken place, because millions of people have been cheated and bamboozled by commission-hungry salesmen who have mis-sold poor-value pensions, mortgages and insurances.

Having checked the numbers of robberies and muggings in the past year, I can say with certainty that the public are much more likely to be robbed by the financial services industry than by burglars or muggers. The difference is that criminal theft is usually a single event, but robbery by financial institutions continues every week for decades.

There is a seemingly endless litany of scandals. Millions of people have been cheated by the mis-selling of personal pensions, with compensation of £15 billion and rising. About 6 million endowment mortgages face certain shortfalls. Then there are the scandals of the Bank of Credit and Commerce International, Maxwell, the West Bromwich building society's home income bonds—you will remember them well, Mr. Deputy Speaker—the Independent Insurance Company, Barings Bank, Equitable Life, Chester Street Insurance Holdings and the AXA orphan assets. Now there is the split capital investment trust. Recent events form the background to that, including the collapses of Enron, Andersen and Marconi, which have dangerously shaken public confidence in the market.

An industry that manages £1,900 billion of Britain's savings is haemorrhaging confidence. Individuals and families have suffered huge losses. The well-off are often cushioned against such losses and can recover from them. The casualties are the people whom we see in our surgeries, who have tried to organise their lives so that they have a comfortable old age with an adequate income. Given the activities of organisations that behave disreputably, they now face a future on the edge of poverty.

If confidence is to be restored, I hope that we can persuade the Government to take a more active role. This and the previous Government have creditable records, but this Government must ensure that the industry simplifies its products, establishes a network of genuinely independent financial advice, nurtures the good value of the credit unions and restores faith in the national insurance system, a system that was brought about by the last Liberal Government. We want to say with some force that we are not all Thatcherites now. There is still a belief in the simplicity and good value of the national insurance system.

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Let us start with the bottom feeders in the murky pond of the financial services industry: debt management companies and non-status lenders. Debt management companies infest daytime television with advertisements that promise that all one's debts can be rolled up into one manageable payment and that, somehow, the burden and anxiety of debt can be magicked away. Debt management companies take on the debts, routinely add 15 per cent. to the total debt and then pocket a whole month's repayments. Then, with one exception—Firstplus is a reasonably efficient firm—they are inefficient when it comes to paying the debts on time. They actually increase the debt and lengthen the period of indebtedness. Even more damaging is the impression they give that, by going along to such a company, debts can be magicked away. That encourages people who are not in serious debt to take on debts in the belief that, if they get into serious trouble, they need only phone the nice people on the television, who will solve all their problems for them.

There is no painless escape from debt. The average adult in Britain is now a record £3,000 in debt, and that figure is growing rapidly. In the past year alone, it has risen by 12 per cent. to a massive £130 billion, and I believe that the activities of debt management companies have played a significant part in that increase. Good advice on debt is available free from citizens advice bureaux or the Foundation for Credit Counselling. Debt management firms say that their job is loan consolidation, but it is not; it is debt multiplication.

The main non-status mortgage provider was once known as the City Mortgage Corporation. It then became Ocwen and is now known as the igroup. Many Members will have spent hours talking about the activities of that body. At least nine years ago, there was a scandal involving the City Mortgage Corporation. It seeks out people who cannot afford mortgages and offers them mortgages, in the almost certain knowledge that the loans will never be paid off. It routinely adds 2 per cent. to the interest rates charged in the high street, and it certainly used to double the interest rate if there were any question of a payment arriving late, or for almost any other reason. Borrowers would rapidly get into serious debt. The company charges enormous fees for its services and for redemption charges, with the result that a loan of £20,000 would increase to £40,000 in a short time, and the house was often lost.

I remember one constituent who was in desperate financial trouble, but he had built his own house and was determined to stay there by hook or by crook. He became involved with that company, eventually lost his beloved house and ended up in serious debt. I thought that the problem had been solved or at least reduced, but I am informed by the CAB that it has increasing evidence of bad practice by non-status companies. New regulations, which have been promised for some time, are due this year, but the wheels of reform grind slowly, often obstructed by the inertia and lobbying power of the companies involved. In one incident, the City Mortgage Corporation had the backing of certain Members and action was taken as a result. I do not want to unearth past scandals, but that incident gives no credit to certain Opposition Members.

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It was not those disreputable companies that contributed to what was probably the worst scandal: personal pensions. It is hard for those who were not Members at the time to realise how we got into the scandal of personal pensions. It was a strange, surreal period. It was not the small companies but the Government and the high street banks who advertised personal pensions. One advertisement showed a person in chains saying, "Escape from the chains of SERPS"—the state earnings-related pension scheme—"to the freedom of your own personal pension." That was part of a £1 million advertising campaign paid for by the Government. An advertisement by the Midland bank said that people should not be SERPS—a SERPS was represented as a oleaginous blob that no one would want to be associated with—when they could get a £5,500 gift from the Government. Another equally misleading advert was made by Barclays bank.

The result of that activity was that unsophisticated people—most people felt thoroughly inadequate in the face of salesmen from the pensions industry—were convinced that they should leave their good-value occupational final salary pensions and plunge into the gamble of personal pensions, which are now proving to be such "good" value. Of those pensions, 40 per cent. were allowed to lapse or were transferred within the first four years; and, given the present annuity rates, those who bought money purchase schemes must be regretting that they took that advice.

I treasure one moment from 1988, when I had the effrontery to criticise the then Prime Minister on her policy on personal pensions. She told to me that, as a socialist, I was obviously against choice. However, it was Hobson's choice for those who took out personal pensions. Many people were pushed into them by firms which employed wicked tactics. For instance, when a company made workers redundant or suffered a major upset, those firms would move in. However, they employed not their own salespeople but former workers—ex-miners or ex-steelworkers who were mates, many of whom knew nothing about pensions except what they learned in a session lasting a couple of hours.

It was those trusted people who sold personal pensions to their pals and family—until they had no friends left. They were employed in selling personal pensions for an average of six months. It was a wicked way to manipulate people, but it was a bonanza for the financial services industry, which greedily and irresponsibly pushed those poor-value pensions. The scandal of the marketing of endowment mortgages proves the scarcity of integrity in the financial services industry.

The Financial Services Authority has confirmed that 60 per cent. of those who responded to its survey said that they were told that their endowment policies were guaranteed to pay off their mortgages; and a further 26 per cent. said that they were told that the policies would "probably" pay off their mortgages. Many people were told that they would receive a nest egg at the end of it; no one can determine what was said by the sales staff, but commission-hungry salesmen will say such things. Few people would risk the gamble of an endowment mortgage that depended on what would happen in the stock markets in 20, 30 or 40 years' time when, most of all, they wanted security in their homes.

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The only people whose interests were being served by the use of endowment mortgages were those who sold them—and it is still going on.

I first raised the issue some four years ago, and I remember being hammered by my local newspaper. The local endowment mortgage sellers got together and denounced me for such terrible scaremongering. I called for a Government inquiry into endowment mortgages in 1998, because millions of people had been sold poor policies and the sellers were more interested in collecting hefty commissions than in selling the most suitable products. I was condemned, and not only by the Newport and Cwmbran Weekly Argus. In August 1999, I said that those who were offered endowment policies should say no, and that they should have nothing to do with them; but on 10 August 1999, the FSA dismissed claims of mis-selling of endowment mortgages, saying that the

Sue Anderson of the Council of Mortgage Lenders said it was not correct to say that endowments were "inappropriate."

On 13 May 2002, the FSA said:

The truth is that almost 6 million have had red or amber warning letters.

The regulator has identified a number of well-known insurance companies that systematically mis-sold endowment policies by mispricing them. One or two firms will be named and shamed. There should be transparency on the matter, and we should be told which companies carried out such sales despite knowing that they were likely to end in tears.

There is a way of finding out about this practice and correcting it. The FSA figures show that only 100,000 people have complained to companies, with approximately one third of complaints being upheld. However, 218,000 policies were redressed when the FSA initiated investigations into companies. It is only right that the FSA should take a more active role to widen the focus of investigation and force more companies to take action.

I was under the impression that sales had collapsed, given all the publicity and the fact that most main high street companies no longer sell endowment mortgages. However, a letter that I received from the Council of Mortgage Lenders states that 10 per cent. of all new mortgages sold in the first quarter of this year were endowments. If the main companies that were the principal sellers have not sold those mortgages, other companies must have vastly increased their sales.

A newspaper report quoted a salesman as saying that he would need to sell 140 stakeholder pensions to earn the commission he gets from selling 14 endowment mortgages. Those who have made profits in the past continue to do so, and some companies seem to be intensifying their activities in selling to ill-informed customers mortgages that will almost certainly fail. I suggest that the most sophisticated of customers would run a mile if someone offered them an endowment these days.

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The next scandal that will emerge will be with general insurance, especially for accident, sickness and unemployment. In the early 1990s, when it was clear that the bonanza days of selling personal pensions were over, there was great excitement about the idea that companies might make a killing by selling accident, sickness and unemployment insurance. The commissions charged on those products are enormous, and they are sold with virtually no controls.

I can give an example of the scandalous practices of some companies in that market. I was visited by a gentleman who had a distinguished career in public service and who went to work as an inspector for the Combined Insurance Company of America, which is very active in this country. He was a man of undoubted integrity and probity, and he was so horrified by what he saw that he came all the way down from the north of England to visit me. I arranged several meetings with the General Insurance Standards Council, the industry regulator, which he attended carrying a huge sheaf of papers. His information showed that appalling corruption was taking place—I use the word "corruption" advisedly. The company is corrupt and is corrupting its staff. It pays no wages, and the staff are so desperate to earn money to pay for their cars and expenses at the end of the week that they are forced to sell hopelessly unsuitable policies, sometimes to people with illnesses, some of which are terminal, that would debar them from claiming benefits from other policies. Life insurance policies have been sold to elderly people who could not possibly benefit from them. Many such cases have been brought before the General Insurance Standards Council.

One anecdote about the company struck me in particular. A gentleman went to work for it armed with a conscience, but found that he was not producing the required volume of work. At a social event, the Europe president of the company, Mr. John E. Johnson, asked three of the 50 managers present to stand up at the end of the meal. One of the three was the gentleman in question. To improve the morale of the staff, he explained to them that he had asked the managers to stand up because he wanted not to embarrass them, but to humiliate them. The average turnover of the company was 400 per cent. a year. Those who went to work for the company were forced to do things that they were ashamed of and that were damaging to them. Such activities create casualties among staff as well as the policyholders. However, it was made clear to them that it was a question of "no deal, no meal".

There are many such cases, and I will not burden the Chamber with all of them. I last heard from the supervisory body some 15 months ago, and I recently got back to it to ask what was being done. There has been a series of meetings to try to correct the excesses of such companies, but I understand that there has been no real improvement.

With-profits policies should be known more accurately as with-losses policies. Some 10 million policyholders hold investments worth £350 billion. Those policies are at the heart of most of the financial scandals of the past two decades. The FSA has a statutory duty to protect consumers, yet it has failed to produce any robust review of the market or to take action to ensure that the millions of consumers who are mis-sold mortgage endowments receive the redress that

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they deserve. I pay tribute to the work of the Consumers Association, which has called for the ring fencing of policyholders' funds to protect them from director and shareholder raids and to ensure that directors have the same legal duty to policyholders as they do to shareholders. It is extraordinary that directors have a fiduciary duty to shareholders, but not to policyholders.

Orphan assets also involve an enormous sum of money—£45 billion—which has accumulated as a result of very low annual payments on policies and the companies' ludicrously pessimistic forecasts. There is no reason why such funds should not be used to assist the casualties of mis-selling and other scandals over recent years. The power that directors and actuaries wield in these spheres has been abused to the detriment of policyholders. The AXA High Court case is an example. If we are to prevent another AXA case, we need new regulations that decree that asset shares should include 90 per cent. of orphan assets. There is little transparency in the business, and in many cases there has been a lack of action from the FSA—although it is a good body that is far better than the ragbag of self-regulating bodies set up by the previous Government in the late 1980s and 1990s, which were absorbed into the industry if they were not already a functioning part of it. I met many of those bodies at various times; they saw themselves as the mouthpiece of the industry.

The incestuous nature of the financial services industry is also disturbing. Many of the staff of the ombudsman's office and the FSA have worked in the industry. There is an identification of interests, and the attitude is, "We are right and everyone else—policyholders, customers, the Government—is outside us and should not interfere with anything we do".

Mr. Hugo Swire (East Devon): Would the hon. Gentleman regard as incestuous the fact that Howard Davies was made chairman of the FSA without much consultation?

Paul Flynn : I have some regard for Howard Davies and I do not want to personalise the issue. However, last August, when Howard Davies was to make an announcement for the FSA, I had an interview with the spokesperson of the Association of British Insurers, a lady who once worked for Her Majesty the Queen. She was a splendid communicator, and it emerged from the conversation that the previous night she had had dinner with Howard Davies. That seemed to me a little close and cosy, if not incestuous. On another occasion I attended a meeting, under Chatham House rules, involving the ombudsman's department, financial journalists, people from the industry and from the Consumers Association. The person from the Consumers Association and I went away feeling angry about the sentiment that had been expressed that Government of any colour should not get involved in such matters because they were not independent. The industry itself was apparently independent.

I heartily agree with the comment made by Colin Brown, the recently appointed chairman of a new body of the FSA, the consumer panel:

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Such views represent an encouraging trend. The consumer panel is doing a splendid job in practising what it preaches. We are moving away from an incestuous situation.

As for the scandal involving the split capital investment trust, another product was advertised as having more safety features than a Volvo—this does not end, but goes on and on. In one case quoted in the press, an unfortunate gentleman from Glasgow invested his nest egg of £12,000 in the scheme in 1974; it was vastly over-sold, with huge commissions and poor returns, and the original sum has now shrunk to £27—not so much safe as a Volvo as dangerous as an old banger.

Colin Brown went on to say that no other industry is like the financial services industry, in which "consumer" is a dirty word, and that there is no real opportunity for the industry to grow up and behave like other industries. Brown and his board are urging the regulator to require companies known to be in financial difficulties to give public warnings much earlier than has happened in past scandals. That would have been valuable in the case of Equitable Life.

There is a great gap in what the regulation provides. It does not provide a completely safe environment for ignorant consumers, which includes the majority of us. The question is how far down the regulations should be brought to help such people and how far up we can bring their awareness. If we create better educated and more skilled financial advisers, we increase the gap between them and their potential customers. The only way forward is to simplify products, because their complexity is one of the main ways of ensuring that the public are bamboozled.

In "Star Trek", which is one of my favourite television programmes, the Ferengi are a dire warning of what the future is likely to be. They are based on a nightmare view of Thatcherism. My right hon. Friend the Member for Hartlepool (Mr. Mandelson) should be shown tapes of the programme so he knows what he is really suggesting. The Ferengi are the likely result if the daughters of financial advisers marry the sons of bankers and breed a generation instilled in their philosophy. They have 250 laws of acquisition, including never cheat a man who is wearing a better suit than you are; treat people in your debt like family; and employees are the rungs on the ladder of success, so step on them. Those laws would not be out of place in the boardrooms of many insurance and banking companies. Two precepts of acquisition—rules 239 and 59—strike a chord. They are: never be afraid to mislabel a product, and free advice is never cheap. The word "integrity" does not occur in the Ferengi language.

The remedy is independent financial advice, which is a matter that I have raised in early-day motions tabled under successive Governments, in 1994, 1997 and 1999. The only way to restore confidence in financial products is to provide advice that is genuinely independent and free from anyone seeking commission or sales. Fifty per cent. of people questioned in a survey carried out by the Consumers Association said that they were not saving because they could not trust advice from anyone. They had learned to distrust independent financial advisers—they are not always independent—banks and insurance companies. The accretion of scandal has convinced them that they should not get involved in anything, so they do nothing, which is bad news.

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The original suggestion in a leaflet produced by the Consumers Association was to establish a body on the lines of citizen advice bureaux that can give competent advice on a simple and a sophisticated level, which may have to be paid for, but which has nothing to do with the financial services industry.

Credit unions, which have had enormous success in Ireland and Canada, should be nurtured. There is a very successful credit union in my constituency, which provides simple banking. It is grassroots based, accessible and understood by everyone. It is entirely transparent and provides the best possible value.

New Labour's favourite think tank, the Institute for Public Policy Research, recently published a splendid report pointing out the virtues of the national insurance system.

Mr. Andrew Love (Edmonton): One conclusion of the IPPR's report was that the retirement age should be increased by one, two or three years to create a decent pension in retirement. Does my hon. Friend support that proposal?

Paul Flynn : With great enthusiasm. I hope that my hon. Friend will write to my constituents when the matter of selection is discussed in a few years' time to say that I am about eight years younger than Her Majesty. Those of us who are now in our late 60s know that we seem young compared with our parents and grandparents at that age. It is cruel nonsense to force people to retire at 60 or any other age.

If we are to clear up the wreckage of the past 20 years, it will be essential to introduce compulsion into pensions. Young people think that they will never grow old and need a pension, but they will. The only way to provide an adequate pension is through a universal and compulsory scheme.

Like all MPs concerned about this issue, I am most alarmed when I see the faces of people who have done everything right in organising their lives, have been prudent and careful in setting aside money for the future, but find to their horror that they have been cheated and robbed by a system that they do not understand. Such people are now looking forward to an old age of anxiety, worry and near poverty. I recall in my mind's eye the face of one such constituent. If I multiply that by a hundred, then by another hundred, I can continue until I see the faces of nearly 10 million people who have been badly treated by the financial services industry. That should lead us to ask about that industry's integrity, and to think about what we can do as politicians to ensure that the people who have suffered receive some compensation. No generation should be robbed in the shameful way that this generation has been.

Several hon. Members rose—

Mr. Deputy Speaker : Order. Six hon. Members have indicated their wish to speak in the debate, but we now have fewer than 25 minutes before the winding-up speeches commence. I hope that hon. Members who are successful in catching my eye will be self-disciplined and understand that others wish to speak after them.

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11.36 am

Mr. Mark Field (Cities of London and Westminster): I congratulate the hon. Member for Newport, West (Paul Flynn) on securing the debate, which I greatly welcome. I suspect that it will be the first of many on the subject. I also take the opportunity in this post-Thatcherite and pre-Ferengi world to congratulate the Chief Secretary to the Treasury on his promotion. He always wears a better suit than I do, so I have little chance of cheating him—but we shall see.

As hon. Members know, I am fortunate enough to represent the City of London, home for much of the financial services industry in this country. Rest assured, however, that I am here neither to praise nor to bury that industry. The hon. Gentleman raised issues that will be debated for a long time to come. However, it is important to differentiate, which the hon. Gentleman failed to do, between imprudent conduct and recklessness or fraud. We should not imply criminal intent to all aspects of failure. It is important also to instil and reinforce a culture whereby transparency, integrity and good business practice are the norm. I accept that that has not always applied to all aspects of the financial services industry. The Financial Services Authority has a tight, perhaps worryingly over-tight, regulatory regime and it is important to ensure the right balance.

A decade or so ago, the subject of pensions aroused little passion. The young did not consider it; single women ignored it; and the main pensions planners were couples over 40. That may be a generalisation, but the public's lack of detailed interest and knowledge left this country's financial services industry in a mess.

I recently listened to an executive from a major pensions company who exhorted that everyone should consider taking out a pension now—not entirely a hard sell, but largely along the lines that the hon. Gentleman suggested. We had to start planning earlier and invest 15 per cent. of our current salaries from our mid-20s onwards towards a retirement pension. No doubt it is something of a farce. The industry has proved itself incompetent to handle the public's money and the mis-selling scandals, including the ongoing disaster of Equitable Life and the mess of annuities, have virtually wrecked public confidence in pension savings. That has rightly been viewed as a potential horror story, and we should devote our collective energies to regaining the public's trust.

The more I speak to younger constituents, the more I realise that they are guided to buy property as the only safe haven for their money in the longer term. If that continues, it has all the hallmarks of a long-term disaster for this country.

I recently sought reactions and advice on the current pension needs from some of my constituents. They comprised what might be called a focus group, although not the most obvious one as they were in Knightsbridge. They made some interesting points. My wife and I worked in the City until I was elected last year, and it is clear that many of us relatively educated folk have little idea of how the pensions industry works. We simply put aside many hundreds of pounds every month, paying

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little thought as to what would arise from it. As someone who has always strongly believed in the idea of business probity and the importance of that within the financial services sector, I was saddened by the individual experiences described by many of my constituents.

It is clear that we have allowed ourselves to be lulled into a false sense of security by the enthusiasm of pension providers and politicians' attempts to ensure that everyone has a good life style in the longer term. The adverse publicity and the reduction in so many of the fund payouts has left the young, and especially people in the lower income brackets, with little confidence in such late life provision. By the same token, more and more employees have little expectation of a job for life and do not expect to have a long-term pension commitment from their employers. In exhorting everyone to try to save properly for their old age, it is up to us as politicians to ensure that as far as possible those savings stay safe and that no one who has saved responsibly should be left impoverished by the failure of the pensions industry.

My namesake, the right hon. Member for Birkenhead (Mr. Field), and the hon. Member for Newport, West spoke persuasively about compulsion. However, only if the pensions industry is made far safer can we possibly contemplate compelling people to put their trust in it. If a law effectively forces us to hand over an unspent surplus of our hard-earned cash to those who are either unqualified or incompetent, there is little incentive for any of us to save. That will lead to another long-term problem.

I appreciate that the proposals to force us to put money away are not yet Government proposals, although many items have been flagged up in the financial press in recent months. Behind them lies an instinctive bossiness and intolerance, as well as a lack of appreciation why so many people fail to make provision for their future. In reality, and again this goes back to the point made by the hon. Gentleman, no amount of new legislation will overcome the fact that many of our fellow countrymen are simply too poor to save adequately for their long-term future.

Mr. Love : In 1988, the Conservative Government took away the right of an employer to make joining a pension scheme a condition of employment. Would the hon. Gentleman like to see that facet of pensions legislation changed?

Mr. Field : It is a valid point. To be fair, I have not conclusively determined where I stand on that. Clearly 14 years ago choice was seen to offer a great advantage. That choice has been something of a two-edged sword at the very best. We must therefore be open-minded about the proposals that are being put forward and are likely to be come into force following the Pickering report.

I have spoken for quite some time. I should like to say more, but other hon. Members want to contribute. I shall be interested to hear what the Chief Secretary has to say. I hope to take part in debates on these matters in the months and years ahead.

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11.44 am

Mr. Barry Gardiner (Brent, North): I am happy to follow the hon. Member for Cities of London and Westminster (Mr. Field). As such I will perhaps be regarded as a tail of two cities. I follow him also in offering my sincere and heartfelt congratulations to the Chief Secretary. His appointment was a great source of joy to many. Indeed, I recall first meeting my right hon. Friend 10 or more years ago when he was shadow Minister with responsibilities for banking. It has been a long and well-merited track upwards.

Today is a pregnant time for the financial services industry. I refer to the expectation with which the market anticipates the Pickering report on pensions, the Inland Revenue's report on pension taxation and Ron Sandler's report on improvements to the long-term savings market. I will return to them later in my remarks if I have time, but I first want to draw the Chief Secretary's attention to a report published last week by RSM Robson Rhodes, which is a leading accounting and actuarial consultancy company.

The report demands a thorough overhaul of corporate governance to prevent an Enron-type collapse of a major corporation in the UK. The Chief Secretary will recall that in two previous debates—on Equitable Life and independent insurance—I urged tighter controls on accounting companies that use the audit function as a loss leader to sell consultancy services to their clients. Prior to Arthur Andersen coming under the spotlight at Enron, many in the Financial Services Authority saw my calls as unwarranted and alarmist, but RSM's report now urges clear restrictions on the consultancy work offered by accountancy firms to clients to which they already provide audit services. It calls further for the combined code on corporate governance to be a compulsory requirement for firms listed on the London stock exchange. Is the Chief Secretary prepared to accept those findings and take action to implement them?

A further recommendation is to raise the present requirement that one sixth of the members of listed companies' boards should be made up of independent directors so that at least half become independent directors. My right hon. Friend will be aware that those recommendations echo the proposals that the New York stock exchange introduced last week to beef up board independence and strengthen the role of the audit committee, giving it sole responsibility for the hiring and firing of auditors. The RSM report points out that we need a corporate governance system that prevents problems starting, rather than one that tries to correct them once they have happened.

That brings us back to Pickering and Sandler and what the public know as endowment mortgages. In fact, those mortgages are a bundling of two things—an interest-only mortgage and, behind it, a with-profits endowment life policy. The policy is set up to repay the capital borrowed to purchase the property when the policy matures. The borrower therefore pays off each month only the interest on the loan coupled with the premium due on his endowment policy.

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That is the theory, but the practice has been somewhat different. I was sent a letter by Mr. Hardgrave, who due to ill health had to remortgage more than 10 years ago. He says:

He goes on to say:

but it gets better. He adds:

What is so disturbing about Mr. Hardgrave's case is that his financial adviser was encouraging a man who was recovering from ill health and who was then aged 61—within four years of the state retirement age—to take out an endowment mortgage over a period as short as 10 years.

I do not know the details of the commission that the adviser received, but I am sure that my right hon. Friend the Chief Secretary will be aware that the first year's payment of premium on such policies is often consumed entirely by commission and administrative costs. It is hard to conceive that Mr. Hardgrave was sold a suitable financial product. Instead of the with-profits windfall of £8,000 that he believed he was promised, he was left with a shortfall of £4,000. How does the industry explain such cases?

How does the industry explain also that it has had to issue red traffic light warnings to 35 per cent. of all endowment policyholders so far reviewed? There is a high risk that their policy will not pay out the target amount at the end of the term. The figure of 35 per cent. of the 6 million endowment policyholders in the UK means that more than 2 million people live in real anxiety about their financial future and the security of their family home. Amber notices to a further 26 per cent. mean that almost 4 million people face a potential shortfall on their mortgage.

The industry tries to explain the project shortfalls as the result of a two-year fall in the equities market. That is nonsense. Before the current downward trend, there was unprecedented growth in equities for 10 years, and the current fall has clawed back only a third of that growth. Where has all the money gone? With-profits policies are precisely intended to smooth out market conditions. Profits made in a rising market are withheld from bonuses precisely to even up bonuses in falling market conditions.

The suspicion is that companies have not withheld profits from bonuses for smoothing purposes, but have withheld them to pass on to shareholders. That is why

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they do not have the resources to make up the shortfall in lean years. That point can be checked, and I urge my right hon. Friend the Chief Secretary to consider launching an investigation into the relative performance of mutuals and plcs in the percentage of policyholders issued with red and amber warning notices. That would need to be done by a year-by-year comparison from when the policy was taken out to show a parity. However, it could easily be done, and would provide compelling evidence of the practice of transferring funds properly due to policyholders over to shareholders.

Mr. Howard Flight (Arundel and South Downs): Many insurance polices were issued by mutuals that do not have shareholders or make profits. Their overall performance is not that different. The view that the money has gone to shareholders is not realistic.

Mr. Gardiner : The hon. Gentleman forestalls what I was about to say. I had anticipated that point and, in the light of his remarks, I caution that the investigation should also examine the transfers that both sectors—mutuals and plcs—have made to their general funds. I do not wish to replay the debate on orphan assets that we held in this Chamber, but my right hon. Friend will recognise the need to ensure that, contrary to the AXA deal, policyholders receive their 90 per cent. entitlement to their company's orphan assets, particularly when they may have been boosted by the retained profits not added to annual bonuses in rising markets. That may account for the parity between mutuals and plcs if, indeed, there is one.

I draw attention to a further absurdity of the market's response to the present endowment mortgage scandal. It says that people should have recognised that they were saving in interest payments because of low interest rates, and they should have used that saving to increase their policy premium payments. That attempts to use the public's confusion about the two elements of an endowment mortgage to cover the industry's own malpractice. It is the same as telling people not to worry about the cost of petrol increasing because the price of bananas has become cheaper.

Mr. Love : My hon. Friend is really getting at the lack of adequate disclosure by pensions companies of exactly how with-profits schemes operate. We must consider carefully, as Sandler needs to, how we can ensure that a policyholder knows exactly what is happening.

Mr. Gardiner : Again, my hon. Friend anticipates exactly the direction of my speech. Low interest rates are neither the cause of nor the solution to the endowment problem. The cause is company and shareholder greed, and a culture of excessive commission for agents. The solution, we hope, will come with the Sandler report, but a minimum requirement is the imposition of transparency about the way in which companies decide on their profit allocation to annual and final bonuses as well as to shareholders and the general fund.

I wanted to speak about polarisation, financial advice bureaux—to which my hon. Friend the Member for Newport, West (Paul Flynn) alluded—and bridging the

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savings gap of £27 billion in our pension projections. Alas, time precludes that, but I congratulate my hon. Friend on securing the debate.

Mr. Deputy Speaker : I seek to be as helpful to hon. Members as I can. If contributions are very brief, and the winding-up speakers are prepared to surrender a moment or two, we may be able to hear two further speakers before the winding-up speeches.

11.56 am

Mr. Hugo Swire (East Devon): I, too, congratulate the Chief Secretary to the Treasury on his position and the hon. Member for Newport, West (Paul Flynn) on securing the debate. He painted a pretty bleak picture, with a fairly broad brush, of the whole industry. Without wishing to turn the debate into a Trekkie convention, I should point out that he omitted to mention, in a speech more than 30 minutes long, that the starship was called the Starship Enterprise. Indeed, enterprise was notably lacking from anything that he said.

It is perhaps worth remembering that financial services remain our most successful export, and London, despite—or should I say in spite of—the euro, is still one of the most important financial markets internationally. That is probably why NASDAQ is seeking to come here to do a deal with the London stock exchange. I caution against over-regulation. I believe in regulation, but with an industry suffering from over-regulation, we should proceed with extreme caution.

The integrity of the financial industry has been called into question—rightly or wrongly—on a number of key issues. Like many hon. Members—I doubt whether there is an exception in the Chamber this morning—I have received much correspondence about Equitable Life. I note that my colleagues were successful in securing a change of heart from the parliamentary ombudsman about his original decision not to investigate Equitable Life cases following claims of maladministration. However, Equitable Life has been raised on other occasions, including in debates secured by my hon. Friends, so I shall concentrate on two other key issues if I have time.

The most important issue is endowment mortgages. According to the Association of British Insurers, 6 million homeowners with such mortgages may not now be able to pay off their mortgage loans in full with the proceeds of their endowment insurance policies. As we have heard, the proportion of those with endowment mortgages who face that problem has risen from 46 to more than 60 per cent. in the past two years.

In the recent past, when inflation and nominal interest rates were higher, endowment policies typically provided an attractive savings route to repay mortgage loans. Nominal interest rates on mortgage loans were much higher, effectively compensating lenders for the decline in real terms in the outstanding loan. Similarly, the nominal returns on endowment insurance policies were higher, reflecting higher nominal interest rates earned by the insurance companies, and the tendency for equity markets to rise in nominal terms following the nominal increase in company profits resulting from inflation. That has ended over the past decade, however, because of the climate of low inflation that has been in

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place since the early 1990s. On the one hand, nominal interest rates on mortgage loans have fallen, but on the other, the nominal returns on endowment insurance policies have also fallen.

The Financial Services Authority is investigating the extent to which insurance companies and others who advise on and sell endowment-linked mortgages mis-sold policies. It is focusing particularly on situations in which consumers were advised that their stock market-linked endowments were, effectively, guaranteed to pay off their mortgages. Three United Kingdom life insurers have already been fined over endowment mortgage mis-selling, and the insurance industry has set aside £325 million for endowment-related redress.

It is not for me to say whether the mis-selling of endowments took place, but the FSA has made it clear that it does not intend to launch a formal review of endowment mortgages. It has also advised that it has no evidence of widespread mis-selling, notwithstanding the escalation of problems with endowment mortgages over the past year. I would therefore be grateful if the Chief Secretary could confirm whether the Government intend to launch such an inquiry.

For its part, the Association of British Insurers does not accept that widespread mis-selling took place, and argues that the main issue is the fall in nominal investment returns. Millions of endowment policies must grow by at least 8 per cent. per annum for the mortgage to be fully repaid. Although that was widely accepted as a realistic and likely prospect in the recent past, it is simply not likely in present economic and stock market conditions. Those involved must clearly tread a delicate line. On the one hand, consumers must take responsibility for their financial decisions, and the principle of buyer beware is embodied in the Financial Services and Markets Act 2000. On the other hand, there is the issue of mis-selling.

I do not have time to refer to split capital investment trusts, or splits. I should say, however, that the bottom line in the case of endowments and splits is that while none of us can control what happens in the markets, none of us would condone malpractice. The task is, therefore, to root out malpractice and to provide consumers with the reassurance that they will receive fair redress should their case merit it.

Several hon. Members rose—

Miss Anne Begg (in the Chair): Order. I realise that several hon. Members still want to speak, but it is now two minutes past 12, so we shall move on to the summings-up.

12.2 pm

Dr. Vincent Cable (Twickenham): I, too, congratulate the hon. Member for Newport, West (Paul Flynn) and the Chief Secretary, whom I first encountered a few years ago, when he was a very junior Minister. He took on an extremely complicated adoption case of mine, and I am pleased to say that he overruled his officials. I hope that he maintains that independence of mind in the Treasury, where it is badly needed.

The key issue is that we are dealing not with scattered scandals, but with a systemic problem. The Financial Times—the newspaper of the City—talked about a toxic

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legacy of mis-selling, while the chairman of the Financial Services Authority recently talked about the disgrace of the financial services industry. Those are strong words.

There has now been a cumulative loss of basic trust in financial products, which is important not only for customers, but for the Government. We have a savings gap of £27 billion a year, which will not be filled unless financial products can be sold, and that requires trust.

The hon. Member for Cities of London and Westminster (Mr. Field) made a distinction between crooks—the Maxwell, BCCI-type problem—and honest failure. There is, however, something in between. It is not crooked behaviour or honest failure, but sharp practice. A common element in many of the scandals is the prevalence of sharp practice and the industry's inability to get on top of it.

The pensions mis-selling scandal has largely been dealt with through compensation, but I hope that the Government will produce an evaluation of what has been achieved, because this is a Government, not an FSA issue. My concern is about who paid the £15 billion restitution. We know from Sandler and others that there is a lack of control over funds in the with-profits industry, so I suspect that much of the restitution was paid not by shareholders but by other policyholders. We need a thorough evaluation of how that exercise panned out.

We need to distinguish between the different types of mis-selling that occurred in relation to endowments. There was that by people who claimed that there was a guarantee when there was not one, and the mis-selling to people who were told that they could not have a mortgage unless they had an endowment with it. There is nothing inherently wrong with endowment mortgages; that point has not been made. I paid off my mortgage three or four years ago and received quite a large bonus on the back of the endowment that was linked to it. A number of people have had favourable experiences. However, the point is that when the market began to turn sour, the industry, which had pocketed its commissions, did not exercise a duty of care. That is not mis-selling, but it is a form of negligence. There is a responsibility involved. As interest rates fell, people with endowments became better off; they were not losing money. Somebody needed to tell them then to put money aside to compensate for the lack of value of the endowment. Nobody did, and that was the failure in the system.

We must ask whether the scope of the FSA inquiry is sufficient; it seems to have been drawn very narrowly, especially compared with that for pension mis-selling. If the FSA is not willing to look at the matter more comprehensively, are the Government? The second question, which is asked less often, is whether there was a regulatory failure. This happened pre-FSA. I suspect that the regulator was within the old structure. Did somebody in the regulatory system fail to alert the industry to the fact that customers needed to be warned to save more? Thirdly, two serious things seem to have happened in the small but important split trusts segment of the market. There has been extreme mis-selling. Customers were sold what were presented as very low-risk investments but were nothing of the kind. The other thing, not mis-selling but probably more serious, was

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the collusion between the so-called magic circle of companies, which were investing in each other's operations to create what was known as exponential risk. That highly irresponsible and dangerous behaviour produced a subsequent collapse and a large-scale loss of savings. The splits issue is important because it is a test of the FSA's credibility. Is it willing to insist on full restitution and to get to the bottom of what seems to have been serious market abuse?

I hope that the Minister will touch briefly on the failure of professional self-regulation, which has been exposed by recent events. The Equitable Life scandal revealed that we had actuaries who could not count and auditors who were blind and deaf. The worst thing about the Equitable Life situation was the conduct of the auditors, Ernst and Young. To the credit of the accountancy profession, it has recently shown signs of being willing to make radical changes to improve its performance. However, the ultimate responsibility is the Government's. The Department of Trade and Industry rather than the Treasury should insist on changes in audit practice to prevent that kind of thing from happening again.

Finally, nobody has mentioned an issue that is central to a discussion about lack of confidence in the financial system: the role of the banks. I mention this because it is a responsibility of the Government rather than of the FSA. As I always ask in debates on financial services, where is the follow-up to the Cruickshank report? The Government accepted that report, which suggested that there were very large "excess profits" in the banking system at the expense of personal customers, and promised us a payment regulator. That has not happened. Where is it?

A few months ago, the Chancellor presented to the House of Commons the report of the competition authorities on business lending. The Chancellor was very tough. He wanted full implementation. We discovered this morning that the banks are not implementing his instructions. Interest on deposits, which was due to be paid from the beginning of June, will not be paid—the banks are withholding it at a cost of £500 million a year to small businesses. Will the Government force through the competition authorities' recommendation? The banks are cocking a snook at the Government and the competition authorities and something should be done. Will the Government do anything about it?

Mr. Gardiner : The hon. Gentleman refers to the debate that took place on the Floor of the House. He will remember my intervention on my right hon. Friend the Chancellor on that occasion, when I asked him whether he would use the threat of a windfall tax if the banks did not comply with the recommendations. Would the hon. Gentleman support that measure?

Dr. Cable : I thought at the time that that would be excessive, but it is now beginning to seem necessary, in order to show the seriousness of the problem.

In the last minute of my speech I shall make some specific points that I hope the Government will follow up. I would like to talk about consumer protection, for which the FSA has responsibility and which it is now taking seriously. If the Minister has been following the

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debates on the Enterprise Bill, he will know that both Opposition parties, together with Labour Back Benchers, are urging the inclusion of a duty to trade fairly in the context of legislation affecting financial institutions that come under the Department of Trade and Industry rather than the FSA, which relates to issues such as consumer debt. Such a duty is an important omission from the Bill and I hope that the Government will address that.

The hon. Member for Newport, West and I—and, I think, the hon. Member for Brent, North (Mr. Gardiner)—have made the suggestion in the past that there should be some kind of pro bono system of financial advice. Confidence in financial advice has collapsed and the industry needs to find a totally independent system of advice that is not linked to commission. The Government might want to promote that.

Finally, as a result of that collapse of confidence, the Government will have to take responsibility for the production of more regulated products with CAT standards. We currently have individual savings accounts and stakeholder pensions produced to such standards and I fear that many other products will have to be launched in that way in order to preserve minimum confidence in the financial system.

12.11 pm

Mr. Howard Flight (Arundel and South Downs): I have a great liking for the hon. Member for Newport, West (Paul Flynn), but I was disappointed by his speech and felt that much of what he said was not as responsible as it might have been. I was personally offended as—I declare an interest—I worked in the financial services industry for 30 years, building an investment management business of which I am still non-executive chairman. With transparent products such as unit trusts and open-ended funds investors know what is happening and—dare I say—most of the clients that we built up during 20 years were pretty satisfied with our service.

The fundamental issue is that all financial assets carry risk. If one keeps one's money in cash and inflation is rising, its real value can disappear—it is not safe. If one invests in equities, one incurs the risk of the stock markets. As the hon. Member for Twickenham (Dr. Cable) said, between 1980 and 2000 everyone was in the main extremely happy. Their endowment policies more than paid off their mortgages and bonuses paid out by with-profit bonds were high. They were probably too high, and that was partly because of regulations about the extent to which reserves can be built up.

Let us consider the matter another way. From 1945 until 1985, people who, on Government advice, bought gilts lost 90 per cent. of the real value of their money. Inflation eroded it and rising interest rates killed prices. The idea that everyone in the financial services industry is a cheating robber whereas the Government are wonderful and have all the solutions, as we heard from the hon. Member for Newport, West, is not fair. Risk is in the nature of financial markets.

Pensions were the great success of this country between 1950 and the 1990s. Not only were huge amounts—£800 billion or so—built up, but 65 per cent. of the population had some form of private sector

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pension saving. That was much more than anywhere else—even in America, the figure was only about 47 per cent. The huge taxes on employment to pay for state pay-as-you-go earnings-related pensions meant that continental European economies suffered from poor economic growth. They also suffered from capital outflows because they were bad places in which to invest.

Regrettably, occupational final salary schemes are in crisis, in part because the Chancellor thought that he could extract £5 billion a year from them. I remember him saying that stock markets would go up and that everything would be wonderful. When stock markets go down, the problem is unleashed. Not surprisingly in many ways, companies are increasingly unwilling to take the open-ended risks of having to fund final salary schemes, so they are closing them like fury.

Even money purchase pension schemes are affected. The issue of what pension people will receive, including stakeholders, will in part depend on the performance of financial markets and in part on inflation. A major problem for the generation approaching retirement is that the cost of annuities has more than doubled in the past decade, which has been the result of not only lower inflation, but a significant fall in real interest rates.

Mr. Gardiner : Does the hon. Gentleman accept that the companies that are closing their final salary schemes are, in many instances, the same companies that took superannuation holidays during the past 10 or 15 years? That has left those schemes underfunded to pay the final salaries that they were supposed to meet.

Mr. Flight : No, I do not. Obviously, that applies to some large established firms, but I am aware of many firms that did not take pension holidays, especially in the middle bracket. The hon. Gentleman will know the rules about the extent to which pension funds can be overfunded anyway, which has been a limitation, as the right hon. Member for Birkenhead (Mr. Field) pointed out.

As stakeholders move, along with everyone else, to money purchase schemes and the obligation to buy an annuity, my great worry is that we are in a period of low inflation. The guaranteed annuities one buys reflect that, with a low nominal as well as a low real interest rate. If inflation rises significantly over the next decade, as is perfectly possible, people who lock into schemes today will be screwed. Will the hon. Member for Newport, West blame the Government for forcing people to buy annuities? If that happens, it will be the result of many factors. People object to compulsion on the issue because they fundamentally know that there is huge risk in buying a guaranteed annuity when interest rates are extremely low.

Given what we have heard today, it might be surprising to know that the overwhelming majority of independent surveys show the clients of financial advisers to be quite satisfied with their services. The average income of independent financial advisers is about £25,000 a year. It is not a fat-cat profession, so it is unlike the great and good circles of large companies. There is no substantiation for the simple argument that the problem is excessive commissions and overpayments. Commissions are an issue, but there is no evidence for a rip-off argument that shows that financial advisers grow hugely wealthy on the back of them.

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The problem with Equitable Life was about guaranteed annuities. It was about the Treasury in 1998 endorsing the mistaken decision of Equitable Life to believe that the law enabled it to force the owners of guaranteed annuities to pay the costs. When the House of Lords rejected that, trouble resulted. I remind hon. Members that Equitable Life was a mutual. Like a credit union, it was ultimately owned by its members. Credit unions are jolly useful when they work, but there are many problems with them. A great number of them are insolvent. One cannot think that they will be the solution to all our problems, given that standards of management are often not satisfactory, to be candid.

Regulation has been in place since 1986 to try to address the problems, and standards have risen in that time. There are now major problems, which largely reflect markets, and more transparency is needed. There is especially a further need to reform the insurance industry. However, talking about the financial services industry as if it is a load of cheating robbers does no good. We should be diagnosing and solving the problems; but we should remember that there will always be risk in all forms of financial investment.

12.19 pm

The Chief Secretary to the Treasury (Mr. Paul Boateng) : There can be no better first outing for an incoming Chief Secretary to the Treasury than to appear in Westminster Hall, with so many experts speaking on a subject that is of interest not only to our constituents, some of whom have suffered as a result of failings in integrity of the financial services industry, but to everyone. It is an important subject. In the generality of things, UK plc stands to benefit from a financial services industry that is perceived to have integrity, because the economy and the nation are better able to gain from all that it has to offer. I am grateful for all the kind things that have been said today—and, in the case of the hon. Member for Arundel and South Downs (Mr. Flight), what was put in writing prior to the debate.

The market for financial advice is complex, and reform is required on both sides. On the demand side, we need educated consumers who are capable of making informed decisions on the products that are right for them. On the supply side, we need appropriate incentives for financial advisers, we need to extend the market in advice so that more people can benefit, and we need products that people can understand. That plea has been made by a number of hon. Members.

I am enormously grateful to my hon. Friend the Member for Newport, West (Paul Flynn) for sharing his experience of the financial services industry, and for giving us the opportunity to debate the subject. While my hon. Friend was speaking, I looked round the Chamber, and it seemed that apart from your distinguished predecessor in the Chair this morning, Miss Begg, whose memory and parliamentary longevity are positively elephantine, I was the only Member to have heard my hon. Friend put his question to the former Prime Minister, Baroness Thatcher. I remember that her answer was indeed to describe him as a socialist, which was her usual response to those who asked difficult questions. My hon. Friend has borne that as a badge of honour ever since.

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My hon. Friend was good enough to recognise that the establishment of the Financial Services Authority signalled an end to the confusion caused by the overlapping agencies that presided over the scandals of the 1980s and 1990s. Indeed, the excellent chairmanship of Sir Howard Davies has strengthened the authority. We have gone beyond what my hon. Friend described as a ragbag; we are now in a different position, and it is important that we should recognise the positive even as we debate the negative. We should remember that there are people in the financial services industry who possess integrity and who are concerned about the welfare of those to whom they sell products. We need to achieve a balance in the debate, because we want to ensure a successful industry. I hope that no one will take that as a sign that I have gone over to the Ferengi. I rather lost interest in "Star Trek" when Lieutenant Uhuru was subject to a compulsory redundancy: when she went, so did I. I have no doubt that lessons can be learned from the Ferengi—and my hon. Friend shared them with us.

Enhancing consumer education and increasing consumer understanding are essential components of our effort to offer appropriate protection for consumers and to enhance the efficiency of the financial services market. The FSA has a statutory duty to promote understanding of the financial system. It should aim to provide individuals with the knowledge, the aptitude and the skills to become effective consumers. It is working with schools to start financial education earlier, and it publishes a range of information on financial products in easy-to-understand flow charts and comparative tables. That is important.

Pension mis-selling and mortgage endowments have been identified during the debate as areas of concern. In each case, responsibility for the detailed operation of the regulatory system properly lies with the FSA while the Treasury retains responsibility for the overall framework. I or my hon. Friends the Paymaster General and Financial Secretary to the Treasury, who have day-to-day responsibility for these matters, will write to hon. Members in response to the specific questions that they have raised, but I shall make a few short points in the time that I have available.

I shall deal first with mortgage endowments. The Government have been successful in achieving low, stable inflation, the wider benefits of which include, for many borrowers, welcome reductions in monthly mortgage payments as the interest element has fallen. However, low inflation has also resulted in lower cash returns on investments, so, in some instances, the return on an endowment, in cash terms, may not be sufficient to cover the outstanding mortgage at the end of the term. We must recognise that that down side puts the issue of mortgage endowments into a different category from pension mis-selling, and so it requires a different response.

The role of the FSA is to regulate advice and sales of investments to protect consumers and help them make informed decisions. Clearly, it has a responsibility to regulate endowments. In his letter of 5 June to the Consumers Association, Sir Howard Davies referred to the FSA's overall strategy in that regard. I commend that letter to hon. Members as a sign of the welcome work that the FSA will be doing in this area.

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Pension mis-selling is a scandal that still reverberates around the industry. No one should be in any doubt that there is much to learn from what has occurred. Two million cases of pension mis-selling have been examined, and offers of redress totalling £9 billion have been made in more than 1 million cases. The FSA has paid particular attention to laggard firms which have not given the review the priority that it deserves. They should be in no doubt about the FSA's determination to deal with them. Regulators have not been soft on the industry—far from it. Almost 350 firms have already been disciplined over pension mis-selling, with fines approaching £10 million. Most recently, in May this year, an IFA firm was fined £120,000 for serious failures in conducting the review. That is very different from the issue of mortgage endowments. The FSA published guidance to firms last year to ensure a consistent approach to their handling of mortgage endowment complaints.

The FSA has the right strategy. It must strike a balance between informing consumers, so that they can take the right decisions, and ensuring that firms do the right thing. Such an approach is also important in relation to accident, sickness and unemployment cover, to which some hon. Members have referred. In 1999, the last year of the independent Insurance Ombudsman Bureau, that office handled more than 450 complaints, 10 per cent. of the total of 4,645 complaints about payment protection policies linked to unemployment and sickness. It is interesting that only 12 of those complaints related to the selling process, so it is important to understand the distinction between the three different areas.

The right balance has now been struck and, learning from the past, we can build a more efficient system with proper processes in place for consumer protection and redress. The role of Members in highlighting those issues, as we have done during the debate, is an important contribution to that process. I and my colleagues in the Treasury will continue to listen and to respond with care to hon. Members' points, because we must learn and ensure that the market responds in the right way. We must do that if we are to do something about our constituents' concerns and about the terrible looks on their faces when they describe the impact on their lives of some of the scandals. We are determined to get to the bottom of such scandals and to improve the situation, because everyone should have confidence and trust in our financial services industry.

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