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HOUSE OF COMMONS
The hon. Member for Roxburgh and Berwickshire, representing the House of Commons Commission was asked—
Air Travel
53. Mr. Anthony Steen (Totnes): If he will make a statement on arrangements made between the Transport Office and the House of Commons Commission in relation to the purchase price of airline tickets. [65353]
Mr. Archy Kirkwood (on behalf of the House of Commons Commission): The Travel Office is contractually obliged to offer its customers advice on best fare availability. To maximise value for money to the House, there is an agreement between the House and British Airways on special fares booked through the Travel Office for group travel on official business. Following the withdrawal of agency commissions by British Airways, however, a modest transaction charge has been levied on British Airways tickets purchased from the Travel Office to avoid subsidising private travel from public funds.
Mr. Steen: Is the House aware that, every time anybody buys such a ticket from the Travel Office, they pay a 5 per cent. surcharge? If a Member is travelling on official or parliamentary business, that 5 per cent. surcharge is paid for by the taxpayer. On purchases from any airline other than British Airways, the travel agent's commission is paid for out of the ticket price, but British Airways levies a surcharge.
Why should the taxpayer pay that surcharge because the House flies British Airways? I am a great supporter of British Airways, as we all are, but why should the taxpayer pay that extra 5 per cent? Does the hon. Gentleman agree that, until that surcharge is lifted, we should fly with any airline other than British Airways, because it is cheaper for the taxpayer?
Mr. Kirkwood: The Travel Office is there for the convenience of the House. It is there predominantly so that Members—including members of Select Committees—and Officers of the House can travel on official visits using public funds. Because of the way the Travel Office is financed, however, if the 5 per cent. transaction charge were not levied, the taxpayer would, in effect, be providing a subsidy to private users of the office. I would say to the hon. Member for Totnes (Mr. Steen), however, that these matters are always under consideration, and if other airlines can provide similar value for money and equal flexibility of service, any bid from such an airline could be considered in due course.
Retail Savings (Sandler Review)
3.30 pm
The Financial Secretary to the Treasury (Ruth Kelly): With permission, Mr. Speaker, I shall make a statement about the Sandler review, published this morning, and the Government's preliminary reactions to it.
Twelve months ago, the Government asked Ron Sandler to review the market for medium and long-term retail savings, and I am extremely grateful to him for his work in producing the report. The remit of the review was
- "to identify the competitive forces and incentives that drive the industries concerned, in particular in relation to their approaches to investment, and, where necessary, to suggest policy responses to ensure that consumers are well served. It will look at the applicability of the principles of investment proposed by the Myners review of Institutional Investment."
The review proposes a set of simple, safer investment products that it calls "stakeholder products". Those products would have a strict cap on charges, restrictions on investment profile and the ability to exit easily on reasonable terms. As regulation would be built into the products themselves, firms would be allowed to sell them through a streamlined system of sales regulation. That would make it profitable for providers and distributors to sell to a wider range of less-well-off people; it would encourage people to save.
The review shows how the sales process for investment products can be costly and time consuming, disenfranchising many on low and middle incomes from investment that would benefit them. Shifting the burden of regulation from the sales process to the products themselves for products aimed at the smaller investor would help to improve access to saving without sacrificing consumer protection.
For people with more sophisticated investments, more complicated products may of course still be appropriate. Those products would not replace, but complement, the existing market, and for many products, the current regulatory approach should remain.
Building on the review's suggestions, we shall be consulting consumer representatives, the industry and the Financial Services Authority on those stakeholder products and their design. We shall be working closely with the FSA, which will separately want to consult on the regime for their sale.
I should stress that seeing the value in simpler products with simpler sales regulation does not mean that we do not value financial advice. On the contrary—the review presents a challenge for the industry and others to think radically about how they provide advice. Advice is too often understood as an adjunct to a sale, not something valued in its own right. As a result, it is perceived as
costly, time-consuming and inaccessible to those on low incomes, but it simply is not the case that only the wealthy need or would benefit from advice.The review's proposals ought to make it possible for the industry to offer to the mass market good-quality, high-level advice that helps people to understand their financial needs and the products that can meet them as a complement to the sale of stakeholder products. I look forward to the industry's response.
Those on lower incomes also have a need for financial advice. Citizens advice bureaux and other money advice centres across the country offer good-quality, impartial advice to many people in financial difficulty. People have argued that their remit should cover financial advice more generally. I am pleased to say that the FSA has offered to fund research into extending the role that those organisations might be able to play. I welcome that, and look forward to seeing the results.
The review proposes reform to with-profits policies, and describes an "ideal model" of with-profits policy. It would still allow the smoothing features that so many investors have found valuable, but it would be transparent, allowing investors to understand and choose the policy that is best for their needs. It would also clearly separate out the policyholders' and shareholders' interests that are currently intertwined in the dominant 90/10 model.
The review does not propose that every aspect of the ideal model should be mandatory, except for a with- profits policy sold as part of the stakeholder suite of products, but it does suggest that much of the transparency of the ideal model could be brought to existing with-profits policies.
With-profits policies are a huge feature of the British savings landscape. Many people have valued, and will continue to value, the ability to smooth out investment returns, so change in this market cannot come over night, but with-profits policies do need to change. Indeed, the FSA and the industry have begun this process already in their recent work. The review has proposed a balanced approach that I believe represents an opportunity to move to a new, stable future for the with-profits market. The FSA will be consulting on the review's proposals on with-profits, which build on its earlier work, as part of its continuing consultations on with-profits.
The review strongly supports the FSA's proposals to reform the market for the distribution of investment products. It also has some specific recommendations about the way in which independent financial advisers should be remunerated.
It will be for the FSA to consider the review's recommendations as part of its own consultations on reforming the "polarisation" system, but they have the potential to bring big benefits of increased choice for the majority of consumers currently investing through the "tied" channels, which offer the products of only one provider.
The review proposes an increased and ring-fenced consumer education budget for the FSA and better co-ordination of the Government's work for financial education. The FSA has welcomed this suggestion, and will consult on whether to increase its consumer education budget. The Treasury meanwhile has already begun work to co-ordinate the Whitehall effort devoted to financial education.
Clearly, many consumers find the retail savings market complex and hard to understand. One answer to that is to simplify the market, but the essential complement to simplification is to create better financial knowledge and awareness among consumers.
The review proposes a set of investment principles for providers of retail investment products, which builds on the approach taken in the Myners review. It proposes that disclosure should in most cases be voluntary. The Government agree that disclosure should help to produce a more transparent, better-informed and hence more competitive market. We will be taking that proposal forward in consultation with consumer representatives, the industry and the FSA.
Finally, the review contains a broad-ranging analysis of the impact of the taxation system on the savings industry, and urges that the system be as simple as possible. It makes a number of proposals on specific current tax rules, which include abolishing qualifying life policies and the 5 per cent. tax deferred withdrawal rule for life insurance policies; equalising treatment with respect to exemptions from VAT on fund management fees; simplifying the pensions tax regime; and considering changing the rules for individual pension accounts and others.
We shall consider the review's proposals on tax as part of the Budget process in the usual way. In so far as Ron Sandler's proposals relate to pension saving, they will also be taken forward in the context of the Government's proposals on pensions, which we will set out in the autumn. The Government believe that Ron Sandler has tackled long-standing concerns about with-profits policies, and has given the industry the opportunity to draw a line under the problems of the past and to build a new, stable future for with-profits.
We believe that Ron Sandler has produced proposals that have the potential to produce a simpler, more transparent and more competitive retail investment industry. His proposed stakeholder products will be easier for people to understand, and viable to sell to a wider range of less-well-off people. That can only help to meet our ambition to raise the level of long-term saving.
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