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Ruth Kelly: I thank my hon. Friend for his comments. As Ron Sandler correctly indicates, the advice process has increasingly disenfranchised low and middle-income consumers, because it is geared towards the regulatory structure and the tax treatment of individual pension and life insurance products, rather than the real pension needs of individuals. The report offers a major opportunity for the industry to fill that gap and I look forward to working with the Treasury Committee and others in the House who are interested in the serious proposals contained in the report, to see how we can take the agenda forward.

Dr. Vincent Cable (Twickenham): I welcome the thorough review, the statement and the practical proposals on low-income saving. Do the Government agree with the hard-hitting assessment that Sandler makes of the industry as opaque, uncompetitive, characterised by commission- driven selling, and—as the Consumers Association put it this morning—full of bad products and bad advice? How will the Government address the 20 per cent. savings gap? The industry cannot fill it; Sandler says that tax incentives should not be used; and the Government do not wish to use compulsion, so what options are available to fill the savings gap—and have the Government set the targets to do it?

I welcome the pilot studies for offering financial advice through the citizens advice bureaux, which is a very good initiative. However, do the Government not feel that that

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is something that the industry should part-fund in order to restore confidence in financial advice? What we need now is the nationwide availability of pro bono—or very low cost—advice for the benefit particularly of low-income consumers.

What further action do the Government propose to take to restore consumer confidence by removing the toxic legacy of past mis-selling? Specifically, when will they announce the conclusions of the Penrose review of the Equitable Life affair? When will the Government make a statement on the new rules governing orphan assets, because many policyholders fear that their assets could be expropriated by shareholders under the current rules? We know that there will not be a full review of endowment policy mis-selling, but does the Financial Secretary intend to take the advice of the Consumers Association that there should at least be a naming and shaming of the companies in the industry that were primarily responsible?

Ruth Kelly: I thank the hon. Gentleman for his serious, considered and detailed response to the significant and interesting questions laid out in the report. Ron Sandler has set out a compelling vision for the future of the savings industry. I agree with the hon. Gentleman that we must take consumer needs seriously, and ensure that products are available that meet those needs and that consumers can buy those products without the morass of regulation and opacity that currently afflicts the market.

I welcome the hon. Gentleman's support for the pilot projects and the attempt to find a way for advice to get through to the mass market. We will work with the citizens advice bureaux, the FSA and others in the industry to ensure that in the future it serves the needs of individual consumers. On the issue of orphan assets, a new with-profits ideal model will form part of Ron Sandler's suite of new stakeholder products, which will be simple, transparent, easy to understand and will have appropriate incentives that separate investors from shareholders. I am sure that the hon. Gentleman will welcome those proposals.

We need to ensure that we make it easy, simple and efficient for people to buy good-quality, long-term financial products. The report is part of that picture. On Thursday, with your agreement, Mr. Speaker, my right hon. Friend the Secretary of State for Work and Pensions will make a statement on the Pickering report and the future of regulations on the pensions industry. In the autumn, we shall set out our proposals on how to take those matters forward. The Sandler report is a serious attempt to analyse the state of the long-term retail savings industry, and I am grateful to the hon. Gentleman for his serious and considered remarks.

Mr. George Mudie (Leeds, East): Does my hon. Friend agree that the public will be horrified by the approach of the shadow Chancellor to this important matter, when millions—[Interruption.] The right hon. and learned Member for Folkestone and Hythe laughs, but millions of people who face an uncertain and poorer future will be appalled by his petty political approach. The shadow Chancellor is a disgrace on this subject and people will take no comfort from that fact.

Will my hon. Friend the Financial Secretary have another look at financial advice? I notice that the report and my hon. Friend seem to back the polarisation

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proposals made by the FSA, but will those proposals really encourage the lower-paid to seek financial advice and to make investments? Will my hon. Friend consider the provision of free independent financial advice on the high street—perhaps by using the law centre model or as a financial arm of the CAB?

Ruth Kelly: I thank my hon. Friend for those proposals; it is indeed vital that we take the needs of consumers seriously. At present, the industry is skewed towards providing costly advice for a small minority of the market where the choice is between a highly regulated set of products with different tax treatments that are hard to compare; indeed, as Sandler points out, it is hard to compare their underlying investment performance—never mind anything else. The report sets out a vision in which there is a highly regulated simple set of products—the products, rather than the advice process, are regulated. However, we clearly need to complement that set of products with a mass-market advice regime tailored towards the needs of ordinary people who do not need to take advice about complex tax planning and tax treatment. We shall work with the CAB and the industry to find the best way of promoting a new market for financial advice.

Mr. Andrew Tyrie (Chichester): Mr. Sandler makes it clear that small savers are heavily disadvantaged by the cost of what the hon. Lady described a moment ago as the morass of regulation that has come with the introduction of the huge leviathan of the FSA. Within two years of the introduction of that system—billed by the Government as essential for the protection of small savers—an independent review concluded that we need to bypass the whole body of regulations that were created because they had become prohibitively costly. Is that not a massive and savage indictment of the whole structure of regulation that the Government introduced with the FSA?

Ruth Kelly: As I understand it, the hon. Gentleman was actually advising the right hon. and learned Member for Rushcliffe (Mr. Clarke) when he set up the conduct-of-business regime that surrounds these products. The problem is that the Conservative Government did not implement that regime; it took the Labour Government to set up the pensions mis-selling review, to make sure that £11.5 billion was refunded to consumers who had been sold products inappropriately. Of course, we must now examine alternative ways of providing access to that market, but we were not prepared to preside over the mis-selling of pensions to hundreds of thousands of consumers.

Kali Mountford (Colne Valley): Although clarity, transparency and simplicity may be welcome in the market, may I suggest to my hon. Friend that robust regulation is equally needed? If we expect hard-working constituents to invest in savings, should they not have surety that their money will not be mis-spent, misplaced or lost as a result of incompetence in the industry? Is it not the case that we need regulations and that they must be robust?

Ruth Kelly: My hon. Friend is absolutely right: safeguards need to be built into the system. Ron Sandler proposes to replace a very complex advice regime with a simpler suite of products in which the product, rather than

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the sales process, which effectively disenfranchised hundreds of thousands of people, is regulated. A strict cap on charges and an extremely low exit penalty for consumers who change their minds have been proposed, and consumers will have access to the financial services ombudsman and to the financial services compensation scheme if anything goes wrong. Safeguards are therefore built into the process. It is important to put the consumer first, and that is what Ron Sandler is doing in the report.

Mr. John Greenway (Ryedale): Is not the real conclusion of Sandler that regulation has failed massively? It is all very well to say that the sales process has rightly removed disreputable elements from the industry, but the fact is that the many millions of people who received advice from, for example, the industrial life offices now no longer receive advice because regulation has put all those offices out of business. The hon. Lady and the Sandler report have made the right analysis, but only time will tell whether they have reached the right conclusions about the solution. It is all right to say that we will now regulate by product, but she should think carefully so that the regime she puts in place ensures that people buy suitable products. Without suitability, we will have another mis-selling scandal in the years ahead.

Ruth Kelly: I am very pleased that the hon. Gentleman concentrated on the details of the report. I do not share his conclusions. Although I agree that simplification on the regulatory, tax and advice fronts is the answer to many of the issues, we must ensure that consumers are properly protected. I advise the hon. Gentleman to read the report, because Ron Sandler's proposals are designed to make sure that the suite of stakeholder products that he sets out are accompanied by a set of questions that are asked of individuals before they buy products. The questions distinctly point out any risk that may exist, and they will point someone away from a product if it is not suitable for that customer. I suggest that the hon. Gentleman reads the report.

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