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TREASURY
Financial Services
The Chief Secretary to the Treasury (Mr. Paul Boateng): I can now announce that legislation to bring mortgages and the selling of general insurance within the scope of Financial Services Authority (FSA) regulation will be laid before Parliament today. This follows extensive consultation with interested parties including consumer groups and the industry.
Regulation will provide major benefits to UK consumers in two large and important markets. Each year UK consumers pay £26.4bn of general insurance premiums and take £219bn of mortgage loans. Consumer protection in these markets will be increased, with regulation providing safeguards for consumers and introducing minimum standards of advice. Intermediaries selling a range of financial services products will have to deal with one regulator, the FSA rather than the current complex mix of statutory and self regulatory arrangements.
The Government consulted on their proposals to implement mortgage regulation in February 2002, publishing the responses in August 2002. This legislation incorporates the outcome of this consultation.
This legislation also incorporates the outcomes of the consultation "Regulating Insurance Mediation" the publication of which was reported to Parliament on 21 October 2002 (Official Report, columns 83-84W). The consultation set out the Government's proposals to regulate various activities relating to the sale and administration of general insurance. This will implement the Insurance Mediation Directive (the Directive). I am grateful to the 400 or so respondents who took the trouble to reply to the consultation. A summary of the consultation responses and the Government's decisions have today been placed in the Library.
The Directive requires the regulation of insurance mediation activities in relation to all contracts of insurance. However, it provides for certain exemptions for insurance sold as part of a package, including travel insurance sold with a holiday and some extended warranties that are contracts of insurance.
Following extensive consultation the Government have decided not to regulate travel insurance sold with a holiday. The consultation provided insufficient evidence of consumer detriment to warrant the extra costs of regulation, particularly for small independent travel agents.
However I recognise that there are concerns about this market. The Treasury will therefore hold a review of this decision two years after implementation of general insurance regulation in early 2007.
I can confirm that the Government will await the outcome of the Competition Commission enquiry into extended warranties on domestic electrical appliances before taking a decision as to whether extended warranties that are contracts of insurance should be regulated.
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The appointed representatives regime will apply to insurance mediation. This will allow representatives of FSA authorised persons to carry out regulated activities without themselves being authorised provided the authorised person has accepted responsibility for their conduct. Following representations during consultation this regime will be extended in relation to general insurance contracts. As well as being able to arrange and advise on contracts of general insurance, appointed representatives will also be able to conclude contracts of general insurance as agent. They will also be able to assist in the administration and performance of contracts of general insurance. These changes reflect market practice and should make it easier for firms and individuals to become appointed representatives if they and their principals wish.
The Treasury received representations regarding transitioning of complaints. Some respondents wanted the Financial Ombudsman Service (FOS) to be given powers to deal with consumer complaints which arise after FSA regulation starts but which relate to products bought before FSA regulation commences from firms regulated by Mortgage Code Compliance Board (MCCB) or the General Insurance Standards Council (GISC). Transitioning these complaints would benefit consumers. However this has to be weighed up against the possibility of additional costs for firms, and any differences in approach and scope between the FOS and the current self-regulatory schemes. The Government will therefore hold an open consultation later this summer to give all interested parties a chance to respond on these issues.
I can also announce that the Government will be holding an open public consultation this Autumn on whether to bring home reversion plans into the scope of regulation by the Financial Services Authority.
There are two main types of equity release plans, mortgage backed equity release plans and home reversion equity release plans. Under mortgage backed equity release plans a homeowner takes out a loan secured against a property. The loan is used to provide a regular income or provide a lump sum payment. Ownership remains with the homeowner. The loan is repaid when the property is sold either upon death of the owner or if the borrower moves house. Mortgage backed equity release schemes will fall within the scope of FSA regulation when the FSA takes on responsibility for regulating mortgages in October 2004.
Under home reversion equity release plans homeowners agree to sell all or part of their home in return for a lump sum payment and the right to remain in the house rent free until they die or move home. At such a time the home reversion provider is free to sell the property. A key part of the transaction is therefore the underlying agreed house valuation. A home reversion plan is not in itself a financial services product. Any potential decision to regulate home reversions would go beyond the FSA's scope as defined in the Financial Services and Markets Act 2000, and would therefore require primary legislation.
The Pensions Green Paper "Simplicity, Security and Choice: Working and Saving for Retirement"—published by the Department for Work and Pensions on 17 December 2002—said that the Government would be
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looking at options to create a level playing field for the regulation of equity release and home reversion plans to protect consumers and make the market work better.
The Government have had discussions with a number of stakeholders. These stakeholders have provided no evidence of consumer detriment at present in the home reversion equity release plan market. However there are concerns about the potential for consumer detriment as the market grows and as the FSA takes on responsibility for regulating mortgage backed equity release schemes from 31 October 2004. Therefore I have decided that there is a need for a more in depth analysis of the costs and benefits of regulating home reversion plans and we will hold an open consultation in the autumn.
Economic and Monetary Union
The Chancellor of the Exchequer (Mr. Gordon Brown): In considering the precise release arrangements for the documents supporting the decision on the single currency, the Government have been guided by two key principles: first, the legitimate right of Members of Parliament to have as much of the relevant background material as possible ahead of the Chancellor of the Exchequer's statement to the House of Commons on Monday 9 June, as recognised by the recommendation of the Treasury Committee that the eighteen supporting studies be published ahead of the assessment; and second, the need to take into account market sensitive information. The Government have sought to strike a balance between these two potentially conflicting objectives. In doing so, the Government have decided on the following arrangements for releasing the EMU documentation which accompanies the Chancellor's statement to the House on 9 June.
The Treasury assessment of the five economic tests and third outline national changeover plan will be available from the Vote Office immediately after the Chancellor has completed his statement. The eighteen EMU studies which accompany the assessment will be available from the Vote Office at 9.00 am on 9 June.
All the material will be accessible on the Treasury website www.hm-treasury.gov.uk at the same time as it is released to the House. The Treasury will notify media organisations of the precise arrangements for them for the collection of the documents.
INTERNATIONAL DEVELOPMENT
Algerian Earthquake
The Minister of State, Department for International Development (Hilary Benn): An earthquake measuring 6.7 on the Richter Scale hit the northern coast of Algeria at 19:44 local time (18:44 GMT) on 21 May 2003. There were a number of aftershocks. The most powerful (on 27 May) caused further building collapse and some deaths and injuries. According to the latest reports from the Algerian Interior Ministry, 2,268 people have died as a result of the earthquake, while those injured number
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over 10,100. Preliminary estimates are that up to 200,000 people have been rendered homeless by the earthquake.
Telecommunications were widely disrupted. However, to date, some 80 per cent. of the damage has been repaired. The undersea telephone cables between Algeria and Europe were also damaged. Damage to public buildings is still being assessed; of those so far examined, only some 10 per cent. are beyond repair, and 75 per cent. have been declared safe. The United Nations Disaster Assessment and Coordination Team (UNDAC) has advised that purification of water is now adequately covered, but distribution of potable water remains a problem. Sanitation systems and electrical generation and distribution systems are under repair by the authorities.
With the initial search and rescue phase over, people whose houses have been destroyed or become unsafe to live in require short-term relief assistance, including shelter, food and water, emergency relief items like blankets, kitchen sets, hygiene kits, and water jerry cans. Some specific needs will arise as a consequence of regrouping homeless people in temporary tented camps that will have to be equipped with adequate sanitary facilities. In the medium to long-term, significant rehabilitation work will have to be carried out to repair infrastructure damage, re-establish the water supply system and provide permanent housing for those made homeless by the earthquake. On 30 May, the Algerian government approved plans to build new homes for 80,000 people left homeless.
Following news of the earthquake UK Search and Rescue (SAR) Teams were placed on standby. 95 SAR personnel and 7 search dogs, supported by two DFID Operations Team staff were despatched by DFID funded chartered aircraft the same day. Within the group were teams from the UK Fire Services Search and Rescue Team and the NGOs CANIS Specialist Search Dogs, International Rescue Corps, British International Rescue Dogs and Rescue and Preparedness in Disasters. DFID also supported the UNDAC Team by providing two British members. The flight departed at 23:30 on 22 May, arriving in Algiers at 03:30 the next morning, 23 May 2003. The SAR teams conducted rescue operations in the worst affected towns, in structures in which search dogs or equipment indicated possible survivors. They were also asked to use their sophisticated search equipment and dogs to verify that some previously searched buildings were indeed empty of survivors. During this operation, they found nobody alive.
Following the calling-off of the SAR operation by the Government of Algeria, the teams returned to the UK on Monday 26 May 2003. The UNDAC Team continued to support the Government of Algeria in assessing humanitarian needs for a further two days. The full cost of the deployment will be over £100,000.
In total, International Search and Rescue Teams eventually numbered over 1,000 personnel and some 75 dogs most have now left Algeria. More than 100 relief
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flights arrived carrying tents, blankets and plastic sheeting, water purification and distribution equipment, medicines and two field hospitals. These are expected to be largely sufficient to meet immediate and medium term needs. The challenge is to ensure that the aid that has already arrived is distributed efficiently.
Support has been provided by a range of donors and non-governmental organisations, a number of United Nations agencies including the United Nations Development Programme and the World Food Programme, and also by the Red Cross/Red Crescent Movement. The European Community Humanitarian Office is planning a response for a period of up to six months to support health and sanitation interventions.
DFID made a further emergency contribution of £95,000 on 29 May to the International Federation of the Red Cross and Red Crescent Societies which is supporting the Algerian Red Crescent Society in providing shelter items, water and sanitation to those who have been displaced.
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FOREIGN AND COMMONWEALTH AFFAIRS
OSCE Arms Embargo
The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Mr. Mike O'Brien): HMG remain committed to the OSCE arms embargo against both Azerbaijan and Armenia, which we interpret as covering all goods and technology controlled under entries in Part III of Schedule 1 to the Export of Goods (Control) Order 1994 (commonly known as the military list).
In December 2002, the Government approved an export licence application for demining equipment for the HALO Trust for demining operations in Armenia and Azerbaijan.
The decision was made in accordance with our practice occasionally to make an exemption to our interpretation of the embargo by approving exports of non-lethal military goods to humanitarian, media or peacekeeping organisations where it is clear that the embargo was not intended to prevent those exports and there is a strong humanitarian case for them.