Mr. Andrew Slaughter (Ealing, Acton and Shepherd's Bush) (Lab): Thank you, Mr. Deputy Speaker, for giving me the opportunity to make my maiden speech in the House of Commons today. I have listened with interest to the clear explanation of the Bill given by the Economic Secretary to the Treasury and to the helpful comments of the hon. Member for Cities of London and Westminster (Mr. Field). This is an important Bill that has much to recommend it to my constituents, and I shall say more about it in due course.
I intend first to follow the conventions of the House in addressing the characteristics of the constituency that I have the honour to represent, and of the Members who have served before me in representing it here. D. N. Pritt, the distinguished King's counsel whose clients included Ho Chi Minh and Jomo Kenyatta, represented the Shepherd's Bush area from 1935 to 1940 as a Labour Member, and from 1940 to 1950 as an Independent, following his expulsion from the Labour party for supporting the Soviet invasion of Finland. I wanted to get the Soviet invasion of Finland into the debate early, before any other Member raised it. Pritt was defeated at the 1950 general election by Frank Tomney, who sat as the Labour Member for Hammersmith, Northas it then wasuntil 1979. Tomney's only reference to Pritt in his maiden speech was this:
The convention that maiden speeches should be complimentary and uncontroversial is clearly of recent origin. It would be difficult to imagine two more different men than Mr. Pritt and Mr. Tomney. Mr. Tomney also told the House:
My predecessor-but-one on the Ealing, Acton side is of a more recent vintage. Indeed, I am delighted to see him in the Chamber today. I refer to the right hon. Member for North-West Hampshire (Sir George Young), who represented the then seat of Ealing, Acton between 1974 and 1997. He tells me that he continues to
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hold Ealing and Acton and their residents firmly in his affections. I can tell him that those sentiments are reciprocated. Eight years after his departure, constituents of all political persuasions remember him warmly, as much for his good nature as for his tireless work.
The marriage of Ealing and Acton with Shepherd's Bush in 1997 led to the election of my distinguished predecessor, Clive Soley. Clive was a member of this House for some 26 years as MP for Hammersmith, Northlater Hammersmithand, until his retirement at the recent general election, for Ealing, Acton and Shepherd's Bush. Clive had a distinguished political career in this House and beyond. While suffering 18 years in opposition, he was nevertheless a ground-breaking shadow Minister for housing, home affairs and, most notably, Northern Ireland. He was a popular and respected chairman of the parliamentary Labour party, and he has been a campaigner on some controversial topics, including the proper regulation of the press.
Clive is perhaps best regarded for his work on conflict resolution and on promoting democracy and reconciliation around the world. In addition to his work in Northern Ireland, he has been active as an election monitor and as a founder of the Arab-Jewish Forum. He will shortly take his seat in the other place. I have known Clive for more than 20 years. He has been my MP, a party colleague and an eloquent advocate on behalf of his constituency. He will be greatly missed and I will find it difficult to meet the expectations that he has created.
As its lengthy title implies, Ealing, Acton and Shepherd's Bush covers a number of distinct communities in west London, not only those named in its title, but Hanger Hill, Southfield, College Park and Old Oak, and the White City, South Acton, Wormholt and Edward Woods estates. It is a mixture of Victorian and Edwardian terraces running along the routes of the District, Central and Piccadilly tube lines, of post-first world war homes for heroes, and of post-second world war local authority and housing trust estates. It is comparatively wealthy and leafy in the west, almost village-like in the centre, and assertively inner city in the east. It boasts some iconic institutions, including the BBC, the Shepherd's Bush Empire, Ealing abbey, Hammersmith hospital and Wormwood Scrubs prison. It contains a substantial part of Britain's biggest industrial estate, Park Royal, and is dissected by several of the capital's main arterial roads.
Since the election of Labour Governments after 1997, Ealing, Acton and Shepherd's Bush has seen considerable regeneration. Unemployment has fallen by halfand long-term unemployment by 85 per cent. Crime is down and police numbers are substantially up, in particular through the recruitment of safer neighbourhoods teams. The White City area is one of the largest development sites in any major European city. It promises to bring thousands of jobs, homes, businesses and shops to Shepherd's Bush, along with the transport and environmental improvements to sustain them. With Government assistance, the boroughs of Ealing and of Hammersmith and Fulham are spending hundreds of millions of pounds on the improvement of local authority homes under the decent homes initiative. Almost every primary and secondary school has seen substantial capital investment.
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What distinguishes my constituency mostand is, in my opinion, its finest featureis the sheer diversity of its population. There are 50 major first languages spoken there, and another 75 significant minority communities. It has third or fourth generation Irish and Caribbean residents, Polish and other eastern European communities, Bengali and other Asian groups, and Arab and African nationalities, including a large Somali population. Almost every country and continent is represented. As a model for integrated living, I recommend it.
I am pleased to have played a part in the life of the constituency as a resident, a councillor for almost 20 years, and as leader of the London borough of Hammersmith and Fulham from 1996 until last month. However, as someone rooted in this part of west London, where my family has lived for four generations, I also see what still has to be done. The view of London, and west London in particular, as a wealthy region is not an accurate one and it needs to be challenged, particularly in regard to allocating public funds. It is more true to say that this is an area of extremesof wealth and poverty, and of opportunity and barriers to success. That the cost of living is so high and the stress on services so great is in itself a reason why those who struggle have a lower quality of life than they might do elsewhere. This is an issue that I will, with no apology, return to again in the House.
The Bill that is before the House today is a significant measure for two groups that are well represented in Ealing, Acton and Shepherd's Bush. The first are the elderly residents who are cash poor and wish to release equity tied up in their homes. The second are Muslim homebuyers who need to finance purchase schemes that are compliant with sharia law. There is a large and heterogeneous Muslim population in Ealing, Acton and Shepherd's Bush, and the issue of ijara schemes has been often raised with Clive Soley and me.
Two days ago, the House debated a controversial measure to outlaw incitement to religious hatred. Today's Bill will not receive a fraction of the attention devoted to that one, but to my mind, it is a measure of equal significance. It affirms that all citizens of this country will be treated equally in all aspects of their daily lives. It is a sensible and constructive measure and I commend it to the House.
Dr. Vincent Cable (Twickenham) (LD): I want to add my broad support for the Bill but, first, I pay tribute to the maiden speech of the hon. Member for Ealing, Acton and Shepherd's Bush (Mr. Slaughter), which was elegantly phrased and a good introduction to the House. Perhaps I might add that, if he could do something about the traffic congestion and endless roadworks on the way to the BBC centre at White City, much of the Housenot to mention his constituentswould be permanently indebted to him. I was surprised that, as a Labour Back Bencher, he did not mention that his constituency is host to Queen's Park Rangers football club. He will soon learn that, in the Labour party, such interests represent an important route to credibility.
There are two main elements to the Bill. As has been said, there is broad consensus among consumer groups such as the National Consumer Council, the Consumers Association, the Consumer Panel of the Financial Services Authority, as well as in the industry, on support for the broad principle of bringing home reversion schemes within FSA regulation. I have some questions, which partly reflect that asked by the hon. Member for Sevenoaks (Mr. Fallon). We all accept the principle of regulation but wonder why it is so costly.
We are considering a small industry, comprising about 50 companies, many of which are small, especially in terms of the providers. An estimateI believe that it is an NCC estimateshows that even a small company will bear a cost of approximately £475,000 to implement the regulation. Has the FSA considered how the compliance costs could be reduced to more manageable proportions while achieving the Bill's objectives?
I also want to askI shall go into more detail laterwhy the Bill does not extend to to-let mortgages, which is the other major area in which people are trying to extract value from property appreciation. Much money in the markets is moving in that direction and there is a great deal of potential for mis-selling to consumers. Indeed, many of the same points apply, including the need for a level playing field for different sorts of lending. I should like to know why to-let mortgages were not includedwhether through oversight or policy decision, or whether the technical nature of the measure prevents their inclusion.
I also welcome the Bill's second feature, which is the extension of FSA regulation to Islamic financing institutions and the coverage of ijara lendingthe part of Islamic finance that the FSA does not regulate. It is a big issue. There are approximately 1.6 million Muslims in this country, of whom 250,000 are home owners. Many are anxious to comply with the requirements of their faith and we have a tradition in the House of trying to accommodate religious faith in financial legislation. In the previous Parliament, we held prolonged discussions with the Christian Brethren about annuities. It was an especially heroic act by the Treasury and hon. Members because the Christian Brethren made it perfectly clear that, whatever we did for them, they would not vote.
The Muslim community is much larger and the problem much bigger. People in the Islamic community with whom I have discussed the matter assure me that they are pleased and grateful for the steps that the Government have taken in the Bill. However, they stress that big obstacles remain to Islamic finance being widely used in the market that we are considering and I shall describe a couple.
The nature of the transaction involves a double switch of ownershipthe property has to be transferred to the lender so that a rental stream can be set up and then transferred back. That means that Islamic households pay double stamp duty. Perhaps the Chief Secretary would reflect on whether it is possible to tackle that problem.
Under the capital adequacy ratios, financial institutions are required to set aside 100 per cent. rather than 50 per cent. of the value of the loan in reserving, so a much tougher test of financial prudence is set for institutions that provide Islamic finance. That clearly
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deters the growth of the market. Those issues are technical. The Chief Secretary knows that there are people in the country who are expert in the matter and perhaps he will briefly say whether the Treasury is considering how it can expand its current initiative.
It is right that we should do what we can to encourage the principle of equity release. Enormous numbers of people are asset-rich and income-poor. Anything that can be done to help them release an income from their assets should be welcomed, subject to regulation and prevention of mis-selling. British household wealth is approximately £3 trillion and household debt about £1 trillion. Much of the net £2 trillion is locked in property values. A rough estimate of the total asset valuation of an average household is £50,000. That could convert into a substantial stream of income if it was released.
The problem is that, despite the discussions that we have held on equity release and the Bill, it is an underdeveloped market. There are different estimates of the equity release market but Safe Home Income PlansSHIPthe private regulatory body, estimates that it grew from £228 million in 1998 to £1.2 billion in 2003. There are other estimates but, given the scale of the equity involved, that is small. None the less, there is considerable potential and one study by a consumer group estimated that equity release could realistically expand from six households in 100 to 40 households in 100 in 20 years. There is therefore much scope for expansion. That would take the market from around £1 billion to £4 billion.
When trying to understand why the market is small and underdeveloped, one has to consider the history of regulation or its failure in the sector. I participated in a debate in January 2003, which the hon. Member for Tiverton and Honiton (Angela Browning) introduced. It covered some of the problems of equity release. The key point that emerged was that the sector was especially prone to serious mis-selling and abuse for several reasons.
First, many customers are vulnerable because they are elderly. Of course, not all elderly people are vulnerablemany of them are extremely sharp and switched on. However, as people get older, their capacity for making complex financial calculations diminishes and the scope for mis-selling is great.
Secondly, some tricky issues surround the valuation of property and that of the discount that applies in the course of a home reversion scheme. The discount is normally 40 per cent. to 60 per cent. and it depends on a complex calculation, which involves age and life expectancy. There is much scope for fixing a number that is disadvantageous to the borrower.
Thirdly, there is scope for large fees, because carrying out a home reversion scheme properly requires independent valuation advice and independent legal advice as well as advice on the products. In many cases, those fees can be considerable. The scope for abuse is great. When we held the debate two years ago, hon. Members of all parties gave moving accounts about the difficulties that the previous boom in home reversion lending in the 1980s caused.
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A group of building societies, led by the Chelsea, West Bromwich and Staffordshire building societies, was undoubtedly guilty of perpetrating serious mis-selling of lending, leading to a great deal of hardship that continues to this day for about 10,000 families. Households were encouraged to take on variable loan mortgages and, in return, received bonds. The mortgage interest rates shot up in the financial crisis of the early 1990s, bond yields fell and many people were greatly impoverished.
As the Chief Secretary said in his opening speech, since then the industry has produced a form of voluntary regulation in the SHIP scheme, which has some undoubted advantages. It not only prevents negative equity, as the Chief Secretary suggested, but undertakes that participants continue to live in their home and provides for independent legal advice. There are considerable regulatory gains for the people who participate in it. However, the scheme is fundamentally weak in many ways.
As I understand it, the scheme applies to only 18 of the 50 companies that operate in the industry. It does not involve any form of compliance. The amount of compensation that can be awarded is £25,000, whereas one can get £100,000 from the financial ombudsman and it does not cover cases where the lender becomes insolvent. The scheme therefore has considerable limitations.
Moreover, the FSA has conducted some mystery shopping that suggests that financial advisers routinely fail to give proper adviceroutinely, not only occasionally. In 60 per cent. of cases that were monitored through mystery shopping, no attempt was made to explain the risks to participants.
All those factors make the case for regulation through the FSA of the sort that the Government are introducing. The essential arguments for it are consumer protection, a level playing field between different products and the restoration or creation of confidence in an important market.
I want to conclude by asking some questions. First, when do the Government envisage that this new regulation will come into effect? I participated in all stages of the financial services legislation that was introduced two Parliaments ago, and mortgage regulation was first raised six years ago. However, such regulation is only just coming into effect for mortgage-type products. When will this extension of the legislation come into effect?
My second question relates to a point that I made at the outset. Can the Minister explain why the regulatory costs, which are set out in detail in the regulatory impact assessment, are so high, given the relatively small number of companies involved in the industry? I welcome the detail and openness of the assessment. Has the FSA made a serious attempt to tailor its regulatory processes to make such costs affordable and sensible?
Thirdly, when the FSA rules and the secondary legislation are introduced, is the intention to build into consumer protection the provision of independent legal advice? Doing so is crucial to ensuring that consumers are protected. Will there be an obligation to ensure that such advice be obtained?
My final set of questions relates to an issue that I raised in my introductory remarks: why is the Bill not being extended to the buy-to-let market, which is much
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bigger than the home reversion market and has many of the same problems? At the moment, many very unsophisticated investors are being lured into a highly sophisticated market. Very complex calculations have to be made in buy-to-let, such as likely occupancy rates and the cost of maintaining let property. Many people entering the market have been told by the promoters of the various schemes that they can become millionaires simply by acquiring property. Simple marketing techniques are being employed disingenuously. The Department of Trade and Industry has already carried out an investigation into rogue syndicates in the buy-to-let market, which suggests that the Government are already aware of the serious potential for abuse. Would it not be appropriate, in view of the information that the Government already have, to bring this market within a regulatory framework at the same time and in the same way?
There is potential for disaster here. A great many people are investing in property on the basis of the simple notion that property markets go up for ever. On lending, the traditional prudent criterion for buy-to-let was that the rental to income ratio should be at least 130 per cent. In some cases, that has been reduced to 100 per cent.in other words, there is massive downside risk from a deterioration in the property market. For all those reasons, it is important that buy-to-let, like other aspects of the industry, be brought within a regulatory framework.
With those qualifications in mind, I support the legislation. It is largely uncontroversial and welcome and we shall play a constructive role in ensuring that it proceeds through this House as quickly as possible.