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Mr. Mark Harper (Forest of Dean) (Con): I begin by echoing the comments made by my hon. Friend the Member for Kettering (Mr. Hollobone) about how long it has taken to get this Bill before the House. The Opposition, in the person of my hon. Friend the Member for Eddisbury (Mr. O'Brien), have been calling for the measure since January 2003.
I also echo what my hon. Friend the Member for Basingstoke (Mrs. Miller) said. A number of my constituents are thinking about taking out home
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reversion plans and lifetime mortgages because they are having difficulty making ends meet. In part, that is due to the difficulties that they are encountering with pension schemes and the closure of final-salary pension schemes resulting from the tax of £5 billion a year placed on them by the Chancellor. In fact, the annual burden on pension schemes is larger than the entire equity release market.
The equity release market does more than supplement pensions, as has been noted. In the future, it will be used to pass wealth down the generations and enable the younger members of families to get a foot on a housing ladder that is becoming increasingly expensive and out of reach, especially in London, the south-east and the south-west.
I turn now to the Bill. I support moves to increase confidence, especially in the home reversion equity market. Many of the consumers who find such products attractive are elderly, and they deserve the protection of sensible and robust regulation. They also need access to the financial ombudsman service and the financial services compensation scheme to which the Minister drew attention in his opening remarks. In my Forest of Dean constituency, as is the case in the constituency of my hon. Friend the Member for Kettering, the proportion of elderly people in the population is higher than average. That is likely to increase quickly in the future, so these products will be increasingly relevant to their needs.
In regulation, it is a good principle to ensure a level playing field. Most equity release products are mortgage based. Those products were brought within the ambit of the FSA last autumn, so it seems sensible that the same thing should happen with home reversion plans. That would ensure a level playing field on both sides of the market, but I support the call made by my hon. Friend the Member for Cities of London and Westminster (Mr. Field) for the Government to review the impact of the FSA's regulation of the mortgage market. We need to see how that has worked, and whether the costs incurred are appropriate for the level of protection for consumers. In that way, we can make sure that a proper balance is maintained.
I want to pick up on a point made by the hon. Member for Twickenham (Dr. Cable), who asked about a requirement for independent legal advice. I think that it would be helpful to require those giving financial advice to discuss with clients whether independent legal advice is necessary. However, I am somewhat cautious about making such legal advice compulsory, as some consumers will be well able to understand these matters without it. Insisting on legal advice in all circumstances would add to transaction costs, but it would be helpful if the person giving financial advice were required to discuss the need for legal advice, and to explain some of the pitfalls involved.
What is the cost of regulation, and does it stifle flexibility and innovation? Several hon. Members have drawn attention to the cost of the proposalsa one-off cost of £11 million, and an ongoing cost of £5.4 million. In 2004, the total size of the market for home reversion plans was only £45 million. That represented a fall from the year before, perhaps due to the confusion in the market, but the cost figure that has been quoted still seems rather extreme. The fall may be due to the historically poor reputation of home reversion plans, to
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which my hon. Friend the Member for Basingstoke referred. However, an increase in regulation may serve to increase confidence and cause the market to grow as more consumers choose to take out such schemes. Average market growth would then rise, and the burden of regulation as a percentage of market size would fall. That is to be hoped for and, if it happens, welcomed.
As my hon. Friend the Member for Basingstoke also noted, we must make sure that regulation does not stifle innovation and flexibility. Several hon. Members have noted that the market is likely to grow. We in this country are lucky to have a flexible and innovative financial services industry, so we must ensure that financial service providers are able to deliver new products for the benefit of customers. I hope that the proposed regulation will aid that.
My final point also highlights the need for flexibility. The House of Commons Library has produced an excellent paper on this subject, and the example given in the appendix illustrates the changes in expectations in the financial services industry that have taken place over the past few years. The example refers to an episode of the comedy "The Good Life", made in 1977. For a person of my age, it seems strange that a pension of £2,000 a year was considered absurdly high, and the fact that a house in Surbiton could be bought for only £25,000 is just a distant memory.
The serious point is that decisions involving financial services can extend 20, 30 or 40 years into the future. The world is uncertain and the products are complicated, and that is why good advice is essential.
Mr. David Gauke (South-West Hertfordshire) (Con): I congratulate the hon. Member for Ealing, Acton and Shepherd's Bush (Mr. Slaughter) on an excellent maiden speech. He spoke very graciously about his predecessors. I am sure that he too will be popular among supporters of all parties in his constituency. Indeed, I see some of them publicising him in future: come the next general election in Ealing, Acton and Shepherd's Bush, I expect there will be posters almost everywhere saying, "Slaughter the Labour candidate".
I also congratulate my hon. Friend the Member for Kettering (Mr. Hollobone) on his wedding anniversary, and I congratulate my hon. Friend the Member for Cities of London and Westminster (Mr. Field) on managing to avoid the Finance Bill Committee this afternoon. I note that the House is rather thinly attended and that there may still be time for him to return to the Committee later. I am afraid my remarks will be brief and will not prevent that.
I believe that equity release schemes will be an increasingly important part of our system in the United Kingdom. The hon. Member for Twickenham (Dr. Cable) rightly said that although it is an immature market, it is maturing rapidly and gaining in importance. The reason is that, as we all recognise, an increasing number of people are property rich and cash poor; to confirm that I need only look to my own constituency, which is largely very property rich, as illustrated by the fact that a recent report detailing average house prices in towns showed that three of the top 10 were in my constituency of South-West Hertfordshire: Tring, Berkhamsted and Rickmansworth.
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This situation has come about largely as a result of recent movements in house prices and the fact that many of the people living in quite valuable properties do not have, and have never had, a particularly high income. They have benefited from the price increases but they are faced with financial difficulties now because, although property rich, they can be cash poor for a number of reasons. We all know the number of elderly people who struggle to pay their council tax. They are on a fixed income, and council tax has more or less doubled since 1997; that is an enormous drawback for a number of people.
There are also problems within our pension schemes. A number of my constituents who were previously employed, were previously within the Dexion pension scheme. Dexion is now insolvent. Many hon. Members will know of constituents who thought they had a secure pension but have found that that is no longer available to them. We are also witnessing the movement away from final salary pension schemes, which is causing great difficulty.
In those circumstances, it is most unfortunate that people who are sitting on a highly valued property are not able to make better use of it, for any of several possible reasons. There is perhaps a generational attitudea reluctance to borrow any more than necessary, and a tendency, having paid off the mortgage, to regard equity release as a backward step. There is also an entirely natural desire to leave as much value as possible to the children. But there may also be a lack of confidence in pursuing an equity release scheme, and that is to some extent what the Bill seeks to address.
I think it is a legitimate desire for all parties to seek to ensure that equity release schemes that are to people's advantage are available, and to encourage people to enter into them. My hon. Friend the Member for Cities of London and Westminster made a good point when he said that we need to move away from the idea that long-term care must be funded either from the public purse or from individuals' immediate cash savings, and said that if people can allocate resources more efficiently, and equity release enables them to do so, that should be encouraged.
Having said that equity release should be encouraged, I turn my attention to the two types of scheme. Mortgage-based schemes already fall within the scope of the FSA. Pure home reversion plans do not, and clearly one purpose of the Bill is to encourage greater consumer confidence in this area. I think I welcome that, although I speak as someone who, by instinct, is against further regulation wherever possible.
It should also be noted that there will clearly be concerns about the drafting of the statutory instrument and the reform of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, because that is where the detail exists and that is where, effectively, the law changes. As an aside, I speak as someone who used to advise on the Financial Services and Markets Act 2000 fairly regularly. Schedule 2 was always a mystery to those of us advising on the Act because it had little practical purpose. I now appreciate why schedule 2 is there: it ensures that the Act must be amended whenever there is an extension in this area and it gives the House an opportunity to debate it. At a practical level, however, the detail will be in the regulated activities order.
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Having mentioned my background of dealing with FSA matters, I should say that there are a number of concerns about the operation of the FSA, some of which have been mentioned by my hon. Friends. There is a feeling that it is too prescriptive, and my hon. Friend the Member for Basingstoke (Mrs. Miller) was absolutely right to say that complying with its requirements is often seen as a box-ticking exercise. I know that the senior management of the FSA increasingly want to look at the broad principles and try to make things less prescriptive. However, it is very difficult to work that through the FSA so that the people dealing with regulated firms appreciate the broad principles, and there is a degree of defensiveness from the FSA, partly because of political pressures. It is easy for hon. Members always to blame the FSA when things go wrong and when our constituents lose money, and sometimes the FSA will be to blame, but the FSA has, I think, become rather risk averse and defensive, and that can stifle innovation, as the Prime Minister rightly said a few days ago.
Another criticism that one could make of the FSA is that there should be a greater distinction between wholesale and retail. Clearly, what we are discussing today is largely a retail matter, and we heard from the Minister of the areas where a fair degree of regulation will be required in respect of the advice to be provided, key features documents, and so on. None the less there are financial arrangements within this home reversion where detailed regulation can be relatively light. For example, I assume that the capital adequacy regime applying to firms in this area will be somewhat light; I see no reason why it needs to be heavy.
A number of hon. Members voiced unease as to the cost of FSA regulation in this area. One criticism that I have read repeatedly in respect of home reversion plans is that firms involved appear to be making a disproportionate profit. Part of that is no doubt due to the extent to which property prices have risen. Another factor is the lack of competition. Anything that increases competition within this area is clearly to be welcomed, but as we heard from my hon. Friend the Member for Basingstoke, there is concern that FSA regulation can prove too much of a barrier to entry. I would urge the FSA and the Treasury not to do anything that increases that. An easy application process would be welcomed and I know that the FSA has moved in that direction in other areas.
I welcome the Bill and I welcome the extension of regulation into this area, but I urge the Treasury and the FSA to remember that it is through greater competition that better services will be provided to those taking out home reversion plans.
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