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The Chief Secretary to the Treasury (Mr. Des Browne): With the leave of the House, I shall reply to this excellent debate. I wish to say at the outset that it is my intention to make my reply directly proportionate to the length of the debate and inversely proportionate to    the desire of the hon. Member for Kettering (Mr. Hollobone)—and his friend the hon. Member for Cities of London and Westminster (Mr. Field)—to be free to celebrate his wedding anniversary, on which I heartily congratulate him. I should also take the time to congratulate the hon. Gentleman's wife on the occasion of their anniversary.
 
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It has been a privilege to be present for the maiden speech of my hon. Friend the Member for Ealing, Acton and Shepherd's Bush (Mr. Slaughter), and I am delighted to welcome another lawyer to the House—although I am not sure whether he will get a welcome from any other profession. His speech was described as elegant—and, indeed, it was—and he delivered it with some confidence and humour, which is always very welcome in the House of Commons.

I am grateful to my hon. Friend for reminding me of the contribution that his predecessor Clive Soley made to the House. He was a well-regarded parliamentarian, who among other things made a significant contribution to the Northern Ireland peace process and was well-regarded internationally for his work on conflict resolution. He will be missed. I am sure my hon. Friend will be a more than adequate replacement for him. If his opening remarks and his maiden speech are anything to go by, he will be an adornment to the House, and we look forward to his further contributions.

While we are in the mood for expressing congratulations and good wishes, perhaps you thought that you had slipped under our radar, Mr. Deputy Speaker. I hope that you will forgive me if I wish you a happy birthday today.

Mr. Mark Field: There must have been a misprint in the age.

Mr. Browne: Of course there was a misprint in the age, but not in the date.

I shall now turn to some of the specific issues that have been raised. A number of hon. Members—including the hon. Member for Cities of London and Westminster although this strand of the debate was started by the hon. Member for Sevenoaks (Mr. Fallon), who was a distinguished member of the Treasury Committee—raised an issue that is, of course, dear to all our hearts: the requirement to ensure that we examine the proposals in a way that minimises the regulatory burden and expense. We are well advised to be continually vigilant against unnecessary regulation, and we were reminded of that necessity by the hon. Member for Twickenham (Dr. Cable) and by other contributors to the debate, most recently the hon. Member for South-West Hertfordshire (Mr. Gauke).

I am invited to express my view of the Financial Services Authority, and will do so. The FSA is internationally regarded and respected for its approach to regulation. As with every other regulator, the Government will work with the FSA to ensure that our better regulation agenda continues to underpin its approach, and it is not an error for us at any stage to remind it of those principles. However, irrespective of whatever criticisms we may have about the day-to-day application of regulation or, indeed, about any individual case, we should also remember that London's regulatory environment is regarded as the best among those of the international financial centres. It is ahead of New York and well ahead of Frankfurt and Paris, and it is described as having the potential to remain so until 2008. That assessment comes from a survey by the Centre for the Study of Financial Innovation, published in July 2003.
 
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On 24 May, my right hon. Friend the Chancellor launched a better regulation action plan designed to boost flexibility and enterprise with the introduction of a risk-based approach to regulation. I have heard nothing in the debate that jars in any way with that approach to regulation. Indeed, such an approach to regulation would gain support from all those hon. Members who have spoken.

Again, irrespective of any criticisms people may have about their experience of the FSA or about individual cases, the FSA is a pioneer of the risk-based approach to regulation and is considered a world leader in this field. But we should not of course forget that we require the FSA by law to meet certain standards. I understand from the contributions made by hon. Members—particularly by Opposition Members, who clearly speak with some experience of financial regulation—that we must share responsibility for the questions that we ask of that regulatory authority.

We require the FSA by law to demonstrate, among other things, that the regulatory burdens are proportionate to the benefits that they provide; to operate economically and efficiently; and to take account of the effects of regulation on international competitiveness, innovation and competition. I am grateful to hon. Members for their reminders of those principles.

Mr. John McFall (West Dunbartonshire) (Lab/Co-op): My right hon. Friend mentions better regulation, and a number of business people have contacted me in the past couple of weeks to remark on how seriously the Government have taken that issue.

On the FSA, we previously had 10 separate bodies; we now have one regulatory body. The FSA has done good work in the past few years, but this is a fast-moving market, as my right hon. Friend knows. With equity release schemes and others, new problems arise and we need a flexible response from the FSA and the Government. Will my right hon. Friend keep that in mind as he frames this legislation?

Mr. Browne: I am grateful to my right hon. Friend, who has developed expertise in such issues, is respected for his comments on these matters and chaired with distinction the Treasury Committee during the last Parliament. We will, of course, take seriously anything that he says on such issues, on the basis of his knowledge and experience and of the regard in which he is held.

The very structure of the legislation enables us to do just what my right hon. Friend suggests, and as I shall say later in concluding, there will be opportunities for consultation to ensure that the regulations that emerge meet those standards. As he and other hon. Members know, the Government want to encourage the development of risk-based regulation, and I remind the House that the FSA is considered a leading example of that approach to regulation. We intend to build on that, not to destroy it.

I turn now to the specifics of the regulatory impact assessment, which has exercised a number of hon. Members. The hon. Member for Sevenoaks referred to it in an intervention, and it has been mentioned in more
 
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detail by other hon. Members, including the hon. Member for Twickenham. That assessment has arrived at estimates of £11 million for the start-up costs and £5 million annually, and I stand by them. I remind the House that, as we have been constantly told, such regulation has been requested and supported, not only by hon. Members on both sides of the House, but by consumers and, indeed, the industry itself—something that is very important. One of the principal reasons for those requests is that the development of this market, which we all wish to see, depends on confidence and security in the market, and its proper, appropriate and proportionate regulation is necessary to underpin the development of the market itself.

The Government's approach to such regulation follows the better regulation process. We have consulted twice already, as we have been reminded, and we have received an overwhelmingly positive response from the industry. The FSA will consult again on its detailed rules for such products, and I am happy to deal with the inevitable consequences, such as further delay, later in my remarks. The FSA will carry out a further cost-benefit analysis, refining the existing figures further—and, of course, in doing so, it is obliged to ensure that the burden of regulation is proportionate.

I have in my papers a number of quotations from various sources that welcome the Bill, but since there is no dissent in the House, I do not need to persuade anyone that those outside the House want us to proceed with this legislation, so I will not deploy them.

It is the Government's view that, overall, the Bill is likely to lead to a comparatively small increase in FSA expenditure and I shall give figures in a moment so that hon. Members can share my view of proportionality. The additional expenditure will be met by an increase in the fees levied by the FSA under the Financial Services and Markets Act 2000. On the basis of FSA figures on the current cost of mortgage regulation, it is estimated that the one-off cost to firms that sell lifetime mortgages will be between £6,000 and £11,000. That cost would of course be less for firms that were already authorised by the FSA for other businesses. The hon. Member for Twickenham referred to his experiences of trawling the world wide web and indicated how that can be misleading of itself, but I shall return to that matter in a moment or two.

The total one-off compliance cost to the industry for home reversions is estimated to be about £11 million, but it is extremely difficult to gauge ongoing costs in a market that is clearly developing and could expand considerably. However, in the absence of further refinement, which we will ask the FSA to make, the best estimate of the ongoing cost for an expanded provider base is £5.4 million a year. Of course, the market for the Islamic or ijara products is developing, but the immediate cost of regulating that market would be small.

I shall share some figures with the House so that hon. Members can reach a view about the question of proportionality. There are currently about nine providers of home reversions and about 17 members of safe home income plans, or SHIP. The total value of reversionary lending by members of SHIP in 2004 was only £40 million. The number of active home reversion plans on the market at the end of 2004—this again refers to SHIP—was 2,524.
 
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The equity release market is a much more substantial market with 32 providers of lifetime mortgages and 57 other firms specialising in equity release. The value of new lending in the equity release market, which is currently a restricted market for the reasons that we have discussed, was more than £1.2 billion in 2004. The total value of lifetime mortgages outstanding in 2004 was just over £4 billion, and the future capacity for equity release sales annually, which is based on an actuarial calculation of 15 per cent. of the eligible population purchasing such a scheme, is £4 billion by 2031. I have given hon. Members those figures so that they can estimate the cost of the regulation, but they should bear in mind that the cost is proportionate, given that the regulation will instil significant security and confidence in the market.

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