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Dr. Cable: I have just dug some figures out of the Treasury's consultation document. Simply to clarify the point about cost, will the Chief Secretary confirm that the cost of between £6,000 and £11,000 was for the intermediaries, or the advisers? The Treasury's estimate of the cost to reversion providers is something of the order of £500,000.
Mr. Browne: I will of course confirm the figure that the hon. Gentleman has shared with the House, given that its source is a Treasury document. He also cited it during his speech as evidence of a significant cost when he urged the Government to require the FSA to consider the possibility of reducing compliance costs. I remind him that the figures are estimates that are based on the best information available and that the FSA will undertake further work, including a full cost-benefit analysis, when it draws up detailed rules. The authorisation costs will be approved only after a proportionate regime has been set up. In turn, the fees will be tailored to the turnover of the regulated firm, so small firms will clearly pay less. The figure that he cited was based on a firm with a turnover of between £10 million and £100 million and it includes £235,000 of information technology costs. I am not sure whether the IT costs will be a one-off cost, but when I have clarified the position I shall ensure that hon. Members are made aware of it.
The hon. Member for New Forest, East (Dr. Lewis) reminded us during an intervention about the harm that was done by shared appreciation mortgages. I shall try to respond to the question that he asked my hon. Friend the Economic Secretary, although I see that the hon. Member for New Forest, East is no longer in the Chamber. About 15,000 shared appreciation mortgages were sold by Barclays and the Royal Bank of Scotland before they were discontinued in 1998. Few people in 1997 could have foreseen the extent to which house prices have risen. If house prices had risen more slowly, or even fallen, such borrowers would have been receiving loans at an extremely low interest. However, several complaints arose because people—they could properly be described as victims—were caused significant distress by the plans. Interestingly, not one of the allegations of mis-selling that was raised with the financial ombudsman service was upheld. Shared appreciation mortgages are no longer sold. If they are marketed in the future, they will of course be subject to the new FSA regime for lifetime mortgages. The
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Government have had some success in persuading the industry to help some of the victims of the plans and will be prepared to continue to pursue that.
The hon. Member for Twickenham also dealt with past mistakes because he described how the Government were responding to people's problems with home income plans. Those plans were a form of equity release scheme that provided a regular income to purchasers. There were specific problems in the late 1980s with the version of home income plans called investment bond based schemes. Those schemes used the proceeds of a loan raised on a property to invest in a bond that was designed to provide sufficient returns both to repay the interest on the loan and to provide an income. Unfortunately, the investments failed to provide the returns required and investors found themselves with rising debts to their lenders. The problem has been well recognised and a range of measures has been put in place to help people.
The sale of investment bonds was regulated under the Financial Services Act 1986 and regulators effectively banned home income plan schemes involving such bonds in the early 1990s. Investors were able to claim against their advisers, who were required to return the capital invested. That led to several independent financial advisers being declared in default by the investors compensation scheme—the forerunner of the financial services compensation scheme—which then paid any necessary compensation.
About £70 million has been paid to some 4,500 HIP investors either directly by advisers or, if they have gone out business, by the investors compensation scheme. Of course I recognise that under the 1986 Act compensation was able to address only funds put into an investment bond and that unfortunately a number of people used some of the sums raised for other purposes. As a result, many were left with a residual debt to their lenders after the payment of compensation allowed under the 1986 Act. The Government believe that residual debt is a matter for the lenders, but fortunately most lenders have offered a package of measures to HIP investors to address the problem. The Government hope that all lenders will continue to take as generous and sympathetic an approach to residual debt as possible. As the hon. Member for Twickenham will be aware, there is no leverage for the Government to ensure that that should be done, but the industry has an obligation to respond appropriately in those circumstances.
The hon. Gentleman asked about buy-to-let regulations and the activities of property investment clubs. The Government are aware of concerns about the activities of such clubs operating in the buy-to-let market. Concerns focus on the fact that schemes may be operating as collective investment schemes, which are of course FSA-regulated. It is my understanding that the FSA is looking carefully at the activity of those schemes and no doubt its advice to Ministers will be forthcoming in due course.
The hon. Gentleman asked about facilitating Islamic home finance, with reference to the effect of stamp duty. The Government's policy is overtly to tax Islamic financial products on a level playing field with conventional equivalents where it is practicable to do so. The hon. Gentleman probably has more experience of Finance Bills than anyone in the House, so he will know that the Finance Act 2003 removed a major barrier to
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the marketability of Islamic home finance products by introducing reliefs to prevent multiple charges to stamp duty when using the murabaha or ijara products. The Budget of 2005 announced that those reliefs were to be extended to include a newly available Islamic home finance product based on shared equity, and amended to ensure that ijara products—the product of choice in the marketplace—could be used in Scotland, so effective regulation will be of considerable importance. I hope that that responds to the issue raised by the hon. Gentleman.
The hon. Gentleman referred to the FSA review of the sale of equity releases, arguing that it showed that regulation of those products is less effective than it could be. On 24 May, the FSA published the results of a review of its regulation of the sale of equity release schemes, which in fact showed that the regulation of those products was working quite effectively. It showed that targeting regulatory action can significantly improve customer protection and demonstrated the benefit of regulation—by acting promptly in the market, the FSA can help to raise selling standards to ensure that consumers do not buy unsuitable products.
The FSA carried out the mystery shopper exercise, to which the hon. Gentleman referred, to ascertain the standard of advice being provided to consumers purchasing regulated equity release products. Four visits were made and three desk-based reviews were carried out between January and early May 2005, looking mainly at advice given during June 2004. As a result of what was revealed by that exercise and through its other experience, the FSA is committed to ensuring that firms improve their standards in that field. It may reassure the hon. Gentleman to know that the FSA will revisit the firms it reviewed to ensure that they have acted on the issues identified during that exercise. The FSA will also review standards in other firms active in that market.
The hon. Member for Cities of London and Westminster recognised yet another birthday for the House, in that we are coming up to the first anniversary of FSA mortgage regulation. The FSA assumed responsibility for the regulation of first charge residential mortgages on 31 October 2004, and regulation has undoubtedly benefited millions of consumers by providing safeguards and minimum standards of mortgage advice. Indeed, Anne Gunther, the chair of the Council of Mortgage Lenders, recently stated, in the CML annual report 2004, that statutory regulation was implemented remarkably smoothly, and that it was a credit to all concerned.
A review of that activity is appropriate and timely, and the FSA is committed to commence a review of the existing mortgage regime by the end of 2005. Before conducting a review, it is important to allow the regime to bed down so that it is the experience of the process that is reviewed rather than its introduction. I trust that that will reassure the hon. Gentleman that the FSA has that issue in mind.
The hon. Member for Twickenham asked me to ensure that a requirement for independent legal advice was built into the regulation and that request received some support—albeit not overwhelming—from the official Opposition. The Government's view is that
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determination of the detail of the rules is a matter for the FSA. There will be rules about the advice to be given, but at this stage I can give the hon. Gentleman no comfort that the FSA will require all persons who are considering taking out such products to be given independent legal advice.
I shall explain why the whole process has taken so long. I point out to the hon. Member for Kettering that although I am not a long-standing Member of the House it is clear to me after only eight years that the greater the all-party support for anything, the greater the scrutiny it deserves and the greater should be our care in introducing it. If we all think that we are doing the right thing, we have to be careful not to end up inadvertently collectively doing the wrong thing.
Why has this matter taken so long? I have some sympathy with the hon. Gentleman's apparent frustration at the pace of change in our legislative process. Many Members will more than welcome him as a new member of the modernising tendency that is emerging in this place. He will find many allies and I am sure that as they read the Official Report of our debates they will single him out for attention and recruit him to their ranks. However, the tenor of the debate—the weight of the contributions from Members who reminded us how burdensome regulation can be—answers his question. The Government's view is that we are prepared to regulate only where there is a clear need. We have to establish the costs and benefits of regulation before proceeding. The hon. Gentleman was entirely correct in his history of the process and of how we reached this position.
Two consultations were carried out before the Bill was introduced. Why? Because the products are complex and it is important to get the regulations right. Equally, it is imperative that people with a direct interest in the regulation of the products—be they providers, consumers or other interested parties—support the direction of travel of the regulations.
That is what the Government have achieved. It may have taken time, but the regulatory regime will be in existence for a considerable period. People who discover that they have contracted before the regulatory regime comes into force are at a disadvantage. As the hon. Gentleman and other hon. Members have observed, the imminence of the regulatory regime may have a depressive effect on the market. That is not necessarily a bad thing, as people who contract in future, in what we all hope will be an expanding market, will have the benefit of the protection afforded by regulation.
The hon. Gentleman asked when will regulation come into force. The best answer that I can give him from the Dispatch Box is that we will introduce it with appropriate haste. We will move to make regulation effective as quickly as we possibly can, subject to the timetable for secondary legislation and further consultation. As secondary legislation is required, we cannot assume that the House will agree to regulation—the matter lies in the hands of the hon. Gentleman and other hon. Members.
I was asked what protection is available for consumers before regulation comes into force. The FSA already publishes advice for consumers who are interested in buying home reversions. The "FSA Factsheet: Raising money from your home" was
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published in May 2005, and hon. Members and their constituents can access it through the FSA website. If they cannot do so but would like a copy, they can contact the Treasury. If hon. Members, including the hon. Member for Basingstoke (Mrs. Miller) and the hon. Member for Forest of Dean (Mr. Harper), whose contribution and support I welcome, have examples of misleading advertising they should tell me, and I will endeavour to indict or prevent advertising that may mislead their constituents and others. The majority of equity release schemes, namely lifetime mortgages, are already regulated. After the Bill has been examined in detail in Committee—and I welcome the willingness of the hon. Member for Cities of London and Westminster to undertake such examination—we will be able to regulate the rest of those schemes.
In conclusion, the Bill will extend the boundaries of FSA regulation to include home reversion plans and ijara home finance arrangements, thus helping people to make informed choices. It will offer valuable consumer protection and it will ensure that there is a level playing field in the equity release market, most of which, I remind the House, falls within the scope of mortgage regulation. It will introduce detailed provisions to extend valuable protection to elderly and vulnerable consumers when making one of the most important decisions that they are likely to make. It will ensure that Muslim consumers can access all parts of the growing market in sharia-compliant home finance products while benefiting from the protection afforded by FSA regulation. It will help people to make informed choices about home finances products that they purchase. It will create a level regulatory playing field within the equity release market, and it will help to improve consumer confidence in those products, thus facilitating the significant market growth that we all want.
For all those reasons, I commend the Bill to the House.
Bill accordingly read a Second time.
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