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New clause 14 also proposes a seven-day cooling off period for new store-card agreements, whereby consumers could not spend on their card for a week after taking it out. The hon. Member for South-East Cornwall (Mr. Breed) referred to that and said that it ought to be a 14-day period, which Consumer Focus recommends in its response to the consultation that has just closed. The Government recognise the sentiment behind the proposal. We are clear that responsible consumers should make a purchase on credit only after careful consideration, rather than
focusing on a promotional offer, which might seem attractive when someone is in the store and not really thinking about the debt that will have to be repaid in future.
However, a cooling-off period could have far-reaching consequences for both store-card providers and retailers, as it risks reducing the utility of the product and increasing point-of-sale costs to such a point that it might render it unviable. That may result in the withdrawal of a valued source of credit for some consumers and damaging consequences for retailers. Arguments need to be carefully weighed in the balance before a judgment is made.
We conducted a consultation exercise, which ended only last Tuesday. Let us look at the evidence and make a judgment on that basis. If it points to the need for a cooling-off period, we would want to introduce it. We are concerned for consumers to take out store cards-or any credit-with their eyes open, and we need to ensure that we are taking appropriate action in all the circumstances. Through the implementation of the consumer credit directive and the OFT's irresponsible lending guidance, we are introducing new responsible lending requirements to ensure that all regulated credit agreements are responsibly promoted, lending decisions are taken on an informed basis, and consumers are given a proper explanation of the key features of the product and the risks associated with it. Those provisions will bite particularly on store-card providers, who will need to ensure that, when they promote their products at point of sale, their staff are sufficiently well trained and the environment is properly conducive to meeting the new standards. The directive will also provide a new right to withdraw from any regulated credit agreement in the first 14 days.
The Government have received several responses to our consultation on credit and store cards. As I said, the closing date was only last Tuesday. I therefore think it right that we consider all the evidence carefully, issue our response and examine the case for legislation on the basis of it. It would be precipitate to rush to legislate now before we have considered all the submissions that have been made to us.
Given what I have said-my sympathy for the new clauses that my hon. Friend the Member for Wolverhampton, South-West tabled, but our genuine concerns and the fact that a review is currently under way into competition in the market-I invite him to withdraw the motion.
I thank hon. Members for some thoughtful speeches this afternoon. I am quite happy to take some ribbing from the hon. Member for Fareham (Mr. Hoban) on this topic, because, of course, the Labour party is not as monolithic as he might think. I have been propounding such measures for the two and half years that I have been a Parliamentary Private Secretary. I have never, ever been criticised by a Whip or Minister, and I have won some battles with the Government. He may get a shock, because the prospective Conservative parliamentary candidate for Wolverhampton North-East
wants to introduce restrictions-I note that that came about after I tabled the new clause-so both parties are divided on the matter.
The concerns expressed today have been on the workability of any cap. There is an understandable fear that were caps to be introduced, fringe borrowers who currently use legitimate fringe lenders would turn to loan sharks. However, we must be clear that we are talking about a social ill and that some people simply should not be borrowing money. We should bear that in mind. That is what the Crowther committee was referring to in 1971.
It is paradoxical that all three Front Benchers made thoughtful speeches against the new clauses and on the unworkability of caps and so on, but that we already have caps on things such as utilities. We also have a cap on mobile phone roaming rates, for example, which perforce, and by definition, is for some of the more privileged members of our society, namely those who are wealthy and prosperous enough to go abroad on holiday with a mobile phone and make telephone calls. The idea of caps exists in our society, legislation and economy.
However, I take heart from what my hon. Friend the Economic Secretary said about the OFT bringing out guidance later this year on adequate information for borrowers-that key point was raised by my hon. Friend the Member for Stroud (Mr. Drew) in an intervention. I note that the high-cost credit review, which I believe is due to report in spring, will be looked at carefully by the Government. I hope they reconsider caps on the kind of lending arrangements to which new clauses 1 to 7 refer if the evidence indicates that there are significant problems because of the lack of competition in such markets, which I believe there are, and that the fears that caps will lead people to turn to loan sharks are overblown, as I believe they are. On that basis, with those reassurances from the Government, I beg to ask leave to withdraw the motion.
(6) Rules under this section may apply to short selling wholly outside the United Kingdom by persons outside the United Kingdom, but only in so far as the rules relate to shares admitted to trading on a market within the United Kingdom.
Mr. Field: As you would expect, Madam Deputy Speaker, so as not to detain the House too long, I have sought an answer to the question whether there is widespread support for new clause 8, as drafted, and in particular whether the Liberal Democrats support it. It now appears that they do not, so I will use the new clause as a probing proposal. Lord Vinson is also working on this matter, and when we have listened to the debate, we might come back with a much more narrowly defined proposal when the Bill reaches the other place.
My starting point is those hectic days before the bank collapses, when we saw people piling in, trying to destroy the value of the share capital of some of the best-known company names in the country. We learned that some of those individuals-perhaps many of them-were doing that not with their own shares, but with shares that they were borrowing. They were forcing down the price of the shares, then handing them back when they were much reduced in value to the people who owned them. I was puzzled by that. How could anybody in their right mind lend shares to what appeared to be, if we were to believe the media, financial sharks, only to get the shares back at the end of the day much reduced in value?
The next stage in my enlightenment on this topic was when a pension fund chairman-it is not a large fund, but it is certainly a substantial one-wrote to me to say that he, too, was puzzled by this practice. He had inquired of the custodian of his company's series of pension funds whether the shares of those funds were
being lent out. After an uneasy negotiation with the custodian, he found that they were being lent out without his permission, without the trustees' permission and certainly without the knowledge of people who thought that their pension savings were safe.
The custodian's role is key. I have been a Member of Parliament for some time-I was here when Robert Maxwell lifted the shares of many of the pension funds that he felt he owned. We were lax in those days and he found it possible to bully the chairman and trustees to lend him-to put it euphemistically-those shares.
Mr. Field: I am glad that my hon. Friend-I shall call him that-mentioned that point. He has managed to put that on the record without my needing to do so, because-as we all know-Robert Maxwell is not now present to answer those charges. At least, we do not think that he is present.
The House took those matters seriously and two things happened. The then Government asked Sir John Cuckney-later Lord Cuckney-to trace the funds that had been lent out and recover them. Sir John went about the task with the diligence one would expect from someone with his rich career. He was so open-minded on the issue that he adopted the American practice of calling in a judge to mediate with those who claimed that they had taken shares in good faith and should not have to pay back any money. After about five months, Sir John's patience ran out and he called the main recipients of the shares to his office. He said that he would provide lunch, and he effectively locked them up for the day so that they would come up with the funds that the pension funds said that they needed to recover their lost assets. Anyone who knows anything about Sir John's career will know that he knew where the bodies were buried and, by the end of the day, hundreds of millions of pounds were produced.
The second measure taken-apart from the approval of Sir John Cuckney's work-was a major pension fund review. The Select Committee was involved-indeed, one of the Clerks at the Table was the Clerk to the inquiry. We proposed many reforms, and the Government accepted many of them. One of them was to establish the position of custodian, so we could not again have a situation in which a forceful character such as Robert Maxwell could bully the chairmen and trustees of company pension schemes to hand over the assets of the pension funds. So the custodian-we thought-would play a key role in ensuring the safety of pension funds.
Once I learned that the horrors of short selling were way beyond what I had imagined them to be, I approached the pensions regulator. Quite a lot of our time in this place is naturally spent picking fights with public and private officials whom we do not think adequately fulfil their role and, sometimes, nowhere near earn the salaries that they are paid. I want to put it on record that I found dealing with the pensions regulator to be a most reassuring task-indeed, so much so that, having conducted a review, the pensions regulator has laid guidance to trustees saying that they now have a duty to ensure that they know about it, if their funds are being lent. That suggests that the single case that I took to the pensions
regulator was not a one-off job, but that what had happened was more common than we had dared to imagine.
Worse still, the custodian was a bank. Although the chairman saw after probing that other assets were being given back to the pension fund for the shares and gilts that the custodian bank was borrowing, without the knowledge of the chairman, trustees or members of the fund, the collateral in no way matched the value of what was being taken. For example, taking Government gilts, which, despite all our problems with public debt, are still one of the most pukka gilts in the world, and substituting gilts of equal value from fourth-world countries is not, in my view, an adequate recompense. The same goes for the shares that were borrowed in order to be used in short selling. Although those substitute shares were of the same nominal value, nobody in their right mind would think that the risks attached to them were the same as those attached to the shares that had been lent.
I therefore conclude that the Government's success in rescuing the banks was much greater than that to which we have paid tribute in this House, in that if the banks had gone under, which was a genuine worry, and the practice that I am describing had been more widespread than a single pension fund-that is, if there had been many more pension funds whose assets had been lent out by a custodian that happened to be a bank-not only would the chaos of not having an acceptable medium of exchange have followed, but the whole house would have come tumbling down.
I also wrote to the Financial Services Authority, which was not quite as anxious to deal with the issue as the pensions regulator. I asked the FSA whether, in doing spot checks, it looked at banks' balance sheets and at the array of gilts and other assets that it wishes banks to have so that they behave prudently and, should anything untoward happen, so that they have some genuine assets that they can draw on for their depositors, but to my mind a satisfactory conclusion was not reached. The worst scenario, therefore, was where a pension fund was having its shares lent without its knowledge by the custodian-part of one of our major high street banks-and where it was open to the other banks to borrow those assets and perhaps put them on their balance sheets in order to convince the FSA that they were in a healthier condition than they perhaps were. That was the worst scenario, unless one considers that practice to be acceptable; I think that it is not.
I have asked my colleagues for their views on new clause 8, and they feel that it is too restrictive. When I first started out, I thought that short selling itself was wrong and that we should ban it. Perhaps there is a bit of that flavour in new clause 8. I am very interested in the House's view, albeit not on the details of how one might police short selling. I am obviously interested to hear people's views on how we can make that method safer. For example, it might be perfectly proper to short sell, if the share price is rising rather than falling. Those are the kinds of locking mechanisms that I hope we can establish.
I want the House specifically to address the question whether we need to consider further-perhaps not here today, but in another place-how we can better protect our constituents' assets that are wound up in company pension schemes. I have given the House one example. If that were the only example, it would still be worrying,
because it relates to a medium-sized fund. However, my guess is that it does not stand alone, and that other funds have had their shares and assets lent without their permission, risking the life savings of the company concerned and the members of that company's pension scheme.
I wonder whether we need to consider putting a lock on what custodians can do in that regard. The House will see that, among the many measures in the new clause, one of the safeguards is that no pension fund assets can be borrowed unless the chairman and trustees know about it and unless they have consulted the membership-that is, us-if need be. I tried to table some questions to find out what was happening to the House of Commons MPs' pension fund, but, for some reason, I did not get very far towards getting an answer-I did not get an answer saying that the funds were not being lent, so perhaps that practice extends to our pension funds, just as it does to those of constituents.
I ask these questions in the spirit of inquiring into what the House thinks. Perhaps we can regroup with a much more targeted amendment in the other place, but I urge hon. Members to support the new clause.
Mr. Tyrie: I generally agree with the right hon. Member for Birkenhead (Mr. Field); I certainly agree with him far more than I disagree with him. I sometimes wonder whether either of us is sitting on the right side of the House, although I have made up my mind that I prefer to be on the side that I am on.
Mr. Tyrie: I completely agree with the right hon. Gentleman, as I often seek to do. I want to agree with him on his new clause, but I do not think that I shall be able to, because it is misguided-it misunderstands the problem and the solution. He gave a hint of that in his speech when he talked a great deal about pension funds. The solution to ensuring that pension funds are properly regulated is to look at pension fund law, not at general provisions on short selling or on market making.
Mr. Field: I thank the hon. Gentleman. Given that we have this opportunity to improve the safety of pension funds-perhaps not today, given the way in which the new clause has been drafted, but possibly in another place-is it not appropriate for us to use it?
Mr. Tyrie: There might be a suitable peg somewhere in the Bill for such a measure-I have not looked carefully enough to find one-but the new clause uses a machine gun to try to hit one very specific target. It is inappropriate and would cause a lot of collateral damage, as machine guns tend to do when trying to hit only one target.
I shall take a brief look at the new clause-after all, that is what we are discussing. It begins by proposing to prohibit the short selling of shares. Why stop at shares?
If one is trying to address the issue of pension fund assets, what about the bond market, what about corporate bonds and what about that range of financial instruments that runs all the way from poor-grade equity to top-tier sovereign risk? Once one has decided that short selling is a "bad thing", there is no logic to limiting this provision to shares.
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