Banking: Government Shares
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Baroness McDonagh
I beg leave to ask the Question standing in my name on the Order Paper. In doing so, I declare an interest as non-executive director of Standard Life.
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, in line with its framework document and investment mandate, UK Financial Investments will advise the Government on the timing of the disposal of these assets, in light of market conditions at the time. The Office for National Statistics will decide how to account for the proceeds in the public finances of any share sale, taking into account the precise nature of the transaction. How any proceeds will be used will be determined as part of the normal annual Budget process.
Baroness McDonagh
I thank the Minister for that reply. The Government have been able to tell us little about their future banking policy. Perhaps we could be enlightened more about the here and now. I do appreciate that it is difficult for the Minister, given the abject failure of Project Merlin, but how have we got ourselves into a situation where under the Government’s own enterprise finance guarantee scheme we are lending to SMEs less and less each month to the degree where we are now lending half in the first quarter of this year of what we were lending in the first quarter of last year? The Government are threatening banks to lend more and more. When are they going to get banks to lend to small and medium-sized enterprises at rates they can afford?
Lord Sassoon
My Lords, I could be churlish or be fair to other noble Lords who might want to ask about the subject of this Question, which is the Government’s plans to sell shares in the publicly owned banks. We seem to be straying rather far from it. Project Merlin, agreed between the Government and the banks, means that the banks have put aside considerably more lending capacity this year for SMEs than last year. We have transparent reporting and a range of other initiatives to which the banks have committed to ensure that lending flows. We have also put money into a new equity fund for smaller businesses. These were things that the previous Government did not do but which have only peripheral relevance to the subject of this Question, which is about the sale of shares in the banks.
Lord Newby
My Lords, given that all UK citizens have, to a greater or lesser extent, had to bear some of the costs of the Government bailing out the banks, can the Minister confirm that the Treasury is giving serious consideration to the distribution of the state-owned shares in RBS and Lloyds Banking Group to the UK population as a whole?
Lord Sassoon
My Lords, I can confirm to my noble friend that UK Financial Investments will be considering retail participation in the distribution of the shares. That does not, of course, necessarily mean quite what he said, which is some form of distribution but, yes, mass participation in some form is very much to be considered. Value for money is also one of the considerations that UKFI is required to take into account.
Lord Peston
My Lords, particularly as the Minister used the phrase value for money, is not the Government’s prime duty in determining when to sell making sure that the taxpayer gets the maximum proceeds from the sale of the shares? Is that not clear-cut? Is it not also clear-cut that the one group that should not be allowed to bid for the shares is the bankers who got us into this financial mess in the first place?
Lord Sassoon
My Lords, the obligation on UK Financial Investments is to provide advice to the Government on the time and form of sale. Value for money, as widely defined, is very much a consideration. The Government do not intend to be a permanent investor in the banks, but the timing of any disposals will take account of many considerations, including market conditions at the time.
Baroness Wheatcroft
My Lords, one of the answers to getting more lending to our small firms, who are clearly not yet being well served by Project Merlin, must be to encourage more competition. Can the Minister assure me that he sees no conflict between the desire to get the maximum price for the Government's investments in banks and ensuring more competition?
Lord Sassoon
My Lords, I am grateful to my noble friend as she enables me to point to the mandate which UK Financial Investments was given by the previous Government. It was that in creating and protecting value for the taxpayer it must have due regard to both financial stability and competition. At all stages, whether it is the involvement of the Independent Commission on Banking or the mandate of UKFI, competition is at the centre.
Lord Eatwell
My Lords, the noble Lord has mentioned Project Merlin on a number of occasions. Will he explain to the House why the lending targets set for the banks under Project Merlin and announced to this House have now been reduced by a good 10 per cent? Why are the Government fiddling the figures?
Lord Sassoon
Number one, this is a Question about the disposal of bank shares; number two, I would not believe everything that you read on the front page of the Financial Times every day.
Lord Lawson of Blaby
My Lords, in saying that financial stability should be one of the considerations in the disposal, which I warmly welcome, does my noble friend agree that an element of that financial stability must be ensuring the greatest possible separation between retail banking and investment banking?
Lord Sassoon
My Lords, I will wait with interest to see what the final report of the independent commission led by Sir John Vickers says on that point but, as indicated in its interim report, it is at the heart of its deliberations. The Government await with interest its final report.
Lord Touhig
Is the Government’s holding in the banks listed in the National Asset Register, and, if not, why not? If it is listed, can the Minister tell us where it is, because I cannot find it?
Lord Sassoon
My Lords, I shall have a look at the National Asset Register myself when I get back to the Treasury and, if it is not there, I shall write to the noble Lord to explain why.
Taxation of Equitable Life (Payments) Order 2011
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Lord Sassoon
That the draft order laid before the House on 21 March be approved.
Relevant document: 19th Report from the Joint Committee on Statutory Instruments, considered in Grand Committee on 7 June.
Consumer Insurance (Disclosure and Representations) Bill [HL]
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The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, this Bill implements the recommendations of the Law Commission and the Scottish Law Commission in their 2009 joint report on the law governing pre-contract disclosure and misrepresentation in consumer insurance contracts. This report highlighted an area where a complex and confusing array of rules and regulation has emerged to compensate for outdated legislation.
This is a limited and targeted Bill, which applies only to consumer insurance contracts; it does not apply to insurance contracts solely or mainly covering business, including micro-businesses. There has been extensive consultation, the results of which have been reflected in the Bill where possible and relevant. The recommendations enjoy a broad consensus of support from the industry, consumer groups and regulators. It has therefore been deemed suitable for this Bill to be considered by your Lordships under the procedure for Law Commission Bills.
On 2 October 2010, a letter with a range of signatories was sent to the Times in support of this Bill. It described the current law as designed to,
“govern face-to-face commercial insurance deals in the coffee houses of Georgian London”.
It should not come as a surprise that this existing law, passed in 1906 to govern marine insurance, is no longer an appropriate basis for the law on all consumer insurance contracts. The insurance industry itself has recognised that requiring consumers to provide all information that might,
“influence the judgement of a prudent insurer”,
is no longer a sensible approach.
It does not seem a reasonable expectation of consumers that they should understand the underwriting process to the extent necessary to know precisely which facts they should disclose. For example, under current law a consumer may find that his or her critical illness policy no longer provides cover because he or she has not mentioned a visit to the doctor for a cold. Even if he or she reasonably thought this irrelevant to the cover that he or she had purchased, was not asked specifically to give details of all visits to the doctor or had simply forgotten the visit, the insurer may use the non-disclosure to refuse to pay. When facing a critical illness and any consequent financial disruption, finding that you have lost the safety net that you thought you had might, understandably, be highly distressing and disruptive.
This Bill will address these problems by changing the law through two central provisions. First, there is the change at Clause 2 from a requirement that consumers volunteer information to one that the insurer ask clear and specific questions. Secondly, provision is made in Schedule 1 for a proportionate set of remedies for the insurer when a misrepresentation has been made.
Let me start with the change at Clause 2. By replacing the existing requirement on the consumer with a duty to take reasonable care to answer questions fully and honestly, this Bill brings the law up to date with industry best practice. It reflects current regulation by the Financial Services Authority and the approach taken by the Financial Ombudsman Service. It will no longer be possible, as it currently is, for an insurer to refuse to pay a claim and have this refusal upheld by the courts but be ruled against by the ombudsman and be fined by the FSA. The current law and layers of regulation are complex and confusing for both industry and consumers.
We anticipate that providing clarity to the requirements on each party will lead to a reduced number of complaints to insurers and the FOS. At present the FOS receives around 1,000 complaints a year about non-disclosure and misrepresentation. Around half of the insurers’ decisions are upheld. We would expect the uphold rate to be much higher if there were sufficient clarity around the rules, which indicates that insurers find it difficult to locate and interpret the rules.
In future, this law should be taken into account by the ombudsman when deciding cases, as required by FSA rules. Complaints about claims that were above the FOS’s limit for consideration, or otherwise not resolved by the ombudsman, could be addressed in the courts. However, the Bill will not lead to consumers being driven to the courts earlier than at present.
We believe that the Bill will shift the balance of the law in favour of the consumer. The Marine Insurance Act is, in some parts, heavily biased in favour of insurers. This Bill attempts to rectify that bias. It removes a sometimes unreasonable level of duty on the consumer so that responsibility for accurate disclosure lies somewhere between consumer and insurer. Our replacement has received support from a range of consumer groups, including Which?, the British Heart Foundation, Consumer Focus, Macmillan and Age UK.
Of course, there is also a balance to strike between the effort required of the consumer to provide relevant information and the role of the insurer in prompting this. I know from discussions with noble Lords that there are concerns around this. The Bill does not attempt to guide what questions insurers should ask beyond a requirement that they are clear and specific. However, this is covered in industry guidance elsewhere. Under principle 6 of the FSA Principles for Businesses, a firm,
“must pay due regard to the interests of its customers and treat them fairly”.
More specifically, firms have an obligation, under this principle and under the Insurance: Conduct of Business Sourcebook, to ensure that customers know what they must disclose. The FSA has also indicated that it does not think that the entire burden around disclosure should fall on the consumer.
Once information has been provided, Clause 4 sets out which circumstances then entitle the insurer to a remedy. The insurer must establish that, had it known the true facts, it would not have entered into the contract, or would have agreed different terms, before it can reject or reduce a claim. For example, a remedy would not be permitted if the insurer could not demonstrate that failure to disclose the visit to the doctor with a cold would have affected the motor insurance policy that it offered.
This takes me to Schedule 1, which looks at remedies available to the insurer when there has been a misrepresentation. The current penalties for failing to disclose information to insurers are harsh. A failure to disclose any information that a prudent insurer would consider when writing the policy means that it becomes void. This Bill will mean that an insurer can only apply a penalty proportionate to the nature of the misrepresentation. If the misrepresentation was honest and reasonable, the insurer must pay. If the misrepresentation was careless, the insurer has a remedy based on what it would have done had the consumer answered the question accurately. If the insurer would, for example, have excluded a certain illness, the insurer need not pay claims that would fall within the exclusion but must pay other claims. If the insurer would have charged a higher premium, it must pay a pro rata proportion of the claim. This means that only if the information carelessly misrepresented or not disclosed would have affected the terms of the policy would the insurer have a remedy. Finally, if the misrepresentation was deliberate or reckless, the insurer may treat the policy as if it never existed and may decline all claims. It is also entitled to retain the premiums paid.
I should also outline some of the further contents of the Bill. It establishes a statutory code to determine for whom an intermediary acts when arranging insurance. The ombudsman has often seen consumers allege that their broker was responsible for the provision of inaccurate or misleading information. Schedule 2 therefore lists factors that tend to show whether the agent acts for the insurer or consumer and therefore who should bear the consequences. This code is based largely on existing law, as supplemented by FOS practice and industry understanding.
Clause 7 also contains special provisions for group schemes where one party, typically an employer, arranges insurance to benefit members of the group. The Bill provides that, where one group member makes a misrepresentation, that has consequences only for that individual and not for others within the group. Again, this is in line with current accepted good practice.
The Bill that I have been detailing has a broad consensus of support. Discussions with interested parties have been extensive. The consultation carried out by the Law Commission ahead of its report received over 100 responses. HM Treasury has since carried out targeted consultation to ensure that support for the Bill remained. A summary of these responses has been placed in the Libraries of both Houses. The consensus obtained by the Law Commission has remained intact throughout the process. I have mentioned support from consumer groups, but the industry and regulators are also positive about a Bill that will ensure that the law reflects their existing approaches and best practice. We believe that this Bill will clarify the standing of consumers and reduce costs for the industry. I am pleased that it has been so widely supported and I commend it to the Committee.
Lord Sassoon
My Lords, I start my response to what has been a helpful discussion by thanking the noble Lords who have taken the trouble to contribute this afternoon. The points have been wide-ranging and constructive. I am grateful to the noble Lord, Lord Eatwell, for his faith that I can respond so quickly to the huge number of very detailed points that he raised in his constructive intervention. He may forgive me in advance if I do not manage to cover all the details. Of course, I will write to the noble Lord and copy that to others who have taken part in the debate this afternoon.
Lord Eatwell
My Lords, I entirely understand the noble Lord’s position and am quite happy to receive written answers to my questions.
Lord Sassoon
I am grateful for that, because some of this has been a touch technical and some rather fundamental. I will talk about the process in a moment, as my noble friend Lord Higgins asked about the procedure for Law Commission Bills. The fact that it is a Law Commission Bill and has, as my noble friend pointed out, been the subject of a big report subsequently consulted on by the commission means that we can be fairly confident that all the fundamentals of the law have been considered in great detail. Otherwise, this Bill would not be going through this procedure. This is the first Bill to go through the Law Commission procedure since the procedure was made permanent last year. I am pleased that, as my noble friend Lord Higgins recognised, this innovation has allowed for parliamentary time to be found for this legislation, which would clearly otherwise have been difficult.
On what happens next, the important thing is that this is not in any sense a fast-track procedure, because the Bill will follow the usual parliamentary process but for two exceptions. First, the substantive Second Reading debate is held in Committee—that is what we are doing this afternoon—rather than on the Floor of the House. Secondly, the Committee stage will be, as the noble Lord, Lord Eatwell, said, taken by a Special Public Bill Committee, which is indeed empowered to take evidence from witnesses as well as to conduct the usual clause-by-clause examination of the Bill. I have no present intention to suggest from the Government’s side that we should call witnesses, but that is allowed for in the procedures. For the benefit of my noble friend, I draw the Committee’s attention to paragraph 8.44 of the Companion to Standing Orders, which says:
“The House agreed in 2008, on a trial basis, that second reading debates on certain Law Commission bills should be held in the Moses Room … The Committee debates the bill, and reports to the House that it has considered the bill. The second reading motion is then normally taken without debate in the House, though it remains possible, in the event of opposition, for amendments to be tabled or a vote to take place on the motion. Law Commission bills are normally committed to a special public bill committee”.
I hope that that is as clear as it can be. I do not know whether that allows for speakers lists, gaps and things this afternoon, but I am grateful that my noble friend got to his feet and contributed to the discussions in his usual lively way.
As I said in opening, we believe that this Bill is necessary in order for the law to catch up with best practice. It will also ensure that the legal duty of consumers is reasonable and clear. In answer to the questions asked by the noble Lord, Lord Eatwell, in this area, I am not sure whether it is right to look on it in the context of shifting the onus of good faith. It is clear that it is up to the insurer to ask the questions and to the consumer to answer them, with the potential consequences of misrepresentation in the way that I outlined in opening. The effect of this is to shift the burden between the insurer and the consumer in the consumer’s favour as against the law as it stands in the 1906 Act. That is entirely appropriate.
It is worth reiterating in this context—I think that this is the point on which my noble friend Lady Kramer asked for confirmation—that any information that the consumer misrepresented or failed to disclose must be proven to have been relevant to the content and/or the price of a policy before the insurer is entitled to a remedy. There is a shift in the legal position, but it is a shift towards a position that is in line with industry best practice and the standards that are currently imposed by the Financial Ombudsman Service.
I am particularly grateful to my noble friend Lady Kramer for drawing attention to a shocking but classic case of the sort that this Bill is intended to obviate and to ensure does not happen in future. The case that she put forward was interesting because it was a question not of unreasonable loss to the consumer—as I understand it, after a two-and-a-half-year struggle, the FOS found in favour of the insurer—but, as was explained to us, of the very real distress and the time and effort that had to go into getting to the right answer. That should be eliminated in similar situations as a result of this legislation.
As I said in opening, the industry will benefit, as we anticipate a reduction in the costs of handing complaints internally and with the ombudsman. In that context, I can confirm to my noble friend Lady Noakes that we will be mindful of the burdens of implementation on the industry. She rightly and helpfully pointed out the various other initiatives that will bite on training, information and standards of scripts, whether in relation to the retail distribution review or simplified advice. Her points are well taken.
My noble friend Lord Higgins referred to paragraph 10.30 of the Law Commission’s report, which discusses the pros and cons of giving legal effect to industry guidance. My noble friend quoted from paragraph 10.30, but the report discusses the issue at some length in paragraphs 10.32 to 10.43. The Law Commission decided not to include such a provision for the reasons set out in paragraph 10.38, principally because the role of guidance is different from that of legislation. I think that the discussion is extensive in the Law Commission’s report.
Lord Higgins
I am most grateful to the noble Lord. The trouble on these occasions is that the Hansard reporters tend to remove the relevant documents. I am most grateful for his clarification.
Lord Sassoon
Good. I, too, am grateful that we have nailed that one.
On the other questions raised by the noble Lord, Lord Eatwell, there is first this difficult issue about permissible questions and specifically questions of gender and race. They are made particularly difficult by the recent judgment of the court in relation to motor insurance. This issue is dealt with elsewhere and not in the Bill, which is solely focused on the transmission of information in the context of underwriting risk. It is not part of the scope of the Bill to discuss questions of discrimination or equalities legislation—nor should it be.
On the definition of consumers and micro-businesses, we discussed informally last week what would happen with respect to the insurance of the foot of a ballet dancer or a footballer. Maybe we could call this the “David Beckham’s foot” question. The Explanatory Notes on Clause 1 define a consumer as,
“an ‘individual’ who is acting wholly or mainly for non-business purposes. Thus the consumer must be a natural person, rather than a legal person (such as a company or corporation). The definition expressly provides for mixed use contracts”—
for example, the insurance for a personal car that is sometimes used for business travel to be defined as a consumer insurance contract. It means that the Bill will not apply to individuals purchasing insurance that is mainly for purposes related to their trade, business or profession, which would clearly be the case in some of the examples that have been discussed.
Lastly, on the cost of insurance, HM Treasury has not made an estimate of the impact of the Bill on insurance premiums. However, we have estimated that the net impact will be savings for the industry—that is, when we take account of the initial training costs and the savings as a result of fewer FOS complaints among other factors. On the basis that the industry should have net savings from this Bill being enacted, there is absolutely no reason to believe that there should be any additional cost passed on to consumers. In relation to the overall cost of insurance, these are relatively small marginal costs but ones that would impact favourably—that is, downwards—on insurance costs.
Lord Eatwell
I should perhaps explain the point about cost. Given that the catch-all clause from the Marine Insurance Act 1906 is removed, necessarily the range of risks to which the insurance company is exposed will be greater. Given that, it is likely that the premium charge will be greater. That was the point that I was making.
Lord Sassoon
My Lords, I do not believe that the range of risk will be any greater. Under this Bill, the range of risk to which the insurers are exposed will be brought in line with the current industry best practice and the standards to which insurers are held under FSA rules and by the FOS. There is no extension of the range of liabilities; there is merely—this is an important “merely”—an alignment, a clarification and an important legal codification of where the duties lie at the point at which the insurance contract is taken out. There is also clarification of the remedies—the remedies that are already applied by the FOS—should a misrepresentation occur. So, yes, the position under the law will change from that of the 1906 Act, but in substance the Bill will put insurers in a position that they are already in under current practice. Therefore, I would not accept that there is a greater range of liabilities and costs to which the insurer is liable; if anything, as I have said, there will be a modest saving because of the clarity that the new architecture will bring.
I have gone on at some length in response to the important questions that have been raised. I will sweep up anything else that I have not had the chance to cover and get back to noble Lords in good time ahead of the Special Public Bill Committee. I hope that I have, nevertheless, responded to as many points as I can this afternoon. I look forward to further discussion in the Special Public Bill Committee in due course.
Taxation: Healthcare Insurance
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Lord Flight
To ask Her Majesty’s Government whether they will exclude the provision of healthcare insurance by an employer for an employee as a taxable benefit in kind.
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, the Government have no plans to introduce a new tax exemption for private healthcare insurance where it is provided as a benefit in kind.
Lord Sassoon
My Lords, I am always happy to see evidence on any matter that could save the public purse considerable sums of money. The study has not been done but I am happy to look at any evidence that my noble friend has. However, I caution him that our general thrust is to get rid of reliefs and to simplify the tax system. That is why my right honourable friend the Chancellor announced the abolition of 43 reliefs in the recent Budget. The latest figures indicate that 2.3 million employees are still provided with private medical insurance by their employers. That would probably cover 4.3 million people in total, so the benefit is still widely offered.
Baroness Farrington of Ribbleton
My Lords, will the noble Lord the Minister, if his noble friend provides the additional information, have regard to the fact that, to my knowledge, no private healthcare system provides totally comprehensive cover? Will he bear in mind the anger that a consultant in an intensive care unit expressed to me at the fact that people coming in from the private sector for intensive care were blocking his beds? He accepted their right to do that, but people cannot opt out of the National Health Service, so the proposed measure would not necessarily save the money to which the Minister’s noble friend referred.
Lord Sassoon
My Lords, I am happy to confirm the position, which is quite clear and obviously will not change. As I say, we are not looking at this, but I never say no to ideas that would save considerable sums of money, however remote the possibility that the scheme would work. However, individual choice is the issue around private medical insurance. There is no plan to alter the role of private medical insurance in healthcare provision and there is no loss of entitlement to NHS care for those who take out private medical insurance.
Lord Newby
My Lords, leaving aside the financial implications of the Question asked by the noble Lord, Lord Flight, does the Minister agree that to move in that direction at this time would send completely the wrong signals? At a time when we should be supporting and strengthening the NHS, if the Government were in effect to encourage people who could afford it to have nothing to do with it, that would take us in exactly the wrong direction.
Lord Sassoon
I am grateful to my noble friend for allowing me to say again that we have absolutely no plans to introduce any such change to the benefit-in-kind rules or to the way in which private healthcare interrelates with the NHS.
Lord Palmer
My Lords, is that not a terrible shame? In order to ease the pressure on the National Health Service, would it not make sense, particularly for those who are self-employed, to allow their health insurance premiums to be offset against their income tax?
Lord Sassoon
As I have explained, to date I have seen no evidence that leads to that conclusion. The Treasury has done no detailed studies on the matter.
Baroness Gardner of Parkes
My Lords, is the Minister aware that the health reforms seek to ensure that the sort of situation that the noble Baroness, Lady Farrington, described, whereby the National Health Service has had to pick up all the failings of the private sector, will not happen again?
Lord Sassoon
My Lords, I can only repeat that there is no intention to change the relationship between private healthcare provision and entitlement to NHS care.
Lord Hamilton of Epsom
Can my noble friend clear my mind on this? If someone privately insures, whether they get tax relief or not, surely they remove a burden off the National Health Service.
Lord Sassoon
My Lords, they may to some extent at the margin remove a burden off the National Health Service, but, equally, under the previous arrangements where partial tax relief was given, there was considerable additional cost to the taxpayer. It is estimated that putting in place some new allowance would immediately cost the Exchequer at least £700 million—probably considerably more—because of the dead-weight effect of offering that relief to people who already have medical insurance.
Baroness Whitaker
My Lords, does it remove the burden on the National Health Service if it is the same surgeon who performs the treatment, whether private or public, because then the privately insured person jumps the National Health Service queue?
Lord Sassoon
My Lords, that was not the point that I was arguing at all. I stress again that there is no intention to change the existing relationship. We are not studying any plans to bring in a new benefit in kind in this area. These are all interesting points, and some are important, but I hope that the position is clear.
Oil Prices
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Lord Barnett
To ask Her Majesty’s Government what plans HM Treasury has to ensure that inflation is reduced and consumers derive benefit when there is a reduction in oil prices.
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, the independent Monetary Policy Committee of the Bank of England, the MPC, is responsible for maintaining price stability. It sets policy to meet the inflation target in the medium term. The MPC continues to judge that inflation is likely to fall back through 2012 and 2013. Petrol retailing is a competitive market. It is that competition which should see reductions in oil prices passed on to consumers.
Lord Barnett
I thank the noble Lord for his Answer. I am conscious of the fact that he has a propensity to quote what I said some 40 years ago. I thought of checking this time, but on reflection I realised that the Government have inherited a different policy from that of my time. In 1997, the then Chancellor Gordon Brown, as the noble Lord has pointed out, introduced a new policy involving the transfer of power from the Chancellor to the Governor of the Bank of England and the Monetary Policy Committee. The Government do not particularly like the then Chancellor but I assume that they are happy with the inheritance. Perhaps the noble Lord will confirm that. I know that he does not like talking about interest rates but will he also confirm the extreme national and international importance of interest rates and that the Chancellor still has absolute confidence in the governor and his policy for dealing with inflation?
Lord Sassoon
My Lords, I am very happy to confirm that this Government are entirely comfortable with the structure around the MPC and have complete confidence in the governor. I could go on. I have quotes from 40 years ago. I was going to use quotes from 30 years ago but if the noble Lord would prefer me not to use them on this occasion I will not do so. However, his words of wisdom are always my guide.
Lord Bilimoria
My Lords, I agree with the Bank of England in keeping interest rates low to support the economy but on the other hand we have rampant inflation: food inflation is 5 per cent; wheat has gone to 70 per cent; corn is 100 per cent. The consumer is being squeezed because we have wage deflation. Does the Minister agree that the Government are between a rock and a hard place? In that situation, should not the Government consider reducing taxes to help the consumer and encourage growth?
Lord Sassoon
My Lords, I completely agree with the figures given by the noble Lord for the very considerable increases in commodity prices over the past year. Those are, of course, driven by global factors, but they impact very severely on consumers and businesses in this country. That much I agree with. He referred to low interest rates. This is absolutely critical. We have almost record low interest rates on our 10-year gilts at the moment—3.33 per cent, I think, last night. That is a recognition of the confidence that the Government have in the underlying fiscal policy but it also reinforces that the Government’s contribution is to make sure that we continue to have a prudent view on public finances and do not deviate from the course that we set for reducing the fiscal deficit that we inherited.
Lord Higgins
My Lords, is it not clear that the mechanism set up by Mr Gordon Brown for controlling inflation is not working and that the Monetary Policy Committee of the Bank of England is taking a number of other factors into account in addition to inflation? That being so, would it not be appropriate to revise and improve the remit given to the MPC rather than the Governor of the Bank of England having to write letter after letter after letter to the Chancellor of the Exchequer explaining why inflation is above target?
Lord Sassoon
Well, I am always reluctant to disagree with the analysis of my noble friend who has considered these matters for many years, but I do disagree because I think that the medium-term target that the Bank of England has been given and the framework within which the MPC operates continue to be entirely appropriate. Of course, it is a medium-term target, and the latest Office for Budget Responsibility forecast from March shows inflation coming down to 2.5 per cent in 2012 and 2 per cent in 2013.The comparison of independent forecasters shows a very similar picture—2.3 per cent next year and 2.1 per cent in 2013. This shows that the Bank of England has the confidence of the commentators and the forecasters to continue to work to its mandate successfully.
Lord Hughes of Woodside
Is it not the case that inflation is never going to reach the benign figures that the Minister says? Yesterday we were warned of a gas price increase of 19 per cent, an electricity price increase of 10 per cent, and all the other companies will do the same. How can the noble Lord possibly think that inflation is under control? Is he simply going to let the spiral continue until we land in bankruptcy?
Lord Sassoon
My Lords, of course we would not wish to see inflation at the 4.5 per cent it is now. As has been explained, this is very largely driven by global factors with regard to commodity prices. We are not only keeping to our tight fiscal policy, which underpins the ability of the Bank of England to stick to its mandate, but giving help to the most vulnerable—whether that is the Budget announcement that gave a £630 increase in cash in personal allowances for the under-65s, whether it is in the arrangements that we made to cut fuel duty effectively by 6p per litre from what the plans of the previous Government had been, or whether it is increasing the state pension by 4.6 per cent. What the Government must do, and are doing, is to protect the most vulnerable in our society.
Lord Newby
My Lords, with the Chinese economy, the Indian economy and many other economies still growing strongly, is it not likely that the price of oil and other fossil fuels will remain high for the foreseeable future? In those circumstances, does the Minister agree that the Government’s carbon reduction strategy assumes an even greater importance? In that context, can he tell us when the Government plan to bring forward the Bill formally establishing the green investment bank?
Lord Sassoon
My Lords, we will bring forward the Bill in due course when it is in good shape. I take my noble friend's point about commodity prices. It reinforces the fact that we need to ensure that all energy users get advice to use energy efficiently in order to reduce their household bills. That is part of where we are targeting government help.
Lord Davies of Oldham
My Lords, when energy prices and oil prices rise, the price to the consumer rises very quickly. When world prices fall, the price to the consumer falls very slowly. What are the Government going to do about that?
Lord Sassoon
I have no idea what the noble Lord’s evidence for that is. The most recent intervention taken by the Government was to cut fuel duty, as I explained, by 1p per litre on Budget day. The price at the pump over the following few days fell by 0.8p per litre, despite rising oil prices over those same days. The market was investigated by Ofgem or the OFT. The competition authorities looked at the market for oil prices in 1998 and have not sought to look at it again. If the noble Lord or anyone else has evidence about prices, Ofgem, which looks at the market, has dealt with them recently and I am sure that the OFT will as well.
Taxation of Equitable Life (Payments) Order 2011
Lord Sassoon Excerpts(13 years, 5 months ago)
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Lord Sassoon
That the Grand Committee do report to the House that it has considered the Taxation of Equitable Life (Payments) Order 2011.
Relevant document: 19th Report from the Joint Committee on Statutory Instruments.
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, to set this order in context, it may be helpful if I provided a little background on the development of the Equitable Life payment scheme. The Government have pledged to implement the Parliamentary and Health Service Ombudsman’s recommendation to make fair and transparent payments to Equitable Life policyholders for their relative loss as a consequence of regulatory failure. We have made considerable progress towards fulfilling that pledge.
We introduced the Equitable Life (Payments) Bill in July 2010, giving HM Treasury authority to incur expenditure when making these payments. We published Sir John Chadwick’s advice on the financial losses sustained by Equitable Life policyholders, invited representations on this advice, and carefully considered them in our deliberations in advance of the spending review. Following that consideration, and refinements to the calculations of Sir John’s actuaries, we quantified the relative loss at £4.1 billion, based on a full acceptance of the Parliamentary Ombudsman’s findings of maladministration. In determining the level of payments through the scheme, it was important, as the Parliamentary Ombudsman herself acknowledged, to take into account the impact on the public purse. Therefore, at the spending review we announced that approximately £1.5 billion would be paid out through the payment scheme.
It is also important to note that even in the context of a very tight spending review, we still found a way to cover all the losses of the with-profits or trapped annuitants. This is possible because we will be paying their losses through annual payments that reflect the structure of their policies. These policyholders were particularly vulnerable to their losses because they were unable to move their funds elsewhere or mitigate the impact of their losses through employment. They are also generally the oldest policyholders.
We also established the Independent Commission on Equitable Life Payments, chaired by Brian Pomeroy, to advise on the distribution of the remaining funding among other policyholders. The commission reported in January, and its recommendations formed the basis of the Equitable Life payment scheme design document that was published on 16 May. The document sets out the detail of how the scheme will work, including who will receive payments, how they will be calculated, and how they will be made. In that document, we set out our intention to make first payments through the scheme by the end of this month, and we are on track to meet this target.
Noble Lords may be pleased to hear that that this brings me to the order itself. When we introduced the Equitable Life (Payments) Bill last year, we took a power to provide for authorised payments made by the scheme to be free of tax, and to enable them to be disregarded for the purposes of assessing eligibility for certain means-tested state-funded support. At the spending review, the Financial Secretary to the Treasury announced that the payments would be tax free. There are strong reasons for this, which were raised in the representations following the publication of Sir John’s advice. One key issue is simplicity. It would be an extremely difficult task to decide the appropriate tax treatment of a payment that represents loss suffered on an investment over the past 10 years, during which many policyholders’ circumstances may have changed. It would also be very challenging to explain any such treatment and associated reporting requirements to those in receipt of payments. This approach would also be extremely time-consuming. In light of our commitment to bringing the Equitable Life issue to a conclusion as quickly as possible, it is just not tenable.
Secondly, we have taken serious consideration of fairness. Of a total loss of £4.1 billion, £1.5 billion will be made available to the scheme, based on our careful assessment of what funding would strike a fair balance between fairness to policyholders and fairness to the taxpayer. Adding a tax liability to payments on top of this discount would disrupt this balance.
Let me take the Committee through the order. Articles 2 to 4 provide for authorised payments to be disregarded for the purposes of capital gains tax, corporation tax and income tax. All direct payments from the scheme to identified payees, as set out in the Equitable Life Payments Scheme design document, are authorised payments under the scheme. Where Equitable Life has only one set of data and no records of the individual members of a group pension scheme, the scheme will use the trustee of the group pension scheme as a paying agent. Onward payments from these trustees to their pension scheme members are also authorised payments.
Article 5 provides for inheritance tax. It ensures that a person’s right to, or interest in, an authorised payment will be disregarded in calculating the value of that person’s estate on death for the purposes of inheritance tax; and that such rights or interests are similarly disregarded in calculating the value of relevant property subject to a 10-year anniversary charge for inheritance tax, where an authorised payment is made on or after such anniversary. This means that no estate will have to be reopened in order for inheritance tax to be charged on payments received after death. But payments received before death will not be ring-fenced to give them ongoing relief from inheritance tax. Such ring-fencing is not practicable.
Article 6 provides that in calculating investment income for the purposes of entitlement to tax credits an authorised payment shall be disregarded. Section 9 of the scheme design document that we published last month sets out in detail how the tax relief set out in the order will work in relation to the scheme.
I hope that all present will support the making of this order today. Following today’s debate, the order is scheduled for debate in the other place tomorrow. This should ensure that the order is made before the end of the month, giving certainty and reassurance to those who will receive the first payments. The order reflects the Government’s principles of fairness, transparency and simplicity in our response to the Equitable Life saga, and I beg to move.
Lord Newby
My Lords, I thank the Minister for that clear description of the background and of the order. The whole Equitable Life saga is one of the least-savoury examples of public policymaking in recent years, and it was a great relief that the Government were able to grasp the nettle and reach a settlement so quickly last year. Therefore speed, which was so lacking for so long, needs now to be of the essence in getting payments made. The Minister explained that the payments will be exempt of tax because to have made them liable to tax could have been time consuming. One can think of other cases in which the payment of compensation has taken years because of the time-consuming procedures that were put in place. The pneumoconiosis saga among the miners is a classic example of necessary detailed calculations and assessment taking years, during which time inevitably a significant number of those eligible for the payments died. Given that we are talking here about pensioners, time is of the essence.
I have one question for the Minister. Once the order is passed, the Government hope to begin making payments by the end of this month. Do they have any assessment of how long it is likely to take for the whole process to be completed? That is of huge importance to the individual policyholders. It is great knowing that you are going to get some compensation, but you need certainty. It would therefore be very good if the Government could give some certainty in the timetable so that even those who will not receive payment in the first tranche will have some broad idea of when they will receive it.
Lord Tunnicliffe
My Lords, I, too, thank the Minister for his concise overview of the position and for introducing the order. We support the action that the Government have taken on this whole issue, and we accept that, although we may have different views about the approaches taken, speed is of the essence and the order should go through. We know that during the passage of the primary legislation there was some debate on the quantum, but ultimately Governments are in the business of making decisions and we recognise the decision to set the payment scheme at £1.5 billion.
In the original debate there was some concern about the allocation to the group of with-profits annuitants. The general principle that they should be protected against the comparison at 100 per cent was consensual. However, as my noble friend Lord McKenzie said in the debate:
“If relative loss is calculated on a gross-of-tax basis and the post-1992 with-profit annuitants are kept whole on this basis, will not the tax exemption go further than full reimbursement?”.—[Official Report, 24/11/10; col. 1152.]
I accept the case that has been made for simplicity but, in terms of the balance between the two pots, are the Government comfortable that this has not created an anomaly between the with-profits group and the non-with-profits group?
I join the noble Lord in seeking further information on the progress of payments but, aside from that question and perhaps the matter of an enhanced progress report, we support the order.
Lord Sassoon
My Lords, first, I thank my noble friend Lord Newby and the noble Lord, Lord Tunnicliffe, for their helpful contributions to this short debate and for supporting the order. The making of the order is a crucial step towards making the first payments at the end of the month.
I shall address the questions that have been raised by my noble friend Lord Newby, followed up by the noble Lord, Lord Tunnicliffe, about how the timetable will unfold. As I said, the first payments will commence by the end of this month. It is then expected that payments to all traceable accumulating with-profits groups and conventional with-profits policyholders will be made over the first three years of the scheme. Payments to with-profits annuity policyholders for past losses will be spread over the first five years of the scheme, while annual payments for future losses will commence in year one and continue for the lifetime of the policyholders. All individual policyholders can expect to hear from the scheme in the first year—that is, by June 2012. As I think I said, for certain classes of policyholder closure of the process will be within three years; for others, five years; and for one class, as I identified, over their lifetime. I hope that that makes the position clear in respect of the several different classes of policyholder.
In response to the question of the noble Lord, Lord Tunnicliffe, on why tax relief is being granted on payments to with-profit annuitants who will have received 100 per cent of their losses covered by the scheme, losses for with-profit annuitants have been calculated on a gross basis. As I have just said, unlike other policyholders, those annuitants will receive their payments over time and we will not be paying any interest on those payments between the date of the calculation—December 2009—and the date of receipt. Disregarding the payments for tax will offset the effect of that payment schedule and the absence of any interest. It is important to note that these payments are in respect of losses that go back over nearly two decades and it would be an incredibly complex and burdensome task to work out what the tax positions for individuals would have been at the relevant time. As has been recognised, the scheme needs to be simple and not unduly complex. In recognition of that, we have decided to make the payments tax free. In the round, we do not believe that this will result in overpayment for with-profits annuitants, given the offset that I have identified.
Briefly, as regards reporting on the progress of the scheme—an issue that was briefly touched on by the noble Lord, Lord Tunnicliffe—progress will be tracked and evaluated throughout the lifetime of the scheme, and I envisage that a number of reports will be produced, including in relation to the management of contracts, operations and risks. I am happy to give reassurance that the Government will give Parliament regular updates on the progress of the scheme.
We have come a long way in the past year to redressing the losses that Equitable Life policyholders have suffered over the past decade. Following the coming into effect of the order, a communications strategy is in place so that all recipients will be informed that their payments are to be tax free, and that they do not have to report them for tax purposes. In addition, HMRC helplines, and the staff at payment scheme call centres will be provided with lines to take so as to answer any questions on the tax treatment of these payments. I am grateful for the Committee’s support.
Banks: Cheques
Lord Sassoon Excerpts(13 years, 5 months ago)
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Lord Naseby
To ask Her Majesty’s Government what is their response to the proposed withdrawal of cheques by the banks.
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, the Payments Council has made a clear statement that cheque facilities will continue to be available until the alternatives that are put in place, including a paper-based system, are available, acceptable and widely adopted. Many users continue to rely on cheques, particularly small businesses, charities and the elderly. The Government believe that cheques should not be phased out unless suitable alternatives are in place for all users.
Lord Naseby
Is my noble friend aware that the Payments Council is little more than a bankers’ quango? Is it not extraordinary that this proposal takes no account of the Federation of Small Businesses, which has 200,000-plus members, who are totally against such a change? It takes no account of the hundreds of thousands of clubs, and their treasurers, up and down the country—I declare an interest as treasurer of the Lords and Commons Tennis Club. Furthermore, there are certain technical issues in the City, where those who fail to take up a rights issue have to be presented with a cheque and where, for takeover bids that fail, there has to be a cheque drawn. There are myriads of activities that require cheques, affecting tens of millions of people. Is it not time that the bankers for once thought about the public? Should not the Government consider putting further pressure on the Payments Council to make sure that cheques remain a normal method of doing business in this country?
Lord Sassoon
My Lords, it is correct that the Payments Council is an industry body. It is the banks and the other industry players who pay for and maintain the payments system, but it is a body with a chairman and four other independent members, and the Bank of England is an observer on the board. Back in December 2009, the Government welcomed the commitment made by the Payments Council, which was clear that if it took a decision in 2016 to end the present system of cheque clearing in October 2018—and it will take that decision only in 2016 if it does so at all—it will do so only if there is an available, acceptable and widely adopted alternative system. The Government have been clear that that must include a paper-based system. We believe that it is appropriate to continue to work closely, as we do, with the Payments Council to make sure that it is held to the commitments that it has given. The council is consulting users widely and has another round of consultation running now, and it will I am sure continue to take note of the important views of all users of cheques.
Lord Hughes of Woodside
Is the Minister saying that the alternative would have to be a paper-based system? If so, why on earth is the Payments Council bothering? Is this not an example of a body to which responsibility has been handed over without any control or thought? How much is it all going to cost? Why do they not just abandon it now and be done with it?
Lord Sassoon
My Lords, the facts of the situation are that the number of cheques being used has declined dramatically in recent years. There were approximately 4 billion cheques in use in 1990 and by 2009 that had reduced to approximately 1 billion—and it is expected to reduce very significantly again over the next few years. The fact is that the system has declined in use and it will require a very expensive rewrite of the clearing systems if it is to continue in its present form. The last thing that the Government or users of cheques would want to see is charges being passed on to users of cheques if that was a result of banks having to put in place an expensive new system. So one has to be pragmatic about this and give them the time, which they are taking, to come up with an alternative, including a paper-based alternative, that is acceptable to small businesses, charities and other individuals.
Lord Lawson of Blaby
My Lords, I am sure the whole House will have welcomed the Answer that the Minister gave to my noble friend’s initial Question, but will he go a little bit further? Will he undertake to use the power of the Government’s holdings in a number of banks—and the way that those banks are privatised, as I hope they will be—to encourage competition in retail banking in this country and, as part of that competition, to try to encourage at least one of the new entrants to continue to provide a checking service?
Lord Sassoon
My Lords, I am happy to confirm to my noble friend that competition is key to so much of making our banking system work better than it has in some respects in the recent past. That is precisely why the Independent Commission on Banking was given competition as the heart of its remit. Whether in relation to alternative payment mechanisms or to so many other things in banking, I completely agree that competition has to be at the heart of it. Again, when it comes to the Government’s shareholdings in the banks, the independent commission has made some provisional findings which very much touch on the banks that the Government control.
Lord Elystan-Morgan
My Lords, does the Minister agree that our forebears might regard the capacity to extract Treasury notes from a hole in the wall as the greatest miracle since Moses struck the rock? Will he undertake, however, that if this matter is raised seriously again by the banks there should be a wholesale study into the question of third-party rights in relation to bills of exchange, choses in action and garnishee orders?
Lord Sassoon
My Lords, we are straying a bit from the rather important and focused question of cheques and the Payments Council, which those other forms of payment extend rather beyond. The critical thing is that no decisions are to be taken precipitately. As I have said a couple of times, the banks recognise what they have to do. This issue will remain a matter of considerable public focus, not least because the Treasury Committee in another place recently announced that it is reopening its own inquiry into the future of cheques. The issue will remain very much in the public eye and the pressure will be on the banks and the Payments Council to come up with a solution that works for the whole country.
Lord Eatwell
My Lords, the Minister said just now that it was the Government’s view that cheques should not be phased out until suitable new arrangements have been made. Can he tell us what criteria the Government will use to judge the suitability of any arrangements? If those criteria are not met, will the Government require that cheque payments be maintained?
Lord Sassoon
To those noble Lords who were listening to some of my previous answers, forgive me for repeating myself: the criteria which the Payments Council itself put forward and which the previous Government welcomed back in December 2009—I echo that welcome—were that the new system had to be generally available, generally acceptable to its users and widely adopted. There also has to be, in the view of the Government, a paper-based system. Those are the criteria that have been set and we are making sure that the Payments Council sticks to them.
Lord Sassoon
I am grateful to my noble friend for drawing attention to that issue, which is one of the important issues that the Payments Council must take into account. I am sure that it will be listening carefully to what is being said today. If anyone wants to go on to the Payments Council website, there is probably a paper-based system for submitting suggestions to it on all these matters.
EU: Financial and Monetary Co-ordination
Lord Sassoon Excerpts(13 years, 5 months ago)
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Lord Dykes
To ask Her Majesty’s Government whether they will consider making proposals to their European Union partners to strengthen economic, financial and monetary co-ordination within the Union.
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, six legislative proposals aimed at strengthening co-ordination on financial and economic matters across the EU have already been agreed by the ECOFIN Council. These are currently the subject of discussion and negotiation with the European Parliament. The measures would strengthen the stability and growth pact and formalise the monitoring of economic imbalances. The Government recognise the importance of strengthening co-operation and co-ordination, and fully support the package agreed by ECOFIN.
Lord Dykes
My Lords, I thank the Minister for the way in which the British Government have strongly supported in ECOFIN the various measures that are being taken by both the ECB and the member Governments. Does he agree that advanced countries like the United States and other leading countries like Britain were already heavily indebted before the financial crisis and are even more so now, and that it is important for this country to stand in support of the eurozone countries and the ECB to defeat the ruthless international speculators wherever they may be, especially as—you never know—we might need their help in the future?
Lord Sassoon
My Lords, I am grateful to my noble friend for what he says about the Government’s approach to these matters. It is indeed in the country’s interest to ensure that the eurozone is strong—it is, after all, where more than 40 per cent of our exports go—and we will continue to work constructively on ideas to strengthen the framework. At the same time, we want to make absolutely sure that it is understood, as the Council has recognised, that the UK stands in a special relationship to the eurozone and that we will not have the fiscal sovereignty of Parliament in any way infringed on these matters.
I agree with my noble friend that fiscal discipline is key to ensuring that we do not get into problems like this again, whether within the eurozone or without it, which is why it is gratifying to see that the IMF, in its assessment today, has stressed this very point in relation to the UK’s deficit reduction programme.
Lord Harrison
What information have the Government given under their obligation in the broad economic guidelines about sharing information with the 26 other EU members? Under the European semester, which concludes this month, what activity have the Government shared with their partners, again in terms of providing further information on economic and financial matters?
Lord Sassoon
I preface my answer by thanking the noble Lord and other noble Lords for their participation in the recent report of your Lordships’ European Union Committee on the future of economic governance in the EU, which provides an excellent commentary and analysis on these matters. The UK has submitted what we were required to submit as part of our national reform programme, and that will be the subject of the next round of debate along with all the other members of the EU 27. Critical to the whole construct and its various strands is ensuring that there is much greater transparency throughout the fiscal architecture. The UK will play its full part in ensuring that we not only contribute to getting the architecture right and submitting the data that are required but, equally, are clear that any budgetary information that we submit comes here to Parliament first and that we are not held to sanction, as are members of the eurozone.
Lord Lamont of Lerwick
Does my noble friend agree that, as well as greater co-ordination, greater observation of the existing rules would also be welcome? Does he agree with the statement by Christine Lagarde, the French Finance Minister, that the first bail-out mechanism violated the rules of the EU treaties and, if so, that this would mean that Britain was dragged into supporting the euro by an illegal mechanism? Does he also agree that if the rules had been observed in the first place, Greece would never have joined the euro?
Lord Sassoon
My Lords, the Government have secured a very clear agreement with the European Council. Whatever the analysis of Article 122 has been in the past, the Council of Ministers has been completely clear that Article 122 will not be used in the future. That is the critical thing. It is probably not right to go on raking over decisions about who was not in the eurozone in the first place. We have to make it work now, and one way of doing that is to get a proper interpretation of all the relevant articles in the treaty.
Lord Pearson of Rannoch
My Lords, does the noble Lord agree that the previous Government made a very expensive mistake two years ago when they failed to veto the overall supervision of our financial services passing through Brussels? Is it not grotesque that an outfit that has not been able to get its own accounts signed off for 16 years should now be in a position to dictate to the City of London, and thus cause lasting damage to its profitability and tax revenues?
Lord Sassoon
My Lords, we have had a number of opportunities in recent weeks and months, and I am sure that we will again. We have to get the EU budget under control. The rules of accountability and audit need considerable improvement. The Government are actively working on the case. Drawing a connection between that and the regulatory architecture of the financial institutions is somewhat tenuous. We are cleaning up the whole mess left behind on financial regulation, which starts at home. That is why, very shortly, the Government will publish a next round of consultation and a draft Bill to show how we are putting in place a proper system of financial regulation for the UK.
Debt Relief (Developing Countries) Act 2010 (Permanent Effect) Order 2011
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Lord Sassoon
That the draft order laid before the House on 28 March be approved.
Relevant document: 20th Report from the Joint Committee on Statutory Instruments. Considered in Grand Committee on 17 May.
Banking: Savings Accounts
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Baroness Stowell of Beeston
To ask Her Majesty’s Government what assessment they have made of the levels of interest set by banks on cash individual savings accounts as compared with other savings accounts.
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, the interest rates offered on savings accounts are a commercial decision for providers and, as such, vary. The Money Advice Service, which was set up by the Government, provides information and advice to encourage consumers to manage their finances proactively and to shop around for the best deal. The benefits of tax-free savings offered by cash ISAs allow the majority of savers to receive a tax advantage on all their cash savings.
Baroness Stowell of Beeston
My Lords, I thank my noble friend for his reply. Does he agree that the tax relief available on cash ISAs is offered by the Treasury as an advantage for savers, not a commercial opportunity for the banks? If he does agree, will he join me today in demanding two things from the banks? The first is that they should address immediately the discrepancy between the interest rates offered on some fixed-rate savings bonds and fixed-rate cash ISAs. The second is that they should give a guarantee to their customers that never again will they offer lower interest rates on fixed-rate cash ISAs than those they offer on fixed-rate savings bonds?
Lord Sassoon
My Lords, I am grateful to my noble friend for raising this important area of savings. We should remind ourselves that a total of 23 million people hold ISA accounts, and of those 15.5 million hold cash ISAs, so this very important part of the savings market is held by some 40 per cent of households. My noble friend’s Question prompted me to speak to the British Bankers’ Association today and I can confirm that the association is working on its own recommendations following on from those made last year by the Office of Fair Trading after it had looked at this area. For example, from early 2012, additional information about the interest rates being offered will be shown on all statements. Further, in line with the recommendation made by the OFT, the association’s members are working to significantly shorten or halve the time it takes to switch accounts. But the structure of interest rates being offered, which is increasingly transparent on the websites that are now available, is a matter of commercial competition. I would recommend all savers to take advantage of the tools that are out there in order to shop around.
Lord Newby
My Lords, in view of the success of the tax-free index-linked bond issue recently offered by National Savings & Investments, what plans do the Government have to keep this very popular product on the market in the future?
Lord Sassoon
I am grateful to my noble friend for drawing attention to the fact that the 48th series of fixed-interest and index-linked savings certificates was launched on 12 May. It is our intention to keep this series on sale for a sustained period. Of course, there is only a certain amount of availability within the targets we set for NS&I, but I am pleased that we are able to fill a gap in the savings market by putting particularly index-linked savings certificates on sale again. They are proving to be popular, but I am advised that there is still a supply of them available. Noble Lords who would like to invest in them do not need to rush out of the Chamber at this moment.
Lord McFall of Alcluith
My Lords, will the Minister take this opportunity to speak to the Independent Commission on Banking, the Vickers commission, and ask it to emphasise the concept of treating customers fairly so that savers feel, as the noble Baroness said in her supplementary question, that they are both getting a good deal and indeed can be seen to be getting that?
Lord Sassoon
My Lords, this will be the focus of some of our attention when the legislation for the new regulatory structure comes forward. Treating customers fairly in the broadest sense is a critical part of what the FSA has been working on over the past few years. As we look at the remit, particularly for the new Prudential Regulation Authority within the regulatory structure, it is important to make sure that a proper focus is placed on that strand of work going forward. No doubt your Lordships will soon have an opportunity to consider these matters.
Lord Brooke of Sutton Mandeville
My Lords, is there a good reason why the NS&I tranche, to which my noble friend referred, cannot be bought through post offices?
Lord Sassoon
My Lords, the NS&I is a commercial operation and it has to make sure that it delivers its products in the way that customers want to receive them. It distributes a significant number of products through the post office network, including premium bonds. Some products are just marketed while others are available over the counter. I understand that these days the most popular channel for NS&I’s products is over the internet, but there is a variety of ways of obtaining them. NS&I’s products are designed product by product to suit customer needs.
Lord Brooke of Alverthorpe
As we have a majority share in two major banks in the country, could the Minister not press them to implement the very interesting suggestions put forward by his noble colleague?
Lord Sassoon
My Lords, shareholdings in the banks in which the Government have a significant shareholding are managed on an arm’s-length basis through UKFI. We want a functioning and transparent market in which consumers are able to shop around. The OFT looked at this last year and indentified some areas of the market that needed working on in terms of switching times and some aspects of transparency. The banks are working on that. Very usefully prompted by my noble friend’s Question, I spoke to them today to confirm that their noses are being kept to the grindstone on this. That is important and is what we should require of them.