Annuities for Pensioners

Debate between David Mowat and Mark Hoban

Tuesday 7th January 2014 Westminster Hall

[David Mowat]

My hon. Friend is right that the Government do not provide mortgages, but they do provide people with interest rate products. There is an analogy with annuities, which are an extremely important transaction. In any event, the industry is an artificial one, because it is driven, as I have said, by tax relief. Annuities are not optional—we can draw down, but, broadly speaking, until very recently, everybody has had to buy an annuity.

By the way, I did not advocate nationalisation. I am advocating that the Government offer a product. They can compete with the existing market, rather like the National Employment Savings Trust competes with the existing market. That is not nationalisation. If the existing market is pricing things in a certain way and making very clever decisions on longevity and actuarial things and so on, it will win, and so be it; good luck to it. However, I suspect that that may not be the case. We must bring trust back. I agree that it is important to make the market work. I floated the point about national insurance because I think that that proposal will have to happen, but I also think that there are a number of things we could do to make the market work better.

[Mr Hoban]

One objective of the FCA is to promote competition. It is currently undertaking a thematic review of the annuities market. That would be a very good starting point for it to undertake a market study to look at the economics of the annuity industry, to see whether it is making excessive profits, and to understand the charging structures in order to help to inform what the next stage of the reforms of the annuity market should be.

[David Mowat]

I have absolutely no problem with any of that. In fact, the next point in my notes is on the Office of Fair Trading. We should try to make the annuities market work better, in the same way as we should make the accumulation market work better. The fact that NEST has been introduced is not a reason not to have that happen. My proposal on the Government offering annuities alongside the market is not a reason not to make the market work better.

The point was made earlier on education in the market, the retail distribution review and all the rest of it. I do not agree that the charging structure is a disincentive, if that was the point made by my hon. Friend the Member for Vale of Glamorgan (Alun Cairns), who has left the Chamber. It might be a disincentive, but it is no worse than a charging structure that pays people to recommend products based on commission and all that that means. That is not a solution in its own right, but I agree that we should try to make the market work better. We should hold the ABI to account on the application of the OMO.

We could try other things. If one third of people continue to stay with their existing supplier and buy inappropriate products as a consequence, there is a case for enforced separation, meaning that people buy the decumulation product from a different provider from the one from which they buy the accumulation product. That is entirely reasonable if the OMO code of conduct does not work better—it is currently rather patchy.

Another thing we could do to make the market work better is enforce the simplification of annuities, exactly as we have done in the energy industry, with bands to allow the comparison of products from different providers. The case for that is even stronger in the pensions industry than in the energy industry. I want recognition that draw-down might be used on smaller pots than at present, so that it receives wider application. When I speak to anybody who is about to make a decision on whether to use an annuity or a draw-down, I recommend that they think long and hard before they go down the annuity route. We could do more on that.

We need to make the market work better. The point I made about national insurance also applies to accumulation. NEST is working quite well, and it will be an incentive for reform in the industry. We could do the same with the decumulation part of the industry.

I have a couple of final points. It is interesting that a Treasury Minister is replying to the debate and a pensions spokesman is speaking for the Opposition. In a way, the issue has suffered because it has not wholly been owned by either Department and has tended to fall between the two. I hope that that does not continue. I also hope that people in the industry listen to the debate—I see that a couple of them are in the Public Gallery—because it is not right for the current situation to continue. It is not right that the industry response is to play it long. In the time I have been speaking, 40 people will have signed up for annuities, 15 of whom will have bought the wrong ones. We owe it to all our constituents to get that fixed.

Royal Bank of Scotland (FSA Report)

Debate between David Mowat and Mark Hoban

Monday 12th December 2011 Commons Chamber

[Mr Hoban]

I understand the frustration expressed in the hon. Gentleman’s question. We need to look carefully at the proposals in Lord Turner’s report and we will have the opportunity to legislate in the Financial Services Bill, if appropriate, but the hon. Gentleman would not want me to engage in a knee-jerk response to a report that was only published first thing this morning. I want to ensure that we have the right measures in place, whether through company law or regulation, to ensure that we have good-quality people running such organisations.

[David Mowat (Warrington South) (Con)]

The report makes it clear that had the Basel III legislation been in place, the AMRO transaction could not have happened. Will the Minister confirm that it remains his intention to implement Basel III as soon as possible and ideally before 2019?

[Mr Hoban]

It is our commitment to implement Basel III. We want to ensure that it is implemented consistently across the whole of Europe in capital requirements directive IV and we are pushing for member states to have the freedom to go further and raise capital standards when they believe it is in their interests to do so. We want to see tougher regulation of banks and that requires better and more capital and better and more liquidity.

Rebalancing the UK Economy

Debate between David Mowat and Mark Hoban

Wednesday 3rd November 2010 Westminster Hall

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

I congratulate my hon. Friend the Member for Cities of London and Westminster (Mr Field) on securing this debate. He made some important points that I will address. I think that we all recognise that our financial and professional services industry is world-class and that the UK can rightly be proud of it. It affects every constituency in the country. For example, my constituency has more than 2,000 people who work in financial services and related professions—1,600 of them are in financial services—and Fareham is not the centre of the global financial sector. As my hon. Friend mentioned, the sector contributes to employment in regional centres. Belfast, Birmingham and Bournemouth all host processing centres that support the work of international financial businesses based in London and headquartered overseas.

For centuries, the UK has been at the heart of international finance. Our openness is an asset to our economy that we are keen to maintain. The recent global financial centres index once again ranked London as the most competitive financial capital in the world. We should seek to preserve and enhance that competitiveness, but it is also important that we do not lose sight of the other areas of our economy that make the UK an excellent place to do business.

It is right that we should support investment in areas of our country where it has been absent during the past decade. That is why, as part of the spending review, my right hon. Friend the Chancellor introduced the £1.4 billion regional growth fund to tackle the gap that opened during the last Government between the south-east and the rest of the country. The money is designed to lever in long-term investment in the capacity of our transport system, science and green energy across all parts of the UK.

I share the sentiment expressed in an intervention by my hon. Friend the Member for Stroud (Neil Carmichael). Many people, including me, have called for a rebalancing of the economy, but we will not achieve that by cutting down the tallest flowers; we need to make others grow taller and faster. I believe that we can have a more diverse economy and be home to the world’s leading financial centre. Indeed, the fact that the UK is home to a global financial centre can help us develop that more diverse economy.

Going back to the roots of the City and its success, the City flourished because it supported trade through insurance of trade finance. It found capital to invest in new enterprise and developed new and innovative ideas to provide security and certainty for businesses and households. It is an important part of the process of restoring confidence in financial services for the City to reconnect with commerce. We need banks to lend to businesses if they are to take advantage of new investment and trading opportunities, but it is not only banks that need to do so. That is an important priority for this Government.

We welcome the work done by the British Bankers Association on that issue, involving commitments to improved data, greater transparency and an army of business mentors to get businesses ready for finance. However, we also need to broaden the sources of finance available beyond banks. We need sources of new equity. Banks will be contributing to a £1.5 billion equity fund to support growth, but we know that there are other sources of capital from equity, such as business angels. Insurers have raised funds to invest in debt for businesses. We need to lever the skills, enterprise and success of London’s global financial centre to help businesses grow.

My hon. Friend the Member for Cities of London and Westminster referred to the opportunities emerging in the far east and South America. Again, the City has an important role to play, not only by exporting its own services to emerging and growing economies but by supporting other businesses in their attempt to exploit those markets.

However, support for the financial sector cannot be uncritical. As my hon. Friend recognised, there were flaws in City practices in the run-up to the financial crisis, as well as a failure of the regulatory architecture. We need to resolve those issues if we are to provide a stable foundation for the financial services sector to grow. That is why the reforms that we have set out since the formation of the coalition Government in May are rooted in economic and financial stability, not the size of the financial services sector. That is an important distinction to draw. We want a stronger, more stable structure. That will require a reform of regulation, but it is not about the size of the sector.

We have been clear in the reforms that we have introduced that we want more effective supervision and a new structure to tackle emerging threats to financial stability. That is why we are setting up a Financial Policy Committee as part of the Bank of England to consider emerging threats to our financial stability and determine what response is needed to enhance the stability and resilience of the UK financial sector.

[David Mowat]

Does the Minister agree with the comments made last week by the Governor of the Bank of England vis-à-vis the current structure of the banking sector in the UK?

[Mr Hoban]

It is an important debate, and there is no clear consensus on what structure the banking sector in the UK should have. That is why we decided to set up the Independent Commission on Banking, under the chairmanship of Sir John Vickers, to consider structure as well as competition in financial services. Over the course of the financial crisis, we have seen a significant concentration of financial services and the banking sector—there are fewer banks from overseas operating in the small and medium-sized enterprises sector, and Lloyds has taken control of HBOS—and we want the independent commission to consider that and decide whether structural changes are needed to improve the resilience and strength of the banking sector, and whether we can introduce measures to improve the competitive landscape and provide greater choice for businesses and consumers looking for financial services products, whether they are loans, current accounts, business accounts or other products. We need to consider the structure carefully, which is why we set up the Independent Commission on Banking.

To return to the point about regulation, we recognise that there were flaws in the structure of regulation; that is one reason why we set up the Financial Policy Committee. We also want to examine how the Financial Services Authority operated under its dual mandate to consider prudential supervision and consumer protection. We decided to create two new regulatory bodies to replace the FSA. One is the Prudential Regulation Authority, which will be a subsidiary of the Bank of England and will focus on the strength and resilience of banks and insurance companies particularly; the other is the Consumer Protection and Markets Authority, which will ensure that consumer markets in the UK work effectively to support the long-term aspirations of consumers as well as considering how wholesale markets in the UK work. That is an important aspect of the financial services sector; a great deal of work on that issue is going on at an international or regional level through the EU, and it is important that the UK takes a strong lead in ensuring that those markets are regulated effectively. If we get the regulation of the financial services sector right—if we take steps to improve markets’ transparency, resilience and strength—I believe that it will provide a firm foundation for the continued growth of the sector in the years to come.

On the diversity of the economy, we must recognise that there is more to our economy than financial services. We have strengths in other areas, partly as a consequence of language, time zone and other aspects of the UK. My hon. Friend the Member for Newton Abbot (Anne Marie Morris) referred to the legal system, which is a huge asset for businesses seeking to work here due to the legal certainty that comes from our world-class legal framework. We have a deep and highly skilled talent pool and strengths in pharmaceuticals, construction and business services.

We need all those sectors to grow, but their growth does not mean that we should diminish the size of the financial services sector. A strong financial services sector can help develop the diversity the UK economy needs to demonstrate that we have learned the lessons from the financial crisis. We cannot have an unreformed financial sector, given the scale of the crisis that we have been through. Reform has been introduced to help the sector’s stability and resilience and produce a better outcome for businesses and households.

Banking in Scotland

Debate between David Mowat and Mark Hoban

Thursday 14th October 2010 Westminster Hall

[Mr Hoban]

I want to respond to the comment made by my hon. Friend the Member for Argyll and Bute about the Post Office bank. Part of the coalition agreement was that we would consider the case for a Post Office bank. He will know that the Under-Secretary of State for Business, Innovation and Skills, my hon. Friend the Member for Kingston and Surbiton (Mr Davey), has responsibility for the Post Office. We are looking through the options at the moment and thinking about how the Post Office can expand the scope of the financial services that it offers across the counter. That would be of benefit to many—particularly those in rural areas, where the nearest post office may be closer than the nearest bank.

I shall move on to address the issue of lending to small and medium-sized businesses, which has cropped up in a number of contributions. Banks can and do play a critical role in providing finance for new start-ups, growing enterprises and our largest corporations. A thriving banking sector is therefore critical for our economic recovery. Ensuring the flow of credit to small and medium-sized enterprises is particularly essential to supporting growth. In Scotland alone, SMEs account for more than 1 million jobs, so they are an important part of the economy in not just Scotland, but every constituency and part of the nation.

The importance of getting credit flowing to SMEs meant that the Chancellor made a series of announcements in the June Budget. There was the extension of £200 million to the enterprise finance guarantee scheme, which will benefit 2,000 additional small businesses across the UK and bring the lending covered by the EFG up to £700 million. In addition, an enterprise capital fund to support small businesses with high growth potential was announced, combining both Government and private sector funding. In July, we also published a Green Paper on financing a private sector recovery—consultation on that has closed—which considered a broad range of finance options for businesses of different sizes, including bank lending. We will respond formally to that in the next few weeks.

The Select Committee’s report expressed concern about the availability of lending and whether Scottish banks are truly open for business. Again, those concerns have been mentioned in the debate. Today the banks have published, through the British Bankers Association taskforce, a series of measures to help improve customer relationships, promote better access to finance and, crucially, provide better information on the availability of and demand for credit. That point was raised by the Chair of the Select Committee and by my hon. Friend the Member for Argyll and Bute.

One of the things that prompted the proposal to bring together better information is this debate. When I talk to banks’ chief executive officers, as I do regularly, they say that they have enough capacity to lend to small businesses, but that the demand is not there. When we talk to small businesses—hon. Members have raised various examples from their own constituencies—they say that they do not believe the banks are interested in listening. Part of that might be a pricing issue. The survey, which will be based on information supplied by the banks but prepared independently of the banks, will address those issues and raise the quality of information. It will enable us to scrutinise the banks more closely about their lending practices, including the rate at which they are lending.

[David Mowat (Warrington South) (Con)]

This discussion has always struck me as a bit odd, because banks need to lend to make money. I understand the things that the Government are doing—the two things that the Minister mentioned—but are there not two real issues here? First, it is not that UK banks are lending less; it is simply that a lot of foreign banks have left the market and UK banks have not filled that gap.

Secondly, the banks’ real issue is the requirement that has been placed on them to rebuild their balance sheets and to change their credit ratios in the run-up to Basel 3. They have less money because the Government are effectively telling them to do two contradictory things: to lend more; and to rebuild their balance sheets and have better capital ratios.