Retail Savings (Sandler Review)

HC Deb 09 July 2002 vol 388 cc745-59 3.30 pm

The Financial Secretary to the Treasury (Ruth Kelly)

With permission, Mr. Speaker, I shall make a statement about the Sandler review, published this morning, and the Government's preliminary reactions to it.

Twelve months ago, the Government asked Ron Sandler to review the market for medium and long-term retail savings, and I am extremely grateful to him for his work in producing the report. The remit of the review was to identify the competitive forces and incentives that drive the industries concerned. in particular in relation to their approaches to investment, and, where necessary, to suggest policy responses to ensure that consumers are well served. It will look at the applicability of the principles of investment proposed by the Myners review of Institutional Investment. Ron Sandler's recommendations have the potential to bring benefits for consumers and the retail investment industry and to improve the workings of the market. They will mean more competition, greater efficiency and more productive investment. That builds on the agenda that we started in 1997, introducing individual savings accounts; charges, access, terms standards; and stakeholder pensions as simple, easy to understand savings vehicles. They also build on our agenda to improve effectiveness and competition in financial markets.

The review proposes a set of simple, safer investment products that it calls "stakeholder products". Those products would have a strict cap on charges, restrictions on investment profile and the ability to exit easily on reasonable terms. As regulation would be built into the products themselves, firms would be allowed to sell them through a streamlined system of sales regulation. That would make it profitable for providers and distributors to sell to a wider range of less-well-off people; it would encourage people to save.

The review shows how the sales process for investment products can be costly and time consuming, disenfranchising many on low and middle incomes from investment that would benefit them. Shifting the burden of regulation from the sales process to the products themselves for products aimed at the smaller investor would help to improve access to saving without sacrificing consumer protection.

For people with more sophisticated investments, more complicated products may of course still be appropriate. Those products would not replace, but complement, the existing market, and for many products, the current regulatory approach should remain.

Building on the review's suggestions, we shall be consulting consumer representatives, the industry and the Financial Services Authority on those stakeholder products and their design. We shall be working closely with the FSA, which will separately want to consult on the regime for their sale.

I should stress that seeing the value in simpler products with simpler sales regulation does not mean that we do not value financial advice. On the contrary—the review presents a challenge for the industry and others to think radically about how they provide advice. Advice is too often understood as an adjunct to a sale, not something valued in its own right. As a result, it is perceived as costly, time-consuming and inaccessible to those on low incomes, but it simply is not the case that only the wealthy need or would benefit from advice.

The review's proposals ought to make it possible for the industry to offer to the mass market good-quality, high-level advice that helps people to understand their financial needs and the products that can meet them as a complement to the sale of stakeholder products. I look forward to the industry's response.

Those on lower incomes also have a need for financial advice. Citizens advice bureaux and other money advice centres across the country offer good-quality, impartial advice to many people in financial difficulty. People have argued that their remit should cover financial advice more generally. I am pleased to say that the FSA has offered to fund research into extending the role that those organisations might be able to play. I welcome that, and look forward to seeing the results.

The review proposes reform to with-profits policies, and describes an "ideal model" of with-profits policy. It would still allow the smoothing features that so many investors have found valuable, but it would be transparent, allowing investors to understand and choose the policy that is best for their needs. It would also clearly separate out the policyholders' and shareholders' interests that are currently intertwined in the dominant 90/10 model.

The review does not propose that every aspect of the ideal model should be mandatory, except for a with-profits policy sold as part of the stakeholder suite of products, but it does suggest that much of the transparency of the ideal model could be brought to existing with-profits policies.

With-profits policies are a huge feature of the British savings landscape. Many people have valued, and will continue to value, the ability to smooth out investment returns, so change in this market cannot come over night, but with-profits policies do need to change. Indeed, the FSA and the industry have begun this process already in their recent work. The review has proposed a balanced approach that I believe represents an opportunity to move to a new, stable future for the with-profits market. The FSA will be consulting on the review's proposals on with-profits, which build on its earlier work, as part of its continuing consultations on with-profits.

The review strongly supports the FSA's proposals to reform the market for the distribution of investment products. It also has some specific recommendations about the way in which independent financial advisers should be remunerated.

It will be for the FSA to consider the review's recommendations as part of its own consultations on reforming the "polarisation" system, but they have the potential to bring big benefits of increased choice for the majority of consumers currently investing through the "tied" channels, which offer the products of only one provider.

The review proposes an increased and ring-fenced consumer education budget for the FSA and better co-ordination of the Government's work for financial education. The FSA has welcomed this suggestion, and will consult on whether to increase its consumer education budget. The Treasury meanwhile has already begun work to co-ordinate the Whitehall effort devoted to financial education.

Clearly, many consumers find the retail savings market complex and hard to understand. One answer to that is to simplify the market, but the essential complement to simplification is to create better financial knowledge and awareness among consumers.

The review proposes a set of investment principles for providers of retail investment products, which builds on the approach taken in the Myners review. It proposes that disclosure should in most cases be voluntary. The Government agree that disclosure should help to produce a more transparent, better-informed and hence more competitive market. We will be taking that proposal forward in consultation with consumer representatives, the industry and the FSA.

Finally, the review contains a broad-ranging analysis of the impact of the taxation system on the savings industry, and urges that the system be as simple as possible. It makes a number of proposals on specific current tax rules, which include abolishing qualifying life policies and the 5 per cent. tax deferred withdrawal rule for life insurance policies; equalising treatment with respect to exemptions from VAT on fund management fees; simplifying the pensions tax regime; and considering changing the rules for individual pension accounts and others.

We shall consider the review's proposals on tax as part of the Budget process in the usual way. In so far as Ron Sandler's proposals relate to pension saving, they will also be taken forward in the context of the Government's proposals on pensions, which we will set out in the autumn. The Government believe that Ron Sandler has tackled long-standing concerns about with-profits policies, and has given the industry the opportunity to draw a line under the problems of the past and to build a new, stable future for with-profits.

We believe that Ron Sandler has produced proposals that have the potential to produce a simpler, more transparent and more competitive retail investment industry. His proposed stakeholder products will be easier for people to understand, and viable to sell to a wider range of less-well-off people. That can only help to meet our ambition to raise the level of long-term saving.

Mr. Michael Howard (Folkestone and Hythe)

For the avoidance of doubt, I draw attention to my declaration in the Register of Members' Interests. I express my gratitude to the Financial Secretary for giving me advance sight of her statement.

I welcome the Financial Secretary to the Dispatch Box. It was very brave of her to volunteer to make the statement—if, indeed, she did volunteer. It was rather less brave of the Chancellor not to volunteer himself. After all, it was the Chancellor of the Exchequer who once made this issue his own. Was it not the Chancellor who promised in opposition in 1995 to find new ways of making saving more long term, to widen savings to more people and to link the need for savings for investment to the need for people to save for their retirement? Was it not the Chancellor who promised in government five years ago that the measures he was introducing would encourage more people to save? Was it not the Chancellor who twice set a performance objective to promote a fair and efficient tax and benefit system with incentives to save?

Why has the Chancellor not come to the Dispatch Box to explain his progress—or lack of it—in fulfilling those promises? Why is he not at the Dispatch Box to defend the stakeholder pensions that he pioneered, and to explain why they have reached just 100,000, which is all of 2 per cent. of the target market of 5 million people? Why is not the Chancellor at the Dispatch Box to defend his pensions tax, which yields £5 billion a year and costs pension funds a total of £100 billion—equivalent to £400 being taken in tax from every single contributing member of a pension scheme every single year? Was it not the Chancellor who advised the Prime Minister just three weeks ago to justify that tax on the basis that there had been a massive increase in the stock market over the last five years, a statement that was not true then and is not true now?

Is it not the case that five years into this Chancellor's stewardship of the economy, we have a crisis in pensions and a collapse in savings? Is it not the case that the savings ratio is predicted this year to reach an all-time low

Dr. Nick Palmer (Broxtowe)

On a point of order. Mr. Speaker.

Mr. Speaker

I take points of order after the statement.

Mr. Howard

Is it not the case that the savings gap for retirement has been put at at least £27 billion this year? Is this crisis in savings and pensions not a crisis over which this Chancellor has presided, a crisis that he has promoted, a crisis that he has, in large part, caused and a crisis that, it seems, he has now asked his Financial Secretary to explain? The Chancellor, in large measure, created this crisis, but he is not man enough to come to the Dispatch Box to apologise for it.

The criteria against which the Sandler proposals should be judged are whether they, unlike Government policies to date, will help to reinvigorate the savings and pensions markets and whether they put the consumer interest first. We welcome many of the proposals, including those that would increase the amount of consumer education, those that would increase the transparency of with-profits polices and those that would simplify the sales process. Simplicity and cheapness are, of course, desirable objectives. But have not we seen with stakeholder pensions that simplicity and cheapness do not always, by themselves, succeed?

How will the Financial Secretary ensure that, unlike stakeholder pensions, these measures will indeed cater for people on low or moderate incomes? How will she ensure that the limitation on returns will not adversely affect the provision of capital for the industry in this country, thus narrowing the range of choices available to consumers? How will she ensure that the call for tax simplification, which is welcome, is not used as a back door to increase taxes yet again? What effect does she think the new model for independent advice would have on the number of advisers? Is there not a danger that many of them will be encouraged to become multi-tied agents, with a loss to consumers of access to independent financial advice?

Is not the most fundamental question that the Financial Secretary needs to address the collapse in confidence in the ability of this Government to get anything right in this area? Was it not this Government who needlessly abolished PEPs and TESSAs? Is this not the Government who introduced pension credits, described by the right hon. Member for Birkenhead (Mr. Field) as creating a form of permanent serfdom and sending out to potential savers the message, "The more you save, the less you get"?

Is this not the Government who cook the books time after time? Only last week the Secretary of State for Work and Pensions was obliged to come to the House to apologise for the fact that the Government had overestimated by no less than £35 billion last year alone the amount being saved by the people of this country for pensions? Having acknowledged that error, instead of giving us the correct amount, the Government's response is to recalculate the figures on a different basis so that no direct comparisons can be made.

Today, the Financial Secretary has been like the man who follows the horses at the Lord Mayor's show. But she has not been following the horses; she has been following the Chancellor, who sits there brooding in silence, afraid to come to the Dispatch Box, content for her to face the music. Five years after his fine words on savings, the finger of blame would not point to savings providers or to pensions advisers, but fairly and squarely to the Chancellor himself.

Ruth Kelly

Let me begin by saying that the right hon. and learned Gentleman has vast experience in this House—much greater than mine. I am surprised to hear him make such petty and insubstantial points about what is a very serious report. On process, he knows better than most that it is the tradition among financial services Ministers to make statements about financial services. Indeed, I believe that he himself spoke to the House on such matters as a financial services Minister. I would have thought that he might welcome my coming to the House at the earliest opportunity to speak about these serious issues.

It was this Government who volunteered the statement; the right hon. and learned Gentleman did not ask for it. The truth is that he wants to concentrate on process because he has nothing to say about substance—at least, nothing that he wants people to know about. He does not want to mention his policies to privatise the basic state pension, to scrap the minimum income guarantee, or to abolish the pension credit. He certainly does not want to talk about his record in government: pensions mis-selling, the halving of the state earnings-related pension scheme, and increased pensioner poverty.

I shall deal with each of the points that the right hon. and learned Gentleman made. He referred, as is usual on these occasions, to the abolition of tax credits for pension funds. He knows that the abolition of such credits was part of wider corporation tax reforms, which injected an extra £3.5 billion into the system through cuts in corporation tax and removed a major distortion in the tax system, and which will provide a positive climate for long-term investment. He certainly does not propose to reinstate those tax credits; if he does, let him say so today.

The right hon. and learned Gentleman pointed to the fall in the savings ratio, but perhaps he should understand that gross household savings have remained robust over the past five years. Indeed, according to the Association of British Insurers—the figures were used by Ron Sandler in his report—in respect of total household spending on life and pension products, total long-term savings increased by 15 per cent. in real terms between 1997 and 2000, compared with the previous period, when his party was last in government. The problem is that, as the Sandler report correctly indicates, savings behaviour has increasingly become skewed towards higher-income households. Today's report is a serious attempt by Ron Sandler to identify the reasons why low and middle-income households have been disenfranchised from the savings process.

The right hon. and learned Gentleman made one or two serious points about the report, and I welcome his approval of some of the serious measures contained in it. He asked about the future of financial advice. The report provides an opportunity for the industry to think seriously and radically about how it can provide real financial advice that meets the needs of ordinary low and middle-income earners, and about how it can turn advice into a commodity that is valued and trusted by consumers. I welcome the fact that the FSA has offered to fund research into how that might be made possible.

The proposals that we set out in the report deal with the savings gap for tomorrow's pensioners, just as this Government are tackling pensioner poverty for today's pensioners. Is not the truth that the only alternative that the right hon. and learned Gentleman can offer is a record of failure in government and a set of extreme proposals in opposition?

Mr. John McFall (Dumbarton)

I thank the Minister for her statement. Does she agree that this is a wake-up call for the industry in the light of past financial scandals? We need to restore people's faith in saving, so that they can close the £27 billion gap. Does she also agree that, if the recommendations are pursued constructively, we could open up a mass market in which ordinary people can buy simple, transparent and less sales-regulated products? At the moment, the lack of such products is hindering the development of that market.

Ruth Kelly

I thank my hon. Friend for his comments. As Ron Sandler correctly indicates, the advice process has increasingly disenfranchised low and middle-income consumers, because it is geared towards the regulatory structure and the tax treatment of individual pension and life insurance products, rather than the real pension needs of individuals. The report offers a major opportunity for the industry to fill that gap and I look forward to working with the Treasury Committee and others in the House who are interested in the serious proposals contained in the report, to see how we can take the agenda forward.

Dr. Vincent Cable (Twickenham)

I welcome the thorough review, the statement and the practical proposals on low-income saving. Do the Government agree with the hard-hitting assessment that Sandler makes of the industry as opaque, uncompetitive, characterised by commission-driven selling, and—as the Consumers Association put it this morning—full of bad products and bad advice? How will the Government address the 20 per cent. savings gap? The industry cannot fill it; Sandler says that tax incentives should not be used; and the Government do not wish to use compulsion, so what options are available to fill the savings gap—and have the Government set the targets to do it?

I welcome the pilot studies for offering financial advice through the citizens advice bureaux, which is a very good initiative. However, do the Government not feel that that is something that the industry should part-fund in order to restore confidence in financial advice? What we need now is the nationwide availability of pro bono—or very low cost—advice for the benefit particularly of low-income consumers.

What further action do the Government propose to take to restore consumer confidence by removing the toxic legacy of past mis-selling? Specifically, when will they announce the conclusions of the Penrose review of the Equitable Life affair? When will the Government make a statement on the new rules governing orphan assets, because many policyholders fear that their assets could be expropriated by shareholders under the current rules? We know that there will not be a full review of endowment policy mis-selling, but does the Financial Secretary intend to take the advice of the Consumers Association that there should at least be a naming and shaming of the companies in the industry that were primarily responsible?

Ruth Kelly

I thank the hon. Gentleman for his serious, considered and detailed response to the significant and interesting questions laid out in the report. Ron Sandler has set out a compelling vision for the future of the savings industry. I agree with the hon. Gentleman that we must take consumer needs seriously, and ensure that products are available that meet those needs and that consumers can buy those products without the morass of regulation and opacity that currently afflicts the market.

I welcome the hon. Gentleman's support for the pilot projects and the attempt to find a way for advice to get through to the mass market. We will work with the citizens advice bureaux, the FSA and others in the industry to ensure that in the future it serves the needs of individual consumers. On the issue of orphan assets, a new with-profits ideal model will form part of Ron Sandler's suite of new stakeholder products, which will be simple, transparent, easy to understand and will have appropriate incentives that separate investors from shareholders. I am sure that the hon. Gentleman will welcome those proposals.

We need to ensure that we make it easy, simple and efficient for people to buy good-quality, long-term financial products. The report is part of that picture. On Thursday, with your agreement, Mr. Speaker, my right hon. Friend the Secretary of State for Work and Pensions will make a statement on the Pickering report and the future of regulations on the pensions industry. In the autumn, we shall set out our proposals on how to take those matters forward. The Sandler report is a serious attempt to analyse the state of the long-term retail savings industry, and I am grateful to the hon. Gentleman for his serious and considered remarks.

Mr. George Mudie (Leeds, East)

Does my hon. Friend agree that the public will be horrified by the approach of the shadow Chancellor to this important matter, when millions—[Interruption.] The right hon. and learned Member for Folkestone and Hythe laughs, but millions of people who face an uncertain and poorer future will be appalled by his petty political approach. The shadow Chancellor is a disgrace on this subject and people will take no comfort from that fact.

Will my hon. Friend the Financial Secretary have another look at financial advice? I notice that the report and my hon. Friend seem to back the polarisation proposals made by the FSA, but will those proposals really encourage the lower-paid to seek financial advice and to make investments? Will my hon. Friend consider the provision of free independent financial advice on the high street—perhaps by using the law centre model or as a financial arm of the CAB?

Ruth Kelly

I thank my hon. Friend for those proposals; it is indeed vital that we take the needs of consumers seriously. At present, the industry is skewed towards providing costly advice for a small minority of the market where the choice is between a highly regulated set of products with different tax treatments that are hard to compare; indeed, as Sandler points out, it is hard to compare their underlying investment performance—never mind anything else. The report sets out a vision in which there is a highly regulated simple set of products—the products, rather than the advice process, are regulated. However, we clearly need to complement that set of products with a mass-market advice regime tailored towards the needs of ordinary people who do not need to take advice about complex tax planning and tax treatment. We shall work with the CAB and the industry to find the best way of promoting a new market for financial advice.

Mr. Andrew Tyrie (Chichester)

Mr. Sandler makes it clear that small savers are heavily disadvantaged by the cost of what the hon. Lady described a moment ago as the morass of regulation that has come with the introduction of the huge leviathan of the FSA. Within two years of the introduction of that system—billed by the Government as essential for the protection of small savers—an independent review concluded that we need to bypass the whole body of regulations that were created because they had become prohibitively costly. Is that not a massive and savage indictment of the whole structure of regulation that the Government introduced with the FSA?

Ruth Kelly

As I understand it, the hon. Gentleman was actually advising the right hon. and learned Member for Rushcliffe (Mr. Clarke) when he set up the conduct-of-business regime that surrounds these products. The problem is that the Conservative Government did not implement that regime; it took the Labour Government to set up the pensions mis-selling review, to make sure that £11.5 billion was refunded to consumers who had been sold products inappropriately. Of course, we must now examine alternative ways of providing access to that market, but we were not prepared to preside over the mis-selling of pensions to hundreds of thousands of consumers.

Kali Mountford (Colne Valley)

Although clarity, transparency and simplicity may be welcome in the market, may I suggest to my hon. Friend that robust regulation is equally needed? If we expect hard-working constituents to invest in savings, should they not have surety that their money will not be mis-spent, misplaced or lost as a result of incompetence in the industry? Is it not the case that we need regulations and that they must be robust?

Ruth Kelly

My hon. Friend is absolutely right: safeguards need to be built into the system. Ron Sandler proposes to replace a very complex advice regime with a simpler suite of products in which the product, rather than the sales process, which effectively disenfranchised hundreds of thousands of people, is regulated. A strict cap on charges and an extremely low exit penalty for consumers who change their minds have been proposed, and consumers will have access to the financial services ombudsman and to the financial services compensation scheme if anything goes wrong. Safeguards are therefore built into the process. It is important to put the consumer first, and that is what Ron Sandler is doing in the report.

Mr. John Greenway (Ryedale)

Is not the real conclusion of Sandler that regulation has failed massively? It is all very well to say that the sales process has rightly removed disreputable elements from the industry, but the fact is that the many millions of people who received advice from, for example, the industrial life offices now no longer receive advice because regulation has put all those offices out of business. The hon. Lady and the Sandler report have made the right analysis, but only time will tell whether they have reached the right conclusions about the solution. It is all right to say that we will now regulate by product, but she should think carefully so that the regime she puts in place ensures that people buy suitable products. Without suitability, we will have another mis-selling scandal in the years ahead.

Ruth Kelly

I am very pleased that the hon. Gentleman concentrated on the details of the report. I do not share his conclusions. Although I agree that simplification on the regulatory, tax and advice fronts is the answer to many of the issues, we must ensure that consumers are properly protected. I advise the hon. Gentleman to read the report, because Ron Sandler's proposals are designed to make sure that the suite of stakeholder products that he sets out are accompanied by a set of questions that are asked of individuals before they buy products. The questions distinctly point out any risk that may exist, and they will point someone away from a product if it is not suitable for that customer. I suggest that the hon. Gentleman reads the report.

Paul Flynn (Newport, West)

Is not the truth that most with-profits policies are now with-losses policies? The public have been confused, bamboozled and cheated by so-called advisers whose main interest was earning fat commissions rather than selling good-value products. Is it not right that the orgy of deregulation in the 1980s led to the impoverishment of millions of people because of mis-sold personal pensions, endowments, general insurance and savings products? Should my hon. Friend not take comfort from the report's suggestion that the way out is to simplify policies on the lines of stakeholder pensions, which have the great virtue of having very low commissions while offering very good value for those who take them out? Is that not the way forward?

Ruth Kelly

I thank my hon. Friend for his comments, although some of them were perhaps geared towards the shadow Chancellor.

My hon. Friend makes a valuable point about commissions and the issue has been analysed in detail in the report. Ron Sandler accepts the principle and the need for genuinely independent financial advice to be available to consumers. He also accepts the research that suggests that commissions can skew the sales process and are perceived as doing so. He is determined to see a viable and truly independent future for financial advice.

Sir Teddy Taylor (Rochford and Southend, East)

Will the Minister say whether the new type of with-profits schemes—as set out on page 27 of the report, which calls for a separate management company—will do away with the appalling situation in which countless millions are offered to pay for mis-selling, with the money coming out of the assets of innocent policyholders? Should not that problem be sorted out, and will the report do that through its recommendations on page 27?

Ruth Kelly

The hon. Gentleman makes an interesting point. When Ron Sandler looked at the issue, he proposed establishing an ideal with-profits fund that would separate shareholder and policy interests. It would have a separate smoothing account, which would not be intertwined with the operation of the rest of the account, that would fully separate charges from investment returns. The idea behind his proposals for stakeholder products is that they should be completely transparent, so that no inherited estates lack transparency and conceal charges. Ron Sandler makes an interesting contribution to the debate and I look forward to working with the FSA and the industry on the proposals.

Alan Howarth (Newport, East)

Does my hon. Friend accept that it is entirely appropriate that she should be at the Dispatch Box and we welcome her to it?

Does my hon. Friend agree that the host of constructive suggestions in the Sandler report, which the Government did well to commission, are welcome given the need to do more to support young adults to save, faced as they are with the prospect of contributing to the costs of their further and higher education and their lifelong learning, and of buying a home, providing a pension and, eventually, providing for long-term care? Does she further accept that in seeking to provide more security for savers, it is important to make it clear that the principle of caveat emptor is not set aside, because no amount of transparency or simplification of regulation will abolish folly and greed?

Ruth Kelly

I completely agree that it is vital to protect consumer interests. As Ron Sandler usefully sets out, the problem with the current regime is that consumer interests are not properly protected and skew and distort the market for financial savings products. He proposes a new way forward that protects the consumer by regulating the product rather than the advice process. There are, of course, many safeguards built into the process, but it is right that the consumer interest is at the heart of the vision.

Mr. Michael Weir (Angus)

I welcome some of the interesting suggestions in the report, but does the Minister agree that one of the problems is that some large financial institutions sell only their own products, to which they are tied? We have anecdotal evidence of people attending so-called financial reviews and being pushed an institution's products without the costs of changing policies and taking out new policies being clearly explained. Many such cases mark a return to the churning that was prevalent before the Financial Services Act 1986.

The Minister talks about the transparency of the new products. Will financial institutions continue to be allowed to be tied to their own products? If so, how will we avoid that problem recurring with the new products, as there are bound to be differences between products? Will she take up the plea by the hon. Member for Twickenham (Dr. Cable) to ensure that everyone receives independent financial advice before they take out many of these products, which are so important for their future?

Ruth Kelly

Ron Sandler endorses the view made clear by the Financial Services Authority that genuinely independent financial advice needs to be available to the consumer. That means that it cannot tied to the commission of the provider when a sales person makes a sale. He does not rule out the fact that tied agents may still exist, but he endorses the vision that if a sales person calls himself an independent financial adviser he must be truly and genuinely independent.

Mr. Tam Dalyell (Linlithgow)

A significant number of my constituents work in the financial institutions in Edinburgh, as indeed do those of my parliamentary neighbour, the Chancellor. What was the Treasury's initial reaction to recommendation 10.172? It states that there should be thorough consideration of all the differences in treatment between pensions provided through life companies and non-life pensions (and in particular the difference between insurers and others for the VAT treatment of pension fund management)", and recommends that the Government considers making the playing field level wherever possible by, for example, extending the VAT exemption for pension fund management fees to include those levied by non-life companies.

Ruth Kelly

My hon. Friend asks a very serious question. In his report, Ron Sandler specifically points to the fact that although unit trusts and unit-linked life policies are effectively the same product, it is almost impossible to compare them or their underlying investment performance because of their different tax treatment. We endorse the idea of having a regulatory and tax treatment system that is as streamlined as possible, but clearly I shall not now commit my right hon. Friend the Chancellor on matters that will, rightly, be considered in the Budget.

Mr. Peter Lilley (Hitchin and Harpenden)

I congratulate the Financial Secretary on her role, which when I held it, I was told, often involved downplaying the significance of embarrassing U-turns in the policies of the Chancellor.

May I return to the question posed by my hon. Friend the Member for Chichester (Mr. Tyrie)? Why was it thought necessary two years ago to protect small savers by imposing a complex and costly system of regulation, when now it is thought that the only way to make savings products affordable for small savers is to exempt them from that system of regulation and to regulate the product separately?

Ruth Kelly

We are consulting on and taking forward the proposals in Ron Sandler's report. He correctly identifies the trade-off between the regulation of the conduct of business or of the sales process and regulation of the product. What is proposed now is a suite of stakeholder products that are simple, transparent, easy to understand, easy to sell and easy to take advice on. It is appropriate that we attempt to make that trade-off and to put the consumer in the driving seat. In the process we will drive much greater competition and transparency into the industry.

Laura Moffatt (Crawley)

Does my hon. Friend agree that there are providers, particularly of stakeholder pensions, who are doing an excellent job? For example, B&CE, which is based in Crawley, provides more than 175,000 stakeholder pensions to construction workers, who traditionally would never save at all for their future. Does she agree that, following the Sandler review, it is vital that we continue to work with the best providers in the industry to ensure not only that we protect the people buying the products but that it is as simple as possible to sign up for a stakeholder pension so that those who would not traditionally be interested in such products have access to them?

Ruth Kelly

I thank my hon. Friend for her question. At the heart of the proposals is the idea that people should have access to simple, transparent and easy-to-understand products, such as stakeholder pensions. As the proposals are taken forward, they will make access to stakeholder pensions even easier. We started out by encouraging access throughout the workplace, making it as easy as possible for people to save, and we now intend to develop that process.

Mr. John Redwood (Wokingham)

I have declared my interest in the register. Given that the biggest problem facing the savings industry in this country has been brought on by the collapse in the stock market, can the Minister explain why the British stock market has fallen further and faster than the American or the European ones? Do we not need a Government wealth warning on all savings products in Britain: "This Government's taxes and regulations can damage your wealth"?

Ruth Kelly

If the right hon. Gentleman checks his facts, he will see that there has been an almost 5 per cent real rate of return in the equity market since 1997.

Dr. Nick Palmer (Broxtowe)

On Thursday, the Treasury Committee will take evidence from people who have lost up to 99 per cent. of their investment in complex trusts. Does my hon. Friend agree that we need two separate markets: one for sophisticated products for which there is strong regulation and good advice, and one for basic products that are well protected, as recommended in the report? Does she agree that many people rarely come into contact with anyone who routinely gives financial advice? As well as looking at the possible role of citizens advice bureaux, she might consult the industry on incentivising others, such as trade unions and even employers, to take an interest in advising people?

Ruth Kelly

My hon. Friend makes some extremely interesting points. There will always be a need for financial advice for those with sophisticated financial needs who want to take advice on the different tax treatment of different products. However, we must also meet the needs of those whose financial circumstances are less complex. I believe that that can be done through a new mass market in financial advice.

We are, of course, prepared to work not only with citizens advice bureaux but with others involved in the wider industry, including trade unions, for example, to see how we might extend advice in the workplace. It is important that, wherever they are, people have access to the basic financial advice that they need.

Mr. Steve Webb (Northavon)

The Financial Secretary mentioned caps on charges. What conclusion does she draw from the example of the stakeholder pension 1 per cent. cap? People on low incomes whose saving is intermittent are simply not profitable because 1 per cent. of not very much is even less, and as a result many pension providers have laid off the whole of their direct sales force—the very people who explain the process and sell the product to people who do not have much money. Is she not worried that the same thing will happen if that attitude is adopted for other products?

Ruth Kelly

The hon. Gentleman is right to raise the concerns expressed by the industry. The time it takes for an independent financial adviser to make a sale has increased from about two and a half hours per sale 10 years ago to about six hours per sale today. Clearly, that increases the costs to the industry of every sale made, whether it is to someone with relatively ordinary needs, or someone with highly sophisticated, difficult and complex financial needs. Ron Sandler's vision is of a new framework whereby simple stakeholder products can be sold without that costly, time-consuming advice process. That will make those sales far more profitable for the industry, so I think that the industry's argument about a 1 per cent. cap on charges will evaporate.

Mr. Mark Hendrick (Preston)

Without prejudicing the outcome of any FSA research, does my hon. Friend believe that the future lies in paying up front for financial advice, rather than in relying on commission for producers? Is it not important to regulate advisers as well as producers, so that customers, and not only producers, get the best deal?

Ruth Kelly

The FSA is working on how to change the financial advice regime so that those who call themselves genuinely independent financial advisers cannot be completely dependent on commissions that might skew or be perceived to skew the advice they offer. That vision is broadly supported in the report, although Ron Sandler has a slightly more flexible interpretation of how advice can be paid for.

The need for consumers to buy appropriate products is clearly at the heart of Ron Sandler's proposals. He sets out a regime in which rather than the salesperson being highly qualified and the sales process overregulated, the product itself is regulated. There is a strict cap on charges, there are limits on exit penalties, and it is simple to move between products. That is a different way of protecting the consumer, but consumer protection is clearly at the heart of the proposals.

Tim Loughton (East Worthing and Shoreham)

The Financial Secretary's statement would have more credibility if we had not heard it all before, four and a half years ago, and if her figures added up. She said that there had been a 5 per cent. annual return on the market in the past five years, but the yield on the market in each of those years has never been more than 3 per cent. gross, and in capital terms the market is back to where it was in 1997, so her figures simply do not add up.

Will the hon. Lady cast her mind back to 7 December 1997, when the then Paymaster General, the hon. Member for Coventry, North-West (Mr. Robinson), launched individual savings accounts? His pamphlet contained the statement, backed by the Prime Minister, that ISAs would attract 6 million new investors—almost half as many people as were predicted to go to the dome. What has happened to those 6 million investors during a five-year period in which the savings ratio has fallen by two thirds?

While we are on the subject, will the Financial Secretary explain what has happened to CAT standard marks? How many financial products—what percentage of them—now carry CAT standard marks?

Ruth Kelly

On a point of fact, not only is the stock market higher now than in 1997, but the market capitalisation of the stock market is almost £350 billion higher than in 1997. On the point about ISAs, one in four adults now have ISA accounts, which have extended savings opportunities to women and people who were previously non-savers.

Ron Sandler welcomes the idea of CAT standards and product regulation. He emphasises the fact that the introduction of the CAT standard in the ISA market, for example, has transformed charges for consumers, and has led to much greater competition and enhanced consumer benefits.

Geraint Davies (Croydon. Central)

Does my hon. Friend agree that ordinary people simply want to be able to present their financial profile to, for example, a CAB and be offered a range of financial products with the assurance that they will be made aware of the risk that they are taking and the level of protection that they are being afforded, perhaps through insurance? In the aftermath of the problems with Equitable Life, the stock market and so on, that would enable us to restore faith in the financial community and market effectively a simple set of products that commands public confidence.

Ruth Kelly

I completely agree with my hon. Friend. It is important that we restore trust in financial products and, even more importantly, restore trust in the advice given alongside financial products. One way of doing so might be to extend the remit of citizens advice bureaux so that they offer not just advice about debt but advice about money management more generally. I welcome the fact that the FSA is prepared to look at whether providing that service would be cost-effective, and hope that others in the industry will consider seriously the way in which they might fill that gap.

Ian Lucas (Wrexham)

In view of the systematic mis-selling of endowment mortgages in the 1980s, mainly due to the gross negligence of the Opposition in allowing the operation of a completely unregulated scheme—a consequence of that policy is the poverty and distress that my constituents tell me about when they come to my Surgeries—is it not possible to consider referring the subject of endowment mortgages to the FSA so that it can carry out a full-scale investigation and put together a scheme to deal with mis-selling?

Ruth Kelly

I know of my hon. Friend's concern, but I should like to tell him that the FSA is being proactive. as it is working with firms to make sure that they offer the appropriate information to consumers and warn them if they face a shortfall. The FSA's remit obliges it to take action that is proportionate to the scale of the problem. I am informed by those at the FSA who know better that a full-scale endowment mis-selling inquiry would cost about £5 billion for pure administration, which is not in proportion to any consumer detriment that has been experienced. That is not to say that consumers do not sometimes find themselves in significant difficulty, but of course they have the option of going to the ombudsman and resolving the problem that way.

James Purnell (Stalybridge and Hyde)

Did my hon. Friend hear Sheila McKechnie on Radio 4 this morning saying that stakeholder pensions had been a great success in restructuring the market and getting costs down? Did she also see the research by the Association of British Insurers showing that stakeholder pensions had doubled in less than six months and had been taken up by 800,000 people? Will she take it from me that Labour Members welcome wholeheartedly her attempt to get lower-paid savers, particularly younger workers, to save for their retirement? Will she make a commitment to look at the tax incentive regime to see how younger workers can be encouraged to save more, perhaps through a cash-matching system, rather than complicated tax incentives that they may not understand?

Ruth Kelly

I welcome my hon. Friend's comments about the success of stakeholder pensions. We now have for the first time a system in which the majority of low-income families have access to a long-term savings product. Proposals in the report will make it even more cost-effective for people to take out that sort of long-term pension in future. My hon. Friend also highlighted the comments of Sheila McKechnie who, I know, endorses the heart of the report's proposals, which will provide significant consumer benefit in future.