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Government is hitting confidence

Open letter on Treasury select committee report into endowment policies, Eric Forth, MP

I wrote to you in March asking that the chairman of the Treasury select committee, John McFall, MP, kindly respond to some questions.

I can trace no reply and I would be grateful if you would kindly ask Mr McFall again for his responses and am enclosing a copy of the original letter.

The matter of the Government’s criticism of the financial services sector has, now been put in stark contrast by the embarrassingly generous proportions of MPs’ pensions and other entitlements, all at taxpayers’ expenses – the very same taxpayers, sorry, consumers, that Mr McFall claims to be trying to protect. There is the foul stench of hypocrisy hanging around here.

Dear Mr Forth

I would be most grateful if you would ask the chairman of the Treasury select committee. John McFall, MP, for his responses to the following important questions:

1: Did the committee consider the fact that people with repayment mortgages
postpone the repayment of capital each time they move house or remortgage? At the beginning of a repayment loan, payments are mostly interest. Capital begins to be repaid in large quantities at the end of the mortgage term. Every time a repayment mortgage holder moves house or remortgages, the result is a postponement of the repayment of the debt. Borrowers, if they realised this, may question the actions of the committee.

2: Is the number of times a policyholder has moved (or remortgaged) taken into
consideration when compensation is being offered?

3: Why is the matter of compensation considered in the mid term? Surely, the test of whether a policy has worked is when it is required to repay the mortgage, not before.

4: Has the fact that the Consumers’ Association encouraged people to buy endowment policies been considered by the committee? Is the CA to be pursued for compensation?

As an investment practice, we have not been affected by the endowment issue – apart from a general increase our professional indemnity insurance – but it is sad to see so many colleagues being put out of business for factors over which they had no control. They are losing their livelihoods, their homes and sometimes their families.

No one would doubt that inefficient contracts that waste clients’ money should not have been offered. However the number of companies at whose door that criticism can legitimately be laid is small.The number of people affected, therefore, is a commensurately small proportion of endowment policyholders.

It is clearly correct for people to be encouraged to make mid-course corrections to address any potential shortfall, which is only prudent, but one cannot help but feel that in these days when our Government is not trusted on the most basic of issues, that they are engaging in the denouncing of so many areas of trade and even specific individuals, for political kudos. They seem just a little too keen to champion the interests of the consumer. However, when the Government is accused of wrongdoing, mysteriously, nobody resigns or even apologises.

The difficulty for the Government, it seems to me, is that while it stands ready to criticise and denounce all and sundry in the City for “ripping off” the consumer, it clearly does not have the interests of savers at heart itself, as demonstrated by it reneging on its promises to investors. Such a view is now being widely expressed within the media, as it is self-evident to even the most casual observer.

With the broken promise on the tax efficiency of Isas, is the Government going to compensate those investors who, having been tempted by the promise of a commitment by the Government to that savings vehicle, now find that the tax status of these investments is to be further impaired? One hardly needs to ask the question really. The answer, of course, will be no.

Will IFAs be lambasted for not anticipating the fact that the Government would break its promises? Probably.
By breaking its promise on Isas, the Government has manufactured a misbuying and misselling scandal of huge proportions.

With the proposed changes to Isas (and the destruction of Peps and Tessas beforehand) as prime examples of this Government’s total lack of commitment to the creation of personal wealth (and thereby encouraging a culture of dependency on the state) closely followed by the incompetent handling of the pricing of stakeholder resulting in a near-complete failure of its distribution to its target market, are the efforts of the Treasury select committee somewhat misdirected?

The long-term problem for the country if the Government continues along the present line is that confidence will be lost in all financial products. It is time for the Government to put its own house in order and deal with the consequences of its own actions in relation to the consumer.

John Morris
Managing director,
The Harvest Partnership,
Bromley, Kent


Standard arguments

Just when it looked like changes in ownership at the Abbey had provided an opportunity for common sense to prevail in the electronic submission of mortgage applications, an alternative has appeared with the potential to complicate things further.


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