Labour MP and Treasury select committee member Andy Love believes the Northern Rock crisis could have been prevented if it had stayed a mutual.
Love says: “Northern Rock moved away from the link it had as a building society with the saving public into this nightmare world of wholesale funding. I believe there is a strong place for wholesale funding but Northern Rock went into it in such an enormous way and that is where it all went wrong.
“If it had remained a mutual, it could still have used the wholesale markets but the amount it could take on would have been limited and this may well have saved the bank.”
Love would like to see the stricken bank return to mutual status but he doubts it is a viable option, as it would need to be bought by another mutual or the saving public.
Love defends the Government’s decision to exempt Northern Rock from the Freedom of Information Act, claiming that “the bank has to operate in a marketplace and that marketplace should be a level playing field”.
He says: “The real issue for the Government was knowing how much public interest from the media and other channels there would be in Northern Rock. It recognised that a disproportionate amount of time would have had to be spent on dealing with FOI enquiries rather than making the bank profitable again.”
However, the MP for Edmonton believes it is important that the bank produces all the information required of listed financial institutions so as not to tilt the playing field in the opposite direction and insists that he is a firm believer in the merits of the Freedom of Information Act.
Love’s comments come ahead of a TSC inquiry into the FSA’s retail distribution review.
He says: “I am expecting, when the RDR emerges, that we will get a lot of comments and letters and there will be a debate in the newspapers about whether it has been worthwhile and whether the solutions it has come up with are appropriate and sensible in the circumstances. So I have no doubt we will look at that.”
He believes principles-based regulation could significantly ease the burden of regulation for IFAs and says the FSA must do everything it can, while protecting the public interest, to minimise the burden that IFAs bear to encourage a burgeoning financial sector.
Love believes that generic advice could be beneficial for the industry. He says: “This is good news, not just for the people who will get advice but for the industry and IFAs. I think it will generate business for everyone because there are lots of people who currently do not have a pension, insurance policies, a savings vehicle or anything – perhaps they stuff their money under their beds – and this will recommend very strongly that they invest their money sensibly.”
Love, who has been a member of the TSC since 2005, says the committee’s recently announced inquiry into inherited estates was prompted by genuine concern that Norwich Union and Prudential’s policyholders could end up with a reattribution deal similar to Axa, where shareholders pocketed 70 per cent.
He says: “If NU and Prudential went the same way as Axa, it would bring the whole process into disrepute. It is not unreasonable that shareholders benefit more from a reattribution than a distribution because the money at risk is their money. But as long as they are adequately compensated for the capital they provide and the risks they take, I would favour ensuring policyholders are the main beneficiaries.”
Love says, on the face of it, companies with inherited estates have a clear advantage over other firms because the capital allows them to take greater risks, potentially receiving greater rewards. He also questions whether it is right that such firms can use orphan funds to offset tax and pay misselling costs.
He says: “Some of the criteria used by the FSA appear to be advantaging shareholders over policyholders, for example, allowing companies to off-set tax. Investing in new business may well benefit both but the FSA needs to put a strong case forward as to why it has decided it is appropriate for those concessions to be made.”