Protect public but cut through the red tape

The General Election – Liberal Democrats
Vince Cable, MP, Shadow Chancellor

The City has been seen by politicians in the past in the past as an easy scapegoat for the economic difficulties and failures of an economy or as a piggy bank to raid for easy extra revenue.

Neither view makes sense, although equally there can be no pretence that the City can do no wrong.

I see it as the job of government to acknowledge the City’s achievements and an economic imperative to give it the freedom from regulation to allow it to compete internationally.

At the same time, the City has a separate, distinct role as the centre of the British savings market and financial services industry and government has a responsibility to provided systemic stability and to ensure that consumer interest is protected.

Populism is not a clever response to these complex issues, that is why the Liberal Democrats do not advocate a windfall tax, which some sectors of the media have been calling for.

Profits are a good thing for the UK economy since they show we are competing well on the world stage and high profits generate share dividends and a strong stockmarket performance.

However, big City profits, whether in the banking system or elsewhere, must be the result of competitive as well as successful companies, not at the expense of the consumer.

It is for these reasons that we supported the set-up of a statutory, unified regulator – the FSA – after growing dissatisfaction with the fragmented, part-voluntary, ind- ustry-based system which preceded it. However, there is still a great deal of frustration among consumers over products sold to them with minimal or misleading information.

The principle of caveat emptor should apply but there are far too many cases where commission-driven misselling has taken place, undermining confidence in financial products and institutions greatly.

I fear that we have not reached the end of misselling problems.

The irony is that while consumers feel unprotected, financial institutions usually feel over-regulated.

The FSA is partly to blame for this. The FSA’s adoption of revised rulebooks from its predecessor bodies means much of FSA regulation is about ensuring processes are being correctly complied with and has lead to very complex box-ticking operations.

This is the case with the current detailed small print involved in mortgage regulation and merely adds to the cost and complexity of mortgages while doing little to address key concerns of consumers, particularly over misselling.

I also have broader concerns about the regulatory regime and the ability of regulation to grow year on year, often when much has become redundant or unnecessarily complex.

Regulations are regularly imposed on business without an assessment of their impact. Once approved, some regulations outlive their relevance, tying up businesses in unnecessary red tape.

This is why my party proposes that we will require an independent impact assessment on every new regulation to be published before implementation. In addition, new business regulations will automatically include a sunset clause.

In some cases, issues are best dealt with through an effective competition policy rather than regulation. I have been pressing the Office of Fair Trading to investigate the market in mortgage protection which is very narrow and very expensive.

Consumer information and education is crucial as well. The financial regulator (FSA) should ensure that credit promotion and advertising has appropriate health warnings. At present, there are health warnings (perhaps excessively detailed) for the sale of investment products and savings but none on debt promotion. This imbalance aggra- vates the current bias against household savings and in favour of borrowing which has wider economic ramifications.

Public confidence in financial services could be helped too if the Government worked with the financial services industry to achieve a national role out of independent advice centres, providing financial healthchecks.

It is now very difficult for consumers to obtain independent financial advice following the new depolarisation rules. The Citizen’s Advice Bureau provides financial advice but usually for those already in debt difficulty.

A network which provides genuinely independent advice would be in the interests of the industry – helping to restore battered confidence – which should be willing to finance it collectively, also ensuring advice of a high professional standardRegulation and the relationship between Westmin-ster and the City has come a long way in the last few years with an advanced and complex system of statutory regulation in place. But confidence has been battered by Equitable Life, endowment mortgages and other problems.

Regulation and profitability need not be a zero sum game. We must ensure that the City is allowed to thrive and the UK consumers it serves.

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