The financial services industry is now over-regulated. A Conservative Government will review both the Financial Services and Markets Act and the operation of the FSA. We must remember there has been very little misselling through IFAs – it was almost all through tied agents.
For too long, the Govern-ment has allowed the misselling scandal to lead to a situation where costs imposed by the regulator are too high. It will be difficult to retreat from that situation now but it is also clear in regulatory terms that the real villains of the piece were the product providers, despite all their protestations that they were the good guys.
We wish to revise the act so it becomes much clearer that competition in itself offers tremendous benefits and safeguards for investors. The FSA must therefore seek to carry out its regulatory duties within a framework that supports both international competitiveness and domestic competition.
We will institute an independent review of the act and the FSA in 2004 and periodically thereafter. The reviews will assess the success or otherwise of the legislation and the FSA in achieving the objectives of the act and, in particular, their cost-effectiveness.
We will require that all rules, both new and existing, should be subject to cost-benefit analysis. We will also require the FSA to have its own deregulation unit to identify areas of regulation which contribute little or nothing to the objectives of financial regulation and for the FSA to report publicly.
The FSA will be required to regulate all retail financial products and services purchased by consumers and advice about them, to ensure the transparency of charges and integrity of products.
While the Chancellor has reformed capital gains tax so as to produce for some people a rate as low as 10 per cent, in the process he has made an already complicated system even more complex.
The new system of taper relief introduced in 1998 and since amended establishes no fewer than 14 different rates of CGT and there are now marked distortions between different sorts of investments.
This system sits alongside the old “indexation” system of CGT, and comes on top of innumerable other reliefs.
We will reform CGT. It should be simplified, allow-ances removed and the rate dramatically cut.
Experience in other countries shows that reductions in the rate of CGT can give a boost to entrepreneurialism and investment so overall revenues actually rise as a result.
In Ireland, for example, the finance minister's 1998 budget included a provision to cut the rate of CGT from 40 per cent to 20 per cent. In 1998, revenues to the Irish exchequer from all capital taxes totalled just IR£294m. After the cut in the CGT rate, revenues from CGT alone were IR£343m in 1999 and IR£620m in 2000 and are forecast to reach IR£785m in 2001.
My concern about stakeholder is that it is difficult to find people you could advise to take out a stakeholder pension. It is difficult for IFAs to recommend stakeholder for those on low incomes, particularly as the Government maintains the minimum income guarantee.
For many people, the result of stakeholder savings would be to cut them out of the minimum income guarantee. I prefer compulsory pension savings of some sort, as done elsewhere in the world. That would of itself mean competition would drive costs down rather than achieve it by statutory regulation.
If compulsion is brought in, then there must be annuity reform. People should not be made to purchase a product that is clearly inferior to a whole range of other secure products. Most people would be better off buying the bonds that secure their annuity. They would probably get just as good a yield and keep their capital.
A Conservative Government will reform the age 75 rule on annuities and the Individual Pension Account to allow people a better deal in retirement.
We will require that all rules, both new and existing, should be subject to cost-benefit analysis