A Conservative Government would seriously reconsider the role of the Treasury in imposing price caps on the industry, says Shadow Chancellor Oliver Letwin.
Chancellor Gordon Brown's new opposite number says a Tory Government would not necessarily support price caps.
In an exclusive interview with Money Marketing, Letwin says: “That is an issue we will consider. We recognise that people have issues with price caps. Let me put it this way, I do not envisage that as part of our new initiatives and I do not anticipate we will use caps within our policies.”
These views run alongside plans to grab the “floating business vote” by cutting regulation for small businesses, as touted by new party leader Michael Howard at the CBI conference earlier this month.
Letwin says: “That is something we are certainly intensively consulting on and need to decide what system to apply to try to change things. This will be one of our main concerns over the next few years.”
He believes small IFAs are buried beneath too many layers of bureaucracy from Europe, Whitehall and the FSA. He wants to see a culture change but adds: “We need to decide whether to take a broad brush approach or look at targeting classes of regulation.”
Letwin believes the role of the FSA would change if the Conservatives come to power as part of a move towards lighter-touch regulation but he is unwilling to commit to radical proposals now.
He says: “I recognise that there is a need for change but I do not want to see the FSA gotten rid of. I am not going to promise to offer anybody a less intrusive regime if I become Chancellor.”
Although he supports a lighter-touch approach, he is critical of the Sandler suite and more than enthusiastic about the lifetime savings account – the Conservatives' alternative to Sandler.
The account would act as a long-term savings vehicle allowing savers to retrieve money at any point without a penalty. Matched contributions from the Government would be saved alongside in an escrow account.
Letwin says: “Our general position is that it is not sensible to try to replace everything. We are starting with the view that initially we would compliment the existing range of products. I cannot sit here and say if we inherit a legacy of products we would act differently. We will have to abide by that general principle.”
Although Letwin is worried about the savings ratio, he does not think the £27bn savings gap is “the be all and end all” and thinks it only gives a wide indication of the scale of the problem.
He divides the problem into three areas, saying one of the main contributing factors to falling savings has been low real and nominal interest rates.
The second factor is the “social security effect” and spread of means-testing, which Letwin believes is having a huge impact and acts as a disincentive rather than an inducement to save.
The third area he cites is the problem of finding new ways of persuading people to make savings “that can be channelled into the economy rather than housing”.
Letwin backs Brown's plans to encourage homeowners to look at long-term fixed-rate mortgages, as long as they are still given a full choice. He thinks long-term fixes could bring some much-needed stability to the market.
He also wants to see a focus on using investments as “a pool of capital” rather than tying up money in houses. “I think if we can create the right background so it really is better for people to invest outside the property market, there will certainly be a role for advisers in this,” he says.
Although he accepts that providers are facing a lack of consumer confidence, he does not think a definition for misselling would restore the balance. Letwin says: “I think what is much more likely to restore confidence is transparency. This is one of the reasons I believe the lifetime savings account is such an attractive concept.
“I do not think I could define any system for classifying misselling. We need something that will make things more simple and transparent for the consumer. A traffic light system for warning is an interesting idea – almost anything that makes it clearer to see what kind of risk consumers are buying into.”