Regulation of Financial Services (Land Transactions) Bill

I am grateful to my right hon. Friend, who has developed expertise in such issues, is respected for his comments on these matters and chaired with distinction the Treasury Committee during the last Parliament. We will, of course, take seriously anything that he says on such issues, on the basis of his knowledge and experience and of the regard in which he is held. The very structure of the legislation enables us to do just what my right hon. Friend suggests, and as I shall say later in concluding, there will be opportunities for consultation to ensure that the regulations that emerge meet those standards. As he and other hon. Members know, the Government want to encourage the development of risk-based regulation, and I remind the House that the FSA is considered a leading example of that approach to regulation. We intend to build on that, not to destroy it. I turn now to the specifics of the regulatory impact assessment, which has exercised a number of hon. Members. The hon. Member for Sevenoaks referred to it in an intervention, and it has been mentioned in more detail by other hon. Members, including the hon. Member for Twickenham. That assessment has arrived at estimates of £11 million for the start-up costs and £5 million annually, and I stand by them. I remind the House that, as we have been constantly told, such regulation has been requested and supported, not only by hon. Members on both sides of the House, but by consumers and, indeed, the industry itself—something that is very important. One of the principal reasons for those requests is that the development of this market, which we all wish to see, depends on confidence and security in the market, and its proper, appropriate and proportionate regulation is necessary to underpin the development of the market itself. The Government’s approach to such regulation follows the better regulation process. We have consulted twice already, as we have been reminded, and we have received an overwhelmingly positive response from the industry. The FSA will consult again on its detailed rules for such products, and I am happy to deal with the inevitable consequences, such as further delay, later in my remarks. The FSA will carry out a further cost-benefit analysis, refining the existing figures further—and, of course, in doing so, it is obliged to ensure that the burden of regulation is proportionate. I have in my papers a number of quotations from various sources that welcome the Bill, but since there is no dissent in the House, I do not need to persuade anyone that those outside the House want us to proceed with this legislation, so I will not deploy them. It is the Government’s view that, overall, the Bill is likely to lead to a comparatively small increase in FSA expenditure and I shall give figures in a moment so that hon. Members can share my view of proportionality. The additional expenditure will be met by an increase in the fees levied by the FSA under the Financial Services and Markets Act 2000. On the basis of FSA figures on the current cost of mortgage regulation, it is estimated that the one-off cost to firms that sell lifetime mortgages will be between £6,000 and £11,000. That cost would of course be less for firms that were already authorised by the FSA for other businesses. The hon. Member for Cities of London and Westminster referred to his experiences of trawling the world wide web and indicated how that can be misleading of itself, but I shall return to that matter in a moment or two. The total one-off compliance cost to the industry for home reversions is estimated to be about £11 million, but it is extremely difficult to gauge ongoing costs in a market that is clearly developing and could expand considerably. However, in the absence of further refinement, which we will ask the FSA to make, the best estimate of the ongoing cost for an expanded provider base is £5.4 million a year. Of course, the market for the Islamic or ijara products is developing, but the immediate cost of regulating that market would be small. I shall share some figures with the House so that hon. Members can reach a view about the question of proportionality. There are currently about nine providers of home reversions and about 17 members of safe home income plans, or SHIP. The total value of reversionary lending by members of SHIP in 2004 was only £40 million. The number of active home reversion plans on the market at the end of 2004—this again refers to SHIP—was 2,524. The equity release market is a much more substantial market with 32 providers of lifetime mortgages and 57 other firms specialising in equity release. The value of new lending in the equity release market, which is currently a restricted market for the reasons that we have discussed, was more than £1.2 billion in 2004. The total value of lifetime mortgages outstanding in 2004 was just over £4 billion, and the future capacity for equity release sales annually, which is based on an actuarial calculation of 15 per cent. of the eligible population purchasing such a scheme, is £4 billion by 2031. I have given hon. Members those figures so that they can estimate the cost of the regulation, but they should bear in mind that the cost is proportionate, given that the regulation will instil significant security and confidence in the market.