8 November 2005
Moneyfacts Conference
Opening Comments
1. Thanks, both to Chris for that kind introduction and to Moneyfacts for inviting me to speak at today’s annual mortgage and savings event. It’s certainly my pleasure to be here.
2. I believe the focus of this conference is ‘the future of the finance sector” – and that includes some of the influences over the next decade.
3. So what I want to do is quickly set out a wider context of our financial services policy and approach to the sector. I also want to take a moment to explain where some of our priorities are and the next steps to make this happen.
Maintaining Competitiveness
4. First of all, looking at the challenges and opportunities that lie ahead for the financial sector in an increasingly globalised world – and then clearly maintaining the competitiveness of the UK financial sector must be a priority.
5. Key to success with this is the work of your own firms. But government too must play a role, through investment in education, in skills and with infrastructure – not to mention applying reforms to strengthen both innovation and enterprise.
6. And underlying much of this, is delivery of effective and proportionate regulation – a fundamentally critical part of this story.
Better Regulation
7. Why? Well, regulation is a vital step to take if we are to lock-in Britain’s economic stability and competitiveness in an age of ever greater globalisation.
8. Without doubt, getting the right business environment requires a fair relationship between the state and our businesses and enterprises.
9. That’s why we are committed to reducing the burden of bureaucracy on business, on fostering a more efficient form of regulation.
10. This means making sure our regulation is proportionate and focused where it is most needed.
11. Following the Hampton Report published alongside the last budget, we are working to embed risk-based enforcement at the heart of our regulatory systems.
12. And that means regulators’ resources and inspection activity must be strengthened in the areas where the risks are greatest.
13. It also means there should be no inspection of businesses without a reason, and the number of forms that businesses still have to fill must be reduced – if only through greater sharing of data between regulators. Up to a third fewer forms, and 25% fewer inspections.
14. This is all underway and I am sure it will transform the relationship between business and government. But it is just the latest stage in our ongoing commitment to nurturing a supportive business environment.
15. With the 2002 Budget, for example, we cut the starting rate of corporation tax from 10% to zero. We cut the small companies’ rate from 23% in 1997 to 19% from 2002.
16. And we have tackled capital gains tax too, reformed with a generous taper relief for business assets – all adding up to a UK regime that is ever more one of the fairest in the world.
Mortgage Regulation
17. Now, the impact of our better regulation agenda should soon be felt across the finance sector, with the FSA only yesterday setting out details of its planned reviews of both their mortgage and general insurance regimes.
18. Those reviews, announced by FSA Managing Director Clive Briault earlier this year, will investigate the effectiveness of the regimes – focusing initially on how far the FSA conduct of business requirements for mortgage and general insurance firms are delivering the intended outcomes for consumers.
19. I am sure you will all welcome the opportunity for constructive stakeholder input that these reviews represent – and I encourage all interested parties to actively engage with the FSA on establishing ways to improve the effectiveness of regulation.
The European Agenda
20. More widely, the drive to ensure proportionate and effective regulation also shapes our approach to the European agenda on future financial services integration.
21. The UK’s strategic work in this area includes an explicit focus on better regulatory practices.
22. When new EU legislation on financial services is being considered it is clearly important that a proper assessment of costs and benefits is undertaken.
23. And it is also important that financial market participants are fully consulted – and that we fully consider the impact of EU regulation on the competitiveness of EU-based firms.
24. This is an approach that is winning ground at the European level. And it is an approach that will shape this Government’s response to Commission proposals on promoting further integration of European mortgage markets.
Changing Needs of Society
25. Now, I know that the UK financial services sector will need to meet the changing needs of our society as we all deal with the consequences of long-term global changes – such as increased life expectancy.
26. So our mixed economy approach to savings and pensions and the variety of financial products on offer puts the UK at an advantage compared to many other countries.
27. Yet, financial services in general – and the finance sector in particular – must do more to help people cope with demographic change. We must enable them to manage risks in their own lives – and to participate fully in the economy, not least by having access to basic financial services.
Savings & Asset Based Welfare
28. Clearly, ensuring people have assets and savings can make a huge difference to the lives of people across Britain.
29. That’s why, since 1997, we have pushed for greater savings and wider asset ownership. And why we have introduced policies to help those at the lower end of the income scale such as Stakeholder.
30. Today, with low interest rates, low inflation and a strong labour market we are well positioned to promote asset ownership through informed saving decisions, even more.
31. But we must respond with policies that help shape a more modern, flexible financial services sector – a sector that reflects the demands of modern society.
32. From children to pensioners, the aim of our policies in the finance sector has been to support hard working citizens live a better life in a fairer society.
Child Trust Fund
33. One example of this is with the Child Trust Fund – a groundbreaking initiative that strengthens the saving habit of future generations.
34. In the abstract, there is much to be proud of. But on the ground – in the lives of real families – that’s where this really stands out. Because when our kids turn eighteen, they will all – for the first time in our history – have access to a financial asset.
35. Around 1.7 million vouchers were sent to the parents of eligible children to use to open Child Trust Fund accounts.
36. And since this April, government payments have gone into people’s accounts – with contributions of up to £1,200 a year that can be made by family and friends.
37. And as a Treasury minister – you might not expect this, but it’s true – it always cheers me up to be able to say there is no tax to pay on the money earned from these accounts.
38. It’s tremendous that almost 900,000 Child Trust Fund accounts have already been opened – positive action that will ensure every child, regardless of background, gets the best start in life.
Saving Gateway Pilots
39. Let me also quickly mention the wider ‘Saving Gateway’ pilots we’ve set up. These involve eligible participants who are invited to apply for a specially designed savings account.
40. Every time they save some money the Government matches it with a contribution. It is simple and easy to understand and is designed to help those on low incomes start saving.
Tax Simplification for Pensions
41. But at the other end of the age spectrum, we’ve also sought to create a simpler tax regime for pensions – one that tidies up and clarifies tax incentives to save within pension products.
42. This is a straightforward rationalisation, which will be implemented in early April next year.
43. But simplification will sweep away the many existing tax regimes and replace them with a single universal regime for tax-privileged pension savings.
44. What this means in practice is greater flexibility for some 15 million pension savers. And it means reduced administration costs and a reduction in the current burden caused by expensive administration checks for pension providers.
Combating Financial Exclusion
45. Of course, while ISAs, Child Trust Funds and the wider components of asset accumulation are key to financial service provision in the UK – for many citizens, being able to save is not always so straightforward.
46. That is why we have an obligation to combat financial exclusion in this decade. In 2003/04 – 1.5 million households, with 2.3 million adults, had no bank account or Post Office Card Account.
47. Two thirds of them were in the lowest three income deciles.
48. This is shameful, because households that operate solely on a cash basis lose out on savings that others can make through direct debits to pay utility bills, and pay more all round for things like pre-pay mobile, and money from the alternative credit market.
49. For many this can lead to spiralling debt. And for those who do get into such debt, the supply of free face-to-face money advice falls far short of demand.
50. It is a vicious circle that we will break.
51. That’s why in December last year we set out the next steps in tackling financial exclusion, establishing a framework to ensure delivery through a Financial Inclusion Fund of £120 million over three years, combined with Brian Pomeroy’s Financial Inclusion Taskforce that will oversee progress.
Closing Remarks
52. I hope I’ve given you a comprehensive overview of what we’re doing and why.
53. Whilst there are undoubtedly challenges and opportunities ahead for the UK financial services sector, this is a sector that has responded well to challenges in the past – and I am sure will do so again in the future.
54. And that’s why this Government believes that ongoing dialogue with industry and consumers will continue to ensure the most effective range of policies are in place to support that process.
55. Thank you.
(1,700 words. 17 minutes)