Speech by the Financial Secretary to the Treasury, Mark Hoban MP, at the TISA conference
This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
Speech by the Financial Secretary to the Treasury.
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Good afternoon, and thank you for inviting me to speak here today.
I saw many of you here last November, and it’s a pleasure to have been invited again to look back at what we have achieved over the last year, and take stock of what more we still have to do.
Of course it’s impossible to ignore how different the economic environment is today compared to a year ago.
The global economy is caught up in a crisis of sovereign debt with the Euro area at the epicentre.
No economy is immune from that turbulence, ours included. The EU is our largest trading partner and a resolution to the ongoing crisis is in our vital national interests.
That said, we have remained outside the storm because of the tough decisions that this Government has made in the last year. First and foremost taking the decisive action to cut the deficit.
And in the last year we have also taken great steps in reshaping the way we regulate financial services. The failure of the tripartite system was a significant contribution to our own financial crisis.
So we are creating a permanent Financial Policy Committee within the Bank of England to monitor overall risks in the financial system.
We are abolishing the Financial Services Authority in its current form, transferring its prudential functions to a new Prudential Regulatory Authority in the Bank of England, brining judgement and foresight to regulation.
And we are also bringing a new approach to protecting consumers, to ensure that they are at the heart of the financial system, through a new Financial Conduct Authority.
We recognise that financial services play a key role in delivering growth in the UK, but we also need to work to truly rebalance the economy fundamentally and permanently away from the debt-fuelled consumption of the last decade. To ensure that we support a recovery based on saving, on investment and on private sector enterprise.
It’s not an easy task.
But it is a vital transformation if we are to ensure a stable and sustainable economic recovery.
And TISA members have a critical part to play to achieve it. You have a vital role in supporting individuals on a path of fiscal prudence.
Ensuring that families build savings that ensure that they have the resilience to withstand unexpected shocks.
And ensuring that the wider economy has the funds to invest in future growth.
It’s a substantial task to remedy the chronically low level of savings in the UK economy.
Before the crisis, one in four households had no savings at all. The UK’s household debt was almost 100% of GDP.
And even today, around 60% of people do not have a private pension.
We are committed to bucking the trend, encouraging more people to start saving.
To achieve this we need consumers who are educated and empowered, consumers who can operate confidently in the financial service market. I believe this requires 3 key things:
Consumer capability and protection
A vital element to encouraging savings is ensuring that consumers trust, and have the capability and trust to engage with, the financial system.
For many consumers, the financial market is a confusing, and often intimidating place. We want to ensure they have the skills and knowledge to navigate the financial services market with confidence.
One side to that is building confidence and trust in our financial services. Reforming regulation is critical to this, and the creation of the FCA will ensure robust, fair and proportionate consumer protection.
And the FCA will be less prepared to see detriment occur, and more willing to step in and prevent it from happening. To that end the FCA will have a new power to ban products or to restrict certain products features.
This new power will enable the FCA to intervene more quickly and decisively where it spots a problem by imposing a temporary ban with immediate effect.
And I welcome too the steps that industry has taken to restore trust and confidence in financial services. Like improving transparency by printing interest rates on account statements, including for ISAs.
Similarly, improving service: working with Government to reduce cash ISA transfer times from 30 days down to 15 working days. But with the ferocious pace of technological advance, I simply can’t understand why it still takes as long as 15 days to complete a transfer.
But the other side to promoting a culture of financial responsibility, is empowering consumers to ensure the are equipped to engage with the market.
That’s why earlier this year I launched the Money Advice Service to offer free and impartial guidance on financial matters. And in particular, its Financial Healthcheck provides invaluable help to families to identify their financial needs and find out where to get further advice.
But this is just the start for the Money Advice Service. They need to work with you in industry to set out a clear plan for what the Service will provide.
A more financially literate population provides you with a larger consumer base, and one that is more willing to engage in a wider range of financial products.
And as you in industry are paying for it, you should see it as it should be an important tool in your business and marketing strategy, not an exercise in corporate social responsibility.
It truly is in your interests, and I encourage you to work with the Money Advice Service to help it develop the best service possible.
But consumer protection and consumer capability alone are not enough.
We have to ensure that the market is providing products that people can understand. Products which make it easier for consumers to understand the risks and rewards.
In that spirit, we recently launched the Junior ISA Scheme, and I am grateful to providers for the big part that you have played in launching the scheme.
I believe that Junior ISAs will provide all parents wishing to save for their children’s future with a clear and simple account, regardless of their income.
And those funds in a Junior ISA will by default roll over into an adult ISA, on maturity, helping set young adults on a path of prudence and saving.
Junior ISAs are just an example of the kinds of simple products that we want to see the market providing to savers.
We know that for all that we can do to empower and protect consumers, the inherent complexity of the financial market can be a strong deterrent for people to engage.
At the end of 2010 for example, there were over 2,500 savings products available in the market. Whilst choice is good, it can also be overwhelming.
FSA research shows as much. Over 50% of people find it too difficult to compare one product against another. And 46% say they’re not sure if they’re getting a good deal from their investments.
And products that are complex and opaque add yet more barriers to investment.
That’s why we want industry to take the lead and set a standard for a suite of simple, easy-to-compare products to be introduced.
A benchmark that will help consumers overwhelmed by choice to take their first steps into the savings market.
It’s a vision I am personally strongly committed to, and only a few weeks ago I asked Carol Sergeant, formerly Chief Risk Officer at Lloyds Banking Group, to chair an industry and consumer organisation steering group to develop simple products, including in deposit savings and protection insurance.
We cannot merely impose a template simple product on the industry. A viable product has to emerge from the industry itself, meeting the consumer objectives that we have set.
This group is critical to that collaboration. It will be free to innovate and develop a range of simple products that are both appealing to consumers and are a viable commercial proposition for product providers.
It is an initiative that has the potential to fundamentally transform the savings market, and help millions of people build up crucial savings.
Employers and savings
But there is still much more that we can do, as a Government, and as an industry.
Of course this is a particularly difficult time for savers. People are seeing the income they receive from their assets reduced through low interest rates and higher inflation.
But that doesn’t mean there isn’t scope for innovation to get people to save more.
And one area where there is a real opportunity to do more is where employers and providers work together to encourage higher levels of saving.
We have already set out our plans to auto enrol employees into a workplace pension from next year, with employers also making a minimum contribution.
And I know that a number of you here met with Treasury officials over the summer to discuss ideas around workplace savings.
And I know that many of you were positive about using the workplace to improve consumer engagement and access new products.
Looking at how we can use behavioural techniques to encourage employees to save, and employers to support those habits.
For instance we are looking at how employers can support ISA contributions. And it’s worth clarifying here that where an employee instructs it, employers can put subscriptions from net pay into an employee’s ISA. This can remove a small but significant barrier for the employee to start saving.
Similarly, we already see a small but growing interest in employers offering workplace ISAs alongside pensions. There are already around 30 employers offering such workplace ISAs, employers spread across a variety of sectors.
Some employers and providers are concerned however that such an offer would be caught by the auto-enrolment provision against inducement.
But this is not true if the ISA is in addition to the pension, and not instead of it. I would encourage employers to offer this so that employees can save for the medium term as well as their retirement.
And I would encourage you to work with us on this vision as I believe that workplace ISAs can become a more standardised mass market option for saving over the medium term.
We will continue to look to the industry and employers to provide further new ideas, innovations and products for workplace savings, and are keen to ensure that there are no unnecessary barriers in the tax system that prevent this. This is your opportunity to seize.
We are developing new and innovative ways to encourage greater savings across society.
And we are eager to work with providers such as yourselves to identify what more we can do to promote a culture of saving. It’s a difficult but essential task.
Consumers face a huge range of pressures in the current economic environment, but we know that in the long term, this is what we need to put the economy on a more sustainable trajectory.
I encourage you all to continue to explore new ideas, and to engage with us where you feel Government rules or legislation could be changed to better facilitate new product developments.
Developments that will work alongside our plans to improve consumer capability and protection.
And I look forward to working with you in the months and years ahead.