Shadow Chancellor Dr Vincent Cable , MP, talks to Johanna Gornitzki about regulation, the NHS and the importance of independent advice
Six years after becoming Liberal Demo-crat MP for Twickenham in 1997, Dr Vincent Cable was elected Shadow Chancellor for the party. Since then, he has spoken on a number of economic and financial issues on behalf of the Liberal Demo-crats as well as shadowing and questioning decisions made by the Chancellor of the Exchequer, Gordon Brown.
Looking back at the past two years, Dr Cable thinks regulation has been the number one issue. "What we have seen is the process of settling down of the financial regulation system that was introduced in the late nineties under the Financial Services Authority," he says. Dr Cable is not ashamed to admit that he was one of the main supporters of the move to a single regulator, pointing out that the previous system with several different regulatory bodies was very "messy."
"While there are some feelings that the Financial Services Authority has not dealt with certain matters in the best possible way, by and large I think the new system of regulation that has emerged is better at providing protection for consumers than previously."
That said, Dr Cable is slightly concerned that the amount of form filling and box ticking that Financial Services Authority (FSA) regulation has brought about may overshadow the main priority of the new regime. This is simply to assure that, if something goes wrong, consumers have access to an independent system of arbitration, such as the Financial Ombudsman Service. His worry does not, however, dampen his enthusiasm for regulation. "I was even the one who initially argued for extending this regu-latory evolution to mortgages," Dr Cable says.
Cable got his way, and the mortgage sector saw regulation come into effect on October 31, 2004. "It was clear to me that mortgage debt was potentially a major issue. Now, we are seeing unprecedented levels of debt in relation to income and about 80% is unsecured debt in the form of mortgages. If there is a downturn in the economy, if unemployment goes back up again, or particularly if house prices fall, then a lot of people will find themselves in serious difficulties. Therefore, since there is no state safety net, it is absolutely crucial that as many people as possible are covered by some form of insurance," he says.
Health warning
But as the grip tightened around mortgage sales, the flaws of another financial product, mortgage payment protection insurance (MPPI), which is usually sold on the back of a mortgage sale, became apparent. Expressing grave concern about the "malfunctioning" of the MPPI market, Dr Cable says: "While a lot of consumers have some kind of mortgage payment protection insurance, the feedback I have had on the consumer side is that the products available are not only expensive but also designed with numerous get out clauses."
Addressing this element in the Liberal Democrat action plan on personal debt, published in February, Dr Cable called for the FSA to head an investigation into MPPI. Following his call, alongside pressure from various industry commentators, the FSA finally caved in to the demands and launched an investigation into the sales of the product, admitting it may pose a higher risk to consumers. Dr Cable applauds the FSA's move.
"I think there are a number of issues that need to be addressed here and one of them is the range of exclusions that are added to mortgage protection and the fact that there are many circumstances under which mortgage protection is very limited. The industry needs to ensure that these products are completely simple and transparent when it comes to what they cover and what they do not cover," he says.
Dr Cable believes health warnings on protection products could be a way to increase awareness of how they work and exactly what they are offering. "While I am not in favour of heavy-handed Government intervention and believe people should be allowed to make their own decisions on their finances, the best way to do that is to ensure they have the appropriate information and that may well include a health warning.
"I think it is important that people will be given some sort of hint that they are dealing with products that are complicated and that they could stand to lose money. If you invest your money in an investment product, you are given all kinds of information relating to your purchase. But that does not apply in many cases to borrowing and protection products. I would just like to see a level playing field between these things," he adds.
In terms of financial education, he thinks the Government should be actively working with the financial services industry to achieve proper national independent advice centres, providing financial health checks and impartial advice to consumers for no cost or a small fee. "I have been advocating that independent financial advice networks should become available not just for those who are already in debt who would be given advice from the Citizens Advice Bureau, but also for people who would like impartial advice on their most important financial decisions. I think it would be in the interest of the industry to fund such a thing," argues Dr Cable.
He would also like to see the Association of British Insurers (ABI) take a more proactive stance when it comes to raising financial awareness. Commenting on a recent move by protection IFA, LifeSearch, which called on the ABI to launch a generic advertising campaign to raise consumer awareness about the need for protection, Dr Cable said: "There are things that companies would not like to do individually, but they may be willing to do collectively. That is a good example and I support this idea."
Besides advocating for increased financial awareness and making independent advice more readily available for the majority of the population, Dr Cable also argues for a more consumer friendly approach by the public health service. "We have seen some tangible improvements in the NHS, but there is still massive frustration about the quality of service. Instead of having numerous complex targets, what I would like to see is the NHS having one single objective, which is to increase consumer satisfaction one year to the next," he says.
Distinction
Dr Cable strongly supports the principle of the NHS, which is fully accessible to everybody, and he thinks that in some ways the NHS is likely to grow because of the cost of private insurance and rehabilitation. However, he emphasises that he does not object to private provision should the NHS need a helping hand. "I think that there is an important distinction to be made between private provision and private consumption. There is an entirely separate issue, which is whether there is a role for a higher percentage of private companies providing public services, such as diagnostic treatments. I have no ideological problems with that if services can be provided with a high quality and give value for money."
"There are many issues that need to be addressed. One of them is pension term assurance (PTA), which is predicted to become a very popular protection option post A-day, and forecasted to cost the State up to £250m in tax relief. Dr Cable says he is concerned about this. "I do not want to discourage people to save for their retirement, but I certainly would not want unnecessary tax relief to be handed out, particularly not to people who are already quite well off."
Regarding the British economy as a whole, he suspects it may become more difficult due to a combination of things, including a fall in house prices and an overall slowdown in the economy. "This could produce a more testing environment and that is something we should be sensible about," Dr Cable concludes.
