Tories' deregulation agenda is treading on dangerous ground
I am sure I am not alone in finding David Cameron's "hug a hoodie" notion faintly embarrassing. There is something about the idea of an old Etonian trying to "get down with the kids" that is about as authentic, and almost as cringe-worthy, as your Dad's dancing at a wedding reception. And has anyone actually seen him hug one? I haven't.
I confess to actually possessing a hoodie. I had thought of it as a comfortable and warm item of clothing. However, I now no longer wear it, in an attempt to avoid being followed around shops by acne-riddled security guards or, worse still, manhandled by Tories. However, it seems that the mortgage industry is not to escape the Conservative Party's attentions. Witness the dawn of Conservative attempts to "bear-hug a broker" or "love a lender".
The Conservative Party's Economic Competitiveness Policy Group has just published a submission to the Shadow Cabinet entitled Freeing Britain to Compete: Equipping the UK for Globalisation. The group is chaired by John Redwood. One might be forgiven for pausing there and wondering which is the more frightening prospect - walking down a dark alley to be confronted by a youth in a hoodie, or by John Redwood? But that is by the by.
The thrust of the report follows the Conservative's deregulation agenda across a range of areas of the economy. It does, however, have something specific to say on the mortgage industry. It states that "we see no need to continue to regulate the provision of mortgage finance, as it is the lending institutions rather than the client taking the risk".
Do the Conservatives seriously think that anyone is still having this debate? No one would argue but that regulation needs some tweaks. Heaven knows, I have had enough to say in these columns on the subject. But to scrap it completely? If nothing else it has delivered a more or less level playing field. We all know what we are working with. Also, the less desirable elements of the industry have been put under pressure or rooted out by the regulator. We also know, given recent thematic work, that even given the regulation that we have there are still pockets of extremely poor practice and that, in reality, it was a lot worse before the Financial Services Authority came along.
On top of this, all of the work that the FSA has done on financial capability suggests that a significant level of protection is still required by consumers. After all, a mortgage remains most people's most expensive financial services purchase. And this is where the Conservatives' report begins to unwind slightly for me.
In the same report they offer private sector finance as an answer to affordable home ownership, suggesting that "more substantial private sector mortgage money should be brought into the affordable housing arena. This would release public capital, where national and local government still own the freeholds of rented accommodation." I hope they are not suggesting that this be lent to vulnerable consumers in an unregulated environment?
Perhaps the report's observations on wider financial services regulation offer some further clues as to the Conservative approach?
While accepting that for investment products (where institutions take a customer's money) some regulation and, in particular, capital adequacy requirements might be required, the report states that "there is not necessarily a good reason why a regulator should have to be involved in product design and marketing for rich and sophisticated investors. We recommend that such investors should be able to sign a piece of paper which allows them to go ahead and buy unregulated products at their own risk. The paper would have an agreed form of words, which made it crystal clear that by buying such a product the customer could expect no regulatory protection or compensation, and that they could afford to lose the money they were venturing. All businesses, and some experienced investors, could then take themselves outside the regulated product net if they wished, and would have to rely on the civil and criminal law and their own abilities. We would then be able to see how much experienced investors do value and want regulation."
Try as I might, I could not find an example of this "piece of paper" annexed to the report anywhere. It seems that Conservative policy, should the report be adopted, will be to allow an opt-out from regulation. Dangerous stuff. How do you define who can take advantage of the opt-out without it being misused? Presumably, it's OK if you are an old Etonian?
And in the interests of political balance, as for Gordon Brown, well, you wouldn't necessarily want to go for a beer with him.
Philip Tebbatt is chief executive of So Simple Mortgages and can be contacted at email@example.com