With economic recovery firmly on the agenda, now is the time to put in place a fair and stable framework for business, says shadow financial secretary Mark Hoban
No one can doubt the importance of the insurance sector to the UK. It is a major international success story.
London is the world’s largest international insurance market. Lloyd’s of London is a global brand. But, of course, insurance plays a key role in providing protection and security to businesses and households here too. We turn to insurers for life cover and pensions, as well as for our household and motor insurance.
Insurance is integral not just to our daily lives but also to the strength of our economy. It is vital that we do all that we can to strengthen the insurance sector. In the immediate aftermath of the current financial and economic crisis, this means reforming our regulatory system, but as we look towards an economic recovery, we also need to put in place the foundations for strong and sustainable growth.
While the UK insurance sector escaped the worst of the financial crisis, the interconnectedness of the financial services sector means that it has been damaged as a consequence of the problems in the banking sector. One of our principal priorities is to learn lessons from the financial crisis in order to ensure that London remains a global financial services success story.
One of those lessons is the failure of the UK’s regulatory structure to identify and act on the imbalances in our economy as cheap money flowed into the UK, creating an asset price bubble. While the FSA focused on regulating conduct of business, it missed the growing impact of these imbalances on the stability of our banking sector.
We cannot allow this to happen again. The crisis shows that you cannot ignore the wider trends in the economy when supervising important sectors, such as banking and insurance. That is why the Conservative party has decided that the Bank of England should be responsible for dealing with macro-economic trends, such as the level of debt, and the supervision of banks and insurers, whose stability is fundamentally intertwined with that of the wider economy.
Ironically, while the FSA was focusing on conduct of business, it failed to stop consumers from getting a raw deal, for example the mis-selling of payment protection insurance by banks. The Conservatives will therefore establish a new body, the Consumer Protection Agency, to protect consumer interests in the financial services sector. It will regulate the relationship between insurers, banks, IFAs and other sectors and consumers, as well as acting as the prudential supervisor for non-systemically important sectors. It will learn from the regulatory failures of recent years and act as a true champion of the consumer.
Regulation is no longer the preserve of national governments and regulators: increasingly, the focus is shifting towards Brussels. Unlike the current government, we would be fully engaged with the European Commission and European parliament, making sure your voice is heard. There is an opportunity to create a single marketplace for insurance in Europe, but we cannot put the stability of the sector at risk. Europe presents huge opportunities for the insurance industry, but it is vital that we get the regulatory regime right.
To ensure the long-term success of the sector and rebuild our economy, we also need to create a stable and competitive framework for business. I know from my work on successive finance bills how important the right tax regime is.
We want to cut the headline rate of corporation tax from 28% to 25%, and we will fund this through a simplified tax change. But I know that the sector wants certainty and predictability on tax too. Every year, the rules on the taxation of pensions seem to shift, and the unexpected changes to capital gains tax hit investment bonds hard. We need to create a more stable tax regime to stem the flow of insurers, such as Hiscox and Catlin, shifting their tax domicile offshore.
A more sustainable economy means moving away from debt and consumption towards savings and investment. Families went into this recession with low savings; we need to address this, as well as the long-term challenges of saving for retirement. We need to look at how government, the financial services sector and consumers can work together to tackle this. For example, we have already proposed a national roll-out of a national money guidance scheme that will better equip consumers to engage in discussions with banks, insurers and IFAs about their finances. More needs to be done.
There are some real challenges facing the insurance sector in the years that lie ahead, and we can work together to meet them and ensure that insurance continues to play a key role in meeting consumer needs at home and abroad. IT