THIS TRANSCRIPT IS ISSUED ON THE UNDERSTANDING THAT IT IS TAKEN FROM A LIVE PROGRAMME AS IT WAS BROADCAST. THE NATURE OF LIVE BROADCASTING MEANS THAT NEITHER THE BBC NOR THE PARTICIPANTS IN THE PROGRAMME CAN GUARANTEE THE ACCURACY OF THE INFORMATION HERE. PLEASE NOTE THAT FOLLOWING THE LIVE BROADCAST SOME AMENDMENTS HAVE BEEN MADE TO THE INFORMATION GIVEN AND THEY ARE INCLUDED IN THE TRANSCRIPT BELOW. MONEY BOX Presenter: PAUL LEWIS TRANSMISSION 18 DECEMBER 2004 12.00-12.30 GMT RADIO 4 LEWIS: Hello. In today’s programme, the biggest change for 30 years in the laws on borrowing money. But who will it benefit? The Government’s accused of a u-turn over rules to end age discrimination. Louise Greenwood’s with me today. GREENWOOD: Looking at a new project designed to tackle financial exclusion. TIMMS: We want more people to have a bank account and also to try out new ways of getting advice to people who at the moment don’t get anything at all. LEWIS: Will the pizza man deliver for 2 million customers of Pearl, National Provident and London Life? And Barclaycard celebrates the New Year by cutting benefits for millions of cardholders. But we start with that reform of the laws that govern borrowing money. It’s the first major change in consumer credit rules for a generation. The Government says the changes will make it easier to complain about unfair terms or interest rates, will clamp down on illegal lenders, improve the information we’re given, and give customers the right to go to the ombudsman when they have a dispute. But campaigners say it doesn’t go far enough. Damon Gibbons is from Debt on our Doorstep. GIBBONS: The bill’s got a lot of good things in it, but they’re primarily around making things easier to understand for people who’ve got options about the kind of credit they want to take out, and that’s not the situation for low-income borrowers who are often stuck with having to borrow at very high cost. And, unfortunately, the Government hasn’t put enough emphasis really on ruling those high cost agreements unlawful. The Government recognises that the previous law’s been an absolute abject failure in this respect, but unfortunately seems destined to repeat some of those errors. LEWIS: Well the man who will take the new laws through Parliament is consumer minister Gerry Sutcliffe. Minister, do you accept the bill’s good for middle class people with money but not much good for poorer people with fewer choices? SUTCLIFFE: No, I think the bill helps everybody, all consumers, through a range of things that we’re doing. As you said, the bill introduces new tests about unfairness and we think that will deal with the problem around the interest rate ceilings, which I know is a problem that some of the groups are concerned about. LEWIS: But an interest rate isn’t unfair just because it’s high, is it? I think the concern is that if there’s a high interest and everybody charges that high rate to that group of people, then it will be considered fair. SUTCLIFFE: We looked at the whole prospect of interest rate ceilings and undertook research, and we’re not convinced that that’s the right route. We think that reducing the test from extortionate credit to unfair credit and making sure that the consumer gets information right throughout the lifetime of an agreement is a better way of tackling the problem. LEWIS: But what rate of interest will be unfair? That’s what people want to know. SUTCLIFFE: Well clearly if it’s extortionate and unreasonable, that the lender has not lent responsibly, then that will be seen as to be unfair and the consumer will be able to get out of that agreement by going to the financial services ombudsman. LEWIS: But we could still see rates of 177% for doorstep lending. SUTCLIFFE: Well I think that’s the difficulty, Paul, in the sense that you look at the rate of 177% and it looks automatically unfair, but if that’s for a small loan and there are high administration costs and that product suits that particular consumer, then it should be allowed to stand. Where it’s wrong is if that person could have had a better deal somewhere else or could have got you know a better arrangement, think it’s unfair and can now challenge it under new legislation. LEWIS: Why not though just impose an upper limit, an interest rate cap – one figure that no one would be allowed to charge more than – as they do in some other countries? SUTCLIFFE: Because we don’t think that works. But I have said that I will always keep that under review to see how the legislation works. What we’re trying to make sure is that people are not forced out of the credit market into the hands of the loan sharks, although we’re trying to deal with that through two pilot projects in Birmingham and Glasgow and the other work that’s being done about financial inclusion. LEWIS: But if you’re going to have a review of whether you have an interest rate cap, why doesn’t the bill give you the power to impose one? There’s no point in having a review if the law doesn’t give you the power to do it? SUTCLIFFE: We can do that under secondary legislation if we need to do that, but I certainly … LEWIS: So it won’t need another Act of Parliament to impose a cap; you can do it through regulations? SUTCLIFFE: We can do it through regulations. But I think that the new test will help to lead to better products in the marketplace. The financial inclusion people get in bank accounts will help people have a better understanding of what products are available in the market and they’ll have the right then to choose based on clear information. EDITORS NOTE: After the programme, the Department for Trade and Industry clarified that the Minister’s comments on this point were incorrect. Under the terms of the Consumer Credit Bill 2004, which is now before Parliament, it is not possible for an interest rate cap to be introduced by means of Regulations. If the Government was proposing to introduce legislation that would allow for a cap, which it is not for the reasons set out in the interview, there are many ways in which it could be done, including through secondary legislation. However, even if the Government was considering the introduction of interest rate caps, which it is not, it would not consider a simple power augmented by complex regulations to be appropriate because of the complexity of any system of caps, and that Parliament should consider any proposals. LEWIS: One of the concerns is that, as you mentioned a minute ago, what we tend to call loan sharks, people who really shouldn’t be lending to anyone. What are you going to do to stop those people? SUTCLIFFE: We’re going to change the licensing regime to make sure that people that do lend money are fit and proper to do that, and that’s to take out those people that offer extortionate credit without you know good backgrounds in terms of financial capabilities. So it would be giving powers to the Office of Fair Trading for them to be able to look at the licensing registration scheme and continue throughout the life of a licence, be able to have powers over individual companies about their performance. LEWIS: So they’ll be able to act more swiftly and in more cases than they can now? SUTCLIFFE: That’s right. And what they’ll be trying to do – and this is being welcomed by the industry because most lenders lend appropriately and operate good policies – but there are those rogues and the OFT will have greater powers, including financial penalties, and they’ll be able to revoke those licences for those bodies and organisations that don’t act properly. LEWIS: When will these changes come into effect? SUTCLIFFE: Well the bill will have its second reading in Parliament on January 13, and clearly once we take it through its parliamentary process … The bill has broad welcome politically, so I don’t expect too many political problems, and we’ve consulted widely with consumer groups, with the industry itself. So if it has you know good wind, then we expect it to be through by the Spring of next year, which is in addition to the work that we did on a consumer credit white paper and the regulations that flowed from that. LEWIS: So safely before a May election? SUTCLIFFE: Well clearly that’s not in my hands. That’s in the hands of the Prime Minister. But I will be doing everything in my power to make sure this bill that’s been broadly welcomed and will get this parliamentary time on will get through. LEWIS: Gerry Sutcliffe, thanks very much. The Government is to end discrimination at work on grounds of age, but only since you’re until 65. At that age, employers will be allowed to tell staff to retire, though anyone who wants to work longer will be able to ask if they can. Well that’s led to accusations of a u-turn by campaigners against age discrimination, but the Secretary of State for Trade and Industry, Patricia Hewitt, told the BBC this was a positive move for older workers. HEWITT: What we’re saying is you cannot in future as an employer force somebody to retire below the age of 65 if they don’t want to. This is about giving people more choice about how long they go on working and indeed more choice about whether they work full time or part time. LEWIS: Employers have generally welcomed the proposals. John Cridland is deputy director general of the CBI. CRIDLAND: We consider this a victory for commonsense. It’s been a difficult debate with Government as to what the right thing to do was. What the Government’s eventually decided is to accept our argument that there could have been serious, unintended consequences if we hadn’t been allowed to maintain a contractual retirement age. LEWIS: What might they have been? CRIDLAND: Well I think what the Government has said is we want people to work longer if they want to. We want to encourage a dialogue with employers by bringing in the right to request that they stay on and the duty of the employer to consider that. But we recognise that if we absolutely move to the purest model of no retirement age, employers would have needed to have been a lot harsher about some colleagues who, frankly, couldn’t stay on because they could no longer do the job, and it might lead to a lot more employment litigation, which wouldn’t be in anybody’s interest. LEWIS: John Cridland. But most other commentators were disappointed. And just 2 months ago, the Government’s own Pensions Commission said there should not be what it called a “default retirement age”, and added if there was it should be higher than 65. Well with me is Keith Frost from the Third Age Employment Network. Keith, these changes implement a European directive to end age discrimination. Do they do that? FROST: Paul. No, they don’t. What we needed from the Government was a bold and visionary decision, which would help embed the responses to the challenges outlined in the Pensions Commission’s report. What we got instead is a decision which embeds ageism into the system and reinforces it; it doesn’t remove it. LEWIS: Employers are obviously happy about this. Has the Government given in to their lobbying? FROST: Yes, I think it has. You know as recently as 2 months ago, the new Secretary of State Alan Johnson was saying that he expected compulsory retirement ages to be abolished in regulations. LEWIS: Yes and he’s saying that in the long-term that’s what he wants. And of course there is going to be a review in 5 years, isn’t there, and that could lead to that very thing – a complete abolition of an age? FROST: Yes, it could do, but the arguments won’t be any different to the arguments that we’ve just gone through. And all the research and evidence points to the fact that mandatory retirement ages actually limit people’s opportunities in their later working lives, and that’s really one of the reasons that we’re so adamantly opposed to them. I mean it continues the situation that Ian McCartney used to talk about where a birth certificate is used as a P45 and this will just continue. LEWIS: And I suppose it makes it more difficult if people are in their early 60s to get training, to get a new job, because everyone assumes by 65 they’ll be on their way out? FROST: Yes, I think in the world we’re moving into, we need a vibrant labour market for people in their sort of mid and later working lives and I don’t see how this decision will actually help clear that. LEWIS: It’s good though, isn’t it, in the sense that it does at least set the age of 65 because at the moment many employers, including the civil service in many cases, says you must leave at 60, and that really, I suppose you imagine, is too young? FROST: Well it’s too young for those people who want to work on longer. I mean for those who can afford to retire before then, then it’s not too young. But it only really regularises current practice in many private sector companies. LEWIS: Do you think that this is open to legal challenge because it is an anti-age discrimination provision because, as you say, it enshrines it in the law? Do you think it could be challenged in the courts? FROST: Yes, I think it will end up in the European court. I mean the Government thinks that it’s got a good public policy defence under the EU directive, but I’m sure that will be challenged. LEWIS: Is that something you’ll be taking through the network? FROST: Yes, I’m sure we will. LEWIS: Keith Frost, thanks. And if you have views about whether there should be a fixed retirement age, or whether there shouldn’t, you can have your say on our website. That address of course: bbc.co.uk/moneybox. Millions of people, mainly on low incomes, don’t have access to bank accounts and basic financial services such as low cost loans. The Government set aside £120 million recently to tackle this problem of financial exclusion, and this week it lent its support to an initiative called the Community Banking Partnership, which could provide local financial services at affordable prices. Louise Greenwood went along to the launch. TIMMS: (Applause) I’m delighted to be here, to have this opportunity to offer my support to a very welcome cause … (Fades) GREENWOOD: Financial Secretary to the Treasury, Stephen Timms, speaking at this week’s launch of the Community Banking Partnership. Later, he explained why improving financial services for those on low incomes has been given such a priority by the Government. TIMMS: Financial exclusion is a very big problem - one in twelve households in the UK with no bank account of any kind. That means even though their income is lower typically than others, they’re having to pay more for basic services. We want more people to have a bank account, but on advice we need much more face-to-face money advice and also to try out new ways of getting advice to people who at the moment don’t get anything at all. GREENWOOD: The idea for the Community Banking Partnership came from a project run by the National Association of Credit Union Workers, Salford University and the New Economics Foundation think-tank. Put simply, the idea is to set up local schemes expanding on the services already offered by credit unions. Pat Connaty is development worker at the New Economics Foundation. CONNATY: It’s about three things – a, b, c’s. It’s about free advice to help people get access to energy and money advice and get out of debt basically. It’s about basic banking, budgeting. That’s the b - to pay money and balance their budget more effectively. And, thirdly, it’s about access to affordable credit that’s far cheaper than what else they’d have to turn to. GREENWOOD: The partnership idea was piloted in Birmingham by Jim Dearlove. He says the new organisations will have more freedom than credit unions to lend money quickly to those who need it. DEARLOVE: Credit unions normally don’t lend money to people until those members have built up a savings track record for themselves, mostly because they’re servicing already existing debts. And because they are more than likely in receipt of quite low incomes, they don’t have any net disposable income and so they just can’t physically begin to establish that savings track record for themselves. What we’re adding to this is the ability to lend money upfront to people. GREENWOOD: The New Economics Foundation claims that many of those people are currently using home credit companies and paying extremely high rates of interest. The NEF’s Pat Connaty says this scheme is about educating people on low incomes and offering an alternative for those who’ve been largely abandoned by the financial mainstream. CONNATY: The banks have really been historically about middle class customers and richer customers. The building societies have picked up the local end of the market historically, but we’ve lost through demutualisation local building societies. So in a way, we actually have to take a fresh approach to mutual banking. We would like in 5 years to be able to say that we’d actually be able to take 67% of the money lending market, you know, so it is about a major practical and positive alternative. GREENWOOD: In fact some high street banks are getting involved. The Birmingham pilot was partly funded by Barclays. Lloyds TSB has put forward £150,000 for the next phase. But John Spence, head of community banking at Lloyds, denied the industry was trying to address a problem that it had helped create. SPENCE: To assume that the market, which is clearly a very strong structure, can answer absolutely every need in traditional ways – this isn’t about saying the market’s wrong. This is about saying that you need some other devices in the marketplace to get to the bits that the market can’t quite reach. GREENWOOD: The plan is to create four new community banking partnerships in addition to the one in Birmingham. The next, in mid-Wales, should be up and running within a year, but no date has been set for the other three. Even the Welsh project depends on substantially more cash being raised. Campaigners hope the Government will put its money where its mouth is and provide backing for the scheme. LEWIS: Louise Greenwood there. Now who owns the insurance fund that backs your pension and savings? Well the man from Pizza Express may soon be the surprising answer after the ex-restaurant and pub owner Hugh Osmond did a deal to buy the assets of Pearl, National Provident Life, NPI and London Life. These funds are closed to new business but have 2.3 million customers. The deal will cost him more than a billion pounds. So what does this mean for policyholders? Graham Peck contacted us about the money he and his wife have saved in NPI for their pensions. At 58, he’s worried about the safety of his fund. PECK: I was reading the press and found out that my policy was to be taken over by Mr Hugh Osmond. My concerns are that my funds will not provide for me in the future. I wouldn’t expect a pizza and pub operator. I would have expected it to be a major insurance company or bank to have taken the funds over. LEWIS: Well we asked Hugh Osmond to come on Money Box but the entrepreneur told us he can’t talk until the deal gets formal approval from the regulator, probably in the Spring. But he’s not alone in his interest in these closed insurance funds: Cornhill has just been snapped up by Britannic Group and many others are expected to go the same way. They’re seen as a good risk with few costs and a steady stream of income and from the premiums the customers pay. Patrick Connolly from financial advisers John Scott and Partners is in our Bristol studio. Patrick, is this good news for investors? CONNOLLY: I think we really need to look at that on a case- by-case basis. Firstly, it’s understandable why customers are worried, especially with this case, because it looks as though their funds are being passed to somebody without any experience of the industry. LEWIS: Well that’s certainly what Graham thought. He was a bit concerned that this man used to run Pizza Express and pubs and now he’s in charge of billions of pounds of insurance money. CONNOLLY: That’s true. There are a couple of points that do need to be taken on board though. Firstly, the deal has not gone through yet. It will need to be approved by the Financial Services Authority, and they will not approve the deal if they think that there is an added risk to policyholders. And, secondly, even though Hugh Osmond does not have direct involvement with the Financial Services Industry before, the team that he’s actually built up, a lot of them do have experience in the industry. LEWIS: And I suppose people might say he was very good with customers because his restaurants and pubs were very successful. These funds haven’t really paid out much though in the past, have they, by way of returns? Could we expect or could customers expect to have better payouts? CONNOLLY: The answer to that at the moment is we don’t know. The situation, particularly with the NPI funds and Pearl and London Life, is that they haven’t paid bonuses now for a few years. The NPI funds and London Life, in particular, are holding virtually everything in fixed interest, nothing at all in equities, and so the growth potential as it stands is certainly very limited. LEWIS: Yes, though some people might think that if they’ve got liabilities in the way of what they have to pay out matching those with what you might call boring but certain assets, such as bonds, it’s not a bad idea. CONNOLLY: What you’ve said there is a very good point. These funds are being run to manage liabilities rather than being run to boost policyholder returns. What Hugh Osmond and his team have said is that they will be looking to try to invest in other investments to try to boost returns to policyholders. So what they’re saying is very positive, albeit obviously that the proof of the pudding will be in the eating. LEWIS: And also risky though because I mean there has been some suggestion he’s not just put it in shares but also he might start putting some money into hedge funds. Well they are very risky investments and although they might produce a good return, they might lose a lot, mightn’t they? CONNOLLY: Yeah, there’s been no clarification on that. I tried actually to get an answer myself from them this week and what they’ve said is they cannot go into any detail in terms of where the investments will take place until the deal’s gone through. So at the moment it really is speculation, and if the deal goes through we shall see how it pans out from there. LEWiS: Now at the moment, people who want to get out face quite hefty penalties for leaving, don’t they – these so-called market value adjusters? Are we going to see any change in that or do you think that Hugh Osmond will try to keep people in the funds? CONNOLLY: A lot of the NPI products, in particular, do have some fairly hefty penalties, some of them up over 20%. In terms of Hugh Osmond, assuming the deal goes through, it would make sense for him to want to retain customers and unfortunately the way to do that will not be to lower exit penalties. So I would think certainly initially you’re going to see exit penalties remaining at the high levels that they are currently at. LEWIS: And in a word, Patrick, people like Graham and 2.3 million other customers, should they just hold tight or should they try and get out? CONNOLLY: In terms of what people should do generally, that really is to be decided on a case-by-case basis. But in terms of this particular example - if it is right for you to be in a with profit fund, you should really be watching very closely to see what happens. ` LEWIS: And keep your eye on it. Patrick Connolly, thanks. Well millions of people with the UK’s most widely held credit card are losing some of their free perks in the New Year. Barclaycard, which has nearly 11 million customers, is withdrawing free accident insurance, free extended warranty cover on electrical goods and its price promise – if you find something you’ve bought on sale for less, it’ll pay the difference. In the past, Barclaycard has said such benefits were important for customers, but now says if people want them they’ll have to pay for them. Ian Barber is from Barclaycard. BARBER: What we’ve done as of 1st January 2005, we’ll be withdrawing price promise and extended warranty and travel accident insurance and those will be replaced by a range of benefits – things like identity protection service, fraud protection, purchase delivery protection and a travel service. LEWIS: But the fraud ones don’t really give customers anything, do they, because you protect people against fraud anyway? They’re not liable if the card’s used fraudulently. BARBER: Well there’s a difference between obviously that being in place anyway and customers knowing about it. What we’re obviously looking to do is make sure that customers understand that they’re protected against fraud. LEWIS: So one of the new, free benefits is just letting people know what’s been there all the time? BARBER: Yeah, but I don’t think we should underestimate that. A big part of the card is fraud protection and many of our competitors also talk about the fraud protection on their cards. We also let customers know that if we see unusual spending on their account, there’s a system in place where we’ll call you to check everything looks okay. LEWIS: Yes, but I mean in the past these benefits that you’re taking away were things that you advertised, things that you promoted, things that you said were important benefits. Now you’re telling me not many people use them and they’re so unimportant you’re scrapping them in favour of things that you’ve been doing all along. BARBER: Well things change in the credit card market. You know what’s prompted the review was some new industry regulation in January. That’s forced us to have a real close look at these for the first time in a while, and when we did that, what we found was that you know they are popular but with a fairly small number of customers. We’re quite open to the idea that not everybody’s going to be terribly happy that these things are going. What we’re looking to do in the New Year for people that are dead keen on extended warranty and price promise and accident insurance, purchase cover, those sorts of things, we’ll be looking to bundle those up. We don’t quite know what that bundle looks like yet, but the aim is to make sure that the cover we give people is the best cover in the market and that the price we charge people is the lowest price. LEWIS: When you say “bundle them up”, you mean people will have to pay until January 1st for free benefits? BARBER: Yes. LEWIS: Ian Barber. And Louise, Barclaycard’s not the only provider dropping these extras. GREENWOOD: That’s right. Lloyds TSB has already withdrawn free insurance benefits for new customers of its gold and platinum cards and it’s reviewing the position for existing cardholders. Like Barclaycard, it says, “this is partly linked to new insurance regulations that come in next month.” More of the same from Halifax: travel and purchase protection insurance has gone on all new credit cards and may go for current customers too. The Sainsbury’s Bank has confirmed its withdrawing travel, accident, insurance and purchase protection cover on all of its cards from March 1st next year. LEWIS: And what is it, Louise, about the new rules that means so many card providers are taking these steps? GREENWOOD: Well from January 14th selling insurance products will be regulated by the Financial Services Authority, and that means more time and paperwork for the banks even if they give the insurance away. LEWIS: Thanks, Louise. And now … (Fanfare) Yes, it’s the Christmas Quiz. Twenty tough questions about money and the prize a digital radio, so you can hear Money Box every week with crystal clarity, and of course many other radio channels. We’ll announce the winner on January 8th. You can enter directly on our website, bbc.co.uk/moneybox, or you can call the Action Line – 0800 044 044 – and we’ll send you a printed copy. But the closing date is Friday, December 31st, however you enter, so get in touch quickly if you want a copy posted. And, Louise, still a queue for Abbey’s ISA? GREENWOOD: That’s right. Abbey told Money Box last month that 25,000 customers were still waiting to transfer money into its postal ISA. The bank now says it’s managed to clear most of those, but admits that 3½ thousand more complex cases may not be resolved before Christmas. Abbey insists they will be dealt with in January. LEWIS: But better news for the bank’s 1¾ million shareholders. GREENWOOD: Yes. As part of the deal when Santander bought Abbey, it promised to pay existing shareholders a cash dividend of 31 pence per share. Typically, people got either 100 or 200 shares when Abbey demutualised in 1989, so it’ll get either £31 or £62. And I’m told the cheques are in the post. LEWIS: Let’s hope they are. Thanks for that, Louise. Well that’s just about it for today. You can find out more from the BBC Action Line - that’s 0800 044 044 – and of course our website, bbc.co.uk/moneybox, where you can contact us, you can listen to items on the programme item, or of course enter the Christmas Quiz. I’m back on Monday with our phone-in Money Box Live, taking your questions on saving for children. All aspects of that, including of course the Child Trust Fund. No Money Box next weekend, so a Happy Christmas from all the Money Box team to all our listeners. Today the reporter was Louise Greenwood, the producer was Jennifer Clarke and I’m Paul Lewis.