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 PRINTED HERE.

MONEY BOX

Presenter: Paul Lewis

TRANSMISSION 20th OCTOBER 2001 1200-1230 BBC RADIO 4

Howard Davies Interview

Halifax Mistake

Pension Reform

War Pensions Benefits

Debt Advice

Hello. In today's programme.

The Chairman of the Financial Services Authority tells Money Box his pay was cut by nearly �14,000 because of problems over Equitable Life.

They've been called the most radical plans for pensions for 50 years - but will the public pay the price?

A veteran of World War II is told he must pay �38 a week rent out his disability pension.

And our reporter Chris A'Court is investigating one bank customer's nightmare�

A'COURT: That's right Sue paid cash into her bank - but then the bank denied having the money.....

SUE: You should know that if it's receipted then that's it end of story, no further discussion, you shouldn't have to fight like this to get the money back

LEWIS: Howard Davies, the chairman of the Financial Services Authority, has told Money Box that he's been fined nearly �14,000 by his Board of Directors for failures in the way the regulator handled the problems at the troubled insurer Equitable Life. The revelation came after the Government published a highly critical report into the way the watchdog dealt with Equitable saying it should have been more alert, that it failed to spot key issues to be addressed, and didn't fully understand the risks faced by new policyholders. The timing of these criticisms couldn't have been worse. The FSA takes on its full regulatory powers on December 1st. And when Howard Davies spoke exclusively to Money Box I asked him if he was embarrassed by these criticisms?

DAVIES: Well I've made no secret of the fact that my Board have recognised that it makes pertinent criticisms which we must do better in the future to resolve. What I can say however is that this happened at a very early stage we were in a transitional phase and it was right at the beginning of the process. And I recognise that this has happened at an unfortunate time but we must recover from it.

LEWIS: The report specifically said that management, as you say, was heavily engaged in setting up the new regulator and were distracted from the important work of supervision. In effect it said you took your eye off the ball.

DAVIES: Well those are your words and not the report's.

LEWIS: Do you think you did take your eye off the ball at that time?

DAVIES: No. It does say that we could have communicated better within the authority and it says that we could have taken a more critical approach to all of the things which the society said to us. And we shall certainly be taking a more proactive and sceptical approach to insurance regulation in the future. But it does say, I remind you, that even if we had done that we would not have been able to stop the problem developing in the way it did and that the die was cast a long time before the society came to us.

LEWIS: Well it says it wouldn't have affected existing customers, it doesn't say that it wouldn't have affected potential customers, because 40,000 new customers were taken on under your stewardship you could have stopped that - couldn't you?

DAVIES: The report does also say that we were entirely justified in allowing the company to stay open and that with our state of knowledge of the finances of the company and the position it was in and the likelihood of a sale that to allow it to carry on taking business and indeed carry on advertising was a reasonable decision to make. So it does not in fact censure us from that point of view.

LEWIS: Well not quite my reading, it says the FSA failed to appreciate the risks faced by incoming policy holders and it said you should have been alert to the need to monitor advertising and advice. You weren't alert to that and that was a failure of the FSA to regulate the business that those 40,000 people took on.

DAVIES: What it says in fact is that with the benefit of hindsight it would have been possible or it could have been possible to have identified that the risk of the Equitable losing its case was perhaps higher. But it says that explicitly with the benefit of hindsight and in fact it goes on after the passage you quote to say that the decision to allow the company to remain open and to continue advertising was made for valid reasons.

LEWIS: All this though seems to indicate to me that you were really more concerned with the first objective of the FSA maintaining confidence in the market than with the third objective protecting customers.

DAVIES: Well I would remind you that those objectives are in fact still not our statutory objectives as our legislation has still not been passed, so we were operating under the previous legislation and undoubtedly the new legislation gives us a much better set of powers and a much more balanced set of powers which will be much more helpful to us in the future.

LEWIS: But given the report says you failed to appreciate the risks faced by policy holders that you were insufficiently prepared I mean those were the words from the report, do you think you failed to protect the consumers?

DAVIES: No I don't think so. I think that the judgements in the report show that there were ways in which we could have organised ourselves better. There were ways in which that we could have perhaps seen problems coming, but I emphasize that that is against the background of saying that we could not have materially affected the outcome and therefore I think your conclusions does not flow from the report.

LEWIS: So although you made mistakes there was nothing that you could have done that would have made things better?

DAVIES: That is the conclusion of the report.

LEWIS: So doesn't that mean the FSA for all of its 2,000 staff and its two hundred million pounds a year budget is just irrelevant?

DAVIES: No that's an absolutely a nonsensical thing to say because what were talking about here is a company that was delivered to us on 1st January 1999 with a problem that had been created by its selling policies between mid 1950s and 1988 when it sold guaranteed annuity policies. So I think its impossible to extrapolate from that and say that there is nothing we can do about a lot of other problems which we are working on very actively.

LEWIS: Do you think this report helps the case of consumers to try to get some form of compensation because of these failures that the report identifies?

DAVIES: From whom?

LEWIS: From the FSA.

DAVIES: I don't think it does - no?

LEWIS: Or possibly through the Parliamentary Ombudsman because these all seem to me to be management and administration failures.

DAVIES: Well that would be a matter for the Parliamentary Ombudsman I couldn't comment on that.

LEWIS: Do you think it strengthens the legal case against the FSA? Equitable says it will see if it helps the case for legal action against the FSA.

DAVIES: I don't believe it does but that's obviously that's a matter for the Equitable to judge.

LEWIS: You've admitted there were failures, the ones identified in the report, by the organisation you're in charge of during1999/2000. In those two years you were paid substantial performance related bonuses. Do you think you should be giving them back?

DAVIES: I was paid a lower performance bonus in the year 2000 in recognition by the board of the problems of Equitable.

LEWIS: So the 40,000 you got in 1999 was reduced because of this already?

DAVIES: Yes

LEWIS: So you've had your own fine?

DAVIES: Yes I have.

LEWIS: Do you think that was sufficient - do you think that you should be giving more back?

DAIVES: That's for others to judge

LEWIS: Is there any possibility of you resigning?

DAIVES: No. My board have considered the report and they have concluded that they retain confidence in the management of the authority and so the management will continue.

LEWIS: Howard Davies. And the FSA confirmed that his pay had been cut by �13,900 and that two other directors faced cuts of �8850 each as a direct consequence of failures over the regulation of Equitable Life.

LEWIS: Cash seems a reliable way to handle your money. You pay it into the bank and you take it out when you need it. Well not for one Halifax customer. Sue contacted Money Box to say that far from getting a little bit extra from Halifax, she found she got rather less as hundreds of pounds in her Liquid Gold account just melted away. Chris A'Court's been investigating.

A'COURT: Here's what's happened Paul. In August, Sue, a business woman from Hertfordshire, paid six hundred pounds in notes into her usual Halifax branch. The passbook was stamped, everything seemed fine but three weeks later, when Sue next visited Halifax at another branch, she was told that the money was no longer there. Halifax staff told her they were wiping the record of the �600 deposit, marking it down simply as a 'correction'. So at a stroke Sue had become �600 poorer without knowing why...

SUE: I was completely dumbfounded. I asked them to write me a note to confirm that they had printed that line in my book and that I was not agreeing with it. I think that it's a disgusting way to treat a customer.

A'COURT : Perhaps the most disturbing thing is that in the wrangle that followed, the bank through the burden of proof over what had happened firmly on its customer rather than on itself. Sue is adamant she paid in her �600 but Halifax claims she changed her mind at the counter and took it out again right away, indicating she'd really intended to pay the money into another account held at a different bank. And because Halifax couldn't produce a single item of evidence to prove its version of events it asked Sue to hand over statements from the other bank - adding insult to injury.

SUE: They've made every step of the way difficult. I must do this, I must do that, I've asked them a lot of I think very pertinent questions and they haven't given me an answer to even one of them. I don't think they have a right to look at those accounts, that's an invasion of my privacy.

A'COURT: Sue was perfectly happy to show Money Box all her bank statements and we could see nothing amiss. And, when we contacted Halifax, the bank backed down and is now promising to restore the �600 that Sue had been made to fight so hard for. But we wanted to know why it had all been so difficult for this customer, why had Sue been put under so much stress and why wasn't it sorted out sooner. Halifax spokesman is Mark Hemingway

HEMINGWAY: We did ask for information regarding one particular account, clearly you know that has been supplied not directly to ourselves but through yourselves at Money Box and that has actually helped us bring this matter to a conclusion.

A'COURT: It just shouldn't happen should it - bank systems should be fool proof it should be essential that you can prove every single transaction, that's what customers expect.

HEMINGWAY: Yeah, and the vast majority of times that actually happens, the cashier in question didn't actually follow the correct procedures.

A'COURT: Your customer is adamant that the account your cashier gives is not what really happened. An outsider could say it shows that perhaps the Halifax will always take the word of its staff above a customer.

HEMINGWAY: No, I don't think that it says that at all. I think it says we need all the information before we can actually make a decision.

A'COURT: Millions of people trust that when they hand over their money and their pass book to banks like the Halifax you'll get it right, every time.

HEMINGWAY: The vast majority of times we do get it right

A'COURT: That's Halifax's Mark Hemingway,

LEWIS: So Chris, Sue's money is being put back in her account, with interest, but what does she think about it all now...

A'COURT: Well when we passed on the news Paul, it was clear she's still pretty angry...

SUE: I'm happy to have my money back, I'm unhappy that you and I have had to work so hard to get it back, and they have been if you like so ungracious about it. There's black marks against me cause I've had the cheek to question what their doing. And I think their answer almost from day one should have been we're very sorry, and that's not a word I've heard from them at all, we've made a mistake, of course the money is back in your account, thank you for raising the issue with us. That's what customer care is about - isn't it?

LEWIS: Indeed it is. Money Box listener Sue.

Now radical proposals were published this week to end the low income and poverty which blight the lives of millions of older people. Former Welfare Minister and Labour MP, Frank Field, says an extra 5p in the pound on National Insurance could guarantee an income in retirement to lift everyone out of poverty. The extra tax would start from the age of 25 and paid into a national fund, invested by trustees. At retirement it would pay a pension of around �200 a week. I asked Frank Field how the new scheme would work.

FIELD: You would continue to pay your national insurance contributions because you'll get a national insurance pension at the end. But combined with that you will get a funded pension as well, which would give you this guarantee or as near as we can ever get to a guarantee at the end of your working life.

LEWIS: So you say its guaranteed, it's a funded scheme like a personal pension but its backed by the government.

FIELD: No it's backed by all of us, it's going to be at arms length from the government. The nearest thing really is to say that it's a company pension scheme for the whole country.

LEWIS: Now it hinges on people paying, in effect, more tax , more National Insurance, five and a quarter per cent, that's on top of ten per cent National Insurance, on top of twenty two per cent tax, people won't be able to afford it will they?

FIELD: Well if that's the argument we ought to honestly say we give up and that we can never devise a pension scheme which ensures that those who are members will at the end of the day have a pension above the welfare level. There's no way that we're going to get better pensions by paying only the same or less but because this guarantee or the nearest any community can get to giving a guarantee is not something that most of us, the vast majority of us, can buy in the private market we have devised the scheme whereby richer people will pay slightly more so that poorer people will be in the scheme and that means that there'll be very, very substantial savings on means tested welfare assistance. You're dead right and I don't want to run away from it, if we want better pensions we have to pay for them.

LEWIS: The Department for Work and Pensions has already told Money Box it sees no need for your scheme, it's a bit of a sad, swift rejection isn't it given that this was an all party group?

FIELD: That is an extraordinary response from them because if one looks at their current provision for existing pensioners it's collapsing with its inconsistencies and it has mega-problems with Stakeholder. If the Government were succeeding we wouldn't have spent eighteen months working on this. It's because the Government strategy is in no way living up to its rhetoric that there is this scheme.

LEWIS: Frank Field. Well with me is Mervyn Kohler who's Policy Director of Help the Aged. Mervyn, how radical are Frank Field's plans?

KOHLER: I think they're very interesting and a radical attempt to meet the policy objective of providing a proper first tier basic pension for everybody in the country.

LEWIS: So this would include the state pension and would give people roughly two hundred pounds a week and that would take them above the government's poverty line?

KOHLER: That's right, the objective is to get people a decent income that takes them above social security and means tested benefits and also to provide a firm platform on which people can build further provision for themselves in terms of occupational pensions or other forms of saving and investment.

LEWIS: Do we need another pension proposal though, there must be twenty different pension plans now?

KOHLER: I'm sure we do. The Government has got an array of different ideas from the minimum income guarantee and Stakeholder pension to what we'll soon see in the second state pension and pension credit but there is a growing area of doubt about whether these schemes will actually deliver the basic pensions that we all want and indeed increasingly expect.

LEWIS: Now even if people will pay the extra five per cent tax to fund this pension it won't actually come to fruition for forty years, it's a long time isn't it?

KOHLER: Absolutely right, there are some sections devoted in the report from Frank Field to looking at the problem of pensioner poverty today and that is a real issue. Nearly half our pensioners today are living on income of under a hundred pounds a week and we've got to make some arrangement there as well as looking at a decent strategy for the longer run.

LEWIS: In a word, will the Government take it up?

KOHLER: I think they'll need a lot of pushing.

LEWIS: Mervyn Kohler, I'm sure you'll be doing that, thanks very much for talking to us.

Bromley Council in South London is under fire this week over the way it treats its war pensioners. Bromley is the only Borough in London that makes veterans use some of their war pension to pay their rent and council tax. Now the council has made the position worse by mistakes in calculations that have left at least one veteran very angry.

I went to see Ernie Parker in Bromley who told me he'd been left deafened by constant shellfire as he marched across Africa and Europe during World War Two. But now he faces losing a big chunk of his disability pension because of the council's mistakes. The first he knew of it was when he received a threatening letter.

ERNIE: Bromley Council they put me in arrears for a least seven months without them telling me. I was over four hundred pound in debt and if that wasn't paid within a certain period, within a fortnight they gave me, we would be taken to the Magistrates Court to be evicted. That money I had to borrow from my daughter to pay for that.

LEWIS: How much extra are they demanding from you?

ERNIE: Thirty pounds and a penny per week.

LEWIS: And that's out of an income of how much?

ERNIE: Eighty four pound of my war pension. They're taking that extra out of my war pension.

LEWIS: What difference does it make to you to have to pay that thirty odd pounds a week?

ERNIE: Well a helluva lot of money. Helluva lot of money. We've had to cut down on things you know, it really put the wind up us.

LEWIS: No-one from the London Borough of Bromley was willing to come on Money Box to discuss their policy. But in a statement the Council said�

STATEMENT: Bromley Council Currently pays housing and council tax benefit in line with the national scheme, as outlined in the regulations by central government. There has been no change in policy. The council has to strike a balance between the cost to the rest of the local taxpayers who bear the cost of any extension to the current national scheme and individuals who would directly benefit. Councilors will have the opportunity to review the current policy later in the financial year.

LEWIS: Well Jeremy Lewis is Head of Public Affairs at the Royal British Legion. Jeremy, Bromley says it's following the national scheme but most councils don't do that do they ?

J.LEWIS: No there are in fact only a fairly small number of councils who do not give a complete disregard but it's something which the Legion has been campaigning on for many years..

LEWIS: When you say a complete disregard you mean they ignore the whole of the war pension when they work out rent and council tax rebates?

J. LEWIS: When assessing individuals for benefit, that's correct. We've been campaigning for a long, long time about this and of late we've been achieving quite a lot of success but nevertheless the job is not yet done. The way war pensions work is that they are assessed and awarded by government agency and are paid tax free with government money, but the councils are then told that they have the discretion, with the exception of the first ten pounds which is a statutory requirement, to disregard as much as they like of that war pension when making the award but of course this affects their budget not the government.

LEWIS: And the councils have to pay for it, but the councils have said to us, Bromley and some of the others, "Why should we pay, it's a national policy the government should pay?"

J.LEWIS: This is absolutely right they have to balance their books but they're put in a moral dilemma and the Legion is indeed campaigning to persuade the government to make it a statutory one hundred per cent disregard across the country, which would remove that dilemma at a stroke, without really causing any huge amounts of cost because war pensioners are not very large in number and the ones who actually need benefit are even smaller.

LEWIS: Jeremy Lewis from the Royal British Legion thanks, and as I understand it, in Northern Ireland it is a statutory scheme. Social security benefits of all sorts are the subject of our phone in Money Box Live on Monday. You can email us now on [email protected] or call on Monday.

(Debt firm advertisement) If you listen to commercial television you can't avoid adverts like that. They make solving debt problems sound easy - even fun. But customers usually pay a heavy price. And we've reported on Money Box before, that these commercial agencies charge their customers a fee for the help they give. Some even drive them to more debt by encouraging them to borrow money to pay off existing loans. But there is another way. The Money Advice Trust celebrates ten years of existence on Monday, its Director, Alan Jarvis is with me. Alan, how do you differ from these commercial companies?

JARVIS: Well in the free independent sector a comprehensive range of services is provided by money advisors and it includes the negotiation of a repayment schedule with a range of creditors when people are in multiple debt. Money advisors also have available to them disbursement systems to get that money back to the creditors without charging the consumer.

LEWIS: And who do you work through..

JARVIS: The Trust actually works to do that through Paylink Trust or CCCS, The Consumer Credit Counseling Service.

LEWIS: Now you offer free advice, these companies that we heard the advert from they charge, does that mean they're doing a bad job though?

JARVIS: Well not necessarily, consumers should have choice but that choice should be well informed. Our problem is that so many people, what we know about the activities of the fee charging debt counselors is through evidence that our own members have gained in the agencies when consumers turn up complaining about a whole range of concerns which they've got.

LEWIS: Such as?

JARVIS: Such as late payments, money not reaching the creditors, the lack of clarity about the status of the first payment, which is often a handling charge or a non-refundable deposit.

LEWIS: So they divide your debts into monthly payments and they charge you another month, like thirteen months, and that's their fee. But one of them that we've spoken to this week makes the point that compared with free agencies they're open longer hours, they can offer immediate advice on the phone and can handle the payments made to creditors. Can you do any of those things?

JARVIS: Well I think that our service is under enormous demand and it's true to say that there may be a wait, you may have to make an appointment, and the services provided by fee paying companies are more flexible. On the other hand are they providing an appropriate solution? The evidence that we have is that they're not doing that and the over-riding concern is that people end up with an inappropriate solution or even a consolidation loan. The advertising which you began this item with I would regard as completely misleading and inappropriate.

LEWIS: And certainly very expensive. I suppose you can't compete there. How many people do you help in a year?

JARVIS: It's hard to say. There's enormous demand for money advice, we don't know the extent of it but we think there are up to one or two million households in multiple debt that we haven't reached but for example one of our members, the National Debtline, dealt with twenty five thousand people last year who called National Debtline, and the overall calls logged to that service were in excess of a hundred and forty thousand.

LEWIS: Who pays for you?

JARVIS: We're paid for by the credit industry. In the past six years we have been able to put something like ten million pounds into support services for existing quality money advisors.

LEWIS: And this is voluntary money, they choose to make. Would you like the Government to make it compulsory to fund your service?

JARVIS: I don't think we're at that stage yet, what we prefer is a partnership between sustainability options, which include getting the creditors to pay a percentage of the money we return to them back, Government support, which we've had for the first time this year, and the ongoing support of the credit industry, we do value that partnership approach.

LEWIS: Alan Jarvis of the Money Advice Trust, thanks very much, and more details of all that is on our website. Details of that later, but first a warning from Chris about drivers...

A'COURT: Yes, an insurance company is being wound up Paul. The message to drivers who had policies with this company called Sussex Insurance is you're not insured, as of now. It'll be mainly young drivers who're affected, we don't know exactly how many, but please check if you have a policy with Sussex Insurance because you won't be insured.

LEWIS: Thanks very much Chris, so take out alternative cover. That's all we have time for today. For more information you can call our Action Line - 0800 044 044. Calls are free - 0800 044 044. Or you can look at our website - www.bbc.co.uk/moneybox. Don't forget our phone-in Money Box Live on Monday at 3pm with questions on social security benefits. Working Lunch is throughout the week at 1230 for personal finance stories. I'm back with Money Box at the same time next week. Today, the reporter was Chris A'Court, the producer was Jennifer Clarke and I'm Paul Lewis.