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I rise to express the anger, frustration, disappointment and despair of thousands of our fellow countrymen and their families who found themselves caught up in the disgraceful scandal over the selling of failed bond-based home income plans.
This is not the first time that the matter has been raised in the House or that I have spoken about it. My hon. Friend the Member for Romsey and Waterside (Mr. Colvin) was the first person to raise the matter in the House, and did so before the last general election. Since early 1992, I do not think that a single day has passed without my being faced with some problem that has arisen because of the outrageous and dishonest way in which such plans were sold, leaving in their wake a trail of human tragedy and disaster.
The home income plans have been a major cause of the suicides of at least three people, because of the circumstances in which they found themselves trapped. The first was a former constituent of mine, Mr. Cyril Whitta. The matter before the House has caused immense grief and great pain, and there is much frustration that, after all these years, the problem has still not been solved.
Although that is the basic background and the general picture is one of gloom and despair, a few shining lights of heroism have inspired me and other right hon. and hon. Members as we have tried in one way and another to tackle the consequences of this fiasco.
I must single out three remarkable individuals—one, a Mr. Craven from east Yorkshire, whom I have never met; the redoubtable and determined Mrs. Hawkins of Bromley in Kent; and Mr. Philip Cheal, formerly of Peterborough and now of Charford—who have held together the group of people who have found themselves to be victims—I use the word advisedly—of that scandal. Their constant work, all of which has been given freely despite the fact that they are no longer as young as they were and have been substantial victims of the scandal, has enabled countless hundreds and even thousands of people to fight on and try to achieve some recompense and justice in the circumstances. Without their efforts, the matter would have been forgotten a long time ago.
I pay tribute to the scores of hon. Members on both sides of the House who have been in touch with me and other hon. Members to ensure that matters that their constituents raised with them were properly pursued with the various authorities, including, but not exclusively, those in government. I also pay tribute to the courageous and determined way in which the hon. Members for Birmingham, Selly Oak (Dr. Jones) and for North Cornwall (Mr. Tyler) have pursued the matter.
Again and again, we three have endeavoured to co-operate on this matter at least, to ensure that it was pursued on an all-party basis and not merely as a series of one-offs affecting individual Members of Parliament but without any co-ordination. Informally, we have tried to act together, and have spent many hours pursuing the matter.
Many other hon. Members have played a part. I am delighted to see that the hon. Member for North Warwickshire (Mr. O'Brien) has come into the Chamber for the debate, because he played a distinguished part in the proceedings of the Treasury Select Committee when it looked into the operation of the Financial Services Act 1986.
I also pay tribute to my hon. Friend the Economic Secretary to the Treasury, who inherited the responsibility last summer, taking over from my hon Friend the Member for Chichester (Mr. Nelson), who is now Minister for Trade and who had handled it for years. She has done all she possibly can, as he did, to ensure that some justice is found for those who were so unhappily caught up in this scandal.
I pay tribute to those in the Securities and Investments Board and the Building Societies Commission. I have taken the matter to the Serious Fraud Office, and it has been in the hands of a number of police forces. All sorts of public authorities of one sort or another have tried to use their influence to bring some pressure to bear and to achieve some solution, so far, for the most part, with an inadequate result.
Those who took out home income plans certainly number more than 10,000. Incredibly, we keep discovering new ones every day. It is likely that around 18,000 people purchased between 1986 and 1988, and the average age is now 74 to 75. Some have achieved settlements with societies and are assured of lifetime occupation, but many are left with debts of £20,000 or more and rising. As time passes, they find that they own less of their home, and, in many cases, the larger part of their equity has already gone.
Several hundred, including most recently Mrs. Vera O'Neil of Woodfield grove, Corby, a constituent of mine, have died not knowing how the matter would finally be resolved. The strain that she and others have been under and the worry of not knowing how the matter could be properly sorted out was extraordinary. All of us who have had personal contact with those involved have seen some of the enormous pressures they faced as a consequence.
The simple fact is that the financial regulatory system has failed because of widespread mis-selling by undertrained and largely under-regulated sales people. Many independent financial advisers have been involved in selling failed plans, which were regulated by the Financial Intermediaries, Managers and Brokers Regulatory Organisation—FIMBRA—but which have defaulted.
There are some extraordinary examples. Fisher Pruw Smith was a front for the West Bromwich building society. One of the gentlemen concerned—Mr. Fisher—is still in this country, in Southport, Lancashire, but Mr. Pruw Smith is enjoying the life of Riley no doubt, in Spain. Aylesbury Associates is another front responsible for selling many such plans. Mr. Boerr, the gentleman behind it, is no doubt currently trout farming with great success at Westerham in Kent.
These organisations made outrageous claims to the people who purchased the plans—in particular, that there would be no mortgage involved and that they could not possibly lose their homes. Solicitors acting on behalf of various people failed to point out the legal implications of these matters. I raised this matter in the House a couple of years ago, when we were debating the Report stage of a Finance Bill. We saw examples of application forms stating incomes that had been forged—sometimes a nought was added on the end of the alleged income of the applicant. We have seen fraudulent misrepresentations, forgery, and disastrous misrepresentations that have left human misery in their wake.
The West Bromwich building society heads the list of infamy of those who were responsible for this behaviour. However, it is not the only building society in the list—alas, Cheltenham and Gloucester building society has not played a distinguished role. I know that my hon. Friend the Economic Secretary to the Treasury will draw the remarks that are made in the Chamber today to the attention of those who are mentioned.
When Lloyds bank was contemplating buying out the Cheltenham and Gloucester building society, I wrote to the chairman of the bank and asked him what its policy would be towards Cheltenham and Gloucester home income plan holders. However, I did not have the courtesy of a reply—a matter that did not reflect any credit on Lloyds bank. There are many people in the list of infamy.
Today the Chelsea building society has been drawn to my attention. It is hiding behind another independent financial consultant and claiming that it was not involved in this fraudulent and dishonest behaviour. The case relates to constituents of my right hon. Friend and neighbour the Member for Kettering (Mr. Freeman)—the Shawcrofts, of Burton Latimer, Kettering, Northamptonshire.
I shall concentrate on the West Bromwich building society. At least 800 people purchased home income plans that were backed by the West Bromwich building society. The building society has always sought to defend itself on the grounds that it did not sell the plans, but that independent financial agents did so on its behalf. If that is true, the building society made no attempt to check the integrity of the claims that were being made by independent financial agents who were using the building society to back, sustain and support their product.
I indict the management and the directors of the West Bromwich building society for behaviour and conduct that can be described only as an utter disgrace. These matters were drawn to the attention of the House in early-day motion No. 99 in the session 1994–95 and in a subsequent early-day motion in the following Session of Parliament. They are on the record. The only reaction to the charges that have been made against the West Bromwich building society is libel writs. Like the late Mr. Maxwell, as soon as they are caught and cornered, they aim to stifle criticism by the use of writs.
That is exactly what happened when the Treasury and Civil Service Select Committee took evidence from the West Bromwich building society—evidence that many hon. Members will have the opportunity to read. They will see what a miserable show Mr. Baker and Mr. Elliot made of defending the building society. As soon as they left, they issued a libel writ to prevent the Treasury and Civil Service Select Committee from publishing documents in its memorandum of evidence that indicted that the building society in the most savage and lethal terms.
I thank the hon. Member for Corby (Mr. Powell) for the way in which he has led our little informal group on this issue. I underline the point that he was making, and ask him to extend it one step further.
Is it not true that the perception outside this place and outside Government is that this exercise has been one of prevarication, procrastination and gagging, and that it involves some frail and vulnerable people, whose livelihoods, security and homes are at stake? As the case of the West Bromwich building society indicates, the system has not worked for some of our most frail and vulnerable citizens.
The hon. Gentleman is absolutely right: I am quite certain that, if thousands of depositors in the West Bromwich building society knew the truth about the way in which the managers and directors of the building society have behaved, they would shift their money out of it and hang their heads in shame that a building society could behave like that.
Until recently, I had assumed that the chief executive was the principal villain in this matter and that the board of directors was incapable of controlling a chief executive who was clearly out of control. There is some evidence—I put it no higher than that—that I may have been unkind about the former chief executive, Mr. Elliot, who has now left the West Bromwich building society.
There is no decisive evidence that I am wrong, but one of the ways in which Mr. Elliot can seek to redeem his reputation is by lifting the veil on the true relationship between the West Bromwich building society and Fisher Pruw Smith. He can do that by going to the police. He can spell out exactly what the secret commissions were, and why Fisher Pruw Smith was constantly putting those who sought to borrow in this way under greater pressure to borrow larger sums of money. At no stage was it spelt out that these bond-based plans could never succeed. It has been claimed that a collapse in the housing market and in the stock exchange is why it went wrong. That is not true.
I shall outline a case for hon. Members. A couple borrow £18,000 and, under the bond, in the first month and ever thereafter they have to repay at least £400 per month. If they fail, the shortfall is met out of capital. Meanwhile, if power of attorney is given—whereby the managers of the fund can reinvest it in whatever way they choose to maximise the amount of money that they receive for the investment—each time a reinvestment in different stocks, shares or whatever is made, the managers take 1 per cent. and the building society takes 1 per cent.; that is, 2 per cent. is taken immediately. It is exactly like churning in the Lloyd's market—one does this as often as one possibly can. The capital that was supposed to produce the income that would pay the mortgage was constantly being reduced and, often, fines were added on top. It is small wonder that so many of our constituents now find themselves with debts that cannot possibly be repaid.
The West Bromwich building society has gone out of its way to avoid accepting the moral responsibility it faces for allowing Fisher Pruw Smith, Aylesbury Associates and others to behave as they did. It failed to recognise that it was the principal in all this. In the circumstances, any building society concerned about its reputation would have acted at once to put right the wrong that had taken place. In these cases, the borrowers did not know the truth, and it was never spelt out. The West Bromwich building society took no steps whatsoever to ensure that the truth was spelt out. That is why it deserves our contempt.
Beyond our contempt, and beyond the police action that needs to take place in relation to the directors and the senior managers of the building society, we need to recognise that bodies such as the SIB and others who have the responsibility of making the best they can of our legislation, have stretched the elastic—if I can put it that way—as far as they possibly can. Even then, they have not reached a settlement, because the Financial Services Act 1986 did not contemplate or allow for that position; those who saw teh opportunity to drive a coach and horses through investor protection did so by stealth, and often dishonestly.
I hope that my hon. Friend the Minister, having regard to the report of the Treasury and Civil Service Select Committee, will take urgent steps to introduce legislation as soon as possible to fill the gaps that have been revealed in this case, and to ensure that a similar scandal can never happen.
I thank my hon. Friend the Member for Corby (Mr. Powell) for initiating the debate and for drawing attention to important points. He has worked hard and assiduously on behalf of his constituents and all those who have home income plans. The hon. Members for Birmingham, Selly Oak (Dr. Jones) and for North Cornwall (Mr. Tyler) have also played a valuable part in ensuring that the matter is discussed continually in the House and elsewhere, so that the cases of the many people who have been affected are properly and thoroughly considered.
The story of home income plans has been a long and unhappy one for many elderly people. I recognise that it continues to be a worrying time for a considerable number of those who took out such plans. I sympathise deeply.
The schemes were attractive in their time to a specific vulnerable section of the community. Retired people tend to live on a fixed income, which they have little opportunity to augment. Members of that generation believe in helping themselves, and the schemes appeared to offer a way to do just that.
Home income plans were associated with a range of deferred interest mortgages offered by mortgage lenders in the late 1980s. As the term implies, equity release schemes were devised to enable borrowers to release some of the capital from their houses to spend on something specific, to improve their income or for other purposes. In the case of home income plans, which were often targeted at the elderly, the borrower used the proceeds of the loan to purchase a bond or other investment instrument, often from an independent financial adviser, to provide that additional income.
As my hon. Friend the Member for Corby has ably shown, difficulties have arisen for a sizeable number of elderly people who purchased home income plans in that period, for a combination of reasons that I do not propose to go into, as they have been described so well.
The Securities and Investments Board and the other financial services regulators, the Building Societies Commission, and the Investors Compensation Scheme Ltd. have made strenuous efforts to help. To a large degree, they have been successful in dealing with the investment element of those schemes and encouraging many lenders involved to put in place measures that go some way to reassuring people.
The financial services regulators issued strong warnings from 1989, and effectively put a stop to investment-based schemes in 1991. In addition, the Building Societies Commission gave prudential guidance from September 1989 onwards, warning societies of the special problems associated with the equity release loans offered to older people.
Does the Minister agree that, although those home income plans were fundamentally flawed, the West Bromwich building society continued to process applications after the Building Societies Commission had issued those prudential notes? We agree that the regulatory bodies have done their best to encourage the West Bromwich building society to shoulder its responsibilities.
Will the Minister join me in urging the West Bromwich building society today that, if it does not accept any legal obligation toward those borrowers, it should accept a moral obligation? Those elderly people would not have taken out those loans had they not been associated with the good name of building societies, so the West Bromwich building society has a moral obligation to compensate those people and put them back where they began—and certainly not charge premium rates of interest, as it continues to do.
I cannot comment on the reasoning of every individual who took out such a scheme, but, like the hon. Lady, I am worried that some building societies—she mentioned the West Bromwich building society specifically—may not have granted terms similar to those that other building societies have granted in dealing with customers with those plans. The legal position must be considered in detail, but there is a moral obligation.
I hope that the hon. Member for Selly Oak will agree that the meetings that she has had with the Building Societies Commission and the Securities and Investments Board, which have been offered to the three hon. Members who take a special interest in this problem, have been satisfactory—indeed, helpful. I hope that hon. Members will join me in congratulating those two organisations on the help that they have given and the efforts that they have put into this case.
Compensation totalling about £67 million has been paid, which has covered claims from 2,700 investors. I accept that it is not a perfect solution for those who feel themselves victims of home investment plans, but without the compensation arrangements under the Financial Services Act 1986, their position would have been even more difficult. Considerable resources have been deployed by regulators to try to help with these problems.
The subject of the debate is home income plans and West Bromwich building society. The SIB has worked hard to make an arrangement with the society, and is satisfied that the agreement reached is the best that could be achieved in the circumstances.
My hon. Friend mentions the agreement of 11 December between the SIB and the West Bromwich building society. Several other building societies which backed home income plans—such as the Chelsea building society—are not party to that agreement, and are offering terms even less generous than those that the West Bromwich building society is offering as a result of the agreement of 11 December. Will she therefore use her position to try to ensure that all building societies are covered in similar terms to those laid down in the 11 December document?
I thank my hon. Friend for bringing that to my attention; I will look into that matter as soon as the debate is over. I understand that the West Bromwich building society is now explaining to every individual borrower what the terms mean and how they apply to them. The Building Societies Commission has launched a separate investigation into several issues that fall within its responsibility as a prudential supervisor, arising from the FIMBRA material about the activities of the West Bromwich building society in connection with home income plans.
Legal actions are pending. Their conduct is for the courts, but I hope that there will not be too many delays. I deplore heel dragging by any group, organisation or individual. It would inevitably have detrimental effects on borrowers who are already in a difficult position. We must wait to find out what happens in the courts, but I sincerely trust that no one will delay the cases or impede their reaching court as soon as possible.
I am told by the West Bromwich building society that hon. Members especially concerned about the activities of the society have not taken advantage of an invitation to visit the society for a discussion with the directors. Obviously, I do not know the ins and outs of invitations that may have been made, but it might be a useful avenue. In a time when annual general meetings provide an opportunity for shareholders to question companies' policies, it is open to members—including borrowing members—of building societies to express their views and anxieties to the board. That avenue is worth considering.
Where does that leave us? Several other building societies have been, and still are, negotiating settlements with individual borrowers. I commend their efforts to help home income plan victims to reach acceptable solutions to their problems. It worries me that cases are still coming to light. Perhaps it does not surprise me, because it is often difficult for people—especially members of the generation involved—to acknowledge that they are in difficulty.
Lenders can take action only if they are aware of the problems. Therefore, I reiterate the advice that has been given on many occasions: borrowers who are in difficulties should approach their lenders to discuss ways in which they can resolve them.
I take this opportunity to welcome the proposed code of mortgage practice about which the Council of Mortgage Lenders is consulting currently. The scheme will enable an ombudsman to oversee the affairs of members who are not parties to existing schemes. The code's form has not yet been worked out, but extending an existing code seems to be a practical way forward. It will certainly assist people in future.
I sincerely sympathise with the difficulties faced by home income plan borrowers and with the views expressed during this brief debate. I will continue to do all within my power to push matters forward and to see the issue resolved. Leaving aside the strict legal argument, I add my voice to those urging all building societies and other lenders to follow the route of those who have agreed settlements, and to consider seriously—