Financial Conduct Authority Redress Scheme
Debate between Bob Stewart and Cathy Jamieson(9 years, 5 months ago)
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Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)
Thank you, Madam Deputy Presiding Officer. Sorry, Madam Deputy Speaker. I always do that; I have been thinking too much about Scotland during the day.
I welcome the opportunity to speak in this debate. Hon. Members have given several examples about problems faced by their constituents. As a constituency MP, I have heard from a number of my constituents or small businesses that have suffered similar consequences.
The motion addresses the perceived failure of the FCA redress scheme. I was of course aware that the scheme had attracted criticism. We have heard quite a lot about that today, particularly in relation to some of the problems involved in the cases that hon. Members have raised. I will speak about them in more detail.
Before I consider the merits of the redress scheme, it is worth remembering how we got into the situation of needing such a scheme in the first place. We must therefore again address the mis-selling of interest rate hedging products that made the scheme necessary, as hon. Members have done during the debate.
Hon. Members are probably aware—the banks certainly are—that I have spoken often and at considerable length about the need for banks to eradicate the culture of mis-selling and to put their own house in order. The banks have a duty, whether we call it a fiduciary, an ethical or a human decency duty, to act in the best interests of their customers. Absolutely fundamental to that is the requirement to ensure not only that customers are sold products that they want and need, but that they understand the terms, conditions and caveats that underpin them.
From time to time, things can and do go wrong, and not even the most prescient among us can anticipate all the nuances and fluctuations in the money markets that may affect the products we purchase. However, just like the rewards associated with any product, the risks must be clearly stated from the outset. It can be argued that interest rate hedging products in and of themselves might not always be bad when sold in appropriate circumstances—they may help to shield bank customers and even small businesses from the risk of sharp interest rates movements—but, as we have heard this afternoon, it is clear that in many cases the risks have not been fully explained to, or fully understood by, the customers.
The FCA has clearly laid out the shortcomings in the information that it has provided. Nearly 19,000 small business customers of major UK banks took part in the review, and among the main problems they highlighted were the poor disclosure of exit costs, the failure to ascertain customers’ understanding of risk, the straying of non-advised sales into advised ones—that has been raised this afternoon—and the fact that the sale of products was driven by rewards and incentives. I will briefly take each in turn.
In its briefing, the House of Commons Library gives the example of a customer who was sold an interest rate hedging product that lasted longer than the loan whose risk it hedged. When the bank chose not to renew the loan, the customer was left with a stark choice between paying the extortionate breakage fees and continuing to pay the monthly cost of the hedging product. The latter option has been likened to a customer continuing to pay for the insurance on a car that they have sold. It is important to note that, unlike for a fixed-rate loan, an interest rate swap agreement is separate from the loan contract and must be terminated independently. From some of the speeches in this debate, it is clear that that has not always been entirely understood by those involved. Repaying the underlying borrowing does not automatically terminate the interest rate structures, and as we have heard, customers are not always made sufficiently aware of that.
Most of us who do not work in finance, banking or associated professions will perhaps have a rather sketchy understanding of the risk. There is nothing wrong with hedging against risk; it is a widely used practice that has occurred in many different manifestations for many years. However, the concept of hedging against risk has spawned a diverse range of products that are sometimes dizzying in their complexity, even for those who perhaps run their own businesses and think of themselves as if not “sophisticated” in the way defined, none the less as having a reasonably good handle on things, yet they find themselves caught out.
Derivatives are the most common example of that. Interest rate hedging products are not as complex as some derivatives, but they are complex enough to confound the unwary, especially where they involve structured collars that can effectively result in customers paying more if interest rates fall beneath an agreed level. That requires a finely balanced judgment by any customer, and an understanding of the vagaries of interest rates. It is crucial that the bank selling interest rate hedging products explains and defines the product to the customer and ensures that it matches their circumstances, but as we have heard, many banks did not do that.
Bob Stewart
Surely it is the bank’s duty when it starts to fiddle around with interest rates to warn the customer that that is happening and not just suddenly do it.
Cathy Jamieson
The hon. Gentleman makes a good point, and some of the concerns and examples have been about banks that seemed to be selling products, but not outlining the potential for interest rates to drop or giving customers information about the bank’s own forecasts. We have real difficulties with such circumstances.
Finance (No. 2) Bill
Debate between Bob Stewart and Cathy Jamieson(10 years ago)
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Cathy Jamieson
I will come to that. In discussions I have had with banks they say that they want to lend and have the resources to do so, but some of the schemes have not necessarily encouraged people to come forward and have not been as successful as they might have wished. I have also heard the criticism from some banks, not all, that perhaps another levy or a different approach to the bankers bonus tax would have implications for capitalisation of the banks and so on. However, when we look at the scale of some of the bonus pots, it is difficult to make the argument that the money will not be there. The money appears to be there in some instances for excessive remuneration and bonuses, rather than other schemes.
Compensation costs for the mis-selling of payment protection insurance—the PPI scandal—have now reached £22 billion, an astonishing sum, with Lloyds alone incurring compensation costs not far short of £10 billion. Significant fines have been imposed on Barclays, RBS, Lloyds and Deutsche Bank for attempts to rig LIBOR, doing huge damage to the banks’ credibility and showing how important it is to change the culture and behaviour. That change has been much talked about, but has yet to be delivered entirely.
I am not trying to bash the bankers, as it is sometimes portrayed. I well understand the difficulties faced by front-line staff in the banks—the people in the lower tiers of the management system. They operated in and had to comply with the prevailing culture, and were set particular targets and given sales incentives. When we look back at that approach, we can begin to pinpoint the move away from the notion that the bank was there to look after people’s money, both individual depositors and local businesses, towards the retail culture, in which the emphasis was on selling and making profits without, in some instances, due care and attention to fiscal responsibilities and duties to the customer. I hope that changes brought about by recent legislation will see an end to that culture. Many of the banks are talking about that, and it will understandably take time, but we need the nudges, the pressures and the reminders, not just from the regulators, but through public opinion. Unless a watchful eye is kept on the banks, the change in culture will not necessarily succeed.
Despite having racked up billions of pounds in fines, several of the big banks still proposed significantly higher bonuses for 2013—the latest year for which figures are available—than for the previous year. They went up 10% to £2.4 billion at Barclays; up 8% at Lloyds to £395 million; and up 6% at HSBC to £2.3 billion. RBS, which is 81% owned by the taxpayer, has also announced a bonus pool of £588 million this year. I know that some of the banks claim that their overall bonus pool is coming down, but for the ordinary person in the street the figures are more than they would ever hope to win in a lottery in their wildest dreams, never mind expect to earn in the course of a year. They also find it astonishing that the banks might seek to breach the EU cap on bankers bonuses. It is difficult to understand why people who are paid in excess of £1 million, and have a range of other benefits, seek bonuses of twice their annual salary.
Bob Stewart
One consequence of bonus payments is that the Treasury, presumably, gets 40% of them, which is a bonus for the Exchequer. Or have I got that wrong?
Cathy Jamieson
I will come on to that point, and on to corporation tax, when I speak in more detail about why we want a review of the bank levy. I hope Government Members understand why we think it is important to have a review and to consider the implications. I started by saying that we are taking a relatively mild-mannered approach, with no demand, as is sometimes made, for something to happen immediately. We are saying, “Let’s look at the figures, let’s look at the implications, let’s look at what can be done in the round, and let’s have the Government do that work and bring it back for further discussion.”
To go back to the hon. Gentleman’s point, the figures compiled by the Labour party suggest that the cut to the 50p tax rate saw an estimated 2,714 bankers who earn more than £800,000 share a £98.5 million windfall—an average tax cut of £36,300 each. I just make that point in relation to the notion that the Treasury will somehow get the yield from that.
Food Security and Famine Prevention (Africa)
Debate between Bob Stewart and Cathy Jamieson(12 years, 7 months ago)
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Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)
I welcome the opportunity to contribute to this debate, which shows the value of having Back-Bench debates in which there is perhaps more to agree on than divides us. We have heard some moving speeches and contributions from people who have seen first hand what is happening in the crisis-hit areas. That is important. I do not think that anyone who has seen the images on our television screens could fail to be moved by them.
As other hon. Members have pointed out, at this time of stringency and belt-tightening, it is important to convince the public that it is right to continue to protect—and, indeed, to look at how to increase—aid budgets. I recognise that the Government have listened to Parliament on this issue. I recognise, too, the generosity of the public, many of whom are, like many of my constituents, on low incomes themselves, yet they continue to give generously to the various appeals. Initiatives like the “Give a Day’s Pay” campaign, which was supported by The Independent, provide a welcome addition to the organisations appealing for aid. There was also the Disasters Emergency Committee appeal, to which the public contributed about £57 million in just eight weeks.
Members have spoken about the famine problems in Somalia. The UN estimates that a quarter of its population, 1.8 million people, have been displaced. Such figures easily trip off the tongue, but as hon. Members have pointed out, we are talking about real people, real lives and real human tragedies. No one could fail to be moved by the images of mothers who have lost their children on the long march to find food or who must watch their children die in front of them from lack of food.
Bob Stewart (Beckenham) (Con)
As someone who has worked in such countries—and my wife has worked in the horn of Africa as an International Committee of the Red Cross delegate—may I point out that the problem is that the region has historically not been able to sustain those who live there? Perhaps now we should think about moving people to a better place that can sustain them, rather than building up camps that attract people who are then trapped, and whom we must feed for years. Does the hon. Lady agree?
Cathy Jamieson
I thank the hon. Gentleman for his intervention. Although we are short of time, I do want to move on to the issue of sustainability. Some of the organisations that briefed us were worried about people being displaced from their natural areas and ways of life, and about the process whereby people come to sit outside the camps and are screened before they come in, with all the associated difficulties. I accept that the problem is complex. The political situation in countries such as Somalia can easily discourage those involved in dealing with the issues, but we ought to continue to deal with them none the less.
I pay tribute to those in the aid agencies who have risked—and, indeed, have lost—their lives trying to ensure that aid is delivered in sometimes very difficult situations. I also recognise the work of a Scottish charity, Mary’s Meals, which has launched an emergency relief response in Somalia as part of its latest effort to support starving people affected by the food crisis across east Africa. It is providing 100 tonnes of food aid to Somalia’s capital, Mogadishu, to which tens of thousands of people have fled in search of food. It is estimated that the charity’s efforts will provide about 900,000 meals in famine-hit Somalia. The organisation has already been feeding more than 24,000 children with a daily life-saving meal in northern Kenya. As we approach the weekend, when many of us may be thinking about going out for a meal or having our favourite takeaway, it is worth noting that the cost of one life-saving Mary’s meal is 4p, so perhaps we could skip one of our meals out or takeaways this weekend and make a donation to that worthy cause instead.
We must learn from the various crises about how best to avoid such situations happening again. Many of the organisations who spoke to me said that warnings of the crisis were there, and that although they are well geared up to coping with crises when they occur, they are not as good at preventing them. The warning bells were ringing loud and clear, but the current systems made it hard to intervene and to get everyone to move together. I am sure that Ministers will comment on that issue, which I know they take very seriously.
Several Members have referred to food crises being caused not simply by a failure of food production or lack of food, but by some people not being able to access it. I am sure that the Minister will comment on that too.
We have also heard several good contributions about resilience. With the best will in the world, there are still occasions when we do not spend aid money on the right things. I have been told of instances in which irrigation schemes, introduced with the best of intentions, led to the displacement of some pastoral communities, who were forced to move into other areas because they could no longer keep their livestock alive as they had in the past.
When I was in Rwanda I saw some examples of how aid had helped local farmers to produce more indigenous crops. However, one of them told me that, having traditionally grown cassava, he was now being encouraged—with the best will in the world—to grow mandarin oranges, which he did not like very much, and that he did not find it helpful. That example reinforces the point that we must always work with people in those communities and listen to what they say.