The Financial Secretary to the Treasury (Sajid Javid)
First, let me take this opportunity to welcome you to your new Chair, Madam Deputy Speaker. It is a great pleasure to see you in your place. I also welcome the hon. Member for Birmingham, Ladywood (Shabana Mahmood) to her new role and wish her luck with it.
I start by thanking all the hon. Members who secured this debate and by congratulating everyone on presenting their case well. Special thanks must go to my hon. Friend the Member for Aberconwy (Guto Bebb) for the time, energy and passion that he has put into this issue and for the leadership he has shown. We can see from this debate that this issue is very serious; 17 of my hon. Friends and four other hon. Members have spoken today. I am sure that everyone in this Chamber, like all those others watching in the Public Gallery, at home and elsewhere, including the hundreds watching in the Central Methodist hall from the many businesses that have been affected, is keen to see a quick conclusion to the FCA review and to see that those businesses that were mis-sold financial products are compensated accordingly.
When I was growing up, my father ran a small family business in Bristol, so I was made aware from a young age about the importance of cash flow and the dangers of unexpected costs. As such, I sympathise wholeheartedly with the small businesses that have been affected by this mis-selling scandal and have put such energy into lobbying on this issue. This Government have made it clear from the beginning that the mis-selling of financial products is totally unacceptable. We take extremely seriously the abuse that has taken place, and we are determined that any wrongs that have been inflicted on businesses should be righted.
I share the disappointment of fellow hon. Members about the progress made under the FCA review to date. I stood up in a Westminster Hall debate about four and a half months ago to discuss this very issue, and the fact that the FCA has not made any significant progress since that debate is, frankly, not good enough. As we have heard today, the FCA said in January this year that the full review process would begin, but it has since confirmed that the full process did not start until May this year. That delay has been disappointing, and the FCA should have been much clearer about exactly when this full review actually started. However, the review is now up and running, with the large majority of cases being looked at. I understand from the FCA that it believes that about 85% of cases are now under review, but hon. Members are absolutely right to say that it is time for the banks and the FCA to do more to speed up the process and get redress out the door. As such, the Government will continue to push the banks and the FCA to complete the process as quickly as possible. As the motion says, the redress scheme’s progress has been too slow. That is costly and has caused further undue distress to the businesses involved. The FCA and banks need to get on with the job.
Mr McFadden
Before the Minister leaves the issue of the FCA, will he say what he thinks of the FCA’s reply to some businesses in distress—that it will not consider individual cases?
Sajid Javid
The FCA has set out a clear process and is publishing more and more information on it. It is important that the FCA and the banks should stick to that. Equally, however, Martin Wheatley, the head of the FCA, has not ruled out any further action, including taking enforcement action if he deems that the redress process has not worked as intended.
A number of Members have mentioned redress payments. Of course we need to be confident that the scheme provides the correct level of redress for affected businesses. I understand why concerns have been raised about the FCA’s decision to allow the banks to settle with customers for a single redress offer, covering both basic redress and consequential losses.
It is right that the FCA, as an independent regulator, should decide such details. However, I agree that it is sensible for the initial payment for basic redress to be made to provide much-needed relief to the businesses. That is why I welcome the announcement this week, from HSBC and RBS so far, that they will now make an initial redress payment to businesses and then discuss consequential losses separately. Back Benchers should take credit for that move. Under the leadership of my hon. Friend the Member for Aberconwy (Guto Bebb), they have put pressure on the banks and we have seen the results already.
However, I want things to go further—I would like all the other banks to join the move announced by HSBC and RBS, and I shall be watching closely to see whether they do. That should help prevent any further undue distress for the businesses and give them much-needed cash-flow relief.
Ian Swales
I well understand that consequential loss calculations are probably unique to each business. However, the redress payments surely form a pattern, given that they are all based on similar products. Does the Minister believe that the banks should be able to move very quickly with the redress part of the compensation?
Sajid Javid
I agree. The banks should move much faster. Today’s announcement from the two banks is welcome, but other banks should take a serious attitude to not only the amounts but the timing of redress payments.
Hon. Members have also voiced concerns about the large number of businesses that have been assessed as sophisticated and so fall outside the scheme. My understanding is that the FCA used as a starting point the criteria for non-sophisticated customers set out in the Companies Act 2006. As such, the test reflects the fact that larger businesses would have greater resources to seek advice on the products in question, both at the time of sale and subsequently. Moreover, I understand that the FCA then amended the sophistication test in January to ensure that certain companies, which were classified as sophisticated under the Companies Act test but which might reasonably be considered to be non-sophisticated, were also brought into the scope of the review.
Throughout this debate, the Government have been clear that when a business lacked the necessary skills and knowledge to understand fully the risks of the products, it should receive the appropriate redress. We do not agree that all businesses should have access to the FCA review; there needs to be a defined cut-off point beyond which more sophisticated businesses take responsibility for understanding the products that they entered into. I am confident that the FCA has found the right balance to ensure that all non-sophisticated businesses fall inside the scheme.
I will not be able in the time available to address all the questions raised, but I might be able to help with a couple in particular. Some Members asked whether insolvency could be a reason for banks to try to delay the redress process. I assure the House that that could not be a reason. No one wants businesses to go insolvent, but if, sadly, they do, they will still be part of the review process. If mis-selling is found to have happened, banks will still be liable and on the hook—they will gain no advantage from the insolvency of a company.
Hon. Members, including the shadow Minister, asked whether the FCA could consider setting a deadline. There is a good case for the FCA to consider that, but it would have to be its independent decision. Due regard must be taken of the fact that it might take longer to sort out the most complex products, but it would be good for the FCA to consider whether setting a deadline would help to speed up the process.
Steve Brine
A number of colleagues have mentioned this. Does the Minister have a view on a truly independent appeals process? Given that 93% of the cases looked at thus far have been non-compliant, the number involved would not be massive.
Sajid Javid
As my hon. Friend will know, there is a necessary degree of independence in the process. However, he raises a good point, which, as he said, has been raised by others today. It is important to make sure that there is confidence in the process. If confidence does not come about in the coming months, the FCA may have to review things and the process that my hon. Friend suggests could be taken forward.
I end by reiterating that the Government take extremely seriously the abuse that has taken place in very many cases. I sympathise wholeheartedly with campaigners in the Chamber and beyond. I am determined that any wrongs inflicted on businesses should be put right and want a quick solution to the mis-selling of interest rate hedging products.
Small businesses are the backbone of our economy and they should be allowed to draw a line under this issue and get back to what they do best—working hard, creating jobs and creating growth for the UK economy. Once again, I thank hon. Members, particularly my hon. Friend the Member for Aberconwy, for bringing the issue to the attention of the House. I assure them that I will make sure that the issue continues to receive the highest level of attention from the Government.
Guto Bebb
With the leave of the House, I should like to make a few concluding remarks. This has been a positive and necessary debate, and we have seen significant progress as a result of it. Members from across the House have made it clear that they want a step change in the progress made by the FCA review process. That is necessary; we need a significant increase in the number of businesses offered redress. There are real concerns about an expansion of the scheme. Speeches have highlighted the issue of embedded swaps and the concerns about the sophistication test, which I would like to discuss in further detail with the Minister in due course if I can.
The other pretty obvious thing from this debate is that we need the banks to provide support for the businesses while they wait to be reviewed. We want the banks to show forbearance and to understand that the difficulties faced by many businesses were created by the banks’ own mis-selling. No further businesses should be lost to the UK economy as a result of the mis-selling of these products, which were inappropriate in the vast majority of cases. This has been a positive debate, but we still need to see the proof of the pudding in the way in which the scheme delivers from now on.
Sajid Javid
May I tell my hon. Friend that I would be more than happy to meet him and other stakeholders to discuss this further?
Madam Deputy Speaker (Mrs Laing)
If the Minister has finished his intervention, the hon. Gentleman may conclude his speech.