Financial Services Bill

Debate between Baroness Oppenheim-Barnes and Lord Peston

Wednesday 18th July 2012 Lords Chamber

[Baroness Oppenheim-Barnes]

My Lords, I was delighted to add my name to that of the noble Lord, Lord Borrie, on this amendment. We go back a very long way to when I first entered the Department of Trade and Industry. The position of director-general of fair trading was coming up for renewal and my officials said to me, “Well, you will obviously want to appoint somebody from your own side, Minister”, to which I replied, “There is only one person with whom I would be entirely satisfied”. That was the noble Lord, Lord Borrie, and this has proved to be the case ever since.

This amendment is important. Perhaps I am not so happy with the term “fit for purpose” because I spent a great deal of my consumer life trying to find a better one, which I never did satisfactorily, in order that people could pursue their Sale of Goods Act rights. However, I will have more to say on this later—on Amendment 108, I think—when we reach that.

[Lord Peston]

My Lords, I supplement what my noble friend Lord Barnett and others have said about the built-in risk of pretty well every financial instrument that one might acquire. This amendment is very much in line with that made earlier by the noble Lord, Lord Flight, on education. Therefore, again I must add my cautionary note that it is very hard to persuade people that the world is full of risk, particularly when it comes to instruments that look risk-free—for example, a government bond, which our Government have never reneged on. However, if it is a bond fixed in nominal terms, there is always the risk of inflation so that the real rate of return is highly risky. In a second example, the date of repayment of the bond can be an issue, so that even with a perfectly honest Government who intend to pay on the due date, if you have to cash the bond in at a different date then there is risk involved. It is vital that people understand these kinds of examples.

The other risk, and I am not quite clear how we can approach it, essentially stems from the possibility that the people one is dealing with are corrupt. To take the obvious example, if you are offered a particular asset with a high nominal rate of return, is this because the financial intermediary offering you that asset is particular inefficient or because they are up to no good and the only way they can lay their hands on this money is with a high rate of interest?

It is often immensely hard to disentangle whether you are running a risk by acquiring such an asset, and perhaps the great WC Fields’s dictum is relevant here:

“Never give a sucker an even break”.

The world is full of people like WC Fields, but how is the ordinary person to know if they are dealing with one? It seems to me, therefore, that the relevant authorities have a responsibility at least to take on board their duty to be of assistance to people, partly in an educative way, and partly by controlling the behaviour of people themselves.

I very much look forward to hearing the noble Lord’s reply on the question of risk. However, to summarise, my main point is that if you are living in an area where there is no risk, then you are dead.