Clydesdale Bank and SMEs

Guto Bebb Excerpts

Tuesday 19th March 2019 Commons Chamber

[John Glen]

I thank the hon. Lady for her points, and I will try to address them all. The decision to develop the dispute resolution service was taken carefully, after a lot of engagement with the industry. I am obviously aware of the press coverage around the case and of the extremely difficult circumstances faced by her constituent. I understand that enforcement action is currently on hold as legal proceedings have been brought against Clydesdale and Cerberus. I also understand that Clydesdale and Cerberus have offered to meet Mr Guidi.

The hon. Lady raises a number of points about a preferred alternative mechanism for resolving such situations. It is common across all jurisdictions for banks to sell off parts of their portfolio of debt at times. The question becomes what the appropriate mechanisms and safeguards are in those cases. The sale of debts to third parties is covered under the standards of lending practice, to which Clydesdale is a signatory. That means that it is committed to ensuring that third parties that buy loans have demonstrated that customers will be treated fairly, and to allowing customers to complain to the original lender if there is a dispute between the business and the third party that cannot be resolved.

I am very happy to meet the hon. Lady to go through the full extent of her outstanding concerns on the matter. I take the issue and this case very seriously.

[Guto Bebb (Aberconwy) (Con)]

I congratulate the hon. Member for Lanark and Hamilton East (Angela Crawley) on raising this urgent question. As somebody who was involved with the all-party parliamentary group on fair business banking back in 2012 and 2013, the fact that we are still talking about businesses that were sold TBLs which have not received redress is somewhat shameful. I appreciate the very constructive comments made by the Minister. I also congratulate my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) on his work as chairman of the all-party group. Is it not the case that these issues could have been resolved much earlier if, for example, the FCA had included TBLs in its original redress scheme, and would that not have resolved some of the issues now being faced by constituents of Members across this House?

[John Glen]

I acknowledge my hon. Friend’s long-standing efforts in this area. Before I was a Minister, I was a member of that APPG. The whole range of dispute resolution mechanisms that have taken place over the past 10 years all seem to have a very different story. As the Minister responsible, I was keen to ensure that we had a meaningful historical redress mechanism that would give discretion for the banks to examine these individual cases. I was also very keen that this House should be represented on that group. That is why having my hon. Friend the Member for Thirsk and Malton, with representatives from the SME Alliance, involved will allow full scrutiny of all the cases that have not been resolved adequately.

Financial Conduct Authority

Guto Bebb Excerpts

Monday 1st February 2016 Commons Chamber

[Guto Bebb (Aberconwy) (Con)]

I beg to move,

That this House believes that the Financial Conduct Authority in its current form is not fit for purpose; and has no confidence in its existing structure and procedures.

It is four years since I first raised the issue of interest swap mis-selling in this Chamber. Since then, I have led three Back-Bench business debates on the issue; an Adjournment debate on the Connaught Income Fund, which is another example of financial mis-selling; and a debate on the global restructuring group. I have also contributed to an effort to secure a debate on the future of the Royal Bank of Scotland. It is clear that I have attempted to utilise this House to bring to the attention of Members and the wider public the issue of financial mismanagement and the lack of financial regulation in the marketplace.

Some people have argued that this debate and this motion are premature. Given the evidence and information that I will present, I argue that they are long overdue. We must remember that the Financial Conduct Authority has a clear and specific mission statement:

“We aim to make sure that financial markets work well so that consumers get a fair deal.”

It states:

“This means ensuring that the financial industry is run with integrity, firms provide consumers with appropriate products and services, and consumers can trust that firms have their best interests at heart”.

I believe that the five examples that I will give in my opening speech make it clear that the Financial Conduct Authority is failing against that mission statement.

I will highlight five areas. First, I will touch on the voluntary redress scheme for the mis-selling of interest rate swap products. When I am feeling positive, I think it is a glass-half-full redress scheme, but most of the time I believe that it is a glass-half-empty one. The fact that the glass is half empty after four years is something that I take quite personally.

[Heather Wheeler (South Derbyshire) (Con)]

Does my hon. Friend agree that the glass being half full has been okay for some constituents, but that for those who are looking for consequential losses as well, the glass has been absolutely empty?

[Guto Bebb]

My hon. Friend makes an important point about one of the failures of the redress scheme. Too often, the FCA has hidden behind the argument that 80% of the people involved in the redress scheme have accepted their outcome. What it is not willing to admit is that people have accepted the outcome under duress because they needed to keep ahead and get their lives back on track.

The other four areas that I will talk about are the Connaught Income Fund, the FCA’s involvement in the report on the failures of HBOS, the promised report on the global restructuring group and the decision not to move ahead with the review of banking culture, which was communicated on new year’s eve.

[Daniel Kawczynski (Shrewsbury and Atcham) (Con)]

My hon. Friend is aware of the case of my constituents, Mr and Mrs Bennett from Dorrington, which I have shared with him. They have been treated appallingly by RBS and there has been a complete lack of interest from the FCA. I am grateful to him for taking this matter on and urge him to continue the campaign most vigorously.

[Guto Bebb]

I am grateful to my hon. Friend for those comments. I will touch on RBS’s involvement in the redress scheme.

There are concerns about the way in which the interest rate redress scheme was put together. It was a voluntary agreement. One of my first questions, which I still have, was about the arbitrary way in which 10,000 businesses were excluded from the scheme for no apparent reason. Because of an arbitrary decision by the FCA, those businesses were excluded from any means of support under the redress scheme. That decision still is not fully understood. I have raised that issue before and would be more than happy to hear the Minister’s comments on it.

Of more concern is the fact that, throughout the process, there has been a lack of willingness from the FCA to explain what they are doing. For two years, the redress scheme was in existence, but the FCA did not share the rules of the scheme. Businesses that had been declined redress within the scheme were appealing the decisions without knowing what the rules were.

[Sir Simon Burns (Chelmsford) (Con)]

Does my hon. Friend accept that people such as my constituent, Larry Berkovitz, have been so frustrated by how long, drawn-out and time consuming the process is that they feel as if they are hitting their head against a brick wall to try to get justice?

[Guto Bebb]

I sympathise fully. When I established the all-party parliamentary group on interest rate swap mis-selling, I expected it to be closed within a year. Four years later, I am still raising debates on the issue, so I share the concern that people are knocking their heads against a wall and getting nowhere.

The Treasury Committee intervened and the FCA finally published its rules in February 2015. Therefore, it can be argued that for two years, every appeal was being made in the dark. The release of the rules led to a further complication. It suddenly became apparent that the way in which the customers of RBS were being treated in the redress scheme was significantly different from the way in which the customers of other banks were being treated.

The APPG did a significant analysis of cases that had been through the redress scheme. It showed clearly that the chances of getting a swap for a swap outcome was much stronger for RBS customers than for customers of other banks. A swap for a swap outcome basically means that the redress to which someone is entitled is significantly less than it would otherwise be. The reason was that RBS appeared to be relying on a generic condition of lending that was not deemed significant by some banks within the review, but that, for some reason, was deemed sufficient for a swap for a swap outcome by RBS.

I met RBS with other members of the APPG to highlight the discrepancies. We were told that the rules that were released to the Treasury Committee were not rules, but principles. Although those principles had been established for the scheme, apparently 11 different methodologies were agreed with 11 different banks. It is arguable that the Treasury Committee was misled because when it asked for the rules, it is unclear whether it got rules or principles.

I ask again: if a business does not feel that it received an adequate offer from a bank, how can it challenge the decision if it does not know what the methodology was? I met the FCA, because RBS was perfectly happy about this issue. It said, “We have a methodology that we have agreed with the FCA and we are delivering on it.” When I met the FCA, it confirmed that it had different methodologies within the scheme, but, again, it did not share those with me. If an RBS customer is unhappy with their outcome, it is difficult for them to argue their case, because they are not being provided with the information that they need to do so.

[Mr Nigel Evans (Ribble Valley) (Con)]

Does my hon. Friend agree that the FCA ought to look at transparency, speed and fairness? It seems to me that the FCA has taken no regard of the fact that many of our constituents—probably running into the hundreds of thousands across the country—have lost tens of thousands of pounds. In many cases, these are elderly people who were relying on that money to keep them into their old age.

[Guto Bebb]

I endorse those comments completely.

Swap for swap outcomes are much more likely for RBS customers and the percentage of non-compliant sales that do not result in a tear-up of the agreement within RBS has gone from about 40% to about 60%, which is not in line with other examples. I would argue that the voluntary scheme that the FCA put together is not delivering and is not being monitored in accordance with the FCA’s mission statement. I will leave that issue there because I have spoken at length about interest rate swap mis-selling in this Chamber and made my concerns known time and again.

When the voluntary redress scheme was announced, we thought that the inclusion of consequential losses was a pleasant surprise. I am afraid that we were being overly optimistic. Our analysis of the redress scheme showed that in 50% of the 3,104 cases that we looked at, no consequential losses were received, and in 85% of the cases that did receive consequential losses, they amounted to less than £10,000. I have personally seen dozens of well-argued cases in the redress scheme that have been rejected by the banks without an explanation. Even worse, the business is allowed one appeal against that decision without knowing the basis on which it has been rejected—it has one opportunity to challenge, and invariably that challenge fails. On consequential losses we are again failing businesses.

Time and again cases go to court. They are often settled outside court, where the settlement will be better than what was offered under the redress scheme, and that should be a cause of concern for the regulator. Of perhaps even more concern to Members of the House is the fact that time and again gagging orders are placed on those settlements by a taxpayer-funded bank on the back of taxpayers. I find that utterly unacceptable.

Let me move on to the Connaught Income Fund, which creates a real problem concerning regulation in this country. The regulator was informed not of mismanagement but of fraudulent behaviour, yet it took four months before it put a notice on its website to highlight its concerns and say that the fund in question was not as safe as a bank account, and a further year before that fund was wound up. In the meantime, between the whistleblower informing the regulator about the problem with Connaught and the winding up of the scheme, more than half the total investments into the Connaught income stream occurred. It could therefore be argued that the regulator was responsible for at least half the fund.

[Dame Angela Watkinson (Hornchurch and Upminster) (Con)]

Dr Eric Saunderson is one of many constituents who made significant losses under the Connaught investment scheme. He is not just frustrated by the inordinate length of time that the FCA is taking to investigate that and decide what compensation might be payable, but he is still unclear as to whether that compensation—once decided—will be paid directly to investors or put into the suspended Connaught fund.

[Guto Bebb]

My hon. Friend makes an important point, and there is a lack of clarity on that issue. Only last week the FCA decided to publish on its website the fact that there has been a settlement between the liquidators and Capita. Interestingly, the decision to publish that statement on its website breached the confidentiality agreement. Therefore, the regulator was commenting on a settlement, but the parties to that settlement were not able to offer any advice because there is a confidentiality agreement. The FCA has a track record of being accused of breaching confidentiality, but to publish the fact that it is taking a degree of responsibility for the outcome is utterly unacceptable in view of the fact that the liquidators are stating categorically that they are not associating themselves in any way, shape or form with the statement, that they do not agree with aspects of that statement, and that the only reason they had to force a settlement was that the mediation that the FCA decided to try to arrange was not successful. Indeed, the decision to finish the mediation was made without consultation. For the regulator to make a statement on its website that is then categorically denied by the parties to the agreement is a matter of concern.

[Dr Tania Mathias (Twickenham) (Con)]

Does my hon. Friend agree that with the Connaught inquiry the FCA has been too slow and not transparent enough for investors?

[Guto Bebb]

Of course I agree, and I will quickly run through my points about Connaught, because there are questions to ask the regulator. Will the settlement result in full compensation and a settlement for investors? Probably not. How is the settlement relevant to the FCA’s ongoing investigation into the operators? We do not know. Is it correct to state that the FCA was involved, or is that simply because the litigators were in a situation where the failure to mediate the decision to hold an investigation took place without any consultation? Is this settlement better than what was almost agreed under the FCA’s mediation process? If it is, why 18 months down the line have investors waited even longer for a settlement?

[Andrew Bingham (High Peak) (Con)]

My hon. Friend has done a lot of work on this issue, including in the all-party group on interest rate mis-selling during the last Parliament. The problem is that we are still here and the FCA seems to be blundering around in the dark—we are talking about people’s money and investments.

I have constituents—I will not mention their names because I do not have their permission—who are out of pocket by a large amount of money. They are struggling while the FCA plays around and does nothing about this issue. It should start doing what it was supposed to do in the first place.

[Guto Bebb]

The mood of the House is fairly clear. Indeed, every time we debate these issues the House has been clear, but I am afraid the regulator has not responded.

I am conscious of the time, Mr Deputy Speaker. I promised to touch on three other areas, but I will do so quickly. There is a real question mark about why the decision to cancel the review into banking culture was taken at short notice, with an announcement made on new year’s eve—that was surprising in itself. Perhaps even more surprising is that the decision was made by FCA executives without consultation with the FCA board—the FCA itself has questioned governance within the organisation. If a decision of that importance is made without advance consultation with the board, the question of governance is important.

The review into banking culture was part and parcel of the business plan for the FCA, yet suddenly it disappeared. Even more importantly, in a public meeting on 22 July, the FCA stated categorically that that review was an essential part of the new management of the banking sector. When that was pointed out to the FCA when it announced its decision to curtail the inquiry, it denied to The Financial Times that the issue of a review had ever been raised at a public meeting. However, the minutes of that public meeting are clear, and the regulator was stating an untruth to our No. 1 financial paper. That does not give me any confidence in the regulator.

There are two other reasons why we need this banking review. First, a review of the report commissioned by the FCA into HBOS highlighted careless and selective use of evidence, factual inaccuracies and a lack of context, express and implied criticism of individuals that was not substantiated by the facts, undue reliance on the evidence of certain individuals, and delay—the report took three years to be produced.

Will we ever see the report into the Global Restructuring Group? Many hon. Members have come across GRG. A section 166 investigation was ordered by the FCA in 2014, but we are yet to see any evidence of it. The acting chief executive, Tracey McDermott, stated on 21 January that that investigation is in the pipeline, but I wonder whether we should have any confidence in that. After all, less than six months ago the review into banking culture was in the pipeline. I am concerned about the Global Restructuring Group and whether we will ever see the section 166 report.

In conclusion—I am rushing because of time—all those issues raise significant questions. Does the regulator have a sweetheart deal with RBS? That is a serious yet reasonable question to ask. Considering the way that the interest rate swap redress scheme has operated, there is a question mark over why RBS is being treated differently? Has the FCA allowed the banks off the hook too easily? Is the regulator acting in a timely fashion? All those questions need to be responded to, and I argue that there is real doubt about them all.

The regulator must work with integrity and be independent to deliver in the interests of a healthy financial marketplace. It must ensure a system that treats customers fairly, but to do that it needs the confidence and respect of stakeholders. That respect and confidence has been lost in the outside world. Whether it has been lost in this Chamber remains to be seen, but when a regulator’s integrity is being questioned to this extent, there are questions to be answered by that regulator and by the Treasury responsible for it. I thank hon. Members for their time, and I hope that other speakers will raise other important issues about the way that the FCA is operating.

[Several hon. Members rose—]

--- Later in debate ---

[Mark Garnier]

I apologise, Mr Deputy Speaker. I have been here for five years, so I should know to take this much more seriously.

The hon. Member for Redcar (Anna Turley) is absolutely right. Huge numbers of people have been badly let down by the redress scheme.

[Guto Bebb]

I am an Everton football supporter, and we have been patient with Tim Howard. It is not that he made one mistake and allowed one goal to be scored; he has conceded half a dozen such goals this season. It is the same with the regulator. It is not the one mistake that we complain about; it is a pattern of behaviour.

[Mark Garnier]

I am regretting using the footballing analogy. I am not actually a huge football fan myself.

We have to look across the piece. The FCA has undoubtedly got it completely wrong in many cases—on interest rate hedging products and other things—and it is right that Parliament holds it to account, including through bodies such as the Treasury Select Committee, as a member of which I have a different point of view. I do not share the frustrations of those needing these debates or trying to get appointments upheld by the regulator; I can go along and get stuck in, along with other Committee members. That is the right way to do it.

It is also important to consider the successes. The FCA has managed to bring substantial fines for foreign exchange and LIBOR rigging. It even managed to bring a case through the Serious Fraud Office that sadly resulted in no convictions last week, when six foreign exchangers, who allegedly tried to fiddle the fixings, were acquitted. None the less, to get it to court was quite a success. The FCA has taken over responsibility for consumer credit and debt management from the Office of Fair Trading. It has protected consumers by banning retail sales of contingent convertibles—a technical thing to do with the resolution of failing banks.

Last February, the regulator published a paper aimed at providing help for firms that wanted to look after vulnerable consumers. On encouraging competition in the banking industry, the regulator, along with the PRA, created a challenger bank unit in January to help challenger bank entrants by providing the best regulation and thereby encouraging competition in the banking market. It has also provided an innovation hub, specifically aimed at the “fin tech” area, to help new entrants into the financial services sector to navigate the authorisation process. The regulator is, therefore, trying to do a number of things, and we need to be careful not to throw the baby out with the bathwater.

People worry about several issues. There is a big question about whether the Government are interfering with the regulator. Have they been interfering directly and explicitly? Are they taking it easy on the banks? I suspect that the cancellation of the thematic review might be a red herring. Most banks, given the 8% increase on their corporation tax rate, would argue that the Government are not being lenient on them. The Government are levying a bank levy that will help to repay taxpayers for all the money used to bail out the banks.

The reverse burden of proof has been reversed, but the implementation of ring fencing by 2019 will come at a fantastic cost to the banks of several billion pounds, in order to make sure that when the next financial crisis hits—there will definitely be another one—the collapsing banks do not take down other banks with them.

--- Later in debate ---

[Mr Jacob Rees-Mogg (North East Somerset) (Con)]

It is a pleasure to follow the hon. Member for East Renfrewshire (Kirsten Oswald) and to learn the phrase, “Couldn’t run a ménage”, which I hope will replace, “Couldn’t run a whelk stall”. I have always thought that was probably rather difficult anyway, so “ménage” is a better term.

I congratulate my hon. Friend the Member for Aberconwy (Guto Bebb) on bringing forward this debate and on his amazing achievement in getting some redress of grievance not only for his own constituents but for many of our constituents, mine included. The Hong Kong and Shanghai Banking Corporation behaved quite disgracefully towards one of my constituents. It sold an interest rate swap that was larger than the loan outstanding—it was a condition of the loan taken out —and then, when interest rates fell, it revalued the loan to say that his loaned value was beneath the required level. It therefore put him in special measures and started to impose penal interest rates, and then when I got in touch, it said that under data protection it could not talk to me. The whole story was really quite disgraceful and not what one would expect of a major banking corporation. We are all very grateful for what has been done to get some redress for this.

I must refer to my declaration of interests. I am regulated by the FCA and have been for many years. I was regulated by its predecessor body, the FSA, and before that, going back to the mid-1990s, by IMRO—the Investment Management Regulatory Organisation. I do not think I have Stockholm syndrome, but I have to tell the House that I cannot support my hon. Friend’s motion. That is not because I do not think there have been errors of regulation—there have. We know only too well that the tripartite system of regulation prior to the crash in 2008 was a failure—nobody knew precisely who was in charge of what aspect of regulation and how it was to be managed, and in the end nobody was doing it at all. The FCA, however, was only introduced in 2013 and a lot of the problems to which hon. Members have referred predate its creation. This House legislated in the previous Session to try to deal with the problem, so this motion has been tabled much too early, because the FCA has not had the chance to prove that it is different from the FSA. The FSA undoubtedly failed, which is why this House abolished it.

[Guto Bebb]

I appreciate the points my hon. Friend is making—they are entirely reasonable—but I think that the difference between the FSA and FCA is being over-emphasised. The people who were FSA officers when the all-party group on interest rate swap mis-selling was established were the same people as the FCA officers who attended our first meeting after the FCA was established. I think that the degree of change is being overstated.

[Mr Rees-Mogg]

I do not agree with my hon. Friend on this occasion. Inevitably, some employees remained the same. It would have been extraordinary if all the regulators at the FSA had been fired and sent off to the great regulatory house in the sky. The powers and the responsibilities of the FCA were changed and, indeed, it has carried out an investigation.

The FCA has to be judicious and bear in mind that some people took out swaps knowing full well what they were doing. Not every swap that was sold was mis-sold. Interest rate swaps are a very important safeguard for people who are uncertain of the direction of interest rates. Indeed, with interest rates at their current lows, many people may feel that it is prudent to protect themselves by taking out an interest rate swap. It would be wrong to so overtighten regulation or to be so sensitive to what happened in the past to make beneficial financial instruments unavailable because of historical mis-selling. Each case needs to be looked at on its merits.

When I first took out a mortgage, I did so at a fixed rate because I knew I could afford to pay that rate but was uncertain about whether I could pay a higher rate. That is a prudent and sensible thing for people to do when engaging with the financial sector. The FCA had a big job of work to do in a quasi-judicial role. It could not just arbitrarily decide that all cases were mis-sellings and therefore they all had to be compensated for.

This House, too, needs to be judicious. The motion is really serious. It says that we have no confidence in an arm’s length independent regulator that this House established just three years ago. If we really mean that, we ought to be legislating to create a new one. We should not simply pass a motion; we should say that the body has failed, that it will be abolished as of 1 April and that a new one will be created.

This motion represents an intermediate step whereby the House faces one of two risks. One is that it is passed this evening and, like many other Backbench Business motions, absolutely nothing follows from it. This House would then look foolish. It would look as if whatever we say makes no difference and we would have no future power to bring our authority to bear on independent regulators when things may be more serious.

The other risk is that the chairman of the FCA feels that he has to resign and take responsibility, because there is no chief executive of the moment, which makes this a very strange time to be holding this debate. If the chairman falls on his sword, what would we achieve? One person would go, but the organisation would remain intact because we have not legislated to replace it.

This House should be proud of its constitutional standing and recognise the extraordinary power it has. We can summon people to the Bar of the House if we are sufficiently annoyed with the way they conduct themselves. We can make them answer to Select Committees, and indeed we do. However, if we use that power without due consideration, without being certain and without having every fact at our fingertips that this body, not its predecessors, is the one in which we have no confidence, we undermine the standing of the House of Commons and its ability to do that in future when our case may be better founded.

--- Later in debate ---

[Guto Bebb]

On behalf of myself, the hon. Member for Bassetlaw (John Mann) and the hon. Member for East Renfrewshire (Kirsten Oswald), I have to say that I think we were rumbled by my hon. Friend the Member for North East Somerset (Mr Rees-Mogg). The purpose of having this debate on the Floor of the House was to highlight the very real concerns of hon. Members from all parties and from all parts of the United Kingdom about the way in which the Financial Conduct Authority is performing its duties in relation to far too many issues. People have real concerns about the interest rate swaps issue, about the way in which the Connaught scheme has been dealt with, and about the decision not to move ahead with the banking review, which was part and parcel of the need to deal with the banking culture. By bringing this debate to the Chamber, we have certainly made it clear that the FCA is living on borrowed time.

My hon. Friend the Member for North East Somerset said that the debate was premature, and he is potentially correct. However, I hope that in any future debates on this subject, he will support taking further action. He talked about the danger of passing a motion that would subsequently be ignored by the Government, and that highlights some real concerns about the way in which we deal with Back-Bench business. The Backbench Business Committee was a big and important development in the last Parliament, and it is a shame that passing a motion might result in this House not being taken seriously in relation to an important motion such as this. The House should reflect on the fact that we heard 13 Back-Bench speeches but only two were mildly supportive of how the FCA is operating. There is an important message in that point: the FCA does need to reform. Although we all hope that the new chief executive will be a fresh brush within the FCA, he should be aware that he has a lot of work to do to rebuild confidence in the regulator, as it—

Connaught Income Fund

Guto Bebb Excerpts

Tuesday 12th January 2016 Commons Chamber

[Guto Bebb (Aberconwy) (Con)]

Before we get into the detail of the questions I want to ask the Minister, I think it is important for me to provide some context and background on the issue.

The Connaught Income Fund Series 1 was established in April 2008. The aim of the fund was to invest in bridging loans, primarily through a company called Tiuta International Ltd. Regulatory demands resulted in the fund being operated by a Financial Services Authority-regulated firm. In the case of Connaught the initial operator was Capita Financial Managers Ltd.

Capita issued the first investment memorandum as the fund’s promoter under section 21 of the Financial Services and Markets Act 2000 in April 2008. In September 2009 Capita Financial Managers resigned and the role of the operator was transferred to Blue Gate Capital management. At the time this decision was taken, a meeting between representatives of Capita Financial Managers and Capita plc was held. Minutes of this meeting, which are in the public domain, confirm that Capita was, at the very least, concerned about Tiuta’s financial viability and was aware of the false representations promoted to investors within the information memorandum. However, despite this level of knowledge and concern about the viability of Tiuta and the improper use of moneys invested in the fund, Capita, upon transferring the operator status to Blue Gate Capital management, did not inform existing investors of its concerns. That is despite the fact that Capita did write to existing investors informing them of the change of operator.

[Jim Shannon (Strangford) (DUP)]

I congratulate the hon. Gentleman on securing this debate, and the number of Members who are present is an indication of the interest in this issue. Does he agree that the Financial Conduct Authority should publish the issues that resulted in it withdrawing from negotiations with Connaught and other parties so that, importantly, those who lost out in the collapse of this fund can know who they have cause to claim against and to blame?

[Guto Bebb]

The hon. Gentleman makes an important point that I will come on to. Indeed, the need for information as to why that decision was taken is something I will be asking the Minister to comment on.

[Graham Stuart (Beverley and Holderness) (Con)]

I, too, congratulate my hon. Friend on championing this issue. I have been contacted by constituents. They want to know why the FCA is taking so long conducting its inquiry and when they are going to get information about what is going on within it. They want to be confident that the inquiry is being properly conducted and to see a resolution of this unpleasant and long-running saga.

[Guto Bebb]

My hon. Friend has summarised my speech in a pithy intervention.

It is important to highlight that when the transfer of operator happened, the subsequent information memorandum issued by Blue Gate was virtually identical to the original information memorandum issued by Capita, and for a further 10 months, more or less, investors’ funds going into Connaught were still managed by Capita IRG Trustees Ltd, which handled investors’ money while Blue Gate waited to receive authority from the FSA to handle client funds.

The whole issue becomes even more concerning because in January 2011 a whistleblower—none other than the chief executive of Tiuta, George Patellis—contacted the FSA to make a principle 11 notification in relation to the misuse of fund moneys by Tiuta. In March 2011 George Patellis met Ian Conway from the FSA to highlight evidence of mismanagement and the fraudulent use of investor funds. He provided ample evidence to support his claims.

[Kirsten Oswald (East Renfrewshire) (SNP)]

Does the hon. Gentleman share my concern that, after five years, the regulatory authorities appear to have made little progress on securing justice for the 1,500 investors, including my constituent George Devon, who lost money in what should have been a secure investment fund? They have made even less progress on working out who to hold to account for the disappearance of more than £100 million. Will he join me in calling for a comprehensive review of the regulatory framework, which is supposed to protect small-scale investors but fails to do so?

[Guto Bebb]

I will join the hon. Lady in that call, and I agree entirely with her comments.

On 26 May 2011, three months after the whistleblower provided evidence of wrongdoing, the FSA finally published a note on its website stating that the fund should not be compared to a bank or building society account. That was remarkable, considering it had been provided with evidence of wrongdoing. In the light of that evidence, it is difficult not to argue that a stronger warning should have been provided to investors by the FSA.

[Mims Davies (Eastleigh) (Con)]

Does my hon. Friend agree that many of our constituents have waited a long time for this investigation, despite the whistleblowers? This debate provides an excellent opportunity for us to urge the Financial Conduct Authority to set out a clear timescale. It is only right and proper that full clarity should be given to all our constituents—we can see the large number of Members present in the Chamber tonight—about the scope, nature and timing of this full and much needed investigation.

[Guto Bebb]

Absolutely. My hon. Friend has just covered part of my speech very well, and I agree entirely with her comments.

Despite the warnings, and the acknowledgment of those warnings by a note that was issued on the FSA’s website, money was still being invested in the fund for a further 10 months. That is scandalous.

[Mrs Cheryl Gillan (Chesham and Amersham) (Con)]

I congratulate my hon. Friend on calling this debate. It is obvious that there is interest across the House in this matter. Is not the situation made even more dreadful by the fact that constituents like mine who invested £100,000 in 2011 did not receive those warnings earlier? One of the financial advisers who advised several people to invest in the fund is based in my constituency. They are now exposed and they want timely and transparent answers from the FCA. Everything seems to have been concealed in this case.

[Guto Bebb]

I am grateful to my right hon. Friend for that intervention. I will come on to the way in which independent financial advisers have been badly treated under the regulatory framework in this regard.

[Bill Wiggin (North Herefordshire) (Con)]

Does my hon. Friend agree that the new body, the FCA, is as toothless as ever and that it is more likely to refer people to the ombudsman than to do anything itself? Will he urge the Government to change that?

[Guto Bebb]

I regret that I have to agree with my hon. Friend. The financial ombudsman service is too often seen as an option by the FCA when problems are brought to its attention. Unfortunately, I also have some comments to make on the performance of the ombudsman in relation to this issue.

[Ms Gisela Stuart (Birmingham, Edgbaston) (Lab)]

I am extremely grateful to the hon. Gentleman for calling this debate. It is unacceptable that people such as my constituent Paramjit Tank, whose family invested some £60,000 in the fund over three years, do not know what has happened to their money. Whatever authorities we have set up, those people are in limbo. Their money has gone and they do not know what is going to happen next.

[Guto Bebb]

The hon. Lady speaks for all of us in this regard, and the constituents who are the worst affected are often old and vulnerable and have invested their life savings in the scheme. I share her concerns.

In March 2012, the fund was finally suspended. It is important to point out, however, that more than half the investment in the fund was invested after the original warnings had been given to the FSA. That issue needs to be addressed. The fund went into administration in May 2012 and finally entered liquidation in December 2012.

When I first came across this matter through my constituency casework, most interested parties and stakeholders were complaining that the FSA—and subsequently the FCA—were unresponsive to their concerns. However, that situation appeared to change following the establishment of the all-party parliamentary group on the Connaught Income Fund. At its first meeting in July 2014, the FCA’s director of supervision, Linda Woodall, announced unilaterally that the FCA would facilitate negotiations between the liquidators of the fund and the former operators of the fund, Blue Gate and Capita. This was not a perfect solution, but it offered the hope that some redress and compensation would be offered to investors. That commitment was made during the APPG meeting, but again a question arises: given that a warning was made by a whistleblower so much in advance of this fund being suspended, should the FCA be looking not just at contributions towards compensation from the operators of the fund, but at itself? Did the FCA owe the investors a duty of care?

[Mrs Caroline Spelman (Meriden) (Con)]

As a member of the APPG, will my hon. Friend say how concerning it is that there has been no communication from the FCA since March 2015? This long period of anxiety for our constituents is what is really troubling so many of us.

[Guto Bebb]

As the chair of the APPG, I have felt extremely frustrated when Conservative and Opposition Members have asked me for an update, as I am unable to offer one, because there is nothing to be said.

[Dame Angela Watkinson (Hornchurch and Upminster) (Con)]

I, like most colleagues here, have had correspondence with constituents who have lost considerable amounts of savings, with this often changing the direction of their lives as the amounts are so significant. Does my hon. Friend share my hope that the strength of feeling being shown in this Chamber today will force some urgency to be put into finding a solution to this?

[Guto Bebb]

Again, I fully agree with my hon. Friend’s comments, and I do think that tonight’s turnout indicates the concern across the House on this issue. It is important to point out again that the proposed mediation was described as the fastest way of getting some compensation to investors, which is why the APPG welcomed it, although with some reservations. A deadline date of 31 October 2014 was offered for the completion of that mediation. Subsequently, in November 2014 the FCA announced a new date of the end of January 2015, and then in January 2015 it announced a new date of the end of March.

On 9 March 2015, I was asked to meet Martin Wheatley, the now former chief executive of the FCA, in Portcullis House, where I was informed that the FCA was withdrawing from the mediation process—that was announced the following day. Again, the decision was unilateral. In effect, the decision to go for mediation was a unilateral one made by the FCA without consulting other stakeholders, as was the decision to end the mediation. As chair of the APPG, I think it essential that the FCA explains why it took those decisions. It needs to explain why it thought it was better to end the mediation rather than continue with a method of dealing with this issue that it had claimed would be the most effective way to proceed.

[John Glen (Salisbury) (Con)]

My hon. Friend is getting to the crux of the matter. For an organisation that many of our constituents see as being an appropriate regulator and an arbiter of what should happen, this lack of accountability is totally unacceptable. The number of vulnerable people who are reliant on this organisation to act wisely means that it is outrageous that this situation is allowed to continue. Does he agree that urgent action needs to be taken by the Minister to ensure that the FCA steps up to the mark immediately?

[Guto Bebb]

I agree entirely with my hon. Friend, who has been a firm supporter of the APPG since its establishment. He makes the point we wish to make: we might be annoyed that the all-party group has not been kept informed, but we should be outraged that the investors and the stakeholders involved in the fund have also been treated with such disrespect.

[Alex Chalk (Cheltenham) (Con)]

May I declare an interest, Mr Speaker? As a barrister, I was instructed by the FCA to prosecute serious Ponzi fraud. I agree with my hon. Friend that this is about clarity and certainty; it is only by being clear that the investigation is being concluded that investors who have been left in limbo can get the certainty they deserve.

[Guto Bebb]

Again, I fully endorse those comments. We are in this House this evening almost giving a cry for help to the Minister, where the all-party group and Members of Parliament have failed to deliver on behalf of their constituents. I sincerely hope that she can intervene and ensure that at least a degree of clarity is offered.

[Liz Saville Roberts (Dwyfor Meirionnydd) (PC)]

I wish to raise a wider issue. Unregulated collective investment schemes are not permitted to be marketed to the general public, as one would expect, but does the hon. Gentleman not agree that this needs proper enforcement and that it may not always take place?

[Guto Bebb]

That is a point that I subscribe to and agree with, and it should be considered in due course.

The questions that I have for the Minister are pretty clear. First, in view of the FCA’s recent decision to cancel its proposed review of banking standards and culture, can we have a guarantee that the investigation will be completed by the FCA? Many people affected by this issue have contacted me, expressing their concern that, in view of the delays and the lack of information from the FCA, the review will be completed.

Secondly, the FCA unilaterally withdrew from the mediation process, without any consultation with stakeholders or investors. Can the Minister assure us that the FCA will, upon completion of its investigations, publicly justify its decision to curtail the process of mediation and the subsequent delay in compensation and redress?

Thirdly, it has also been implied that the reason for curtailing the mediation process was a result of a realisation within the FCA that the financial compensation on offer from the mediation process would not be sufficient. Is that the case? As we have had no clarity or confirmation that that is the case, will the Minister give us some assurances on the matter? If it is not the case, will the FCA be able to explain why it therefore curtailed the mediation?

[Liz McInnes (Heywood and Middleton) (Lab)]

I wish to add my voice to those of other hon. Members who have expressed concerns on behalf of their constituents. I also wish to express the request of my constituent Mel Carney, who says:

“I have already waited over three years to learn what has happened to my money.”

He is asking for transparency from the FCA and for the investigation to be concluded in a timely manner.

[Guto Bebb]

The hon. Lady has asked my fourth and fifth questions.

My fourth question is this: 10 months after the mediation was cancelled, are we in a position to get an update from the FCA, and, if we are, how soon can that update be offered?

Finally, we need an end date. We need to know when this investigation will be completed. I ask the Minister to implore the FCA to provide that information.

[Peter Aldous (Waveney) (Con)]

I understand this situation very well. My constituent Charles Rodbourne has lost the bulk of his life savings. This scandal has been going on for seven years now. Will my hon. Friend urge the Minister to do all she can to bring it to a conclusion as swiftly as possible, as so many people across this country are affected?

[Guto Bebb]

I join my hon. Friend in urging the Minister to do just that.

In relation to my five questions, I think that the FCA has hidden behind its claims that, because this is a live investigation, it is not in a position to comment. Will the Minister confirm that there is in fact no statutory reason why the FCA cannot provide a progress report for those who are interested in this issue?

Finally, it is important to address the ongoing concern about the way in which the IFA community is being treated by the regulatory authorities in relation to the Connaught issue. Emails and other information in the public domain imply that the Financial Ombudsman Service, when dealing with complaints about Connaught, is instructing its caseworkers to find against IFAs regardless of the facts of the matter, and indeed regardless of the fact that there is an inquiry and an investigation into possible fraudulent wrongdoing within Connaught in the first instance.

It is entirely appropriate that independent financial advisers should be held to account for any poor advice offered. However, that would demand that each case, or each complaint brought to the FOS, is considered on merit. The instructions to FOS officials to ignore such evidence of wrongdoing and the on-going investigation into what happened in Connaught makes it very difficult for us to have any confidence in the decisions made by FOS in relation to complaints against individual IFAs.

I understand the need to ensure that both the FOS and the FCA operate independently of each other. However, is it too much to ask that they at least consider each other’s actions before making decisions that are clearly based upon only a partial understanding of the facts?

[Ruth Cadbury (Brentford and Isleworth) (Lab)]

I congratulate the hon. Gentleman on securing this debate, because I, too, have constituents who have been affected by this matter, including Anna Hughes who lost 90% of her investment and three years of interest. Is it not right that our constituents who have been affected by the Connaught scheme should have confidence not only in the process of investigation and resolution on this issue, but in the financial system and in the belief that their investments are safe wherever they put them?

[Guto Bebb]

Again, I would agree with those comments.

If blanket decisions are being made on the basis of rules that do not take into account individual cases, I ask the Minister to ask whether the FOS and the FCA are acting properly and fairly as regards their duty of care towards independent financial advisers. The debate has shown, if nothing else, that there is a degree of concern across the House. I apologise to the Minister for having over-extended my allotted time, and I will therefore sit down and allow her to answer some of the very important questions that have been raised by colleagues.

Royal Bank of Scotland

Guto Bebb Excerpts

Thursday 5th November 2015 Commons Chamber

[William Wragg]

I agree wholeheartedly with the hon. Lady’s remarks. The pattern has no doubt been repeated across the country in different circumstances, but with the same sorry result.

I know that the case in my constituency is not an isolated one, and the Tomlinson report suggests that the bank’s practice was widespread and systemic. RBS has failed to resolve the case of Pickup and Bradbury, and I am sure the same can be said of many hundreds of cases across the country. This is about more than just the numbers on a balance sheet; it is about people’s businesses, their jobs, their homes and their lives.

In addition to raising the issue on the Floor of the House today, I have previously written to my right hon. Friend the Minister for Small Business, Industry and Enterprise about this case. This is obviously a cross-departmental issue covering both the Treasury and BIS. Will my hon. Friend the Minister confirm, on the record, that she is aware of my constituent’s case and similar cases across the country? Can she give an indication of how many small businesses it is estimated fell victim to RBS in a similar way?

The Business Minister has told me that the Financial Conduct Authority and the Prudential Regulation Authority have been established by Parliament with legal powers to investigate this situation. I am also aware that two accountancy and consultancy firms, Promontory Financial Group and Mazars, have been appointed to carry out a skilled person review of the allegations against RBS. The FCA review is ongoing and I understand that it is not expected to report until the end of this year. Given that it is two years this month since the publication of the Tomlinson report, and in view of the fact that some of these cases of forced liquidation and destruction of viable businesses are over a decade old, that is an awfully long time to wait for justice or closure.

[Guto Bebb (Aberconwy) (Con)]

My hon. Friend will be disappointed to hear that at a meeting with RBS this morning it was confirmed that it is not expecting the FCA report until the new year, so the hope of having something in our Christmas stocking has been taken away.

[William Wragg]

I thank my hon. Friend for that intervention, and naturally I am disappointed to hear its content. Can the Government give any assurance about the timeliness of the report from the FCA?

The recommendations of the Tomlinson report call for more competition to remove incentives to make short-term decisions purely in favour of bank profit, rather than in the interest of longer-term customer relationships. When do the Government expect to produce their own full response to the Tomlinson report?

What steps are the Government taking to improve the lending practices and reputation of RBS in the light of what has happened? Let us not forget that they still own over 70% of the bank. I also want to give my hon. Friend the Minister an opportunity to give any message that she feels would be appropriate to the former owners of now liquidated businesses, including my constituent Mr Topping, while we await the reviews of third parties.

In conclusion, the motion before the House concerns the potential sale of further Government shares in RBS. I said at the outset that this is, on the whole, a positive direction, but my question still is this: how can we be comfortable proceeding while this long shadow still hangs over RBS’s reputation? I therefore call on the Government, while they still hold a large controlling stake in RBS, to use their position of influence to ensure that these matters are fully investigated, to deem what admission of wrongdoing is appropriate and, if necessary, to facilitate compensation and the issuing of apologies to those business owners affected by the scandal. I am at present minded to abstain on the motion, pending the Minister’s response, and I look forward to what the Government have to say.

--- Later in debate ---

[Ian Blackford]

I agree with the hon. Gentleman and I could probably bang on about that issue for a considerable time. He is right. Banks that are lending, particularly to the business community, must understand the businesses to which they are lending. Too often that has been done by matrix, spreadsheets and ticking boxes, and not through a clear understanding of where the growth opportunities are in the economy. That must change, which is why I referred to the investment bank in Scottish Enterprise. We need sectoral skills and an understanding of where growth opportunities are in the economy. There must be more of an alignment of the interests of the country, the Government and the banks, and an appreciation of what we need to do to deliver long-term and sustainable growth.

[Guto Bebb]

The hon. Gentleman mentioned the investment bank in Scottish Enterprise. Wales has a similar institution, Finance Wales, which is operated by the Welsh Government. It charges penal rates of interest. Will the hon. Gentleman mention the rates of interest charged by the similar organisation in Scotland?

[Ian Blackford]

I confess that I am not aware of the individual rates charged, but the investment bank in Scottish Enterprise is quite constrained by its access to capital. I hate to make this point, but if the Scottish Parliament had more powers, it would increase our ability to ensure that that investment bank was properly funded.

We all understand the importance of improving capital ratios and establishing a more sustainable banking platform, but at the same time there has been a choking-off of credit to businesses and consumers, restraining our ability to grow our economy. The need for quantitative easing was clear, but it is right to ask how wider society has benefited from the Bank of England’s £375 billion asset purchase scheme.

Quantitative easing demonstrably helped the banks, but it has not fed through to greater activity to help the wider economy. If we contrast that with the pre-financial crash period between 2006-8, we see that M4 was increasing at an annual rate of close to 15%—levels that should have made alarm bells ring in the Government and the regulator at that time. Today we are living with the consequences of that failure, and that is why we are having this debate. The issue of banks being too big to fail, and the dislocation that took place in our economy as a result of the financial crisis, meant that the public were, rightly, angry at the behaviour of those responsible. We cannot and must not return to the circumstances that led to that crisis.

Of course, none of this was unprecedented. There was a significant banking crisis in the UK in the 1870s. It took a long time to recover from that crisis, and at the time it led to substantial change. In the US the Glass-Steagall Act was introduced in 1933. It prohibited commercial banks from participating in investment banking after the excesses of the 1920s, and that legislation remained in place until repeal under President Clinton. The Glass-Steagall Act was introduced for good reasons, and in my opinion its repeal added to the toxic cocktail that led to the financial crisis of 2007-08. In that context it is right to debate the relationship between commercial and investment banking, although we seem to have settled on ring-fencing as a solution to the challenges.

I understand why many people have supported ring-fencing, and perhaps it is worthy of ongoing debate. We know, however, that investment banking was not the only source of the financial exuberance that brought our economy to its knees. It is worth remembering that Northern Rock was the first failure in this country. That bank had absolutely no exposure to investment banking, and, as was the case elsewhere, simple bad practice—or indeed malpractice—was the issue. We must ask whether it is necessary or appropriate for our commercial banks, such as Royal Bank of Scotland, to engage in investment banking. There is no question but that we need a thriving investment banking industry in this country, and it remains today a source of jobs and wealth. The critical question, however, is whether such practices are appropriate for our high-street banks.

--- Later in debate ---

[Guto Bebb (Aberconwy) (Con)]

It is a pleasure to follow the hon. Member for Ross, Skye and Lochaber (Ian Blackford). I associate myself with his final comments about RBS.

This is an important debate and I congratulate the hon. Member for Edmonton (Kate Osamor) on securing it. I put my name to the motion simply because I feel that this issue is worthy of debate in the Chamber. I am not ideologically opposed to seeing banks in private ownership—I am probably guilty of being ideologically of the view that banks should be in private hands—but it is important that we consider this issue in depth and in the round. It is important that we look at the track record of RBS and what we want from it, to ensure that we make the right decision.

In the context of the debate, my hon. Friend the Member for Horsham (Jeremy Quin) was quite brave to argue the case for RBS going straight into private hands at this point in time. Unfortunately, I do not share his confidence in the regulator, having spent three or four hours with the Financial Conduct Authority again this week. RBS still has a huge credibility gap with the general public and, more importantly, with the small business community. That gap needs to be addressed before we can entrust RBS to act in a manner similar to the way it acted in the past. I would be delighted to stand here today and say that the culture in RBS had changed completely. I am utterly convinced that within RBS there are individuals who are making huge strides to change its culture, but am I convinced that all the bad eggs have been removed? Am I convinced that all possibility of actions that are detrimental to small businesses within RBS has been removed? Unfortunately, the answer is no.

[Andy Slaughter (Hammersmith) (Lab)]

I entirely agree with the hon. Gentleman that RBS made mistakes. It is still making mistakes, while largely in public ownership, in relation to funding for small businesses and branch closures. Does he not think that before it is returned to the private sector, if that is going to happen, it has to prove that it can run itself competently in the interests of its customers?

[Guto Bebb]

I would certainly say there is a need to look in detail at the way RBS is performing. There are questions still to be asked about the corporate culture within RBS and questions raised by the Banking Commission need to be looked at.

It is important to state that this is not a left-right political argument. There are think-tanks on the right that think we should look again at the UK banking model. There was strong agreement when my hon. Friend the Member for Wycombe (Mr Baker) stated that the loss of the mutual in the 90s was a mistake for the financial structure of the UK. This is not a left-right argument; it is about trying to get things right and ensuring that, as a result of intervention in the market that we did not want to make, we deliver a better banking system. It is important to state that the reason for intervention in the market was much wider than making a profit for the taxpayer: it was to ensure the UK economy was protected at a very difficult time.

[Jim Shannon (Strangford) (DUP)]

I have been listening to the debate in my office. One thing that has not been mentioned yet is the position of Ulster Bank customers. The first time the computer glitch happened, the Democratic Unionist party went to meet the chief executive officer of the bank. For a number of days, people had no access to money. That has happened not once, but at least three or four times. Ulster Bank customers had no access to their bank or credit cards for days and sometimes whole weekends—no money. Does the hon. Gentleman not feel that the banks need to sort out their systems? Let us make sure they have a system that works and that customers have the quality service they deserve.

[Guto Bebb]

I am absolutely aware of the problems with Ulster Bank—not only computer glitches but undoubtedly questionable past behaviour—and I associate myself with the hon. Gentleman’s comments.

When hon. Members talk about the need to sell RBS shares at a profit, it is important to bear in mind the context. The intervention was not just to make a profit; it was an intervention to ensure that we protected the UK economy. It gave people confidence in the financial system.

We need to address some of the concerns specific to RBS from a small business perspective. I speak as the former chair of the all-party group on the mis-selling of interest rate derivatives, which now has the much snappier name of the all-party group on small business banking. I would be delighted if I never had to speak about RBS again in my entire life. I would delighted if I did not have to talk about the mis-selling of financial products for small businesses ever again. Yet again, as I mentioned earlier, I was with the FCA for three hours. I spent four hours in a redress meeting between a small business and RBS, and I have had various meetings with RBS staff in relation to some of the articles that have appeared in the press during the week. There are still issues that need to be resolved. The Treasury needs to have confidence that when it talks about moving RBS back into the private sector, it does so with a full grasp of the problems that RBS still faces.

One concern is that the excellent Treasury Committee report into small business banking and finance for small businesses has not, as yet, received a response from the Treasury. I asked a question about this, but as yet no response has been forthcoming. The report makes very critical comments about RBS, among others, and the potential liabilities still faced by RBS, among others. I am therefore at a loss as to why the decision has been taken to return RBS to private hands when the Treasury has not even responded to the concerns raised by the Treasury Committee. I would like to see that issue at rest.

[Drew Hendry (Inverness, Nairn, Badenoch and Strathspey) (SNP)]

Does the hon. Gentleman agree that, when looking at new procedures and rules for transferring the bank back into private hands, we should be looking at ensuring that there is the opportunity to bring criminal prosecutions if people are behaving criminally with assets such as the Royal Bank?

[Guto Bebb]

If criminal behaviour has been identified, there should be criminal sanctions. My hon. Friend the Member for Bedford (Richard Fuller) stated clearly that the banking issue would not be resolved in the eyes of the British public until somebody had gone to jail. I am not advocating sending any innocent person to prison, but if criminal acts have been identified they should be pursued in the same way as any other UK citizen would face criminal sanction if they had committed a criminal act.

[Drew Hendry]

Does the hon. Gentleman agree that there needs to be provision for regulations, and that if jobs and livelihoods are put at risk because of the actions of those making decisions in banks, they should be part of the new regulatory process?

[Guto Bebb]

I would be careful about offering an opinion, because I do not think that risk should be criminalised; as small businesses understand, risk is inherent in business. If there is a clear effort to manipulate the situation, that is different, but risk is inherent. Most small businesses understand, when they take out a loan from the bank or ask for financial support, there is a risk involved if they cannot repay the money. I would want to see the definition and the detail before hazarding a further opinion.

On RBS, my concerns were touched on by my hon. Friend the Member for Hazel Grove (William Wragg). Now is a good time to mention the role of RBS’s global restructuring group, which, as a constituency MP dealing with businesses distressed by the mis-selling of interest rate hedging products, I have come across several times. The Tomlinson report was worthy of more attention than it received from both Front-Bench teams. I was fortunate enough in the previous Parliament to secure a debate in Westminster Hall on this issue, but I was disappointed with the response to the allegations in the report from both the Treasury and Opposition Front-Bench spokespersons. The report by Clifford Chance into the global restructuring group was given a very narrow focus by RBS—I am not saying we should dismiss it, but there is a question, given its narrow focus, about whether it is indicative of a problem with the group.

Of greater concern is the FCA’s decision to instigate a report into the group’s activities and the apparent further delay to that report. Given the sums of money at stake in the allegations of misbehaviour within the group, there is a question about whether the Government should be returning shares to the private sector; we do not know whether there will be significant liabilities arising from the FCA report. I have not been particularly complimentary of the FCA thus far, but I understand that the report has highlighted areas of significant concern about the group’s activities, so it is odd that the Government are proposing to sell RBS shares without first knowing about any potential liabilities arising from the report. I think there is much more to investigate, and I am glad that the FCA has finally concluded that that is worth doing, but the Government should be aware of potential issues arising from that report which could have a significant effect on the decision—and the perceived correctness of that decision—to return RBS to the private sector. I leave that word of warning with the Minister, and I would be delighted if she could comment. If she has a timescale for the report that is better than the one I heard this morning, I would be pleased to hear it.

I turn now to the sale of interest rate hedging products. This morning, I met a member of the RBS redress team whom I considered to be honourable, hard-working and doing his best for the businesses affected while trying to protect the bank’s interests. As a believer in the free market, I fully accept that if someone enters into a financial transaction, they accept a degree of risk, but they also expect the bank to work on their behalf, not against them, and to have their best interests at heart, rather than the interests of a commission-receiving salesman. When I meet someone who works for the bank in that capacity, I take them very seriously, and I understand that they are doing their best to deal with a complex situation.

None the less, the review into the banks that were affected, and particularly RBS, still leaves grounds for concern. Well over 50% of the derivative sales included in the FCA redress scheme were sold by RBS, so there is a huge potential liability if the review is shown to be inadequate. The FCA, in its response to the Treasury Select Committee’s report, clearly stated that it was minded to undertake a review of its own redress scheme, once all legal action had been completed. I am slightly concerned by that. If there are concerns about the implementation of its own redress scheme, I am surprised it is not willing to look at that until all legal action relating to the interest rate swap scandal has been completed. That means that the regulator is almost abdicating its responsibility to the courts. The whole point of the redress scheme was to avoid the need for small businesses without the financial resources to have to resort to the courts. They simply do not have the money. I am concerned, therefore, that the FCA seems to be admitting the need to review its own scheme but is not willing to do so until all court cases have been completed.

Given that the FCA is at least admitting the need to acknowledge the concerns of the Treasury Select Committee, I am concerned that we might be returning RBS to the marketplace without being aware of liabilities that might arise from the redress scheme being found, to put it kindly, to be less than perfect. The fact that a significantly greater percentage of RBS cases have resulted in a “swap for a swap” outcome—where it is found that someone has been mis-sold this toxic financial product, but it is concluded that they would have ended up buying one anyhow—is a matter of concern. I am concerned in particular that the conditions of sanction, which are questionable, that were used by RBS to ensure that small businesses bought the protection are now being used to justify the finding that there was a legitimate condition of lending associated with the loans in question. I am not excusing any of the other banks involved, but RBS still has questions to answer. That is not to question the integrity of the team doing the work on behalf of RBS, but they are relying on questionable and concerning paperwork and legal excuses, and those concerns are shared by the Treasury Select Committee. They should be shared by those on the Treasury Bench as well.

Finally, on the stories in this week’s newspapers about the allegation of falsifying documents, it is important to take those allegations with a degree of caution, because they need to be tested and looked at. I nevertheless believe that the discrepancies between the paperwork made available through subject access reviews and other paperwork already supplied to small businesses undoubtedly raise questions.

I have been fortunate enough to have been subjected to several four-hour presentations highlighting discrepancies between, for example, the transcript of telephone calls held by RBS and the recorded transcripts held by the business. I grant that when a transcript of a telephone call is made, it will not be perfect, but when the RBS version is 94 words long and the business’s version is 594 words longer, one has to ask whether it is simply a mistake or whether something worse is going on. These are very serious issues that need to be looked at.

Similarly, I have seen emails in which half a sentence has disappeared and a capital letter has appeared in the middle of a sentence, turning its meaning on its head. Again, mistakes happen when information is transcribed, but I am not aware of mistakes happening when information disappears and capital letters appear. As I say, these allegations are extremely concerning. They are still allegations; they need to be looked at carefully. RBS has agreed that some serious issues need to be looked at, and I am confident that, in many cases, RBS will be able to explain why these discrepancies have occurred. I sincerely hope that it will be able to do that, because the thought that information kept by the banks about small businesses has been fabricated is truly shocking.

Let me return to my main point. RBS was brought into governmental control in order to save it from itself and make sure that the UK financial sector was protected—and, more importantly, that the citizens of this country were protected from what could have been a much worse outcome for our financial sector. In addition to ensuring that RBS is back to financial health, we have an obligation to make sure that behaviour within RBS has been rectified. I continue to believe that there is a question mark about that behaviour, and while it persists, I think we should be very careful before privatising or returning more of RBS to the private sector.

Tax Credits

Guto Bebb Excerpts

Thursday 29th October 2015 Commons Chamber

[Frank Field]

I could not agree more. I think those on the Treasury Bench are picking up a very strong message. There would be very little opposition to the Government introducing the reforms for people who are not claiming tax credits now, but who, if they claimed them in the future, would know the rules of the game. When this place has helped to shape people’s lives, expectations and drive, it is very different all of a sudden to blow the whistle and say, “We’re changing the rules.” People both in the Chamber and in the country feel very strongly about that.

[Guto Bebb (Aberconwy) (Con)]

On the specific issue of dealing with the changes for people coming into the system, does the right hon. Gentleman not recognise that that shows its complexity? Somebody who is offered a position paying more than enough to take them out of the tax credits system might be reluctant to take such a job, because if it does not work out they will come back into the system as a new claimant. Even with his proposed change, the system will be complicated.

[Frank Field]

I was waiting for those on the Treasury Bench to point out the difficulties involved with all such moves. It is important to say that we are not in the hole; the Government are in the hole. We are trying to make suggestions about how to get out of the hole. It is no use the Government turning round to us and saying, “Did you not realise that this would have this effect and that effect?” I know we will not get that from the Exchequer Secretary, but a suitable sense of humility from the Government would be welcome.

--- Later in debate ---

[Guto Bebb (Aberconwy) (Con)]

It is a pleasure to speak in this important debate, and I congratulate the right hon. Member for Birkenhead (Frank Field), and others, on securing it.

This debate is a good opportunity for us to discuss tax credits in more depth—there is possibly a degree of unanimity across the Benches, because this issue is hugely complex and must be considered carefully. We have already heard talk of the need for immediate mitigation, but we must also consider the whole area again. Eighteen years ago the right hon. Gentleman was asked to think the unthinkable. He tried to do so, and was promptly sacked for his efforts. This issue is as complex today as it was in 1997.

The Treasury will bring forward proposals in November, but that will perhaps be an interim measure and we will still need to consider carefully how to create a system that supports working families, and those who are raising children and want to do the right thing. We need a system that does not penalise people with high marginal deduction rates, and a change that will not penalise the poorest workers in society.

I feel disappointed—to say the least—that I am not in agreement with my Government on this matter, because during my first five years in this place I was proud of the changes that we made to the welfare state, and of how we tried to make work pay for those who were willing to go out, make an effort, contribute to their communities and look after their families. The most moving event of my time in Parliament was when I visited a Tesco store in Toxteth and met people who were part of an effort by the DWP to get people back into work. The pride and passion that those individuals felt about working and supporting their families was testimony to the fact that our changes were making a real difference.

There is no doubt that the tax credit system has ballooned out of control, but whether we like tax credits or not, they are an important element of supporting workers who are willing to work but whose wages are not particularly comprehensive. We should all support and applaud the decision in the Budget to introduce a new living wage, but there is a clear discrepancy between the timing of changes to the new living wage and changes to the tax credit system. There is no balance to the way in which wages will increase and the immediate withdrawal of tax credits.

I genuinely welcome the fact that the Treasury is allowing time for the new living wage to settle in. I represent a constituency of small businesses and sole traders. It has the highest percentage of self-employed people in Wales, and average wages are only £23,000 or £24,000. Small businesses that employ people in my constituency understand that we need to move to a higher-wage economy and that they must pay their staff properly. Many of them take pride in the fact that they currently pay the minimum wage as a means of keeping staff in place, and they appreciate that the Government are giving them time to adapt and change their business models in order to pay their staff more. It is therefore difficult to understand why we are not willing to give recipients of tax credits the same time to adapt and change to the proposed situation. The decision to cut so quickly and so deeply is problematic, and the response of both Houses has shown that people are concerned about the proposed changes.

Moving forward, we must educate Members of this House. The worst example of a crass comment on this issue came from an unnamed Conservative MP, who stated clearly that if somebody loses £30 per week as a result of these changes, they should simply go and work for an extra three hours. Having taken an interest in this issue, I was genuinely shocked by that comment, because with an 80% marginal deduction rate, an individual earning £10 an hour would need to find 15 hours’ work to make up the £30 loss. When such comments come from Members who claim to represent their constituents, we really should despair.

We must understand the trap that exists in current marginal deduction rates. I was proud that universal credit tried to reduce that marginal rate, and even prouder when I sat on the Welfare Reform Bill Committee and the then Minister stated categorically that the aim was to reduce that rate even further when funds allowed. The Prime Minister stated categorically that the Conservative party should be as concerned—if not more concerned—about the marginal deduction rate of 94p or 95p that we inherited than it should be about the 50p higher rate of tax. It was therefore incredibly disappointing to see that incentive to work, and people’s ability to keep more of the money they earn, changed by these proposals. What message are we sending to people when we say, “Go out, work an extra couple of hours, but we will take 80% of your efforts”? We must be careful about that, which is why mitigation is only a short-term response. In the long term we must look again at the whole system.

To be fair, I have had numerous conversations with Treasury Ministers, and I am grateful to the Exchequer Secretary to the Treasury who called and made my difficulties in a long queue on the A55 much more bearable by discussing tax credits with me. The Treasury has shown a willingness to listen, and it will need to respond in the short term. In the long term we must consider carefully how to create a system that is more likely to support working families in a constructive way. In the short term, he stated clearly that we should look very carefully at how we deal with the £4.4 billion gap in the Government’s finances. I, too, take the deficit seriously. We need to think about why 70% of all the benefits that come from the increased personal allowances have gone to the half of those who are in the richest, highest paid part of society. We need to ask ourselves clearly whether, in view of the fact that we are desperate to find that £4.4 billion, we can justify the extra £9 billion on increasing the personal allowance from £10,500 to £12,500. That would at least contribute towards mitigation in the short term, but we need a longer term plan as well.

--- Later in debate ---

[Mr Davis]

Not for the moment.

The problem was compounded by the method employed—the measure was introduced by statutory instrument, and is therefore unamendable—and by a lack of sufficient information. As four or five Members have already pointed out today, there was no proper impact statement. Had the measure been introduced in primary legislation and thus been amendable, and had the Government provided proper information, the measure would not have gone to the House of Lords in its current form; it would have been reformed in this House, and that is what should have happened.

I subscribe to the Government’s wish to balance the books by 2020, which I consider to be an eminently sensible and responsible aim. However, I also subscribe to the view that we need to protect the poor at all costs. The question is, how do we identify what this policy does? I wanted to find some examples that would enable us to assess both sides of the argument—not just the attack, but the Government’s line as well—and I thank the Chancellor’s Parliamentary Private Secretary, my hon. Friend the Member for Kingswood (Chris Skidmore), for being so helpful in that regard. I put some of the points that he made in defence of the policy to the House of Commons Library, and I shall now give a couple of examples that the Library supplied to illustrate its impact.

The worst-case example that I could find was that of a working single parent with two children, who, without the mitigating effects, could be £2,000 a year worse off in virtually every year until 2020. That is an unbelievable sum to take from a family who are already poor. If the family were eligible for mitigation, in particular housing benefit, the sum could be reduced to roughly £700—the fine detail is unreliable—but, again, it would be lost in virtually every one of the next four or five years,

The great battle over the 10% rate when Labour was in power involved sums that were a quarter of that amount. The great battles over the poll tax, which I remember only too well, involved sums of that size. The impact on a family who are already on the poverty line, by definition, is unspeakable and unthinkable. I grew up in a rather poorer era, and I remember children being hungry on Fridays when the bills were just a bit too big, or it was cold and the heating costs were too high.

[Guto Bebb]

My right hon. Friend touched on the issue of housing benefits mitigating some of the tax credit changes. Is that not another problem with the policy? Someone living in rented accommodation and receiving housing benefit would receive mitigation under the current system, but someone who had bought their own property would not.

[Mr Davis]

Exactly—and before anyone suggests that a person who owns his or her house is better off, let me say that many people in that category have fallen into it and got out of it later. The idea that someone earning less than £20,000 a year, and with two children to support, should lose £2,000 is simply untenable.

The right hon. Member for Birkenhead suggested that there were four possible strategies, but in my view there are three. The first possibility is that we shift the burden elsewhere. The right hon. Gentleman proposed that we should shift it up the income scale, and Lord Lawson said the same during the debate in the House of Lords. I shall not elaborate on that possibility, because I think that there are better ways.

The second strategy is to find savings elsewhere. Here I strongly disagreed with the right hon. Member for Birkenhead, who almost encouraged the Chancellor to go hunting for the pensioner pound. It will not be today’s pensioner pound; it will be tomorrow’s. I think it would be very unwise to remove the tax benefits of investing in pensions and undermine what we have left of our private pension scheme. I am protected, because virtually all my pension is paid for now; it is the next generation that will have to worry.

--- Later in debate ---

[Mr Allen]

I totally agree with my hon. Friend. The Living Wage Foundation has already blown that myth straight out of the water and said it is not actually what everybody else seems to think of as being the living wage. Indeed, the Institute for Fiscal Studies and our own House of Commons Library have both said that the so-called national living wage does not make good what people will lose. Both those highly authoritative, independent organisations say it will only cover about a quarter of the loss that families will incur. On top of that are a lot of other factors. Difficulties relating to the introduction of universal credit are compounding the situation for people on low incomes.

For my constituency, all this shows that society is not addressing deprivation in the way it should. In the past five years, the indices of deprivation have indicated that in my constituency 5.9% more people are in the category of being deprived than they were five years ago. I ask the Chancellor to try to understand that it is not always about Tatton or Witney. The 20 most deprived constituencies—such as Nottingham North, Liverpool Walton, Birmingham Hodge Hill, Manchester Central and so on—are where our people live. That is where people need their representatives to stick up for them. That is where the free market politically does not work. Inviting people over for a weekend of shooting, riding or whatever—that is not where I live, and it is not the way our people will get the message over and have their voices heard. It is by sensible people, from all parties, putting the case forward.

[Guto Bebb]

In the spirit of cross-party co-operation, does the hon. Gentleman not accept that there are small businesses in constituencies such as mine, where we do not go shooting and are not involved in that type of behaviour, which appreciate that the Treasury is allowing them time to adapt to a new living wage? The concern we have about the tax credit issue is that the time allowed for small businesses to adapt was not necessarily made available to the recipients of tax credits.

[Mr Allen]

I hope the hon. Gentleman will forgive me. I was not trying to characterise all his constituents as people who hunt, shoot and fish; on the contrary.

We must work together and make our points collectively so that the Government will listen, which they should have been doing before. I represent places such as Bilborough, Aspley, Broxtowe, Bulwell, Basford and Bestwood. These are areas not known to anyone in the Chamber, but they are where real people live—every Member will have the same sorts of places in their constituencies—and they are the people who will be hit hard by these changes. It will not be about the little debate I had with my right hon. Friend the Member for Birkenhead earlier about the technical knowledge. Let us work together, put our shoulders to the wheel and make the best of a bad job.

Tourism Industry and VAT

Guto Bebb Excerpts

Tuesday 17th March 2015 Westminster Hall

[Guto Bebb (Aberconwy) (Con)]

It is a pleasure to serve under your chairmanship, Ms Dorries. I join other hon. Members in congratulating the hon. Member for Ceredigion (Mr Williams) on securing the debate, which is appropriate at the beginning of Wales tourism week. I was pleased to be part of a small group that welcomed representatives of the tourism sector to the Wales Office yesterday, and on Thursday and Friday I will be getting involved with that sector in my constituency, to highlight its importance to the economy there.

I am taking part in the debate very much in my constituency role. My constituency is the second most dependent on tourism in the country, if the experts are to be believed. It has everything from seaside resorts such as Llandudno to historical towns such as Conwy; it has the Conwy valley, and access to Snowdonia via Betws-y-Coed. Tourism is a vibrant and growing sector of the economy, and in many ways it shows what small rural businesses can do. The Government have a great track record of support for small businesses such as those in the tourism sector. Many will be sole traders, or husband-and-wife partnerships, and the significant increases in the personal allowance will make a difference to the profitability and value of those individuals’ businesses. The increase is a huge contribution to the well-being of those who run small tourist-related businesses.

The reductions in corporation tax also obviously have an effect, but just as important, from the point of view of a sector employing so many staff, is the introduction of the employment allowance—in effect a national insurance rebate. That makes a huge difference. Finally, there have been changes to business rates, including the business rates rebate, which also makes a difference to small tourism providers. So the story is not one of the Government ignoring the small business sector. There is plenty of evidence of support being offered to the sector; but we seem to have a problem getting the message across about whether a VAT reduction would make a significant difference.

I am persuaded of the evidence, but I agree with the hon. Member for Southport (John Pugh) that there is unlikely to be an announcement in the Budget tomorrow. However, it is important to keep a watching brief. I find it hard not to agree with the recommendation about an independent examination of the evidence. If it pointed clearly to a huge implementation cost, we could be persuaded that the Treasury is right in its approach to the issue; but if any independent evidence suggested that the campaigners’ arguments are valid, there would be a good reason to reconsider reducing VAT.

There are examples on which to build. I was one of the MPs who campaigned vigorously against the proposal to put 20% VAT on static caravans, and I am delighted to say that the Treasury listened. It is no bad thing for any Department to listen to points made by Back-Bench Members on behalf of their constituents. I was disappointed by the comments of the hon. Member for Angus (Mr Weir), who dissuaded me from thinking I might have any influence on Government policy. As I have a cable car in my constituency, I thought my efforts towards a reduction to 5% were just as important as those of the Chief Secretary to the Treasury.

Finally, I have spent a significant time on the Public Accounts Committee during this Parliament, and we have gone on and on about tax avoidance, which clearly we should strongly condemn. However, we need clarity about the fact that the tax system should not create a situation that discourages businesses from growing. That is exactly what 20% VAT in the tourism industry does. A good-quality local bed and breakfast whose turnover hits the £80,000 threshold has a choice: increase turnover to £96,000 to stand still, or close for the rest of the winter. I find it unacceptable when I see that small businesses in places such as Betws-y-Coed have opted to close for the winter, because, being honest individuals, they do not want to avoid paying tax that is due, but the challenge of increasing turnover to a level at which they will still benefit from their efforts is far too much. That vast threshold keeps businesses from growing. Any policy that prevents businesses from wanting to grow and serve their customers needs to be looked at again.

In considering the 5% VAT target for the tourism sector, the key thing for the Treasury to examine is whether the 20% threshold stops good businesses growing. If the evidence suggests that it does, action should be taken.

Financial Conduct Authority Redress Scheme

Guto Bebb Excerpts

Thursday 4th December 2014 Commons Chamber

[Guto Bebb (Aberconwy) (Con)]

I beg to move,

That this House has considered the Financial Conduct Authority’s redress scheme, adopted as a result of the mis-selling of complex interest rate derivatives to small and medium sized businesses, and has found the scheme’s implementation to be lacking in consistency and basic fairness; considers such failures to be unacceptable; is concerned about lack of transparency of arrangements between the regulator and the banks; is concerned about the longer than expected time scale for implementation; calls for a prompt resolution of these matters; and asks for the Government to consider appointing an independent inquiry to explore both these failings and to expedite compensation for victims.

This is the third debate that I have led on interest rate mis-selling. I wish to express my gratitude to the Backbench Business Committee for allowing further time to debate this important issue in the main Chamber of the House.

The fact that we have a third debate is a good thing and a bad thing. It is clearly a good thing because hon. Members are still taking an interest in the issue. It is a bad thing because three years after the first debate, hundreds, if not thousands of businesses still feel that they have not been dealt with fairly or adequately by the redress scheme that was put in place by the Financial Conduct Authority. It is therefore important to explore their concerns.

We are coming to the end of the redress scheme, so it is appropriate that we examine its successes and failures at this point. I am, in general, an individual who sees the world in a “glass half full” rather than a “glass half empty” manner—some of my colleagues would perhaps dispute that—and I think it important to highlight some of the successes. First, 91% of all the sales examined within the scheme have been found to be non-compliant. That fact alone justifies all the effort that has been put in by Members from across the Chamber in ensuring that this issue was addressed by the banking system. Similarly, 99% of all redress determinations have been communicated to customers. A total of 14,000 redress offers have been made to date, 10,500 of which have been accepted. Some £1.5 billion in redress has been paid out. Some £1 billion—perhaps even £1.1 billion—of cancelled swaps have been hugely beneficial to the businesses that were affected. Most importantly, as a result of the successes that I mentioned, businesses and individual lives have been put back on track. We should, as a House, acknowledge those successes. However, when this Chamber called for the establishment of a redress scheme, we wanted a scheme that would be fair and equitable to all the businesses affected.

[Bill Wiggin (North Herefordshire) (Con)]

I agree with my hon. Friend, but my constituent John Kidd has so far spent 74 weeks battling the FCA when ideally it should take 12 weeks. My hon. Friend must not be too kind to the FCA.

[Guto Bebb]

I agree entirely. The time scales of some of the redress offers have been completely unacceptable. Indeed, at the scheme’s outset there was a six-month delay in order to ensure a consistency of approach across the 11 banks that volunteered to be part of it. One of the concerns I wish to highlight is that that six-month delay has not resulted in the consistency demanded by the FCA, so I accept entirely my hon. Friend’s point.

I will summarise my concerns about the FCA scheme. There has been a lack of consistency in the scheme despite it being established with a view to having consistency. There has also been a tremendous lack of transparency, which I will deal with in detail.

[Alok Sharma (Reading West) (Con)]

This is, of course, a voluntary arrangement that has been entered into. Does my hon. Friend think it would have been better if it had been a statutory agreement, which would have led to much more transparency?

[Guto Bebb]

My hon. Friend makes a very important and interesting point. There was a need at the outset to ensure that the issue of redress was addressed as quickly as possible and it was felt that a voluntary scheme would do that without the need for a fully judicial process. However, in view of the lack of transparency in the scheme as it stands, I sympathise with my hon. Friend’s point.

My third concern is that the redress scheme lacks an appeal process. That issue could be dealt with very simply without creating any further confusion, and I will go on to talk about that in due course. There is also a serious concern about the issue of consequential losses in the redress scheme as it stands.

[Sir Oliver Heald (North East Hertfordshire) (Con)]

On consistency, it is hard to see exactly what the difference is between an embedded swap and a separate swap that is tied to a loan agreement. Is that an issue of concern to my hon. Friend, and what does he think could be done to improve it?

[Guto Bebb]

I am sure my hon. and learned Friend’s point will be supported by thousands of businesses that feel they have been excluded from the scheme. They might not think that it is working properly, but they do feel that they should have been included. That exclusion has not been explained to the satisfaction of either the businesses affected or the all-party group on interest rate swap mis-selling. Indeed, that is one of the issues I will touch on when I address the scheme’s lack of transparency.

[Michael Moore (Berwickshire, Roxburgh and Selkirk) (LD)]

I pay tribute to my hon. Friend for all the work he has been doing on this issue with others across the House. One of my constituents, Heather Buchanan, and her husband have, happily, got redress, but they are now in a major battle about consequential losses. Does my hon. Friend have a view on how we can help collectively focus attention on bad issues so that they are not lost in the murk of commercial negotiations in the banks?

[Guto Bebb]

I am grateful for that intervention. The issue of consequential losses is of significant concern, because when the FCA redress scheme was established it clearly said that consequential losses would be dealt with on the basis of accepted legal principles, and yet of the £310 million-worth of consequential losses that have been paid out, £305 million relates only to interest at 8%. In other words, claims for other consequential losses have been derisory under the scheme thus far.

I want to highlight two other concerns. Tax treatment of redress payments is a real concern that can be dealt with by the Government and, as I have said, I will also touch on the exclusion of those businesses sold embedded swaps.

I will be quick, because I am aware that many hon. Members want to speak. I have a simple first example of the lack of consistency. When the scheme was established, it was decided that consequential losses and the redress would be paid in one instalment. Many businesses argued that that was unreasonable and unfair, and as a result of the second Backbench Business debate on this issue, nine of the 11 banks that are in the scheme agreed that they would split those payments. The FCA, however, despite saying that it wanted a consistent scheme, has allowed two banks to continue to insist on a single payment. That is a clear example of a lack of consistency.

The evidence I have gathered also shows that there is a lack of consistency on outcomes within individual banks, which clearly raises a question about how the work of independent reviewers is being overseen. If they are coming up with conclusions and recommendations for redress that are significantly different for businesses with very similar problems, there is a question as to whether the work of those independent reviewers is being monitored properly.

[Mr Marcus Jones (Nuneaton) (Con)]

My hon. Friend has been a stalwart campaigner on this issue and deserves great credit. On transparency, is there not a question about whether those reviewers, the review process and the reports they provide are truly independent? Constituents of mine who have been caught up in this have not received any of that information.

[Guto Bebb]

I am grateful to my hon. Friend for his intervention and agree with his rather depressing analysis, because my second point is that there is a concern about the significant lack of consistency on redress among the banks. We have to draw the attention of the House to the accusation published in The Times this morning that some banks have been putting pressure on their independent reviewers to make recommendations for redress that are acceptable to the banks rather than to the business in question. The allegation is made by a whistleblower who worked for KPMG on the independent review of RBS cases. It reflects anecdotal evidence from Bully-Banks, the campaigning organisation, that RBS customers have a 12% chance of getting a full tear-up, which is significantly less than the 65% at Barclays, 89% at Lloyds Banking Group and 64% at HSBC. If this is a consistent scheme, it is difficult to understand how the outcomes for individual businesses in one bank are so significantly different from those in other banks.

One of my concerns about transparency is that the FCA is not making available figures that highlight the outcomes on a bank-by-bank basis. It is simply giving us global figures. I accept that my concerns are based on anecdotal evidence, but it does seem to match evidence from other sources, including that provided to me by an independent reviewer working for HSBC who claims that HSBC feels that RBS is taking advantage, and that from the whistleblower from KPMG who worked on the RBS redress scheme who claims that RBS is challenging any claim over £750,000. The evidence is stacking up that this is not a consistent scheme.

[Mr Marcus Jones]

I thank my hon. Friend for giving way again—he is being very generous. Does he agree that the FCA should look for consistency rather than simply come to us as constituency MPs when we raise issues and tell us, in effect, that it agrees with a bank’s independent reviewer without explaining why?

[Guto Bebb]

I could not agree more. Put simply, the regulator should be regulating its own redress scheme. It is simply not good enough for the FCA consistently to say that the decision has been approved by the independent reviewer if there are doubts about their behaviour.

[Steve Rotheram (Liverpool, Walton) (Lab)]

I, too, congratulate the hon. Gentleman on bringing this issue to the House’s attention. The only thing that is consistent and transparent is that the banks that caused the financial crash are profiting from selling products such as interest rate hedging products, which were bought by a company in my constituency, the Flanagan Group, and have caused it great difficulty. Does the hon. Gentleman think it is right that the banks should be profiting as a result of mis-selling products?

[Guto Bebb]

Of course not. The whole reason behind establishing the redress scheme is to try to deal with the wrongdoing of the banks. My concern is that the scheme has not succeeded as expected.

[Paul Farrelly (Newcastle-under-Lyme) (Lab)]

rose—

[Guto Bebb]

I will take one final intervention; otherwise I will be told off by Mr Deputy Speaker.

[Paul Farrelly]

Does the hon. Gentleman agree that the level of provisioning in the banks suggests that there is inconsistency? For instance, in RBS there were 7,300 cases and £1.4 billion of provisions, while in Barclays there were 2,900 cases and £1.5 billion of provisions.

[Guto Bebb]

The hon. Gentleman makes an important point. There have been concerns throughout the process about the level of provision within banks. In view of some of the information provided by the KPMG whistleblower, RBS’s confidence in having a very low level of provision probably justifies its attitude to the review.

Another point about the lack of consistency relates again, unfortunately, to the behaviour of RBS. It has been argued that a good result for a business from the redress scheme is to have a full tear-up of the agreement or to implement a cap rather than a swap. Indeed, it has been argued that a cap would in many cases have been a much better original product. From the detail of many of the caps offered to RBS customers, it transpires that most of them are for 10 years. I do not claim to be an expert, but experts in the field of derivatives and interest rate protection tell me that there is no demand in the marketplace for a 10-year cap. They have challenged RBS to give one example of a 10-year cap that it has sold commercially in the past 10 years, but as yet RBS has not come back with such an example. Yet, time and again when businesses are offered a cap as an alternative product, the cap is for 10 years. It will not surprise hon. Members to learn that a 10-year cap is significantly more expensive than a five-year one. That added cost comes out of the redress made available to the relevant businesses. There are therefore questions to be asked about the behaviour of some banks, including RBS, and those questions raise doubts about the consistency of the scheme.

On transparency, I am concerned that the agreement between the banks has not been disclosed. That means that it is very difficult to assess the success or otherwise of an outcome, because we do not know what to measure it against. The agreement has not been made available to the all-party group or the Treasury Committee, but I must ask why, because when the FCA says that it is robustly ensuring that the agreement is maintained, we cannot assess whether that is the case.

[Mark Garnier (Wyre Forest) (Con)]

Will my hon. Friend give way?

[Guto Bebb]

I will of course give way to a member of the Treasury Committee.

[Mark Garnier]

I, too, congratulate my hon. Friend on all the work he has done so far. Given that this is the first time that a voluntary scheme has been used, does he agree that full transparency of the whole system is absolutely crucial in ensuring that the scheme can safely be used again in future? Otherwise, there will be long-term fundamental doubt about whether it should ever be used again.

[Guto Bebb]

I could not agree more. I am concerned that some of the banks involved in the scheme now fear that they have played by the rules, while others have not. If there is no transparency on that issue, banks may go into future schemes with the same attitude as RBS’s attitude to this scheme.

We do not have bank-by-bank details on outcomes, so it is very difficult to measure whether they are appropriate. In the same way, there is real concern that the FCA has not fully shared its legal opinion on excluding businesses with embedded swaps from the whole review process. In the briefing that the FCA provided for this debate, it implies that it has fully shared its information on that with the Treasury Committee, but my understanding is that it was willing only to allow a QC acting on the Treasury Committee’s behalf, not its members, to see the information. I do not consider that to be full accountability to Parliament.

I said that I would call on the FCA to consider an appeal process. In view of the revelations about the possible activities of the KPMG reviewers of RBS, there is merit in a proposal made by the all-party group a year and a half ago. All the independent reviewers have been trained to the FCA’s satisfaction, so if an RBS client is unhappy with its outcome it would surely be appropriate to ask another independent reviewer—for example, Deloitte, which acts in relation to HSBC—to review the case. That would not unduly complicate the situation, because the reviewers have been trained by the FCA and have satisfied it as to their expertise. It would give clients a degree of independence if those unhappy with the redress outcome could have all the case notes reviewed by a third party that is independent of the original bank and of its independent reviewer. Will the Economic Secretary consider that request?

[Zac Goldsmith (Richmond Park) (Con)]

Eight or nine of my constituents have asked me to put on record their enormous gratitude to my hon. Friend for his extraordinary work in leading this campaign, and I am very pleased to do so. What arguments has he heard against his proposed appeal system so far, because it is very hard to imagine any deal-breaking arguments against such a logical solution?

[Guto Bebb]

I entirely agree. The argument has been that as the reviewers are independent the FCA can have full trust in them, but in view of the inequitable outcomes reported to us and the information provided by the whistleblower who used to work in the independent review team on RBS, there is clearly much merit in the appeal process that I have identified as a way forward. I cannot think of any arguments against such a simple way forward.

[Guy Opperman (Hexham) (Con)]

I suggest that there is middle ground on that point. Ministers would probably be nervous of encouraging excessive litigation and the escalation of legal costs, but it is not beyond the wit of man for an independent mediator to be brought in to address key cases, as is tried in other parts of the dispute resolution system.

[Guto Bebb]

I accept that point, but I stress that if an independent reviewer of another bank has been approved by the FCA—the scheme is a voluntary, not a judicial one—I seriously do not think that going down such an avenue would create cost. The FCA’s current view is that if a client is not happy with a decision made by a bank and its independent reviewer, then it can resort to law, but the whole reason for establishing the redress scheme was to save small businesses that cannot afford to go to law.

I want to talk in detail about consequential losses. When the redress scheme was announced back in 2013, it was made very clear that the scheme was for consequential losses and interest payable. The Financial Services Authority, as the FCA then was, highlighted that consequential losses would be determined by reference to the general legal principles relevant to claims in tort or for breach of statutory duties.

I have already given the figures. It is more than acceptable and very welcome that £305 million has been paid out in relation to interest at 8%, but only £5 million has been paid out in consequential loss claims. Part of the redress scheme has therefore completely fallen down. I have seen case after case of well-argued and reasonable claims for consequential losses from businesses acknowledged to have been mis-sold and as a result to have lost millions of pounds in turnover, but when a detailed claim that will have cost a significant amount is made the response from the banks is a simple no.

[Christopher Pincher (Tamworth) (Con)]

I congratulate my hon. Friend on securing this debate. Does he not agree that the loss to companies is much larger than simple consequential losses? We are talking about small firms, with just a few employees, who are grappling with the banks and the redress system. In my constituency, a three-man outfit has been grappling with Lloyds for nearly two years. Whenever they correspond with Lloyds it takes perhaps half a month to get through all the paperwork, which has a real impact on their ability to develop and build their business.

[Guto Bebb]

I agree. The scheme was described as one in which businesses would not need professional advice. Yet when a consequential loss claim is made, either by a business or by a business with the support of legal or professional advisers, banks time and again respond with the support of legal and accountancy firms. The process for consequential losses is therefore very unequal.

[Martin Horwood (Cheltenham) (LD)]

Will the hon. Gentleman give way?

[Guto Bebb]

I will take one final intervention on this point; if I took any more I would be in trouble with Madam Deputy Speaker.

[Martin Horwood]

I am grateful to the hon. Gentleman for the campaign he has fought and for his support for the Bully-Banks campaign, which also deserves credit. One of my constituents, who thinks that his business has suffered hundreds of thousands of pounds of consequential losses, has told me that 90% of consequential loss claims have been rejected. Does the hon. Gentleman agree that that does not truly reflect the real situation?

[Guto Bebb]

I agree entirely, and that is why we need a review of the current redress scheme.

My final point, which the Government could respond to positively, concerns the decision by HMRC to tax redress received by businesses. HMRC has decided to treat any redress received as income generated in the year in question, which means that many small businesses will pay tax on that redress at their marginal tax rate. Has HMRC taken seriously the possibility of using extra statutory concession D33, paragraph 11, which states:

“A right of action may be acquired in a situation where it is not possible to identify a separate underlying asset. For example, where a professional adviser has given misleading advice on a tax or other financial matter, or in relation to private or domestic matters…Broadly, when we are looking at capital sums without an underlying asset which fall within paragraph 11 of ESC D33 we are looking at a financial loss, for example compensation for poor professional advice or for mis-selling of financial products.”?

In effect, that means that when the compensation is for bad financial advice or mis-selling a financial product, it should be treated not as income but as a gain for capital gains tax purposes, which would be a fairer resolution. Currently, banks are able to offset any redress paid for their tax purposes, although businesses end up paying tax on any redress they receive. It is unacceptable that the wrongdoers get tax relief while the wronged have to pay tax on their compensation, and I ask the Minister to consider that point.

I wanted to touch on businesses sold in embedded swaps. If the advice from the FCA is comprehensive, I appeal to it to make it public. Those businesses are in limbo. They believe they have a right to be in the redress scheme and are told that legal advice is clear. I call on the FCA to make that advice available so that those businesses know what possibilities they have when trying to resolve their situation. [Interruption.] The hon. Member for Wyre Forest (Mark Garnier) seems to want to intervene.

[Mark Garnier]

I am grateful for that prompted intervention. My hon. Friend refers to legal advice given to the FCA, but it is clear that these are unregulated products and therefore the FCA is not addressing them. It could be argued that selling an unregulated product to a non-professional customer is a regulated activity and should be covered by regulated activity rules. There is a lot of confusion about that.

[Guto Bebb]

I am grateful to my hon. Friend for that intervention.

It is fair and right to acknowledge that the redress scheme has been better than no action whatsoever, but concerns clearly remain. Action is required on consequential losses, and there is no justification for refusing an internal appeals process within the review process. The lack of transparency allows people to make assumptions about the behaviour of banks and the FCA, which is damaging to the financial system, and more transparency would give greater confidence in the way the scheme works. HMRC needs to address the issue of taxing redress paid to businesses with a degree of sympathy that has not so far been shown.

Crucially, allegations about the behaviour of some banks in the scheme should be a cause for concern not just to Members of the House but to those on the Government and Opposition Front Benches. The issue must be considered carefully, which is why the motion asks for consideration to be given to the establishment of a review of the current redress scheme. If the regulator is unable to regulate the scheme it has established and make right the wrongs committed by the banks, it is important for the Government to take responsibility.

[Several hon. Members]

rose—

--- Later in debate ---

[Mr Brown]

We all believe in the role that banks have in our day-to-day lives, whether as individuals, households or businesses. We need to think there is an element of trust. What we have discovered, however, is that there has been far too much mistrust. In addition, some senior people had no idea what their banks were doing. They allowed their managers to carry on selling products, while having no idea of their complexity. One person who worked for Barclays and sold some of these products came to meet me. He was in the Penrith area and decided to come and speak to me about my constituent. He told me that on being introduced to the products, which he was about to sell to customers, he asked his seniors, “What if this or that question is asked?” He was told just to move on, because there were no answers.

The long and short of this tale is that the banks eventually moved in with a team of administrators. I approached the administrators to tell them that I thought what was going on was wrong and that if my constituent went to court he would win his case. The administrators made out that they had to carry on with the business they had been pulled in to conduct, and they went ahead with it. My constituent owed the bank £1.2 million, of which £900,000 was bank charges—an absolute disgrace. As I said to the hon. Member for Hexham (Guy Opperman), my constituent went to court and he won the case. But that matters for nothing. Gone is more than 20 years of a family working together to build a business that was going reasonably well but went badly wrong when they were encouraged to take out products that they did not really understand, and which those selling the products did not really understand either.

I want briefly to mention another, more recent, case relating to another constituent in the far west of my constituency, down in Stranraer. This is a really tragic case. People and businesses do not just have problems with the banks. There are other issues lying in hiding too and some relate to Her Majesty’s Revenue and Customs. This gentleman told me:

“For the last 6 years I have been a victim of the mis-selling of an IRHP SWAP Termed Business Loan.”

The last three years, in particular, had been very difficult. He had been fighting off the bank that had been battling with him because it would not accept that it had mis-sold him a product. I could tell from the number of occasions I met him over the last three years that this was really getting him down. It got to the stage where he had to sell off his mother’s family home of some 44 years. He had remortgaged his own home, incurred legal costs of over £8,000 and had put the family business of over 54 years standing in real jeopardy.

My constituent was eventually on the receiving end of a phone call from the bank to say that it was about to make him an offer within a two-month period, which it has now done. However, that offer of some £76,000 goes nowhere near to meeting the cost to him as a family man who had done nothing else but work morning, noon and night for such a sustained period of time that he missed his family growing up. The offer put him under real pressure. On the second last occasion he came to see me, he was seeking advice but knew in himself that he was being forced to “take it or leave it”, as I mentioned before. The advice from the bank was that this was a “full and final” offer, with no recourse to consequential losses.

Had my constituent not got involved in this loan, he would have been building up his business, but it actually suffered. He wanted to develop the business and the properties he had available for rent. All that was put on hold, however, because he was struggling to meet the bank’s regular demands. My constituent has had to go to Revenue and Customs to strike a deal, agreeing that he would pay the bulk of the VAT he owed and that between now and the end of February everything would be cleared.

[Guto Bebb]

I hope I am not being greedy in intervening, but I think it should be placed on record that the “time to pay” arrangements of HMRC have been very positive on this issue, but the consequences of the redress scheme are not as positive as expected. The “time to pay” agreements have been taken away in many cases, so there is a need for the continued support of the banks while we try to resolve the situation.

[Mr Brown]

The hon. Gentleman is absolutely right. HMRC needs to be a little more patient with our constituents and with all of us here who are trying to do what is right in standing by our constituents and making the case for them. They have come through a traumatic time and they are not out of the woods yet, so they continue to need our help. That is why I wrote to HMRC on behalf of my constituent—to offer support, saying that I was quite confident and absolutely convinced that the issue would be resolved if it would just be patient.

In conclusion, we need an appeal mechanism. Further consideration needs to be given to bringing those who were sold embedded swaps who seem to have been excluded, at least up until now, back into the system. If there is any means of acquiring someone or a small organisation that is independent of what is going on with the FCA in response to this issue, I would like to see it happen. It is right for people to get their just deserts; that is what justice means.

--- Later in debate ---

[Mr Jones]

I thank my hon. Friend for his invention, and I will address that issue in a moment. I know that my hon. Friend the Economic Secretary takes a considerable interest in this and I am sure she will take that interest further as a result of what she has heard today. People such as his constituents and mine need action. One way in which they could get the redress would be if these people were properly protected under the umbrella of the ombudsman. My constituents qualify for the criteria of the ombudsman scheme, but the maximum award of damages the ombudsman can offer is completely inadequate. I have spoken to the Minister on a number of occasions and at some length about that. Many people are going to the ombudsman and finding that it is recommending damages above and beyond what it can impose. I am aware that some banks are willing to honour that, but I am also aware that in many situations banks are not willing to honour what the ombudsman is saying. That brings us back to the point about inconsistency raised right at the start of this debate by my hon. Friend the Member for Aberconwy.

At the moment, I would probably give the FCA five out of 10—some people may think I am being generous—in achieving its aims under the scheme. If the FCA and the Government want to get 10 out of 10 in the eyes of my constituents, the FCA needs to have more teeth—if it does not have the power to deal with these issues. They need to make sure that a number of things happen. First, they need to make sure that all banks decouple the payment of simple damages from the matter of consequential loss. They also need to compel banks properly to assist their customers to assess their loss.

[Guto Bebb]

Although the FCA scheme says there is no need to get professional advice to help with the consequential loss claims, the evidence seems to suggest that the people who have taken on such advice have a better outcome than those who have not. Is that not another example of inconsistencies?

[Mr Jones]

My hon. Friend is absolutely right about that. The issue of consequential loss is reasonably simple in some cases but extremely complex in others. Even in the most simple cases it is difficult for the people involved. We must not forget that they are “non-sophisticated customers” and it is difficult for them to assess their loss, so they should be helped in that.

Let me highlight a number of other things that must happen to make sure that people are satisfied that they have had a fair deal from this process. There needs to be far more transparency in the review process, for the reasons mentioned by right hon. and hon. Members. The banks need to be compelled to divulge the identity of the reviewer, and all the correspondence and other supporting documentation in relation to that review process. There also needs to be a review of the maximum level of compensation the FCA can award, to make sure that all small businesses are truly protected without having to go to law.

Finally, my hon. Friend raised an extremely important point about the tax treatment of people who get compensation. I know that the Government have already set a precedent in this regard; it may have been not for commercial loss suffered, but in relation to the Equitable Life scandal, which this Government have done their best to clear up. The payments made by my right hon. Friend the Chancellor to people affected by that scandal have not affected recipients’ tax positions. It is extremely important that we look carefully at this to make sure that the same applies in this regard.

This issue is about fairness; it is about fair redress for the loss that people have suffered. That redress can be fair only if the FCA scheme and the ombudsman can truly put people affected by this scandal back in the position they were in before they were mis-sold these awful interest rate hedging products.

--- Later in debate ---

[Guto Bebb]

This has been a worth-while and wide-ranging debate, and it is clear that specific and, in some cases, serious concerns have been raised. Although I welcome the Minister’s comments, especially on the tax issue, and her willingness to deal with the FCA on specific cases, I also believe that many people’s confidence in the independent reviewers has been tarnished by this week’s revelations in relation to the whistleblower. I must stress that the denial of the claims by KPMG that there was no contact whatever between the independent reviewers and members of staff at RBS can be contradicted simply by looking at the LinkedIn profiles of people who work at KPMG on project Rosetta. We could also look at what the members of staff at RBS claim, as they say that part of their responsibility is to talk to each other. I think that the denials that have been made thus far are unsatisfactory. As there is another debate to follow, I will conclude by saying that the motion should be supported as it stands, and that I commend it to the House.

Question put and agreed to.

Resolved,

That this House has considered the Financial Conduct Authority’s redress scheme, adopted as a result of the mis-selling of complex interest rate derivatives to small and medium sized businesses, and has found the scheme’s implementation to be lacking in consistency and basic fairness; considers such failures to be unacceptable; is concerned about lack of transparency of arrangements between the regulator and the banks; is concerned about the longer than expected time scale for implementation; calls for a prompt resolution of these matters; and asks for the Government to consider appointing an independent inquiry to explore both these failings and to expedite compensation for victims.

Oral Answers to Questions

Guto Bebb Excerpts

Thursday 3rd July 2014 Commons Chamber

[Mr Vaizey]

I know for a fact that the Secretary of State thoroughly enjoyed his visit to the new National Civil War centre, which was awarded a grant by the Heritage Lottery Fund of £3.5 million in 2012, and we look forward to its opening next year. I am certainly happy to meet my hon. Friend to discuss what we can do to encourage loans of civil war objects from national museums, but it is important for the House to remember that national museums are of course independent and do not simply do what the Government tell them.

[Guto Bebb (Aberconwy) (Con)]

12. What assessment he has made of the success of the broadband roll-out programme in Wales and that programme’s effect on the tourism industry in Wales.

[The Parliamentary Under-Secretary of State for Culture, Media and Sport (Mr Edward Vaizey)]

Independent research estimates that the Government’s investment will generate £20 for every £1 by 2024. Wales has received almost £70 million from the UK Government for the roll-out of superfast broadband. We are confident that this will benefit the Welsh tourist industry, as well as the Welsh economy more generally.

[Guto Bebb]

My hon. Friend will be aware that I consider his Department’s decision to allocate funding for rural broadband to the Welsh Government to be a mistake. A total of £120 million has now been allocated from taxpayer funds for the roll-out of broadband in rural Wales, yet my constituents and businesses in the tourist sector in my constituency are no nearer to getting any answers from the Welsh Government about when and where they will have roll-outs. Does my hon. Friend agree that transparency is crucial when £120 million of taxpayer funding is being spent?

[Mr Vaizey]

It is important that roll-out is as transparent as possible—people need to know when broadband is coming to their area. More than 160,000 premises have been passed but I am sure that Opposition Members will have a word with their Labour colleagues in Wales to encourage them to be more transparent with my hon. Friend.

Wales Bill

Guto Bebb Excerpts

Tuesday 24th June 2014 Commons Chamber

[Hywel Williams]

With all due respect to right hon. and hon. Members who have spoken today, I would like to begin with a quote that, for me, exceeds anything that has been heard today for eloquence:

“The will of the people is the only legitimate foundation of any government, and to protect its free expression should be our first object.”

I quote that in support of our new clause 3, which stands in the name of my hon. Friend the Member for Carmarthen East and Dinefwr (Jonathan Edwards) and my right hon. Friend the Member for Dwyfor Meirionnydd (Mr Llwyd). The quote comes from Thomas Jefferson, third President of the United States, primary author of the declaration of independence and, as I am sure the Western Mail would remind us, one of 16 of the 56 signatories to the declaration who were of Welsh extraction. Jefferson’s argument is that the validity of any Government is bound up with their purpose of representing the will of the people. That could also claim to be the primary motive behind our new clause 3.

In Committee, we in Plaid Cymru tabled amendments, as my hon. Friend the Member for Carmarthen East and Dinefwr said earlier, that would grant further powers to the National Assembly, including the power for it to decide on the number of Assembly Members, change its name should it wish to do so, and make amendments to secure further financial powers. We were disappointed that more Members from other parties did not support those amendments, but this new clause encompasses them all.

We believe that decisions of this nature are better made when elected representatives have the backing of the people, and the most straightforward means of determining the will of the people on any particular subject is, of course, a referendum. New clause 3 would therefore give the National Assembly the power to hold binding referendums on issues already in its competence, and on questions relating to further transfers of constitutional or financial powers, such as those that have been proposed in respect of changes to income tax.

The National Assembly could ask the people of Wales questions such as how many Assembly Members they believe should sit in the Assembly, what the voting system should be, and whether new fields should be devolved if we do not get to the reserved powers model. That would give our people a clearer say in the Assembly’s decision-making process.

The Wales Bill allows for a referendum on the question of transferring to the Welsh Government power over 10% of income tax receipts, but the notion that there should be a new Bill in this place each time a referendum is needed on a reserved matter is convoluted, to say the least, and convoluted is not good: witness the wretched legislative competence order process. Plaid Cymru is not in favour of holding a referendum for the sake of it. For example, the transfer of minor taxes to Wales—as recommended by the Silk commission—without recourse to a referendum has set a precedent. We have argued that the planned referendum on income tax powers is not necessary, but circumstances will certainly arise in the future when holding a referendum will be the proper and practical way forward.

Unlike in other countries with written, codified constitutions, the transfer of such a power to Wales would require no official constitutional change; it could be done by an Order in Council. A recent precedent for that was signed into being by the Edinburgh agreement in 2012:

“The United Kingdom Government and the Scottish Government have agreed to work together to ensure that a referendum on Scottish independence can take place…the referendum should: have a clear legal base, be legislated for by the Scottish Parliament, be conducted so as to command the confidence of parliaments, governments and people, deliver a fair test and a decisive expression of the views of people in Scotland and a result that everyone will respect”—

an excellent set of principles. The agreement goes on:

“The governments have agreed to promote an Order in Council under Section 30 of the Scotland Act 1998 in the United Kingdom and Scottish Parliaments to allow a single-question referendum on Scottish independence to be held before the end of 2014.”

There we have the basis for a referendum for Scotland and, I would argue, the basis for a power of referendum for the Assembly. That Scottish agreement is valid for that one referendum, and no other referendum can be held under those specific terms unless they are renewed. Our new clause, however, would confer a continuing power to the Assembly.

According to a recent study published by the Political Studies Association, there have been 49 independence referendums worldwide, both official and unofficial, with an average turnout of 79%—far higher than the average turnout in UK general elections over past years. I point out that in democratic countries after 1945, the average yes vote in such referendums has been 62%. Not all those referendums have been recognised by national or state Governments; for example, in 1946 the Danish Government refused to recognise the result of an independence referendum in the Faroe Islands. After negotiation, however, the islands were granted what we would now call devo-max: all powers except foreign affairs and defence were devolved.

The independence referendum due to be held in Catalonia on 9 November this year is highly likely to produce a yes vote. I suspect, however, that it will be ignored by the Spanish Government on their current form, as that has been Madrid’s response to the rolling programme of non-binding local community referendums on that subject, which have been held in hundreds of towns and villages across Catalonia from September 2009, and in which a large majority voted for independence. Madrid has ignored those developments to its cost: witness the enormous pro-independence demonstration by 1.5 million people out of a population of 7.5 million in Barcelona in September 2012. That was a huge show of public opinion, interest and support—we are talking about 20% of the entire population—and it perhaps would not have been quite so huge but for Madrid’s intransigence. That is why the Edinburgh agreement is so significant, and why I believe that, precedents having been set, Wales should have that same power. My discussions with Catalonian friends, and the attitude of the Spanish Government, bear out the superiority of the situation in the UK and the Edinburgh agreement. At least it is clear, and all sides are to be congratulated on that.

[Guto Bebb (Aberconwy) (Con)]

I am slightly confused about the argument. As the hon. Gentleman rightly points out, the situation in Madrid is one of Madrid refusing to recognise the right of the Catalonian Government to hold a referendum. The situation in Edinburgh is of an agreement between the UK and Scottish Governments, which showed that the two Governments could work positively together. The argument in favour of the new clause seems to be based on the failure of another Government in another country.

[Hywel Williams]

My remarks, which will appear in print tomorrow, will repay close reading, as that was precisely the argument I made. The position in Catalonia and the rest of Spain is far inferior to that in the UK, and I am pointing out the superiority of that Edinburgh agreement as the basis of my arguments for a legally binding system of referendums to be established for Wales.

In the UK, the important referendums and constitutional changes have occurred over the last 10 to 20 years, including the devolution referendum in 1979, the one in 1997, and the more recent referendum on our electoral system. In 2011, the people of Wales were asked in a referendum whether they wanted the Welsh Assembly to be given full and primary law-making powers; 63.5% of those polled voted yes. That stood in stark contrast to the results of earlier referendums that right hon. and hon. Members will remember. In 1979, for example, 79.7% voted against devolution; in 1999, there was a narrow majority of 50.3%, secured on a small turnout of 50.1%. That is how it was, but since then, I would argue that the people of Wales have grown to favour devolution, as have some right hon. and hon. Members in this place. The Assembly has grown in confidence, and as it gains further powers, it should surely have the power to ask the people of Wales what they think. That would be in the interest of legitimacy and accountability.

I referred to the Edinburgh agreement, and I suggest that a similar agreement in Wales should be called not “the Cardiff agreement” but “the Celyn clause”. This refers to Capel Celyn, which, Members will recall, was the village drowned in 1965 against the express wishes of elected and representative bodies throughout Wales—and, I understand, the wishes of every Welsh MP bar one. That was a transformational event in Welsh politics, and we have seen the effect of it over many decades. That effect is clear and provides a firm reminder of what can happen when the will of the people is so resolutely ignored. That is why we tabled new clause 3, giving the Assembly the right to hold legally binding referendums. I certainly commend it, but I assume that the matter will be discussed, possibly in greater detail, at some point in the future.

Let me make a few brief points about new clause 4. My Plaid Cymru colleagues and I have supported the reserved powers model for the National Assembly for a very long time. We are glad to see the Damascene conversion of the Labour Front-Bench team—better late than never! We certainly believe that this is the next step for our country; it would certainly clear up much of the confusion, not least in the minds of the public and others, as to the split of powers between the National Assembly and Westminster. I say to the Welsh public and others that I too often see people from the media refer to Assembly matters as if they were Westminster responsibilities, and vice-versa.

We in Plaid Cymru were, as I mentioned, against the LCO—legislative competence order—model, which so blighted the lives of those on the Welsh Affairs Committee and held up the pragmatic and practical transfer of the most innocuous of powers to the Welsh Government, as well as some rather more controversial powers. We wanted the boldest arrangements, but that was not forthcoming under the Government of Wales Act 2006—until the referendum. Circumstances have changed again, and the need for a move to a reserved powers model is even more pressing than before.

No one in this place or in the Assembly can be sanguine, given a recent survey showing how far we have failed as politicians to inform our constituents of the reality of the split in power. As I said, the media are far from blameless. Having said all that, it is disappointing that in the second part of their new clause 4, the hon. Members for Pontypridd (Owen Smith) and for Llanelli (Nia Griffith) have chosen to predicate any developments in relation to this matter on delaying the minor taxes. I must therefore view the new clause, I am afraid, as a delaying tactic at best, and as aimed at wrecking this part of the Bill at worst.

--- Later in debate ---

[Wayne David]

My right hon. Friend makes an extremely good point. He has tremendous experience in these matters—far greater than I have—and I would certainly bear out what he has said. A common sense way to approach disputes between different legislatures in the United Kingdom is to sit down and talk, and use the established structures, and not resort to expensive, time-consuming legal processes that are very obtuse to most people. That is one lesson to be learned.

We must also learn the lesson that we need a different model. We need a reserved powers model to form the bedrock of our developing devolution settlement in the United Kingdom.

[Guto Bebb]

I have listened carefully to the hon. Gentleman’s comments, and to those of the right hon. Member for Torfaen (Paul Murphy) and the hon. Member for Llanelli (Nia Griffith), who is on the Opposition Front Bench. If the Labour proposal is to move to a reserved powers model, which is clearly the case judging from the arguments presented today, do Opposition Members believe that the report they envisage should look at the consequences for the largest part of the United Kingdom, which is England, because not once has any Opposition Member talked about any potential impact on the English electorate?

[Wayne David]

I have no qualms at all about talking about England, because we are a United Kingdom, but if I deviated from my notes and spoke at length about England, you would take me to task pretty quickly Madam Deputy Speaker.

It is important to recognise that the Local Government Byelaws (Wales) Act was not a one-off. We have seen an attempt—perhaps most significantly, politically—to prevent the Welsh Government from carrying through their legislative plans for the agriculture sector. That is a far more emotive issue, particularly for workers who are directly affected by this Bill—or, as may happen, the lack of it. However, that reinforces the constitutional point that the current situation is unsatisfactory, facing as we do ongoing legal challenges on the basis of politics, rather than, as my right hon. Friend the Member for Torfaen (Paul Murphy) said, Members sitting down together where there is a genuine dispute between the two legislatures and working things out.

The conclusion I come to is that we need a system that transcends party politics: a constitutional arrangement that is seen to be fair to everybody, and that respects the integrity of the United Kingdom but also the development of devolution in Wales; a settlement based on a reserved powers model that is far more intelligible to people in Wales, and that will help them to understand far more easily the basis of our devolution arrangements in Wales and the United Kingdom as a whole.

Financial Services Authority and Connaught Income Fund

Guto Bebb Excerpts

Wednesday 7th May 2014 Westminster Hall

[Alun Cairns]

I am grateful to the hon. Gentleman for his contribution, but of course Capita Financial Managers Ltd is different from other subsidiaries of Capita. The parent company will be the same; there are several subsidiaries. The point was well made, and I accept it in the way that it was intended.

I should like to pursue the matter a bit further before accepting any other interventions, to provide some background. The proposition was that investors’ money would be loaned to borrowers requiring short-term residential bridging loans. Loans would not exceed modest loan-to-value guidelines, no sub-prime lenders or properties would be financed, and all loans would be secured by first charges against those properties. Specifically, there was to be an average loan-to-value rate of 56%. People were told that it would seldom be above 70% and that anything above 80% would have guaranteed exits. All interest and fees would be taken up front, and there was a guarantee from Tiuta, a company that I will mention shortly, to meet any shortfalls.

The borrowers would pay an interest rate of 17.9%, while investors would receive quarterly distributions of between 8.15% to 8.5%. Capita appointed Tiuta plc and Connaught Asset Management Ltd, both UK companies, to identify suitable borrowers and approve the loans. However, investors’ funds were used differently. Money was transferred to Tiuta, rather than being released directly to the borrowers’ solicitors. It is even suggested that there was no differentiation between the firm’s funds and those of the investors; investors’ money was used to meet the working capital needs of Tiuta, and to pay directors’ salaries, bonuses and pension contributions.

In many cases, where bridging loans were made, the borrowers, properties or loan-to-value ratios were not as committed to in the promotional literature. It is believed that Tiuta proposed loans and drew down the money, but did not proceed with the lending. It is suggested that Connaught provided a monthly statement to Tiuta’s management accountant, switching the true loan book and the approved one.

In March 2009, Capita became aware that the original information memorandum was misleading. The fund should not have been described as low-risk, the guarantee from Tiuta was of no value, the money was used largely for purposes other than bridging loans, and the auditors of the fund were not engaged. In addition, the loans that had been made were not as described and were being rolled over.

In August 2009, after Capita met Connaught’s senior management, investors were informed by Capita that it was resigning as operator of the fund. It was to be replaced by Mourant Fund Services Ltd, but for some unknown reason Mourant did not complete the transaction. Perhaps it became aware of the problems with the fund.

[Guto Bebb (Aberconwy) (Con)]

I congratulate my hon. Friend on securing this debate. Is it not a significant concern for all of us who have been looking at this issue that, in 2009, it became apparent that Capita had significant concerns about the way that the fund was being operated, but those concerns were not conveyed to those who had invested in the fund?

[Alun Cairns]

I pay tribute to my hon. Friend for his support in investigating this matter. He raises an important point. There is a serious question about what Capita did and did not know, and what it should have communicated to the investors, to whom it had a responsibility.

--- Later in debate ---

[The Economic Secretary to the Treasury (Andrea Leadsom)]

It is a great pleasure to serve under your chairmanship for my second outing in Westminster Hall, Mr Brady. I congratulate my hon. Friend the Member for Vale of Glamorgan (Alun Cairns) on organising this debate on an incredibly important subject. I also have constituents who have lost a huge amount of money as a result of the devastating investment they made. It is important that we get to the bottom of the matter and try to ensure that, if possible, investors can be compensated in some way. Those who are responsible should face the maximum justice available.

This is an important issue not just for my hon. Friend’s constituents and mine. I see many Members in Westminster Hall today whose constituents have also suffered as a result of investing in the fund, so it is important that the FSA, as was, and now the FCA take the matter extremely seriously. I reassure him and all other Members here today that that is indeed the case.

Many investors have lost their life savings as a result of the events involving the Connaught funds, which has caused real hardship for people across the country. As my hon. Friend made clear, the Connaught funds comprise three separate funds: the Connaught Income Fund series 1, series 2 and series 3. In total, approximately £145 million was invested in the funds, which, as we know, were unregulated collective investment schemes. By definition, such schemes are not subject to direct regulation by the FCA or, previously, the FSA.

[Guto Bebb]

I visited the FCA with my hon. Friend the Member for Vale of Glamorgan (Alun Cairns) to look at the issue in question. We were shown a flowchart identifying the selling process for this investment. The number of elements that were regulated and the number not regulated implied that there was significant confusion about the way the regulatory process actually works in the UK.