Financial Services Bill

John Hemming Excerpts

Tuesday 22nd May 2012 Commons Chamber

[Chris Leslie]

Indeed it can, but it is the way of triggering an FSA investigation that is the case in point. The FSA can choose not to listen to the voices of dozens or hundreds of small businesses, not necessarily in regard to this product but in regard to other products in the future. It is a question of giving some power to small firms, as consumers, to trigger an investigation by the regulator. This is not just a pro-consumer amendment; it is a pro-business amendment, as I hope can be agreed on all sides.

I have spoken about the amendments tabled in my name; there are others on the list. I shall be interested to hear what the Minister has to say.

[John Hemming (Birmingham, Yardley) (LD)]

Let me begin by referring Members to my entry in the Register of Members’ Financial Interests. I think that I should declare registrable holdings in RBS and Lloyds as regulated entities. I have just checked my entry in the register, and note that I have a declarable interest in Highway Capital. It is a stock exchange rather than a parliamentary interest, but I think that it should be declared because it is relevant to the debate. I also founded, and still chair, John Hemming and Company LLP, which supplies software to the financial services sector. Although it is not itself regulated by the FSA, it trades with FSA-regulated entities, so I think that interest should be declared as well.

My hon. Friend the Member for Solihull (Lorely Burt) sadly cannot be here today, although she attended 16 of the Committee’s sittings. She has, however, passed me certain comments that she has received from interested parties, which she wishes me to raise with the Minister.

Payday lending has been a substantial issue throughout the debate. My personal view is that it is not a good thing, because it traps people in many circumstances. The question of what is the best way of dealing with it is a complex one, and I think that the Government are entirely right to ask the University of Bristol to investigate it. However, I have spoken to companies in my constituency and have said that I do not think that it is a very good thing.

In Committee, my hon. Friend the Member for Solihull said that the Bill should explicitly encourage the Financial Conduct Authority to seek to maintain and extend consumers’ access to financial services that meet their needs, and that when making regulatory decisions, it should assess their impact on markets and consumers. It should place value on policy proposals and regulations that increase access to savings, protections and other financial products, and also on financial advice. In the absence of such a requirement, there would be a risk of the FCA always being steered towards a risk-averse regulation. Markets might be restricted to large groups of consumers to avoid any consumer getting sub-optimal products.

The Government seek to encourage the development of simple financial products. If we are to succeed, we must have a regulator working with the grain of the policy rather than acting as an obstacle to it, as appeared at times to be the case with the last Government’s stakeholder products initiative. Does the Minister agree that the FCA now has the “teeth” to engage with the industry and engage in issues such as the maximum number of rollovers that a payday lender should be permitted to allow? Could the FCA set a threshold for market entry? Could it impose on companies real penalties that hurt, rather than the £50,000 limit imposed on the Office of Fair Trading, and make lenders pay compensation to consumers who have suffered detriment?

Let me now turn to the reflections of industry practitioners. The smallest businesses are keen to ensure that the cost of the regulation to them is not disproportionate. Forty per cent. of credit licence holders are sole traders. What cost-benefit analysis has been carried out for the smallest practitioners?

What about the implementation time? The Finance and Leasing Association has observed that the less far-reaching Consumer Credit Act took four years to implement. It estimates that implementation of this legislation would take between five and seven years. I am sure that the Government will work with all the professional bodies in devising a sensible implementation plan, but I should be grateful for any reassurance the Minister can give.

The Association of Independent Financial Advisers is fearful about the lack of a limit on time for complaints, which it says will place a burden on provisions that it will need to make to cover this open-ended provision—

[Madam Deputy Speaker (Dawn Primarolo)]

Order. The hon. Gentleman is speaking quite quickly, but I am trying to follow what he is saying. Will he explain how it is relevant to the amendments that we are discussing?

[John Hemming]

It is not.

[Madam Deputy Speaker]

In that case, it is out of order. Perhaps we should move on, unless the hon. Gentleman is going to speak in order.

[John Hemming]

rose—

[Madam Deputy Speaker]

Order. I should like the hon. Gentleman to do it now. Otherwise I am going to sit him down straight away, given that he knows that he was out of order. Presumably that is why he was speaking so fast. I ask him to speak directly about the amendments.

[John Hemming]

The Opposition have raised interesting questions about the issues of shareholder activism and the interrelationship between shareholder activists and companies, and I would be interested to hear what the Government have to say in response.

[Madam Deputy Speaker]

Splendid; thank you. I call Lisa Nandy.

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[John Healey]

My hon. Friend, who knows far more about this matter than me and many in the House, is absolutely right. At a time when a loss of trust and confidence in financial services is evident across the board, that local presence and face-to-face relationship counts for a great deal.

[John Hemming]

Amendment 72 is a permissive amendment, and yet clause 47(3)(f) mentions

“making provision that appears to the Treasury to be necessary or expedient in consequence of the provisions of this Act.”

What will the amendment enable the Government to do by order that is not already possible under that measure?

[John Healey]

I am disappointed in the hon. Gentleman, because he, too, has a strong track record on this matter, and that sort of nit-picking misses the point of the amendment. The point of the amendment is to hold the coalition parties in the Government to their coalition pledge, which he is unable to do. It is a way of making public two years of failure and saying, “Within six months, you must do better.”

[John Hemming]

The amendment does not make the Government do anything, because clause 47 states that the

“Treasury may by order amend the legislation”.

If the Treasury does not want to do so, it does not have to do so. The amendment does not hold the Government to account. No wonder you are failing as an Opposition; your amendments are badly drafted.

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. I am not failing as an opposition, so I do not think that is parliamentary.

[John Healey]

I have not seen the hon. Gentleman’s amendments to make the measure not permissive, but a requirement of the Government—Mr Speaker must not have selected it. Clearly, anything in statute would be a significant step forward, as the shadow Minister, my hon. Friend the Member for Nottingham East, has argued. Those on both sides of the House who have an interest could use a permissive measure in future.

[John Hemming]

Does the right hon. Gentleman believe that we make a man any taller by measuring his height?

[John Healey]

No, but by measuring height, one makes a statement that height matters. The amendment makes a statement that the coalition pledge on mutuals, and on greater diversity and competition in financial services, matters. That is the purpose of the amendment and the debate. I hope that my hon. Friend presses it to a Division because it will expose the Government’s complacency in making promises and failing to live up to them.

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There is nothing sinister about this amendment. Yes, we couch it in terms of the manifesto commitment, but it is really about recognising that we need diversity in the marketplace, to avoid monocultures developing, to give choice to consumers and to create a competitive spur. If we can do all that, this amendment will provide some modest support in ensuring the continuation of the mutual movement in our country—a movement, it has to be said, that is small by international standards. Mutual insurers, along with what we would call building societies and credit unions, are much more prevalent in other marketplaces—including in the Netherlands, Germany, France and even the United States—than they are here. This modest amendment would go some way to addressing that and ensuring that the consumer—the member—got a fair deal in the marketplace.

[John Hemming]

I think there are two issues in this debate. First, everybody agrees that mutuals are good. They are good in a number of ways, one of which is that “boring” is good in finance. We need more boring finance —we need things that will not double one day, fall by a half the next, and go bust by next Wednesday. We have had too much “interesting” stuff in finance; we need some more boring stuff. Building societies have always been relatively stable—nothing much has changed; things are gradual, with perhaps a few mergers. Some building societies have suffered as part of the financial problem, and in other countries some credit unions have suffered. I should declare what is perhaps a non-declarable interest, namely my membership of Citysave, Birmingham city council’s credit union.

I think there is a major role for such bodies—the hon. Member for Stone (Mr Cash) highlighted the issue of people having a stake in society. That is a very good thing, as is the fact that mutuals look to serve their depositors—often they will be depositors and borrowers. To that extent, I welcome the fact that the Opposition have raised this issue for discussion. The difficulty is that the amendment—it is a permissive amendment; it allows, for instance, the number of members of mutuals to be counted—is the sort of thing that would be done anyway. A mutual could be sent an e-mail saying, “How many members have you got?” It really does not require a statutory instrument to—[Interruption.] The hon. Member for Nottingham East (Chris Leslie) says from the Opposition Front Bench that the number of members of credit unions is not being tracked. However, the amendment does not require it to be tracked, as he knows.

[Mark Durkan]

The hon. Gentleman makes the point that this is a permissive amendment, but it is actually an amendment to a permissive clause, which anticipates that there may, for various reasons, be all sorts of changes. However, in transferring the functions relating to disparate types of mutuals and so on, surely it is right to suggest that someone should have regard to ensuring that mutuals as a sector are promoted and that somebody should measure what is happening. If those in the coalition are committed, why do they not want to be able to know or show what is happening?

[John Hemming]

The amendment does not compel anything to happen; it merely makes it possible, if the Government wish, to change the law if necessary—which it almost certainly is not—to measure the number of members of credit unions. The Opposition may be right that the figure is not being measured, although that would surprise me, as the industry bodies will almost certainly have total numbers of members. If we contacted the Council of Mortgage Lenders, for instance, and asked how many members the building societies in the council had, it would probably give us the answer. Getting the answer should not be that difficult; however, as the amendment does not compel the Government to do anything, it will have no effect if accepted.

I return to the point that we have to welcome the fact that the issue of mutuals is being kept on the agenda. I would be interested if any Opposition Member wanted to liaise with me over the coming months to see whether we could find the answers that the amendment makes it possible to find—which are probably possible to find anyway, if the Government wish to find them. Indeed, I would have thought that the Government would not be that averse to knowing what the market share was.

[Chris Leslie]

This is a very confusing speech. The hon. Gentleman is in an honoured position, speaking on behalf of the Liberal Democrats. They helped to write the coalition agreement, so he has a responsibility to say what progress is being made on the detailed proposals to promote mutuality. Do the Liberal Democrats agree with that objective, and, if so, what are they doing to achieve it?

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[John Hemming]

I think it is a good idea to encourage mutuality. There is no question about that. As for asking me, randomly, to answer such detailed questions on what the Government are doing, I must admit that I am not a Minister. This is, admittedly, a debate about mutualism, however, and I am quite happy to do a certain amount of research to see whether I can find the answers that the amendment would allow the Government to find—if they wished to do so by changing legislation, which almost certainly is not necessary.

That brings us to the nub of the problem with such an amendment. It would have almost no effect, because if the Government wanted to find out how many members the building societies had, they would simply ask the building societies, without going through the process of tabling a statutory instrument, whether through the permissive approach or whatever it may be.

On that basis, although we should welcome the fact that the issue of mutuals is being kept on the agenda, it would be better done by an amendment that had some effect.

[Mark Durkan]

I had not originally intended to speak to this amendment, as time is tight and we need to make progress. I have also dealt with some of the points in interventions.

The Government say that they are committed. This Bill gives them an opportunity to go a bit further on that commitment. That is what the amendment offers them. The Government have said that they want to encourage mutualisation. I have heard Ministers talk about the damage done by the rampant trend towards demutualisation in the past—they have blamed that on others, as well as perhaps accepting some blame on behalf of a previous Government. However, clause 47 is a permissive clause, and there is good cause for saying that if the Treasury amends legislation dealing with mutuals—let us remember that we are talking about industrial and provident societies, building societies, credit unions and friendly societies—and if it transfers functions to the FCA, the PRA or both, given that the clause provides that functions can be transferred between different bodies, the Treasury should, in making those arrangements and exercising those powers, have regard to ensuring that someone can measure the size of the mutual sector overall and show progress where that is relevant. That is what the amendment would provide for. Such information will be relevant for Parliament’s interests and purposes—I am sure that future Treasury Committees will want to know what is happening and who is responsible for measuring such things, rather than relying on the market players. The information will also be hugely important for consumers, because if, as the hon. Member for Stone (Mr Cash) said, we are to encourage more people to have confidence in this option, then the more people we can show are using it successfully, the better.

When the hon. Gentleman suggested that the mutual sector would, by its nature and character, not need detailed regulation and legislation, it occurred to me that he was going off in a different direction. Given the experience that some of us had with the Presbyterian Mutual Society and others, I can say that mutuals do need to be regulated by their nature, so that people can be sure that they are living up to the good name that they properly have. Consumers embrace mutuals on the basis of that confidence. They need to be able to rely on the fact that legislators have put in place a regulatory system to ensure that what they are getting is what they think they are getting.

[Mark Durkan]

I thank the hon. Gentleman for that clarification. That brings us to the point that we go through all this complicated legislation, with all this complicated jargon, to try to give consumers confidence that a regulatory regime is policing these matters for them, so that they know that the people they are entrusting with their money—their savings and so on—are performing to a due and proper standard. I would not want the House to create a situation where people felt that mutuals were, by their nature, less safe and less regulated, because non-mutuals would use that on a predatory basis in their marketing.

[John Hemming]

Let us come back again to the amendment. I noted, on the internet, a report from the Building Societies Association indicating that in 2011 the market share of the mutual building societies increased by 16%, which contrasts with growth of 3% and a figure of 7.7% in the whole market. So the coalition Government are obviously delivering on their promise to have a larger mutuals sector, and the information has already been measured.

[Mark Durkan]

The information may well be measured by that group of building societies. In terms of industrial and provident societies and others, surely it makes sense that the Treasury will want to make provision on who measures the different sectors or who measures them in aggregate terms as the mutual sector—this amendment would allow that. We must remember that, as the hon. Gentleman says, the amendment is entirely permissive, and it would be set in a clause that is permissive. The clause is meant to demonstrate the coalition’s commitment to mutuals.

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[Geraint Davies]

But as I have just said, if that is the case why do we need the OBR? We could go on the internet, like the hon. Member for Birmingham, Yardley (John Hemming) did, and then say, “I’ve got a figure from a reliable mate in the City.” This is completely absurd—

[John Hemming]

rose—

[Geraint Davies]

Here comes another absurd intervention.

[John Hemming]

Just for clarification, I looked up the BSA figure for the market share of mutuals, and it indicated that the market share was increasing. The BSA is not a friend of mine in the City, and the information is already being measured and reported on.

[Geraint Davies]

My point is that second-hand information is available in all sorts of marketplaces, but the Government make a great virtue of the OBR, and of other reliable and robust statistical sources, in order to measure the effectiveness of the outcomes of their policies.

[John Hemming]

rose—

[Geraint Davies]

I hope that this intervention is not just another repetition of the same thing.

[John Hemming]

It is difficult to see where the OBR comes into all this; it is not being handed the task of measuring things.