Fairness and Inequality

Debate between Richard Fuller and Guto Bebb

Tuesday 11th February 2014 Commons Chamber

[Guto Bebb]

Obviously, I do not accept most of the hon. Gentleman’s arguments; certainly, we should be careful about taking lessons from the Irish implosion. Ireland is probably one of the few countries to have a banking crisis even greater than ours. Many of the eastern European accession countries have managed to create vibrant economies by imposing low-tax regimes, and the whole of the UK should look carefully at those countries’ performance.

In the debate about whether we have a 50p, a 45p or a 40p tax rate, I remind Labour that it found the 40p tax rate completely acceptable for the vast majority of its 13 years in government. What is the purpose of income tax? That is a question that is often forgotten. Its purpose is not to bring down and punish the successful. If we believe in a more equal society, we want more money coming into the Exchequer, because that means we can do more to support the less well-off in society, but we have lost sight of that argument. If we reduce taxes and get more money coming into the Exchequer, that is something that should be welcomed. Time and again, it has been shown that when taxes are reduced, more often than not, the result is more economic activity and a greater success story.

[Richard Fuller]

Does it not strike at the economic illiteracy of the shadow Front-Bench team that they are far more interested in a headline tax rate than in raising revenue to pay for the public services people want?

Interest Rate Swap Derivatives

Debate between Richard Fuller and Guto Bebb

Thursday 24th October 2013 Commons Chamber

[Guto Bebb]

I agree that 16 months is a very long time. Even when cases are accepted into the redress scheme, they seem to be taking a long time. The banks would argue that businesses need to engage with them, but I believe we still need to look carefully at this matter. The sophistication test should be more flexible, and the discrepancies that I have described need to be acknowledged.

Another discrepancy involves the asset value. A business could be excluded from the scheme because of the asset value that it holds. In effect, it could be argued that a business that had been lucky enough to invest in property at the right time should be excluded from the redress scheme because of that piece of luck. If the asset value had increased to a certain level, that could result in the company being excluded from the scheme.

There is also a lack of consistency. In some cases, the banks are ignoring the sophistication test because they believe that a customer would fail it and therefore be eligible for the redress scheme. Instead, they are moving the customer straight into the assessment of redress. If they can ignore the sophistication test in some cases, where is the consistency? A member of the all-party parliamentary group argued strongly on behalf of a constituent who had a £12 million swap and, lo and behold, the constituent was subsequently allowed to become part of the redress scheme. That was an excellent result for that business, but again, where is the consistency? The FCA needs to look carefully at the sophistication test.

My final point on the sophistication test is that, if a business spends six months waiting to be assessed, those six months will be lost in regard to the statute of limitations for taking legal action. The FCA needs to recognise that, because it is potentially dangerous for the businesses concerned.

A further concern relates to the alternative products on offer. It has been said time and again that if these complex products are unsuitable, it cannot be right to introduce a redress scheme in which a swap can be substituted by a slightly less complicated swap. It is also important to note that a business will be offered an alternative product only if it has failed the sophistication test—that is, if it has been deemed to be unsophisticated. I find it difficult to understand how any alternative product other than a cap could possibly be suitable.

Another reason why the cap is the obvious alternative product is that if businesses had been told clearly of the cost of the products they were taking on board back in 2006-07, they would have seen that a cap would have offered them significantly better value for money. Why was the cap not offered? Probably because of the financial imperative of the banks to sell something more complex and more rewarding. It is thus important to highlight the fact that having a complex derivative rather than a cap as alternative product is a real concern. If businesses have been classified as unsophisticated, that issue should be recognised and we should try to ensure that we provide a cap as the only acceptable alternative product.

[Richard Fuller (Bedford) (Con)]

My hon. Friend mentions the omission of information from the sales process; does he also accept that the information needed was introduced late and that only opinions were offered? What was really going on was a sophisticated sales process to dupe people who may have been financially unsophisticated for the financial benefit of the banks. Does he believe that that should mean that the people in charge of that process should face criminal sanction, not just financial redress for their customers?

[Guto Bebb]

That is certainly a call that some of the organisations campaigning on this issue have made, and I am sure that other hon. Members and members of the all-party group will expand on that theme in their speeches.

We thus need to look carefully at the alternative product issues. It is fair to argue that businesses might have been looking for interest rate protection, but it is difficult to argue that they would have been tempted by an expensive product in 2006-07, when a cap offered such good value for money at that time. I am unpersuaded of the arguments for a complex derivative.