Commercial Financial Dispute Resolution Platform — House of Commons, 2016-12-15
Topic: Domestic Commerce
Steven John Baker (Conservative, Centre-right): I am very glad to be called to speak in this debate. I support the motion, and congratulate the hon. Member for East Lothian (George Kerevan), with whom I serve on the Treasury Committee, not just on securing this debate, but on the excellent work he has done in having the initiative to bring forward the all-party group on fair business banking. I am glad to be a vice-chair of it, and am grateful to him for the invitation to take that role. I shall make three points: the first is about incentives; the second is about the cost and accessibility of courts; and the third is about complexity I have spoken previously in the House about the incentives for bad behaviour, particularly in relation to accounting under the international financial reporting standards, and liability. It is appropriate that the House is so well packed with Scottish National party Members, because I know at least one of them will be glad to hear that I recently attended an event at the Adam Smith Institute, where I helped launch the book "Legislating Instability: Adam Smith, free banking and the financial crisis of 1772", by Tyler Beck Goodspeed, a brilliant American economist working in the UK. That event may seem irrelevant, but it goes to the heart of what is wrong today. The book shows that the Scottish banking system, characterised as it was by unlimited strict liability among partners, had very good, strong incentives for the owners and staff of banks to behave well. I am grateful to the hon. Members who are nodding in agreement Of course, we have come a long way since then, and we are not about to go back to free banking, much as I would wish us to. I shall quote an actuary, whom I do not wish to name, who talked about his work: "I have examined around 100 individual cases, all of which had the same negative qualities. It is a case of bank salesmen deliberately withholding key information about the risks embedded in the ‘hedging’ products they sell. The term ‘hedging’ is therefore itself misleading Overall, the process is disgusting. Banks sold derivative products on top of loans to their clients which those banks knew would render them less creditworthy at the point of sale, and therefore render the business more likely to fail. How this can be described as ‘hedging’ by any financial organisation with a scrap of integrity is beyond me." I agree. The actuary went on to say: "This misleading use of language, unfortunately, is maintained by some of the ‘experts’, some of whom charge large fees for reports to take into the courts. If these reports miss out on key risks, the cases become far weaker, possibly to the point that the case fails. At the best, the bargaining power of victims is much reduced." I want to pick up on that experience, because my second point is about the cost and accessibility of the courts system. This points to why our debate is so important. I am sure that the hon. Member for East Lothian has, like me, heard evidence in constituency casework and from the authorities showing that the system that was set up was not adequate to the task in hand. Indeed, I am sure many Members will have constituents whose businesses have been in grave difficulty, and whose lives have been affected, who found that the system failed them However well intentioned the authorities were in setting up the system, it has not worked well. We need to find some middle ground between the courts, which are too expensive, complex and require expert evidence—often either unavailable or too expensive to purchase at quality—and the failed semi-formal system. The court system, its inadequacies and the necessity of avoiding it is an old problem—Matthew 5:25 refers to it—and the Government have quite some task ahead of them if they are to deal with this matter As for complexity, even Treasury Committee members, who have been elected by the House to deal with such issues, have found derivatives fabulously complex and difficult to follow. If that is true of those of us who are charged with developing the expertise, it will no doubt be true of the small business people who buy the products. To ensure that similar problems do not reoccur, the Government may want to consider whether small businesses —limits on size is something else to consider—ought to be treated as consumers for regulatory purposes I am glad that we are interested in a tribunal system funded by the banks, and that we are open-minded. Although my hon. Friend the Member for Henley (John Howell) is not in his place, I am grateful that he will be working with the APPG to take things forward. Finally, I again congratulate the hon. Member for East Lothian. I look forward to making progress, and to hearing what my hon. Friend the Economic Secretary to the Treasury has to say.