HC Deb 09 February 2000 vol 344 cc321-4
Mr. Flight

I beg to move amendment No. 237, in page 103, line 18, leave out subsections (4) to (7) and insert— (4) The ombudsman's determination shall be binding on the respondent and the complainant and shall be final. (5) The ombudsman's statement must:

  1. (a) give the ombudsman's reasons for his determination; and
  2. (b) be signed by him.".

Mr. Deputy Speaker (Mr. Michael J. Martin)

With this it will be convenient to discuss Government amendments Nos. 180 and 181.

Mr. Flight

The new FSA ombudsman scheme brings together the various existing ombudsman schemes, but has been led by the insurance side. When we dealt with this issue in Committee, it struck Conservative Members as quite wrong that there were different obligations on those appealing to the ombudsman and those whose conduct was being considered by him: either both or neither should be bound by the ombudsman's decision.

I spoke to the new head of the ombudsman scheme to sound him out about why that was the case. The gist of his response was that, when the ombudsman had been established in the insurance industry—which was his background—it was a way for insurance companies to slough off dealing with complaints and to get some good PR from setting up an independent body. It was rare for individuals to go to court, even if the ombudsman found against them, because they could not afford to do so. It looked good to be able to say that an individual complaint to an ombudsman could go on to court proceedings, even if the ombudsman had found against the complainant.

That is not a very good argument for the asymmetry that has now been fed into the entire ombudsman scheme. It is possible that the European convention on human rights would give rise to proceedings in the courts if the scheme remained asymmetrical. There is an argument for the two possibilities—either both parties should be bound by the ombudsman's decision, which seems to me the more sensible, or neither side should be bound. By inheriting this anomaly, which arose for the reasons that I have described, the ombudsman scheme is open to attack under the European convention on human rights. It is also wrong in principle.

I want to raise another, indirectly related issue. Under present arrangements, which I understand will continue, if a case against a financial adviser is brought to the ombudsman and he finds the financial adviser innocent of any wrongdoing, the adviser still has to pay a charge, as he sees it, or an administrative cost, as the ombudsman describes it, of £500. There is an understandable widespread feeling of unfairness.

Independent financial advisers are often not very large businesses, and £500 for being found innocent is perceived as an unjust method of gaining justice. I understand that there are proposals to waive that charge in future if complaints to the ombudsman are viewed as vexatious, but to my mind the whole basis should be further examined, because it is wrong for people to be fined when they are innocent, which is how the arrangements operate in practice.

The key point in our amendment is that there should be symmetry one way or t'other, so that we know whether the complainant and the party complained about are both bound by the ombudsman's decision.

Mr. Andrew Tyrie (Chichester)

We had a good canter around this issue in Committee, so I shall not rehearse all the arguments again, which will please everyone, including me. The Bill creates a leviathan ombudsman scheme—I should think that it will be the biggest ombudsman scheme that there has ever been anywhere, certainly that I know of—and there is a risk of a growing bureaucracy associated with it.

It is important to put this in the context of other UK ombudsman schemes. The parliamentary ombudsman scheme has become a bit of a bureaucracy. It is taking, on average, two years to investigate cases and costs are rising. We do not want this ombudsman scheme to go that way, but I am concerned that we may move down that road. At the moment, the existing schemes are relatively flexible. Most of the eight or nine schemes that we are joining together seem to work reasonably well.

Picking up the point that my hon. Friend the Member for Arundel and South Downs (Mr. Flight) made about the £500 charge, the flip side of that is that the ombudsman scheme is free to consumers at the point of use. Some modest charge should be made to discourage flippant approaches to the ombudsman. The way to do that is to have, like several of the existing schemes, an entry fee of, say, £50.

A second problem with the scheme that we are setting up is that the ombudsman is not accountable to anyone. Unlike the parliamentary ombudsman, who is accountable to Parliament, this ombudsman will be accountable only to the ombudsman scheme board that is being specially created for the purpose. Some form of parliamentary oversight, perhaps by the Treasury Select Committee, would be better. I regret that nothing is being done about that.

The most important consideration is the asymmetry of treatment before the law. The principle of the existing ombudsman schemes in the United Kingdom is equality of treatment under the law. The proposed scheme contains a blatant unfairness. The decision of the ombudsman is binding on the firm, but it is not binding on the individual, who may go to law and pursue the issue further. It is that unfairness, in particular, that our amendment seeks to redress.

It is not only that the scheme is unfair, it is also imprudent, because it will greatly increase the likelihood of the European Court of Human Rights having oversight of this whole area. That in itself will add a layer of bureaucracy, and will slow down the process of dealing with these cases.

I am supportive of an ombudsman scheme in principle, and I am extremely keen that there should be a mechanism to assist consumers' complaints. I am fairly sure that we have not got it right as the Bill is drafted. That is why I hope that the House will support our amendment.

7.30 pm
Mr. Timms

The question whether the ombudsman's decision should be binding on the complainant as well as the respondent was considered in Standing Committee. It was also considered by the Joint Committee.

The amendment would improve the position of the firm and worsen the position of the individual. We continue to believe that the balance is right as the Bill stands. First, it is what the vast majority of firms with retail customers want. The firms themselves have said that—that is very clear from responses during our consultation process on the Bill and the provisions of the two main forerunner voluntary ombudsman schemes in this area, which cover banking and insurance. The Personal Investment Authority, which is the main retail self-regulating organisation, has also chosen to adopt this model for its scheme, so the precedents are clear.

Mr. Tyrie

Those are voluntary schemes; that is the crucial point. The Bill is not a voluntary scheme, it is a compulsory scheme. If we volunteer to go through a process which we think will benefit us, through a scheme which has asymmetry in treatment before the law, that is one thing; if we are "volunteered" into a scheme about which we have no choice and which leaves us without access to the courts, that is quite another thing.

Mr. Timms

The existing schemes have very wide support in the industry. They provide a good model for how the new scheme should work. It is true that we are proposing a compulsory scheme, but I do not agree that it would be right to tilt the balance in the design of the new scheme against the individual, which is what the Opposition propose.

Secondly, as the majority of retail firms clearly recognise, it is necessary to give consumers confidence that they can refer their complaints to the scheme without losing any legal right that they may have to take a firm to court. After all, the point of this scheme is to enable consumers to bring complaints outside the expensive arena of the courts. Very few complainants, very few individuals, will have the resources to seek judicial review of an ombudsman's decision, whereas firms very often will. When important principles are at stake, they will have the technical and financial support of their trade bodies as well. So, if we made the ombudsman's determination binding on both sides, we would be recreating exactly the inequality that the ombudsman's scheme is designed to remove.

It is also important that we are not dealing here with commercial disputes between firms. To be fair, that has been clear from what Opposition Members have said. This is a retail scheme—it will limit those who are eligible to complain and the sums that may be awarded. Consultation paper 33 from the FSA proposes to set an overall limit of £100,000. Beyond that, the ombudsman will only be able to recommend that the firm should pay an additional sum.

Thirdly, there is no question of a complainant receiving a double award from the ombudsman and from the courts, even when an award goes beyond what a court could award. The provisions that the amendment would remove require the complainant to decide within a specified time whether to accept the ombudsman's award. If he accepts, the ombudsman's determination is binding on both parties. If not, he will be treated as rejecting the award.

Opposition Members have suggested that that might breach a firm's rights under the European convention or force the ombudsman to adopt an over-legalistic procedure in order to be compatible with the convention. That is not our understanding. I do not think there is a contradiction between adopting a quick and informal process which is fair to both sides and ensuring that the parties can, if they choose, receive a fair public hearing from an independent tribunal, as required by article 6(1).

Mr. Tyrie

One of the concerns is that there could be excessive bureaucracy where the ombudsman knows that there may be an ECHR inquiry; he will therefore be all the more meticulous, which could lengthen the inquiry. Do the Government have a target that they think would be reasonable for the average duration of an ombudsman's investigation?

Mr. Timms

That would depend very much on the nature of the case and of the complaint. I do not have an anticipated average. It may well be that the ombudsman does, although I imagine that he would have in mind different periods for different kinds of complaint.

There are many other areas in which Parliament has deemed it necessary to redress the imbalance of resources that would otherwise exist between the parties to a civil dispute. For example, in a very different context, there is a comparable situation in disputes between landlord and tenant, where the requirements on the tenant and the requirements on the landlord are rather different, reflecting the different strengths of their position. Other examples are employers and employees, lenders and borrowers. In all of those cases, it is necessary to provide additional procedures that give confidence to the weaker party that he or she will have the same opportunity to present the case. That is exactly the position here as well.

The experience of other schemes is that the vast majority of complaints are settled without the need for a formal hearing. There is no evidence that firms have been or will be prejudiced by giving consumers the theoretical option of having their complaint reheard by the courts. Therefore, I hope that the whole House will accept, on reflection, that the clause is the best model both for firms and for consumers.

I should like to say a few words about the Government's amendments. Amendment No. 180 clarifies the rules governing the budget to be adopted by the ombudsman scheme operator each year. As drafted, the Bill requires only that the budget reflects income from fees. The amendment makes it clear that the budget should set out any income that the operator has from the operation of the scheme—for example, income from publications.

Amendment No. 181 makes it clear that the operator of the ombudsman scheme may include in its standard terms under the voluntary jurisdiction matters relating to the payment of fees and levies. That is consistent with the arrangements for the compulsory jurisdiction under clause 209.

Mr. Flight

We remain of the view that it would be wiser for both sides to be bound by the ombudsman. However, this is not a matter of major principle, and therefore I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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