I am sorry but I really cannot get animated about who funds the Financial Services Compensation Scheme. The question has moved too far from first principles, being about who gets treated most or least unfairly, rather than one challenging its fundamental unjustness.
Many years ago in my other lobbying life working on behalf of motorcyclists, a UK transport minister indulged in a moment of extraordinary candour. I was pressing him on the unending flow of anti-bike legislation. He explained he was not personally a safety freak and felt adult bikers had the right to make their own choices.
However, MPs got endless letters and surgery visits from concerned parents. Anti-bike legislation was about ensuring politicians a quiet life in that one regard at least. We must stop deluding ourselves: the FSCS exists for that very same reason.
Imagine for a moment FSCS boss Mark Neale was compulsorily entered into a mutual insurance scheme with his neighbours. Those who left their homes unlocked and suffered burglaries would be paid out just like their more responsible and careful neighbours. The risk to the honest and prudent, of which Neale is surely one, would be obvious.
Some might have their dodgy mates build them an extension on the cheap. It fell down? Never mind, the others pay. Friends might be invited over to suffer lucrative “accidents”, with the compensation shared. If the scheme’s assets looked like falling short, no problem: just bill the members for a top-up premium.
The fund would, of course, be administered by a highly paid civil servant with a final salary pension. A controller over whose appointment the members would have absolutely no influence. To ensure his continued popularity with the “right” people and subsequent progress through quango-world, he might even call for the claim limits to be increased. How keen would Neale be to be shotgunned into such an arrangement? I think we all know the answer.
The limits of exposure
His suggestion of removing the £50,000 cap on investment product compensation claims thoroughly dispels any idea he is just doing his job. His justification, that unlimited compensation will help advisers equally dispels any idea that he understands the economics of the advice business or the less honest side of human nature.
If carried into effect, his proposal would demolish the last flimsy defence against the moral hazard for which the FSCS by its very existence is responsible.
I did not get into financial services to make the poor poorer. But when the FSCS can be gamed with the active complicity of its own boss to make any “investment”, however ridiculous or hazardous, a no-lose bet, it is time to question not who funds the FSCS and in what proportion but whether it should continue to exist in any form.
We must cease to accept the injustice that springs from political cowardice.
Neil Liversidge is managing director of West Riding Personal Financial Solutions