Tuesday 7th February 2012 | 14:20

Zahawi: Let's look at criminal sanctions for City failures

By James Dwyer

On the day Members of Parliament are set to debate excessive bonuses, Nadhim Zahawi has said that criminal sanctions should be considered for chief executives and bankers who fail to deliver and run their businesses appropriately.

Speaking exclusively to PoliticsHome, the Conservative MP stressed that the punishment for financial executives who failed to deliver needed to be greater, and went as far as suggesting criminal sanctions could provide such impact.

"One of the ways of doing it is make the punishment for not delivering to be so great. An example that we give on this is if you look at politics, and candidates, your agent is legally bound to deliver your campaign within budget. The reprimand for not doing that is jail, ultimately, and criminal sanction.

"I don’t think there has ever been an agent go to jail in history, yet that leverage allows the agent to face down an over-zealous candidate and say, ‘I can’t do that because it is not you who will go to jail, I will’. There are some things we need to do that sound slightly over-powering, but begin to change the dynamic and the culture.

"I think bankers on the whole absolutely get it. My instinct… is that they do get it. I am uneasy about singling out people and effectively singly out people and the feeling that they become a political football. All I would say to that is – and I think Lord Lawson said something similar – if you are a headmaster trying to change the culture of a failing school, you sometimes have to single out one at assembly so people can get the message so that things need to change."

Cultural change

The former pollster said that there needed to be a change not only from banks but from the Government and economic forecasters as well.

"In a nutshell, you need a change of culture within the economic forecasting industry, because this idea you can deliver a black box that assumes humans will behave rationally all the time is completely wrong. [You need a change] from government, and the message from that is that you can have as many rules and tick boxes as you like – you can have a thousand page rules book as the FSA had which RBS never broke any of, yet we know that the chief executive did act recklessly and brought the bank and the country to its knees. You need more discretion rather than just rushing to set more detail.

"The third element of that is the industry itself, whether at board level with the executives and non-executives, the management and the layers below that. The culture there needs to change. You want to create a situation where the non-executives are able to challenge more rigorously."

Confidence

Mr Zahawi - who himself created a new business in the form of the polling group YouGov in 2000 - said that restoring confidence to businesses across Britain must be at the centre of the Government's economic plans.

"The other challenge, which I think is equally important – if not more so – is one of what I would call confidence. With that confidence is – and in a small business, every individual you hire is incredibly precious to you and incredibly important. You think long and hard before you make the hire in the first place, because as a percentage of your workforce they could be 50%, 100%. The confidence is in, ‘can I make that hire and what happens if it doesn’t work?’

"So the message we need to send to small businesses especially is that we are attacking the barriers, the red tape that stands in your way from making those hires. The whole thing around tribunals going to two years instead of one, having a fee in place beforehand, having a moratorium on all European legislation… these are all good things, but I don’t think as an ex-pollster… it doesn’t feel to me that small businesses have that message yet and rightly so."