Financial Services (Banking Reform) Bill
(10 years, 9 months ago)
Commons ChamberRead Hansard Text Read Debate Ministerial Extracts
16:16 - The House divided: - Ayes: 230 / Noes: 292 - Question accordingly negatived.
16:29 - The House divided: - Ayes: 228 / Noes: 292 - Question accordingly negatived.
Chris Leslie (Nottingham East) (Lab/Co-op)
I beg to move, That the clause be read a Second time.
Mr Speaker
With this it will be convenient to discuss the following:
New clause 10—Sale of state-owned banking assets—
‘(1) Before the sale of banking assets in the ownership of HM Treasury, the Treasury shall lay before Parliament a report setting out—
(a) the manner in which the best interests of the taxpayer are to be protected in connection with such sale,
(b) the expected impact that any sale might have on competition for the provision of core services, customer choice and the rate of economic growth,
(c) an appraisal of the options for potential structural changes in the bank concerned including—
(i) the separation of the provision of core services from the provision of investment activities,
(ii) the retention of a class of assets in the ownership of HM Treasury,
(iii) the impact of any sale on the creation of a regional banking network.
(2) A copy of the report in subsection (1) shall be laid before Parliament and sufficient time shall be given for the appropriate committees of both Houses of Parliament to consider its findings before any sale decision.’.
Government amendment 5.
New clause 15—Local stakeholder banks—
‘(1) Within three months of Royal Assent of this Act the Secretary of State shall publish for consultation a report setting out proposals for the creation of networks of local stakeholder banks.
(2) This report shall contain an examination of stakeholder banking structures, defined as credit institutions that are not owned by private shareholders, with the with the aim of maximising shareholder returns. The examination should draw on experience in the UK and elsewhere and include—
(a) co-operative banks;
(b) credit unions;
(c) community development finance institutions (CDFIs);
(d) public-interest savings banks.
(3) The report shall examine potential impacts of the creation of networks of local stakeholder banks on—
(a) customer service and product range,
(b) accessibility to banking services for customer underserved by commercial banks,
(c) financial stability,
(d) accountability to local stakeholders.
(4) A copy of this report and the outcome of the full consultation shall be laid before Parliament and sufficient time shall be given for consideration of its findings by members of relevant committees of both Houses before any decisions are taken on the sale of state-owned banking assets.’.
New clause 12—Portable account numbers—
‘(1) Within six months of Royal Assent of this Act, the Treasury shall lay before Parliament a report considering—
(a) the adequacy of voluntary arrangements made by UK ring-fenced bodies to facilitate easier customer switching of bank account services; and
(b) legislative options for the introduction of portable account numbers and sort codes for retail bank accounts provided by UK ring-fenced bodies.
(2) The Chancellor of the Exchequer may, by affirmative order to be approved by both Houses of Parliament, confer powers upon the appropriate regulator to require UK ring-fenced bodies to comply with any specified scheme to establish the use of portable account numbers and sort codes.’.
New clause 14—Portable account numbers (No. 2)—
‘(1) Within 12 months of Royal Assent of this Act, the Treasury shall lay before Parliament a fully independent and comprehensive report detailing the options for introducing portable account numbers for bank accounts within the UK, including a full cost benefit analysis of the available options.
(2) The appropriate regulator may require banks and building societies to comply with any scheme to introduce and facilitate the use of portable account numbers, which is introduced in regulations made by the Treasury.
(3) No regulations may be made by the Treasury under this section unless a draft of the regulations has been laid before Parliament and approved by a resolution of each House.’.
Government new clause 1—Minor amendments.
Government new schedule 1—Minor Amendments.
Chris Leslie
Here we are again—a second bite at the Financial Services (Banking Reform) Bill. Today, we debate a series of amendments and new clauses that have been loosely grouped together under the title “Competition etc.” I shall speak in particular to new clauses 8, 10 and 12 in due course, but I shall start with new clause 8.
We felt it important to discuss the obstacles in the way of better competition in the banking sector. I am sure that it is not true of you, Madam Deputy Speaker, but many hon. Members have probably been with their retail bank since they were very young—not so long ago in your case, Madam Deputy Speaker. Although an aficionado of switching and looking at different services in banking, I must confess that I have been with the same bank since I was 14, and with no real logic other than the inertia that afflicts many customers: we tend to think that it is inconvenient to change bank accounts; we tend to think, “There is not much choice, so what is the difference or the point of shopping around?” It is this sense of a lack of competition and lack of choice that we want to remedy with the new clause, tabled with other amendments in the group.
There are significant obstacles to competition, particularly to new challenger banks coming into the system, breaking into the business and trying to do something to challenge the absolute dominance of the big five banks. The new clause would require the Treasury to publish a review considering the obstacles to those new challenger banks and ways of increasing the number of new banks coming into play.
Under the new clause,
“The Chancellor of the Exchequer shall instruct the Competition and Markets Authority to begin a full market study…into UK financial services institutions involved in the provision of core services”—
in other words, retail banking. The aim is to provide a structure to support better competition, dealing with obstacles in the way of allowing new institutions to break into the market and to consider what actions could be taken to facilitate the new institutions entering into general competition.
Mr Barry Sheerman (Huddersfield) (Lab/Co-op)
Does the Minister accept that help is needed not just for new entrants, but for unusual, smaller players in the present financial system? As a Labour and Co-operative Member of Parliament, I have an interest in the Co-operative bank. When HBOS and RBS got into difficulties, everyone rushed around throwing taxpayers’ money at them, but when the Co-op gets into serious difficulty because of its unique ownership basis and its lack of shareholders, it receives very little help from either the Treasury or the Department for Business, Innovation and Skills.
Chris Leslie
I hope that the Co-operative bank, and all other institutions, will now be in a position to make secure and stable progress. However, I do not think that there is really a parallel between the Co-operative bank and institutions that would have disappeared had it not been for the intervention of the taxpayer in keeping the cash machines operating. We hear Government Members say that the public deficit was somehow created as a result of ministerial choices. It is sometimes forgotten that the state—the taxpayer—had to intervene to rescue the banks. Thank goodness that happened, but it left us with a phenomenal problem with which we are still struggling years later.
Mr Sheerman
Many of my constituents worked for the Halifax mutual building society, and we saw what really caused the ruination of two banks. Wicked, evil, unethical people took over a bank and ran it into the ground. That was not about the Government; it was about greed, and about particular people.
Chris Leslie
Absolutely. Those are the very issues that should be in the Bill, but it is a pretty thin measure. We are still waiting, apparently endlessly, for the Government to decide to populate it at some point with the recommendations of the hon. Member for Chichester (Mr Tyrie) and the Parliamentary Commission on Banking Standards.
We need support for mutuality and greater diversity in the banking sector, and that is why the new clause refers to competition. We do not just want more plcs to enter the market; we want institutions of many different types, including mutuals, to be given a chance to compete for business. My hon. Friend’s Co-op bank, for example, might wish to have that greater choice were it available. The new clause was largely inspired by the recommendations of the parliamentary commission, whose most recent publication made it very clear that the sector suffers from a lack of serious competition.
Which?—formerly the Consumers Association—reported recently that 55% of people had never switched their main personal current account, and that the larger banks had not earned their market share by dint of innovation or the provision of competitive services but simply through “first mover” advantage, because they had been there for such a long time. It also reported that, sadly, customer surveys had indicated that the big five high street banks—Lloyds, RBS, HSBC, Santander and Barclays—consistently gave less satisfaction than others. Those banks have a very large market share, which has increased over the last few years. They control 85% of the current account market as opposed to 71% before the financial crisis, 67% of mortgage gross lending as opposed to 38% before the crisis, and 61% of the savings account market compared with 47% before the crisis. The inertia of their customers enables those large banks to sit on a fairly stable customer base. It has often been said that people are more likely to divorce than switch current account, although I am sure that that does include those who are in the Chamber today. The lack of dynamism and choice in the market is a significant worry, and it is no wonder that it has been criticised by the Office of Fair Trading.
There are major barriers to entry for new banks, which need to establish an infrastructure to have a fair chance of competing more widely. Recent suggestions include the adoption of utility platform sharing, and an extension of the payments system machinery beyond the big banks. I think that such ideas should be given serious and detailed consideration, but they pose a challenge to institutions that own and control payments systems, and we must think carefully about how they can be tackled.
Some of the big banks were supposed to divest themselves of branches. RBS was supposed to float off a number of its branches to Santander, but that did not get very far. Similarly, as my hon. Friend the Member for Huddersfield (Mr Sheerman pointed out), Lloyds was supposed to divest itself of many of its branches to the Co-op, and we all know what happened in that instance. In all, 1,000 branches were supposed to be out there creating a proper challenger bank, or at least mixing it up a little by increasing the number of players in the system. That has not happened, and I have to say to the Minister that the Treasury has not exactly covered itself in glory. I am not claiming that it is entirely the Treasury’s fault, but I think that it had a hand in overseeing some of the divestment strategy. I hope that the Minister will update the House, because divestment is very relevant to the issue of proper competition.
John Fingleton, chief executive of the OFT, has said:
“More than a decade on from the Cruickshank report, we still have a banking sector where competition is manifestly not working well for consumers.”
The hon. Member for Chichester, the Chairman of the Parliamentary Commission on Banking Standards, who has left the Chamber—oh, there he is, next to the hon. Member for Caithness, Sutherland and Easter Ross (John Thurso). I apologise to him. He is clearly negotiating away as we speak. He has said:
“The lack of competition in banking has been reinforced by a regulatory regime favouring large incumbents. Customers have lost out as a result. Moves to remove barriers to entry are essential.”
We all agree with that.
We constructed new clause 8 very much along the lines of the commission’s recommendation of
“a market study of the retail and SME banking sector, with a full public consultation on the extent of competition and its impact on consumers. We make this recommendation to ensure that the market study is completed on a timetable consistent with making a market investigation reference, should it so decide, before the end of 2015.”
The time scale is very important, because the issue has drifted on year after year.
John Thurso (Caithness, Sutherland and Easter Ross) (LD)
The hon. Gentleman has gone to the heart of one of our key recommendations, but what we had in mind was that the Government should just get on and do it. We did not envisage a need for legislation. Am I not right in thinking that, if properly instructed, the relevant authorities could undertake the work themselves?
Chris Leslie
I hoped that legislation would not be necessary, but I think it worth while for the House to express its view, particularly in response to the commission’s recommendation. Heaven knows, we have been here before. We have heard plenty of warm words from Ministers. They have said “We will certainly consider this, because there is a strong case in favour of it”. When it comes to the crunch, however, if the House of Commons is to do anything through this Bill—and we shall not be doing a lot, because so much is being left to the other place—I think that it is worth our trying to insert the new clause, just to keep the Minister’s feet to the fire. All that we are asking for is a market study in preparation for the proper market investigation reference before the end of 2015.
When the Vickers report was published in 2011, Labour Members felt that specifying 2013 would allow an appropriate time in which to assess the issue, and, two years on from Vickers, I do not think that anything has changed our minds in that regard. Getting that market study under way is the very least that should be done, and the Minister needs to commit to doing that. This is a critical point. When Members listen to what the Minister has to say, they must read between the lines. He will make all sorts of warm noises and say, “The OFT has started this process for SME customers”, but it has not done so for retail customers. That is the crucial difference; focusing merely on SMEs is not sufficient.
The Government have already claimed in their response to the commission’s recommendations that they will be fulfilling the commission’s proposal, but that is not the case. They are not putting in place that retail review, and I do not understand why they are so resistant to doing that. The Minister must explicitly set out why they are holding back from having a market study and investigation of the issues in respect of retail banking.
The Government response is full of warm words—they say they are in discussions and they are engaging with the problem—but it is not strong enough. It is too piecemeal and not sufficiently transparent, and they are not giving the commitment consumers, let alone commission members, would like. If the Government can at least acknowledge that they will not accept the commission’s recommendation, that will give us a clear choice when we come to consider what to do in respect of new clause 8.
The hon. Member for Brighton, Pavilion (Caroline Lucas) has tabled new clause 15, which focuses on local stakeholder banks and local banking. I agree that we should look at sub-national financial provision, particularly for customers, who can feel that they have very little choice at all. She will know that in new clause 10 we say that if state-owned banking assets are to be sold, options for a regional banking network ought to be fully considered. That is a very important proposal from the Opposition. There are some very plucky and hard-working institutions across the country—the credit unions, the community development financial institutions and other smaller building societies and mutuals—that do a lot of very worthwhile work at regional and local basis.
Mr Sheerman
Would my hon. Friend add to that list crowd funding and crowd sourcing, which many people think is the basis of a new, democratic capitalism in our country? It allows people to bypass the banks, which have so often failed us, and gives to our communities the power to regenerate businesses and communities.
Chris Leslie
As some have said in the past, the magic of the “interweb” will ensure that customers can avoid that intermediation—that middle-management step—and access finance. That may well develop very rapidly, although we need to make sure the regulators can keep an eye on how it develops.
Chris Leslie
Well, I think it is important that we make sure the foundations are put in place to allow those new forms of finance to come to fruition in a safe environment.
My hon. Friend makes that point well, and I also want to give a name-check to the Community Investment Coalition: a number of financial institutions at local and regional level have come together to campaign on some of these issues, and in particular to call for greater transparency in the provision of financial services from community to community on a postcode-level basis, although that is anonymised as we do not need to know which organisations have been lending to which individuals.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
Does the shadow Minister therefore believe we should follow what the US has done? It has a community reinvestment Act, which ensures that the major banks are investing equitably on an area basis. The major problem in the UK is that investment is directed towards London, of course.
Chris Leslie
And not just towards London, as a lot of the major banks have had their appetites whetted to make big profits by focusing on overseas. That disconnect with locality has been part of the problem. One issue for debate—on another day, perhaps—is the idea of having a regional banking network. The German Sparkassen system has a geographic mandate that requires those banks to do business within a particular locality. That is a dynamic for making sure there is a direct relationship between the banker and the customer, particularly for small businesses, but on a retail basis as well. That is a very good idea whose time has probably come.
Caroline Lucas (Brighton, Pavilion) (Green)
May I interpret the hon. Gentleman’s warm words to mean that Labour would support my new clause 15 if there were a vote on it?
Chris Leslie
Well, personally I prefer our new clause 10, but that is a good try by the hon. Lady. She has raised this issue in the spirit of trying to generate consensus on it, but I hope that in the limited time available to us we focus on the principle of making sure we get those commitments from the Government, which we all want in order to help get this transparency about what is happening in localities, as well as making sure we look at the state-owned assets and think about how they might be applicable to a regional banking network.
Government amendment 5 looks at some issues to do with competition, although they are mostly to do with the nature of ring-fencing and changes that might happen to the ownership of ring-fencing. I want to ask the Minister a question about the tensions between some of the objectives in the Bill. Government amendment 5 inserts a new requirement to consider competition issues, which seems to be slightly in tension with the existing provision to make sure there is no significant adverse effect from changing the ring-fencing arrangements. Can he clarify that that tension is resolvable, and confirm that the duty to consider competition will take effect subject to clause 4(3)?
On Government new clause 1 and new schedule 1, can the Minister help us by talking about the practical implications of the amendment to the Companies Act 1985 omitting disclosures to the regulators, done for the purposes of helping them fulfil their functions under part VI of the Financial Services and Markets Act 2000? In particular, this appears to stop such disclosures being exempt from section 449 of the Companies Act, which criminalises disclosure of information obtained in certain circumstances. What is the reasoning behind that change? Also, paragraph 2 of new schedule 1 amends section 376 of FISMA, changing “PRA-authorised” bodies to “PRA-regulated” bodies. Is that a significant change? Are there any bodies that are classed as PRA-regulated but which are not PRA-authorised? If so, which are they?
Our new clause 12 addresses the portability of bank accounts. I know that the hon. Member for South Northamptonshire (Andrea Leadsom) has been very active on this, and that she has tabled similar amendments. She has been vocal in favour of some of these changes, and has tabled a sensible set of proposals. I hope she would agree that we are mirroring each other on this question.
Our new clause 12 would mandate the Chancellor to publish a report on the adequacy of the current account redirection service and on a possible change in the law to compel all ring-fenced banks to introduce a current account redirection service that might include portability. The banks themselves have made proposals for a seven-day switching arrangement from this September. The Minister claimed in the Government’s response that they had secured that commitment, but that might be a little bit of exaggeration and spin; I suspect that the banks were heading in that direction, but I will let him off on this occasion. This all comes down to whether that seven-day switching will radically transform the convenience for the customer. It is all very well saying that there will be a year or so when some transactions from the existing current account will automatically be made into the new account, but I do not understand why that provision has been time-limited. Some people will forget that that provision expires after a certain number of months.
Andrea Leadsom (South Northamptonshire) (Con)
Interestingly, when we get into the nitty-gritty of how the seven-day switching process will work, we find that it seems to be more string and Sellotape—on top of the string and Sellotape currently holding the legacy systems together—so it is hardly a 21st century technological solution.
Chris Leslie
That is the worry, and we want to see how it is going to work. It is all very well if direct debits and standing orders—the sums leaving someone’s bank account—may be switched in that way, without the aggro and hassle of having to fill in new forms and so forth, but one of my anxieties is about payments into an account. For example, even the little step of someone having to tell their employer that they have a new account number and sort code is an inconvenient step too far. Apparently the banks are saying that they might deal with that as well, but this does not feel adequate and sufficient.
Andrea Leadsom
Is the hon. Gentleman aware that he is more likely to get divorced than to change his bank account?
Chris Leslie
Funnily enough, divorce has already come up a couple of times in our proceedings, and I am sure that Mrs Leslie will be watching them.
Mr Andrew Love (Edmonton) (Lab/Co-op)
The reality is that the seven-day switching service must be matched against increases in the level of switching of current accounts if we are to increase competition. All the evidence from countries like the Netherlands, where such a service has been introduced, shows that it has the trust of customers but does not increase switching levels, although that is the rationale for account portability.
Chris Leslie
Absolutely. Sir John Vickers pointed out in his report that a typical customer is likely to move current accounts every 26 years, on average, and it is estimated that about 6% of personal current accounts will be switched this year. All sorts of statistics prove that this is not a particularly active area, although there is a growing consensus among members of the commission, and even some of the banks, that portability might be an idea whose time has come.
Mr Sheerman
I switched a business account to HBOS, without knowing that anything was going to happen, because I thought that with KPMG as its auditors and with an auditor process in place my investment and my savings would be safe. What are we going to do to ensure that when people switch there is a guarantee that, at last, the accountants in this country and the auditors actually do their job?
Chris Leslie
That broadens things out into a whole new terrain, but suffice it to say, we should be able to trust our banks. We should be able to know that all these issues will be going on safely. To be fair to the banks—I do not say that often—some of their systems are able to cope, and complaints mechanisms are in place to deal with these things.
This is just about the customer being able to grasp and understand what is going on. The grey mist descends on many constituents—and, heaven knows, on many hon. Members, as we can see—at the mention of financial services, and that is without getting into pensions and some of those issues. Basic bank account services are incredibly important and we need the Government to say a little more than warm words in their response on this issue. I commend the hon. Member for South Northamptonshire on her campaign and we are very much behind the spirit of the changes she suggests, hence our new clause 12.
Finally, I wish to deal with new clause 10, which relates to the sale of state-owned bank assets. We feel that before a sale takes place of assets in the ownership of Her Majesty’s Treasury—we are very much focused on the Royal Bank of Scotland and Lloyds at the moment —the Treasury ought to set out clearly a report discussing the manner in which the best interests of the taxpayer will be protected in the sale, and the expected impact that any sale might have on competition for customers and on the rate of economic growth. That should be accompanied by a proper appraisal of the options for potential structural change in the banks concerned, including: whether there should be any changes to the division between retail banking and investment banking in those institutions; whether some asset classes need to be held back—this is sometimes characterised as a good bank/bad bank split; and, crucially, the impact of the sale on the creation of a regional banking network. We think that is essential.
Mr Pat McFadden (Wolverhampton South East) (Lab)
My hon. Friend will know that the banking commission recommended having a proper study of the good bank/bad bank option for RBS. Does he think that in advance of that study it might help if the Government exercised a little more care in their stewardship of RBS, given that their disastrous political meddling of the past month has resulted in a fall in the share price of some 20%, the bank losing a chief executive without a plan being put in place for replacing him, and confidence among investors being lost by the Government’s handling of the bank?
Chris Leslie
My right hon. Friend is completely correct about that. If the British public realised what has happened to the value of that taxpayer stake in RBS, they would be appalled. Today’s figures show that £2 billion-plus has been taken off the value of RBS since the botched handling of the departure of the chief executive, Stephen Hester. That mishandling forced the Chancellor to back down from a foolhardy dash towards a fire sale, which we know was part of the plan from the conversations that Sir Philip Hampton, the chairman of RBS, let slip in comments to journalists around that time. Labour Members, however, are absolutely focused on the need for the taxpayer to get good value for money, to get our money back. That is entirely possible. Stephen Hester revealed the flaw in the Chancellor’s strategy for a hasty sale driven by the electoral timetable when he gave an interview to the BBC last month. When asked whether taxpayers would get back their £45.6 billion, he answered:
“RBS is capable of being worth more than what the government paid for the shares”.
When asked again whether it is possible for us to get our money back, he said:
“RBS is capable of that and I would be disappointed if over the passage of time that that won’t be the case.”
Stewart Hosie (Dundee East) (SNP)
I am very supportive of new clause 10, particularly the notion that the Government describe how the taxpayer will get the money back. However, has the hon. Gentleman given any thought to the timing of such a report and what information may need to be omitted, particularly in relation to asset clauses the Government may continue to hold, because it might be market-sensitive in the run-up to the re-privatisation of the bank?
Chris Leslie
I would have thought that before the Government considered a sale they would decide what they want to sell and what they do not want to sell. I do not think that what the hon. Gentleman suggests should be a particular problem, particularly given the taxpayer interests involved, in terms of having that report before a sale. However, I accept that there could be circumstances in which commercial confidentiality might apply and a line might need to be considered. I would be happy to examine whether some aspects of that need to be built into this concept. There is an opacity about the Government’s strategy, and the fog engulfing the Treasury, perhaps hiding the chaos within, is extremely thick—a real pea-souper. I am amazed that once the Chancellor of the Exchequer had defenestrated the chief executive of RBS—let us be honest, that is essentially what happened, and although the Chancellor of the Exchequer might have protested, “It’s nothing to do with me, guv,” with his 82% shareholding he clearly had a hand in the decision —the Government were surprised when the markets reacted so adversely. It is amazing that they went down that route without thinking through who would replace Stephen Hester as chief executive of RBS, creating a massive amount of uncertainty about the future of the institution. We are glad that they changed their minds and were forced to back down from the rush to the fire sale, but what on earth are we left with and where is the situation going?
Andrea Leadsom
I am delighted to be able to speak about this Bill on banking reform, which is so crucial to the future success of the British economy. All that time ago, Adam Smith said in “The Wealth of Nations” that for free enterprise to exist one needed both free entry and free exit of market players. Over the past 20 years, we have had neither in banking. Failing banks have certainly not been allowed to exit the market, hence all the problems with “too big to fail” and the massive taxpayer bail-outs. New players have also not been able to enter the market, as there have been enormous barriers to entry, and my new clause is an attempt to establish a real game-changer once and for all for the fate of competition in our banking sector, to enable new entrants to come into the market.
I know that the Government have already done a huge amount of work to change the plight for would-be banks. For example, we already know that the new Prudential Regulation Authority and the Financial Conduct Authority have made it easier for new banks to apply for a banking licence. Previously, there were enormous regulatory hurdles to entering the market for new banks, but now it has become slightly easier because they can get a banking licence that is conditional on their being able to recruit the right people and so on. They do not have to spend millions of pounds up front to evidence the fact that they can be competent as a bank.
The regulatory barriers to entry are gradually coming down, but an incredibly significant point that has not been addressed until now concerns the competition barriers to entry for new players in the market. The Government have made great strides in that regard, not just through the Vickers commission and the recommendations on seven-day switching, which will be a game-changer in enabling individuals and businesses to switch between banks, creating the competition that has been so lacking, but through some of the structural reforms they have announced more recently and the amendments to this Bill.
When I was elected to Parliament in 2010, one of the first things that my colleagues on the Treasury Committee —who are almost all in the Chamber today—and I did was consider the proposal from the Payments Council to get rid of cheques. We discovered in our evidence sessions that the proposal came purely from the banks. It was convenient only for them and absolutely was not convenient for the millions of people in this country who rely on cheques to settle bills, to pay their window cleaner or newsagent or to pay the neighbour who picked up their shopping for them. Millions of people still needed cheques, but it was very clear that the Payments Council planned to get rid of them for the convenience of the banks that owned and ran it. For me, that was the road to Damascus moment; I realised that the banking sector is the last great closed shop. The Payments Council, owned and run by the banks, governs the payments system, the big banks are the clearing banks through which every new challenger bank must go, and the payments infrastructure, VocaLink, is also owned and governed by the big banks.
For decades, the Payments Council has been able to permit or deny innovation in the payments industry. The big banks have been able not to allow challenger banks direct access to the payments system and have required them to go through the clearers, charging them up to 10 times more for accessing the payments system than they have been paying themselves. The first significant decision on which I want to congratulate the Government is that to consult on a new independent payments regulator. That is key to breaking open the banking sector and enabling new competition and transparency. It will be interesting to see just what has changed after the new regulator’s first few months of operation; it will be fundamentally transforming.
Importantly—this is where my new clause comes in—and as the hon. Member for Nottingham East (Chris Leslie) has said, for decades there has been a key barrier to competition in the banking system: the inability to move bank accounts freely and easily. People might be sick and tired of their bank. The Treasury Committee took evidence on opinion polls that suggested that certain banks had negative values when it came to whether customers would recommend them to a friend. People would say, “No, whatever you do, don’t go to my bank.” It is unusual to have such utterly negative recommendation levels between friends for a supplier. Even the energy sector fails to achieve such low levels of recommendations between friends. Something is clearly desperately lacking in customer service.
The Committee also heard some pretty shocking statistics about the failure of certain key banks to respond to customer service inquiries, to manage their call centres properly and to deal with complaints when they happen. It has taken all these banking scandals—payment protection insurance mis-selling, the bank swaps mis-selling and various other scandals—before the weight of evidence became enough for regulators to take action. Clearly the banks have not been good at policing themselves, and clearly it has been extraordinarily difficult for individuals and businesses to vote with their feet and move.
The difficulty is not only the decision to move bank; the person making that decision also faces having to make arrangements as regards their online shopping, their contract with the milkman and newspaper man, and their standing orders for, say, their television licence or their car insurance. If they change bank account, they have to change all those things, because they change bank account number.
The issue is not just whether a person can be bothered to change and go through all that hassle; very often, because of the consolidation that has taken place over the past 20 years, banks will force that situation on a consumer. A colleague told me in the Lobby the other day that their bank had just notified them that they have to change their bank account number, credit cards, debit cards, and cheque-books—everything—regardless of the fact that they do not want to do that, because the bank decided, off its own bat, to send them to another brand name. Of course, there is no compensation, or any way to get the bank to help the person to make all the notifications that they need to make.
Many people, particularly the elderly, have a real concern that if they change bank account things might just not happen; their regular payments might not be made, and everything might go horribly wrong. That puts them in a very difficult position. Of course, there is plenty of evidence of things having gone wrong. Perhaps the seven-day switching process will solve the problem of switching simply going wrong.
It would be a far better solution if, when a person moved bank, they took all their bank details with them. A similar thing happens in the case of mobile telephones.
Jonathan Edwards
The hon. Lady alluded to the allegedly competitive market in the energy sector, where there is a right to switch, although it can be difficult to do so, as I found out. Switching in itself does not stop companies from acting as a cartel. How confident is she that switching in banking would lead to greater competition in the market?
Andrea Leadsom
I will come on to that, and that will become clearer in the course of my comments. Certainly, in terms of barriers to entry, the lack of competition and switching—in other words, people’s inertia—has meant that banks simply have not had to compete on customer service. They have not had to fight to keep their customers. As those of us who have been in business know, there are times when we have lain awake at night, wondering how to stop our customers from leaving us tomorrow; that is the big motivator, whereas in the past it was how to nick a tiny bit of market share from one of the big players. The fundamental point is: “How do I hang on to my customers?” Customer retention is always the biggest challenge for every business, where there is free and open competition. That is what bank account portability would ensure.
If a person was switching between banks, instead of having to change all their bank details and cards, and having to remember the new numbers and notify all their suppliers, they would simply take their bank details with them, just as a person who changes mobile telephone provider takes their telephone number with them. That is what the amendment proposes.
I am delighted that the Government have said the following, in a press release responding to the work of the Parliamentary Commission on Banking Standards:
“On top of introducing 7-day account switching from September this year the government will ask the new payments regulator, once established, to urgently examine account portability and whether the big banks should give up ownership of the payments systems.”
I take that as a warm move towards the idea of bank account number portability.
Bank account number portability is a game-changer, but it is no surprise that the big banks, when asked about this back in 2010, virtually told us that it would cost so much that the entire world would end. That comes as no surprise to us; they would say that. However, if we scratch beneath the surface and talk to the likes of VocaLink, which provides the payments infrastructure, we find that many of the technological requirements of bank number portability already exist.
At the moment, the big banks own a person’s sort code and account number, and give the payments instructions that they hold for that person to VocaLink, so that it can make that payment. Instead of having that two-step process, in which a person instructs their bank, the bank instructs VocaLink, and VocaLink makes the payment, with bank number portability the consumer’s bank account number, sort code and payment instructions would be held within VocaLink. Instead of a two-step process with the bank at the front end, there would be a one-step process, in which the consumer communicated with VocaLink, and the bank instead provided the customer service front end and the customer proposition. That would completely streamline the system.
Mr Love
Is not one of the problems—this was certainly highlighted in our investigations—the ownership of the infrastructure by the banks, and the difficulty in getting them to change? Is not a payments regulator the ideal way to twist their arm, so that they do the right thing?
Andrea Leadsom
Yes. The hon. Gentleman is absolutely right, and he has certainly been a keen supporter of bank number portability, as have many hon. Members in the Chamber today. The payments regulator that the Government are consulting on is the first step to achieving transparency. The next step is empowering that regulator to do something to enforce bank number portability when it finds, as I am sure that it will, that to date there has been a completely deliberate attempt to restrict competition in the banking system.
The big banks have said that bank account number portability would cost an absolute fortune, yet the technology already exists. Some people have asked whether it would not be an enormous risk to data integrity if the consumer’s bank account number, sort code and payments instructions were held by VocaLink, but in reality, all the consumer’s details are held by the bank, which passes them all on to VocaLink, so there are double risks to data integrity at the moment. Holding those account details in VocaLink would reduce, rather than increase, the risk.
People also say that other banks cannot access VocaLink’s payments infrastructure directly, because all the banks that clear direct have mutually to underwrite each other’s payments. The smaller challenger banks cannot possibly afford to underwrite the payments of the bigger banks. However, we could easily solve that; already, in various exchanges, banks pre-fund payments. If a bank’s balance were too low, and it was running short of cash with which to meet its outgoing payments, it would be called, intra-day, for more cash. That problem is easily solvable, and the reason why it has not been solved is that that is simply not in the big banks’ interests.
It has also been said that the proposal would surely be incredibly complicated from an IT point of view, but VocaLink has already set up bank accounts for the Department for Work and Pensions, because a lot of the Department’s benefits customers do not have bank accounts. VocaLink is already able to manage customer account details for DWP customers, so the technology already exists. I simply do not accept the idea that there would be eye-watering costs. Chief executives of big banks have literally said it would cost trillions—absolutely vast sums—but I challenge them to provide any scrap of evidence that shows that is the case, and that their refusal is not down to their desire to restrict access to new players.
The advantages of bank account number portability are, of course, the elimination of barriers to entry, and increased competition as a result. One of the big problems for new entrants is that it is so difficult to gain customer share, because people will not move bank accounts. With bank account number portability, if I, as a customer, was sick and tired of my bank, I could move tomorrow, the day after, and the day after that, if I was not getting good service, and it would not be any skin off my nose; it would be perfectly easy to do, and it would be the banks’ problem. That would be an enormous change in the competitive environment.
Likewise, there would be far greater consumer choice. Bank account number portability would encourage the likes of Tesco Bank and Marks & Spencer Financial Services—any big, multinational conglomerate—to go into the money business; it would become yet another product line. That in itself would eliminate some of the problems of “too big to fail”, because there would be many more smaller players, which would have many product lines, and therefore would not have all their eggs in one basket.
For small businesses the change would be revolutionary. At present one of the biggest problems for small businesses is that the big banks require that as well as their company accounts, small business people have their personal accounts and mortgage with the same big bank and do all their foreign exchange, overdraft, loans and other transactions through that bank. It is incredibly difficult for a small business to move accounts because of the complexity of all their suppliers and all the people they are trying to trade with. The barriers to entry for them are perhaps even greater than they are for us as individuals. Again, being able to take their bank account number with them would change the position dramatically.
Another huge advantage that is not often talked about is that since the 1990s, when I was running Barclays bank’s team, an enormous consolidation has taken place. There used to be 44 big banks in the UK; there are now about 22 banks of any size. The consolidation meant that during the 1990s many banks took over other banks, broker- dealers, small fund managers and so on, so they have an enormous number of legacy systems. They have managed to string them together over the years, but bank fraud in this country alone is huge. Changing the payment system would dramatically reduce the incidence of bank fraud. Intellect, the IT trade body, has said that the change could reduce the incidence of bank fraud by up to £30 billion a year.
Finally, another key advantage of bank account number portability is resolution. Andy Haldane, the Deputy Governor of the Bank of England, has gone on record as saying that it would be the solution when the day comes that a big bank fails again. We have, of course, put in as many steps as we can. Basel III will make great strides towards ensuring that banks cannot fail again. We have created our new regulators. We have ensured that banks have proper leverage and proper capital. All those measures are designed to ensure that banks cannot fail again, but we know that banks will always fail. That is the reality in a western developed market economy such as ours. We saw only too recently the problems with Northern Rock, when people were desperate to take their money out. The answer to resolution is for the Bank of England to be able to say, “You have failed. We are now taking all your accounts and putting them with survivor banks.”
There is a huge amount going for bank account number portability, above and beyond the seven-day switching process. My new clause calls for the Government to ensure, within 12 months of Royal Assent, a full cost-benefit analysis of bank account number portability. Should the findings be that this is a good idea, and should it produce the kind of benefits that I have just described, the regulator should be empowered to implement bank account number portability. I welcome the Government’s assurances that they will move in that direction. On that basis I will not press my new clause to a Division, but I urge the Government to keep up the momentum and ensure that before too long we have full account number portability.
Caroline Lucas
Thank you, Madam Deputy Speaker, for the opportunity to speak to my new clause 15. It is a modest proposal for a full Government consultation on the potential for local stakeholder banks to be carried out before we sell off RBS or any other taxpayer-owned banking assets.
I was interested to hear the Minister mention yesterday his trip to Germany and how he saw in the pages of the Handelsblatt a big headline saying, “City of shame”, referring to the City of London. I agree that this is a stark illustration of the impact of financial mismanagement and of our current banking system on people’s views of the City. However, although I also agree that this highlights the need for improved standards in banking, I think it highlights, too, the need for a radical reappraisal of ownership and accountability structures, if we want to have a banking system that we can be proud of, not ashamed of.
I hope that during the Minister’s trip to Germany he also found time to look at the savings banks, the Sparkassen, that we have spoken about this afternoon and which make up about one third of the German banking system. They are run commercially with dual financial and social objectives, to make a profit and to support the local economy. Professional bankers take responsibility for day-to-day running of the banks and if they make incompetent lending decisions, they are more likely to get sacked than their counterparts in giant commercial banks. Local stakeholders, including local politicians, business leaders, employees and customer representatives, sit on a supervisory board. That is just one example of the sort of local stakeholder bank that my new clause seeks to promote.
The New Economics Foundation analysed data from 65 countries where such alternatives thrive. They include co-operative banks, credit unions, community development finance institutions and public interest saving banks. The common characteristic is the goal of creating value for stakeholders, not just for shareholders, and some exciting and incredibly positive trends emerge. First, a greater focus on the needs of customers, including more competitive products, better service and longer-term lending; secondly, provision for customers who are currently under-served by regular banks; thirdly, a boost to local economic development through lending to small and medium-sized businesses, preventing capital drain from the regions and maintaining branch networks; and finally, a positive impact on financial stability through less volatile returns, high levels of capital, prudent balance sheets and expansion of credit provision after the financial crash.
Jonathan Edwards
To what extent has the hon. Lady been influenced by the system in the US, where there is a strong network of local credit unions, that provide an economic function for the local business community, not merely banking for the poor?
Caroline Lucas
The hon. Gentleman cites one of the few examples in the United States and its economic system that I would want to emulate. Credit unions set an interesting example that we could learn from.
Although I welcome the findings of the Parliamentary Commission on Banking Standards, I worry that the commission was somewhat seduced by the assumption that RBS should be returned to the private sector in one form or another, without a sufficiently full and proper examination of the merits of publicly-owned alternatives. It is important to underline that “publicly-owned” does not mean state-run. The German public saving banks are managed by bankers, not politicians, but they are run to serve the interests of the local economy and of citizens, rather than those of remote shareholders. Managers are held much more accountable for incompetent lending than are private sector managers who drove their businesses to bankruptcy while exploiting their customers with mis-sold products.
It is important to understand also that local stakeholder banks are not unprofessional. The banks studied by the New Economics Foundation make a solid profit to ensure their own viability, and their first priority is always to make sure that the loan is repaid. Because they are not trying to make 22% return on equity, which is RBS’s current profitability on UK retail business, they are quite happy with 8%, so they can afford to meet their social purpose. If the Government are serious about becoming a champion of SMEs and regional prosperity, at the very least they need to look into the pros and cons of a network of regional banks.
What if best value for the British taxpayer is the long-term ownership of a successful bank or banks that support the British economy? An obsession with privatisation on either side of the House should not blind us to that possibility. My amendment simply proposes a full examination of various forms of local stakeholder banks to ensure that we take decisions about the future shape of RBS and our banking sector more widely on the basis of practical economics and evidence, not just ideology.
I support new clause 10 that was tabled by the Labour Opposition. Sub-paragraph (iii) refers to
“the impact of any sale on the creation of a regional banking network.”
What I set out in new clause 15 is exactly the kind of positive impacts that we would want to see. Rather than simply guarding against negative impacts on any regional banking network, I would like to see us actively, explicitly and energetically promoting the alternative of greater local and regional banking. I hope very much that there might be some chance that the Minister will look favourably upon my new clause.
Mark Garnier (Wyre Forest) (Con)
I wish to speak substantially to new clause 14, which stands in the name of my hon. Friend the Member for South Northamptonshire (Andrea Leadsom). She has waged a Boadicea-like war to bring about account portability, and I have been happy to follow that banner—certainly over the past two years—when trying to increase competition. Between the two of us, my hon. Friend has led on account portability, while I have looked closely at barriers to entry and regulation.
I repeat my hon. Friend’s point about how the regulator has given way a bit on regulatory barriers to entry. Although I would not say it has moved substantially, it has made it easier for challenger banks to enter the marketplace. Two or three years ago, any potential challenger coming to the marketplace looked to spend between £300,000 and a potential £25 million just to get to the regulator’s front door and open a formal dialogue to get a banking licence. That is now changing, and the regulator has come up with a new process that makes it a great deal easier. None the less, smaller banks have certain problems due to ongoing expectations that give an advantage to the bigger banks. Those bigger banks have greater granularity with their account holders, and can therefore consider more sophisticated risk-weighting models for their assets. Smaller banks do not have those IT advantages and the cost of their asset book rises with greater capital requirements, which is still a problem.
Before I get to the substantial points, when considering effective competition within the marketplace we must remember the importance of a well-educated consumer. I am pleased that the Government have already responded on that—yesterday the Secretary of State for Education announced the new curriculum, which includes financial literacy, and I pay tribute to his wisdom in realising that that is one of the greatest engines of social mobility. In any sophisticated society such as ours, it is important that those we are educating can deal with the most basic measure of the economy we live in—looking after their own money. That has been achieved through the hard work of organisations such as the Personal Finance Education Group and the all-party group on financial education for young people, and it is a very good thing.
Financial education, understanding and literacy are core to driving competition. It is no good giving people a multiple choice of banks they can use if they do not understand the products being presented. When considering standards within banks, it is important that the marketplace, as well as the regulator, holds those banks’ feet to the fire to ensure they are performing well, providing a good service and delivering trust, which is crucial to restoring a properly functioning banking market in the UK.
On account number portability, in September this year seven-day switching will start. The banks have come to us proudly and said that they have spent £700 million implementing that system, but in essence it is less a switching service and more a redirection service that lasts a year—more of the chewing gum and Sellotape we heard about earlier. The measure of success for the seven-day switching service is expected to be how many people switch, but I do not think it will pass that test because I do not expect many people to switch their accounts. It comes down to the fundamental problem that there are still barriers to entry for new entrants, which leaves a small number of banks in the marketplace. Most people cannot see the difference between one bank and another, and even if they can, they do not necessarily understand what it is. In their mind, the risk of an uncertain future with a different bank far outweighs the benefits of finding a better service and challenging the bank to be more efficient.
The proposals for account number portability in new clause 14, which the Government have already agreed is a good thing, are important and will make it simple for new banks to enter the marketplace and steal market share from existing banks. The provision has the advantage of being pro-competition—we have already heard strong discussions about that—and there are number of other important issues alongside that. First, in this world where we would like a lot more transparency, the new Financial Policy Committee is considering the state of the financial system. That will help it understand what is going on in terms of transparency, and bring the visible part of the system within the auspices of VocaLink. As a result, the FPC will be able to head off any disasters if it sees anything going on.
We also heard that resolution of failing banks is incredibly important. Part of the Bill’s raison d’être, and indeed that of all the work done by Vickers and everyone who has worked on this since the crisis of 2007-08, is to try to ensure that people affected by failing banks do not lose their livelihood or face a financial crisis, so a simple resolution of a failing bank is incredibly important. Under the proposals, although an individual might see on television that there has been a run on their bank and that it is collapsing, the next morning they would simply wake up to discover that their bank account had automatically been transferred to another bank. The systems would continue to work, so their pay would be received on their behalf, their standing orders would still be paid and their house would not be repossessed because they had not paid their mortgage. More importantly, if they do not like the new bank they had been sent to, a couple of days later they could move to a better bank that they felt more comfortable with. Resolution is therefore incredibly important.
The other incredibly important point is that some banks have legacy IT systems that have been around for a huge number of years. Parts of these IT systems can date back to the punch cards of the 1950s and 1960s. In a recent conversation with someone who has done a certain amount of work in one of the larger state-owned banks, I happened to make a throwaway comment about the old IT systems. He responded, “Oh yeah, absolutely.” He explained that he had been looking at some of the software surrounding the small and medium-sized enterprise accounts and had noted that one of the software models had a converter sitting alongside it for converting pounds, shillings and pence into decimals. That must be at least 42 years old, as decimalisation was in 1971.
We know for a fact that there are a lot of old and incompatible systems being held together with string and chewing gum. Andy Haldane at the Bank of England has done a study and estimated that 80% of banks’ IT spend is on holding old systems together. If we take into account the fact that it is timely because at some point all the banks will need to update their systems, and if we consider resolution, transparency and competition, we will come up with a pretty convincing set of arguments that now is as good a time as any to introduce what will amount to fairly substantial IT investment, and there are a number of reasons that come together to make it worth while.
VocaLink, which runs a payments system, has already done a great deal of work on that. I have heard from a number of the larger banks that it could cost £10 billion, but they are dead against any sort of account number portability, so I suspect that it would be a lot cheaper. That is why it is incredibly important that the Government come forward as soon as possible to get the cost-benefit analysis on moving to full account number portability and, importantly, not be distracted by looking at the seven-day switching service in a year’s time.
Mr David Ruffley (Bury St Edmunds) (Con)
I congratulate my hon. Friend, and I congratulate my hon. Friend the Member for South Northamptonshire (Andrea Leadsom) on introducing new clause 14, which I call the Leadsom clause. Before concluding will my hon. Friend share with us the work he has done in speaking over the past two years to potential new entrants, new challenger banks, that have said that they would consider entering the market if bank account number portability came to pass?
Mark Garnier
Yes, without a shadow of a doubt. A great many of the smaller banks that are looking to enter the marketplace have to use a piggyback system with the big clearers. For example, C. Hoare & Co., which has been around for 341 years and is still a private bank, uses RBS for its clearing. To that extent, the larger banks are providing a service, but ultimately it is causing a great problem for them. Over the past two years I have met about 20 potential challengers looking to enter the marketplace, and certainly it is largely the regulatory barriers to entry that have caused the problem.
Ultimately, the challenger banks are going to be running current accounts. Some of the larger ones, such as Metro Bank and Virgin Money, are 100% behind having full account number portability and recognise—I think that this is one tribute to them—not only that that will be an opportunity for them to attract accounts from existing banks, but that they will have to work incredibly hard to meet the challenge of a more sophisticated consumer in order to keep those accounts once they have them. That is crucial to one of the key points of the Parliamentary Commission’s report, which is the need to ensure that we drive better standards.
I return to the fundamental point that the best way to drive better standards is to have a very discerning and demanding consumer in order to ensure that those banks provide a service, and for that discerning consumer, once we have taught them how to do it, to hold the banks’ feet to the fire, so they need to be able to move their account very simply and overnight.
Mr McFadden
I want to make a few points about new clauses 10, 12 and 14.
New clause 10 deals with securing the best interests of the taxpayer as regards the state-owned banks and their future. If the best interests of the taxpayer were in the Government’s mind in recent weeks in their stewardship of RBS, that has been shown in a very peculiar way. This story does not begin with the departure of the chief executive. It begins before that with a briefing from the Minister’s Department about the share price in which it said that the previous Government had overpaid for the shares, and the briefing tried to set the scene for a pre-election fire sale of the bank that would have short-changed the taxpayer. I am glad to say that despite that briefing, the Government seem to be edging away from that strategy. If they were holding out hope that the banking commission would have given them comfort on that front, it did not turn out like that, and rightly so, because it would have been wrong to give a running commentary on the share price for an institution. An institution’s share price should be determined by the market, based on its future prospects.
After the briefing, we then had the unseemly departure of the chief executive at the Government’s hands. Most people saw him as doing a good job of reducing the risks on the bank’s grossly overblown balance sheet and trying to get it back into a healthier position, in the best interests of the taxpayer. Not only was he bundled out before he had completed that task, but this was done without any proper succession plan being put in place. Over the period of a month, we have had political briefing about the bank’s share price and the announced departure of the chief executive with no successor in place, and, as a result, a loss of investor confidence in the Government’s future strategy for the bank. That is no way to exercise stewardship of arguably one of the most important banks in the country. It has undermined the Government’s reputation as regards these state-owned assets and done harm and damage to the bank. I hope that in future the best interests of, and best value for, the taxpayer will be uppermost in the Minister’s mind rather than the politically motivated dabbling that we have seen in recent weeks.
On a happier and more bipartisan note, I turn to the new clause tabled by the hon. Member for South Northamptonshire (Andrea Leadsom) and the very similar new clause tabled by my hon. Friend the Member for Nottingham East (Chris Leslie). At the heart of this is how much banks care about reputational loss; the hon. Lady referred to that. If the banks were in a normal business environment and there were a big IT failure or another failure of conduct such as mis-selling or LIBOR interest rate fixing, they would care because they would worry that their customers would walk, but they are not in a normal business environment. Banks seem to be immune to, and careless about, reputational damage that would really matter in another business environment.
During the banking commission’s deliberations, a parallel was drawn with the car industry. When a fault appears in a model of one of the big-brand car makers, they will very quickly issue a recall notice to ask the customer to come in and have the fault fixed at no expense and at a time that is convenient to them. Car companies do that because they care about their reputation and want that customer to buy a car from them the next time they get one. The same logic does not apply in banking, because the same forces of easy departure do not apply. There are two sides to this story. It is not all about the easy transfer of accounts, although that is important; it is also about what one would be transferring to and from. There is little point in creating a perfect exit system if the choice is merely between three or four offers that are all much the same anyway. There is inertia on both sides. We need more competition among the banks as well as an easier system of transferring accounts.
The seven-day switching process that will come into play in September is an advance, and it should be given a chance to work; we should test it properly. At the same time, the new clauses tabled by the hon. Member for South Northamptonshire and by my hon. Friend the Member for Nottingham East call for proper reports to be produced on full account portability. The hon. Lady set out very well the reasons why we need a proper report, one of which is the issue of cost. The incumbents say, typically, that this will cost a fortune and that it will have to be passed on to the consumer, so let us explore the cost properly and get to the bottom of whether that argument is valid.
Andrea Leadsom
The right hon. Gentleman may recall a meeting we had with senior bankers in which they said that, although they were reluctant about bank account number portability, if it is going to happen let us make sure that we will be the first country in the world to do it and not wait until somebody else does it. That would give us first-mover advantage and it could provide a huge business opportunity for UK plc. What does the right hon. Gentleman think of that idea?
Mr McFadden
The hon. Lady may be right and that is another reason that we should have a proper report to drill into the issue.
On privacy, in addition to the cost argument I think that customers could also be discouraged by the argument that all their account details could be held in a single black box to which all the banks in the country have access.
Mark Garnier
The right hon. Gentleman raises an incredibly important point. I think that the vast majority of consumers would be very fearful of a central database holding their bank details. The beauty of the system proposed by VocaLink is that, although the payment system and the central infrastructure will hold the sort code and account number, the identity of the holder of the account number will be held by the bank. Therefore, the customer’s relationship will be with the bank, not with the payment system.
Mr McFadden
I thank the hon. Gentleman for making that important point. If consumers are going to have confidence in a system of speedy switching such as that being advocated by the hon. Members for South Northamptonshire and for Wyre Forest (Mark Garnier), these questions about privacy and security of information will have to be bottomed out to the public’s satisfaction. My view is that that will be a more important argument than the one about the cost to the banks of whatever IT changes will be necessary to put this system in place.
In conclusion, it is important that we give the seven-day switching service a chance to operate, but the report that the hon. Member for South Northamptonshire and my hon. Friend the Member for Nottingham East are asking for is also important, because it would bottom out theses issues and others that I have not mentioned. It is a shame that the hon. Lady does not intend to put her new clause to the vote. After all, it only asks for a report; it does not seek to mandate a change before we have done the work and got the proper evidence. I hope that the Minister will respond positively to her suggestion and that of my hon. Friend. It is really important that there is proper competition between providers in this sector to attract consumers and that the kinds of free choices that enable consumers to walk away and get another product from another provider are available in practice, not just in theory.
John Thurso
I also rise to support new clause 14 tabled by my hon. Friend the Member for South Northamptonshire (Andrea Leadsom) and to which I have added my name.
The right hon. Member for Wolverhampton South East (Mr McFadden) chaired a panel of the banking commission and one of the first visits we undertook was to Birmingham, where we had a number of sessions, one of which was with representatives from small and medium-sized enterprises who were very vocal about the importance of securing a fair deal from the banks.
Which? organised an evening session that allowed us to visit different tables where individuals talked about their experiences. I had an interesting experience when I asked a table of people of a variety of ages, although mostly younger than me—not that that is difficult—about the ability to switch bank accounts. They were not really that keen and said, “It’s too much hassle. Why bother? It won’t be any different.” I said, “Suppose you could do it in the same way that you change your mobile phone, where you take your SIM card-equivalent and plug it into another machine.” At that point they all said, “Oh, that would be wonderful. What a good idea. Is it possible?” I said, “Not yet, but it is very likely to happen.” They said, “Actually, even that won’t work because it will just be the same old names that I will be going to.” I said, “How would you feel if the chap who has that nice transatlantic airline had a bank?” They said, “Oh yes, that would be jolly good.” That bunch of average customers had no idea that it might be possible to move accounts and no idea of the array of accounts that might be available as a result.
That experience drove home to me that the relationship between banks and their customers has been the reverse of what it should be. We go cap in hand and say, “Will you please take my account?” It ought to be the other way around. The banks should be coming cap in hand to us saying, “Please can I have your business?” New clause 14 goes to the heart of that dilemma. All right hon. and hon. Members who have spoken have made the point that the new clause is not a silver bullet and that many other measures are required, but it would be one of the key enablers of that change in the relationship, along with the payments regulator and other things that might be done. Ultimately, we need banks to be genuinely fearful of losing business—at the moment they are not, because they know that people cannot go anywhere else —and genuinely to want to win business. The commission has made progress on that and new clause 14 is very much a part of that.
I am sorry that my hon. Friend the Member for South Northamptonshire told us early on that she will not press her new clause to a vote. I always find that Ministers go a bit further if one waits until they have said nice things before telling them that. Clearly, she has had a tremendous impact on the Minister ahead of the debate. I look forward to hearing what he has to say.
John Thurso
I was going to say something about “A Tale of Two Cities”, but I will leave it at my hon. Friend’s great expectations.
John Thurso
Yes, something like that.
I am very tempted by new clauses 8 and 10, which were tabled by the Opposition. I will not vote against them, but I will not vote for them at this stage. There is an immense amount in them, but I will wait to hear what the Minister says. There is also a great deal of debate to come in the other place. I do not want to say that I am against the new clauses, but I am not sure that the wording is exactly what I would like to have seen. I ask for the forgiveness of the hon. Member for Nottingham East (Chris Leslie) on that.
On new clause 10, there was a lot of debate in the commission about the good bank/bad bank split. We ended up with a central point that we all agreed to, but a number of us wanted to go more in one direction. However, whether a good bank/bad bank split is a good idea is a completely different issue from what should be done afterwards. If one takes the view that a good bank/bad bank split is not needed, one can still consider all the points that have been put forward, including the many things the hon. Member for Brighton, Pavilion (Caroline Lucas) said could be done to enhance regional banking and credit unions. All those things are equally possible whether or not one decides that the bad bank is necessary.
To my mind the good bank/bad bank argument is separate to what one does with a bank going forward. I happen to be somebody who believes that a good bank/bad bank split is right for the simple reason that if we take the flakier assets out of the bank and put them in a run-off bank, therefore liberating the capital being used in the balance sheet to support it, capital is then available in the good bank to be lent to SMEs and individuals. It is a simple mechanism for getting more capital flowing through, but I would make the point that it is not inextricably linked.
Following on from the slightly more partisan comments from the right hon. Member for Wolverhampton South East, one thing that comes out of this process, and which I have observed right the way through it, is that United Kingdom Financial Investments Ltd has not been the most successful of bodies. We have seen that there are politics in such situations, and that trying to put a mechanism in between muddies the water. That is one of the reasons why the commission’s report made its suggestions on UKFI.
Finally, the commission very much supports new clause 8. As I said in my intervention, I do not think this matter needs legislation. What I would be looking for from the Minister is a commitment that does not require me to look carefully between the lines, but is, in fact, a further commitment.
Greg Clark
This has been an interesting debate so far, and it will be a tall order to live up to the great expectations of my hon. Friends the Members for South Northamptonshire (Andrea Leadsom) and for Caithness, Sutherland and Easter Ross (John Thurso).
This set of new clauses has the common denominator of measures that can improve competition in banking. The parliamentary commission has made it clear that competition can, and should, bring about higher standards in the banking sector. It concluded that
“effective market discipline, geared to the needs of consumers, can be a better mechanism for improving standards and preventing consumer detriment than regulation, which risks ever more detailed product prescription.”
The Government completely agree. The British banking industry, at least at the retail level, was too concentrated before the crisis. The forced mergers of the crisis have exacerbated a bad situation. It is imperative that the regulators do not regard themselves simply as regulating incumbents, but act to promote new entry into the industry.
The commission welcomed the prudential reforms contained in the then Financial Services Authority’s barriers to entry review and commented that
“the concerns of challenger banks in this area appear to have largely been addressed”.
We accept the need to go further. Accordingly, we will be adopting the commission’s recommendation that the Prudential Regulation Authority should be given a secondary competition objective, and we will table amendments to the Bill to that effect in the autumn.
Greg Clark
I am grateful for my hon. Friend’s contribution.
Government amendment 5 delivers on a commitment made in Committee to accept one of the commission’s earlier conclusions that when considering an exemption from ring-fencing the Government must have regard to any adverse effect ring-fencing provisions might have on competition in the market. The amendment ensures that ring-fencing should not be a barrier to greater competition in the market. To reassure the hon. Member for Nottingham East (Chris Leslie), it does require them to override any questions on whether the continuity objective should be breached. It is there to enable them to bear that in mind, not least for the reasons that we discussed—that competition can have systemic benefits that address some of the regulator’s objectives.
Another recommendation of the commission that we accept is the suggestion that there should be a rigorous study conducted on the benefits to consumers, and competition, of account portability. The House will know that from September the seven-day switching service operated by banks covering 99% of personal current accounts in the UK will come into operation. I do not whether hon. Members have noticed, but there is an excellent exhibition to promote the new changes to the service from September in the Upper Waiting Hall next to the Committee Corridor. It should make it easier, quicker and more secure to change bank account, helping competition, but, as my hon. Friends the Members for South Northamptonshire, for Wyre Forest (Mark Garnier) and for Caithness, Sutherland and Easter Ross said, that might not go far enough. In particular, I congratulate my hon. Friend the Member for South Northamptonshire on the consistent and forensic campaign she has waged on this issue through the Treasury Select Committee and beyond. We will therefore ask the new payments systems regulator to conduct a comprehensive review of account portability, including a cost-benefit analysis, as an immediate priority.
Mr Love
Given that the new payments regulator will take some time to set up, I hope that the Minister will keep a watching brief on seven-day portability, because there is still some controversy over the proportion of fees for the receiving bank as opposed to the bank losing the customer. This was brought to the commission’s attention; we commented on it, and I hope that he will keep it under review.
Greg Clark
I certainly will keep a close eye on that, as too, I am absolutely certain, will my hon. Friend the Member for South Northamptonshire. The arrangement is that the fees should be shared between the bank of departure and the bank of arrival, which I dare say reflects the different costs. However, we need to keep an eye on its effect on competition.
In response to the parliamentary commission’s report, the Office of Fair Trading has announced that it will bring forward its investigation into small and medium-sized enterprise banking as part of an ongoing programme of work to investigate concerns about competition in banking. The hon. Member for Nottingham East rightly wants this to go further. The OFT is engaged in a programme of work looking at all sections of the banking sector. As I think Members know, it has recently completed an investigation into the personal current account market, and on that narrow point has argued that there should not be an immediate referral pending some of the changes taking place or in the pipeline.
We have asked that that work considers the impact on the new challenger banks created by the divestments from Lloyds and RBS. The hon. Gentleman asked where they stand. My understanding is that in both cases the parent banks are looking to move forward with initial public offerings of the challenger banks and that they intend them to form part of the competitive environment. The OFT aims to conclude its programme of work next year. It will then decide whether a market referral to the Competition Commission is needed. I can tell my hon. Friend the Member for Caithness, Sutherland and Easter Ross that such a referral would not require legislation; the OFT could make one under its existing powers.
Given that commitment, which is more or less of the same time frame as that envisaged in new clause 8, and given the significant measures being implemented to enhance competition, I hope that hon. Members will agree that the new clause, which calls for such a referral in 2014, following Royal Assent, should not be adopted. It is important that the OFT completes its review in 2014, so that it can build up a file of evidence to be submitted to the Competition Commission. That would be consistent with what both the independent commission and the parliamentary commission called for: that the OFT be in a position to make a referral in 2015. The OFT’s work is absolutely in line with that.
Greg Clark
That is happening. The review that the OFT is carrying out is comprehensive—it will keep us informed in that process—and is about building up the evidence to make that judgment in accordance with exactly the time frame that my hon. Friend has set out.
New clause 15, standing in the name of the hon. Member for Brighton, Pavilion (Caroline Lucas), would require the Government to consult formally on the creation of a network of regional banks. I strongly agree that a revival of regional banking in this country is a very good thing. Yesterday in the Chamber my hon. Friend the Member for Hexham (Guy Opperman) reported on a meeting that he organised in Gateshead. I am pleased to tell the hon. Lady that a senior director of the Sparkassen, Dr Thomas Keidel, was at that meeting. He very much commended the Sparkassen model in Germany as something that could be emulated in this country. In fact, when one of the delegates objected that it was very much part of the German system and culture, which might be difficult to transplant to this country, Dr Keidel immediately pointed out that the German system was explicitly modelled on the UK system before it was abandoned in this country. I am therefore optimistic that what is proposed should be possible.
There was certainly great enthusiasm on Tyneside—indeed, momentum was being established—for launching a regional bank for the north-east. The hon. Lady might also be aware that the Cambridge and Counties bank—a joint venture between Cambridge county council and Trinity Hall, the Cambridge college—is already active and is providing lending to local small and medium-sized enterprises. The steps that the Prudential Regulation Authority has taken to license new entrants—
Mr Love
I apologise to the right hon. Gentleman for jumping in rather late, but before he leaves the issue of regional banks I want to mention one of the most promising areas, which is community development institutions. They are working at the regional and local level; however, their sources of funding could be enhanced immeasurably if community interest tax relief was set at a proper rate. I recognise that the Treasury has carried out a consultation. I am not asking the Minister to respond now, but perhaps he will at some stage inform Members of where the Treasury has got with that consultation and whether it will review the incidence of community interest tax relief.
Greg Clark
I do not know whether the hon. Gentleman will be reassured or alarmed to learn that I had not left the subject of regional banking just yet. Indeed, I want to come to the precise subject he has just raised.
The Prudential Regulation Authority’s changed procedures were referred to—by, I think, my hon. Friend the Member for Wyre Forest. It is now possible to license new entrants, who could require up to 80% less capital up front than previously. That means that the time is now ripe for new banks in the regions to be established. The hon. Member for Brighton, Pavilion, in her new clause 15, and the hon. Member for Edmonton (Mr Love) refer to CDFIs—community development finance institutions. Some £60 million of wholesale funding for CDFIs is available through the regional growth fund. Tax relief up to 25% is already available on investments made by individuals and companies into CDFIs. Of course I will talk to my hon. Friend the Exchequer Secretary and carry forward the hon. Gentleman’s representation for further changes, but a significant set of advantages is available. Similarly, the more flexible rules for credit unions that have been introduced and the £38 million of funding for this movement have also created greater opportunities.
Caroline Lucas
Does the Minister accept that constraints on the amounts that larger credit unions—such as the East Sussex Credit Union, which I know well—are allowed to accept in deposits or are allowed to lend are stopping them fulfilling their potential? Will he look at that again?
Greg Clark
I am happy to take that forward. The hon. Lady will be aware that we have liberalised the rules for credit unions, but if problems are being caused, not least in East Sussex, I would be happy if she dropped me a line or came to see me.
We have great enthusiasm for the proposals that the hon. Lady makes, but what is required is not a study, but action. I make this commitment to her, and to any hon. Member who is interested in helping to establish a new regional bank in their area, that I will help them to do so. I hope that they will allow me to do that.
New clause 10 would require the Government to lay a report before Parliament before selling any banking assets. All hon. Members are aware of what the Chancellor said in his Mansion House speech about the next steps for Lloyds and RBS. For Lloyds, the Government are actively considering the options for how its shareholding can be returned to the private sector. Value for money for the taxpayer will be the overriding consideration, and there is no pre-determined time scale. Indeed, the disposal process may involve multiple stages over time, rather than a single moment.
For RBS, share sales are some way off. In line with the recommendation of the Parliamentary Commission on Banking Standards, the Chancellor has announced a review, to conclude in the autumn, into whether a bad bank should be set up for risky assets from RBS. Following the criteria suggested in the commission’s report, the review will assess whether creating a bad bank would accelerate the path back to private ownership, deliver benefits for the wider economy and be in the interest of taxpayers.
As I have mentioned, the OFT is looking specifically at the impact that new challenger banks created by the Lloyds and RBS divestments will have on competition in small business banking. UK Financial Investments has a remit to provide value for money in executing its requirement to devise the means of selling the Government’s shareholdings in the banks, and, in doing so, to pay due regard to maintaining financial stability and to act in a way that promotes competition. In doing so, UKFI and the Treasury must follow the value-for-money principles set out in the Green Book, and they will be accountable, through the Accounting Officer, to the National Audit Office and the Public Accounts Committee, as well as to the House and the Treasury Select Committee.
Chris Leslie
The Minister is talking about the edifice of propriety, in relation to UKFI and so forth, but it is as plain as day that the Chancellor made the decision that he did not want that particular chief executive of RBS, so out went Stephen Hester. Will the Minister at least put on record what the plan is for settling the future leadership of RBS? When will the new chief executive be appointed?
Greg Clark
The hon. Gentleman knows full well that that is a matter for the board of RBS, not for the Government.
Returning to new clause 10, it is not clear that a new mandatory reporting requirement would add anything to the arrangements that are already in place. In the previous regulatory regime, promoting competition did not play a prominent enough role in ensuring that the banking industry operated in the interests of consumers. The strengthening of the role of competition through the reforms in the Bill will go a long way towards correcting that. The further recommendations of the PCBS underline the role of competition more prominently still, and I thank the commission for its contribution in that regard.
I should also mention new clause 1, which introduces a new schedule of amendments to correct a series of minor and technical points in connection with the Financial Services Act 2012. I was asked some questions about this earlier. It refers to the complaints scheme covering the Financial Conduct Authority, the Prudential Regulation Authority and the Bank of England. The scope of the complaints scheme in relation to the PRA and the FCA was widened to cover all their functions under any legislation, and the current scope includes functions such as those relating to the Data Protection Act and the Freedom of Information Act, which already have their own complaints mechanisms. The new clause will correct that.
I hope that the House will accept that the Parliamentary Commission on Banking Standards and the Government are as one in their intention of promoting competition. We totally agree that placing a high value on competition in pursuing all our objectives for the banking sector in order to make it more competitive, more responsive to the needs of consumers and more resilient is very much in the interests of the country.
Chris Leslie
We have had a long, well-informed debate, and I pay tribute to Members on both sides of the House, particularly the members of the Parliamentary Commission on Banking Standards, for their contributions. I am disappointed, however, that the Government are still saying simply that they will think about these things and look into them. The Bill will leave this House in the same thin state in which it arrived. In protecting taxpayers’ best interests, it should not be viewed as asking for the moon on a stick to request a proper report and an options appraisal of what to do with state-owned assets. It is very important that, at the very least, we have a thorough appraisal.
“In subsection (2), for “PRA” substitute “Bank of England”.” |
Michael Fabricant (Lichfield) (Con)
On a point of order, Mr Deputy Speaker. In the light of the fact that the International Monetary Fund has upgraded the United Kingdom’s projection for growth, and that the European zone’s projection has been downgraded, I wonder whether you have been given any indication whether the Chancellor of the Exchequer will be making a statement, as I, for one, would like to congratulate him.
Mr Deputy Speaker (Mr Lindsay Hoyle)
On the last part of the hon. Gentleman’s question, I think that he has already achieved what he wants. The answer to the first part of his question is no.
Third Reading
Greg Clark
I beg to move, That the Bill be now read the Third time.
It is good to start the debate with good news. When one is considering a Bill, one is cut off from the outside world, so that is good to hear.
I said on Second Reading that this is a historic Bill that resets the banking system in this country, so that it can once again enjoy the reputation that it had, and its worldwide renown, not just for technical excellence but for high standards of confidence, built on probity.
The Bill is historic in another important respect. It reflects the extensive deliberations and contributions of not one but two bodies of eminent experts: the Independent Commission on Banking, chaired by Sir John Vickers, and the Parliamentary Commission on Banking Standards, chaired by my hon. Friend the Member for Chichester (Mr Tyrie). Both undertook extensive work, and I am grateful to their members, and to the staff who supported them in their work.
Sir John Vickers’s commission was established immediately after the general election, in June 2010. It took extensive evidence before publishing an issues paper in September 2010; an interim report, on which it consulted in April 2011; and a final report in September 2011. The Government gave, and consulted on, an initial response in December 2011, before issuing a White Paper for consultation in June 2012. In the light of that consultation, a draft Bill was published last October, and the Parliamentary Commission was asked to give it pre-legislative scrutiny, which it did, and it concluded its report on 21 December last year.
Following Second Reading, the Committee scrutinised the Bill for more than 40 hours. The process has been characterised by an unusually determined effort to build consensus. Having considered all the options, the Vickers commission made a compelling case for a ring fence separating the riskier investment banking side of banks from personal and business lending. Ring-fencing, an ICB argument, will better insulate retail banks against global shocks and make banks easier to resolve in a crisis. It will thus create a more stable banking system, protecting the economy and the taxpayer against future crisis.
The parliamentary commission, in its first report, recommended some changes to the Bill, which we have been able to make, such as emphasising the importance of competition, as we have just debated, in applying the ring-fencing rules. The commission noted that in putting the so-called Haldane principles on the face of the Bill, the Government went further than its own recommendations. The parliamentary commission, in its December report, also called for the power to be available to force the separation of a ring-fenced bank into its component parts if that bank attempted to game the system or to undermine the ring fence. The so-called electrification of the ring fence is designed to ensure that it is respected in practice.
We debated yesterday the Government’s amendment to implement this power. There was some discussion about whether the power to require separation was too cumbersome to be used effectively in practice. As I said yesterday, there is no difference between the Government’s intentions and those of the parliamentary commission. We agree with the specific reserve power and it has to be usable. We included a time limit by which full separation had to be executed. The PCBS did not specify this, but my hon. Friend the Member for Chichester said that it should be informed by the regulator. That seems right to me and I have no difficulty in expecting to be able to arrive at a formulation that meets all the Chairman’s objectives during the further scrutiny of the Bill in this place.
Mr Tyrie
I am very reassured by what I have heard from the Minister. It seems from what he said that it remains the Government’s firm intention to implement the spirit and the letter of electrification for individual banks. It also gives me some reassurance that the commitments that appear to have been made in the paper published yesterday on the recommendations in the fifth report will also be implemented. Can the Minister give some indication when he will produce amendments, so that we have enough time to think about them before they are examined in another place and so that their lordships also have enough time to consider them carefully?
Greg Clark
I am grateful to my hon. Friend for his remarks. He is right that we are of one mind on the need to implement faithfully the commitments that we have given. The amendments need to be drafted in a way that is legally watertight, which takes some time. They will be prepared during the summer—the summer holiday will be out of bounds for the officials on the Bill team, sad to say—and they will be introduced in the autumn in the House of Lords.
As well as pre-legislative scrutiny of the Bill, the parliamentary commission’s final report made a series of recommendations concerning standards and culture in banking. As I indicated on Second Reading, in Committee and yesterday, the Government will make use of the Bill and the amendments to give expression to many of the recommendations that require legislation. I gave a commitment to work with the usual channels to ensure that this House has ample opportunity to debate the amendments when they come back for further scrutiny by this House.
Greg Clark
My hon. Friend is nothing if not tenacious as well as ingenious, and his hearing is acute. He will have heard me say that I will work with the usual channels, so the time for consideration will depend on the outcome of those discussions.
The implementation of the commission’s recommendations on culture and standards represents the third pillar of the reforms being made to the banking system. The first pillar was the institutional changes brought about by the Financial Services Act 2012, which received Royal Assent last December. That Act scrapped the failed tripartite system of regulation which, in the words of the parliamentary commission,
“created a largely illusory impression of regulatory control”.
In its place, that Act restored the Bank of England to its rightful place by ensuring, through the Financial Policy Committee and the Prudential Regulation Authority, the stability of the financial system. It established new forward-looking, rather than box-ticking, conduct regulation in the Financial Conduct Authority.
The second pillar of reform is embodied in the ring-fencing provisions advanced by Sir John Vickers and his committee, which are the main focus of the Bill under consideration. The reforms by the Parliamentary Commission on Banking Standards that deal with culture and standards represent the third pillar, and will play a major part in the passage of the Bill.
Having thanked members and staff of the Independent Commission on Banking and the Parliamentary Commission on Banking Standards for their hard work and the exacting standards they set for themselves, I extend my thanks to all those who have participated in the drafting and scrutiny of the Bill so far. First, I thank my Parliamentary Private Secretary, my hon. Friend the Member for Warrington South (David Mowat). Not only has he been assiduous in his more mundane duties of passing notes to and fro, but he has been an invaluable source of wise advice, drawing on a successful career in business. I discovered that he has an ability to see quickly through complexity and get to the heart of the matter—something much needed in matters of financial regulation.
I thank my officials for their efforts and the long hours spent drafting the Bill and Government amendments, as well as briefings for the many clauses we have debated. I hope that the seriousness of this legislation will assuage the loss of weekends and evenings spent with their nearest and dearest, although I hope they were at least able to see Andy Murray play—and indeed win—on Sunday, notwithstanding the timetabling of Report and Third Reading.
I thank those in my private office for their patience and cheerfulness in marshalling the many demands on their skills and expertise, and I am grateful to members of the Bill Committee, and its Chair and Clerks, for the hours we spent in each other’s company during spring. At one point I worked out that I had spent more time that month with the hon. Member for Nottingham East (Chris Leslie) than with my wife, although I hope he will agree that it was not an altogether unpleasant experience.
We had a lively and unusual Bill Committee in which my hon. Friend the Member for Amber Valley (Nigel Mills) went further than the electrification proposed by the Parliamentary Commission on Banking Standards, and demanded the “electrocution” of miscreant bankers. My hon. Friend the Member for North East Somerset (Jacob Rees-Mogg), whom I am delighted to see in his place, was revealed to have a secret life on Twitter, which I hope continues to flourish. I was also able to concede an historic Opposition amendment, given the charming entreaties from the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson), even if it was only a single word. All that was done under the beady eye of the Treasury Whip, my hon. Friend the Member for Chelsea and Fulham (Greg Hands), who kept us rigorously to time—indeed, I think we finished a day earlier than was allowed for in the programme motion. Given that the Bill will return and we will have much to discuss, it is not so much goodbye to the Bill on Third Reading as au revoir—or, as I am sure my hon. Friend the Member for North East Somerset would put it, “Hasta la vista, baby.”
Ours is not the only country in which trust in banking collapsed during the financial crisis, but the fact that scandals and bail-outs happened elsewhere is of no comfort. In a world where trust is in retreat, this country must be a beacon of confidence, security and stability, but that will not happen unless we insist on higher standards than apply elsewhere. The overwhelming and urgent imperative is to rebuild that trust. The reforms enacted so far take us a long way, and further than our competitors. The Bill will take us further forward and make the reform necessary to restore the reputation—and with it the prosperity—of banking in the United Kingdom. I commend the Bill to the House.
Chris Leslie
After that tour of various languages, all of which I am sure were in order as Norman French is the only language to be used in the Chamber other than English, I join the Minister in paying tribute to the Independent Commission on Banking. Sir John Vickers and his team did a phenomenal job, which was only a prelude to the output of the Parliamentary Commission on Banking Standards, chaired by the hon. Member for Chichester (Mr Tyrie). Given that its final report was larger than a ream of A4 paper, which represented months or work, weeks of deliberations and many hours of hearings, I think that it is to its credit, and the hon. Gentleman’s in particular, that it managed to hold together a set of recommendations, which I hope at some point will find their way into the legislation.
After the global financial crisis, when we saw reckless banking require such a vast taxpayer bail-out, the public finances were adversely affected and the economy suffered. It is therefore essential that we do our best to ensure that that situation can never again be repeated. However, all we have in the legislation so far are the ring-fencing provisions. I hope that they will be an adequate protection, but they are only part of the change we need to see in banking.
We were forced to table a series of amendments in Committee and on Report because the Government stepped away from the radical changes needed to make banking reform a reality. We hope that the Minister’s warm words will be manifest in the Bill in the other place, where we will be watching what happens very closely. We will need adequate time to consider Lords amendments when the Bill returns to this House, because to provide for only a few hours for that would show disrespect to the rightful and democratic primacy of this House.
The Treasury’s response to the commission’s report was published only three or four hours before we started considering the Bill on Report. I must say that it left a great deal to be desired. It did not have the strength needed to carry on the work of the commission’s recommendations. If we needed any more evidence that the Government have been soft-pedalling on these issues, we need only look at how bank shares responded immediately after the response was published yesterday. They hardly gave the impression that the banks face strong challenges as a result of the reforms. Despite the Prime Minister’s promise to use the Bill to implement key aspects of the commission’s report, particularly with regard to criminal sanctions, so far nothing has materialised. We must hold our breath and hope that they will eventually find their way into the Bill in the other place.
It is a shame that the Government did not use this time in the House of Commons to take some proper steps forward, because ultimately if we are to have dialogue in Parliament it is necessary to start putting some flesh on the bones and including legislative provisions in the Bill, rather than leaving it to the Government as a matter of trust. That is the only way we ever really improve the quality and calibre of legislation.
There are a number of things that the Government have not agreed to do or have refused to act on so far. They have not risen to the challenge on the leverage ratio to drive the reforms that are needed from a UK perspective. Instead, they want to wait for international and European Union agreement to resolve the issue. They have fallen short of what is required for proper electrification of the ring fence separating retail and investment banking activities. That should have been backed up with a reserve power for full separation of the sector as a whole if ring-fencing proves ineffective. We hope that it will be effective, but the jury is out on that.
We think that the Government should have considered options, particularly in the sale of any state-owned assets in the main banks—RBS, in particular—to look not only at a split between good banks and bad banks, but at whether there is a case for changes in retail and investment banking or in relation to regional banking, but they rejected that. They have not gone for reform of the governance of the Bank of England to turn the court into a proper board, with the accountability needed to go alongside that when it comes to sounding the alarm on bank lobbying. We hope that the Minister will follow that up when the Bill comes before the House of Lords. There is not yet sufficient clarity on how the banking standards rules will relate to the codes of conduct or culture changes that we need in the sector. As we saw from an earlier Division, the Bill also falls short of the market study of competition in the sector, particularly as regards the retail banking activities that so many of our constituents feel frustrated about.
We tried our best to table as many amendments as we could. The Government should have listened and taken the opportunity to engage in that legislative process more effectively. We now have to find reforms to the banking system that not only focus on safety and the best interests of consumers and taxpayers but do the right thing for the economy. In our discussions on leverage and other aspects, we tried our best to make the case for a number of changes that might have got the banking sector serving the economy, going full steam ahead and giving credit support, particularly to small and medium-sized enterprises.
It is clear that this Bill is still in its infancy despite having completed half its parliamentary stages. It is acceptable as far as it goes, with its baby steps on reform, and we therefore do not seek to oppose its Third Reading. However, the Government now need to get serious. They must bolster the Bill to electrify the ring fence and ensure that it will work; stand up for consumers, with proper changes to promote choice and competition and protect those consumers from being ripped off; secure the best interests of the taxpayer; and ensure that we never again see such a level of damage inflicted on public finances and our economy. Far more is needed. The Government should be listening much more carefully to the parliamentary commission, in particular. They have to do far better than this.
Guy Opperman (Hexham) (Con)
After the global banking crash, my constituents in Northumberland wanted to see better banking, higher standards, fewer scandals, greater competition and a greater degree of choice and service. In the past three years, this Government have been on a slow but continual journey to reinvigorate British banking and clear up the mess that we inherited.
I believe that over the next couple of years smaller regional banks will spring up throughout this great country, and I want briefly to address the House on that matter. Paragraph 49 of the banking commission’s main summary gives an excellent summation of its views on competition in retail banking. I refer anybody interested in this to the grave and weighty paragraphs 313 to 343 of the larger volume, where they will see, in particular, the evidence of Anthony Thomson, the co-founder of Metro Bank, with whom I have worked at great length over the past two years to try to reinvigorate the regional banking market.
That culminated in a series of efforts that have been made with the various regulatory authorities, starting with meetings that my hon. Friend the Member for Chichester (Mr Tyrie) and I had in February 2012 with Mr Hector Sants, the then chief executive of the Financial Services Authority. Mr Sants followed that up by writing on 12 March 2012:
“We are conscious of the balance to be struck between ensuring high standards at the gateway, and the importance of allowing innovation and appropriate levels of access for new firms…there has been public debate about the potential advantages of new entrants in the area of small, regional banks focused on servicing the SME sector. In such cases we will be proportionate in our approach and would invite all firms with a viable business model and appropriate levels of resources to a pre-application meeting to help guide them through the application process”.
Those were wise words and a significant step by the then chief exec of the FSA.
Then came the Bill that became the Financial Services Act 2012, which, I am pleased to say, passed its Second Reading in this House on 23 April 2012. To my surprise, the Labour party voted against clause 5, which specifically emphasised
“the ease with which new entrants can enter the market, and…how far competition is encouraging innovation.”
Be that as it may, the banking commission and other parties hugely improved the approach to regional banking. I support the efforts of everyone involved and echo the words of the Minister and the shadow Minister.
Following a huge amount of effort outside this House to encourage regional banking, Mr Thomson and I held a conference in Gateshead on 7 June that was attended by 142 delegates, including the Minister. More important, however—this is of key relevance to the banking commission’s findings—Sam Woods, the director of the domestic UK banks division at the Prudential Regulation Authority, and Victoria Raffe, the director of authorisations at the Financial Conduct Authority, were also in attendance on that day. Those two people are in effect the gatekeepers of regional banking and of the authorisations and regulation that lie ahead. They were welcome and made the case that regional banks are the way ahead.
I for one expect at least three or four banks to spring up in the north-east over the next 12 to 18 months, ranging from asset-backed lenders such as Cambridge & Counties bank—
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. I know that the hon. Gentleman is going to draw his speech into the Third Reading, because this is the Third Reading debate. The two must come together and it would be helpful if that happened sooner rather than later.
Guy Opperman
I will totally draw it into Third Reading, Mr Deputy Speaker. Those particular persons are very much affected and are working hand in glove with the Bill, which I support wholeheartedly.
Mr McFadden
This is an unusual Bill, in that at the same time that it has sought to implement a reform recommended by the Vickers commission two years ago, it has run in parallel with the Parliamentary Commission on Banking Standards, which periodically has produced reports and asked the Government to use the Bill to implement their findings.
I place on record my thanks to colleagues who served on the commission and all its staff. It was an intense effort and I do not think we could have produced our reports without the able efforts of the many staff who worked for us, led by Colin Lee, who is a great servant of this House.
I want to draw the Minister’s attention back to yesterday’s official response from the Government to the commission’s report of a few weeks ago. We read in yesterday’s newspapers that the Government were going to accept the vast bulk of the recommendations and the Minister opened the debate by saying something very similar. However, I have looked through the Government document in detail and wonder whether the Minister could confirm that the position is not that simple.
Paragraphs 2.32 and 2.33 reject part of our recommendations on pay. Paragraph 4.5 makes no commitment to legislation on access to basic bank accounts. Paragraph 3.24 passes to the regulator only consideration of the changes that we recommended on the corporate governance responsibilities of executives and bank chairmen. Paragraphs 3.34 and 3.35 in effect reject our recommendation for gender reports on operations on the trading floor. Paragraph 5.11 rejects our recommendation to consider splitting RBS into regional banks as part of the Government’s study on RBS. Paragraph 5.28 rejects our recommendations on the governance of the Bank of England. Paragraph 5.31 rejects our recommendations on the chairmanship of the Prudential Regulation Authority.
As my hon. Friend the Member for Nottingham East (Chris Leslie) said, the Government have also rejected recommendations on leveraging and ring-fencing, in particular ring-fencing in respect of the sector as a whole. When it comes to the implementation of recommendations, the chairman of the parliamentary commission yesterday described the attempt to ring-fence one particular group as “virtually useless”.
I stress to the Minister that it is not accurate to say that the Government have accepted the vast majority of the parliamentary commission’s recommendations. The document that was published yesterday is full of excuses and sleights of hand that pass on to the regulator for consideration firm recommendations that we made. I stress to those in another place, who may have a greater opportunity to amend the Bill, that they should read the document that was published yesterday with a careful eye to see what has been accepted and what has not.
Greg Clark
The right hon. Gentleman is not giving the response a fair reading. First, not all of the recommendations were addressed to the Government. Some of them were addressed to the regulators. Secondly, some of the recommendations that were made to the Government have been taken forward through actions that can be taken by the regulators. When colleagues look at the response, they will see that it is a broad endorsement of what was an excellent report.
Mr McFadden
Perhaps the Minister and I have different interpretations of the word “broad”. He may be able to persuade the hon. Member for Chichester (Mr Tyrie), on the basis of some warm words, that these are great concessions, but I remain to be convinced.
The Government have a great deal more to do to convince Parliament—this House and the other House—that they endorse the vast majority of the recommendations. The more one reads the report that was published yesterday, the less one comes to that conclusion. I hope that those who are in a position to amend the Bill in future take heed of that and press with greater determination than Members of this House the amendments that would fully and faithfully implement the recommendations of the Parliamentary Commission on Banking Standards.
David Rutley (Macclesfield) (Con)
I was not able to participate in the Public Bill Committee or the parliamentary commission, but I have followed their work from a distance. We must recognise the important progress that has been made over recent weeks and months.
I praise my hon. Friend the Member for Chichester (Mr Tyrie), Chairman of the Treasury Committee and of the parliamentary commission. He has taught me a lot during my time in Parliament. Tim Knox, the director of the Centre for Policy Studies, has said of my hon. Friend that
“he’s quite prepared to argue half the night over whether a comma should be a semi-colon—which is reflective of the seriousness with which he takes his work.”
My hon. Friend is prepared to do a lot more than that. He is prepared to debate and work tirelessly for months on end with colleagues on both sides of the House and with Ministers to move matters forward.
The huge progress that has been made in recent months on this important subject is also a credit to the Minister and his colleagues on the Front Bench. The Government’s response, which was published yesterday, moved the debate forward. On page 22, it summarises the failure that took place at HBOS. I worked at HBOS from 2005 to 2007 and saw at first hand the problems with the federal structure at the bank. I hasten to add that I worked in the general insurance side of the business, which was performing particularly well. It was clear that there was a problem with managing risk across the entire business. It was also clear from my interactions with the Financial Services Authority that it did not have a grip on the regulation of the smaller parts of the business or the business as a whole. It was clear that my business friends in Yorkshire who worked outside the bank recognised that the bank was involved in very racy deals. They kept asking me how the bank could support them. The FSA clearly was not paying sufficient attention to what was going on.
The Bill is vital. It is critical to bringing about the individual accountability that many of us want to see across our financial services sector, with the tough senior persons regime, reversing the burden of proof and criminal sanctions for reckless misconduct. All those steps are vital, as is the ring fence and the attempts to electrify it. They will bring about a meaningful distinction between what goes on in retail banks, which are vital for individuals and small businesses, and more risky investment banking. In my interaction with other banks, such as HBOS and Barclays, it was clear that they had very different cultures and needed to be brought under control. The ring fence will help to do that.
It is important to bring about enhanced competition. I helped to launch Asda’s introduction to financial services, and other retail brands have moved into financial services too. As my hon. Friend the Member for Hexham (Guy Opperman) said, we need new entrants. That will encourage greater competition and help us in our task of building trust in our financial services sector. It is good to see, in recommendation 4.22, that the Government will be initiating an independent study into the feasibility of the costs and benefits of full account portability. Bold, radical steps are required to move things forward and build the trust we want to see in our financial services sector. I commend the work of the parliamentary commission and the Government in taking these steps forward.
John Mann (Bassetlaw) (Lab)
A vast amount of hard work has been diligently done for such a puny and inadequate set of proposals. Where does it leave us, if we look at the big picture? There is a debate about the Government’s failure to electrify the ring fence, although as I recall, the financial crisis started with Northern Rock and Lehman Brothers, where the ring fence would have made no difference whatever. What are we trying to address?
We have two banks in state ownership that are still in crisis. Clearly, the Government have no idea what to do with RBS, from who is running it and the Government’s cack-handed handling of Mr Hester’s departure, to what its role should be. Should RBS exist? Should it be broken up? How should it be broken up? Can it be broken up? How could competition emanate from breaking it up? We hear the word competition all the time. I was a signatory to the extremely modest bank account portability amendment that, rightly, was tabled. The structure of banking, however, remains pretty much as was. There is significantly less competition than there was 10 years ago. Building societies have been consolidated and about a third have vanished.
Where is the international level? This was not a British crisis, but today, as a consequence of the British LIBOR scandal, we have lost out to New York, which has played its political hand far more astutely than the Government and has grabbed business from this country. Frankfurt and Paris will be lining up to do the same. We are dealing with international banks, and the Government’s insular look at what should be done, presuming that British solutions will add to British competition, is a misnomer. We face problems with transparency in the UK dependencies, which, unlike any other country, we can influence. They remain totally opaque, specifically in relation to banking and subsidiaries—there is nothing there. On international banking agreements, the Government are hiding even from the modest proposals emanating from Brussels, of all places. This is not going to solve our problems. Competition has not moved forward, and there is no evidence that it will. The Government have an aspiration, but no strategy, for competition, so we remain with none. The problem of oligarchies running investment banking worldwide has not changed either; it remains as was—a fundamental weakness in the banking stranglehold over the rest of the economy—and totally unaddressed.
The fundamental issue that some posed at the beginning will remain the Achilles heel of all politicians and whoever is in government in this country from now on: if there is a further banking crisis and individuals—known as voters—are in a panic over their savings, there is no politician in any Government who would not bail out those accounts. No Government, whatever their colour, whatever the economic situation, would survive grabbing the electorate’s savings.
Most fundamentally, we have failed to create a concept of tiered risk for consumers to give them a choice. It has worked before. The classic example is a simple one, but a real one: the premium bond. When the premium bond was introduced, people knew that it was totally guaranteed; they knew it was not the best way of investing, but they bought them because they were absolutely guaranteed. We do not do that with our savings now. We have not created the options that would let our constituents say, “We’ll put X amount in here, knowing we’ll get a lower return than elsewhere, because the Government will give an absolute guarantee. And we can put Y amount in a middle-risk option, where there are some guarantees to certain levels, and we’ll put Z amount into something with great returns, but explicitly no Government guarantee.”
Our failure to create those options has created a fundamental weakness. I would not even describe that as radical; I would call it a rather conservative, with a small c, and moderate proposal, giving choice, creating markets and trusting people. We have not done that. At some stage, a future Government—not this one or the next one, I hope, or one in our lifetime—will face the dilemma again and will be forced to bail out a bank. There is the danger, however, that it might come more suddenly than that.
David Rutley
Does the hon. Gentleman not recognise that there are options for fully guaranteed savings with National Savings & Investment as well as the £85,000 protection? There are those opportunities for people.
John Mann
I sit on the Treasury Select Committee; the hon. Gentleman served on it, so we have a modicum more information on these matters, as do other hon. Members, than our constituents. Nothing has changed for them, however. Fundamentally, there has been no segmentation of the market, which is why the new challenger banks are getting no further. Only a tiny, tiny proportion of business is going to them. We have not restructured, even though in RBS and Lloyds TSB we have the perfect opportunity, owing to the crisis, to restructure. Across the world, we see vast numbers of people suffering and Governments of every political persuasion being voted out because of the financial crisis and the decisions they have made. This Government might face the same dilemma. I am not commenting on whether the decisions on the deficit and debt are right or wrong economically, politically or socially—that is a critical debate, but it is a different debate—but the fact that we are in this situation and we are not addressing it for the future in anything but the most micro-management way is part of that weakness.
The Government might want to give themselves plaudits and say, “Well, perhaps we’re doing a little better than the Government of Greece or Spain,” or whichever Government it is. The Americans can slap themselves on the back and say, “Unlike the Brits, we’ve got our act together. We’ve targeted their banks. We’ve portrayed them as the wrongdoers. We’ve managed to shift some of the powers to ourselves,” which is precisely what is going on among the political, banking and business classes in Washington and New York. They are winning that battle.
I will end on this point. This is a world crisis. My research document proves that every one of the top 50 banks in the world, without exception, have been involved in criminality in recent times. That is staggering for any industry. For us to hold that industry together with sticking tape, not even with the most damaged and shattered elements, including those that have had to be nationalised, such as Lloyds TSB—
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. Mr Mann, your time is up—that is the story of your life at the moment.