Financial Services

Baroness Goudie Excerpts

Thursday 20th June 2013 Grand Committee

[Baroness Goudie]

My Lords, I thank the noble Lord, Lord Dykes, for arranging for this debate. Like the noble Lord, I say that it would be a great mistake for Great Britain to leave Europe. We should not consider this at all. I hope that, in the long term, it will not happen.

On the issue that Europe matters today, we have to move on from the disaster of 2008. We cannot look back at what it was; we can never go back so we have to move on. The key issue is that the prospects for the financial services industry are good. Last year’s Kay review on equality markets and the recent report of the Parliamentary Commission on Banking Standards demonstrate that the UK is leading Europe in the debate on the direction of domestic and international financial reforms. Negative perceptions of the industry remain largely based around the lack of diversity, both in terms of gender and ethnicity, as well as remuneration, on which the Government have published a report of the Commons committee. No doubt we will debate the whole question of diversity, women on boards and equal pay in the next year. I do not need to go down that road today, but economies cannot prosper if half of the population is behind. Research from the World Economic Forum in 2012 said that women now represent 40% of the global market force, which is a little higher in this country, and that more than half of the world’s university students are women—again, it is higher in this country. For a functioning economy, its full potential of women’s skills and talents is very important—including the export and import of those who are educated here and who then go back home. The GDP they bring to those countries is vital for a stable world.

Coming back to this country, across the domestic and international activities, financial and professional services have contributed more than £200 billion to the UK economy since 2012. In aggregate terms, the contribution of the financial services industry represents some 15% of UK GDP. Exports made up a substantial share of the contribution, of up to 40%, of the financial services to the GDP, arising from the sector’s exports and those services provided to overseas clients. We should also be aware that when people require something we sell, like law and education, our financial services are very much sought-after in the Middle East and other countries. That is one of our soft powers that we should be looking to.

The trade surpluses of the financial and professional service sectors are roughly the same as the combined services of all other net industries in the UK. Some of our specific contributions are that our insurance business is the best and largest in Europe. We have 251 or more different banks working in the UK, including those based here. The UK has the second-largest pensions industry in the world, with total investments of £1.9 trillion. That is a huge sum of money; it is inconceivable, but it is vital to Britain. In 2012, the UK private equity and venture capital sectors managed assets of £200 billion.

UK private equity funds invested in more than 800 companies. People talk about hedge funds and different instruments of finance, but they do not realise that without them and that investment, we would not have the companies we have, because no longer do the real banks want to invest. The real problem we are having is for SMEs, 40% of which are now run by women, employing men and women, which are having great difficulties. Although the banks have promised to lend to them, they have not been able to get funding. That is not because they do not have order books or money coming in, it is because they just need that extra couple of hundred thousand pounds to tide them over for a year, but there is no one to talk to, because you do not have banks any more. Metro Bank has started up locally in the high street, but we do not have our usual banks to go to.

I know that this is old-fashioned, but some people need to talk to someone, not a call centre but somebody to talk to. Standard Chartered, for example, which is working in Asia, has people in middle management there to meet you and to offer to look after you. It is the same in Hong Kong and Singapore: if you want to go to the bank, there is someone to meet you who wants to talk to you. Whatever deal we finally do with the Royal Bank of Scotland and Lloyds—we do not know what will happen with one or two others yet; I hope nothing—if they will not open places, which cost money, there should be the availability to talk to somebody, because talking to a call centre or an individual who does not know you or your industry and has never been to your factory is not the same. That is vital to today’s economy. Those of us who live in London or Scotland know that the back-office industry there is huge, but in the middle of the country, there is nothing. There are no banks, there is nowhere for people to go to talk to someone. We must encourage building societies and those other banks to open up, even if they are opening up in a mall, so that there is a place where people can make an appointment to see someone. They do not have to be there permanently, but people need to be able to make an appointment to come from wherever they are working.

For our economy to function, we need to use the full potential of women’s skills—coming back to SMEs—and they need someone to go to talk to. We do not want them going to get the money, not from payday loans, but from other companies which will lend money to SMEs at high interest rates. Those companies are too big to take microfinance. We know that microfinance, because it loans the money from the banks, is charging higher interest.

I hope that the Government will consider those ideas and what we have managed to tackle together since 2008, and move forward. We must move forward to take our place in the world, and enable the potential of people in university and in school and ensure that they are not left on the heap.