Industrial Strategy: British Business Bank

Lord Wrigglesworth Excerpts

Tuesday 8th July 2014 Lords Chamber

[Lord Wrigglesworth (LD)]

My Lords, I join in congratulating my noble friend Lady Wheatcroft in introducing this short debate, which provides us with a very useful opportunity to discuss industrial strategy and the role of the British Business Bank and banking more generally. The comments from my noble friend Lord Stoneham set out very clearly, when linked with what my noble friend Lady Wheatcroft said about industrial strategy, exactly what the Government are seeking to achieve. I am somewhat surprised by the comments of the noble Lord, Lord Haskel, because I think that BIS and the Secretary of State have set out a very clear industrial strategy.

We have a lot of history in this. If you go back to Tony Benn, you have the extreme of wanting to nationalise the 40 top companies in the country. You then go through the Industrial Reorganisation Corporation and the National Economic Development Council, picking winners. That is another strategy. I think that the Government have got it absolutely right, as the noble Baroness said. They are facilitating the success of the banking sector and the other sectors and activities pointed out by my noble friend Lord Stoneham.

I wanted to intervene in this debate because I have had experience in two banks. One of them was a state bank, established by Tony Benn when he was Secretary of State for Trade and Industry, called the National Girobank. I worked in the City for that bank for a number of years. The intention was to give everybody in the country a bank account, so that everybody could transfer money from one account to another by the new electronic means that was just becoming available. It all sounded absolutely wonderful; but of course it paid no attention to what was going on in the market. The bank ended up being privatised and sold off to the Alliance Building Society. It is still doing a useful little job there, but nothing like the major ambitions of Tony Benn in that time.

Because of my experience I want to bring some reservations to this debate about government policy at the moment—although I heartily endorse all that the Government are seeking to achieve. There is a great risk that expectations are raised too high about what can be achieved in creating competition in the banking sector. I was delighted to read—as the noble Lord also pointed out—in the Financial Times today that there is potential for another 30 banks. I hope that there are going to be 30 new banks; but I shall believe it when I see it. It also reported that five new banks had been given a certificate. I tried to start a bank in the north-east some years ago and know what it was like to try to get a licence to operate. There are five new banks—two of them Nigerian, two of them Indian and one British. The British one, Paragon, began life financing buy-to-let flats and houses in the boom before 2007-08.

We are therefore a long way from seeing the competition appearing that I think everybody would like to see. We hear a lot about challenger banks appearing on the scene. Nobody can disagree with it, but the greatest force in banking, from my experience, is inertia. People do not change their bank accounts. We need more competition in order to encourage them to do so; but to get carried away and think that in the term of one Government we can completely change the structure of the banking system in the country is pie in the sky. This is a very good start. It is very well worth doing and should be supported, but it is important that we do not get carried away and think that it can achieve everything in five minutes.

Similarly, on the regulatory side, there is a great danger that people think more can be achieved than actually can be achieved. In a previous incarnation I went to the United States to look at banking regulation there, which has always been rather more rigorous than it is here. I visited the comptroller of the currency; I remember meeting Paul Volcker; I met the chairmen of the Senate committee on banking and the House Committee on Financial Services, and a whole host of other people. The one message I got from it was that, no matter how much regulation we introduce, we will still get problems in the banking sector. I am slightly concerned that while we are spending our time discussing deregulation Bills and everybody is calling for deregulation in every other sector, if we are not very careful, in the stampede to regulate our banks we are going to kill the goose that has laid the golden egg in recent years.

That is not to say that things have not to be done; but there are over a million paragraphs of regulation in the FSA rulebook. When the Bank of England was given statutory responsibility over bank supervision in 1979, fewer than 80 people were engaged in the supervision of financial firms. Since then the number of UK financial supervisors has increased to around 1,200. In 1980 there was one UK regulator for every 11,000 people employed in the UK financial sector. By 2011, there was one regulator for every 300 people employed in finance. Those numbers do not even include compliance people in the private sector, the number of which has exploded since the crisis.

In 1974 returns could have around 150 entries. Today, UK banks are required to fill in more than 7,500 separate cells of data—a fiftyfold increase. Forthcoming legislation could see that rise to between 30,000 to 50,000 data cells spread across 60 different regulatory forms. We are in danger of killing the goose that laid the golden egg. While we are rightly concerned to control the banking sector, we need to realise that there is a limit to what should be done and what can be done.

The British Business Bank is getting off to a really good start. As my noble friend said, it is not really a bank; if anything, it is a wholesale bank. It is supporting or partnering other institutions. I think that that is the right way ahead; as a result, it is getting quickly to a very substantial number of small firms. The truth is that 80% of the lending to firms in this country is coming from the big institutions. Clearly, that is not a desirable situation so we want to see this institution succeeding.

I am slightly concerned, in reading the bank’s documents, that it says that:

“Unlike most banks, our impact is not measured in terms of profits generated but rather by the benefit of increased economic activity it creates”.

That is all very fine. I hope that the bank achieves the rates of return to which my noble friend referred because I do not want to see this institution crowding out other banks and other financial institutions seeking to operate on proper rates of return. Therefore the rates of return that it achieves are terribly important. I am pleased to see the objectives in there and the monitoring of them that the institution is proposing.

The British Business Bank deserves support. It is targeted in the right way through a whole host of institutions and it clearly has made a very good start in helping firms in the small and medium-sized enterprise sector which so clearly need the support that the bank is giving.