Financial Services (Banking Reform) Bill

Debate between Viscount Thurso and Pat McFadden

Tuesday 9th July 2013 Commons Chamber

[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.

Financial Services (Banking Reform) Bill

Debate between Viscount Thurso and Pat McFadden

Monday 8th July 2013 Commons Chamber

[Mr McFadden]

I do not propose to follow the hon. Member for Chichester (Mr Tyrie) by making a wide-ranging speech on the recommendations of the banking commission’s final report, as he has set them out perfectly adequately. However, I do want to say that I do not think the Minister has served himself or this discussion well by publishing the Government’s conclusions at lunchtime today, and then coming along and making a de facto statement of new policy, thereby simply compounding the sense of frustration in this House about the adequacy of the procedures for discussing these issues. Instead of going over all of that in great detail, however, I want to concentrate on the amendments before us, and on the discussion of ring-fencing and separation. I specifically want to talk about amendments 17 and 18 in the name of the shadow Chancellor and his shadow Treasury team colleagues; and amendment (a) to Government amendment 6 and amendment 19 in the name of the hon. Member for Chichester.

The banking commission’s first report, issued before Christmas, focused on ring-fencing and separation. It made two principal recommendations in respect of what has become known as electrification of the ring fence, which is the power to go further than the ring fence and enforce full separation between investment and retail banking.

The first of those proposed powers was in respect of individual institutions, and it was accepted by the Government, at least in name. The second power was in relation to the sector as a whole, and it was not accepted by the Government. No convincing reason has been given for accepting one and rejecting the other. The Government have today tried to make a virtue of issuing a response to the banking commission’s final report which says they broadly support its conclusions, yet in terms of the legislation before us the Government are continuing to reject a major recommendation of our first report, and as we have teased out of the Minister, even in the document published at lunchtime, they are rejecting recommendations on UKFI and regional banking. We may learn about others, too.

On the question of backstop powers to enforce separation in respect of either individual groups or the sector as a whole, one of the clearest lessons from the banking crisis of 2007-08 was how interconnected the banking system is. Institutions involved in banking are not islands cut off from one another. They lend money to one another. They engage in the same practices. Their culture is often shared. They place similar bets. When one falls, it often has the capacity to drag others down with it, as we learned to our great cost.

The same is true of the standards and culture questions we examined in such detail after Christmas. The LIBOR fixing was the straw that broke the camel’s back in terms of the establishment of the commission, but that did not just happen within one bank. Groups of traders within banks were co-operating with one another to rig the interest rates, and groups of traders across different banks were co-operating with one another to rig the interest rates. Against that background, it makes no sense at all to restrict the policy armoury that this Bill establishes to respond to the undermining of the system by taking powers that will affect only individual banking groups and not the sector as a whole. As the hon. Member for Chichester said about our recommendation on new criminal offences, some of those powers may never need to be used, but their existence on the statute book should focus the minds of those running these major organisations.

[John Thurso (Caithness, Sutherland and Easter Ross) (LD)]

We also discussed at length the fact that, if we do not have the weapon in the armoury, we cannot use it, and it is usually too late to put it in place once a crisis comes along. Far better to have the gun in the locker, even if we never use it, than not to have it at all.

[Mr McFadden]

I entirely agree.