Amendment of the Law

Andrea Leadsom Excerpts

Monday 26th March 2012 Commons Chamber

[The Parliamentary Under-Secretary of State for Culture, Olympics, Media and Sport (Mr Edward Vaizey)]

Your instructions have been noted, Mr Deputy Speaker.

May I begin by apologising to the House for the absence of my right hon. Friend the Secretary of State? As I am sure the House will know by now, his wife gave birth to a beautiful baby girl last week—appropriately enough, during Department for Culture, Media and Sport questions—and so he is enjoying his paternity leave. I am sure that the whole House will want to join me in passing on our good wishes to the whole family. I, for one, wish that the Secretary of State was here, because this is, I believe, the first time that DCMS, as a Department, has opened a Budget debate, and it is a testament to his skill and vision that he has put the Department at the heart of the Government’s strategy for growth. DCMS is now an important economic Department that is responsible for broadband and digital infrastructure, internet and media policy, and our world-beating creative industries. Policies pursued by this Department will contribute significantly to the growth of the UK economy.

I want to use today’s debate to remind the House of how well placed this country is to take advantage of the technology revolution. The Chancellor has set out our ambition to turn Britain into Europe’s leading technology hub, and we are well on course to achieving that. According to a Boston Consulting Group report published this month, the UK is the top internet economy in the G20; we purchase more online than Germany, the United States and South Korea. We have a huge range of successful technology companies in this country. It is worth reminding the House that BT, for example, is a global technology company with a presence in 170 countries. ARM supplies the chips for smartphones and tablets. Imagination Technology provides the graphics for Apple products. Ubiquisys in Swindon sells femtocells to the French and the Japanese. Neul, based in Cambridge, is developing new wireless network technology. In Tech City, we have a rapidly growing technology hub in the heart of London’s east end, which in just three years has grown from about 15 companies to more than 300.

My personal favourite is the motor sport industry, which is worth £5 billion a year and exports 70% of its products. I was particularly tickled by an anecdote—[Interruption.] I cannot believe that Opposition Members are groaning at an anecdote. I feel rather deflated. When a German Formula 1 company launched its German engine, branded by Mercedes-Benz, with Michael Schumacher, a German driver, I was told that it was designed and manufactured in the UK. [Hon. Members: “Hear, hear!”] I thank Government Members for approving of my anecdote.

[Andrea Leadsom (South Northamptonshire) (Con)]

I am delighted about that, because it was made in my constituency.

[Mr Vaizey]

Is it not a wonderful coincidence that I also get to suck up to one of the most important Back Benchers in the House?

Next week, a BDO report will say that telecoms, media and technology industries will be the success stories of 2012 in the UK, with software investment growing and investment last year at an all-time high. Innovations such as cloud computing are set to create more than 200,000 jobs in the UK in the next three years.

--- Later in debate ---

[Andrea Leadsom (South Northamptonshire) (Con)]

This has been a great Budget for business growth, for work incentives and, as the Under-Secretary of State for Culture, Olympics, Media and Sport, my hon. Friend the Member for Wantage (Mr Vaizey) rightly says, for technology, too. However, I shall focus my comments on a huge potential opportunity for growth by using technology, which would transform the banking system, put people and small businesses first, and shatter the comfortable oligopoly of the big banks in our banking sector.

Bank balance sheets in Britain amount to 500% of our GDP, which compares with about 300% in Germany and France, and only 100% in the US. Britain is uniquely at risk from this highly profitable sector. Financial services employ 1 million people in the UK, including 250,000 in Birmingham alone, and generate 11% of our total tax take. However, banks in the UK are so highly concentrated that four or five players have 80% of the small and medium-sized enterprises lending market and 80% of the personal current account market, and only about 2% of that on their vast balance sheets is lent into the real economy—the bit that gives us our jobs and helps businesses to grow. We saw in 2008 how the crisis in banking could bring our economy to its knees. Our unique British dilemma is in deciding what to do about this critical industry which has the ability to make or break us. The Chancellor was right to set up the Independent Commission on Banking to look at how to improve the industry, but it missed a big opportunity, as it did not address the massive barriers to entry into the UK economy for new challenger banks.

When I was director of Barclays Financial Institutions Group in the 1990s, an incredible consolidation took place in the financial sector. Banks merged with fund managers, broker dealers, private banks and building societies, creating today’s oligopoly of banks that are simply too big to fail.

[Ian Lucas]

The hon. Lady is making an interesting speech, and she is talking about the 1990s, when she was at Barclays. Does she agree that one of the major errors of the late 1980s was the incredible centralisation that took place through the privatisations and the ending of local building societies, and that that is a major reason why it is impossible to get local access to finance now? That issue needs to be addressed.

[Andrea Leadsom]

I completely agree with the hon. Gentleman.

Before Virgin took over Northern Rock, Metro Bank was the only company to have been granted a full banking licence in 100 years. I have met entrepreneurs who would love to finance and set up new banks, and we have seen the launch of some new financial services products through the likes of Tesco and Marks and Spencer, but competition remains woeful. At the latest meeting of my business breakfast club, members made it clear to me that switching their business between banks is nearly impossible. Banks that lend money to SMEs require that their customers also do their everyday banking and personal current account banking with them. Some banks even require businesses to switch from a floating-rate loan to a fixed-rate one—that is profitable for the banks, but it forces the business into a loan that it cannot pay back early without enormous expense.

One specific policy would be a game changer for Britain, radically transforming our banking sector in terms of choice and competition, for business and personal accounts alike. We should introduce full bank account portability; we should be able to change banking provider at the flick of a switch. As with mobile telephones, when we change our bank we should be able, if we so wish, to take our account details with us. The ICB has proposed a costly seven-day switching service, where banks undertake to assist customers to move their banking within seven days but customers will still have to change all their direct debits, cheque books and debit cards, and all their documentation. Instead, we could insist on the creation of a shared payments clearing system, where all banks participate and customers have a unique bank account number with a code that simply identifies which bank holds the account. Switching would then be simple because nothing, other than the identifier code, would need to change when someone changes banks. This would vastly transform competition in the sector. Of course the big banks will resist it, arguing that the costs outweigh the benefits, but I want to highlight five very real advantages of full account portability.

First, it would cut barriers to entry for new challenger banks. Increased competition would force banks to differentiate themselves to retain customers. This would lead to enormous improvements in customer service and differentiation of bank offerings. Secondly, new challengers would mean more banks and, over time, a reduction in the risk of banks being too big to fail. The US has more than 3,000 banks and when a retail bank fails there is hardly a ripple. We need diversity of financial services providers, and this would enable it.

Thirdly, industry experts claim that the impact of creating a new shared clearing infrastructure would mean the banks sorting out the problem of their multiple legacy systems that date back to the consolidation of the 1990s. New systems could lead to a reduction of up to 40% in the bank fraud that costs the sector billions each year and is passed on to customers.

Fourthly, multiple legacy systems within banks make it hard properly to evaluate business ideas. Banking is essentially a technology business and improving the single customer view would have a positive impact on banks’ ability to evaluate credit risks and lend more successfully.

Finally, account portability offers the potential for orderly resolution of a failed bank. The potential to close down a bank and move accounts overnight to a solvent bank could be a valuable tool in a future financial crisis. The Chancellor has been kind enough to tell the Treasury Committee that he would consider full account portability if the ICB’s preferred option of a seven-day switching service fails to improve the current low switching levels. I urge him to grasp the nettle now. Technology has the potential to drive a fundamental change in our banking system.