Royal Institution of Chartered Surveyors: Property Act Receiverships

Bill Esterson Excerpts

Tuesday 18th April 2017 Westminster Hall

[Bill Esterson (Sefton Central) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Hollobone. My hon. Friends have set out examples of how their constituents have been badly treated over a number of years, first by the banks that distressed their thriving and successful businesses and then by the failure to secure justice after a long struggle, often with the support of my hon. Friends and their predecessors.

This is not just about one bank. It has been about Lloyds, HBOS and Royal Bank of Scotland. A constituent of mine came to see me just last week about NatWest, his business having been run down in a similar way to those of my hon. Friends’ constituents’. Businesses that were successful, that paid their interest on time and that were in a position to continue making their payments were run into the ground, in order to realise the maximum possible amounts for the banks and not in the interests of the customer. That is the reality of what has happened over many years and I am afraid that it could still be happening today, given the system that still exists.

The Tomlinson inquiry found at RBS a lack of competition and conflicts of interest, as well as the need for a proper retail banking sector, and yet we are in a situation today where those issues are still to be addressed. RBS may well have its own compensation scheme being set up, but no money has been paid out and at this stage it is being handled by RBS itself. It is still not independent of RBS. At the heart of this debate is that lack of independence and whether there are conflicts of interest in the LPA system.

[Mr Bailey]

Often, banks will say that the poor levels of business lending are because businesses will not come to banks for that lending. Does my hon. Friend agree that it is cases such as those mentioned today that have deterred many small businesses from going to their local banks and that, by default, inhibit our ability to invest in our economy for the future?

--- Later in debate ---

[Bill Esterson]

My hon. Friend is absolutely right, and I will address that point now—I was going to make it later. Our economy continues to struggle. We see sluggish productivity and low growth, particularly with smaller businesses, and one of the reasons is the lack of access to finance for those small firms, which undoubtedly causes them problems. I am in no doubt that the reputational damage done by these scandals and the lack of trust among smaller firms in the banks are factors that contribute massively to the problem.

We have seen businesses distressed and put out, people’s livelihoods destroyed and people’s lives damaged as a result of the behaviour of some of the banks, and of the people working in them and the people working for them as supposedly outside professional consultants. In the debate last December about alternative dispute resolution we heard about the activities of lawyers who are seconded into some of the banks and about the way they carried out similar activities. The convictions for fraud involved management consultants, and today we are talking about surveyors. There are conflicts of interests, whereby professionals are seconded into banks and then take decisions in the interests of those banks—why would they not do so, when their future lucrative work depends on those relationships?—and referring their own firms for the ongoing work, no doubt for fear of losing such work in the future.

With the LPA, the contracts have now been written in such a way that they favour the lender over the borrower. The borrower cannot then challenge the valuation of surveyors, because the valuer’s duty is to the client, not to the borrower. The original intention of LPA receiverships, which was to create a balance between borrower and lender, has been completely overwritten by the way that the banks prepare their standard terms and conditions in their contracts. Of course, most smaller businesses cannot afford the cost of legal action to challenge what is happening, especially when they are up against the financial clout of the financial institutions causing these problems.

So what is to be done? How can such scandals be avoided in the future? What are the remedies for what has happened before? There needs to be a sea change to ensure that the chances of repetition are reduced. There needs to be compensation, not just a scheme that is administered very slowly and internally without proper independent scrutiny and operation. I am talking about RBS, but in fact it is ahead of the other banks, given that it has any scheme at all. Perhaps the Minister can look at how we can ensure proper scrutiny, independent regulation and a proper complaints process within RICS and other professional bodies, so that RICS members do not get scrutinised by other RICS members. My hon. Friend the Member for Cardiff Central (Jo Stevens) explained the situation extremely well: there is a judge, jury and executioner system within RICS and elsewhere. That has to change if there is to be proper scrutiny to prevent such injustices and an opportunity for remedy when they happen.

We have to prevent such things from happening again, and there has to be compensation. Whatever Government are elected on 8 June have got to take these things seriously. It is long beyond time for that. Justice delayed is justice denied. It is 10 years on, and many former small business owners have lost everything and are completely unable to get compensation for what has happened to them.

My right hon. Friend the Member for Tynemouth (Mr Campbell) talked about the Serious Fraud Office’s potential interest, and he is absolutely right. I would like to hear what the Minister says about the potential for an SFO investigation into each and every one of these scandals. What prospects are there in the future for further fraud investigation?

We have got to prevent such things from happening again, and we have got to have proper regulation. The FCA’s remit does not include the regulation of business lending; it is there to regulate consumers. It does have a role in regulating sole traders and smaller partnerships. Is it time that small and medium-sized enterprises are given the same protection as consumers?

There is also the issue of the LPA receivership system. The Labour Government introduced the Enterprise Act 2002, which reformed aspects of insolvency law, but LPA receiverships were not included at that stage. Given what we have heard, is it time that LPA receiverships were given the same status as administration? Should we go down the route of having the chapter 11-type system that exists in the United States? In some way, we need to return to the original intention of LPA receiverships of achieving a balance between the interests of borrowers and lenders and some kind of limit on the level of fees that agents can charge.

My final point is about the process that can be used to deal with complaints. It seems to me that having self-regulation, whether through RICS or elsewhere, is not working, given the examples we have heard about. Is it time to look at meaningful arbitration and proper dispute resolution? I have raised a number of times the issue of the small business commissioner, which the Government are creating. They have acknowledged that there is an issue with the unfairness of contracts for the SBC. We will have a chance to look at that. When that post is created, will the Minister consider the need for proper, meaningful dispute resolution—perhaps binding arbitration—and giving that responsibility to the small business commissioner in relation to these matters, as well as in relation to late payments, which are its primary purpose?

There are a number of issues that need to be picked up. The Minister can respond to them now. The next Government really will have to act, otherwise—my hon. Friend the Member for West Bromwich West (Mr Bailey) was right to intervene on this point—we will continue to have a system where the relationship between small businesses and the banks is very poor. Unless that is resolved, we will not improve the performance of our small businesses, which are a crucial part of our economy. In the meantime, those who have suffered very seriously by losing their livelihoods will not see the remedy that they should, and there will continue to be a danger of a repeat performance by financial institutions, if that is not already happening.

[Mr Philip Hollobone (in the Chair)]

If the Minister would be kind enough to finish his remarks no later than 7.27 pm, that would allow Jo Stevens three minutes to sum up the debate.