Banking (Responsibility and Reform)

Caroline Lucas Excerpts

Tuesday 7th February 2012 Commons Chamber

[Caroline Lucas (Brighton, Pavilion) (Green)]

I welcome this important debate, the ramifications of which stretch far beyond the banking sector in particular and economic policy in general. The issue of high pay and bonuses is central to the kind of society that we want to live in. I share the disgust and outrage of my constituents at the fact that successive Governments have allowed the incomes of the wealthiest 10% of the population to rise by 37% in the past 10 years while those of the poorest 10% have fallen by 12%, and that the earnings of top executives at Barclays have increased by a stratospheric 4,899% since 1980, while wages for the average worker at the bank have increased only threefold.

We have heard much about a more responsible economic system in recent weeks, and I welcome that debate, but unless that fine rhetoric is backed up with concrete and far-reaching action, I fear that we will merely see more of the same bankrupt business as usual. The first thing we must do to address properly the concerns raised today is ask one important prior question: what purpose do we actually want the banks to serve?

I believe that banks ought to be useful servants of a productive economy and of the new economic, social and environmental challenges that we face. Introducing a statement of purpose requirement for banks and banking activities, in order to allow regulators and customers to assess how much or how little those activities contribute to a productive economy that serves and protects the environment, would be a useful starting point. It has already been done by the German Sparkassen network of community banks, and would go some way towards giving power back to people and allowing them a say in the future of our banks.

The bottom line is that markets alone cannot deliver the kind of banking system that we need—one that is safe and fit for purpose. Governments must step in, and not just when bail-outs are required. Tackling pay at the top end of the sector is an important first step. I support a special tax on bankers’ bonuses, but we should make it permanent. At the top rate of 50%, Labour’s one-off tax raised about £3.5 billion for the Exchequer, but did not do anything like enough to curb the excessive bonus culture, as we now see. Curbing Stephen Hester’s bonus and stripping Fred Goodwin of his knighthood are a start, but let us not pretend that throwing some red meat to the tabloids is a substitute for urgently needed thoroughgoing reform of the banking system. In the absence of major re-regulation, our financial system remains dangerously dysfunctional.

If we are intent on curbing excessively high pay, as we should be, we must recognise that it is not a problem in the finance sector only, and match any action with measures to improve wages at the opposite end of the scale. That means supporting a genuine living wage and considering policies such as a 10:1 ratio between the highest and lowest-paid staff of a company, or a guarantee that no member of staff should receive an annual bonus exceeding the annual wage of the lowest-paid worker in that business or organisation.

I have said that tackling pay was just one part of the challenge. There are many others: 3 million people in the UK do not even have a bank account, and 9 million lack access to affordable credit. Banking reform must address that urgently as well. A universal banking obligation could ensure a taxpayer quid pro quo for future bank support. It would have to cover where banks lend and include a banking code to ensure that everyone has access to essential financial services. A people’s bank could operate via the post office network to address financial exclusion and provide real, fairly priced competition in local communities. A UK community reinvestment Act would ensure that banks lend money where they are prepared to take deposits. We also need to separate banks’ retail and commercial arms properly, not just ring-fence them as the Government plan to do.

Ecological theory suggests that a system is most resilient when it is divided into compartments to protect it from external danger. In order for banks to be resilient, they too should be modular, without excessive connections between them that can transmit shocks rapidly through the system. For that reason, serious restrictions on inter-bank lending and derivatives trading and the reintroduction of exchange controls designed, among other things, to reduce sharply international flows of money between banks should be explored in much more detail.

The next round of quantitative easing may well be announced on Thursday. Recently, I met the man credited with inventing the term. He explained that he was in Japan at the time and wanted to talk about credit creation, but that those words in Japanese meant something different. Credit creation goes to the heart of how the banks operate. The current economic system enables commercial banks and other financial institutions to exert an unacceptably large influence on the economy. Now is surely the moment for us to challenge the virtual monopoly that we have allowed the private banking sector to exercise over credit creation.

One step towards achieving that might be to introduce green quantitative easing. We know that during the last round of QE, the Bank of England purchased £275 billion in Government bonds, yet that money did not find its way into the real economy or help small businesses get loans. Green quantitative easing would inject money directly into the economy, circumventing the paralysed banking system. By purchasing green assets such as solar photovoltaic assets for a nationwide roll-out, for example, we could create far more jobs, stabilise the economy, reinvigorate our local businesses and reduce our emissions.

There are many other things to be said, and I have only 20 seconds left in which to say them. We need diversity on our high streets. We need more community banks and credit unions. We will not get the banking system that we need if we leave it to a monopoly of four or five main high street banks. We need a diversity that we can learn from ecology. If we bring that into our banking system, we might just have a chance at a banking system fit for purpose.