The Economy

Gareth Thomas Excerpts

Wednesday 26th November 2014 Commons Chamber

[Kerry McCarthy]

I agree entirely with my hon. Friend. Nearly 20% of working people in Bristol East earn less than the living wage. According to the Joseph Rowntree Trust, two thirds of people who moved from employment into work in the last year are paid below the living wage. That is why in Bristol we have been running a living wage campaign. We have finally managed to persuade the mayor of Bristol to introduce that at the council level, and we want to encourage the organisations that do business with the council, with procurement contracts and so on, also to do that, and for the private sector to follow suit. That is incredibly important.

[Mr Gareth Thomas (Harrow West) (Lab/Co-op)]

My hon. Friend is making an important speech about Bristol, and I was interested in her comments on the living wage. Will she accept that the living wage is equally important for seats such as mine in outer London, where those who travel into central London have recently been hit by a 38% increase in the cost of the tube as a result of the Mayor of London’s recent decision?

[Kerry McCarthy]

I entirely agree with my hon. Friend. I will come in a moment to some of the living costs that are hitting people’s pockets hard. In Bristol, First Bus announced this month that the price of a day rider ticket would increase by 10%. That may not seem a huge amount, but when people are squeezed to the last penny and are struggling to afford to go to work and for work to pay rather than being on benefits, such transport fare rises make a huge difference to their weekly outgoings. That is another part of the jigsaw puzzle of how people are struggling to make ends meet.

My hon. Friend the Member for Coventry South (Mr Cunningham) mentioned zero-hours contracts, and constituents have come to see me recently about the uncertainty in which those place them. Usually people would be added to the payroll in the middle of the month and paid at the end of the month, but if people do not know until the end of the month how many hours will have been worked, they end up being paid a month in arrears. I had a woman come to see me the other day who had started work in September just too late to get on the payroll for that month. She could not be paid for the full month in October because she would not know until the end of the month how much she had worked, so she would not be paid until the end of November. Not only did she have to cover the period without an income, but it was impossible to plan ahead. It was impossible to claim in-work housing benefit and difficult to asses what she was entitled to in child care tax credits and other tax credits. It meant that she had to employ a childminder without knowing whether she needed that or could look after her child herself.

My hon. Friend mentioned season tickets. How does someone know whether it is worth buying a monthly season ticket to travel into work without knowing how many hours they will be working? All these things add up to make life incredibly difficult for people on zero-hours contracts. It is exploitation and it has to stop. Workers are being underpaid and underemployed. They are being treated as just another inanimate resource rather than the human beings that they are.

Some 1.4 million contracts do not guarantee a minimum number of hours and 1.4 million adults are in part-time work because they cannot find full-time work. In the last year, not a single employer has been prosecuted for paying below the minimum wage. The last successful prosecution was in February 2013, which was only the second prosecution under the coalition Government. Last year, the TUC estimated that 350,000 workers were paid less than the minimum wage. Again, that has to stop. These laws are there to protect workers and to ensure that work pays, and they are simply not being enforced.

The Joseph Rowntree report

“highlights the way the housing market has had a negative impact on people in poverty. There is not enough social housing”—

as we all know—

“which means more people in poverty are living with insecure tenancies in the private rented sector. The number of private landlord repossessions is now higher than the number of mortgage repossessions.”

The number of working people claiming housing benefit is rising and the amount that they need to claim is increasing too. Last year, the south-west of England saw the biggest increases in rent, with a rise of nearly 5%. Bristol is second only to London in yearly house price growth, with average prices in our city increasing by more than 13% last year. On top of that are the increases in transport costs. Between 2010 and 2013 energy prices for households rose by 37%.

Finally, there is food poverty, which Madam Deputy Speaker will know is an issue dear to my heart. In the UK, more than 4 million people are affected by food poverty. UK food prices increased by 43% in the eight years to July 2013. We all know that more people are having to use food banks. According to the Oxfam and Church Action on Poverty report “Below the breadline”, the three main food aid providers gave more than 20 million meals in 2013-14, a 54% increase on the year before. Problems with the social security system, such as delays and sanctions, continue to be the biggest overall trigger for food bank use. About 45% of people who use the service do so because of problems with the benefit system. Despite repeated questioning of various Ministers, including even the Prime Minister, the Government refuse to accept that it is the failings of their own welfare system that are driving people to the food banks in poverty.

Another emerging trend is the 22% of Trussell Trust food bank users referred because of low income—compared with last year 51,000 more people were referred owing to low income. Again, this is in-work poverty. These are not people who are playing the system, who, as one Minister said, are making use of the food banks simply because they are there so that they can spend their money on beer and bingo. These people are doing their best to try to get by in work but simply cannot afford to feed their families without resorting to food banks.

My hon. Friend the Member for Nottingham East (Chris Leslie) has outlined some of the measures that Labour would take in terms of taxation and trying to raise incomes to address some of these problems, but above all it is a question of priorities. The Government have completely the wrong priorities—giving tax cuts to millionaires rather than tax cuts and support for people at the lower end of the income scale who are the ones who really need it. Cutting the 50p tax rate did nothing to help the people in my constituency who are struggling to get by. I urge the Government to rethink this because their priorities at this time are simply wrong.

[Richard Harrington (Watford) (Con)]

It is a pleasure to speak in this debate. I want to concentrate on a few things that the shadow Minister, the hon. Member for Nottingham East (Chris Leslie), said. I hope that one day, while driving from London to Nottingham, he will decide to turn off the M1 and head towards Watford, because then I could show him that, in reality, many of the claims made in this lengthy Opposition motion are not quite correct.

[Mr Thomas]

If my hon. Friend the Member for Nottingham East (Chris Leslie) accepts the hon. Gentleman’s invitation, perhaps he will take him to Watford tube station, where they could discuss the impact of the increase of up to 38% in the cost of fares for outer-London commuters that the Mayor has recently imposed.

[Richard Harrington]

Just to correct the hon. Gentleman, some of the tube fares for areas outside London are set by the owner of the stations, London Midland, rather than by Transport for London. I know that he did not mean to mislead us on that point.

The shadow Minister claimed that working people are worse off today than they were under the magical mystery tour of the previous Labour Government. I am not sure where that claim comes from, but I imagine that he, like the shadow Chancellor, bases his statistics on the retail prices index, comparing it to wages, which most credible economic sources no longer use as an indicator because it does not include the huge increase in the personal allowance and tax cuts of £700 per person.

To get back to reality, when somebody who has been unemployed for a long time, or indeed who has never worked, gets a job, it will not necessarily be a highly paid one. If the hon. Gentleman accepted my invitation to come to Watford, he could visit the local jobcentre—he might be hoping that I will be enrolling there next May—and see that long-term unemployment has fallen by 44% and youth unemployment has halved. Nobody could say that those working people are worse off than they were before 2010.

Data Transparency (Banking)

Gareth Thomas Excerpts

Thursday 3rd July 2014 Commons Chamber

[Mr Gareth Thomas (Harrow West) (Lab/Co-op)]

I am grateful to you, Mr Deputy Speaker, and to my hon. Friend the Member for Edmonton (Mr Love) and, indeed, to the Economic Secretary for allowing me to contribute to this brief debate. The Economic Secretary is a Minister of particular intelligence and sophistication, and I hope as a result she will be sympathetic to my hon. Friend’s request for clarity on whether the Financial Conduct Authority and, behind it, the Treasury and the Bank of England are really using the data on lending patterns that are being disclosed in order to identify the credit deserts across the UK which clearly exist.

One lesson from the United States, where similar disclosure of lending data takes place, is just how important the data are in identifying where credit unions or community banks—the community development financial institutions to which my hon. Friend referred—can help to plug the gaps. If the FCA or the Bank of England look with vigour at the lessons that can be learned from the data, that might help steer the work of the credit union expansion project being undertaken by the Department for Work and Pensions and the efforts of local enterprise partnerships to support CDFIs in plugging the lending gaps.

I support my hon. Friend in all the different points he made and urge the Minister to press the FCA to undertake open and rigorous scrutiny of the data following the forthcoming second disclosure, so that we can begin to get a sense of the emerging patterns and as a result better direct our resources to drive the expansion of alternative sources of lending in the credit deserts.

--- Later in debate ---

[Andrea Leadsom]

Yes, the Government are keeping the matter under review, and we will discuss exactly that with the BBA.

The hon. Gentleman expressed concern that postcode lending data do not give a full picture of lending in the UK, and suggested that a wider set of lenders and products might be included. For example, he noted that SME figures represent about 60% of the national market, covering loans and overdrafts only. Other forms of finance, such as business credit cards and asset-based finance, are not included at this stage. He is therefore right that it is important for public data to be as broad as possible, but as I have mentioned, we must bear in mind that, particularly for smaller institutions, the cost of making such disclosure might be prohibitive and might increase the costs passed on to customers and businesses. It is important to see postcode data as part of a wide range of data to which the Government, banks and businesses have access, on top of data from the Bank of England, the BBA and other surveys.

Those other surveys, including the SME Finance Monitor and the new Business Banking Insight, can also be of real importance. The latter, which the Government announced in the Budget and I launched just over a month ago, is a really useful tool for UK businesses, as it lets them see which banks are in a good place to offer them the products and services they need at the right prices and will give them a decent service in their area and their particular market.

Finally, the hon. Gentleman asked what use the Government are making of the data on bank lending and whether we have a clear strategy for tackling any credit deserts in UK communities; the hon. Member for Harrow West also raised that issue. I reassure them both that the Government regularly interrogate these data as part of our wider analysis of bank lending conditions across the UK. However, the full usefulness of the data will only really be known once we have been able to identify longer-term series and trends.

At the current time, the data do not appear to show any regional imbalances, but we will continue to monitor that. As the dataset grows and trends become more readily identifiable, we plan to make increasing use of the data. We will of course take action on the issue if we think it is needed.

[Mr Thomas]

Will the Minister give us a little more clarity on who is analysing the trends? I ask, having asked the Financial Inclusion Centre specifically to give me a sense of the bank lending data for London; its analysis suggested that there was a wide disparity among different postcodes—potentially 50% to 300% of the average per capita lending per postcode. As my hon. Friend the Member for Edmonton mentioned, my sense was that there was a need for one particular organisation to analyse those data.

[Andrea Leadsom]

As I have said, at the current time the data do not seem to show any major regional imbalances, but my officials, the Bank of England, the BBA and the banks themselves are looking at the data. If the hon. Gentleman wants to write to me on a specific point where he believes that there may be evidence of a distinct imbalance I would be delighted to look into it and respond to him. We will continue to monitor the data and ensure that as trends become more identifiable we can make more use of the data to assess potential areas where there is a lack of banking facilities.

In conclusion—

Oral Answers to Questions

Gareth Thomas Excerpts

Tuesday 24th June 2014 Commons Chamber

[Mr Osborne]

The many thousands of people who are getting jobs in the hon. Lady’s area are better off, and of course—[Interruption.] Let me explain to the shadow Chancellor: if you bring the British economy to its knees, if you have the deepest recession for 100 years, if you preside over the biggest banking crisis in our history, you make this country poorer. But it is by fixing those problems, by working through our long-term economic plan, that we are going to make the country richer again.

[Mr Gareth Thomas (Harrow West) (Lab/Co-op)]

2. What recent assessment he has made of the level of bank lending to businesses since May 2010.

[The Economic Secretary to the Treasury (Andrea Leadsom)]

The Government have introduced several measures aimed at improving all types of lending to businesses, such as the funding for lending scheme, the British Business Bank and the SME appeals process. Against this backdrop, gross lending to businesses in Q1 2014 was almost 10% higher than in the same quarter a year earlier, and 32% of SMEs that have been through the appeals process have had their initial loan rejection overturned.

[Mr Thomas]

On the Government’s watch, net lending to business is down by some £57 billion since May 2010. Does that not underline the case for further banking reform, for an expansion of the use of community development financial institutions, and for consistent disclosure of bank lending data?

[Andrea Leadsom]

The hon. Gentleman will know that the great recession in 2008-09 that the previous Government presided over left banks in an absolute mess, and it takes a very long time to recover from such a devastating position. The banks are still trying to sort out their balance sheets, and net lending has been down. It will take time to recover, but this Government are putting measures in place to create new access to finance from all sorts of different lenders. I was delighted yesterday to support the credit union movement on its 50th anniversary with a call for evidence on how we can expand that area of activity for.

Financial Services Bill

Gareth Thomas Excerpts

Monday 10th December 2012 Commons Chamber

[Chris Leslie]

It is worth noting that when we talk about the independence of the Bank of England we are talking about operational decisions of the Monetary Policy Committee. They have to be made, of course, without political interference. We can come on to the questions of quantitative easing and the Chancellor’s recent decisions on that, but we will put them to one side for now. The questions of governance of the Bank of England are a matter for Parliament to take very seriously indeed.

As the debate progresses, we will discuss the vast powers that the Bank will be taking, which are known rather opaquely as macro-prudential powers of regulation. Essentially, the Bank of England can intervene in any number of financial services, products and transactions and affect the financial well-being of businesses, consumers and households in the constituency of my hon. Friend the Member for Wirral South (Alison McGovern). We are talking about mortgages, lines of credit and supply and so on. That is why we need to get the arrangements right, and it is a shame that the Government did not do that.

I want to skip on, if I may, to Lords amendment 16, to which we have suggested another small amendment.

[Mr Gareth Thomas (Harrow West) (Lab/Co-op)]

While my hon. Friend has his arguments firmly in his mind, may I remind him that for some time many Members of this House have been concerned that the Bank of England has not done enough to encourage our high street banks to invest in deprived communities. Does he think that his amendment to Lords amendment 3 might help to encourage the Bank of England to pay a little more regard to those concerns?

[Chris Leslie]

Indeed, and I am grateful to my hon. Friend for taking the time to participate in this debate. A string of amendments that we will discuss later cover consumer credit and the interests of consumers, and we will talk about ease of access to financial services when we consider them. He is right, as the Bank of England is a key player in this regard.

That point neatly takes me on to our amendment (a) to Lords amendment 16. It tries to ensure that under the new arrangements the Bank of England—in particular, the new powerful committee that is being established, called the Financial Policy Committee—will, when it explains the decisions it is taking, also have to include an assessment of the impact of its decisions on economic growth. I know that the whole question of jobs and growth is somewhat of a blind spot for Treasury Ministers, but notwithstanding their rather peculiar inability to see the importance of these issues, we feel that it is important to put that requirement in the Bill.

We are delighted and overjoyed that the Government finally relented and granted a concession in the other place, after months of labour in Committee in this place, by agreeing to Lords amendment 10. It was a major victory for the Opposition when the Government were forced to change the Bill to ensure that the FPC would not only contribute to the financial stability objective but, subject to that, support the economic policies of Her Majesty’s Government, including their objectives for growth and employment. That concession was made because of the amendments we tabled and the evidence heard in Committee from a wide number of organisations, including the British Bankers Association, the CBI, the London stock exchange and others. They all said in submissions to Parliament that the new regulators should have regard to growth, so we are glad that the FPC has that general backstop requirement on its shoulders. However, we do not think it goes far enough.

As I said earlier, the powers the Bank of England will take—that rather opaquely described set of macro-prudential tools—will be very wide ranging. Each time it pulls one of those levers, each time it makes a particular decision, it should explain the impact of that change. The Bank of England will be able to affect a number of key areas. Perhaps the Minister will tell us when the draft order at the back of the Treasury’s consultation document is likely to find its way on to the Floor of the House for debate, because I know that a number of hon. Members will be interested in that.

The Bank will have powers called counter-cyclical capital buffers. I know that the Treasury Bench has a difficulty with the concept of counter-cyclicality, but it essentially means that banks will be required to build up capital when times are rather exuberant and things are going well in the economy, but to unwind those capital buffers in a downturn. The Bank will say that there should be sectoral capital requirements. In other words, the FPC can make the residential mortgage sector have a certain amount of capital or structure its business in a particular way. The commercial property sector will have to do the same. This is a Bank of England decision, not the result of parliamentary or legislative changes. Consumer credit decisions will be made. If my hon. Friends have constituents who pay off their credit card, perhaps currently a 2% or 5% minimum repayment on a monthly basis, at the flick of a switch the Bank of England will be able to say, “No, you have to pay off 10% each month,” or perhaps even more. That is the sort of power that the Bank of England will have.

--- Later in debate ---

[Greg Clark]

The amendments in this group relate to key considerations that have underpinned the design of the new conduct regulator. The Government have been clear that regulation should focus on making financial markets work well, and on securing better outcomes for consumers.

Access is critical. Without access to a bank account, for example, it is difficult for individuals to participate fully in the economy and even in society. To support access, Lords amendment 25 adds a new “have regard” to the Financial Conduct Authority’s competition objective. Therefore, when considering whether effective competition is in the interests of consumers, the FCA must have regard to

“the ease with which consumers…including consumers in areas affected by social or economic deprivation, can access”

the services they may wish to use.

That reflects discussions in the other place, and it is right to make it clear that the regulator’s duties embrace those affected by deprivation.

[Mr Thomas]

The Minister gave the example of access to a bank account, but may I draw his attention to the issue of access to a bank branch in order to access one’s bank account? Already, a series of communities no longer have bank branches. Will he say how the FCA will use this new power to consider communities that lack not access to a bank account but access to a bank branch in the first place?

[Greg Clark]

The hon. Gentleman makes a reasonable point. However, having set up the FCA to put supervision into practice and added this concern to its objectives, it would be unreasonable for me to tell it how to exercise its powers before it has even come formally into existence. It will consider the issue of access and come to a view. That will be open to scrutiny by the Treasury Committee and, I dare say, other Committees of the House.

Where the FCA has identified a problem with access, the regulator will consider whether it could take action to close gaps in provision by promoting competition in the interests of consumers. It may also consider whether its own rules and requirements are imposing a burden on competition and restricting access.

--- Later in debate ---

[Greg Clark]

I do not believe there is a loophole. Firms are required to be regulated for those aspects of their business that provide credit to consumers. They therefore fall squarely under the FCA’s powers.

The Government tabled a number of amendments in the Lords to ensure a smooth transfer of consumer credit regulation from the OFT to the FCA, and to ensure that the FCA regime is proportionate and gives the right protection to consumers. We also introduced amendments in response to concerns raised by the House of Lords Select Committee on Delegated Powers and Regulatory Reform. For example, Lords amendment 136 requires the Treasury to have regard to the importance of securing an appropriate degree of protection for consumers and for the principle of proportionality.

Lords amendment 130 responds to the Committee’s concern about double jeopardy. It provides that when criminal sanctions under the Consumer Credit Act 1974 and regulatory sanctions under the Financial Services and Markets Act 2000 are available to the FCA in relation to the same act or omission, a person may not be convicted if he has already been subject to sanctions under FSMA.

Lords amendment 233 and associated technical amendments address a possible loophole that might otherwise emerge as a result of moving from a CCA-based regime to a FSMA-based regime. Under FSMA, it is an offence to carry on a regulated activity without authorisation, whereas under the CCA it is an offence to lend money or collect debts without the right category of licence. The Government tabled amendments in the Lords to make it a criminal offence to lend or collect money without the correct permission. That addresses the risk of sophisticated illegal money lenders seeking authorisation for a lower-risk activity, only to use that as cover to engage in lending or debt collection, to the potential detriment of consumers. Lords amendment 233 also ensures that any agreements entered into or being enforced by a person without the necessary permission become unenforceable, meaning that important protections in the CCA for victims of illegal money lenders or debt collectors are replicated in the new regime.

Lords amendments 63 and 232 make changes to how the appointed representatives regime under FSMA will operate when firms carry out a credit-related activity—for example, by acting as ancillary credit brokers. The amendments create a limited carve-out from the provision in FSMA that firms cannot be both an appointed representative and authorised at the same time. They provide that if a firm is authorised for a particular category of consumer credit activity, it would also be able to become an appointed representative.

Consistent with CCA provisions, the Bill allows the Treasury to enable trading standards to prosecute offences under FSMA. Government amendments enable the Treasury to confer similar powers on the Department of Enterprise, Trade and Investment in Northern Ireland. They enable the Treasury to confer powers on trading standards and DETI to investigate offences under FSMA.

The amendments to which I have spoken so far have been concerned with the new regime, but the transfer to the FCA will not take place until April 2014, and it is clear that there are problems in the sector that the OFT needs to address in the meantime. The findings of the recent OFT report into compliance standards in the payday lending market show that compliance levels are low and that a number of practices that clearly cause consumer detriment are rife in the sector. To empower the OFT to operate as effectively as possible in the interim period, Lords amendments 138 and 147 give the OFT a new power to suspend consumer credit licences with immediate effect if it considers that necessary urgently to protect consumers.

Finally, on social investment, the Government tabled Lords amendments 24 and 41 to ensure that the particular needs of different sectors and the consumers that use them are taken into account—they are not specific to social investment but apply to alternative and innovative business models more generally. Lords amendment 24 requires that, when the FCA is considering its consumer protection objective in future, it will be required to have regard to the different expectations of consumers in relation to different types of financial service. In other words, if people with their eyes open go into a social investment model, it will be entirely appropriate for advisers to advise on such products.

Lords amendment 41 adds a new regulatory principle to clause 3B—the principle applies to both the Prudential Regulation Authority and the FCA. The measure requires them to have regard to the different nature and objectives of different financial services businesses. It is intended to make clear that there should not be a one-size-fits-all approach to regulation, because sectors such as social investment have an important part to play.

[Mr Thomas]

I apologise for interrupting the Minister’s strand of thinking on the social investment measures, but may I take him back to payday lenders? The noble Lord in the other place introduced a series of Government amendments designed to deal with the problem. Will the Minister offer the House a definition of payday lenders, so that we have a sense of who the Government seek to tackle with the amendments?

[Greg Clark]

I will not do that for much the same reasons I gave in response to the previous intervention. The Lords amendment clarifies that across all regulated lenders the FCA has broad and powerful powers, if I can put it that way, to intervene to protect consumers, including on the price or rates of interest they are charged, according to its assessment of the detriment faced by consumers. It is right to frame it in that way, and to empower the regulator to pursue sometimes even novel forms of credit that might be operating to the detriment of consumers, rather than to risk specifying in the Bill detail that might be overtaken by time or the ingenuity of people seeking to cause damage to our constituents.

[Mr Thomas]

Will the Minister reflect on that answer? It would be helpful, in the context of the debate and understanding whether the amendments he supports today are effective enough to deal with the problem of payday lenders, if he considered providing a definition of what the Government see as being the problem with payday lenders. The Opposition might have different views on what constitutes a payday lender. It would be good to hear the Minister’s views, so we might determine whether the amendments will achieve the objectives he has set out.

--- Later in debate ---

[Chris Leslie]

That is true. The Opposition take the view that the financial services sector needs to move away from the old model of essentially extracting profit on the basis either of the ignorance or lack of awareness of customers—basically taking advantage of the inertia in the system—or of the fact that the consumer has no other choice. We need to support a financial services sector that genuinely adds professional value and acumen to products fairly and transparently. That is the modern sort of financial services sector that this country deserves and can have. We need to get away from that old era, in which the banking system essentially raked in multiples of small penny packets of income and profit off the backs of people who were not necessarily aware they were being charged 25p or 50p for cash withdrawals. That is the sort of bad practice we need to move away from.

The Opposition have called for action to ensure that pockets of the country are not left isolated and on their own. In the United States, they have clear safeguards requiring banks to reinvest in communities and provide basic coverage. That counts not only for consumers, but for small businesses, which, as we know, also struggle to access affordable loans.

[Mr Thomas]

My hon. Friend is making an extremely important point. He will be aware that President Obama, in backing stimulus legislation in Congress, ensured that it required banks to disclose their lending to businesses across the USA, allowing us to see the lending deserts not only for individual financial consumers, but for individual business financial consumers. Surely that is something the FCA might usefully consider requiring of our banks.

--- Later in debate ---

[Chris Leslie]

Exactly. I imagine that what my hon. Friend describes is absolutely correct. Incidentally, I pay tribute to him for his endeavours in trying to improve the legislation, month after month after month, as we proceeded through Committee and on Report. The situation in Northern Ireland will be compounded by different factors, so how much more useful would it be if he and his neighbouring parliamentary colleagues had access to data about lending availability in a more rigorous form? That is how we want to interpret amendment 25 and how we will press the FCA to interpret it.

[Mr Thomas]

Is there not a danger that the Minister might see amendments 25 and 78 as a “Get out of Jail” card when it comes to taking real action to tackle the problem of payday lenders and the lack of access to financial services in many of our most deprived communities? Might he not say, “Well, 2014, when the FCA comes in, will be the time to act”? Does he not need to adopt the same initiative as my hon. Friend mentions by having a meeting with the chief executive of the FCA and saying, “We want action on these issues. We want you to set out clearly before you take office what you’re going to do about the problem of payday lenders and what steps you’re going to take to require better access to financial services in the most deprived communities”?

--- Later in debate ---

We want to see one-nation banking that will provide an opportunity for everybody to avail themselves of banking services. In a modern economy, people simply cannot function without a proper bank account. Without one, they cannot have a job, get a good deal from the utility companies or receive money from other people. A bank account is now an essential part of modern life, and I hope that the Minister will take this matter to heart, talk to the FCA about it and say more to us about it this evening.

[Mr Gareth Thomas]

I am grateful for this opportunity to take part in the debate tonight. I echo some of the concerns that have been expressed by my hon. Friends the Members for Bishop Auckland (Helen Goodman) and for Nottingham East (Chris Leslie). I hope that the Minister will see his response to the debate as an opportunity to convince the House that Lords amendments 25 and 78 are not part of an attempt to put off action on payday lenders or on lending deserts.

I want to offer the House the example of the community of Thamesmead and Abbey Wood. It is a community of about 55,000 people in south-east London. The houses there were built in the 1960s in response to what was then seen as London’s housing crisis. There is no bank branch in the whole of that community. Not one of the big five banks has a branch there. The nearest branch is 30 to 45 minutes away by public transport. This is not for want of trying by a whole series of people to convince the big five banks to establish themselves in the area. An excellent organisation, the Thamesmead Trust, has tried to persuade the banks to set up there. The former Member of Parliament for Erith and Thamesmead, John Austin, has also tried many times, and the present Member, my hon. Friend the Member for Erith and Thamesmead (Teresa Pearce), has made a number of efforts as well, but there is still no bank in the area.

The community of Thamesmead and Abbey Wood is clearly not the only area without a bank, as my hon. Friend the Member for Bishop Auckland illustrated, but I worry that many of the lending deserts in this country are not yet out of the closet, if I can use that term. We do not have the necessary information to chronicle by postcode the lending that is taking place to businesses and to individual consumers. As my hon. Friend the Member for Nottingham East said, many of the banks in question are established in the United States, where they have to provide those data. As I said in an earlier intervention, President Obama supported calls for business lending to be publicised, on a postcode basis, so that people could see where lending was taking place and where it was not. That provision has now been written into American law.

We have called not only for the publication of lending data by postcode but for an obligation to be placed on banks to lend into every community. If they are not prepared to do that themselves, there should be an expectation that they will do so through community development finance institutions, through charity banks or through credit unions, but the obligation should be on the banks to demonstrate that they were providing lending into communities through those alternative sources if they were not prepared to do so directly themselves.

[Helen Goodman]

My hon. Friend reminds me that I asked HSBC, when it was closing its branch in my constituency, if it would instead put £10,000 into the local credit union. I received a letter from the bank today saying that it would not.

[Mr Thomas]

My hon. Friend gives a good example of the lack of joined-up thinking in our financial services markets. It would be good to see the big beasts of the financial services jungle supporting the newer players that want to address the problem of lending deserts.

Numerous websites offer comparisons between banking products, but the Centre for Responsible Credit has highlighted how, in practice, the banks release very little information about their lending at community level, either for businesses or for personal customers. Data on lending to and deposits from small businesses and third sector organisations, by postcode or at neighbourhood level, are not routinely available in the UK, even though much of that information is held by the banks and could be released.

The last time I spoke to representatives of the British Bankers Association, they told me that they were looking at this issue. It would be good to hear what the Financial Secretary thinks about it. My hon. Friend the Member for Nottingham East clearly thinks that the Minister will be a new broom sweeping through the fusty ways of the Treasury, and I hope that he will use his considerable influence to maintain the pressure on the British Bankers Association to step up the release of those data. I also hope that he will use his meetings with the chief executive and board members of the Financial Conduct Authority to require them to initiate similar pressure, in private before the FCA is properly established, and in public thereafter.

[Susan Elan Jones (Clwyd South) (Lab)]

My hon. Friend has been talking about bank deserts. Would he also accept that there is also a problem when small branches in rural communities close? We accept that some of those communities are very small, but there is a sense that once a bank has deserted a community, almost nothing can be done to support the businesses there. That is also something that we need to look at.

[Mr Thomas]

My hon. Friend makes a very good point. The situation is particularly stark in rural communities, but it is increasingly stark in many urban areas. North Harrow, in my constituency, no longer has a bank, and businesses in that area are extremely disappointed by the lack of easy access to banking services and the inability to have a proper discussion with a local bank manager about their finance needs.

I hesitate to suggest that the Minister might enjoy and benefit from a foreign trip, but should he find time in his diary, he might like to go to Washington and spend a little time with the National Community Reinvestment Coalition. He would find a considerable amount of expertise there on the disclosure of lending data by banks to businesses and individual consumers. He might like to bring back to the House, and to his conversations with those in the financial services industry, the benefits of the US legislation, the most recent update of which has happened since 2010.

Let me return briefly to the definition of payday lenders. If I may say so, I thought the Minister quite skilfully used an intervention made by my hon. Friend the Member for Walthamstow (Stella Creasy) to avoid defining payday lenders. I gently encourage the Minister to look again, not necessarily in the context of this debate, but separately, at how payday lenders should be defined. Even with the power proposed by the Lords, the question of definition is still ducked. If there is to be the interest rate cap for which so many Members, led by my hon. Friend the Member for Walthamstow, have campaigned, we must have clearer definitions of which financial services businesses are included within the term “payday lenders” or the high-cost credit definition that was just mentioned, so that proper action can be taken.

I fear that many of the payday lenders who have looked at the amendment that the new archbishop has helped to force over the line, perhaps, in the House of Lords will recognise that there is no definition as yet, and so will not feel sufficiently worried to change their practices.

[Tracey Crouch (Chatham and Aylesford) (Con)]

I had not intended to speak in this debate, but I rise briefly to talk about Lords amendment 78. I want to speak partly so that I can place on the record my recognition of the hard work done by the hon. Member for Walthamstow (Stella Creasy) on this issue. She has been recognised already across the House in winning many awards for her campaigning. It is true to say that she has been tireless on this issue, on which she has achieved a huge success—at the early stages of what will no doubt be a long and distinguished career in the House.

I want to thank their Lordships for the work they did the week before last on this issue, and to congratulate the Government on listening to the concerns across the House. This issue concerns many of us on both sides of the House, even though there may be an urban myth that those of us who represent south-east Conservative seats do not face many of the concerns about deprivation and the impact that the high-cost credit industry is having on our constituents.

Chatham has two significantly deprived areas. One problem seen by the local citizens advice bureau is an increase in the number of people from the more affluent wards in the area coming in to talk to their debt advisers. In Medway we now have average personal debt levels of nearly £43,000, which I think is incredibly high. We in Medway have therefore joined up, across all the parties, to try to provide a solution to some of the problems. First and foremost, I joined the local citizens bureau to chair an inquiry to try to establish precisely what is driving people into increased personal debt. We have done so by, rather controversially, partnering with Wonga to do a proper survey across all the wards in the Medway authority, looking into what is causing people to increase their levels of debt. However, let there be no hesitation about the fact that, as I have already made clear, if it is payday loan companies that are driving people, particularly the more vulnerable members of society, towards debt, we shall make strong representations to ensure stricter regulation of these companies.

The hon. Member for Nottingham East (Chris Leslie) raised what I thought were interesting issues about the definition of high-cost credit lending. One of the organisations that has not yet been debated here is the pawnbroking industry. I recently saw an advert placed outside both a pawnbrokers and a payday loan company, inviting people to take out loans of up to £50,000. It turned out that this was for businesses. I have real concerns about businesses taking out payday loans where they are securing the entire company against such credit. I recognise an asset is being secured in pawnbroking, but entire businesses could suddenly be lost if they are unable to meet their repayments.

I have some concerns about whether this regulation will cover pawnbroking companies, as there is a bit of a loophole in the credit regulations when it comes to pawnbrokers. I would like to see us take a proper look at how pawnbroking companies are offering increasing amounts to help with short-term cash supply. Although there are some limitations and I do not think it is recommended that businesses take a loan of more than £25,000, the fact is that pawnbroker loans can go up to £100,000. It is incredibly irresponsible for companies to be lending that to businesses, particularly when it is unlikely that the businesses are going to be able to meet their repayment plans.

Small Charitable Donations Bill

Gareth Thomas Excerpts

Tuesday 4th September 2012 Commons Chamber

[Miss Smith]

I thank my hon. Friend for that contribution, which I hope has given the House enough to go on on this subject.

The purpose of the scheme—

[Mr Gareth Thomas (Harrow West) (Lab/Co-op)]

rose—

[Miss Smith]

If the hon. Gentleman will allow me to set out the purpose of the scheme, I shall be happy to engage in further debate as we proceed.

The purpose of the scheme is to enable charities and community amateur sports clubs to claim a gift aid-style payment on small cash donations of up to £20 in cases where it is often difficult to obtain a gift aid declaration. In general terms, eligible charities and CASCs will be able to claim top-up payments on up to £5,000 of small donations each year. As I said, the crucial point is that the Bill provides for top-up payments to be made to eligible charities that find it difficult to claim gift aid on donations, such as those from street buckets and church plates—when donors might be reluctant to stop to fill in gift aid declarations. In such situations, charities are currently missing out on income.

--- Later in debate ---

[Mr Thomas]

It is not just the Institute of Fundraising, which the hon. Member for Cheltenham (Martin Horwood) mentioned, which has concerns. Caron Bradshaw, the chief executive of the Charity Finance Group, has said:

“Eligibility for the scheme is limited and…will stop those that need it most from using it.”

Sir Stuart Etherington, the chief executive of the National Council for Voluntary Organisations, has said:

“Even for those of us who spend a lot of time looking at Gift Aid, some of the restrictions are hugely complex to understand”.

Why does the Minister think that charities that were initially positive about the Bill are now so sceptical about some of the detail?

[Miss Smith]

I do not want this debate to descend into a battle of quotations—although I could, for example, provide the hon. Gentleman with a quotation from Mr Graham, the chief executive of a charity not far from my constituency, who has said:

“Being a very small charity relying on small private donations and monies collected in tins positioned in shops etc I welcome this Bill. It will certainly make a difference to the very needy children in Kenya that Mnarani Aid supports.”

The Bill has been broadly welcomed by the sector. It puts cash towards charities. I shall set out how it does that and deal with some of the points that some stakeholders have made over the summer and beyond. I am confident that the Bill does what it sets out to do, which is to support charities in a constructive way and the funding will be welcomed.

[Miss Smith]

I shall try to be careful in responding. A number of interesting issues have been raised that are not necessarily part of today’s Bill. In addition, a number of improvements to gift aid have often been mooted or discussed, but they are not necessarily part of the Bill either. In direct answer to my hon. Friend’s question, therefore, the matters for consultation and scrutiny to date relate closely to this scheme and the mechanisms within it, which I shall now set out.

Under the scheme, charities will be able to claim top-up payments equivalent to the basic rate of tax paid on a donation, which is currently worth 25p for every £1 collected on small cash donations of £20 or less. Therefore, if a charity claims on the full allowance of £5,000 of small donations in a year, that will mean an additional £1,250 of income. It is that which charities will welcome. Hon. Members will know that tax reliefs for charities and charitable giving are an important source of income for charities, totalling over £3 billion a year. Of those, gift aid is the largest relief and is worth over £1 billion a year. We estimate that the gift aid small donations scheme could result in additional Government funding of around £100 million a year for charities and CASCs by 2015. That represents a significant boost in income for the sector and will be especially valuable to small charities. That is why—I again emphasise the point—this is a Bill that is to be welcomed and which has been welcomed by many across the voluntary sector.

To ensure that the new scheme is as accessible as possible to charities, it will be administered using the same mechanisms that apply to claims for tax relief under gift aid. The scheme will look and feel familiar to those charities and CASCs that already claim gift aid, and Her Majesty’s Revenue and Customs will publish clear guidance ahead of the commencement of the scheme to ensure that it is simple to access. However, because the new scheme will not be a tax relief, it cannot be legislated for through the usual Finance Bill route— I regret to deprive my hon. Friend the Member for Bedford (Richard Fuller) of the chance to serve on such a Bill and discuss the philosophical principle—so we are legislating for it in this programme Bill instead. The scheme was widely welcomed by the sector when it was announced in Budget 2011 and continues to be well received. We have worked closely with the sector to get the scheme right.

Let me now address some of the points of detail that have been raised, and which I am confident will be well understood by hon. Members. I shall set out the rationale for the ways in which we have designed the scheme, but first I want to set it firmly in the wider context. We have had to take steps to ensure that it operates as fairly as possible, but also to ensure that it remains affordable and is protected against fraud. We want this money to go to legitimate charities doing important work with real social benefit. We also want the small donations scheme to be as fair as possible. We want to ensure that charities doing the same kinds of work at local level, but which have different historical structures, get allowances under the scheme that are not hundreds, or even thousands, of times different from one another.

Those are the key driving principles behind the scheme: fairness, protection against fraud, and providing a complementary scheme to gift aid. We also want to channel some extra funding to charities, which I suspect that no hon. Member would want to speak against. I ask hon. Members to keep those principles in mind as we debate the detail of the gift aid small donations scheme. Let me take them in turn.

First, we want the scheme to complement gift aid rather than to replace it. I would urge all charities that receive donations to make full use of gift aid, where there is no limit on the amount of donations on which the charity can claim. However, there are some donations for which gift aid declarations are hard to come by, and that is what the scheme is designed to address.

[Mr Thomas]

Will the hon. Lady tell the House how much the Bill will cost the country? I ask that question in the context of transitional relief for charities having come to an end last April, at a cost of about £100 million. Will the Bill simply lead to a replacement of that money?

[Miss Smith]

I have already said that the Bill will channel up to £100 million to charities over the years in which the scheme gears up. That is to be welcomed. I think that the hon. Gentleman will also understand that the clue is in the title, in relation to transitional relief. This is a new scheme that ought to be welcomed in its own right.

The second principle behind the proposal relates to protection against fraud. We have designed the scheme so that for a charity or CASC to be eligible to claim, it must have a minimum three-year track record of successfully claiming tax relief under gift aid. It will also have to continue making gift aid claims while it is claiming under the new scheme. I know that the three-year rule and the requirement to match claims with gift aid claims have raised some concerns among charities, but I must be frank and say that the generous nature of charitable tax reliefs means that they are vulnerable to exploitation, with a small minority looking to take advantage of the arrangements.

--- Later in debate ---

[Miss Smith]

That point has been raised, and I look forward to addressing the details of it with my hon. Friend and others. She will be aware that we have sought to put in place restrictions in respect of community buildings—the other being commercial and is in the same part of the Bill—because we want to focus the Bill’s provisions on charities that are operating for charitable purposes.

A separate rule ensures that charities that are connected qualify for just one allocation of the £5,000 maximum limit between them, so that there is no incentive for charities to fragment solely in order to qualify for extra allocations of the maximum limit. We had originally suggested a broad test in respect of connected charities. Following consultation, however, we have developed a much more targeted rule and, as a result, fewer charities will be connected for the purposes of the scheme.

As I have said, some in the sector have raised concerns that the community building rule does not go far enough. They have said that more charities should be able to benefit from the rule. It has been suggested that any charities carrying out one-to-one support for their beneficiaries should be eligible, and that the top-up should not be restricted to cash collected during the charitable activities carried out in the community building.

I want to remind Members of a central point. The objective is to allow individual charities to claim a top-up payment on £5,000-worth of donations. That is the starting point. It is not the intention to give a £5,000 allowance for every building they use; that is different from having an allowance per charity. Rather, I have used the existence of a building as an indicator that there may be a local group that warrants an additional £5,000. I do not envisage every charity that has a local presence claiming up to £1,250 of the payment for each local group or building from which it operates.

The community building rule is an effort to minimise some significantly unfair results between different charities. As I have said, some have been able to claim perhaps many thousands times more in the way of payments than others, in what are otherwise, to all intents and purposes, very similar situations. We have to draw a line somewhere, and I look forward to getting into the detail of the scheme.

It is very important to note a point that has emerged during scrutiny of this issue, and which I look forward to being published in guidance, so that it is clear to charities. Some of the examples that Members are raising will not necessarily be excluded under the rules of the scheme. It is a question of ensuring eligibility against the guidance once it is published. My hon. Friend the Member for Congleton (Fiona Bruce) mentioned the example of hospices. If the hospice itself is used for mainly residential purposes, it does not qualify as a community building under the provisions as drafted. However, if it is not so used—indeed, many are not—it could qualify as a community building if a section of the public has access to it, in ways that the guidance will make clear. Lines do need to be drawn, but there is a keenness to get this Bill right.

[Mr Thomas]

The hon. Lady will be aware that clause 13 gives her the power to vary the £5,000 figure. Will she confirm today that the Treasury intends to use that power to uprate that figure in line with inflation each year?

--- Later in debate ---

[Mr Gareth Thomas (Harrow West) (Lab/Co-op)]

It is a pleasure to follow my hon. Friend and constituency neighbour, the Member for Brent North (Barry Gardiner), whose contribution reflects today’s interesting debate. We started with the Economic Secretary’s opening speech, during which there was a series of interesting interventions. The Chair of the Public Administration Committee, the hon. Member for Harwich and North Essex (Mr Jenkin), made a series of interventions, one of which dealt with the need to build into the legislation easy scope for a review of its effectiveness. As my hon. Friend the Member for Kilmarnock and Loudoun (Cathy Jamieson) made clear in her opening remarks, we need to make every effort to ensure that the primary legislation is as strong as possible. The hon. Gentleman made an interesting point. He has developed a reputation as an assiduous— and, for the Government, troublesome—Chair of the Committee. In the eyes of his Whips, that may rule him out of serving on the Public Bill Committee, but his comments were a helpful guide to amendments that we might want to think through.

In her intervention on the Economic Secretary, the hon. Member for Congleton (Fiona Bruce) highlighted a concern that has clearly been put to her: whether, because of the way the clauses on community buildings have been drafted, hospices will benefit from the Bill as much as had been hoped. The hon. Member for Dartford (Gareth Johnson), in the first substantive speech in the debate, made a point of praising the Arrow riding centre in his constituency. It does indeed sound an excellent organisation, and in that sense probably reflects the many excellent organisations that each of us in this House can point to in our communities. They benefit our communities and make them stronger, particularly because of the enthusiasm of the volunteers and original sponsors of these charities.

Our challenge is surely to try to do what my hon. Friend the Member for Clwyd South (Susan Elan Jones) suggested: to simplify the system as much as possible and to enable those with fire in their belly—those behind a particular charity with the passion and commitment—to benefit as much as possible from this legislation. She has clearly been working throughout the summer recess, carrying out extensive research on charity debates and tracking down the first ever discussion of charities in the House of Commons, more than five centuries ago. That is a particularly impressive piece of work that I suspect puts the rest of the House to shame. It is not surprising, however, given her track record of interest in this sector.

In his short time in the House, the hon. Member for Warwick and Leamington (Chris White) has already built a track record of interest and enthusiasm in this subject. He urged Ministers to pay close attention to the comments and concerns of the National Council for Voluntary Organisations and the Charity Finance Group. He raised a particular concern about whether the three-year HMRC rule is quite as necessary as the Economic Secretary suggested in her opening remarks. He went on to argue that Leamington is the most generous town in Britain. He is stretching the credulity of the House there, if I may say so; nevertheless, it sounds almost—but I suspect not quite—as generous as Harrow.

The hon. Member for Stafford (Jeremy Lefroy), who has already established a strong record in this House in working with international development charities, outlined his support for the Bill. He will recognise that people in this country rightly respond to disasters around the world, and that the Bill could enable such charities to do more to make their money and effort go a little further.

The hon. Member for Banff and Buchan (Dr Whiteford) emphasised that Ministers should do further work on the detail behind the Bill, and I understand that she has a strong track record of working with charities, including development charities. Among the many thoughtful points she raised was whether or not HMRC might be persuaded to use marketing or analytical tools to provide further support to ensure that charities benefit as much as possible from this legislation, when both Houses eventually conclude their debates.

My hon. Friend the Member for Foyle (Mark Durkan) outlined his scepticism about the Bill being perfectly formed. He made the perfectly proper point that debate with the Northern Ireland Assembly on some of the detail is required. Again, Ministers and the Committee will need to have further conversations with the representatives of the sector to maximise the Bill’s benefit.

The hon. Member for Milton Keynes South (Iain Stewart) praised another excellent sounding organisation, Community Action Milton Keynes, which he knows well. He raised concerns about the three-year rule on eligibility, highlighting the need to get right the balance between preventing fraud and helping more charities to benefit. He hoped that today’s discussion is part of an “evolutionary” approach by Ministers, and I hope to encourage the Minister to take such an approach. My hon. Friend the Member for Brent North, in his substantive remarks, emphasised the concern of all Members about the eligibility criteria in the Bill and whether as many charities that rely on small donations will benefit from the Bill as might do.

As my hon. Friend the Member for Kilmarnock and Loudoun made clear, the Opposition will support the Bill, but we have a series of concerns about its detail, which she set out and which I will touch on briefly at the end of my remarks. The House will of course be aware that the Bill’s proposed changes to gift aid build on the reforms that my right hon. and hon. Friends introduced under the previous Government—my hon. Friend the Member for Clwyd South made that point. My right hon. Friend the then Chancellor had an excellent track record of enabling smaller charities to benefit from gift aid, introducing a less complex audit process and helping at least some charities to get a proper advantage from the various changes that he introduced.

We will want to probe and challenge the complexity that has been written into this scheme by Ministers, which has been highlighted to us by the NCVO, the Charity Finance Group, the Institute of Fundraising, the National Association for Voluntary and Community Action and a series of other groups. I, like a series of other hon. Members, alluded to the fact that this complexity risks ensuring that a number of small charities miss being able to benefit from the changes implicit in these arrangements.

Ministers have highlighted this measure in the past as a big source of help for charities and proof of their ongoing commitment to the big society. The Chancellor made that point in one of his Budgets. In truth, this is a modest Bill, which risks being far more modest than it needs to be. It is, sadly, an isolated gesture of help amid a dismal funding and contracting environment for charities, entirely of the Government’s making. The Bill will, nevertheless, put back into charity coffers a small amount of the income that Ministers have collectively axed since they came to power.

The context for this debate is grim, as a number of hon. Members have said, and it bears spelling out as a reminder to the whole House and, in particular, to the Committee to do our utmost to maximise the benefit of the legislation to the maximum number of charities. As my hon. Friend the Member for Clwyd South mentioned, earlier this year the NCVO highlighted the “toxic mix of circumstances” facing charities: increasing demand for their services, rising costs, and an unprecedented fall in income. The NCVO argues that Government spending on the sector will fall by some £3.3 billion between the coalition’s taking and eventually leaving office.

A report by the Association of Chief Executives of Voluntary Organisations, which was commissioned by the Government—by the Cabinet Office—and which Ministers were eventually forced to release, revealed that charities would lose, in 2011-12 alone, at least £1 billion as a direct result of Government cuts, with two thirds of the charities most at risk of suffering being in the most deprived areas of Britain.

[Richard Fuller]

In a comment in his opening inquiries of the Minister, the hon. Gentleman referred to the transition fund and he is now referring to the same point about Government funding, so I would just like to pick up on the point. Does he accept that one of the underlying philosophical differences with this Bill is that it is using Government money to support the actions of individual citizens in supporting the charities they wish to help, rather than looking at charities as an extension of the state that should be supported by public moneys? Although there may be an issue to address about the quantum and how much we can afford to put into these charities, does he accept that this is a wise way for the Government to spend their money?

[Mr Thomas]

With the greatest respect, the previous Government and the one before had exactly the same approach. The difference between us is over the scale of the funding cuts that the hon. Gentleman and other Government Members have signed up to. As I said in my opening remarks, I accept that the Bill will make a small positive difference. We welcome it on that basis and we want to work with Ministers and, indeed, with all hon. Members to try to maximise its benefit. He does not serve his cause well by minimising the scale of the cuts which charities are suffering. According to the National Children’s Bureau in April, two thirds of children’s charities had cut staff last year and reduced the range of services they offered, with 25% expecting to have to close this year. That grim direct funding situation is hardly a sign of a commitment to charities and community groups, or indeed of Ministers’ professed commitment to the small platoons or the so-called big society.

I say gently to the House that not one of the more than 140 charities I have met over the past 12 months has said that reform of gift aid is the defining answer to the problems the Government are causing charities, despite the Chancellor’s enthusiastic claims in the Budget. Ministers, notably Cabinet Office Ministers, have failed in the past 12 months to offer serious heavyweight leadership in Whitehall for charities. The Work programme has become an iconic example of charities losing out on funding because of poor commissioning of major Government contracts.

Let us consider the example of just one charity, St Mungo’s. Given its skills at getting people in the most challenging circumstances back into work, one would have thought it was the perfect participant in the Government’s Work programme. However, having had no referrals in just under 12 months, St Mungo’s finally called it a day earlier this summer. You couldn’t make it up: record long-term unemployment, a Work programme that is not exactly going all guns blazing and a charity with huge experience not being used —not even once.

We have, of course, also seen charity after charity having to line up to demand that the Government withdraw their charity tax relief cap. For example, Cancer Research UK is seriously worried about donations to build a world-class centre drying up because of Ministers’ incompetence. It was a badly bungled Budget measure from Treasury Ministers—one of a number. One of the arguments originally used to try to justify that measure, until it was eventually pulled, related to the problem of “dodgy charities”. Although the Economic Secretary veered a little towards such language in her opening remarks, she certainly did not repeat that mistake. However, we need to be careful that the requirements that we set out in the legislation that is finally passed do not allow people to think that Members in all parts of the House share the concern that there is a huge problem with poorly managed charities engaged in fraud. We will certainly wish to probe her argument about the three-year relationship with HMRC that charities must have in order to benefit from the Bill.

We debate this Bill in the context of a dismal picture of substantially reduced charity funding and of Treasury Ministers who need to make amends for the charity tax relief debacle. The Bill nevertheless deserves a Second Reading and further robust scrutiny. We will want to explore carefully the Government’s arguments on a series of clauses, particularly to try to reduce the complexity of the new arrangements, which has been highlighted by the likes of Sir Stuart Etherington, Peter Lewis, the chief executive of the Institute of Fundraising, and NAVCA. Let me take just one set of comments as an example: NAVCA called the proposed system “overly bureaucratic” and “out of proportion”.

To be fair, the Economic Secretary hinted that Ministers would be flexible in Committee. I hope that her ministerial colleague will emphasise that Ministers are determined to be flexible and to see the discussions in Committee as an evolutionary process. That point was made by the hon. Member for Milton Keynes South in particular. We will want to probe the concerns about the eligibility criteria as there is particularly wide consensus outside the Treasury among voluntary groups that many charities will miss out if the Bill goes through unamended in that regard. We will want, too, to explore the thinking of Ministers on the connected charities rules, which risk creating an unnecessary barrier to recruiting high-quality trustees if they have similar roles in similar organisations.

On community buildings, there is a risk that some charities could lose out, as other Members have highlighted. Ministers would be wise, given the scale of the Government’s failure to help and support charities, to recognise the limited scope of the Bill. It is a worthwhile Bill with the potential, if Ministers are open-minded, to offer even more significant benefits. It builds on the reforms Labour introduced when we were in power. It needs amending in Committee, and Committee members, particularly Ministers, will need to show further flexibility to maximise the benefit it could have for the charity sector. We will support the Bill tonight and I commend it to the House.

Banking Competition

Gareth Thomas Excerpts

Thursday 12th July 2012 Westminster Hall

[Andrea Leadsom]

My hon. Friend is absolutely right. We need far more diversity of financial service providers. Some of the issues I am about to discuss will address that because bringing down barriers to entry will, by definition in a capitalist society, encourage new entrants of all different sorts.

[Mr Gareth Thomas (Harrow West) (Lab/Co-op)]

I share the hon. Lady’s view and that of the hon. Member for East Surrey (Mr Gyimah) that more diversity in the financial markets is essential. Does she accept that it was a missed opportunity on the part of the Government to reject an amendment requiring the new regulators to have regard to promoting diversity in the financial markets?

[Andrea Leadsom]

I am not aware of the specific amendment that the hon. Gentleman is talking about. However, I certainly think that the Government will be wanting to promote diversity, and I am very much aware that they want to promote the diversity of financial service providers. I can tell him that, at a recent hearing with the Treasury Committee, the Governor of the Bank of England assured us that he, too, was very interested in promoting more competition and greater diversity. We unanimously agree on that point.

The best way to shake the banks out of their complacency is to allow new entrants into the market, bringing with them the high standards of service—including IT that works—that customers believe they should be able to take for granted. One significant step in that direction would be to break up and sell off the state-owned banks. That would create overnight potential new challenger banks in Britain, and I urge the Government to look at it again. The market concentration of the big five is appalling. Lloyds, the Royal Bank of Scotland, HSBC, Santander and Barclays have an estimated market share of 85% of the personal current account market and 67% of the mortgage market. That is a classic oligopoly, and they do behave like one. We can see all over the place barriers to entry, not least of which is the fact that those banks own, among them, the Payments Council and VocaLink—two crucial entities that enable the financial services markets to operate.

--- Later in debate ---

[Teresa Pearce]

That is completely right. Debt is a big issue in my constituency, and I believe that that is why there is no particular interest in opening a branch, which would alleviate some of that debt through giving advice. That said, the staff in a branch of Barclays, which was a Woolwich, in my constituency have taken it upon themselves to try to help their customers. If they see people coming in and just paying off the minimum amount on their credit card for three months in a row, they sit them down, talk to them and explain that they are not paying off the debt. The people in that branch do a fantastic job. I feel sorry that they do not find saying, “I work for Barclays” something to be proud of at the moment. We should be thinking of the people who work in such branches and call centres in the current environment.

[Mr Thomas]

North Harrow, in my constituency, sounds a little like Thamesmead in that it does not have a bank branch. It has a post office through which personal banking customers of Lloyds can access services, but there is no equivalent for small businesses in north Harrow. Given our anecdotal experience of areas of the country that are unbanked, does my hon. Friend think there would be benefits from full disclosure by the banks of what and where they lend by postcode? We could then have proper understanding of which areas are unbanked and a proper debate about how to respond to that gap in the financial market.

[Teresa Pearce]

That is an excellent idea. There are very few things in society that do not benefit from transparency; the more we know, the more we can make a judgment. We should all press for it.

The hon. Member for South Northamptonshire mentioned that people are more likely to get divorced than switch their bank account, which is certainly the case in my experience. Only 36% of consumers have ever switched their bank account, and 45% of marriages are expected to end in divorce. I have been with the same bank since I left school, but it has changed, because it has been taken over repeatedly. That is a common experience. Lots of us will have sat in an office with a friend or spoken to a family member who has tried to switch bank accounts and heard the catalogue of horrors that ensued—from mortgages not paid to bounced direct debits.

As we heard today, the hesitancy to embrace bank account portability is a big barrier to customers being able to exercise choice. The seven-day switching programme is good step forward, but we should be working towards full bank account portability in the long term. I ask the Government to commit today to undertaking a full and comprehensive cost-benefit analysis of account number portability to start that process. Years ago, it was not easy to transfer a mobile phone number from one provider to another—in fact, the mobile phone companies told us that it was impossible. As consumer pressure grew and more providers entered the market, it became very possible, and now is common and simple to do. I see no reason why banks accounts cannot go down the same road. It would make a big difference to consumer behaviour—43% of consumers say that they would be more likely to switch their current account if they could keep the same number.

Even after the banking crisis, our banks are still too big to fail. It is not a proper market when the huge rewards are taken by some, but the risk is always sold on further down the line to other people, ultimately ending with the taxpayer. With only one new high street bank launched in over 100 years, it is pretty obvious that there is no true competition. Increasingly, new entrants need to be backed by one of the big five banks—as with the Marks and Spencer bank, which is backed by HSBC—or to have benefited from Government sell-offs, such as Virgin’s acquisition of Northern Rock.

The big banks are represented on standards-setting bodies, such as the Payments Council, which sets the level of access. There is clearly not a lot of incentive for them to lower the barriers to access for new entrants and thereby decrease their market share. That is why the Government should step in and establish a framework with increased competition and customer experience in mind. To increase competition, it is important to increase not only the number but the diversity of organisations operating, so that consumers have real choice.

Many of us will have read in the papers this week that there is a big consumer push towards ethical alternatives after the recent banking scandals: Charity bank, which lends its savers’ money to charity, has had a 200% increase in depositors; the Ecology bank has had a 266% jump in applications; and there has been a 51% increase in applications at Triodos, a Bristol-based sustainable bank. Credit unions also report week-on-week increases of at least 20% and up to 300%.

Building societies and credit unions obviously have an important role to play in constituencies such as mine. Unlike banks, they are accountable to their members, who are also their customers. There is no discrepancy between the aims of the shareholders and the customers, because they are one and the same. Building societies and credit unions are a true service industry, not a self-serving industry. There is usually a big culture difference in the way they operate in comparison to banks. Most markedly, they are free from the pursuit of short-term returns for shareholders that has contributed to risky behaviour in the big banks and in turn threatened the stability of banking system as a whole.

What we are seeing with the banking crisis is the result of the demutualisation agenda kick-started in the 1980s and peaking in 1997, when a host of building societies became banks, including Woolwich building society, which is a mere mile from my constituency. The Woolwich was founded in 1847 as one of the first permanent building societies. It had a proud local tradition—it was a major employer and an asset to its community. Ultimately, it demutualised and was eventually taken over by Barclays. People used to say, “I’m with the Woolwich.” They were proud to be so, but I do not think they say, “I’m with Barclays and I’m proud to be.”

During the demutualisation period, the investment banks toured the boardrooms of the building societies, putting the case for demutualisation, often making large fees as advisers in the eventual takeover. The end result is that there are now five big banks—Lloyds, the Royal Bank of Scotland, HSBC, Santander and Barclays—with a disproportionate market share. They have an estimated market share of 85% of the personal current account market and 67% of the mortgage market.

When I was writing my speech, I thought back to when I was young, which was a long time ago, and to when the Greater London council used to give mortgages to homebuyers. The GLC was one of the two biggest mortgage lenders in London at the time. Getting a mortgage from the GLC was a great incentive for local people. They felt a sense of ownership of the GLC, and the GLC had invested in their homes, which created a stable society. They did not have what we now have in parts of London—rogue landlords profiteering from renting out terrible accommodation. Giving people a stake in something makes them better citizens. It is a shame we do not have the same model now.

Taxpayers have ploughed enormous sums of money into rescuing the banking system. Northern Rock, RBS and Lloyds TSB have received direct bail-outs, and all banks have benefited from some form of public subsidy, especially quantitative easing and deposit guarantees. The publicly funded support of the taxpayer does not appear to have translated into banks acting in the public interest. In fact, it appears that in some areas of banking, few lessons have been learned, and the banks’ existing priorities and practices seem to be a return to business as usual.

UK banks also hold 85% of the business banking market. In other countries, the picture is different. In the US, there are some 15,000 banks and credit unions operating in the market. In Germany, there is a network of 431 locally controlled banks with public interest criteria in their governing constitutions. Change, therefore, is possible. With the political will and the right Government intervention, it could take place.

Earlier this year, the chief executive at the Office of Fair Trading said:

“For too long banks have needed pressure, often sustained, from regulators and enforcers to introduce the things they should have already been doing.”

In a relatively short period of time, we have ended up with banks taking over each other, leaving just five major banks, and with the deputy governor of the Bank of England describing his own industry as a cesspit. That is a reflection not only on London as a financial centre but on the whole of the UK. The finance sector is a major employer and we should be proud of it. As this issue crosses party lines, it is important that we all put our minds to finding a solution to the problem. We have made piecemeal alterations, but we need a full-scale inquiry into the banking sector. Opening up the sector to competition is one of the major ways to achieve that aim. So far, regulation has not altered culture or behaviour. Perhaps losing profits and customers will bring about such a change in the banks.

We need Government intervention to put the experience of customers at the heart of regulation. The Labour leader and the shadow Chancellor recently made a series of proposals for a banking system that serves not just the bankers but the real economy. They include a British investment bank backed by the state to increase lending to small businesses; a code of conduct for bankers; a greater push for international changes to limit bonuses; selling off high street branches; and greater transparency. All of those proposals would be welcome steps forward.

I have a couple of ideas to float to the Minister. The big high street banks could control the clearing systems, and any new entrant would have to use those systems. As it is unrealistic to presume that a new entrant could create their own systems because of the cost of infrastructure, why not use the Bank of England to monitor and regulate the cost of accessing the clearing systems? Even better, we could make it a condition of the big banks’ banking licence.

Businesses, especially small businesses, pay higher fees to the banks. Will the Minister discuss this matter with the Minister for Housing and Local Government? We could get local authorities to set up a membership system to negotiate bank charges on behalf of local businesses. For example, some small businesses are paying around 50p per £100 cash banked, while the big supermarkets are paying around 6p per £100. Those businesses should come together and collectively borrow. A local authority could perhaps help in this regard, through the local chambers of commerce. We must look at using customer power in a way that helps customers.

I have one final thought, which I doubt the Minister will agree with. Government, both national and local, could pay all their salaries into the local credit union or similar not-for-profit institutions such as Postbank. Obviously, each individual would be free to withdraw their money and put it somewhere else once it has been paid in, but many would keep their money in the local credit union and that would provide a strong impetus for alternative retail banking. Although I doubt the Minister will agree with me, it is a possible way forward.

In conclusion, I hope that one day, the residents of Thamesmead can choose which bank to go to, rather than choosing which bus to catch to get to the nearest bank.

[Mark Garnier (Wyre Forest) (Con)]

Let me apologise to the Minister at the start, because I will miss his winding-up speech. Unfortunately, I have to rush back to Kidderminster for an important meeting about Kidderminster hospital. Members who remember the 2001 general election will know that any Member of Parliament who does not pay attention to Kidderminster hospital when called upon can suffer dire consequences.

I am grateful to my hon. Friend the Member for South Northamptonshire (Andrea Leadsom) for securing this debate and for gathering such enthusiasm for it. It is an incredibly important issue in the regeneration of our economy.

I specifically want to turn the focus of attention to the problem that arises when a regulator is still reeling from the fall-out of the banking crisis. Here we are, nearly half a decade on from the crisis, and we have just started a new round of scandal as the results of the FSA investigation into LIBOR fixing hit the headlines. The story will no doubt run and run for some time as other banks are brought into the mire. The Government’s response—the so-called Tyrie commission—is as good a start at understanding the problems as I can imagine, and, I hope, a significant step in the direction of truth and reconciliation between the banks and the taxpaying consumers.

The FSA’s response to the banking crisis has been reactive, and it is in its reaction that significant barriers have been established that limit competition in banking. Over the past few months, my hon. Friend the Member for South Northamptonshire and I have been meeting a number of smaller, existing banks as well as potential challenger banks to the banking marketplace. In nearly every case, their experience of the FSA has been problematic. All parties concerned were either small banks—banks with balance sheets under £2.5 billion—or individuals representing organisations that had experienced the FSA’s application process. Those interested parties came forward with points about the FSA’s process of issuing banking licences, and the regulator’s attitude to, and regulation of, smaller banking institutions.

It is significant that just one of the organisations we met detailed a positive experience of the FSA and its practices. It is also worth noting that banking licences are very rare commodities. There has been just one ab initio banking licence granted in the past 100 years and that was to Metro Bank. All other new entrants to the market, such as Virgin Money and Tesco, have done so as a result of buying existing licences and transferring their use to the new operation, or from overseas banks passporting in their expertise. That in itself says a great deal about banking competition in this country.

I want to concentrate on two specific areas of concern: the FSA’s application process for banking licences, and the FSA’s regulation of smaller banks.

[Mr Thomas]

I share the hon. Gentleman’s concern about the regulators and his understanding of the potential for new players in the financial markets. The all-party group on building societies and financial mutuals held an inquiry into the work of the regulator in relation to building societies, friendly societies and credit unions. It was far from clear that regulators had any real experience of working for and in those organisations. Will he support a call to encourage the new regulatory bodies to ensure that among their senior staff they have people with real practical, hands-on experience of working for a financial mutual?

[Mark Garnier]

Yes, I will. One of the problems is that, with the potential move of the FSA into the new regulatory regime, there has been an exodus of staff. As the hon. Gentleman suggests, that is of course something to do with the employment process within the new regulators, but it is absolutely right that any regulator should draw on people’s extensive experience. As we look forward, it is important that we provide leadership and that mutuals and other models of banking should be encouraged. The regulator should accordingly take account of that when employing staff. I wholeheartedly agree with the hon. Gentleman on that point.

The second problem is the FSA’s regulation of small banks, starting with the application process for banking licences and significant changes. That process has two tiers. It starts with an initial inquiry, and if an applicant is given the nod, the process continues with a formal application. The initial inquiry can be likened to a conversation on the doorstep of the FSA, with the aspirant bank seeking permission to come through the door simply to start the application process formally.

However, that initial inquiry—it should be remembered that it is not a formal inquiry but just an opening conversation—can cost the applicant more than £1 million to process. That is because the applicant requires a corporate body to make the application, which is not unreasonable, but also needs evidence of capital committed, advisors, auditors and, it seems, evidence of system design and building, which can be very expensive as there are no off-the-peg systems available.

So far we have found just two organisations that have proceeded past the initial stage from an ab initio enquiry. Trying to establish the reasons for that, we found that the cost and delay involved in the application process appear to be disproportionate. New applicants are effectively required to create a functioning, fully staffed banking operation before any type of licence is granted. We found that one applicant was forced to resubmit their application because the application process was stretched beyond the 12-month time limit and consequently a second application fee of £25,000 was demanded. One individual spent £1.3 million just to get to the formal stage of the application process. The application was then denied by the FSA.

The applicants we met had many complaints about the FSA process, and I will go through some of them. All applicants felt that the FSA had an arbitrary power to grant or refuse applications. They felt that the FSA should provide a publicly available checklist of criteria that, if satisfied, will result in the award of a licence. Such a change would lead to a more transparent application process. Apparently there is no requirement for the FSA to apply the same criteria to all applications in its internal processes or to explain its reasons for advising that applications should be withdrawn. Representatives of one small licensed bank said that they were given the “impression” that their application was progressing but “never a green light”. A representative of an individual who tried to buy a failing bank said that, although the FSA might appear to favour an applicant, they were capable of

“changing their opinion with no prior warning”.

One applicant was encouraged by an FSA official to proceed with an application for a change of control. However, a few months later, and after incurring considerable cost, they were advised by a different FSA official that their application would not succeed and should therefore be withdrawn. Worryingly, in one case the absence of objective criteria allowed the FSA to engineer the withdrawal of the application by putting the applicant in a cleft stick. The FSA imposed a very high tier 1 capital requirement, which had the effect of suppressing the profitability of the applicant’s business plan. The applicant was then told that the proposed venture was not sustainable because it was insufficiently profitable, and they were advised to withdraw.

In short, applicants felt that the individuals concerned within the FSA feared the prospect of having their name associated with any bank that might possibly fail in the future, and so they felt that the FSA staff regressed to having a bias of ultimate safety, and that bias meant that they favoured rejection of applications.

Let me turn to the regulation of existing smaller banks, of which there are 50 or so. Those banks are penalised for being small. It is quite interesting that the department within the FSA that looks after smaller banks is called “Smaller banks, smaller building societies and spread betters”. It seems curious that banks that are so important to this country can be regulated alongside spread betters, which are perhaps less important to the financial system.

The first and most basic problem that the smaller banks face comes in the form of the capital ratios that they must have. Small start-up banks are required to have a capital ratio that is potentially three times larger than that of a big, systemic bank. Although it can be argued that that is to ensure the bank is stable as it builds up its lending book, it restricts the opportunity to become a new entrant to the market to those who have very deep pockets indeed. Even if a new bank grows, its capital ratios are frequently twice that of the big banks’ capital ratios. Moreover, risk-weighted valuations of property lending, with regard to items such as a property lending book, are skewed against small banks, which may lack the database and breadth of client type available to the big banks to justify a similar risk-weighting. That means that a small bank will need a third more capital for its property books than its bigger competitors.

Small banks are also likely to have a more limited loan book. For example, a small bank’s loan book might be restricted to the UK. That incurs a 1% increase in capital ratios. That is quite an interesting proposition because it implies that big banks lending to Greece and Spain face a lower risk than those banks that are just lending in the UK. That so-called “concentration of risk” has further implications, as small banks are likely to seek niche markets. Doing so means that a bank incurs a further 2% increase in its capital ratio.

Meanwhile, liquidity reporting has resulted in small banks seeing the cost of their compliance increase tenfold. Representatives of a small private retail bank whom we met said the bank used to charge its customers £25 a month for the privilege of banking with it. Those customers are now being charged £65 a month, just to cover the increased cost of compliance. Another small bank that has only a £50 million balance sheet is required to submit 160 liquidity reports every year.

In addition, it has been suggested that for a small bank the staff to accountant ratio, which is obviously an overhead cost, is 17 members of staff for each accountant who is examining what is going on. In a recent survey, chief executives of small banks complained that 40% of their time was spent on compliance. And non-executive directors, far from contributing a wide range of skills to the bank’s board, must now demonstrate extensive banking experience and sign up to what amounts to a full-time job. Is it right that banks’ boards should be so monochrome?

There are many reasons why businesses might face problems in getting started, but in an environment in which we expect banks to lend more and to contribute to our economic recovery is it right that the regulator is apparently creating a blockade for new entrants and increased competition? Including me, there are three members of the Treasury Committee still in Westminster Hall—the other two are my hon. Friend the Member for South Northamptonshire and the hon. Member for Erith and Thamesmead (Teresa Pearce); and there was another member here earlier, the hon. Member for Edmonton (Mr Love). I hope that the Treasury Committee will proceed with a forensic investigation of banking competition and seek to separate myth from fact as regards this problem. However, as we progress with the Financial Services Bill and the soon-to-come banking reform Bill, it is crucial that we consider competition as part of the mandate of the regulators.

This is a very difficult time for our financial services industry, including banking, and we must ensure that we strike the right balance between regulation that is effective and easy to apply and regulation that ensures international confidence in our financial system. Striking that balance is too important for us to get wrong, but we must ensure that in achieving it we allow, and indeed encourage, healthy competition within the banking community. That must be the approach taken by the regulator.

--- Later in debate ---

[Cathy Jamieson]

Before the Division, I was talking about banking being seen as a respectable job that people vied for and expected would be a lifetime career, if they were lucky enough to get a start in the industry. That is certainly how things were when I was considering my career—not that I ever actually considered a career in banking. I do feel, however, for the decent, honest, hard-working staff of the banks, and that has been echoed by Members from across the House, and particularly by my hon. Friends the Members for Erith and Thamesmead (Teresa Pearce) and for Islwyn.

I feel for those decent, hard-working people who have seen their industry and work force castigated and vilified. Bankers now appear to be even less popular than politicians and the media—we would once have found that hard to believe—and that is despite the fact that the individuals, the ordinary workers in the banks, have done nothing wrong. Indeed, as we have heard, many of them probably did query, at whatever level they could, the hard-sell sales targets that they had to achieve, but because of decisions taken by others, they now face guilt by association and they are the ones on the front line who have to deal with the public.

I also feel sorry for the front-line staff who lost their jobs in the aftermath of the banking crisis. Those people did not walk away with millions of pounds and, as we heard from my hon. Friend the Member for Islwyn, if they did get a bonus, it was part of what they had to work to achieve in order to make a decent wage by the end of the month. Those people did not walk away with multi-millions, and indeed, as I know from some of my constituents, many have been unable to secure permanent employment since. That makes it all the more galling when those who made the bad decisions—the wrong decisions—are able to leave with massive pay-offs, and that is also why the public are so angry.

What more should the Government be doing? This debate is about banking competition, and we have heard a little about that. We have also heard, in one of the interesting threads running through the debate, about mutuality and different forms of common ownership of the banking system. Over recent weeks and months I have found it absolutely fascinating to hear about the number of converts to the principles of mutuality and that form of common ownership. That is very welcome. I do not want to sound a discordant note, but that level of support for and understanding of the principles of mutuality would have been helpful a number of years ago, when the media and other commentators were urging people to become customers of particular banks in order to get a windfall on demutualisation. Many of us argued against that, saying that it was short-termism of the worst sort. We said that a day of reckoning would come, and we have now seen that happen.

However, mutuality and co-operation must not be just for a time of crisis or to fill a gap when the private sector has failed or stalled. They offer a successful alternative business model, which should at least have a level playing field. Opposition Members remain disappointed that the Government did not accept the strong case made during the campaign run by the Co-operative party, called “The Feeling’s Mutual”, which focused on the need for remutualisation of Northern Rock. That sent the rather unfortunate message that the Government did not have much faith in the mutual sector in reality, despite the warm words in policy documents and the coalition agreement, which stated that the Government would bring forward detailed proposals to ensure a strong and growing mutual sector. Again, I hesitate to sound a discordant note, but I do not think we have seen evidence of such proposals yet. I recognise, though, that the building societies White Paper, which we had been waiting for, was published this week. I will go through that with interest. I see the Minister nodding. I am sure that he knows, from our time together on various Bill Committees, that we will indeed scrutinise it closely.

Many hon. Members have pressed the Government on a range of issues relating to financial services, including the capping of interest on loans, financial inclusion, financial education and access to finance. We have heard about many such issues today.

[Mr Thomas]

Before my hon. Friend moves on to deal with the particular remarks of hon. Members, may I ask her about Northern Rock? The Government have clearly made their decision, but does she think it would be helpful for the Government to publish their assessment of the different proposals? Clearly, some information would have to be redacted for commercial reasons, but would it not be helpful to release the paperwork and enable us to have a proper understanding of the assessment that the Government made? That would perhaps inform the debate about the building societies White Paper and it would certainly help financial mutuals to understand what on earth they have to do to convince the Government of the case for expansion of their part of the sector.

[Cathy Jamieson]

My hon. Friend makes a very interesting and valid point. Opposition Members are reasonable people. We understand that sometimes things have to be held in confidence and that it may not be appropriate to put some information in the public domain. We would not be unreasonable about that, but my hon. Friend makes a valid point about informing the debate and looking to the future, because if we are serious about promoting and supporting the mutual sector, we need to understand exactly why the Government did not think that was the right thing to do in the case of Northern Rock.

As I said, many hon. Members have pressed the Government on a range of issues. We think it rather unfortunate that the Government have not agreed to include those measures in relevant Bills, despite the fact that sometimes there were, in our view, appropriate amendments that would have given them the hook to do so. As the Minister will be aware, my hon. Friend the Member for Nottingham East (Chris Leslie) and I tabled detailed amendments to the Financial Services Bill to allow the Government the opportunity to deliver on the coalition pledge on mutuality, but unfortunately they used their majority to vote them down.

The financial mutual sector has proved to be robust during the economic crisis. It was not the sector that required bailing out. The regulated industry, of course, required a public bail-out of £60 billion. In that context, the criticism aimed at some of those in governance structures in mutuals, whether in the Co-operative bank or elsewhere, is ill-founded. Having a few more lay people with a common-sense approach and a grip on what is right and wrong, who would be prepared to flag it up when greed was overtaking responsibility to customers, would have been no bad thing in some of the banks, which had become so out of touch that they had forgotten that it was other people’s money they were gambling with.

I ask the Minister to say in his response to the debate exactly what the Government intend to do to help the mutual sector. I hope, for example, that they will look carefully at the demutualisation regulations, tax system support for the sector and the capital raising requirements for mutuals. Again, we have debated that in various Bill Committees. There is an opportunity to do so again in relation to the legislation that flows from the Independent Commission on Banking.

I hope that we will see speedier progress on that than perhaps we saw on implementing the legislation passed by the previous Government. It took about 18 months to implement the vital changes for credit unions. It is very welcome that hon. Members on both sides of the Chamber have today expressed support for credit unions. Perhaps the Government will take the opportunity to look again at the elements of the Co-operative and Community Benefit Societies and Credit Unions Act 2010 that remain unimplemented and see whether anything else should be done to assist credit unions.

Of course, as well as the Co-operative bank, we have the Nationwide building society, which points out, with some justification, that it is a challenger brand that provides a mass market, mutual alternative to the banks. Like the Co-op bank, it has seen a sharp increase in the number of people looking to join it. I understand that Nationwide has seen an 85% increase, week on week, in the number of customers opening and transferring their main current account online. It has consistently made the point that it needs a level playing field with the plcs if it is to continue and enhance its role. It is not looking for special treatment. It is not looking for anything other than recognition of particular regulatory impacts on mutuals. I am sure that the Minister will want to examine that.

The Nationwide is one of the organisations that support the creation of a current account redirection system to improve switching, and it is actively involved in work on that at the moment. We have heard during this debate about the difficulties there can be in switching accounts. Partly it is a cultural thing—people may have stuck with the same bank for many years—but there is also an issue about financial exclusion. As I said in an intervention on my hon. Friend the Member for Erith and Thamesmead, I know of many constituents who have found it difficult to get a bank account at all. If anyone has ever tried or knows anyone else who has ever tried to open a basic bank account in the not-too-distant past, they will know the hoops that people have to jump through. In addition, the finances of many people on low incomes work in such a way that when it comes to anything that is out of the ordinary or that would upset their regular system of payments or income coming in and going out, on a weekly or a monthly basis, they simply cannot afford to take the risk. They will not take the risk of upsetting things, even for a month or so, to move accounts. Sometimes it is a case of “Better the devil you know” than the uncertainty of what they do not know. Therefore, anything that could be done to assist people in the process of moving accounts would be helpful.

To conclude, I shall make a few remarks about what Opposition Members have set out as a sensible way forward. I have not had the opportunity to say much about the small business sector. I have focused mainly on individual consumers. I of course echo the comments made by various hon. Members about how we support small businesses. That is extremely important. The German model of Sparkassen is creating quite a lot of interest. That is certainly worth looking at, because all of us know what small businesses in our local areas are finding, notwithstanding all the warm words from the banks. I am sure that the people saying those warm words believe them—from their perspective, everything is fine. However, the reality is that week after week, small business people are coming to see us at our surgeries and telling us that their business is under threat, perhaps because of cash-flow problems and perhaps because of changes in banking arrangements that they have had for years and that no one has ever previously questioned. That the banks have a wider responsibility than simply what they do to make money for themselves comes through at that point.

We set out our proposals earlier in the week. We strongly believe that there is a case for a British investment bank—indeed, we have worked on it and published a report. We also believe that greater competition in the banking industry, with at least two challenger banks, not simply one other entrant, would at least make some difference. Banks on high streets are very important, because people need to access local branches and, if we are to change the culture, to build up individual relationships. We need transparency about which communities and sectors do not get services from the banks, as has been mentioned today. We also need a code of conduct for bankers, with those breaking the rules having to suffer the consequences. It happens in other professions; why not in the banking sector? We heard a powerful contribution from my hon. Friend the Member for Islwyn, who worked in the industry, about the lack of training and the downgrading, as he saw it, of professional standards.

We ought to proceed with a new unit in the Serious Fraud Office to tackle fraud in financial services. We must change the bonus culture, by backing international changes to limit bonuses. We want the Vickers proposals implemented in full, not watered down, particularly not the ring-fence between the casino and the retail banks. We want to ensure that it happens. I know that it was controversial in the debate last week, but we continue to believe that we need a further public inquiry to enable us to address the deeper cultural challenges that the banking industry faces and to examine how we genuinely change the way that our banks work and how we make them focus on stewardship once again.

The hon. Member for Macclesfield (David Rutley) mentioned culture being measured by what happens when no one is looking. Notwithstanding the many people who have done well, are doing the right thing, are socially responsible, are working ethically and are supporting their customers, given what has happened, the banking industry will not be judged by the best—it is being judged by the worst. That is what we have to address. I hope that the Minister will outline how he intends to do that.

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

It is a very great pleasure to serve under your chairmanship, Mr Davies, and to see you, not for the first time, follow in the footsteps of Mr Chope, who chaired the sitting earlier. I congratulate my hon. Friend the Member for South Northamptonshire (Andrea Leadsom) and thank her for securing this timely debate. Her thoughtful speech set the tone for the good debate that we have had this afternoon. In addition I thank my hon. Friends the Members for Wyre Forest (Mark Garnier), for Wycombe (Steve Baker), for Macclesfield (David Rutley), for Mid Norfolk (George Freeman) and for Wells (Tessa Munt) and the hon. Members for Erith and Thamesmead (Teresa Pearce), for Glasgow North East (Mr Bain) and for Islwyn (Chris Evans). Hon. Members have brought considerable personal experience to the debate, which has assisted the quality of our debate.

Let me begin by stating clearly that the Government are committed to fostering a strong, competitive banking sector for the benefit of consumers and the UK economy. That is why we asked Sir John Vickers, along with other members of the Independent Banking Commission, to examine the issues as part of his review of the banking sector, and are implementing his recommendations and, in some cases, going further. It is essential that consumers are able to apply competitive pressure and hold their bank to account as to the services it offers. In a competitive market, customers should be able to vote with their feet and switch their custom to banks that provide the best products and services to meet their needs. There should also be a diversity of institutions in the market, capable of meeting the varying needs of consumers. The Government’s strategy for competition encompasses many things, which I will mention in turn.

Creating the right environment for competition to flourish is essential to ensure that consumers benefit in the long term. The Government’s major financial stability reforms will help to enhance competition in financial services. Those reforms implement the recommendations of the IBC, which reported last year. Banks will no longer receive a competitive advantage by being perceived to be too big to fail—a point that my hon. Friend the Member for South Northamptonshire made. The Government’s plans to ring-fence banking services and increase banks’ capacity to absorb losses are also a vital step in creating the right environment for competition in banking to flourish.

By improving the authorities’ ability to deal with the failure of financial institutions in an orderly manner, the Government are substantially reducing the perceived implicit guarantee that benefits the large incumbents. That is part of a broad programme of financial sector reform to solve what my right hon. Friend the Chancellor has called the “British dilemma”—how to host a world-class financial services sector without putting UK taxpayers at risk.

We have seen a number of new entrants into the current account market in recent years, including Metro Bank. It is however essential that prospective new banks can enter the market to compete and that the requirements are not overly onerous or disproportionate. To ensure that that is the case, in the banking reform White Paper the Government announced that the FSA and the Bank of England are conducting reviews of the prudential and conduct requirements for new entrants to the banking sector.

The reviews will reassess the prudential requirements of the new Prudential Regulations Authority and the conduct requirements of the new Financial Conduct Authority, to ensure that they are proportionate and do not pose excessive barriers to entry or to expansion for new entrants. The conclusions of those reviews will be published in the autumn, and the FSA and the Bank of England have committed to introduce, where possible, any changes in advance of the new regulatory structure. That point was raised by a number of hon. Members; in particular, my hon. Friend the Member for Wyre Forest set out his concerns about the difficulties for new banks entering the market and how difficult it can be to obtain authorisation. He raises a fair concern, but of course the right balance, which we have to strike, would ensure that those receiving a banking licence were able to perform the activities that they needed to perform in a secure way. It is right that standards are robust.

That said, the FSA should administer a process that is as smooth as possible. It has already improved the bank authorisation process to make it easier for prospective new banks, and is encouraging potential applicants to attend pre-application meetings, for example. Those meetings allow the FSA to understand better the applicant’s business model and offer tailored guidance. It has also introduced a milestone document on a modular approach to assessing deposit-taking applications. Where appropriate, it will provide a letter stating that it is minded to approve applications subject to specific final conditions for the applicant to satisfy.

The changes significantly improve the process for becoming a new bank and many prospective new entrants will benefit from them in future. The changes also make the process of completing an application easier, while keeping standards high. Combined with the reviews I mentioned on the prudential and conduct requirements, which are under way, the changes help to ensure that the bank authorisation process is not a barrier to entry for prospective new banks.

I note the comments made by my hon. Friend the Member for Wyre Forest on publishing a checklist of the criteria that prospective new banks need to fulfil. I had a little experience of that in my previous career. Becoming a new bank is complex and it is right that the system is robust, but I am grateful for the constructive comments made.

I am also grateful to my hon. Friend the Member for Wycombe for highlighting this evening’s “Bank of Dave” programme and for his suggestion about my television viewing. I happened to be driving in my constituency yesterday, when I heard an interesting interview with Mr Fishwick. I look forward to the programme this evening. In reference to that particular example, the requirements are robust, as is generally the case. I do not want to be drawn into a specific case and I cannot comment on the precise activities that that business undertakes, but it is right that we ensure that the system has no undue barriers to entry. The regulation regime could potentially be such a barrier, and we must be vigilant on that point.

Let me turn to the creation of new challenger banks. For competition to drive better consumer outcomes, new providers must be willing to enter the market to compete with the big banks. Two new challenger banks are being created and will be on the high street in the next 18 months. We have heard a little about the sale by the Government of Northern Rock plc to Virgin Money, which creates a new and innovative challenger to the established big five. The sale was completed on 1 January 2012 and the organisation is a useful addition to the high street. I am sorry that the Opposition party remains opposed to that move, because it has increased competition. The National Audit Office said that the process run by United Kingdom Financial Investments Ltd was fair and transparent and that an early sale was the best step the Government could take to secure taxpayers’ interests. As I have said, the sale has introduced, at an early stage, more competition.

In addition, Lloyds is in the process of selling off more than 600 of its branches—the Verde divestment—and the Government are committed to ensuring that the divestment creates another strong challenger. The Government welcome the news that the Co-op and Lloyds have agreed an understanding on the commercial terms for Verde. If the deal with the Co-op goes ahead, the combined entity will already have more than the 6% of the personal current account market that was recommended by the Independent Commission on Banking and by my hon. Friend the Member for Wells.

Along with the Government’s sale of Northern Rock to Virgin Money, the sale by Lloyds will deliver a much bigger challenger bank to the retail banking market. The potential purchase of those branches by the Co-op is a significant boost to the mutuals, which the Government are committed to promote. Once the deal is completed, Co-operative bank will be a realistic, mutually owned challenger to the big five banks.

The Government are determined to ensure that the Lloyds divestment results in a strong challenger, regardless of the final commercial arrangements that Lloyds arrives at. They have actively engaged with the European Commission and Lloyds to ensure that that is the case.

The Government are also committed to promoting the mutuals sector as an alternative to banks. They are looking to ensure that there is a level playing field for building societies, and that growth of the sector is not hindered. Last Thursday, the Government set out their vision for the building societies sector in their discussion document, “The Future of Building Societies”. The document, which has been warmly welcomed by the sector, confirms the Government’s support for the distinctive alternative offered by building societies. It sets out proposals including aligning building societies legislation with the ring-fencing requirements for banks, and applying loss-absorbency proposals to building societies in the same way as to banks. Those proposals have received warm support from the industry, including from the Building Societies Association and the Nationwide.

[Mr Thomas]

What steps is the Minister taking to ensure that the staff who work in the new regulators have at least some genuine understanding of the mutual sector, be it credit unions, building societies or friendly societies? How many staff who have actually worked in that part of the sector are now part of the regulatory environment?

[Mr Gauke]

The hon. Gentleman would not expect me to be able to give him a precise answer as to how many staff within the new regulatory bodies have got specific experience of mutuals and some of the bodies that are under discussion today. Of course it is important for a regulatory authority to have sufficient depth and breadth of knowledge of the institutions that it regulates, and the Government are keen to ensure that that is the case.

Let me say a little about credit unions. The Government have removed unnecessary burdens on credit unions through the legislative reform order. One important aspect of that was to allow credit unions to admit as members corporate bodies such as local charities and firms, and relax restrictions on membership. Those new members can both deposit in and borrow from their local credit unions, thus providing further opportunities for investment and growth in communities.

Credit unions can act as an alternative to banks and building societies in providing affordable financial services to people who may otherwise not be able to access them. The Government have also announced that they will bring forward a co-operative consolidation Bill. Last month, the Department for Work and Pensions announced its credit union expansion project, which will invest £38 million to help credit unions modernise and grow to offer a real alternative to high-cost credit providers. Through all such actions, the Government are creating an environment in which mutually owned institutions can offer a real alternative for consumers, and compete with the banks to serve families and businesses that need to save and borrow for their future. However, I may have to disappoint the hon. Member for Erith and Thamesmead. I am not sure that we are persuaded by the case that every public sector worker has to be paid through a credit union. Were we to do that, there would be certain issues with regard to competition. None the less, I note her comments.

Let me turn to the issue of switching and portability, which a number of hon. Members raised, not least my hon. Friend the Member for South Northamptonshire. It is essential that consumers are able to apply competitive pressure and to hold their bank to account for the services that it offers. In a competitive market, customers should be able to vote with their feet and switch their custom to banks that provide the best products and services to meet their needs. To that end, the banking industry has committed to introduce, by September 2013, a free, safe and hassle-free switching service to ensure that customers can switch accounts within seven days. To date, banks representing more than 97% of the current account market have committed to being ready to launch the new seven-day switching service by the September 2013 deadline and the Government continue to hold the industry to account to that timetable.

The new switching service will ensure that consumers’ accounts will be switched within seven days, and that all direct debits and standing orders from their old account will be redirected to their new one. The redirection service will last for 13 months. The new service, including a guarantee that the process will be smooth and that consumers will suffer no financial loss, will help to tackle the perception held by many consumers that switching is difficult, costly or risky.

A number of hon. Members have said that we should adopt full account number portability. There are a number of ways in which such an approach could work. In essence, a customers’ account number and sort code, which links the account to a branch, would not change when the customer switched banks, thereby avoiding the need for the customer to change any payment or credit instructions, which would reduce the risk of payments being sent to the wrong account.

The Independent Commission on Banking considered full account number portability carefully and decided not to recommend it in its report of 12 September 2011. As we all know, the ICB recommended that a current account redirection service should be established to smooth the process of switching current accounts for individuals and small businesses. It concluded that the costs and incremental benefits of full account number portability were “uncertain relative to redirection” and that

“it appears that redirection may deliver many of the benefits of account number portability at lower cost.”

As I have mentioned, the Government strongly support the ICB recommendation on switching and are holding the industry to account to deliver by the September 2013 deadline. Once the new switching service is operational, the Government will assess whether the service has delivered the expected consumer benefits. If not, further measures, including full account portability, will be considered. Given where we are and the recommendations of the ICB, we believe that it is right to proceed with the plans currently in place.

A number of hon. Members raised the issue of transparency. They want to ensure that customers can see exactly what services are provided and the costs that apply. The Government are clear that banking needs to become more transparent, and that is a perfectly fair point. A number of transparency measures are already being implemented in retail banking, including making charges clearer on customers’ monthly statements and providing an annual statement of charges for each customer. The annual statement will allow customers to see how much their account has cost them and it will provide an opportunity for them to consider whether they are getting good value.

That is a welcome start, but more must be done. As set out in the recent White Paper on banking reform, the Government see increased transparency and financial capability as an integral part of a competitive banking sector. The Office of Fair Trading has announced that it will conduct a review of the personal current account market in 2012, assessing levels of transparency in the market and the impact of the measures that have already been taken to improve transparency, as well as taking forward the recommendations of the Independent Commission on Banking on including interest forgone on bank statements and annual summaries.

[Mr Thomas]

I thank the Minister for giving way again on the issue of transparency. Why have the Government not included in their proposals for banking reform the idea that there should be a requirement on banks to disclose what they lend and where they lend on a postcode basis, to help us understand where the Thamesmeads, the north Harrows and the other unbanked areas in the UK are, so that we can better direct resources and new challenger banks to those areas?

[Mr Gauke]

Indeed, that issue was raised by the hon. Members for Islwyn and for Erith and Thamesmead during the debate. I say to the hon. Gentleman that data releases by postcode by each bank for all customers would be a very considerable undertaking for banks. It would also create a significant regulatory burden, and let us not forget that considerable regulatory burdens can prove to be a barrier to entry. At a time when we want to ensure that there is more competition, we must bear that in mind. It is also worth pointing out that there are legitimate differences between different areas for lending figures, including differences in credit risk. One would not expect there to be similar lending figures across the country. I caution against a reaction that would mean the imposition of a further regulatory burden.

Let me return to the issue of transparency. The Financial Conduct Authority will take a proactive approach to consumer protection. It will focus on the transparency of information that is available to consumers of financial services. The FCA will carry out a fundamental review of how transparency will be embedded in the new regime, both by the regulator and by firms, and it will publish a discussion paper in the first quarter of 2013. The review will consider what further measures could be introduced to improve the quantity and quality of the information that customers receive, enabling them to make informed choices and exert competitive pressure on firms.

Let me pick up on some other points that were made during the debate. The hon. Member for Erith and Thamesmead made a point about the payments clearing system; she was concerned that the big banks controlled that system. My response is that the Bank of England already has a large role in the UK payments system, given that the stability of that system is of paramount importance, and shortly the Government will issue a consultation on the future strategy-setting of the payments industry to ensure that consumers and smaller banks have a louder voice. I hope that all Members support that process.

The issue of access to banking services was raised in the debate, including by the hon. Member for Harrow West (Mr Thomas) in his recent intervention. The Government are committed to improving access to financial services and in particular to bank accounts, which was another point made earlier in the debate. It has been amply demonstrated that having a bank account is an essential aspect of modern life for any individual. Being able to access counter services at a branch and interact face to face with staff is very much valued by many individuals and businesses. However, the issue of where particular branches are located and maintained is fundamentally a commercial decision and one for the financial institution in question, rather than the Government, to make. Therefore, the Government do not intervene in such decisions. All banking service providers will need to balance customer interests, market competition and other commercial factors when they consider their strategy. Nevertheless, banks must treat their customers fairly.

I will say a word or two about the FCA. To ensure that consumers are adequately protected in accessing financial services, the Government are reforming the regulation of financial services. Part of that process includes creating a new dedicated conduct of business regulator—the FCA. Securing effective competition in the market for financial services is a key mechanism for securing better outcomes for consumers, and the FCA’s new competition mandate will be central to achieving that. The FCA will have an operational objective to promote effective competition in the interests of consumers, and it will also be under a competition duty, driving it to look for competition-led solutions to conduct issues more generally and in pursuit of its “consumer protection” and “integrity” operational objectives.

The FCA will have the mandate to use its powers to tackle competition problems more swiftly and effectively than the Financial Services Authority did previously, for example by promoting switching, removing barriers to entry or addressing asymmetries of information. A more proactive approach will lead to better consumer outcomes as problems will be tackled sooner, before they give rise to significant detriment. For instance, the FCA will take a keener interest in how products are designed and distributed in the first place, and it will have a new power to ban or impose restrictions on products that it considers could cause significant detriment.

Greater transparency and disclosure will also be at the heart of the FCA’s new approach. For example, it will have new powers to disclose the fact that a warning notice in respect of disciplinary action has been issued, and to publicise details of actions taken against misleading financial promotions.

In conclusion, banking competition is essential for consumers, businesses and the economy to prosper. The Government are undertaking a number of significant reforms to enhance competition and we continue to work hard to consider how best to improve competition in banking while maintaining the UK’s position as a global financial centre. In that context, I thank hon. Members for their well-considered comments and suggestions today. A number of excellent points have been made today by hon. Members and they all contribute to the valuable debate about banking competition.

Financial Services Bill

Gareth Thomas Excerpts

Tuesday 22nd May 2012 Commons Chamber

[Mr Gareth Thomas (Harrow West) (Lab/Co-op)]

My hon. Friend is right to say that the Government made that commitment in the coalition agreement. Following their decision not to take seriously the case for Northern Rock to be converted into a mutual, many people, like him, doubt the coalition’s commitment to financial diversity. Is that not a further reason for the Government to take seriously his amendment to put right what they might see as a mistake in the public mind?

[Chris Leslie]

I thank my hon. Friend, who is entirely correct. He is an assiduous campaigner for the mutual sector and the mutual model, and he knows more than most about the Government’s failures over the past two years to make headway on this issue, on which they made a promise that remains to be fulfilled. Indeed, he recently wrote an article about how the Queen’s Speech could have been an opportunity to promote the mutual agenda in which he talked about ways in which the sector could be put more at the heart of banking reform. He said that we should consider expanding the credit union and CDFI—community development finance institution—sectors to reconnect banking with its local communities, and that we should look beyond the financial services sector to think about energy co-operatives, employment ownership measures, and co-operative housing tenure.

It is an important time for us to be debating the issue, because, as you will know, Mr Deputy Speaker, this is the international year of the co-operative.

--- Later in debate ---

[Chris Leslie]

Now is the time to think about the culture change that we want to see in the financial services sector. Yes, there are some good plc structures, but we have an insufficiency of good mutuals, building societies and so on. There should be new entrants of that type, and current ones should grow to provide some proper competition to the big banks.

[Mr Thomas]

Will my hon. Friend give way?

[Chris Leslie]

How can I fail to give way to my hon. Friend?

[Mr Thomas]

My hon. Friend is being characteristically generous. One big concern examined in some detail in the all-party group report that he mentioned was about the future of friendly societies. Does he agree that the debate provides the Financial Secretary with a good opportunity to set out how the Treasury is responding to concerns about the effect that a particular interpretation of case law by the Financial Services Authority is having on the future of friendly societies? Their proportion of the insurance market is at risk of going into reverse because of how the FSA has approached the matter, and the amendment may well help to achieve a culture change in the FSA and get its lawyers to adopt a slightly more helpful mindset.

--- Later in debate ---

[Steve Baker]

Looking at the amendment, I wonder whether it illustrates the tensions in the contemporary labour movement. On one hand, this should be a time of celebration for all those who believe in mutuality, co-operatives and voluntary self-help, because Members of all parties are signed up to the idea. There is a Conservative co-operative movement, and many of us are very serious about it. On the other hand, Labour insists on top-down control and state direction. It wants to enshrine in legislation measurement, management and the direction of Ministers’ performance.

Is it not time that, rather than insisting on the production of numbers and pretending that the Financial Secretary can direct people to help one another voluntarily and mutually, we eliminated barriers to entry, accepted spontaneous order and encouraged people to build up the bonds of friendship and mutual co-operation? Ministers cannot direct or legislate for those bonds.

[Mr Thomas]

Perhaps the hon. Gentleman could describe how the amendment would in some way create a barrier to entry to the financial services market.

[Steve Baker]

I was not suggesting that it would create a barrier to entry. I was suggesting that it would put in place measurement and management. That may well appeal to some people, but if we want spontaneous order, mutual societies and bonds of friendship, we cannot get them by state direction. There is very little point in measuring the Financial Secretary’s performance when we want spontaneous order and the bonds of mutuality. I do not support the amendment, but like many other Government Members, I certainly support the thrust of the Government’s policy.

--- Later in debate ---

Building societies and mutuals are the unsung success of our British financial services—they are unsung by a Government who promised to do the opposite.

[Mr Thomas]

Is not one of the unsung successes of the building society movement that it has sought to maintain an effective and broad-based branch network in the communities from which they grew, which sadly is not necessarily something that can be attributed to the major banks? There were wholesale bank branch closures in the last generation, and they are beginning again.

[John Healey]

My hon. Friend, who knows far more about this matter than me and many in the House, is absolutely right. At a time when a loss of trust and confidence in financial services is evident across the board, that local presence and face-to-face relationship counts for a great deal.

--- Later in debate ---

This is legal jargon that will be interpreted by the courts. Will it make any difference, though, if mutuals are not fostered, developed and encouraged in line with what the coalition agreement originally stated? Will it produce the intended result—that people spontaneously and with moral purpose determine the new kind of society we move into?

[Mr Thomas]

Will the hon. Gentleman accept that one lesson regarding the regulation of building societies, friendly societies and other financial mutuals arising from the inquiry by the all-party group on building societies and financial mutuals, to which my hon. Friend the Member for Nottingham East (Chris Leslie) referred, was that regulators did not put enough time and effort into understanding the mutuals market and that this simple amendment will help to prevent a repeat of that scenario?

[Mr Cash]

It may well. It behoves the Government to take this kind of amendment very seriously, despite drafting imperfections. It is important to the integrity of our financial system and, above all else, the sense of individual ownership in a mutual context for this movement not merely to be nudged along but to be massively encouraged. The more people have a stake as a result of being in a mutual condition, the better society will be.

I am completely in favour of capitalism—that might disappoint Opposition Members—but each category of activity in financial markets requires its own remedy, and the mutual system is vital to ensuring that there is a proper balance in society and that those who, for one reason or another, cannot get on to the capitalist ladder in the way that some can have the benefit of mutuals and can share in the prosperity that others provide. I regard that as a very important objective.

Even if the amendment is not perfect, the intention behind it is important. Wrapping the whole thing up in jargon—some of us are very familiar with jargon—will not solve the real problem in the way that mutual societies can. I hope, therefore, that the Minister will give careful attention to the objectives and purposes of mutuals, in the context of the amendment, and not simply say that the Opposition are talking nonsense or that the Opposition spokesmen are trying to be troublesome and criticise the coalition agreement. It is time we grew up, actually. By that I mean that instead of constantly talking about the Opposition as if they were simply trouble making and mischievous, we should recognise that in such matters we are trying to achieve something worth having.

Rural Bank Closures

Gareth Thomas Excerpts

Tuesday 21st February 2012 Westminster Hall

[Roger Williams (Brecon and Radnorshire) (LD)]

It is a great pleasure to bring this important matter to the attention of the Chamber, and to serve under your chairmanship, Mr Brady. About a year ago, I secured a Westminster Hall debate on a similar matter. Another Treasury Minister responded to that debate, but it is a great pleasure that this Minister is present today to respond to my remarks.

I have secured the debate to reiterate my concerns about the closure of bank branches in rural areas. Although 20% of the population live in rural areas, it has never been more difficult for them to access money and financial services. As hon. Members may recall, I raised this issue nearly a year ago following the closure of Barclays bank in Rhayader in my constituency. That town of nearly 2,000 people was left with a single branch of HSBC bank that ran a reduced service just three days a week. Such a situation made it increasingly difficult for local people and businesses to access their money, and meant that they had either to change their account to HSBC, or travel 14 miles to Builth Wells and the nearest Barclays bank.

Sadly, Brecon and Radnorshire now has a new case study. On 9 March this year—unless the bank has a Damascene conversion as a result of this debate—the branch of HSBC in Presteigne will close. That will leave a community of nearly 2,500 people with just one branch of Lloyds TSB that is open only on Wednesday and Friday and between the limited hours of 9.30 am to 3 pm—a mere 11 hours per week. Furthermore, the branch has no cash machine, and I will return to that point. News of the branch closure met with a huge response from the people of Presteigne, who managed to collect more than 500 signatures in a petition against it. They see the closure as a desperate shame; one resident told me that she has seldom seen the bank empty, and that there is usually a queue.

Let me describe Presteigne in a few words. The editor of Country Life magazine, Clive Aslet, considers it to be one of Britain’s top 10 towns in which to live. It is an active, transition town that engages with environmental issues to an extent rarely seen in other places. It is heading towards a strategy of zero waste; a large allotment area has just opened and proved popular. The voluntary East Radnor day centre brings in elderly people from the countryside to share friendship and a meal together, as well as providing other services. Presteigne’s music festival is internationally renowned and premiers many musical compositions.

[Mr Gareth Thomas (Harrow West) (Lab/Co-op)]

The hon. Gentleman is describing Presteigne, which sounds almost as beautiful and wonderful as north Harrow in my constituency. That area has also lost its last bank branch, which is impacting on businesses. Does he think that it is incumbent on the Government, perhaps through the Minister, to convene a summit of the big banks and demand that where a bank branch is the last in a community, banks must respect the need of that community for it to remain open? To help the Government achieve that objective, does the hon. Gentleman think that it is worth considering a British version of the Community Reinvestment Act, which forces banks to disclose where they lend and to demonstrate that they are performing well in order to maintain their banking licences?

[Roger Williams]

I believe that the Government have a role to play, and such a summit may be the way forward. We could also support trials of community banks in which a number of different banks come together to provide banking facilities, thereby cutting costs for individual banks but maintaining a facility for the community.

--- Later in debate ---

[Roger Williams]

I thank the hon. Gentleman for that intervention. Yes, I believe that there may be a role there. There is the American model of a shared bank, whereby one facility houses different banks. They share the costs and maintain a presence in the community. That may be a way forward; the Government could help with, or initiate, a pilot scheme of that type. I had intended to suggest that later.

[Mr Thomas]

I am grateful to the hon. Gentleman for supporting the idea of holding a summit with the banks to discuss branch closures. Does he not think that having such a summit is all the more important given that the Government’s attitude to bank branch closures has arguably become more depressing since his previous debate last March? I ask that because the Financial Secretary to the Treasury, who has direct responsibility for this issue, has said:

“The Government do not intervene in…decisions as to whether, and where, banks maintain branches.”—[Official Report, 26 January 2012; Vol. 539, c. 329W.]

In a recent debate, he also suggested that if the Government intervened to stop bank branch closures, banks would continue to face high costs. Clearly, a more sophisticated Minister is answering this debate, and one hopes that she will have the courage to take a slightly different view. The answers to our questions surely underline the need for a summit so that banks do not think that the Government condone further bank branch closures.

[Roger Williams]

I thank the hon. Gentleman for that intervention. One reason why I called for the debate is that I am not prepared to allow the closures to go unnoticed. By bringing the issue to the attention of the Government and right hon. and hon. Members, I intend to bring it to the attention of the big four banks, and a number of other banks. These large organisations have a social duty to which they should attend, but it would be useful if the Government could kick things off with an initiative and call for a summit, as the hon. Gentleman said.

When a bank has the last branch in town, it often makes a pledge of some sort to keep it open, but those pledges are often difficult to define; that creates a lot of uncertainty, which can be fuelled by such comments as those made last year by the British Bankers Association. It said:

“Branches will remain open if they are being used. But if the number of customers…coming into the branch falls, then the bank—like any other retail outlet—will need to look carefully at whether it is…viable to keep it open.”

Well, the bank in Presteigne was being used, but a different target was imposed on it, relating to the selling of financial products such as mortgages, pensions and loans. The population of Presteigne is rather stable; it may have made use of those products in the past, but it still expected services from the bank. However, the bank has decided to withdraw from the community.

Banking (Responsibility and Reform)

Gareth Thomas Excerpts

Tuesday 7th February 2012 Commons Chamber

[Mr Hoban]

I was going to discuss the bank payroll tax a little later, but let the hon. Gentleman just ponder for a while why the person who introduced that tax, the former Chancellor, described it as a “one-off” and something that was not workable because it did not change the behaviour. What we have done is introduce the bank levy, which the Labour party opposed when it was in government, and every year that is raising £2.5 billion more than the bank payroll tax raised in a single year. That is the product of well-thought-through taxation policy. We have gone ahead and imposed that bank levy, but the Labour party, when in government, opposed it.

Let me discuss the interaction of bank bonuses and capital. We agree with the interim Financial Policy Committee that capital levels, not bonus payments, have to be the priority. Banks must strengthen their balance sheets as a foundation for lending to families and businesses. That is why the FSA is rigorously scrutinising bank distribution plans, and it will not approve plans unless they are consistent with required capital levels, ensuring that banks maintain the capital they need in order to finance businesses. It is because of our leadership that bonus levels have already started to fall. According to the Centre for Economics and Business Research, City bonuses tripled under Labour, and when the shadow Chancellor was Minister for the City they were £11.6 billion. At the time, the shadow Business Secretary was carefully drafting the contracts to ensure that people could earn those bonuses. Last year, bonuses were almost half that figure, at £6.7 billion, and we fully expect them to fall further this time. Thanks to the action we have taken, bonus pools have come down and Labour’s cash bonus culture has been ended.

[Mr Gareth Thomas (Harrow West) (Lab/Co-op)]

The Minister may be aware that the number of bank branch closures is beginning to rise again, as is the number of branches with restricted opening hours. Will he tell the House what decisive action he has taken to reverse those trends?

Tax Avoidance (Public Servants)

Gareth Thomas Excerpts

Thursday 2nd February 2012 Commons Chamber

[Danny Alexander]

I well understand why people would see it that way—frankly, I see it that way myself. It is interesting that already today we have heard one example, from my hon. Friend the Member for South Norfolk (Mr Bacon), who is a member of the PAC, of a similar arrangement made under the previous Government. Of course, the review will not look back on arrangements that have now been discontinued, but will look at those currently in existence in the public sector in order to ensure that everyone pays their fair share of tax. I know that my hon. Friend the Member for Bournemouth West (Conor Burns) will strongly agree with that.

[Mr Gareth Thomas (Harrow West) (Lab/Co-op)]

In December, I tabled a round robin question to every Department asking whether senior staff in Departments, Executive agencies and non-departmental public bodies were

“paid by means of payments to a limited company”.

On 5 December, the Under-Secretary of State for Business, Innovation and Skills, the hon. Member for Kingston and Surbiton (Mr Davey), who has responsibility for consumer affairs, replied on behalf of BIS:

“The Department's policy is that staff salaries are paid into employees’ bank accounts.”

He also wrote that

“there is no evidence that any senior civil servants in the Department for Business Innovation and Skills and its non-departmental public bodies are paid by means of payments to a limited company in lieu of a salary.”—[Official Report, 5 December 2011; Vol. 537, c. 152-3W.]

Why did they get it wrong, and why did I not get an answer from the chief executive of the Student Loans Company?

[Danny Alexander]

That answer described the arrangements as I understood them until I received information about this case in the past few days. The inquiry that I have put in place will reveal whether any more of these arrangements exist elsewhere in Government.