Banking Competition

Debate between Gareth Thomas and Cathy Jamieson

Thursday 12th July 2012 Westminster Hall

[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.