Interest Rate Swap Derivatives

George Freeman Excerpts

Thursday 24th October 2013 Commons Chamber

[George Freeman (Mid Norfolk) (Con)]

I am grateful for the opportunity to speak in this important debate, and I want to add my name to those of other colleagues in paying tribute to my hon. Friend the Member for Aberconwy (Guto Bebb) for his leadership and to the Bully-Banks campaign. I commend my hon. Friend the Member for Wyre Forest (Mark Garnier) for enlightening us all on how these mechanisms work, and I am grateful for the work of the all-party group, of which I am happy to be a member.

I want to speak about the context in which we need to view this issue, based on my own experience. I believe that this is the end of a banking boom-and-bust and bail-out, which speaks volumes about the role of banking in the economic crisis that we face. On the basis of my previous career in small businesses in East Anglia, it seems to me that the big bang, along with all the many good things, triggered a major cultural and financial neglect of the real bread and butter economy on the ground. Over the last 15 or 20 years, Norfolk has certainly seen a wave of bank closures, a “computer says no” culture, and a neglect and undermining of what was traditionally viewed as the backbone of our local economy, but what became in recent years, particularly under the last Government, rather unfashionable and, dare I say it, boring for the bankers of today.

Norfolk now sits on the cusp of a major economic renaissance—in life sciences, in engineering and in energy. I thank the Government for investing in the infrastructure but in that sector the banks have largely been irrelevant, in my experience, to such early-stage companies because they are too risky. Those companies usually rely on venture finance from angels, and corporate venturing from customers.

We thus need to ask ourselves some big questions about the banks’ role as our economy goes forward. Of course the banks play a crucial part. America has 20,000 banks and a new one is started nearly every week, and I believe that our banking sector and our financial services sector is one of our greatest and most innovative sectors. We sometimes talk about the City as if it comprised just four or five big banks; in fact, it is a fabulous crucible of financial innovation that should be celebrated and encouraged. The problem lies with the few big banks at the top that were bailed out by the last Government in such a way as to see them sitting on too many real businesses in the real economy that we need to grow and support.

I am going to speak about three of my constituents who have suffered as a result of the problem we are debating. Mr Andy Keats is a local entrepreneur who built up a number of companies—in this case, a successful 13-year-old company with 30 local employees, which is about to be sold for £3.5 million. When Mr Keats decided that he wanted to move his banking from RBS to Barclays, RBS stopped passing on the sales income from credit and debit card sales in the business. The business went insolvent within six weeks, and for the last four years, he has had to deal with RBS and NatWest and has had to face a series of major issues and challenges, to which I have been party. I have seen at first hand banks not responding and when they do, ignoring previous communications, and passing on debts to debt collection companies.

[Andrew Bridgen]

Does my hon. Friend agree that one explanation for the banks’ lack of enthusiasm to get on and pay out compensation is that if businesses that have gone bankrupt have no access to the redress scheme, there is no incentive for the banks to grasp this nettle, so the Government need to do something to force their hand?

[George Freeman]

My hon. Friend makes an excellent point for which I am very grateful.

Mr Keats has also pointed out that the solicitors acting on behalf of the bank sometimes take court action without serving necessary notice.

I cannot name the second constituent because, like so many in these circumstances, he wishes to remain anonymous. He is a leading local business man and something of a pillar of the community. His business was pushed into accepting interest rate derivative products by unscrupulous bank salesmen. He has filed legal action against his bank so that the statute of limitations does not time out on his claim, which is a very real threat.

The third constituent is Paul Adcock, the managing director of Adcock’s of Watton, a great family business on the high street of a great Norfolk town. He was one of the first campaigners to make a complaint and a key leading light in the Bully-Banks campaign. I want to pass on my thanks, on behalf of my constituent, to my hon. Friend the Member for Aberconwy because the campaign has been a huge help to him. Adcock’s, a major local business and a pillar of the local establishment, racked up £175,000-worth of unscheduled charges. In September this year, Barclays finally settled. I want to put on record my constituent’s thanks for doing so.

This is not just a local issue. It is an enormous issue that runs across our economy. The numbers are eye-watering. The Bully-Banks campaign has estimated that this mis-selling scandal has cost small businesses more than 400,000 jobs in our economy, with £1.7 billion a year lost to the Treasury. It has led directly to the loss of 162,000 jobs, and to the inability of SMEs to create 251,000 jobs that they would have been able to create otherwise. More than 30,000 small businesses still face long delays, and fewer than 7% of claims being considered by Royal Bank of Scotland had reached the redress stage by the end of the month, while nearly five times as many—32%—had reached that stage at Barclays. Just 2% of those whose cases have been deemed eligible for review have accepted offers of redress. The banks have, I believe, set aside £3 billion for redress purposes, and less than £2 billion has been paid to just 32 businesses so far.

We need a speedy and fair process for redress and compensation. I urge the Minister to use all the mechanisms at his disposal to encourage the FCA to accelerate its handling of claims, to ensure that the banks are not allowed to kick them down the road, to separate direct and consequential losses, and to ensure that the settlements are fair. We must be careful not to define consequential losses in such a way as to undermine the potential for future SMEs to raise funds from the banks.

We are lucky enough to have a Minister with a glittering career in finance and small business behind him, and, I do not doubt, a glittering career in politics ahead of him. Our group could not have a more doughty and outspoken campaigner and supporter of our cause on the Front Bench. I urge him to bring to this issue the skill that he has brought to other issues with which he has dealt, and to ensure that it is viewed in the context of the wider banking crisis, whose resolution will enable our economy to recover properly.