Royal Bank of Scotland

Grahame Morris Excerpts

Thursday 5th November 2015 Commons Chamber

[Kate Osamor (Edmonton) (Lab/Co-op)]

I beg to move,

That this House calls on the Government to consider suspending the further sale of its shares in the Royal Bank of Scotland whilst it looks at alternative options; and believes that this should take place in the context of a wider review of the UK’s financial sector and that such a review should consider the case for establishing new models of banking, including regional banks.

On behalf of the House, I thank the Backbench Business Committee for allowing us the opportunity to debate this issue in the main Chamber today. This is the first time that I have led a debate, and I am grateful to all hon. Members from both sides of the House who have agreed to participate in it today. I will keep my speech reasonably short so that as many Members as possible will have a chance to speak.

The selling of RBS shares is an important issue that deserves detailed discussion, and this is the first time that it has been formally debated since the Chancellor announced his intention to begin reprivatisation at his June 2015 Mansion House speech. He provided no opportunity for public discussion of the decision; he did not even present the decision himself in Parliament the following day, but rather sent the Economic Secretary to the Treasury on his behalf.

Today’s motion, signed by hon. Members on both sides of the House, touches on three themes. First, the Government should consider suspending the further sale of their shares in the Royal Bank of Scotland while they look at alternative options. Not enough evidence has been considered to give the Government a mandate to rush through the sale of shares. Secondly, such a review should take place in the context of a wider review of the UK’s financial sector. We need to look at the implications for our economy of the make-up of the UK banking sector, which is unusually large, unusually concentrated and uniquely lacking in diversity in comparison with other countries.

Thirdly, the review should consider the case for establishing new models of banking, including regional banks. Reforming RBS into a network of local banks would increase financial stability, help decentralise the economy, boost lending for small and medium-sized enterprises, maintain local branch lending and help restore faith in British banking. There is also a strong case for saying that such a move would be beneficial to the taxpayer and the economy—certainly enough to justify examining this option before pressing ahead with a fire sale.

In this opening speech, I want to set out the errors of process behind the sale, and the case for reforming rather than selling RBS. I call on the Government to halt the sale of RBS shares until a full and independent review of all the options has been conducted. As a result of the emergency bail-out package in October 2008, the British public effectively acquired 82% of RBS and 43% of Lloyds. The total cost to taxpayers of our stake in RBS has now exceeded £45.5 billion. The recent sale of a 5% stake in the bank has already resulted in a loss of £1 billion. Selling the entire Government stake at a similar price would result in losses of £13 billion or more—almost a third of the original bail-out.

The size of the expected losses, and the impossibility of meeting the Chancellor’s previous assurance that we would get our money back, reinforce the case for a broader review to establish whether this is really the best that we can do, taking into account all the economic costs and benefits of the different options available.

In 2013, the Chancellor of the Exchequer set out the following objectives for the future: maximise the ability of the banks to support the UK economy; get the best value for money for the taxpayer; and return the banks to private ownership as soon as possible. Privatisation is presented as the answer to the first two objectives and as a foregone conclusion rather than one of a number of options, each of which deserve consideration. A whole host of experts have suggested that we can do better with RBS—better for the taxpayer and the economy—than return to the pre-crisis business as usual. That is not a fringe view; it is a view expressed by the Parliamentary Commission on Banking Standards, the former Secretary of State for Business, Innovation and Skills and the previous Government’s own entrepreneur in residence.

[Grahame M. Morris (Easington) (Lab)]

rose—

[Kate Osamor]

May I make some progress?

Martin Taylor, a member of the Bank of England’s federal policy committee, said:

“I would like to have a feeling that the Government recognises there are policy options and is thinking along those lines rather than saying our job is to get the business back into the private sector.”

Unfortunately, the rushed nature of the sale, the lack of evidence provided to support it and the lack of discussion surrounding it suggests that the contrary is the case.

The Government’s decision to sell off RBS shares in the summer without any published evidence that they have considered alternative options raises important questions about public accountability and process. It signals a return to business as usual and an unquestioning faith that the private sector is the right direction for British banking.

The Chancellor argued that it was the

“right thing to do for the taxpayer and for British businesses”

and that the sale

“would promote financial stability, lead to a more competitive banking sector, and support the interests of the wider economy.”

To support those claims, the Government have relied on a 13-page report by the investment bank, Rothschild, and a two-page letter from the Governor of the Bank of England. Neither of those presents any concrete evidence to support the Chancellor’s assertion. Opposition to the sale has been voiced by the public, hon. Members and independent voices in the field. Nearly 120,000 people have signed a petition calling for an independent review of the options for the bank’s future before any shares are sold.

A survey commissioned by Move Your Money shows that only 21% of people agree with the current conditions of the share sale; 82% agree that RBS should act in the public interest and 67% agree that we should have a full independent review. Many alternative options have been put forward for RBS, including breaking it up into a series of challenger banks, turning it into a state investment bank and converting it into a network of local or regional banks.

I want to focus on the last of those options, which has been advocated by, among others, the New Economics Foundation, the Archbishop of Canterbury, Civitas, Respublica and the former Treasury Minister, my right hon. Friend the Member for Wentworth and Dearne (John Healey). It is modelled not on an untested economic theory but on the German Sparkassen, a network of local public savings banks owned in trust for the public benefit, accountable to local people and with a mandate to support their local economies. The Sparkassen are the powerhouse of small business lending in Germany and are an important part of the success story of the German economy.

The NEF has proposed that RBS could be broken into 130 local banks based on local authority areas, of a similar size to the Sparkassen. They would be carved out of the bank’s high street operations, with its investment banking and private banking arms being sold. Like the Sparkassen, they would be able to share risks and resources to achieve economies of scale but, crucially, each local bank would be independent. By refusing to consider this option, the Government are missing a golden opportunity to fix the structural problems of UK banking that were exposed in the crisis.

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[William Wragg]

I am glad that the hon. Lady, representing Plaid Cymru, managed to refer to Wales in her question. I am not sure whether it is quite within my remit to say how the Government should direct such profits towards Wales.

The return of RBS to private ownership is an important first step, but the motion provides the opportunity to debate some particulars of RBS’s business and some important aspects of the aforementioned lending practices, which occurred both before and after the crash. I am sorry to say that RBS, in particular, was found wanting in that regard.

I want to highlight certain negative practices that have been shown by independent sources to have occurred in RBS that affected its small and medium-sized business clients, particularly one business in my constituency. I want to place my concerns on the record and am keen to hear from my hon. Friend the Minister how such practices will be investigated and what action will be taken to restore public trust in RBS and the banking sector more widely in the run-up to any further share sales.

The Government will no doubt be aware of the report by the businessman Lawrence Tomlinson, to which the hon. Member for Edmonton (Kate Osamor) referred. It was published in 2013, when Mr Tomlinson held the position of entrepreneur-in-residence at the Department for Business, Innovation and Skills. Mr Tomlinson’s report considered the lending practices of banks and in particular the treatment of businesses in distress. It considered several banks in general, but took a particularly in-depth look at RBS’s turnaround division, the global restructuring group, or GRG. Tomlinson received large bodies of evidence on RBS’s practices, including from its business customers. The report found

“very concerning patterns of behaviour leading to the destruction of good and viable UK businesses”,

all for the sake of profit for the Royal Bank of Scotland.

[Grahame M. Morris (Easington) (Lab)]

I agree with the hon. Gentleman’s point about some of the business practices, but does he accept that the motion is a reasonable and moderate proposal, and the contention of my hon. Friend the Member for Edmonton (Kate Osamor) that we should consider other models, such as the Sparkassen model in Germany? Does he agree that bankers’ bonuses have been a significant factor in driving the misbehaviour that led to the downfall and the financial crash in 2008? Is it not true that the German banking system is geared towards supporting jobs and the real economy, and it would be a far better approach altogether if we did the same?

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. Interventions need to be a little bit shorter. I am bothered that hon. Members are all down to speak and they will have nothing to say because everything will have been covered in interventions.

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[Grahame M. Morris]

The hon. Gentleman is setting out an alternative view that RBS has changed and been reformed, but did not the LIBOR exchange rate-rigging scandal happen after it became a publicly owned bank? Has anything fundamentally changed in the bonus culture that drives such risk-taking and does not support jobs in the real economy?

[Jeremy Quin]

I acknowledge and appreciate the hon. Gentleman’s point. I would have a much better case if I could say that all the problems were pre-crisis, but they were not; I fully acknowledge that. There are clearly issues that were endemic in RBS’s culture, and I sincerely hope that it has got a grip on that now.

RBS certainly does have a grip on its corporate structure and how it is conducting its business. It is now far more focused back on the UK and on UK corporate lending. It is the largest single lender to UK corporates, the largest supporter of SMEs, and the largest provider of mortgage lending. That is what we all want to see and wanted to see when the stake was initially taken.

--- Later in debate ---

[Grahame M. Morris (Easington) (Lab)]

I should like to thank my hon. Friend the Member for Edmonton (Kate Osamor) for bringing this important debate to the House. I also want to thank the Backbench Business Committee for allowing the time for it to take place. I rise to speak in support of the motion. The risk of speaking quite late in a debate is that everything might already have been said, but I shall try to pick out a few points on where we are now and on the benefits of finding a real alternative to having another privately owned bank.

As we have heard today, and as we know from our own experience, the UK banking and financial system brought our broader economy to the brink of collapse in 2008. Indeed, we were just days away from the banks closing their doors and the ATMs—the cash machines—running out of money. That was caused not by a profligate Labour Government but by an under-regulated financial and banking sector that had no concept of social responsibility and that took reckless gambles with our economy and lost.

Today’s contributions from Government Members have generally been positive. Indeed, I have been quite surprised at how open Conservative Members have been to the ideas put forward in the motion, which is a reasonable one. We have also been hearing, however, that things have moved on and that RBS in particular has been subjected to major changes and is now a different entity. My view is that, for as long as we have a bonus culture in which bankers are financially incentivised by the prospect of receiving huge bonuses for a single deal—more than an ordinary working man or woman could accumulate in the whole of their working life—bankers will continue to take chances, to gamble, to fall foul of LIBOR schemes and to mis-sell products. We need to change that culture fundamentally, and we now have an opportunity to do that by creating an alternative system.

In the bail-out at the height of the crisis, the UK Government’s total support for the financial system exceeded £1.1 trillion and, as we have heard, the taxpayer-funded rescue package for RBS exceeded £45.5 billion. It is estimated that the privatisation proposals being put forward by the Chancellor of the Exchequer will cost the public purse £13.5 billion, which is a very considerable sum. I believe that the whole of Parliament, not just those on the Opposition Benches, should be affronted by the way in which this is being done. The announcement was made not to the House of Commons but in a speech at the Mansion House in the City of London. That is an affront to democracy. Our role is to hold the Executive to account, and we should have had a full debate in Government time on this issue. Now, however, we should look at some of the alternatives.

One of the downsides of RBS’s recent activities has been the number of branch closures, with 165 closing in the past year, a number of which were in my constituency. We have heard about the LIBOR scandal, and my hon. Friend the Member for Norwich South (Clive Lewis) has referred to other more recent scandals. The bank has also been implicated in undermining viable small businesses, as the hon. Member for Hazel Grove (William Wragg) pointed out. That has had scandalous consequences for the real economy.

I believe that, following the general election in 2010, the Government used the financial crisis as a way of justifying policies of austerity. Instead of focusing on the banking sector, learning the lessons and changing the political narrative, the Prime Minister and the Chancellor of the Exchequer successfully shifted that focus on to an apparent need to impose austerity. An economic crisis in the banking and financial sector was used to introduce a series of policies in which everyone was blamed, from public sector workers to the low-paid, the vulnerable, the unemployed, the sick and the disabled. Investing in our future, rebuilding our schools and hospitals, and increasing the numbers of doctors, police officers, teachers and nurses have now been caricatured as profligate spending. I am proud of Labour’s record, and I am never going to apologise for investing in the foundations and building blocks of a just, fair and decent society. We need a banking system that works for the real economy, and we have that opportunity if we choose an alternative way of looking at how we take forward RBS.

I implore the Chancellor to reshape our banking system. I ask him to consider the alternatives and not simply return RBS as the same London-centric, privately owned, commercial bank that mimics the existing banking culture and services in the UK. We do not necessarily want a state-owned bank run from Whitehall, and alternatives have put forward by various hon. Members, including my hon. Friend the Member for Dagenham and Rainham (Jon Cruddas). A real alternative would be to use our stake in RBS to create a local stakeholder banking network. That would be tasked with supporting small and medium-sized enterprises and rebalancing our economy, and it should have a public service mandate.

I had a walk through the City of London at the end of the recess, where I saw some of the fine buildings, with their images of industry—of ironworks, engineering and railway investments. We have lost that public service ethos. We instead have an idea of driving the investment banking arm, speculating in mortgages overseas, and of this drive to double-digit profits, which has undermined jobs in the real economy. There should be a specific duty to a particular locality, not a duty to maximise profits, but one to optimise returns to a range of stakeholders, including customers and the local economy. Such an approach would complement the Government’s stated devolution agenda, providing the regions with the financial power they need to support the SMEs that will deliver the economic growth and the new jobs that we need to rebalance the economy.

We should learn the lessons of the financial crisis. The large commercial banks withdrew credit from our economy and lending to the non-financial corporates—to manufacturing, construction and retail, for example—fell by 25% in the five years from August 2008. Germany experienced a similar collapse in lending from commercial banks, but its well-established local banking network, the Sparkassen, which colleagues have mentioned, and the local co-operative banks increased lending to domestic enterprises and to the self-employed over the same period by between 16% and 25%.

Time is short, so I wish to make only a few points in conclusion. The concentration of large, too-big-to-fail banks commercial banks leaves the UK uniquely exposed to another financial collapse. Returning RBS to that system would increase, not decrease, the risk to our economy. At the very least, the Government should consider the merits of the stakeholder model as a driver of growth, as well in creating a more stable banking system which can protect the real economy from future shocks. The Chancellor should not pursue a rushed policy of privatisation, which risks leaving the taxpayer worse off, not only through incurring a loss following the sale of the remaining shares, but, worse still, through continuing with an unreformed banking system that will condemn us, once again, to repeat the mistakes of the past. I support the motion.

[Several hon. Members rose—]