Banking in Scotland

Debate between Ian Davidson and Julian Smith

Thursday 14th October 2010 Westminster Hall

[Mr Ian Davidson (Glasgow South West) (Lab/Co-op)]

It is a pleasure to serve under your chairmanship, Mr Rosindell. Before the sitting, you set me the task of seeing whether I could mention Bermuda at some point in my speech. I am not sure how I shall manage that, but no doubt some opportunity will come up.

The debate is somewhat unusual in as much as it refers to a report produced in the previous Parliament that has been responded to by the Government in a new Parliament. Relatively few members of the Select Committee on Scottish Affairs have survived from the previous Parliament, but two, at least, are here. The new members wanted to make it clear that the report was not necessarily something they were involved with—just in case there was any blame to be distributed, and in case there was a Whip here who might in some way take offence at anything that might have been said. They are still at an age when they are in awe of the Government whipping process. I hope that they feel thoroughly cleared by that caveat.

I want to start by referring to the final recommendation from the Committee, which called on the successor Committee to continue to take the matter forward, and keep it under review and supervision. I am glad that we have today’s debate as the first step in doing that, and that the Committee has already agreed to seek further information from the banks. Once we have studied that, I hope that we shall go on to seek further information from several other organisations that we discussed previously, to see how matters have progressed since the report was produced.

This is a quite fast-moving situation. What we said in February drew on hearings that had taken place in December 2009 and in January. We reported in February and there was a Government report in July, and things are not necessarily the same now. Because of the importance of the banking industry to economic life in Scotland, we want to keep the matter under review. I understand that the Minister’s reputation does not put him among the worst of the Conservative Ministers—[Laughter.] I notice that he disputes that. I hope he will be prepared to work with us on an ongoing iterative relationship to keep the banks under review.

One of the generic problems, I suppose, of the Scottish Affairs Committee is that as a territorial Committee it is not our role to stray into general areas that are properly the remit of other Committees. Just as, in the work that we did on the forthcoming measures on the alternative vote and the changing of boundaries, we restricted ourselves to seeking advice and information from people on the aspects of the matter affecting Scotland alone, so, in the present case, we have sought not to duplicate the work of the Treasury Committee, but to restrict ourselves to considering those aspects that impinge on Scotland. We have looked, therefore, at the impact on Scotland in the context of the banking crisis.

I want to start by setting the report in the context of the banking crisis, a year or so ago. We would all, I think, accept that many of our economic difficulties now flow from the banking crisis. I remember Alex Salmond, as First Minister in Scotland, condemning the “spivs and speculators” who at that time were bringing down the Royal Bank of Scotland; unfortunately, he was not prepared to concede that the spivs and speculators involved were working for the bank at the time. I think that he was looking at the crisis that engulfed the Scottish banks as being of external origin, rather than having been to a great extent home-grown in those banks.

Those who brought down the Scottish banks were in them, working for them, gambling for them and mismanaging their money. We now have the responsibility of moving forward from that. The banks brought a crisis on themselves, but they brought it on the rest of us as well. The impact of the spending review next week will be very much influenced by that—indeed, more by that than by any other single factor.

It is undoubtedly a source of some shame to me as a Scot, and, I am sure, to many others of my Scottish colleagues, that a situation that developed at the Royal Bank of Scotland and the Bank of Scotland resulted in the need for a bail-out—a rescue—by the Bank of England. The Bank of England should perhaps more properly be referred to as the Bank of Britain in this context. It was of course founded by a Scot, and therefore we do not need to feel quite the same guilt that we might have felt had we been bailed out by an external body. Of course, the way in which the Bank of England, acting on behalf of the British Government, was able to ride to the defence and support of the Scottish banks in crisis, demonstrates yet again the strength of the Union and the importance of Scotland’s remaining in it.

We must draw a number of lessons from bank failures and the bad behaviour of banks. The main one that the Committee drew at the time in question was that banks and bankers cannot be trusted to do the right thing unless they are under constant supervision. Where the previous Government went wrong was in the fact that new Labour, who in my view were unduly keen to suck up to big money, accepted the consensus, prevalent at the time, that regulation was in principle a bad thing that should be minimised.

I make that criticism of the Government whom I supported, as a valuable lesson, I hope, to new members of the Committee, so that they will understand that it is possible to be a member of a Select Committee and on occasion to be critical of the Government. I hope that that lesson will be supported by the Minister. If Committees are to work properly, there must be occasions when even the mildest criticism of the party to which one belongs is allowed. I hope that I shall be allowed that latitude here today.

Light-touch regulation became the mantra. New Labour was pressed all around by the then Opposition—now the leading party in the Government—the Scottish National party, the CBI and the City; all of them called for less and lighter regulation, and new Labour went along with that. The bankers ran wild, the system collapsed and we are now in a situation where ordinary people are left to bear the burden. The main lesson that we should draw—I hope the Minister agrees—is that we need to move away from an emphasis on minimising the examination of banks’ conduct and on a lack of intervention when they behave in a way that is not conducive to the development of the economy and the relationships we would want within it.

External influence, and the way it needs to be controlled, is beyond the purview of the Scottish Affairs Committee. Therefore we imposed a self-denying ordinance that we would not make recommendations on those matters. I intend to stick with that approach today, although some of my colleagues who have more flexibility in the debate may want to comment.

[Julian Smith (Skipton and Ripon) (Con)]

Does the hon. Gentleman accept that the coalition Government have made some excellent steps in firming up regulation, particularly with the proposals to put the Bank of England absolutely at the centre of the new regulatory regime? I am pleased that he seems to think that a good idea.

[Mr Davidson]

Yes, I agree with the general thrust of those remarks by my colleague, who is a new member of the Scottish Affairs Committee. I am sure that the Whips Office will have noted that he is keen to draw attention to something that has been done by the Government and with which I generally agree.

The new Government have followed on from the changed policy of the previous Government, who moved away from being quite slack in terms of focusing on the work of the banks, to being much more rigorous and controlling. The new Government are continuing that process. I welcome that; there is no point trying to identify disagreements that do not exist. There are enough disagreements that do exist without suggesting that we disagree on everything. There is substantial agreement in this area and I hope that we can build on it.

During our investigations, we held 10 hearings over seven days and received 16 written reports, all of which were helpful. We also visited the Republic of Ireland. For the younger hon. Members, I should say that was in the days when there was a fashionable concept, of which little is heard now, called the arc of prosperity, which was very much discussed in Scotland.

The general idea of the arc of prosperity was that if Scotland became independent it would become like Ireland and Iceland. For some reason that I do not entirely understand, that is no longer raised by Scottish National party Members of Parliament as much as it used to be. [Interruption.] We have just been joined by a SNP Member. Let me tell the hon. Member for Na h-Eileanan an Iar (Mr MacNeil) that the arc of prosperity is no longer raised as much as it once was, largely because it is no longer there.

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[Mr Davidson]

It is unrealistic to expect that many in Ireland would want to return to being part of the UK, because people there felt that they wanted independence for Ireland even if it impoverished them. Many people we met recognised that, in many ways, they were becoming more of a colony of the UK now than they had been, because high streets in Ireland were run by Tesco and WH Smith, for example.

A relatively small number of Irish businesses seemed to have a presence and they no longer had influence on the UK. People there were unhappy that they no longer had control over their own currency, because, like the SNP, they wanted to—and did—join the euro, which meant that they were unable to devalue competitively in a way that might have produced a boost for their economy. There was much weeping, wailing and gnashing of teeth, as perhaps the Irish are prone to do, about that issue.

There is no doubt that the difficulties faced by the Irish Government and people were exacerbated by Ireland’s being a stand-alone economy without control over its own currency. The Irish Government have been making huge cuts in public services—cuts in wages, pensions and services—all of which were going through when we visited. Some of those might come about now, but seeing all that was helpful and constructive.

[Julian Smith]

The hon. Gentleman seems to be talking about the past. One conclusion of this report is that there is confidence in respect of financial services in Scotland, despite what happened. I believe that this debate and discussions on this topic should focus on how we can use the financial services sector, which has had huge success in Scotland, to create more jobs and private sector investment in this sector from overseas and from Scotland. I am sure that the hon. Gentleman will come on to that later.

[Mr Davidson]

I am sure that I will. However, the debate is not about the future economic development of Scotland; it is about the Committee’s report, which we produced some time ago. My role as Chair is to discuss what we covered at that time and ensure that it is all seen in context.

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[Mr Davidson]

I have certainly had more people coming to my surgeries to talk about how they are being treated by the banks. I am also aware from money advice centres, Citizens Advice and other advice centres in my area that since the banking crisis the number of people complaining about how the banks have dealt with them has risen considerably. One is never entirely sure whether that is because the issues have been given more publicity—what we hear in our surgeries is not necessarily an objective assessment—but it is noticeable that the numbers have risen substantially, and I understand that that is a common experience.

[Julian Smith]

Does the hon. Gentleman agree that it is worth making a distinction between the bash-a-banker rhetoric, which probably many of us hear in relation to the problems that our constituents are having, and the success that Scotland has had in attracting back-office roles? Those roles have nothing to do with investment banking or lending, but are based on traditional Scottish accounting talents. Thousands of jobs have been attracted from a wide range of international companies to Scotland—to Edinburgh, Dundee and Stirling—and we must pay tribute for that. We must continue to try to attract such jobs to ensure that financial services play a role in making the private sector stronger in Scotland and lessening public sector predominance.

[Mr Davidson]

I am sure that those points have been noted by all concerned, including the Minister and the relevant Whip. I want to deal with the report, however, and while such matters are fascinating, the report does not deal with them. I look forward to hearing the hon. Gentleman’s contribution to the debate, which will no doubt cover anything that anyone misses out.

Let me make it clear that the Committee believes that it is of key importance to continue the supervision of banks in Scotland, because the banks’ behaviour and their success will be essential to the growth and development of the Scottish economy. We cannot build up a small or large business sector without having banks in Scotland that are able and willing to lend, understand their markets, and behave constructively and positively. I hope that that covers the point that the hon. Gentleman was making.

We wanted to identify the extent to which lending in Scotland had declined during the economic crisis. Our report contains a series of figures and statements indicating that there was a period when lending was far too loose—the banks had been intent on shovelling money out of the door, almost irrespective of whether the business propositions were viable. We were critical of the way in which bankers often seemed to be incentivised to make loans without due regard to their viability, whether they were for property or to businesses or individuals. The report states that the pendulum then swung too far in the other direction. For a period, banks were unduly restrictive. They were prepared to lend on almost nothing and found excuses to raise charges and interest rates to make it as difficult as possible for money to go out. We have now seen a swing back and there is a degree of equilibrium, but subsequent discussions that the Committee has had have not convinced me that the banks have got it right yet.

Recently, the Committee met representatives from the computer gaming industry in Dundee, the construction and road haulage industries in Edinburgh, and the local chamber of commerce in Dundee. In every case, the story we heard was the same—the banks do not understand us. No one in the construction, road haulage or computer games industries spoke up for the banks collectively. That was interesting, and not a little worrying. Everyone who expressed a view on such matters said that they did not believe that the banks had taken adequate account of the prevailing situation, and did not have a feel for their industry at the moment. They needed loans, floating capital and so on, but the banks were not willing to play along, except at exorbitant rates.

The banks have said that they are making more money available and that part of the difficulty is that lending is going down because companies are choosing to repay debt instead of taking out new debt; but it seems to me that, to some extent, the rates that the banks charge and the conditions that they seek to apply are still inhibiting meaningful lending. The Government and the Committee should give ongoing consideration to that. We have had some responses and updates from the banks involved that seem to paint a picture that is rosier than recently, but we are still receiving feedback from those who want to borrow that the banks are not being as helpful and constructive as they might be. I hope that the Minister and the Committee will be able to work together with the Scottish Parliament to ensure that we develop a mutually advantageous liaison and relationship.

Parliamentary Voting System and Constituencies Bill

Debate between Ian Davidson and Julian Smith

Tuesday 12th October 2010 Commons Chamber

[Mr Davidson]

May I first make some remarks as Chairman of the Select Committee on Scottish Affairs? We held a seminar with the Electoral Commission, in which the point was made very strongly by Members of Parliament representing Scottish constituencies who were also Members of the Scottish Parliament that the Scottish Parliament was absolutely and utterly outraged by the fact that there had been no consultation on the proposal to hold the AV referendum and Scottish elections on the same day. They also indicated that the Scottish Parliament had been made aware of the fact that that was the widespread political view in Scotland. The matter certainly had not been drawn to our attention quite so forcefully in other arenas as Members of the Westminster Parliament, but we decided that the best way to explore it was to test the waters by seeking a consultation. Because of the time scale, that would not involve the Committee coming to a firm conclusion one way or the other on the merits of the case, but it would allow Scottish public opinion to express its views. We would post that on and put it before Members of Parliament in the Chamber to inform their discussions. I am glad that many Members have read that evidence, and have drawn on it in their contributions.

It is regrettable that the evidence was made available only yesterday, and I apologise for that. I understand that some Members have not seen it at all. I can only hope that more attention will be given to it by the other place, which will have the opportunity to refer more clearly to the views that have been expressed to us by Scottish stakeholders and by political opinion.

It is also worth drawing Members’ attention to the fact that when the Committee met the Scottish Parliament’s Local Government and Communities Committee on an informal basis, that multi-party Committee was unanimous in wishing to see the date changed. It wanted the AV referendum to be transferred from 5 May to another date—it did not specify when. It felt, as one of the Members said, “We were here first,” as the timetable had already been set for the Scottish election, so the electoral test, which was proposed afterwards, should be shifted. I am glad to have the opportunity to draw that to hon. Members’ attention.

[Julian Smith (Skipton and Ripon) (Con)]

Will the hon. Gentleman give way?

[Mr Davidson]

I am happy to give way to another member of the Committee.

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[Julian Smith]

It is important to clarify the fact that the Scottish Affairs Committee did not take any view on the proposal, and I hope that its Chairman can clarify that.

[Mr Davidson]

I think that the hon. Gentleman has just entered the Chamber, so he may have missed my saying that we agreed that we would not take a position; otherwise I would be speaking to that position. However, we took the view that it was important—indeed, vital—that political stakeholders in Scotland should be consulted by somebody, because that had not been done by the Government, so we gave people the opportunity to express their views. I am glad that in such a short time many strong views were expressed. To be fair, some people expressed one view and other people another, but there is an opportunity for all those views to inform the debate. The hon. Gentleman will agree that it is regrettable that we have not had longer to discuss those views.

Speaking as the hon. Member for Glasgow South West, I was initially agnostic about AV, and in many ways I remain agnostic about the principle of AV. I oppose the single transferable vote and other forms of proportional representation, but I could live quite easily with AV. I am much more concerned about the context in which the proposal has been introduced. It was in my party’s manifesto, so it must be a good thing and should be supported. [Interruption.] It is early in the Parliament. I am in favour of the principle of a referendum, but it was never proposed in my party’s manifesto that it should be held on the same day as the Scottish elections. There has been some interesting illumination of why that is the case by the hon. Member for New Forest East (Dr Lewis).

I want to make my views known on two points: why we are having the referendum, and why so soon. As the hon. Member for Epping Forest (Mrs Laing) made clear, the Conservatives have agreed—I am sorry if I am not quoting her exactly—that the referendum was the price they had to be pay for tackling the economic crisis. To put it in simpler language, it is the reward to the Liberals for supporting Tory cuts. That is basically why this is happening. Cuts would not go through and would not necessarily command a majority in the House if the Conservatives did not have the support of the Liberal Democrats, who have signed up to a vicious set of proposals on cuts and public expenditure to obtain the reward of a referendum on AV.

The referendum is coming soon, because the Liberals trust the Conservatives no more than the rest of us, and they want to make sure that they are getting the reward sooner rather than later, lest they are simply fobbed off and it does not arrive at all. They do not want to be taken for mugs, so they want to make sure that the opportunities for the referendum are pressed quickly before negative publicity attracts too much opprobrium. In those circumstances, the fact the AV referendum is taking place as a reward for Tory cuts means that certainly in Scotland big campaigns will be run on the basis of saying no to the Tory cuts, no to the coalition’s dirty deals, and no to AV.

The way in which that will spill over into the Scottish elections will undoubtedly be beneficial to my own party. It will be immensely damaging, thank goodness, to the Liberals. The Conservatives, who are essentially irrelevant in Scotland, will not suffer much damage, because they cannot go much further down. No one can argue in those circumstances that holding the referendum and the elections together will not contaminate the Scottish elections. Admittedly, that benefits my party—and I look forward to that—but it means that the AV referendum will not be conducted on its own merits.

Returning to the lack of consultation with stakeholders, I am genuinely shocked by the fact that the coalition Government chose, as far as I am aware, not to ask anyone in the Scottish Parliament or in civic Scotland what they thought of the idea of having the AV referendum and the Scottish parliamentary elections on the same day. That was entirely a top-down decision. We have heard a great deal about a new politics. [Interruption.] I am not sure whether that was an approving heckle, or just a heckle, but I accept that the Member concerned is demonstrating that he is still alive. The fact that there was no consultation or discussion at all very much harks back to the old politics of drive and control, and shows immense contempt for the Scottish Parliament, the Welsh Assembly and—[Interruption]—the Northern Irish Assembly; I knew that there was another one. To add insult to injury, it is my understanding that the AV referendum will be described as the senior poll to be given priority when decisions are made about counting, publicity and all these other things.

To hold Scottish parliamentary elections on the same day as the AV referendum is bad enough, but we have been told that those elections will be subsidiary to the referendum, which no one particularly wants. It is not the first choice of anybody, as far as I am aware. It is coming about simply because of the shabby, shoddy and disgraceful deal that I described earlier. That really is an insult—