Banking

Ian Swales Excerpts

Wednesday 15th January 2014 Commons Chamber

[Ian Swales (Redcar) (LD)]

I naturally share many of the concerns expressed today, but a common theme seems to be emerging from these Opposition day debates about business and financial issues, whether they be on energy, gambling or banking. The Labour party makes a mess of things in government, realises there is a problem when it is in opposition and then proposes the wrong solutions, although they help it with its headline writing.

Let us look at some of the issues, the first of which is competition. I checked this morning and right now 55 different companies are offering current accounts; there are even 11 different types of account. It is now so competitive that many banks are paying people to have current accounts. Therefore there is a real question as to how restricted the competition is. A quarter of people already do not bank with the big four, and TSB has just been demerged to form a new high street bank. But high street banks are only part of the story. It is not in the motion, but we see from the press that the Labour party will try to force banks to demerge their branches. In fact, a lot of banking is not done that way at all. I have not had a bricks and mortar branch, for business or personal reasons, since 1989, when I took out the First Direct telephone banking service. How would that proposal work anyway? A banking analyst speaking to the BBC today asked:

“What makes anybody believe that there’s a queue of people willing to buy these branches? New and smaller banks—they don’t want more branches, they want more apps.”

There is an important point that we need to recognise about technology, which leads to the concerns expressed by some Members about what will happen to rural banking systems. Clearly, not everybody has access to apps and the internet. I assure the hon. Member for Denton and Reddish (Andrew Gwynne) that the scheme for cash machines in deprived areas is still in operation, as I know from my constituency.

We know that everything in the banking sector is far from rosy. Many hon. Members have spoken about business lending, and I am particularly concerned about the manufacturing industry, which is important in my area. The banks are lurching from one scandal to the next: payment protection insurance, LIBOR, foreign exchange fixing and interest rate swaps. A business in my constituency, Python Properties, specialises in refurbishing iconic commercial buildings, which it has done in South Bank, also in my constituency. It now has tenants waiting for the next floor of a building that it has been refurbishing, but it does not have the cash to do the work, because HSBC is still holding out on paying it compensation for an interest rate swap. I hope Ministers will urge the banks to get on and pay out money for those swap arrangements.

The Government have done good work in tightening up on tax avoidance—it is still far too high, but was rife before this Government took office—to the point where HSBC and Barclays have now effectively disbanded their tax avoidance advice teams. We are seeing some progress, but there is a lot more to do. The culture of the banking industry is still not what it ought to be.

The Government have been taking action, of course, partly through frustration, by setting up new banks. The Business Secretary says that he is the first person to set up new state banks since Victorian times, as the green investment bank and the business bank are now operational, but let us not forget the Financial Services (Banking Reform) Act 2013, the Financial Services Act 2012 and, as I have mentioned, the agreement on tax avoidance. There is also now a permanent bank levy, as well as inquiries into LIBOR and the banking inquiry itself.

Bonuses are now more directly linked to performance in what are, after all, commercial businesses. I know that the Business Secretary is taking steps on executive pay, for example by giving shareholders binding votes on a company’s pay policy. The Government cannot run away from their responsibilities for RBS or Lloyds, as many Members have said, because they are a major shareholder in those organisations. They have a role in the decision-making process under the new rules. As the Minister said, the Business Secretary is taking steps on executive pay, unlike his predecessor, the one who said that he was

“intensely relaxed about people getting filthy rich”.

Under the previous Government, capital gains were taxed at 18%, but this Government have increased the rate to 28%. People were allowed to put up to £250,000 a year into pension schemes and still get full tax relief on it, but that figure has now been reduced to £40,000. The higher income tax rate was 40% for the whole period that the previous Government were in office except the last month, and it is 5% lower now. As Members have said, we should take no lessons from the previous Government on that.

However, setting up a bank is still not as easy as it could be. It is a shame that the hon. Member for Wrexham (Ian Lucas) is no longer in his place, because I was very taken with his speech. As a north-east MP, I vividly remember what happened with Northern Rock, and not just the things he spoke about, but the loss of the Northern Rock Foundation, which put a lot of profit back into the local community. We need a greater emphasis on regional banking. It is not as easy as it should be to set up a regional bank. I hope that Ministers will talk to Dave, who runs Burnley Savings and Loans—known as the “Bank of Dave”—who I think would like to do more but feels constrained.

[Lorely Burt (Solihull) (LD)]

I am following closely what my hon. Friend is saying about regional banks. In America there are thousands upon thousands of community banks. Would he like to see a development towards community banks, which are even more local than regional banks?

[Ian Swales]

My hon. Friend makes an important point. Not only should we see that trend here, but the Government should encourage it. To that end, I hope that Ministers will meet a consortium of people from the north-east who are busy trying to set up a north-east bank.

Setting up banks needs to be made easier. The uncertainty that some of the Opposition’s proposals create for what are, after all, commercial organisations is extremely unhelpful. They are now talking about imposing market shares on commercial operations in the banking sector, making them get rid of parts of their operation and dictating how much they can pay their staff. That is a dangerous precedent, because ultimately we have to ensure that competition deals with those things. That is why I welcome the steps that the Government are taking.

The Government have a permanent bank levy. I am surprised that the Opposition want to reduce bank bonuses further, because taxing bank bonuses seems to be the main source of finance for most of what they want to do. It reminds me of a story I used to read to my children, “The Magic Porridge Pot”—it never stops producing porridge.

Today the shadow Chief Minister could not bring himself to apologise for what happened under the previous Government. We have had apologies from the Leader of the Opposition, the shadow Chancellor and the former Prime Minister. History has taught us that we should never allow the Labour party to be in charge of the economy again and that we should continue with the further steps that are needed to improve our banking sector.