Finance (No. 2) Bill

John Redwood Excerpts

Wednesday 9th April 2014 Commons Chamber

Without wishing simply to list the problems, it is salutary to remember recent scandals and the implications of them for people, including the mis-selling of interest rate swaps, which affected small businesses. Small businesses thought they were doing the right thing in trying to mitigate risks such as fluctuations in foreign exchange rates, but the largest banks have had to put aside more than £3 billion to provide against compensation claims by customers, which shows how serious that was.

[Mr John Redwood (Wokingham) (Con)]

Will the hon. Lady remind hon. Members how much she wants to raise from the tax in the first full year? What impact would it have on banks’ capacity to lend?

[Cathy Jamieson]

I will come to that. In discussions I have had with banks they say that they want to lend and have the resources to do so, but some of the schemes have not necessarily encouraged people to come forward and have not been as successful as they might have wished. I have also heard the criticism from some banks, not all, that perhaps another levy or a different approach to the bankers bonus tax would have implications for capitalisation of the banks and so on. However, when we look at the scale of some of the bonus pots, it is difficult to make the argument that the money will not be there. The money appears to be there in some instances for excessive remuneration and bonuses, rather than other schemes.

Compensation costs for the mis-selling of payment protection insurance—the PPI scandal—have now reached £22 billion, an astonishing sum, with Lloyds alone incurring compensation costs not far short of £10 billion. Significant fines have been imposed on Barclays, RBS, Lloyds and Deutsche Bank for attempts to rig LIBOR, doing huge damage to the banks’ credibility and showing how important it is to change the culture and behaviour. That change has been much talked about, but has yet to be delivered entirely.

I am not trying to bash the bankers, as it is sometimes portrayed. I well understand the difficulties faced by front-line staff in the banks—the people in the lower tiers of the management system. They operated in and had to comply with the prevailing culture, and were set particular targets and given sales incentives. When we look back at that approach, we can begin to pinpoint the move away from the notion that the bank was there to look after people’s money, both individual depositors and local businesses, towards the retail culture, in which the emphasis was on selling and making profits without, in some instances, due care and attention to fiscal responsibilities and duties to the customer. I hope that changes brought about by recent legislation will see an end to that culture. Many of the banks are talking about that, and it will understandably take time, but we need the nudges, the pressures and the reminders, not just from the regulators, but through public opinion. Unless a watchful eye is kept on the banks, the change in culture will not necessarily succeed.

Despite having racked up billions of pounds in fines, several of the big banks still proposed significantly higher bonuses for 2013—the latest year for which figures are available—than for the previous year. They went up 10% to £2.4 billion at Barclays; up 8% at Lloyds to £395 million; and up 6% at HSBC to £2.3 billion. RBS, which is 81% owned by the taxpayer, has also announced a bonus pool of £588 million this year. I know that some of the banks claim that their overall bonus pool is coming down, but for the ordinary person in the street the figures are more than they would ever hope to win in a lottery in their wildest dreams, never mind expect to earn in the course of a year. They also find it astonishing that the banks might seek to breach the EU cap on bankers bonuses. It is difficult to understand why people who are paid in excess of £1 million, and have a range of other benefits, seek bonuses of twice their annual salary.