Banks and Communities

Jonathan Reynolds Excerpts

Thursday 11th January 2018 Westminster Hall

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

I begin by congratulating my hon. Friend the Member for East Lothian (Martin Whitfield) on securing this debate on a topic that is clearly of such central importance to many Members. I also congratulate him on his speech, which I mean not just with the usual courtesy. I thought it was an excellent introduction and a fair assessment of the situation the UK faces, and particularly Scotland.

This debate is the first in which I face the new City Minister. I warmly welcome him to his new role. He will find the shadow Treasury team always available with reasonable suggestions for a fairer and more prosperous Britain. I look forward to spending a great deal of time with him on statutory instrument Committees over the next few years.

I often think that banks have one thing in common with those of us who are politicians—with Members of Parliament in this place. People often say that they are not keen on politicians but that they feel quite affectionate towards their local MP. Similarly, many people do not feel particularly affectionate towards the banks, but do have quite a lot of regard for their local branch. We can see in this debate the strength of feeling that changes to the high street banking presence have generated.

The British banking industry is vital to our national economic infrastructure and is a sector that we should be able to be proud of. It is clearly important because of the revenue that it generates for the Treasury. UK- domiciled banks contributed an estimated £35 billion in tax in 2017 and they also employ 1.5% of the entire UK workforce.

[Angus Brendan MacNeil]

On that point, will the hon. Gentleman give way?

[Jonathan Reynolds]

I give way to the hon. Member for Na h-Eileanan an Iar.

[Angus Brendan MacNeil]

Well done—perfect pronunciation as well. The UK has a problem with productivity. Does the hon. Gentleman agree that this move means that people will have to spend many hours moving about the country to get to the banks, which were much closer at one time, not on their core activity? It is a destroyer of productivity. On that basis alone, the UK Government should call them to heel.

[Jonathan Reynolds]

That is a very reasonable point. Hon. Members such as my hon. Friend the Member for Bishop Auckland (Helen Goodman) and the hon. Member for North Ayrshire and Arran (Patricia Gibson) have shared stories of the round trips, the incredible journeys, that people have to make because of the lack of a banking presence locally. I thought that my constituency was quite badly affected, but the stories that I have heard today show just how widespread the problem has been.

The lending that banks provide is essential to financing growth in the economy, for both individuals and small and medium-sized enterprises. Many British people who are in credit benefit from free banking and 24/7 access to their money through a variety of channels and new technologies. However—and it is a big however—the memory of the British public is not so short that they do not recall the immense damage wrought on the country in 2008 by the financial crisis, which started in the banking sector. We should not underestimate the profound impact that those events have had on public trust in both retail and business banking.

Bailing out the banks, as the Government of the time did, was, without question, the right move. I often say that it would be more accurate to describe that as the Government bailing out the public from the consequences of what the banks had done, rather than straightforwardly bailing out the banks. However, those actions, which in some cases brought establishments into public ownership, clearly reiterated that the relationship between the banks and the public should be reciprocal. The fact that taxpayers’ money was made available to banks reinforces that financial institutions are of central importance to our economy’s wellbeing.

Banking is unlike other industries, in that dealing with people’s money gives banks a unique and special responsibility. That brings with it, rightly, higher expectations about conduct, culture and putting the customer first. As a country, we have in the past 10 years legislated for a considerable increase in bank regulation, much of which, we hope, will prevent us from ever having to witness events like those of 2008 again. I recognise that in tandem with that many banks have made efforts to bring about cultural change internally, to overhaul systems and processes and to show that they take their role in the economy seriously.

However, there is clearly still so much to be done in rebuilding the relationship between the banking sector and the public. A YouGov study released in March 2017 showed that just 36% of British consumers trust banks to work in their customers’ best interests. Last year, I was at Mansion House for one of the industry body dinners, where the chief executive of one of the big banking representatives said that its research showed that just 13% of SMEs felt that they could trust their bank to do the right thing for their business. That is no good for the banks or for us as politicians and it is certainly no good for the businesses that feel that way.

Now is the time for banks to demonstrate that they have learned from the past and to recompense for past failings. This is not just about a banking presence on the high street. The historic events involving things such as RBS’s Global Restructuring Group are a case in point. Serious mistakes, errors of judgment and, we have to say, in some cases, criminal activity took place, with appalling consequences for some businesses in this country. It is not enough that the requisite cultural change has taken place to prevent such events from happening again; rather, the banks must show that every effort has been made to rectify that behaviour, show that complaints are taken seriously and, crucially, show that changes are in place to ensure that customers can never again be exploited in that way.

That underpinned Labour’s decision to table an amendment to the Finance Bill calling for a reversal of reductions in the bank levy. The cut in the bank levy is in effect a tax giveaway to the big banks and is worth £1 billion in 2018 alone. Given that that comes at the same time as the Government’s baffling decision to sell off RBS shares at a huge loss just as the bank returns to profitability and after the taxpayer has paid the fines for past behaviour—

[Angus Brendan MacNeil]

Given the state of flux in UK politics, it is perfectly possible that within a year the hon. Gentleman could be sitting in the Minister’s seat. What would he do about all these branch closures if he were?

[Jonathan Reynolds]

First, I am very grateful to the hon. Gentleman for suggesting that such a promotion might be possible. It is not something we can take for granted, but I will specifically address the RBS branch closures later in my speech. I want to make the point at this stage that rightly, and for a variety of reasons, the British public are questioning the return that they have got for their investment in the banking sector.

Much of this debate has been about branch closures. I think that everyone in the debate has admitted that we are in a time when the banking sector is undergoing considerable technological change. The exciting bit of that is the potential to deploy some of the advances for the benefit of those people who have had trouble interacting with the traditional banking system. It always confounds me that this country can play host to the most successful and most global financial sector in the world, yet at the same time we have such high levels of financial exclusion. More than 1.5 million people remain entirely unbanked. In many cases, how the traditional banking system has worked has compounded the problems rather than seeking to solve them.

I want to see new technology give us new ways to address financial exclusion, rather than being used as an excuse to push more people towards the excluded position. There is no doubt that the reports that the sector itself is looking into show how low-cost, flexible and accessible services can be provided to people who are excluded. Doreming, for example, allows individuals to shop without access to a bank account. We want to work with both the banking sector and regulators to ensure that such initiatives can access a level playing field, with the right safeguards for those who use them. When I talk to people in the financial sector, they show huge enthusiasm and passion for using their expertise to make the sector world leading and to address some of these issues. However, 10 years on from the financial crisis, rather than having that moment of reflection and seeing what new opportunities we could use to tackle financial exclusion, debates such as this, about the sense that banking is being removed from more and more people, seem to dominate.

It is crucial that we use technology to benefit all consumers, rather than creating a pared down, automated banking sector that leaves vulnerable customers without the support they need or that gives us a situation akin to what we see in the energy market, where a small group of savvy consumers get quite good deals, but at the cost of a larger group of people subsidising them and getting quite a poor deal.

Specifically on branch closures, there is no doubt that the branch network has been shrinking at an accelerating rate. In December 2016, Which? reported that more than 1,000 branches of major banks had closed between January 2015 and January 2017, with nearly 500 more set to be axed in 2017. We have seen from recent announcements by the Yorkshire Building Society and, more dramatically, by RBS, which plans to close 259 branches, just how much that is accelerating. As I said, this has affected my own constituency: Mossley, Stalybridge and Hyde have all seen branch closures. But frankly, the scale of some of the stories that hon. Members have shared today has been quite shocking. I want to say clearly that we believe the scale of the closures is disproportionate and unwarranted and should be reconsidered. In 2015, the big four high street banks made profits of more than £11 billion from their retail businesses, which own and operate the high street networks.

Research conducted by the Social Market Foundation in 2016 found that a strong consumer appetite remains for a physical presence when banking. Nearly two thirds of consumers would prefer to talk to someone face to face when making a big decision, and nearly half of those who had visited a branch in the previous 12 months said that that was for reassurance and support with more complicated transactions. The report found that 11% of the population—nearly 7 million people—use no other banking service than their local high street branch and that those people are overwhelmingly older and less affluent. Another study found that lending to small businesses in the postcode area actually fell following a local branch closure—that has to be of concern.

If you bear with me, Mr Gapes, I will conclude in a moment, but I want to say specifically that Labour’s answer to this problem is to propose a change in the law regulating banks, so that no closure can take place without appropriate local consultation—not a tick-box exercise—and without Financial Conduct Authority approval. A future Labour Government would obligate banks to undertake a consultation with all customers and to ensure they involve representatives of the relevant local council. The branch would be mandated to publish details of the reason for closure and include the relevant financial calculations showing the revenues and costs of each branch affected. The share of central costs such as accounting systems, IT, cyber-security and personnel allocated would have to be separately identified, especially as many of these costs are relatively fixed and are not proportionate to the number of branches in the network.

I thought the suggestion from my hon. Friend the Member for Bishop Auckland is absolutely the right one and I have considered it for some time, that is, how, when branches leave the high street, the sector can come together to provide a joint solution. Those of us who use online banking recognise that there will parts of our lives in the future when we might no longer be able to do that—whether because of dementia or Alzheimer’s—and we need a solution.

In conclusion, Britain has a world-leading and robust banking system, but the banks must work with all of us, as policy makers, to tackle problems such as the lack of investment in this country and financial exclusion, and crucially to make sure that we move away from a country mired in personal debt to one with robust savings. Only when they are able to do that and show that their branch networks are part of that, will they be able to restore some of the faith that was lost in the sector 10 years ago.