Royal Bank of Scotland

Kate Osamor 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.

[Jeremy Quin (Horsham) (Con)]

I hope that the hon. Lady would accept that the German banking system also had its problems during the financial crisis. The Sparkassen to which she refers were often lending very inappropriately, which helped to pump up the credit bubble, and they were investing in southern Europe in a way that helped to cause the eurozone crisis.

[Kate Osamor]

The hon. Gentleman’s example covers what happened in a short period of time. Over a long period, the system has been tested and has worked, so I beg to disagree.

The UK has the most concentrated and homogenous banking sector in the developed world. Just 3% of our banking system is locally controlled, compared with two thirds of that in Germany. We are also uniquely reliant on shareholder-owned banks at the expense of other ownership models. This lack of diversity makes us uniquely vulnerable to financial crises. To put it simply, it makes it more likely that our banks will all suffer the same problems at the same time, as they did in 2008.

Breaking up RBS and localising our banking system would make us more resilient to future shocks. Local banks also provide a means through which we can rebalance the economy, as the UK has the most regionally unbalanced economy of any European country. Studies find that local banks in other countries help prevent capital from being sucked into big cities, and spread jobs and lending more evenly across the country. This change would also ensure that more people had access to bank branches. Whereas commercial banks are shutting at an increasingly rapid rate across the country and in Europe, local banks in Europe have prioritised maintaining good access for their customers.

Local French co-operatives, for example, typically locate between 25% and 33% of their branches in sparsely populated areas. Local banks also lend more to the real economy, particularly small and medium-sized enterprises. That would greatly benefit my constituency of Edmonton and those across the country who struggle to obtain loans. That is made possible not just by the banks’ local focus but by their ownership structure and public interest mandate. Across Europe, banks run for more than profit devote 66% of their balance sheets to high street banking, compared with just 37% for commercial banks, which tend to lend for more profitable activities, such as derivatives trading. Local banks could therefore reduce our vulnerability to crisis, help rebalance the economy and boost the real economy. Analysis from the NEF suggests that that should have been done in 2008, as UK GDP could have benefited from an immediate boost of £7.1 billion, with an additional £30.5 billion over three years. Reforming RBS is in the interests of the taxpayer and the economy.

I want to end with a statement from the Tomlinson report, which highlights how selling off RBS shares represents a wasted opportunity for significant publicly beneficial reform in UK banking:

“Returning RBS and Lloyds to full private sector ownership in their current form would be a return to the banking landscape of 2003, possibly with even less competition…Given the lack of any real change in the banking sector, there is nothing that will stop 2018 being the same as 2008 unless radical action is taken now.”

Without reform of any banking structures, there is a risk we could witness another crash.

We must learn from the events of 2008. By failing to provide evidence justifying the sale and to consider alternative options, the Government are putting ideology above what is best for the economy and the taxpayer. I ask the Government to conduct an independent review of all the alternative options and urge Members on both sides of the House to support the motion.