Banking Reform

Lord Jones of Birmingham Excerpts

Thursday 14th June 2012 Lords Chamber

[Lord Sassoon]

I am grateful to my noble friend for pointing out the extraordinary cost of the banking crisis. He cites one figure; I think that the estimates ranged from £140 billion upwards. They are extraordinary figures, which, as I said at the outset, the then Government did not seem to think required any response. I completely agree with my noble friend Lord Bates that something needed to be done, and that is what we have brought forward.

As for the effect on the Government’s holdings in RBS and Lloyds, I am sure that your Lordships like reading, as I do, the fine detail of impact assessments. At the back of the White Paper, the impact assessment contains several paragraphs analysing the effect. It gives a number on a rather theoretical comparison of what the effect might be, but then points out that this is probably already priced into the market so that the price of the holdings today takes account of what is proposed.

[Lord Jones of Birmingham]

My Lords, I declare an interest, and refer noble Lords to the register of interests, advising both providers of finance and also those who consume it. I remember my Yorkshire grandmother when I was about 12 saying that it was a condition of my Christmas present that an account was opened at the Halifax Building Society, and it went in there. Little did Grandma Jones ever believe that that money and its successor funds would be used to be gambled by the Bank of Scotland on commercial folly, so I congratulate the Minister on a good start.

However, of course we have one or two problems. First—and I would welcome the Minister’s comments on this—I notice that the Statement includes SMEs inside this ring-fence as well as private individuals, the provision of retail, the taking of deposits and the provision of finance. The problem is: how do we get capital and liquidity back into the small business sector? Bigger businesses have balance sheets awash with cash but lack the confidence to invest it. At this moment, smaller businesses do not. One of the biggest reasons for this is that they have lost trust in the banking sector. If you had a good credit record in 2008 and 2009 but had your credit facility taken away and had to borrow from friends and mortgage your house, you are hardly likely to trust the bank the next time around. Today does nothing to help that unless you make a virtue of necessity and prove to small business that this will in some way free up capital towards the provision of liquidity. I am not sure that this measure in any way does that and would welcome the Minister’s comments.

Secondly, there is the enormous problem of how you get the balance right so that we are seen as a well regulated, safely executed and prosecuted banking environment, without encouraging the most successful of our globally competitive sectors not to leave these shores. It would not go elsewhere because of all the problems with salaries and bonuses and the vilification of banking but because it will just become too difficult to lend here and easier to lend in other markets. I ask the Minister, and I include his coalition partners in this—it would be nice to have a Secretary of State for Business who supported business for once—whether, just for once, some positive words might come from the Government about the financial services sector in this country, rather than constant smacking instead of encouragement.

[Lord Sassoon]

My Lords, the noble Lord, Lord Jones of Birmingham, is always rightly concerned about the financing of British business, which is very important. Today’s measures are not principally about that. I could talk about the £21 billion national loan guarantee scheme or the fact that our 10-year sterling sovereign rate has been in the 1.5% to 1.7% range for the past few weeks, which is an unprecedented level. That all flows through. Here, we are significantly reducing the risk of another banking crisis. It was that crisis—the disruption and its aftermath—that caused such difficulty in the flow of loans to our businesses. Whatever we do here to minimise the chances of it happening again must be good for our businesses.

As for the UK being a competitive centre of banking, the Government are working incredibly hard. For example, only this morning I was at a very important meeting with businesses and authorities from the UK and Hong Kong, talking about how we would build the offshore RMB centre in London. That is an example of the forward-looking approach that we take to making sure that the UK and London continue to be the global financial centres of choice.