Financial Services Bill

Lord Sharkey Excerpts

Monday 12th November 2012 Lords Chamber

Moved by

[Lord Sharkey]

28A: Clause 6, page 22, line 13, at end insert—
“(3) In order to facilitate the objective set out in subsection (1), the FCA must require each holder of a banking licence to publish relevant data each quarter, by post code, including the total amount of lending to small and medium sized enterprises.”

[Lord Sharkey]

My Lords, this amendment has two purposes. The first is to make sure that relevant data on each bank’s performance are in the public domain. This will make it possible to have an informed debate on whether the banks are competing effectively in the interests of consumers, as the FCA is required to promote. At the moment, all we have is aggregated and regional data. We do not know to what extent, or even whether, the banks are effectively competing, or indeed whether they are properly engaged in all the areas where we might want to see effective competition.

In a more general sense, increasing the amount of data on bank activity in the public domain is a very good thing. We need banks to change their practices, and their culture and transparency is a critical part of doing exactly that. We need to be able to see the changes in both practice and culture and not have to rely just on assertions that changes are taking place. For example, we need to see evidence that, as it says in the coalition agreement, the banking system serves businesses and not the other way round. Exactly the same applies to ordinary customers, too.

The second purpose is to focus attention on banks’ lending to SMEs. Your Lordships will have heard many times about the absolutely critical role of SMEs in our economy, and of their role as key providers of jobs. The importance is hard to exaggerate. Our economic recovery and our enduring economic health depend on the performance of our SMEs, as it always has. The ONS data for July 2011 show that SMEs provide 60% of all jobs in the private sector and generate 49% of private sector turnover. The BIS economics paper of 16 January this year re-emphasises the importance of SMEs to the economy, but goes on to say that,

“there are a number of structural market failures restricting some viable SMEs from accessing finance”.

The report notes that access to debt finance is now harder than before the credit crunch.

In 2007-08, 90% of SMEs seeking finance obtained it. This figure now stands at 74%—and, crucially, the total stock of lending to SMEs is in decline, especially to those with a turnover of less than £1 million. To place this in a long-term context, the Breeden report of March this year estimates that by 2016, if things go on as they are, there will be a shortfall of between £26 billion and £59 billion in the finance needed by SMEs for working capital and growth. The Government are very clearly alive to these problems and hope, as we all do, that the Funding for Lending scheme will succeed in making a real difference in funding for SMEs.

The data provided by the banks on lending to SMEs are provided on an aggregated basis. That means there is no information to allow assessment of performance and suggestion of improvement, or to show which banks are performing better than others or, critically, which are effectively absent from which areas. We do not know which banks are supporting—and to what extent—the third sector in taking advantage of the new rights conferred under the Localism Act. To do all this properly, we need access to disaggregated data and data on a postcode level so we can see clearly which banks are doing what and where with the vital SMEs. We need this data so we can identify in detail the areas of market failure and therefore of competitive failure, which the Government acknowledge do exist.

The SMEs are vital to the economy and to jobs. Funding SMEs is vital to their performance. Underfunding, which is the current situation, threatens our economic recovery and the creation of jobs. There is evidence of market failure and of a failure of competition. The amendment will allow us to identify that failure and will provide us with the information to help put right that failure. It will help promote effective competition, as the Bill requires the FCA to do, and it will help fulfil the coalition agreement’s pledge to develop effective proposals to ensure the flow of credit to viable SMEs.

Of course, I hope that my noble friend will agree to this amendment, but it has occurred to me that he may have one or two reservations about doing so. In particular, he may worry that the amendment imposes too onerous a burden on the banks. He may worry that the publication of a bank’s performance may somehow be prejudicial to its commercial activities. I hope that I can give him some comfort on both points.

The burden that this amendment imposes on the banks is not onerous. The FCA may decide, in general, what data it considers to be relevant. I am sure that, in general, it will take into account the burdens imposed. Specifically, publishing the disaggregated and postcode-level data on lending to SMEs imposes, if anything, a trivial additional burden on the banks. The BBA already publishes aggregated data on a quarterly basis, which includes lending to SMEs on a regional basis. By definition, disaggregated data exist before they can be aggregated. Surely, the banks know the postcodes of their customers—except, it appears, for some HSBC Cayman Island accounts.

For the worry that publication of disaggregated data may somehow be prejudicial to the bank’s commercial activities, it is hard to make a convincing case. Exactly like all other large, competitive organisations, the banks will already have detailed research on what their competitors are up to with SMEs—or, if they do not, they are even less competent and less competitive than we might have supposed. The amendment simply puts that information into the public domain.

The amendment is not onerous. It simply requires more transparency from the banks in the interest of more effective competition. It requires, in particular, more transparency about the banks’ support for the SME sector. We would all benefit from that, and people and businesses in deprived communities would benefit greatly. Even the banks would benefit from a move to greater transparency.

I very much hope that the Minister will be able to agree to this amendment or to assure the House that at Third Reading the Government will bring forward something equivalent. I beg to move.

[Lord Newby]

My Lords, it might be to the benefit of the House if I give the Government’s response to this amendment now. In responding to an earlier amendment, I said that the FCA would necessarily need to gather data from industry to understand what existing provision there was and whether it met the needs. But we need to make proper provision for any data requirements. Normally, that is in the FCA’s rulebook, or covered by commitments made by industry to provide and publish relevant information, working through trade bodies as appropriate. Ideally, we would not need to legislate to make that happen.

Let me be clear on our position: the Government agree that we should be able to see where provision is lacking, particularly where there are areas where bank lending is simply not being offered or getting through. Getting this data in the public domain will help to crystallise the problem, and what should be done about it by industry and by the Government if necessary.

I can confirm today that we will be working with industry, through the British Bankers’ Association and other interested parties, to get a commitment from the banks that they will publish more granular data. This will build on the work that industry is already doing and will deliver publication of the kind of data that all sides of the House clearly want to see. The members of the business lending taskforce already publish subregional aggregated lending data on an annual basis. While this is a good first step, I think we all agree that it is not enough. Therefore, we will work with industry to collate and publish lending data that is disaggregated by institution and presented on a postcode-level basis.

The Government will take this forward as an urgent and pressing matter. In reiterating our commitment to make progress in this area, I confirm that should our negotiations with industry fail to deliver—I sincerely hope that that does not happen—the Government will introduce amendments to the Banking Reform Bill along the lines proposed in the amendment we are debating today, to ensure that the data, in disaggregated and postcode-specific form, are published.

I hope that this reassures noble Lords that the Government share their commitment to making progress in this area and that the noble Lord will be prepared to withdraw his amendment in light of this commitment.

--- Later in debate ---

[Baroness Hayter of Kentish Town]

My Lords, I am delighted, nay honoured, to see my name alongside that of the future Archbishop of Canterbury, the right reverend Prelate the Bishop of Durham. If his contribution today is anything to go by, we can look forward to a thoughtful, progressive and determined ministry, which will serve this House and this country well. Like all my colleagues, I warmly welcome his appointment and congratulate the right reverend Prelate. I wish him well in the challenges ahead, which may be a little more demanding than getting an amendment accepted by the Government.

As has been said, there is a real lack of transparency in the financial sector, which is a key problem, given our reliance on competition to make the market work. Without information, choices of customers or of policy-makers are hampered. We know a few things but not enough; we know that one-third of a million small and medium-sized businesses could not get access to finance from mainstream banks in 2011. Indeed, only half of the young, fast-growing, small businesses had their loans fully met last year compared with 90% in 2007, so it is no wonder that our economy has stalled. But regulators and others cannot take action until we have these better, more precise and locally based data. Banks have to made to be more open about what and where they are lending. They are too important to work in the shadow. I am delighted that the Government have accepted this amendment, although I note that the Financial Services (Banking Reform) Bill is potentially growing larger by the amendment. I think that this is the third reference today to something that may be in the Bill. Nevertheless, we welcome the Government’s move on this matter.

[Lord Sharkey]

I would like to thank all noble Lords who have spoken in this brief debate, particularly my noble friend Lord Newby for his commitment to the publication of disaggregated, postcode-level data in this important area and also, in a way, for helping us to look forward to a slightly more varied Financial Services (Banking Reform) Bill than we might have expected in the new year.

Last week it was the noble Baroness, Lady Noakes, who told us what the correct technical response was to this kind of government commitment: she said it was “bingo”. I would like to echo that. I finish by saying that, although I hope we will be able to get a satisfactory voluntary agreement on this, I am enormously encouraged by the Government’s firm commitment to legislate should this not be the case. I beg leave to withdraw the amendment.

Amendment 28A withdrawn.