Financial Services Bill

Lord Stevenson of Balmacara Excerpts

Committee stage
Monday 1st March 2021 Grand Committee

[Lord Holmes of Richmond (Con) [V]]

My Lords, it is a pleasure to take part in this debate on the second group of amendments and I declare my interests as in the register. I will speak to Amendment 126 in my name and, before I do so, say it is a pleasure to follow the noble Baroness, Lady Bowles of Berkhamsted. I congratulate her on the way that she introduced the group.

My Amendment 126 offers a structure of regional mutual banks, which are successful in other nations but not so present in the UK. With the current situation apropos Covid and the current economic outlook, it seems timely to reconsider the whole concept of mutuality via the structure, as set out in this amendment, of regional mutual banks. If we get this right, it would seem to play very much to the levelling-up agenda, to the regional agenda and to a more collaborative, connected and closer relationship between lender and lendee—with both sharing a part of the journey in whatever endeavour, be that individual or SME.

Elsewhere in Committee I have raised, and will raise later, issues around financial inclusion which are a stain on so many of our institutions and lives. But this is not a question just for individuals shut out of our financial services system; it is a question for the underbanked as well as the unbanked. It is also a question for SMEs, unable to get the lines of credit they require to do what SMEs do best: grow the economy for the benefit of their employees and communities—for the benefit of them all. In Amendment 126, the consideration of regional mutual banks goes to all these points.

Similarly, it could be the basis for a rebirth in this country of true patient capital, which is much in existence in other nations but not, perhaps, so much in recent years in the UK. We may also wish to consider changes to the rules around pension fund investments, which could come through such vehicles as regional mutual banks. We are all aware of the names of some famous and successful international pension funds—Ontario Teachers, to give one example. Why do we know about it, when most people perhaps do not necessarily know about our large pension schemes? It is because of the current rules and approach when it comes to where all that potential investment can be deployed.

Again, the amendment suggests that the whole question of capital adequacy should be considered. If we have a structure with a different funding model, leaning more towards patient capital, should we consider whether the current capital adequacy rules are indeed adequate for such institutions? Are they in fact acting as a barrier, a blocker, to the development of regional mutual banks? With such structures, the amendment seeks to probe a reconsideration of risk and risk profiling when it comes to these kinds of banking operations. The amendment also seeks to look at other social, economic or political limiting factors which may be out there.

Finally, I hope my noble friend the Minister will agree that Amendment 126 offers a helpful suggestion in terms of the seeding of such regional mutual banks. Public finances have rarely been as tight as they are right now; everybody understands that. Perhaps dormant assets could be used to act as some seeding to see where we could take the whole concept of regional mutual banks.

As we come out of Covid, it seems an opportune moment to reconsider, reimagine and potentially reignite the whole concept of mutuality throughout our society, which was so successful and so beloved in previous generations. I hope my noble friend the Minister will agree that Amendment 126 offers a positive, creative structure worth considering for the future. Regional mutual banks could play a key part in the Covid rebuild and in future, as yet unwritten, success stories.

[Lord Stevenson of Balmacara (Lab) [V]]

My Lords, I declare my interest as a former chair of StepChange, the debt charity. I put my name down to speak in this group of amendments because they give me an opportunity to raise a wider concern about the access we need to low-cost credit. In fact, this fits in very closely with points already made by the noble Baroness, Lady Bowles, on Amendment 29 and the noble Lord, Lord Holmes of Richmond, on Amendment 126, and his important point about financial inclusion and the need to make sure that we do not forget that. I am looking forward to the comments to be made by the noble Baroness, Lady Kramer; she will also touch on these issues when she comes to speak.

When responding to a group in an earlier debate, my noble friend Lord Tunnicliffe mentioned that he grew up in a household where poverty was a constant worry. He mentioned the “jam jar economy”, which often characterised low-income households. It was cash-based: putting small amounts of coin away for future expenditure. Indeed, research a few years ago showed the surprising conclusion that the lowest paid in our society were often the heaviest savers on many measures, mainly because they had to be. It was done outwith traditional credit sources and topped up where necessary by house-to-house lenders, which were often a vital lifeline.

A key problem I want to highlight is the need to solve the problem of how to expand low-cost credit. My noble friend Lord McNicol, when he was speaking in an earlier group, mentioned the problems revealed by a very interesting report by the University of Edinburgh Business School on the financial health of NHS workers—people who were in employment but receiving low wages. It was based on real-time open banking figures. It showed across the 20,000 or so NHS workers who were surveyed that far too many were heavily reliant on a regular basis on persistent overdrafts and high-cost credit, often borrowing to meet the emergency needs they had from time to time, at APRs of well over 1,000%. The report makes for very interesting reading, and I hope that the Government will have access to it when they come to consider these issues further.

I know that the Government are concerned about this and that their financial inclusion work recognises, as previous Governments have, that the availability of low-cost credit is a major blockage to financial well-being. As the noble Lord, Lord Holmes of Richmond, said, it also affects the ability of SMEs and sole traders to operate successfully in a difficult economy.

I hope that the Minister can say a bit more about the plans the Government have when she comes to respond. I know that the Government will pray in aid the idea that credit unions will often be the solution; they have been mooted so often in the past but do not seem to grow. Other countries have other models—Germany has its particular banks focused on the local economy and America has the Community Reinvestment Act—which have solved the problems. Is there not time to consider things that might operate more successfully here in the UK?

None of the individual measures outlined in the amendments in this group, welcome though they are, will solve low-cost credit and the drought that we are suffering from. But they make the point well that the regulatory measures in the Bill should not restrict much-needed support from institutions, banks and other organisations such as credit unions to help those who need to borrow but who cannot do so at the rates or in the period of time which are often required by our major institutions. I look forward to the Minister’s response.

[The Deputy Chairman of Committees (Lord Russell of Liverpool) (CB)]

The noble Baroness, Lady Neville-Rolfe, has withdrawn from this group, so I call the next speaker, the noble Baroness, Lady Noakes.