Banking (Responsibility and Reform)

Mark Field Excerpts

Tuesday 7th February 2012 Commons Chamber

[Mr Umunna]

I want to make a little more progress.

We need a more diverse and competitive banking system that is rooted in our communities and that better serves the financing needs of our businesses, as the Federation of Small Businesses and other organisations have argued. We need better developed equity finance, too, which is why we are exploring the possibility of creating in the UK something akin to the US Government’s small business investment company programme. That programme financed the likes of Apple and Intel in their early stages. We are also considering plans to set up a British investment bank that could step in if the market failed to provide for our entrepreneurs.

[Mark Field (Cities of London and Westminster) (Con)]

We all appreciate that this banking crisis has gone on considerably longer than we envisaged. In 2008, we probably all thought that we would have divested ourselves of our huge stake in RBS and Lloyds Banking Group by now. I therefore fully support the idea of a structure for bonuses that would come into play only when we have divested ourselves of our stake in those two banks. However, I get the impression from all that the hon. Gentleman has said that he draws no distinction between those two banks, in which we have large holdings, and the rest of the banking sector. Am I correct in that assumption?

[Mr Umunna]

No; partly because, whether we like it or not, the way in which the public regard RBS and Lloyds is different from the way in which they regard, say, Barclays or other banking groups, simply because of the public stake in them. That is the issue that crept up on members of the RBS board over the past couple of weeks. For all that was said about the terms on which the different executives and employees were joining RBS, they were essentially joining an institution that the public have very much come to regard as a public entity.

[Mark Field]

Is the hon. Gentleman therefore working towards putting in place a policy that would be more onerous for RBS and Lloyds Banking Group, in which the public have a large stake, than for the rest of the banking system? Does he feel that that would be a sensible way to go forward?

[Mr Umunna]

That is not actually what we are arguing for. We have said, given that the Government have been lecturing shareholders on being more active in relation to their shareholdings, that the Government should of course take a more active approach to those banks in which we have a stake. As has been pointed out, however, the sector as a whole needs a change in its culture; that applies across the board.

Right now, we need the Government to make good on their promise to implement credit easing, to relieve the credit squeeze on businesses. That plan was announced to great fanfare more than four months ago, but nothing has happened. I am glad that the Financial Secretary to the Treasury, the hon. Member for Fareham (Mr Hoban) will be responding to this debate. Perhaps he can tell us what has become of the scheme. The lack of speed with which the Government have proceeded with it is in marked contrast to the actions of the German and US Governments, for example. In Germany, KFW doubled the amount of small business finance available very quickly over the past couple of years through its lending programmes.

Some people suggest that if we do all these things, wealthy bankers will simply move abroad. We are for ever being held to ransom by that threat. It is notable, however, that many of those who put that argument benefit from the status quo. They have been making the argument for a number of years, but they are still here. They tend to ignore the fact that it is the banks’ shareholders—not just politicians and society at large—who are calling for reform. Shareholders such as Jupiter, F&C Asset Management and Legal & General have all reportedly told the banks to be sensitive to the popular mood, and to moderate pay rises to match sharp falls in shareholder returns. The Association of British Insurers is reportedly meeting all the banks at the moment, including Barclays. Those people also ignore the fact that bankers and executives in other countries are being required to change their ways. For example, our banks’ US rivals are cutting bonuses by up to 30% at the moment.

--- Later in debate ---

[Mr Hoban]

Project Merlin set lending targets for banks. At the point of the third quarter, the targets for lending to all business had been achieved and those for lending to small and medium-sized enterprises had just been missed. Project Merlin therefore has certainly achieved in respect of its goal of getting credit flowing to the economy. I agree that businesses face challenges in borrowing money. They need to have a viable plan, and we need to work more closely with businesses to ensure that the support is in place to enable them to make successful applications for bank funding.

[Mark Field]

We have a very large holding in RBS and we clearly will not be divesting ourselves of much of that holding for probably the next 10 years or so. What thought has the Minister given to using RBS, with its expertise and huge distribution network, as a mechanism for credit easing? I am sure that all Members hear from business people that these problems are not going to be solved unless we ensure that our SMEs have access to the capital that they so desperately need.

[Mr Hoban]

The national loan guarantee scheme will be open to all banks, including RBS, Lloyds, Barclays and HSBC, and we are currently taking that work forward.

Under the last Government, we witnessed the growth of the bonus culture, where bonuses could be paid in cash, in one year, and were never clawed back in the event of failure. We are changing that culture. Bonuses under the Financial Services Authority code are paid out over at least three years, in shares, not just cash, and failure can be punished by clawing back bonuses, and at both RBS and Lloyds cash bonuses will again be limited to £2,000.

--- Later in debate ---

[Mr Hoban]

Well, one thing is for certain: I was not designing the contracts that gave the big payouts.

It is time that the banking sector demonstrated leadership, and the coming bonus round is another chance for it to demonstrate leadership on pay. As we empower shareholders to drive remuneration policy, the banking sector has to be at the vanguard of the debate on responsible executive pay.

[Mark Field]

The Minister is being admirably forward-looking in his speech by trying to present where we should go for the future rather than focusing too much on some of the battles of the past. One of the biggest concerns in this area is about institutional shareholders who have large stakes in FTSE 250 companies and in our banks. How are we going to embolden them to use the notional power they have as shareholders? Many of them have 5%, 6% or 7% shareholdings and could do something. What is going to ensure that there is a culture of change such that they become shareholder activists rather than shareholders who sit on their hands and their dividends year on year?

[Mr Hoban]

My hon. Friend raises an important point. The reforms outlined by my right hon. Friend the Business Secretary ensure that shareholders have the information they need to act. We are also giving them the power to vote and their votes will have a binding impact on future pay plans. The pervading culture today and the sense of concern in the wider economy mean that institutional shareholders need to play their part by looking after the interests of the people who invest in their funds—the people whose pensions are dependent on good returns from their investments. Those shareholders owe an obligation to their customers to exercise their rights to determine the pay policies of boards. We need to focus on that in coming years. My predecessor, Lord Myners, talked about it a great deal. Our reforms have provided the tools and we must ensure that we use them to hold institutional shareholders to account.