Banking

Michael Connarty Excerpts

Wednesday 15th January 2014 Commons Chamber

[Chris Leslie]

We have to feel sorry for senior bankers facing a bonus of merely the same amount as their basic take-home pay, as 200% bonuses are obviously vital for their survival—for the record, this is sarcasm. It is complete nonsense, of course.

[Michael Connarty (Linlithgow and East Falkirk) (Lab)]

I have been listening intently to my hon. Friend’s delineation of the big ticket items where the banks have failed and where the Government appear not to criticise them, but on a more localised issue, Scottish constituents of mine have consistently been rack-rented and ruined by RBS, as the Tomlinson report said, yet these bankers complain in the local press in Scotland that their £4 million-worth of bonuses is less than the £6 million that HSBC bankers get—and these are people who consistently destroyed companies in Scotland. I hope the Minister will address the question of their faults and how they have acted since the crash.

[Chris Leslie]

Of course, we want to see rewards, bonuses and pay that reflect performance. That is my hon. Friend’s basic point. It is not asking for too much.

In too many areas, reform has been left unfinished. Four times the Government have rejected our proposals for bankers to face an independent licensing regime with an annual validation process for competence; they have delayed a decision on leveraging that could prevent excessive risk taking; and they have continued to resist a sector-wide back-stop power for the full separation of retail and investment banking, should the ring-fencing not work. Moreover, there is insufficient scope for proper scrutiny before the further sale of Treasury assets, and we know that the Government sold both Northern Rock and the first tranche of Lloyds shares at a loss. Despite month after month of persistently falling lending to small and medium-sized enterprises—a fall of £12 billion in the past year alone—the Government have had to throw out Project Merlin, ditch credit easing and reboot their funding for lending programme, but still to little effect. It is obvious that we need a serious British investment bank, supported by a network of regional banks and capitalised with revenues from the market value of 3G spectrum licences, yet here we are, in the fourth year of this Government, and their half-hearted attempt at a business bank is still not fully up and running.

--- Later in debate ---

[Michael Connarty]

rose—

[Sajid Javid]

I will give way to the hon. Gentleman; I might be about to hear an apology, so I will listen carefully.

[Michael Connarty]

I think anyone who reads the transcript deserves an apology from the Minister, who forgot to mention that the relaxation of banking controls started with Mrs Thatcher and the Conservative Government. He forgot to tell people on the record that when people like me on the Opposition Benches were urging constraint—I am an economist—the Minister’s right hon. and hon. Friends were calling for fewer controls and a lighter touch with the banks, as was the SNP in Scotland.

[Sajid Javid]

I think the hon. Gentleman has a challenged memory of events. I am sad to see that he had an opportunity to apologise, but did not take it.

Let us look at the facts. At the time of the changes Labour was making to the financial sector, my right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley) warned the then Government in November 1997:

“The process of setting up the FSA may cause regulators to take their eye off the ball, while spivs and crooks have a field day.”—[Official Report, 11 November 1997; Vol. 300, c. 732.]

Let me share another quote, in this case from the current shadow Chancellor from a speech he made as City Minister in 2006:

“Nothing should be done to put at risk a light-touch, risk-based regulatory regime.”

What we are hearing from Labour is the same old headline-chasing nonsense that we have come to expect and no answers at all to the problems they created.

I agree with the hon. Member for Nottingham East on one thing: public confidence in the banking system and in bankers is still low, just as—let us be honest—public confidence in the political system and the people in this Chamber is still low. That is precisely because, five years ago, partly as a result of the irresponsible decision of some bankers, but largely as a result of the policies of the then Labour Government, our country found itself in a huge mess. When trust is lost on that scale, it is not won back overnight.

--- Later in debate ---

[Michael Connarty (Linlithgow and East Falkirk) (Lab)]

If I refuse to take interventions, it will not be because I do not think Members have a good contribution to make, but because I would like to limit the length of my speech. I recall often ending up with only four minutes to speak when the debate started off with an eight-minute limit.

The Minister did not focus on the motion, but I always look at the motion on the Order Paper rather than bring my prejudices with me and try to fit them around the debate. The motion says that, so far, Government reforms

“have failed to deliver a competitive banking system”.

I want to focus on what has happened since the crash, and on the behaviour of the banks that my constituency businesses have had to deal with, and ask why that should influence our decisions on bonus levels.

I welcome the EU regulation. I heard the right hon. Member for Wokingham (Mr Redwood) on the radio this morning saying that the European Scrutiny Committee, on which I am the longest-serving Labour member, unanimously supported the position on an individual veto for the UK on a number of items. In fact, he misquoted us. If he had looked at the policies in the document on the scrutiny of EU business in this House, he would have seen that paragraph 2.80 states that we supported the idea of a red card for items in the EU. That would mean that a majority of the EU countries would have to agree to send back a policy, such as the 100% bonus limit, to the EU in order to reject it. That is not the same as the UK having the right to mount an individual challenge to such a policy.

In the public’s mind, this debate focuses on whether the banks have changed their behaviour, whether they are better organised and are working better for our constituents, and whether the people who run them deserve to get larger amounts of money as a reward for what they have done in the interim. The reality is that RBS, the bank that took a £44.7 billion bail-out from the last Government, has again and again been awarded substantial bonuses for failing. It has not been performing well.

The Tomlinson report found that RBS had been involved in what can best be seen as malpractice in its relationship with the business community. Small businesses have account managers at the bank who suggest that they should take money from the bank. They are told that they will be looked after by their account manager. They are not told that, in the background, a group of people known as debt recovery executives are looking at those same deals and asking themselves how they can make that company go bust and get its assets. They are also thinking about how they can revalue those assets downwards so that the company will be found not to be solvent enough to pay its debts.

I have watched that happen to businesses in my constituency again and again. They were told that they were getting a good package and a good deal, only for someone to appear from another part of the bank to tell them that their assets had been revalued. Incidentally, the same valuers were used again and again by the bank to downgrade those companies’ asset values. The companies were then told that they were in trouble because they could not pay their debts, but that the bank would give them another loan, charged at an additional 10% interest over and above what had originally been agreed. I have watched company after company go to the wall on that basis.

RBS is in print as saying that its bankers deserve a £6 million bonus, rather than the £4 million that they would be limited to under the EU rules. Those bankers say that they could get £6 million if they went to work for HSBC—well, good riddance to them, if that is how they are going to run the banking system. We are failing the same people that we failed under the last Government. I make no apologies for the last Government. They took certain choices, and I criticised them for it. When I was at university, the banking system was a solid, solvent organisation. I had a very right-wing professor, Andrew Bain, who said that banks should have a low leverage point of about 12.5 times the level of its reserves. That all went to pot under the last Government, and I do not see why anyone who criticised the Government for that should apologise.

The pattern at RBS is being repeated at the Clydesdale bank. I have been with that bank since I was a student. Ballantine’s iron foundry had an order for £1 million of wrought iron work in this building. It had a full order book. Following an offer from an account manager, it transferred to the Clydesdale bank. The bank looked at the company’s £2 million of property assets and also judged its assets held in patents and rare mouldings to be worth £1 million. Further down the line, however, other people from the bank emerged to tell the company that its property had been revalued and was now worth only £500,000 and that its patents were worth nothing. The company had been in existence for 180 years, and its owner put £70,000 of his own personal cash into the company’s bank account to keep it moving and to prove to the bank that his business was viable in the long term. It was put into administration anyway, and it has now closed, with the loss of 70 jobs. I blame the Clydesdale bank for that.

This is the problem that I have: the Tomlinson report talked about RBS, but the problem is constantly occurring. Banks have the ability to write down their own debt by making good businesses go to the wall and selling off their assets to bring in money. They write off a debt and bring in assets at the same time. That has been going on since this Government came to power. It happened under the last Government as well, but we are talking about what this Government are doing.

Part of the motion that could hold out some hope for people is the proposal to

“ensure that major new banking service providers are created”.

The only way to achieve that is by splitting the big five banks. Their domestic banking businesses would need to form a whole new banking system, with the risk-takers and speculators going off into other banks. The idea of setting up little banks here and there will not work, although I must admit that I have taken advantage of the facility of moving all my accounts—including my MP’s office account—to the Trustee Savings bank, which has now been split off from Lloyds. The Airdrie Savings bank has also opened a new branch in the adjacent constituency of Falkirk, and a number of people are going to it because they want to be treated as customers. When they talk to their account manager, they do not want to feel that there is someone in the back room wondering, “How can I get money off this individual?” or “How can I trap this small business?”

It is important for people to have new banks. We are not talking about bank closures, despite the myths about that. We need to create a major new banking system by splitting the banks, and we need to encourage people to diversify and to leave a bank if it is not treating them well. We also need to ensure that people who get bonuses receive only the maximum allowed by the EU, and I hope that the Government fail in their challenge to that proposal in the European Court of Justice.