Community Bank Closures

Paul Sweeney Excerpts

Thursday 8th February 2018 Commons Chamber

[Mr Paul Sweeney (Glasgow North East) (Lab/Co-op)]

Thank you, Madam Deputy Speaker, for the opportunity to contribute to this very interesting and vital debate on a massive issue that affects communities across our nation. It is always a pleasure to follow the hon. Member for Strangford (Jim Shannon), who made a particularly passionate and insightful speech about the impact the programme of closures will have on communities in his constituency.

I congratulate my hon. Friend the Member for Stoke-on-Trent North (Ruth Smeeth) on securing this debate, and on speaking so passionately and knowledgeably in introducing it this afternoon. I also thank the hon. Member for Hazel Grove (Mr Wragg) for his contribution, and for securing the debate through the Backbench Business Committee.

I speak with a degree of nostalgia and affection for community banking, given that I grew up around community banks. My mum has worked in retail banking for her whole career, and I remember vividly as a kid being taken down into the vaults of the Bank of Scotland in Charing Cross, where my mum worked. I also remember opening my Squirrel saver account at the Bank of Scotland, and my little plastic Bank of Scotland piggy bank, which was great.

I speak with great affection about community banks, but I also know how important they are, particularly for elderly customers and vulnerable people in the community. They develop a very close and affectionate relationship with the staff, who know them very well, understand their needs and are able to accommodate them. It is a form of personal interaction that builds affectionate relationships and a long-term engagement with banks, and those relationships are hugely valuable for the banks. I would have hoped that more banks recognised how important such personal interaction is for communities —it is vital—and how it contributes to them.

It is a shame to think that that bank in Charing Cross is now a Starbucks. That shows that this is a long-term process of withdrawal from communities, and we must challenge it because our communities are approaching a real cliff edge. My worry is that the programme of bank closures that we have observed, particularly in recent years, appears to target the poorest communities in our society disproportionately. Well over 1,000 branches have closed in the past two years alone.

In my constituency of Glasgow North East, where unemployment is twice the national average—I would add that it has had the lowest turnout in elections in any constituency, which perhaps shows the level of disengagement of many people—we have had the closure of the RBS branches in Possilpark, one of the poorest communities not only in Glasgow but in Scotland, and on Alexandra Parade in Dennistoun in recent months, followed by the closure of the Clydesdale bank in Springburn.

It was a cruel irony that, when I went down to look at the Clydesdale bank branch on Springburn Way, next to the shopping centre, I saw a branch of BrightHouse doing good business—it was doing a roaring trade. BrightHouse is a rapacious organisation that fleeces the poorest communities in our society by, I would argue, mis-selling consumer goods at outrageous rates of interest. That is also something we should challenge. As more people are forced out of normal commercial banking into the hands of these rapacious lenders, such lenders have to be challenged.

[Ged Killen]

My hon. Friend is talking about poorer communities being left behind by these banking changes, and he is absolutely right. Although the recent stay of execution for 10 branches in rural areas of Scotland is welcome, these are some of the wealthiest communities in Scotland, and three of the banks being saved are in the constituency of the Secretary of State for Scotland. The Government are the majority shareholder of RBS, so surely there is a role for RBS to step in and look after more such deprived communities?

[Mr Sweeney]

My hon. Friend is correct, and that is one thing we do not see—I have tried to piece together the evidence, but it is not nationally recorded. What is the density of banking operations in the poorest communities in our society? Data is not gathered on that issue. Possilpark and Springburn fall into the most deprived decile on the Scottish index of multiple deprivation, including for employment, health, education and housing. That seems to be the case for a lot of areas with branch closures, certainly in the Glasgow area, and it would be interesting if the Government could oblige banks to provide the data as a matter of national standards. By contrast, in the wealthiest parts of the city—I took the example of Byres Road, which is arguably the wealthiest postcode in Glasgow—every major bank is represented. Banks seem to be withdrawing from the poorest communities while maintaining their services in the richest parts of the city, and if that is extrapolated across the UK, it paints a dismal picture.

It has been argued that bank closures are a reality of technological change because more people are using online banking services. In reality, however, 2 million Scots do not use online banking, and they are disproportionately older people who are not familiar with the change in technology. We must be realistic about the rate of change and how practical it is, so as to reduce the harm caused to society and prevent the generational dislocation that is evidently occurring. More than one third of people who use the services of Citizens Advice Scotland have no or limited internet access. How will they access finance and banking if the major commercial banks disinvest in their local communities? Such closures are not just driven by technological change.

It is a great privilege to be a council member of the Institution of Engineers and Shipbuilders in Scotland, and the banking sector is a huge driver of innovation in our society. As hon. Members have said, we have seen huge technological changes, and one great British innovation that sticks out for me is the ATM. In 2016, the Scot James Goodfellow was inducted into the Scottish Engineering Hall of Fame for his work in inventing and patenting the first ATM in 1966. He did that in response to the desire by the major commercial clearing banks to close on Saturday mornings. People were trying to find a technological way to accommodate that desire, and that is how the ATM came into being and why it is so ubiquitous on our high streets today. We must harness technological change for the public good, not simply use it as a cop-out or an excuse to ridiculously disinvest from our communities at an inappropriate rate. We in the House must challenge that and adapt technological change for the public good; we cannot leave the banks to be judge and jury about the way that such change should occur.

I mentioned that closures are not just driven by technological change, and we must consider the banking sector in the UK. Five of the major commercial banks hold 85% of all current accounts, and personal banking services are combined with riskier investment banking activities. That is symptomatic of a very difficult and high-risk sector that in the last decade alone threatened our national prosperity with the banking crash.

The banking system in this country is an oligopoly and one of the most centralised systems in the world. As Adam Smith recognised, profit-seeking behaviour runs contrary to the common good and the creation of national wealth—we should always remember that when considering this issue. Germany has more than 400 local savings banks, known as Sparkassen, 1,000 co-operative run banks, and 300 private commercial banks, and that contrasts with the five massive banks in this country. Those banks in Germany are characterised by providing “patient finance”, not just to households and consumers but also—critically—to industry.

When James Goodfellow made his speech while being inducted into the Engineering Hall of Fame, he said that the greatest regret of his career was that ATMs were patented and invented in this country, yet they are not built or manufactured here. We have not benefited from this country’s industrial innovation, and our industrial strategy is symptomatic of our banking sector. We do not finance industrial growth because we are seeking high-risk, high-return profit in the City; we are not investing in the real economy, and that contrasts with the German banking system.

Why does Germany have the largest manufacturing sector in Europe, and one of the largest in the world? Because its banking system is resilient enough to underpin patient finance and allow real industrial growth and long-term economic resilience. We see that with German investment in machinery and a productive economy, and with their productivity rate—German workers produce in four days what UK workers produce in five. If we look at that as a broader symptom of malaise in banking and industry, we have to grip it and address it at all levels.

That is why I am so proud to stand here as one of the 39 Co-operative party Members of Parliament: the largest ever group of Co-operative MPs in Parliament and the third-largest party group in this House. The Co-operative party has long recognised the structural problems in society, which is why it proposes turning RBS into a mutual owned by its members and run in a not-for-profit manner in the public interest. The case for that is clearly self-evident and vital: we need that disruptive intervention in the sector.

We want to create a legislative mechanism to support the development of credit unions in the United Kingdom, one perhaps based on the US Community Reinvestment Act 1977, which I think was mentioned previously. The key innovation of the Act, introduced under the Carter Administration, was to combat discrimination and provide access to credit for low and moderate-income communities. If we reflect on the nature of bank closures in the UK, it is highly likely that they disproportionately affect the poorest communities. In the United States, that was known as “redlining”: banks essentially blacklisted communities they thought not worthy of investment. We can make the accusation that that is happening today in this country, albeit on an informal and opaque basis. It is about time a light was shone on the reality of the economic dislocation happening in our poorest communities.

Legislation similar to the Community Reinvestment Act would combat that discrimination by providing access to credit for low and moderate-income communities. It would apply a rating to banks based on their density of operation in poorer areas. In the US, investment credit unions are included as a CRA activity, meaning that the credit union sector is worth billions of dollars and it competes on an equal footing with commercial banks. Santander’s operations in the United States contrast with its operations in the UK: an £11 billion five-year commitment to support community benefits. An increase of 50% was announced in the US. It does not extend its American community reinvestment activity to the UK, because there is no legislative or regulatory imperative to do so.

The picture in the UK today is one of perilous dislocation, with banks withdrawing from our most vulnerable communities. It is the duty of this House and this Government not simply to capitulate to free market dogma, but to temper and control that market in the public interest.