Banking Sector Failures

Peter Dowd Excerpts

Thursday 12th July 2018 Westminster Hall

[Peter Dowd (Bootle) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Bone. I thank my hon. Friend the Member for East Lothian (Martin Whitfield) and the hon. Member for Stirling (Stephen Kerr) for bringing this important matter for us to debate, discuss and tease out. I thank the hon. Member for Beckenham (Bob Stewart) and the hon. Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry) for their comments. I thank, of course, the hon. Member for Thirsk and Malton (Kevin Hollinrake), whose report set a good scene for us.

I want to briefly quote from that report. I know we do not have as much time as we would have if the hon. Member for Inverness, Nairn, Badenoch and Strathspey had not taken up so much time, but I am not criticising that.

[Mr Peter Bone (in the Chair)]

Order. That is not quite right. I think we have until 4.30 pm, so do not cut your remarks short because of that.

[Peter Dowd]

Okay. Thank you, Mr Bone. The report states:

“In the wake of the financial crisis, the banking sector’s reputation has suffered from a number of disturbing scandals, many of which have had a catastrophic effect on thousands of individual lives and livelihoods. They have also damaged confidence, resulting in reduced demand for business borrowing and, consequently, a slowing of economic growth.”

That encapsulates not just the context of those affected, but the broader sense of the economy.

This is not about bashing bankers. Other hon. Members have noted that many thousands of people work in the banking sector whose hands are clean regarding this. Let us not—we have not—go down the path of blaming everybody in the banking sector. My constituency has a large banking sector. Santander has a centre there with about 2,000 people. We all appreciate that it is not everybody in the banking sector.

[Bob Stewart]

It is about the morale of people who work for companies such as RBS. How could all those decent people, who are working really hard, want to be associated with these bloody criminals? They do not! It is really bad for their morale.

[Peter Dowd]

I think the hon. Gentleman should tell it as it is and stop holding back on these matters. Clearly, there is something rotten in the state of Denmark. The banking system appears, at times, to have fallen under the worst instincts of greed, instinct and, in some cases, a predatory capitalism, which others have alluded to.

This year marks the 10th anniversary of the Government bailing out the banks at the height of the financial crisis. In October 2008, the then Chancellor, Alistair Darling, announced £17 billion and, subsequently, £20 billion-worth of recapitalisation funds for Lloyds and RBS respectively. At the height of the crisis, taxpayers—everybody here and people in the Public Gallery—paid out of their own pockets, in one fashion or another, to the tune of £1.5 trillion. That is an awful lot of cash to come out of people’s pockets.

It is worth remembering that it was the ineptitude, at least, of certain bankers and the greed of others—not, I must say, a Labour Government—that trashed the global economy, leading to the UK financial sector receiving the largest taxpayer-funded bailout in history. That narrative has given many people a “Get out of jail” card. Blaming the last Labour Government is not helpful, because it takes attention away from the real culprits.

The taxpayers who funded the bailout of RBS and Lloyds have since found themselves rewarded by the Government, with the deepest cuts to public services. That has to be said, because it is a consequence of the banking crisis, too. There are consequences for individual businesses, for small and medium enterprises, but there are also consequences of that greed that we all—in one fashion or another, whether it is our brothers, sisters or parents—suffered. Let us not forget that, nor self-flagellate on this matter.

I have to tell the Minister, it is an inconvenient truth that the Chancellor has sold off taxpayers’ shares in Lloyds and part of our shares in RBS. According to the National Audit Office, the Government sold shares in Lloyds at a loss of £5.9 billion. The recent sale of 925 million shares in RBS left taxpayers with a £2.1 billion loss. That is a total of £8 billion taken out of the pockets of taxpayers and of small and medium enterprises. That money could have been used for compensation and redress. That is the fact of the matter. We should not be selling these things off when people are already queuing up to get back some of the money that was inappropriately taken from them; that is the context.

I turn now to the failures of the banking sector since the financial crisis. Several Members used their speeches to express concerns, for example about the number of banks closing in the high street, and those closures are happening despite the Government introducing the access to banking protocol to prevent closures. This issue about trust and confidence continues; we must have trust and confidence in our banks.

In 2015, the four big banks made £11 billion in profits from high street banking. It is clear that they are in a position to provide these vital services and curtail closures, which are contributing further to the decline of our high streets and leaving communities all over the country financially excluded. We were there for the banks when they messed up and they must be here for us in our communities now. We helped them and they have got to help us and our communities.

The next Labour Government are committed to ensuring that banks provide the financial infrastructure that businesses and communities need, and we will replace the access to banking protocol with alternative legal requirements. My hon. Friend the Member for East Lothian referred to those alternative legal requirements and he also raised the issue, as did others, of the Global Restructuring Group. It is worth my making a comment on that issue, too.

Apparently—indeed, evidently—the GRG was originally set up to support businesses that were in trouble and bring them back to financial health; apparently that was its original raison d’être. And where that was not possible, the GRG would manage the cessation of a business to protect the bank’s interests. There is nothing wrong with protecting the interests of a bank, if it is done reasonably, fairly and through the proper channels, and not with a predatory approach. However, thousands of small and medium businesses, many of which had been viable in the medium or long term, were put into the GRG and little attempt was made to help them. That has become apparent and these banks have got to recognise that that was the case.

I think the Tomlinson report has been referred to already today. It examined numerous cases of businesses consigned to the GRG and found very few examples of a business entering the GRG and then moving back out and into local management. It was a one-way street; it was a cul-de-sac for those businesses.

The Tomlinson report recorded strong evidence of RBS extracting

“maximum revenue from the business, beyond what can be considered reasonable and to such an extent that it is the key contributing factor to the business’ financial deterioration.”

So, the people who it was thought would help a business did not just fail to help it; they actually gave it a good kicking. That is the fact of the matter for many, many businesses. As I said, the very people who were expected to help save businesses did the opposite.

Of course, in their speeches today Members have cited a number of specific cases of businesses in their constituencies that were victims of this scheme, and “victims” is not too strong a word to use, because they were victims. There are heart-rending, heartbreaking stories of people that Members have brought to us today, and in our constituencies we have all encountered such cases, so these incidents are not isolated incidents.

All of that has meant that in certain situations the GRG effectively intervened in the valuation of assets, as has been indicated already today, triggered default and then took advantage of the consequences. Some businesses saw as much as a two-thirds reduction in their valuation in just two months. I repeat that—some businesses saw as much as a two-thirds reduction in their valuation in just two months.

I am aware that a complaints process is still ongoing between the RBS and its former business customers, and the victims of the GRG, as well as discussions about compensation. As I have said, many of us have been involved, to some degree or other, in this process. So I echo the calls made by hon. Members today and by my hon. Friends the Members for Norwich South (Clive Lewis), for Sefton Central (Bill Esterson) and for Stalybridge and Hyde (Jonathan Reynolds) in previous debates that this issue demands a full and independent public inquiry. Given the revelations in the Financial Conduct Authority’s section 166 report, there must be a comprehensive examination of all matters that could have led to practices that, at the very least, bordered on being illegal or were illegal. I know that the hon. Member for Thirsk and Malton was more robust in his approach to this issue than I have been, but I understand his sentiments.

The reality is that the Government’s response to what amounts to a scandal has been woeful at best, particularly when we consider the seriousness of the reports on this issue. Over the past decade, the relationships between banks and their customers have been damaged by a series of high-profile incidents. Business banking scandals, record fines and the closure of high street banks across the country have placed an insurmountable amount of pressure on this relationship.

The hon. Member for Thirsk and Malton says that one bank in particular is getting a bit tired of these indications. The suggestion that, in effect, we really ought not to be pushing this inquiry and that as a result their own good will is going, is frankly outrageous. It really is outrageous. Taxpayers were forced or required—whatever word people want to use—to bail out the banks 10 years ago, and quite rightly they feel aggrieved by the continuing culture in some situations in the banking system, which too often treats customers as a commodity and not as customers, which is really not good for the health of the economy. The question is this: what is the purpose of finance? We have got to get a grip and realise that the purpose of finance is to benefit the nation and not just a few.

Things are in pretty dire need of change, which is why Labour are committed to creating a more diverse banking system, backed up by legislation. A Labour Government would create a national investment bank, similar to the ones already operating in Germany and the Nordic countries, which will bring in private capital finance to deliver lending power. The national investment bank would also support a network of regional development banks that would be dedicated to promoting growth in their communities. The banks will deliver the finance that our small businesses, co-operatives and innovative projects desperately need, and in a trusting environment.

We need action now. We have had passion and anger, and quite rightly so, but what we need now is action. We need to put matters right as soon as we can. We do not need any more talk; we need action now. So, in that regard, I turn finally to the legislative process. As you know, Mr Hanson, a good deal of parliamentary time has been spent in talk and debate on these matters, and in talk and debate on other matters, which may be relevant for some people but are not relevant to the health of our economy, our banking sector and our businesses, including our SMEs.

So I make an offer to the Minister today, to help restore trust in the banking system. Yes, let us have a tribunal system; let us have a dispute resolution system; and let us have access to all those things. However, let us also have a tribunal system that we can all trust and believe in.

I give a commitment from the Labour party that if the Government want to set aside legislative time to put that tribunal into the system, they will have our full backing to do that, because we must take action now—not tomorrow, next week or next year. We must take action now.

--- Later in debate ---

[John Glen]

I thank the hon. Gentleman for that intervention, but I will take the opportunity to correct him. The Government do not have a 70% shareholding. We have a 62.4% shareholding. We do not have control of the day-to-day running of the bank, in the same way as the Scottish Government do not have control of Prestwick Glasgow Airport, yet they have a complete shareholding in it. We need to be real. There is a difference between ownership and day-to-day control. I want to address the practical issues because our constituents want to know what is being done to deal with these challenges. Before I go into that, I want to acknowledge that in previous debates I was challenged by Members from constituencies in Scotland. I will visit Scotland for four or five days at the end of August during the recess to address specifically the issues around rural banking. I went to look at the mobile banking units of one of the banks in Derbyshire in the previous recess, and I take very seriously the concerns about how effectively they function in terms of support for disabled people.

[Peter Dowd]

What sort of message does it send to banks when all these closures are happening and in 2016 the Government decide to cut, for example, the banking levy from £3 billion to £1.3 billion, sequentially, year on year? The Minister can try to duck the issue, but he gives a bung to the banks while they close their branches, and that is not acceptable.

[John Glen]

I want to try to address our constituents’ concerns about bank closures and what the Government are doing to see that their services are provided. The Post Office and the banking industry have a commercial agreement that enables 99% of the UK’s personal and 95% of the UK’s business customers to carry out their day-to-day banking. I am concerned about the effectiveness of that arrangement, so I am determined that public awareness of those services should be greater. I am pleased that UK Finance and the Post Office have responded to my call for further action, particularly when the last bank in town closes, to make sure that the transfer of responsibility—

--- Later in debate ---

[John Glen]

I am happy to look carefully at the issues and the respective responsibilities and interaction between them that the hon. Gentleman raises. I fully accept the sensible point he makes.

I want to return to the case raised by my hon. Friend the Member for Stirling. Several specific cases were raised and my hon. Friend spoke passionately about his constituent’s case, which is illustrative of many of the experiences that sadly occur. Following my meeting, I received a letter from Ross McEwan in May that said that his complaints handling team would be happy to discuss constituency cases with Members. I encourage all Members to do so. I want to put this on the record. I particularly encourage my hon. Friend the Member for Stirling to raise his constituency case with the team. I am keen to understand what sort of response he gets and how satisfactory the process is.

As to the comments of the hon. Member for Bootle (Peter Dowd) about the sale of RBS shares, I am not one to enter into unnecessary partisanship in such discussions, because the issues are important, and I generally welcome the tone of the debate, but he must acknowledge that when the shares were purchased by the Government for £5.02 in 2008 it was not a rational economic choice. It was necessary for the Brown Government to secure the banking system. Therefore, to point out the difference in price, after the Government had taken advice from those who are stewards of the Government’s interest, based on value for money, is not really rational. Most consumers would not have purchased shares at the time in question; it was for the good of the nation.

[Peter Dowd]

Okay, so if we push the bank aside and forget that, how does the Minister explain the loss to the taxpayer in the sale of the Post Office, which was another billion or two pounds—or is that irrelevant as well? How does he explain the reduction of 26% in corporation tax for banks and other corporations, to 19%, when people in the Gallery cannot get a penny out of the Government?

[John Glen]

I am glad that the hon. Gentleman has conceded the point on RBS. I want to focus on banks, and I was responding specifically on the matter of RBS.

I want to set out what the Government have done to address the issues that came to the fore during the financial crisis, because the regulatory framework and what has evolved over the past 10 years is a foundation for some of the outstanding challenges that we need to resolve. Since the crisis, the Government have reformed the UK system of financial regulation for the benefit of the industry and the people who rely on it. We have bolstered standards across the sector and taken strides to restore public trust in financial services. I acknowledge that there is more work to be done, and I shall come specifically to the issues raised in the report of the all-party group, and in other work. We have regulators armed with comprehensive powers and responsibilities co-operating to identify and address risks across the financial sector. The Financial Stability Board has praised the UK for its successful transition to a new regulatory regime, and the International Monetary Fund has applauded the UK’s more resilient system. We have implemented reforms to improve individual accountability in the financial services sector, and that includes the introduction of the senior managers and certification regime, which promotes individual responsibility.

My hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) set out a list of individuals about whom he has outstanding concerns; and it must be right to hold people to account. Where evidence exists for individuals having behaved criminally or in a way that needs further analysis, it must be brought forward. I understand that the shadow cast over the issue by outstanding cases needs to be resolved by the regulator. However, the SMCR promotes individual responsibility, holding senior managers to account for misconduct that occurs on their watch. It ensures that individuals at all levels can be held to appropriate standards of conduct. Both those things were key recommendations of the post-crisis Parliamentary Commission on Banking Standards. The SMCR was implemented for all banks, building societies, credit unions and Prudential Regulation Authority-designated investment firms in 2016. The regime will be extended to cover insurance firms from December 2018, and all other Financial Conduct Authority-regulated firms in December 2019.

I want now to talk about the core issue of SME lending. Despite significant improvements to the system at large, I am acutely aware that concerns remain about misconduct within the sector.