Tomlinson Report

Russell Brown Excerpts

Tuesday 17th December 2013 Westminster Hall

[Guto Bebb]

That is an issue on which the bank would have to respond, because my view is that clearly it is not fair.

I have a fourth and final example of businesses finding themselves in difficulty due to decisions taken by the bank. A company that contacted me recently had net profit of £272,000 on turnover of £3.5 million in 2008, net profit of £281,000 on turnover of £4.4 million in 2009, and net profit of £268,000 on turnover of £3.9 million in 2010. Those are all healthy figures. The company employed about 40 members of staff. In late 2010, however, an agreed overdraft facility with the bank was withdrawn, because a loan agreement under the EFG—enterprise finance guarantee—system was declined. The company was therefore put into GRG support, and the group proceeded to disallow a payment of £14,000 in corporation tax, on which basis the company found itself in difficulties and ended up going into administration. The final set of management accounts for the nine months before the company went into administration showed a net profit of £190,000. The company would argue that its difficulties were caused by the bank refusing the corporation tax payment, even though the final accounts showed a profit.

Such businesses feel extremely hard done by as a result of the way that the GRG and RBS have behaved towards them. My evidence could be described as anecdotal—I am more than happy to accept that—but it is important to emphasise that the cases highlighted in the Tomlinson report are the tip of the iceberg; they are not representative of an issue created by Lawrence Tomlinson himself. I have seen these issues in my constituency, and other Members have seen them in theirs.

Once businesses are in the GRG, the concern is that its attitude and behaviour is less than helpful. RBS argues that the whole purpose of the group is to put businesses back into health, but it is difficult to see how a business allegedly subject to cash-flow problems is helped by having an additional £250,000 in fees in a six-month period. Time and again, I have seen the fees charged by the bank go up when businesses go into the GRG, and they apparently bear no relation to the amount of work done in support of the business.

So-called independent reviews are forced on businesses by the bank, whether through a valuation, accountancy work or solicitors. Professional fees are charged to the business, but the instructions come from the bank and, often, the reports go to the bank first. We have to be concerned about that. Furthermore, the businesses often have no say whatever in who the reviewers will be. There is a question about the conflict of interest faced by those professionals: if they are being paid by a business, but instructed by the bank, surely they are conflicted in their work.

The other thing that I have seen time and again is payments by suppliers not being prioritised. There is almost never a case in which a payment to suppliers would be allowed if that took the business beyond the terms of its overdraft or facilities, and yet I have never seen a case in which charges due to the GRG have not been taken because they will take the business over its overdraft limit. That is a fair point to make, because if a business can go over its agreed limit in order to pay the bank charges, why on earth will the bank not allow a payment to a supplier if that supplier is crucial to the continuation of the business in question?

I have already mentioned a constituent of mine struck with a £4,000 weekly fee for the continuation of his banking facilities. To return to him, after three months of negotiation, the GRG agreed that it would accept £2,000 per week. There was no explanation as to why the fee was initially £4,000, or why £2,000 was now acceptable. I get the impression that the reason why it was £4,000 to start was that the bank thought that it could get away with it; the fee was subsequently £2,000, because the business put up a fight—its accountants and solicitors argued the case, as did the MP.

[Mr Russell Brown (Dumfries and Galloway) (Lab)]

Given all that, does the hon. Gentleman agree that removing the cash flow that assists in running the business when it is under pressure simply creates additional problems?

[Guto Bebb]

Absolutely. When a business is taken into the GRG in order to help with cash flow, it is difficult to envisage why there is therefore justification in imposing a £4,000 or even £2,000 per week charge for support. There is no indication of what that support entails, but it certainly does not support the cash flow—let us put it that way.

The company I mentioned was also expected to produce new accounts. It had monthly management accounts produced by its accountants, but that was not good enough for the bank, which had to have KPMG to do the work. Again, it was not good enough for the bank for the company to use its solicitors to value assets that were subsequently sold; it had to use solicitors chosen by the bank. That is oppressive behaviour by the GRG towards businesses that it is allegedly meant to be supporting.

It is important to bear in mind that when we highlight such cases, the concern is that we have examples from throughout the country, which makes the case that there is an issue here that needs to be looked at. I am pleased that the regulatory authorities are taking a look at the Tomlinson report, but I hope that they also take on board the comments made today by me and other Members on our experiences of businesses not included in the Tomlinson report. This is happening throughout the country and it needs to be highlighted.

I also want to highlight an interview with Derek Sach, the founder of the GRG, by Debtwire in October 2012, which is rather chilling to someone who is of the view that the bank ought to be there to support small businesses. He describes the steady flow of “new distressed businesses” into the GRG as an opportunity. That is a key point. If the head of the GRG considers that distressed businesses coming into his organisation are “opportunities”, his view is that the group is there not to support businesses, but to gain commercial advantage on the back of those businesses. Furthermore, if any Members present represent a shipping business, they should be concerned, because Mr Sach also emphasised that he sees significant “opportunities” in that sector, because shipping is going through a difficult period—in other words, the GRG vultures are hovering, waiting for a further supply of distressed businesses of which to take advantage.

Throughout the process, I have also seen numerous examples of instructions by the GRG not to prioritise the Crown on VAT, corporation tax or pay-as-you-earn payments. That is concerning from any high street bank, but to see such an instruction to businesses coming from a bank that was supported and saved by the taxpayer should cause serious concern to Government. I hope that the Minister will respond to that specific point.

I have a final point to make before my brief comment on Clifford Chance. The whole insolvency process is a concern. When an insolvency practitioner or administrators go into a business, the poor old creditors will often receive little in return, because the fees will take the vast majority of what is available. Hon. Members need not take my word for that, because in a recent article, James Nicholls of Nicholls & Co, an insolvency lawyer based in Birmingham, highlighted the fact that the insolvency business is complicit in what is, in my view, an abuse of small businesses. He made the point that

“we in the insolvency industry have been complicit, collaborative and have completely failed in what our true roles should be. Almost everyone in our industry has effectively been ‘bought off’ by the Banks—accountants, IPs”—

that is, insolvency practitioners—“lawyers, surveyors—everyone.” That is not my comment but a comment from somebody involved in the insolvency industry. His argument is that the industry has turned a blind eye to the behaviour of the GRG and other turnaround companies: it has been bought off by the fees and affected by the culture that has existed in the past decade.

If we are serious about supporting small businesses and supporting the growth of our economy through their development, we have to ask ourselves whether that sort of attitude towards them—seeing them as opportunities to make money rather than as businesses to be supported—is the right way forward.

--- Later in debate ---

[Mr Russell Brown (Dumfries and Galloway) (Lab)]

I congratulate the hon. Member for Aberconwy (Guto Bebb). I must be honest: I had not intended to speak, but given that there are so few contributors, I want to say a little about my experiences and, more importantly, those of some of my constituents. I also congratulate the hon. Gentleman on the work he has done over a sustained period with the all-party group on interest rate swap mis-selling, which is what initially drove me towards the all-party group.

I want to tell Members about the sad experience of one of my constituents four or five years ago, although I suspect that one or two people in the room will be sick of hearing about it. The story initially confused me, and that is part of the problem: this is a complex issue, which makes it all the more difficult for a layperson to understand. As anyone who has had a constituent come to them to explain their difficulties will know, it takes considerable time to plough through what the constituent is saying, and to begin to understand the complexities of the banking system that has been operated for businesses for a considerable time. The lack of understanding that MPs will have initially, coupled with the fact that perhaps some sectors of the media do not understand the problem, means that light has not been shone on the issue in the way that it deserves to be. Stuck in the middle are businesses, which are going to the wall. As a result, people are losing their jobs. That is having an impact on family life across the length and breadth of the country.

A gentleman who was banking with Barclays bank got in touch with me about a family-run business that had been around for more than 20 years. It operated caravan parks in four parts of the UK: one was in my constituency, a couple were in the south Lake district, and one was in the Yorkshire dales. The company was encouraged, by almost a separate arm of Barclays bank, to look at investment in the business; the offer came in that guise. It was told, “We have set up a special arm of the bank to assist you; we can do some good business here and develop your business further.” The end result was the bank shifting products; it asked its client to sell one product back to it and to take out another. It ended up with three of the parks having to be sold so that the company could retain one, which continued to operate in Dumfries and Galloway for a period.

The businessman was reluctant for me to create any kind of a storm, because he could see that the first thing the bank would do was immediately move to close the business down. However, time passed and eventually administrators moved in. It all happened at and around the time of the LIBOR scandal and the involvement of The Daily Telegraph and Guardian Care Homes. That very much drew the issue into the spotlight, and as a result, I had a closer look at the case that my constituent had brought to me. I went to the administrators and said, “Quite clearly, this is a case of mis-selling. If this is mis-selling by the bank, and you are conducting business on behalf of this bank, you are doing nothing more than driving this business to the wall.” The administrators could not work quickly enough; basically, they drove the business into the ground.

That comes back to the point that the hon. Member for Aberconwy hinted at. The administrators were fine; their cheque was signed off. However, anyone else who was owed money was left waiting in the wings. The administrators and anyone dealing with the insolvency are absolutely guaranteed their money, despite the plight that many businesses are in. The shocking thing about the business that went down was that it did so owing £1.2 million, of which £900,000 was bank charges. That was punishing—crippling—and it destroyed that business. Goodness only knows how many other businesses the length and breadth of the country have experienced the same thing.

The Tomlinson report’s title is “Banks’ Lending Practices: Treatment of Businesses in distress”. Businesses in distress is one thing, but businesses being driven into distress is completely different. We heard this morning from the hon. Gentleman, and from my hon. Friend the Member for North East Derbyshire (Natascha Engel), about some experiences; I have three cases before me. One involves a gentleman whose small business—the family have a number of businesses—is some 200 yards along the street from my office in my constituency town of Dumfries. He discovered that the bank was dipping into other bank accounts—not only those that were relevant and related to his business, but those of family members. It had taken total control of all his finances. That poses a serious question mark about how banks are carrying out their business and what they are doing to people.

When my constituent contacted me, I said, “Come back to me in a couple of days”—because he was scheduled to meet the bank—“and let me know what action I need to take.” He came back saying, “It look as if they are prepared to move and assist.” The fact was that those were mere platitudes. The bank did not help him one iota, and that business, which is down the street from my constituency office, is closing down.

Another businessman who is, again, involved in caravan and camping sites has been mis-sold products. He does not have a kind word to say about the global restructuring group. His view is that the bank will quickly move to settle with him on the products that he was mis-sold. There has been an admission, but he also knows what is waiting in the wings. If he takes that early settlement, it will move in on other aspects of his business and close him down. That is no way to treat people who have probably been loyal customers of these banks for many years.

The most shocking case I have concerns a gentleman who is involved in property and is a private landlord. In the mid-1990s, his business had a value of about £300,000 to £400,000; gradually, over the years, he built that up into a business that provides jobs, of course, as well as a roof over the heads of individuals and families, and it was worth several million pounds. He then fell foul of the bank. He made me aware—he is an astute businessman—that he was always wary of the bank’s promises that what it was selling him was good for his business. The value of that business has fallen dramatically, and it may be worth somewhere in the region of £1.5 million to £2 million. However, stuck in the middle of all that are people living in homes that he is providing as a private landlord.

[Sandra Osborne]

Does my hon. Friend agree that private landlords seem to be targeted by the banks? I had a constituent in that business who was taken to a hotel in Glasgow and treated to a big presentation about how the loans could help with the business. They were not told all the facts and then ended up getting into difficulty. Does he agree that this has been a conscious effort to dupe people?

[Mr Brown]

I can only agree with my hon. Friend. I do not think there is any doubt that certain sectors have been targeted. I mentioned at the start of my contribution the caravan camping leisure sector, which Barclays had created a separate arm for, so there is no doubt there. Let us be honest: the types of businesses that can grow, even under difficult financial circumstances, appear to be targeted. There is an indication in the Tomlinson report that there have been elements, if I can put it this way, of predatory practice.

Again, I want to emphasise the point made by the hon. Member for Aberconwy: this is about businesses being told what is good for them. It is about businesses, once they get into financial difficulties, being told, “We need a report. We need someone to come in and do some work on how you’re running your business. We need valuations—and, by the way, you’ll pay for them at our behest.” The cost is not a few hundred pounds, or a couple of thousand pounds. These are significant sums of money. In any other world, we would call what the banks are doing an absolute rip-off. They actually gerrymander the valuation of businesses. That is simply not acceptable.

On the last couple of occasions on which I have attended meetings of the all-party interest rate swap mis-selling group, chaired by the hon. Member for Aberconwy, I have made this plea. The Royal Bank of Scotland—I should have declared at the beginning of my speech that I have banked with the Royal Bank of Scotland for more than 40 years; I try my best to keep on the right side of it—is 80% state controlled. We cannot release it back to where it was before the banking crisis. I have been pleading with the chair of the all-party group, and there is a Minister here this morning, so I plead with him: do not release the Royal Bank of Scotland and send it back whence it came, because we need some kind of control over this bank until some of the problems that it has caused are sorted out.

I know that the hon. Member for Aberconwy was anxious about the language that we should use in this place, despite the cover that we have, but I think that there is a culture of predatory business that is destroying businesses and, more importantly, destroying people’s lives. I apologise if I have missed a piece of work that the Select Committee on the Treasury has carried out, but I think that we need some of these people back in front of the Treasury Committee, explaining some of the charges that they are imposing on business. They are crippling business, not helping it. These big banks are organisations that we all looked at years ago, before the crash, and thought, “These are decent people that we can all do business with.” Frankly, they have been wolves in sheep’s clothing. They do this nation and the economy of this country no good whatever when they take businesses down.