Tomlinson Report

Sandra Osborne Excerpts

Tuesday 17th December 2013 Westminster Hall

[Natascha Engel (North East Derbyshire) (Lab)]

It is a pleasure to serve under your chairmanship, Sir Roger. I am delighted that the hon. Member for Aberconwy (Guto Bebb) has secured this important debate on what is an absolute shocker of a report. He has led a campaign to expose the bullying tactics that were often used by banks on interest rate swaps. We have all been quite shocked to discover that interest rate swaps were just the tip of what is a very large iceberg.

The Tomlinson report gives us an insight into behaviour that, if it is not systematic fraud, certainly reflects a culture and set of practices in the banking sector that are shocking in the eyes of most right-minded people. Small and medium-sized businesses are already struggling in a difficult business climate; to find that the very institutions that are supposed to help them through that difficult time are using practices that make their situation even more difficult—and often force them into insolvency —is truly shocking.

[Sandra Osborne (Ayr, Carrick and Cumnock) (Lab)]

On interest rate swaps, is my hon. Friend aware that tailored business loans sourced from the Clydesdale bank, for example, have been excluded from regulations and from the review? Businesses taking out those loans are just as badly affected as everyone else, so does she agree that such loans should be included in a review?

[Natascha Engel]

Absolutely, and I will conclude later by saying that that means we really have to look at the whole banking sector. The Banking Commission has done a good job of starting to expose some of these malpractices, but they are very worrying. The issue does not affect just RBS, and it needs to be looked at more widely.

What is really worrying is that RBS would, arguably, not exist if not for the fact that it was bailed out, and is 80% owned, by the taxpayer. However, some of the practices exposed by Tomlinson represent a double whammy for the taxpayer. I can cite examples of RBS using the GRG to take money out of bank accounts that businesses had set up expressly to pay Her Majesty’s Revenue and Customs. The bank was, therefore, not just taking taxpayers’ money so that it could continue to exist, but taking money from accounts specifically set up to pay HMRC.

I started to get involved in this issue as a result of constituents coming to see me about interest rate swaps. One particularly big example involves a man who owns care homes, which are disproportionately affected by interest rate swaps. He was a solvent customer running a successful business, but RBS bullied him into taking on loans that included interest rate swaps. He wanted to refuse, but RBS bounced his cheques until he took the loans on. He is now involved with the GRG, even though it was expressly set up for severely distressed customers. He is not in severe distress now, but he soon will be, because the money he has to use to pay back the interest rate swaps RBS forced him to take on should be going into investing in his care home business. In addition, when RBS first forced him to take on the loan, the exit fee was £10,000. Only a few months later, it was £150,000. Given the amounts involved, we really need to start taking a serious look at what RBS is doing.

The hon. Member for Aberconwy was reluctant to use the word “fraud”, and I understand why, because it is a serious accusation. However, what I would like to hear about from the Minister is the reverse: what makes him confident that systematic fraudulent activity is not happening in RBS? I am focusing on RBS because that is what the Tomlinson report focused on, but also because RBS is more than 80% state owned. What makes him confident that the bank is not forcing people into the arms of the GRG, with the result that perfectly solvent businesses are not solvent any more, and asset stripping them at the same time? What makes him confident the bank is not taking huge fees from companies that bank with them, asset stripping them and making sure they can no longer exist properly?

--- 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.

[Toby Perkins (Chesterfield) (Lab)]

It is a pleasure to serve under your chairmanship, Sir Roger, as we discuss a subject that is vitally important for small business owners across the country. As someone who was a small business owner before coming into this place, I like nothing more than the opportunity to reflect on what is happening with small businesses and, of course, the vital relationship between small businesses and their banks.

I congratulate the hon. Member for Aberconwy (Guto Bebb) on securing the debate. Everyone in the House will know how much of his parliamentary energy he has dedicated to the cause of small business redress, most notably through his campaigning on the interest rate swaps issue—an issue about which he and the Opposition share many concerns.

This debate and this report go to the heart of several big questions that Government and society need to address. What are banks for? Whom should they serve? What is the role for Government in that relationship? Where does the balance lie for banks in protecting their own interests and those of their customers when a conflict is seen to exist? A key question is not whether there has been any wrongdoing, but whether, as has been alleged in the Tomlinson report, there has been systematic fraud by Britain’s largest bank. We need to be clear that that is what Tomlinson is suggesting in his report. It is an incredibly powerful and potentially huge allegation from someone who sits at the heart of Government as an entrepreneur in residence at the Department for Business, Innovation and Skills.

The report also poses questions about how a responsible Government should balance the need to expose wrongdoing and scrutinise questionable practices, which has come across loud and clear in this debate, with the need for a measured and considered approach to evidence gathering, particularly when the allegations are as serious as those made in the Tomlinson report. The report is clear in its call for a change in the culture of British banking. Indeed, Tomlinson echoes concerns and remedies that the Opposition have already called for.

Mr Tomlinson is a much respected entrepreneur who has won admiration from across the business sector for his own business success as a British manufacturing success story, but he is involved in a long-running and bitter dispute with RBS. Given the way in which his report changed between the original draft that was sent to RBS and its subsequent publication, many people feel disquiet about the independence of the report and the strength of the evidence base that led to a report as hard-hitting and potentially damaging to UK plc as this one.

As my hon. Friend the Member for Streatham (Mr Umunna) has said and few will disagree, there were many things wrong with banking practices and many causes for concern about the way in which the relationship between businesses and the banks has been conducted in recent years and continues to be conducted today. That was why my hon. Friend publicly called for those guilty of LIBOR rigging to face jail, and why Labour has led the way in calling for decisive action on the mis-selling of interest rate swaps. We have been very much with the hon. Member for Aberconwy on that. We have been resolute in calling for speedier action to bring about closure and settlement for companies that were mis-sold products, and concerned at the way in which the Financial Conduct Authority has failed to ensure that the banks complied with timetables that they had promised to adhere to. At this stage, I would like to place on the record my admiration for the work done by Bully-Banks to highlight some of these issues and to ensure that the matter is kept under the glare of public scrutiny. Indeed, as we meet today, banks have paid out less than 3% of the amount that they have set aside for compensating the victims of that scandal.

Those concerns were also why Labour tabled an amendment to what was then the Financial Services Bill that would require Ministers to bring forward proposals to help firms to pursue collective redress against the mis-selling of swaps, which the Government combined on to vote down.

[Sandra Osborne]

Does my hon. Friend agree that tailored business loans, which are currently not included in the review, should be considered as well?

[Toby Perkins]

I think that many important points have been raised during the debate and that is certainly one of them.

We share the disappointment at the continued excesses in bank bonuses and the failure of the Government’s bank bonus levy to yield the returns that it promised. After all, we are having this debate just a day after publication of a survey showing that managing directors at banks in London are expecting a 44% rise in bonuses for 2013.

I turn now to some of the contributions made by hon. Members to the debate. Unsurprisingly, the hon. Member for Aberconwy made a series of significant contributions to the debate that he initiated. It was interesting that he reflected on the fact that Tomlinson had spoken to the all-party group on interest rate swaps. I was surprised to discover that during this process, Tomlinson never spoke to RBS and never gave it an opportunity to put the allegations that he was making in an alternative light.

The hon. Gentleman refused to take the bait that I generously offered him to say that the behaviour highlighted in the Tomlinson report would have verged on the illegal. I think that he understates the case. Tomlinson is fairly unequivocal. He is clearly alleging systematic fraud on the part of Britain’s largest bank—in effect, it is feathering its own nest by bringing down businesses that without the intervention of the bank would have survived and thrived.