Banking Competition

Debate between Steve Baker and Cathy Jamieson

Thursday 12th July 2012 Westminster Hall

[Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)]

I declare my interests, which are in the Register of Members’ Financial Interests. I am a Labour and Co-operative Member of Parliament and have connections with various parts of the co-operative movement and a number of credit unions.

I thank the hon. Member for South Northamptonshire (Andrea Leadsom) who ensured that the debate took place, and other hon. Members who supported the application for a debate. This has been a welcome opportunity to look in more detail at competition in banking and to hear some thoughtful speeches. The fact that nine hon. Members have contributed, in addition to the hon. Lady’s opening speech, and that hon. Members have made many interventions shows the level of interest.

I should like to respond to points made in the debate and set out our policy position. It goes without saying that there was consensus on this matter; I am glad about that. We need real change in the British banking system if we are going to rebuild our economy. That message was set out clearly as a way forward by the Labour leader, my right hon. Friend the Member for Doncaster North (Edward Miliband), and the shadow Chancellor earlier in the week, when they visited the Co-operative bank. That message is important and worth restating today, notwithstanding differences of emphasis across the political parties. I think hon. Members agree that we need to build a banking system that recognises that it is not just an industry that serves itself. That came through in a number of hon. Members’ speeches. Banking must have a fundamental and higher responsibility to serve the economy, but Members gave examples of banks not necessarily having served either constituents or local businesses.

As the hon. Member for South Northamptonshire said, the revelations of the past two weeks have shown precisely what has gone wrong in some aspects of banking—it has had an impact on our economy—and what has gone wrong over decades, with cultural changes taking place slowly and not necessarily being picked up until crisis point. Problems have been highlighted that require further scrutiny.

As in the wider economy, we need a banking system that is based not just on short-termism. It is not about making the fast buck and not about people taking what they can and not worrying about the longer-term consequences. Instead, we should begin to look again at how we can rebuild the economy and our banking system through patient investment, looking to do the right thing in the longer term and sharing responsibility for how the process moves forward.

The short answer is to try to shift the culture so that it is not about predatory behaviour and banks trying to make the hard sell and the quick extra buck by selling a product and pushing it on people, whether they want it or not. It is about productive behaviour and considering how we encourage people to save and how to use those savings productively for local communities and small businesses. Hon. Members have focused on that.

Above all, I want an economy and a system that do not work just for the powerful, privileged few. My hon. Friend the Member for Islwyn (Chris Evans) mentioned how angry people are when they see what has happened in the banking system, particularly when they have worked all their lives and saved and done the right thing, and now find that they and their families and communities have been let down and left out, because many of them have used their savings and now have nowhere else to turn. It will be difficult for many people approaching their retirement years, or in retirement, who thought that they would be okay and that they had done the right thing, but now discover that they are in difficulty.

Again, as the Labour leader set out earlier in the week, the move from what has been described as casino banking to stewardship banking is important. That use of language is interesting, because the idea of stewardship is that we have responsibility for looking after the money and the people who have invested their money in the banks.

The point was made strongly that we need a banking system in which the bankers are not given incentives, overtly or in other ways, to focus only on a short-term return. We should move to a system that is about building up long-term, trusted relationships with customers, whether individuals or small businesses. The hon. Lady also made an important point: we need a banking system in which no bank feels that it is either too big to fail or too powerful to be challenged. Yes, banks need to face real competition and customers must have proper choices, but above all we need a banking system in which all the people in the UK have confidence once again.

I say with feeling as a Scot—we have at times been castigated for our thrifty nature, and sometimes even been described as mean rather than thrifty—that the values and principles I spoke about are the foundations on which the Scottish banking system was built. Many of us have taken it badly that those values and principles were cast aside. Not only did the banks find themselves in difficulties, but there were wider questions about the culture of Scottish banks, which we were once upon a time extremely proud of.

[Steve Baker]

I have always admired the Scottish banking system. My friend Professor Kevin Dowd is a huge advocate of Scottish free banking. At its height, its key distinguishing feature was the almost complete absence of the state. Banking was at its best when the state was at its least intrusive.

[Cathy Jamieson]

That is an interesting point, but I will speak about some collective approaches to banking. The nub of much of this debate is what caused the banking system, which at its height was doing well for the economy and working well for people, suddenly to tip over. It put people on the wrong side of the decision-making process, and forgot that it was supposed to be looking after other people’s money. That is the issue I would like to explore in more detail when we have the opportunity to scrutinise the matter.

In her opening speech, the hon. Member for South Northamptonshire referred to the culture in her day. As a young person, I saved threepence a week in old money and took it to school every week to put in a school bank account. I still remember the day I got to the wonderful point of having £1 and, in addition to having a school bank account in which to save threepenny bits, or whatever it was, became the proud owner of a Trustee Savings bank account book.

I did not live in an affluent area—far from it—and my family was not well off. My father was often unemployed, but the principle of saving a little every week for a rainy day established for me and many of my generation at a young age the importance and responsibility of saving. I remember my horror at secondary school when I had to buy a set of drawing instruments and had to go the bank and take money out. That was the first time I realised the trauma of having to take money out instead of putting it in, and then to work doubly hard to replace it.

At that time, banking was a respectable job, as hon. Members have said. It was a job that people vied for.