Rural Bank Closures

Toby Perkins Excerpts

Tuesday 21st February 2012 Westminster Hall

[Roger Williams]

The hon. Gentleman makes a very good point, because public transport in rural areas is difficult at the best of times. Requiring people to travel distances of 9 miles or, in an example from my constituency, 14 miles makes it very difficult for people to obtain the advice and support that they need in making financial decisions. There have also been a number of closures by HSBC in Wales. The closures in Llandysul, in Ceredigion, and in Llanrhaeadr-ym-Mochnant in Powys, in the constituency of my hon. Friend the Member for Montgomeryshire (Glyn Davies), have been among six closures in Wales since September. I think that there has been a total of 17 closures across Wales by HSBC since 2009, although I should add that not all of those have been in rural areas.

However, this debate has not been called to highlight cases in my constituency or to single out HSBC. A recent report from the Campaign for Community Banking Services produced a breakdown by region and country of the number of communities dependent on one or two banks, together with a report on the situation for individual banks. The latter revealed the halving of HSBC’s share of one-bank communities in England and Wales to 10% as it continues significantly to reduce its network coverage. Perhaps the case of Presteigne and other closures explain why there is no mention of HSBC’s popular slogan, “The world’s local bank”, in its January 2012 television advertising campaign.

Figures from last year show that since 1990, 44% of all banks, including converted building societies, have been closed. That equates to 7,555 fewer retail banking branches nationwide. That has left the UK with only 190 bank and building society branches per million inhabitants, which is very poor in comparison with the 940 branches per million inhabitants in Spain, 560 per million in Italy and 470 per million in Germany. There is a better geographical spread throughout those countries and they have retained far more locally owned branches. Granted, they generally make modest charges for operating personal as well as business accounts, but at least they have the face-to-face services that so many people still want.

The report of the Independent Commission on Banking, the recommendations of which the Government have pledged to implement in full, stresses the need for a challenger bank and increased competition in high street banking. The German model, for example, provides for excellent competition and a much more community-focused approach. Lowering the barriers to entry and facilitating greater competition could allow for banks specialising in lending to small and medium-sized enterprises, as the Federation of Small Businesses has suggested, for banks that have a more local or community focus or perhaps even for banks that specialise in providing facilities for groups that are normally hard to reach, such as rural communities.

2011 showed no sign of a slowdown in the number of closures. A Campaign for Community Banking Services report that came out earlier this month showed that the number of rural communities with only two banks remaining is 446.

[Toby Perkins (Chesterfield) (Lab)]

I congratulate the hon. Gentleman on securing the debate. He has been a consistent campaigner on this issue. He is setting out how, since he brought the issue to this Chamber in March 2011, the level of bank closures has continued apace. Is he aware of any improvements on the ground as a result of Government intervention—Government policies—since March 2011, or is the lack of any such improvements the reason for his bringing the issue to the Chamber again?

[Roger Williams]

I thank the hon. Gentleman for that intervention, but I think that I have made it clear that although I believe that the Government can take a degree of initiative in this field, it is really the responsibility of individual banks or banks as a whole to ensure that they are able to service these vulnerable communities, because they owe a debt of loyalty to them.

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[Toby Perkins (Chesterfield) (Lab)]

Thank you very much, Mr Brady, for allowing me to speak. Unlike the hon. Member for Montgomeryshire (Glyn Davies), I believe that this is the first time that I have had the pleasure of attending a debate that you are chairing, but my excitement is none the less for that. I have obviously not been in the right place before.

This has been a good and important debate, and there have been some really important contributions. I congratulate the hon. Member for Brecon and Radnorshire (Roger Williams) on securing another Westminster Hall debate on rural bank closures. The issue is just as relevant and urgent—if not more so—as it was when he secured a debate on it back in March 2011.

The importance of this issue is shown in part by the number of different organisations that contacted me in advance of it to express their views on the problems that rural bank closures are causing their membership and their areas of interest. Those organisations include the Forum of Private Business, the Campaign for Community Banking Services, the Post Bank Coalition, the Federation of Small Businesses and the Countryside Alliance. As I say, they all contacted me to express the difficulties that this issue was causing their members. The Countryside Alliance briefing nicely laid out the fact that access to money and finance in rural areas has never been more acutely limited. It said:

“20 per cent of the population live and work in rural areas and yet only 12 per cent of bank branches and 10 per cent of cash machines are located there.”

What we are seeing is a population shift towards rural communities but at the same time a hollowing-out of services within rural areas. The briefing continues:

“Around 200,000 people living in rural England do not have access to a bank account of any kind. Even before any further bank closures, more than 930,000 households in rural areas live below the Government’s official poverty line and as many as 300,000 people living in the countryside do not have bank accounts.”

There is a broad issue about services in rural communities generally and a specific issue about the role of banking in our society. There is a challenge for the Government in terms of how they can stand up for Britain’s small and medium-sized enterprises. Although those issues are not new, they are becoming more serious, as has been stated in several contributions to the debate. A variety of cogent points were made by Members, to which I will refer.

The hon. Member for Brecon and Radnorshire laid out the importance of exploring the idea of community banks. I look forward to the Government’s response. The Government must take responsibility for co-ordinating and pressing the banks to deliver their public service responsibilities. He also laid out the potential value that there might be in the role of shared banks, which we want to see explored in a lot more detail. My right hon. Friend the Member for Torfaen (Paul Murphy) expressed in graphic detail the devastating impact of the closure of the HSBC bank in Blaenavon, which affects small businesses, the elderly and the community. A cash point is needed there, even if the bank disappears. That point was also made by other hon. Members.

The hon. Member for Montgomeryshire expressed the importance of supporting local businesses and how their presence retains young talent within our rural communities. A difficulty occurs when young people go away to university and do not come back to their own communities, resulting in a hollowing-out of talent in local rural areas. He described how it is often a death knell for village and community life when a bank closes. That is an important point.

My hon. Friend the Member for Harrow West (Mr Thomas) captured the mood of the debate with his call for a summit of the major banks and for the Government to get a summit together. We have seen the NHS summit this week. Perhaps the next summit will include invitations to the people who do not agree with the Government. Notwithstanding that, his idea was seized upon by other hon. Members as having merit. He spoke about the impact of the last bank closing in north Harrow in his constituency. He said that the summit should call for a commitment by the major banks to stick to the principles of the last bank agreement, so that when we are down to the final bank in a constituency, they stick to the commitment to retain it as a public service.

My hon. Friend the Member for Vale of Clwyd (Chris Ruane) supported the call for a summit. He asked for an analysis of the number of bank closures to ensure that we have important information. It is vital for banks to raise their reputation and standing. They can have an impact on our broader community and economy. We need to sense that we are all in it together and that banks realise and recognise their responsibilities.

The hon. Member for Carmarthen West and South Pembrokeshire (Simon Hart) also supported the call for a summit. He said that it needs to be expanded and should not just be about rural banking closures. He wants it to hold banks to account for their failure to lend to small businesses, and I would entirely support that. He also made the point that this is not just about the banks that go last, because they are the ones that stayed longest. We should also be looking at the banks that go before. We should recognise that banks have business decisions to make every day, but when they become the last bank in the community, there is also the public service issue. When members of the community can access shared banking services and tolerate only one bank in their village—in the town in the case of Blaenavon—it has a dramatic effect when that last one goes.

The hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) talked about the impact on small businesses. My hon. Friend the Member for Scunthorpe (Nic Dakin) mentioned the fact that the bank is often a key pillar of the community. That leads me to the broader issue of rural services. Local banks and post offices are the lifeblood of a community in rural areas. They impact on everything, from people’s sense of place and community to the capacity of small businesses to be run there, offering local employment prospects. They impact on tourism in some rural areas. We are seeing an increase in the number of people living in rural communities, yet a retraction in the services actually provided. That then has an impact on the ability of elderly and disabled people to engage in society in the way that we would expect—something that people who have easier access to transport or who live in urban communities take for granted.

The coalition agreement promised a post office bank. I am sorry that the Government have decided to renege on that promise. It was an idea floated by the previous Government. It was in the Labour party manifesto. We thought that it had been taken up by the new Administration when it was mentioned in the coalition agreement. The idea for a post office bank, in which post office facilities were used for some basic financial services, especially in rural areas, has, to the disappointment of many organisations, apparently been ditched.

Alongside the importance of rural services is the issue of what we expect from banks. Banks are both businesses and public services. When the banking crisis struck, the taxpayer provided support in a way that we have not done with numerous other industries. Many other industries, businesses and large firms have been allowed to go to the wall, but the banks were saved by the taxpayer, because we recognised the importance of the banking sector to our communities and, of course, to the business community. We recognised the possible impact on our communities. That role is acknowledged by the banks. It is one of the reasons why the last bank in town commitment is so important.

Evidence from the coalition of community banking services has shown the gradual reduction in rural banking services and the extent to which the number of dual bank communities has reduced, often because banks do not want to be the last bank in town and then come under more pressure than they would if another bank closed. So the suggestion made by the Minister in March 2011 that increased competition in the mainstream banking sector would be a solution is entirely disingenuous. It is an important issue to do with some of the other inadequacies in our banking environment, but once we get to the last bank in town, the decision about keeping it open is often one in which commercial considerations overtake the public service considerations, so the idea that an increase in competition will lead to an increase in the number of banks staying open in such areas is an unlikely one.

Banks are closing because banks have over many years been engaged in a long-term process of centralisation and cost reduction, and small local branches simply do not sell enough financial services products to keep them open. Communities that have invested in a bank, borrowed from a bank and been customers in that bank for many years often find that their loyalty is not returned when the branch is no longer commercially successful. So this is an issue of equality for people on low incomes, and it is an issue about how we support our elderly and disabled people, as well as how we support our small businesses. There is a greater role than ever before for debt advice. The advice sector is hollowing out and centralising in the face of cuts to the voluntary and local government sectors. That could push impoverished people towards payday loans and illegal loan sharks, as well as reducing the access to quality financial advice for elderly and disabled people who are not able to travel 10 or 15 miles to the nearest bank.

There must be a greater role within our banking sector for credit unions and mutuals, and I am interested to know what more the Government can do to promote them. Alongside the failure on rural commitments, as the hon. Member for Carmarthen East and Dinefwr said, is a failure on access to finance for small and medium-sized enterprises. That is recognised right across our business community. One of the biggest single drags on our economic recovery is the failure to make finance accessible to small businesses, owing to the banking sector’s retrenchment and the failure of the Project Merlin agreement, particularly for small businesses. The Government need to do a great deal more on that.

We all recognise that if we are to have a private sector-led recovery, SMEs will play a significant role in delivering growth within our economy. Members will have been as shocked as I was to learn the extent of the current Government’s failure in a YouGov poll yesterday, showing that a quarter of small business owners expect to close within the next two years.

At a time like this, when small businesses are under the cosh more than ever, we must recognise the banking sector’s role in supporting those businesses. Often, such businesses deal in cash and need daily access to bank services. There are clearly security implications for small businesses that cannot cash in their takings daily, as well as efficiency implications. A small business owner who must close early to drive 10 or 15 miles to take their money to the nearest bank will make less profit. At a time when small businesses need all the help that they can get, the Government and the banking sector should be doing a whole lot more. Hon. Members mentioned the importance of the local business relationship between banks and their business customers as well as their individual customers.

I should like to hear the Minister’s comments on the proposal made today for a summit. I should also like to hear what more can be done to take forward the inter-bank agency agreement model, which has been important in enabling businesses to share bank branch services. What does she think of today’s proposal by the Forum of Private Business that banks should share premises?

This debate involves the broad issue of services in rural communities, the specific role of banking in our society and a challenge to the Government to stand up for Britain’s small businesses. We recognise that rural communities exist in a variety of ways, but if they are to be sustainable communities and not just places where people live, services are crucial. That is why this debate is so important. I welcome the contributions made by all Members and look forward to learning more about what the Government will do to address this serious issue.

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[Miss Smith]

I am afraid that that would not be something that the Government could introduce, as the Government do not run banks. Regarding the banks in which the Government are the majority shareholder, they are run at arm’s length, as all hon. Members know, but I hope that my words will serve as a small measure of encouragement. It is a positive idea that could and should be looked at by banks themselves.

Regarding what the Government are doing to promote access to financial services, we are taking a number of important actions to help consumers access the services that they need. We are strongly committed to promoting a diverse financial services sector that serves the needs of the wider economy, which is the one of themes of today’s debate.

To start with, we need to encourage access to savings products. The Financial Secretary to the Treasury announced last week that the Government have launched a steering group to design a range of simple financial products, which will help new participants enter financial markets to provide straightforward and easy-to-understand products. I am sure that all hon. Members present today will welcome that.

I reiterate that we want the industry to take a lead in designing simple products, because we want the products to be viable commercial propositions for customers that will stand the test of time. There is an opportunity for industry to innovate properly, which may include mobile or shared services, and to develop a range of simple products that—again we return to the key point—meet their customers’ needs.

[Toby Perkins]

Will the Minister give way?

[Miss Smith]

I am about to respond to the hon. Gentleman’s points, so if he will allow me to continue with my comments, I will do so later.

I think we have all acknowledged in today’s debate that the needs for access to finance go far wider than banks and building societies. The Government strongly believe that credit unions can act as alternatives to banks and building societies in providing affordable financial services to people who may not otherwise be able to access them. The Government are providing additional support to such institutions through the Department for Work and Pensions, which I know hon. Members will welcome. The results of some of its feasibility studies will be published in due course. That forms just one part of the Government’s efforts to promote a diverse and competitive financial services sector, on which I am sure the hon. Member for Chesterfield (Toby Perkins) will have something to say.

[Toby Perkins]

I am delighted to hear that there is an interest in credit unions, and the Minister is absolutely right to say that they can play an important part.

Regarding the substantive issues that have been raised today, Members will be forgiven for thinking that they are walking away from the debate with little sense that the Government are doing much about the issue. What we are hearing is that such decisions are for the banking sector. Regarding the main thrust of the debate, which is about customer service and public service responsibilities of the bank, I think Members will leave with the sense that there is little pressure from the Government to get banks to face up to their responsibility and recognise the broader economic impact if we do not sort the issue out. I think we need to see a far greater sense of urgency and action from the Government on the issue.

[Miss Smith]

The hon. Gentleman will in that case be pleased to hear me move straight on to the next section of my speech, which deals exactly with what the Government are doing this very day in Committee: acting on the part of the financial system for which they have responsibility, which is to talk about financial conduct and competition in financial services. The key to the hon. Gentleman’s question is in his own words. There are two things at stake: customer service and public service. Banks and commercial institutions must be responsible for customer service, and I will now turn to some aspects for which the Government can reasonably be said to be responsible.

It is essential that consumers are able to apply competitive pressure and to understand where they can hold their bank to account and how the broader market operates. Customers should be able to vote with their feet and to switch their custom to banks that provide the best products for them, including access to a branch. The Government are therefore committed to fostering diversity and promoting competition in the banking sector. To that end, the Government have accepted in principle the competition recommendations of the Independent Commission on Banking, which was mentioned earlier in the debate. The Government will now consider the proposals in more detail.

In line with those recommendations, I am pleased to note that the banking industry has already made some commitments, such as introducing a faster and safer switching service to ensure that customers can switch within seven days. Along with the more enhanced transparency measures that are already being implemented in the personal current account market, including making charges clearer and providing annual statements of charges to each customer, the new service will make it easier for customers to exercise what they have to do, which is vote with their feet if they feel that their bank is not meeting their needs.

To ensure that consumers are adequately protected in accessing financial services, the Government are also reforming the regulation of financial services. I remind the House that as part of the Financial Services Bill that is being discussed in Committee as we speak, the Government are creating a new and dedicated conduct of business regulator, the financial conduct authority. Also, the Office of Fair Trading has already committed to reviewing the personal current account market in 2012, about which I hope my hon. Friend the Member for Suffolk Coastal (Dr Coffey) will read later.

It is clear that customer service is at stake here, and there is public interest in how rural communities can best be supported. However, it is also clear that the issue spans a substantial regulatory and non-regulatory agenda, and the Government are pursuing that. The landscape is changing rapidly, just as customers’ needs are changing, and the financial services sector will need to change to take account of that. It is vital that the sector continues to meet the needs of ordinary consumers, including those who prefer to access banking services via a branch.

Once again, I thank the hon. Member for Brecon and Radnorshire for his continued work on the issue. Clearly, we all share appreciation of that. I would also like to thank all the others who have contributed today. The Treasury will continue to take the issue into account as it pursues the wider financial inclusion agenda.