Royal Bank of Scotland

William Wragg Excerpts

Thursday 5th November 2015 Commons Chamber

[William Wragg (Hazel Grove) (Con)]

It is a pleasure to take part in the debate, particularly as today we commemorate a most significant day in the history of Parliament. Although I have not signed the motion and am minded to abstain, I understand entirely the perspective from which it has been approached.

The financial crisis of 2008 did much to rock public confidence in the UK’s financial sector, with the collapse of several household names in banking. It could be argued that to a great extent the banks brought that fate on themselves. Years of overambitious and risky lending practices led to kegs of bad debt being piled up around the foundations, so it all came unstuck in an explosive fashion. Members will be pleased to hear that is the end of my joke this afternoon—[Hon. Members: “Shame.”] We might, perhaps, be able to discuss the punishment inflicted on Guy Fawkes, which some Opposition Members would like to see replicated for the bankers.

The Government in 2008 had to perform significant bail-outs and interventions and introduce stimulus packages, leaving us in with large state-owned holdings in financial institutions, most notably the Royal Bank of Scotland, in which the Government have a share of 73%.

[Liz Saville Roberts (Dwyfor Meirionnydd) (PC)]

The National Audit Office issued a highly critical report in September on how the Government manage their £222 billion of assets in RBS and 53 other financial institutions. Does the hon. Gentleman not agree that a transparent portfolio approach should be taken towards the management of such assets, as recommended by the NAO, and that a fair share of the profits arising should be directed to the areas most in need of real economic investment, such as Wales?

[William Wragg]

I am glad that the hon. Lady, representing Plaid Cymru, managed to refer to Wales in her question. I am not sure whether it is quite within my remit to say how the Government should direct such profits towards Wales.

The return of RBS to private ownership is an important first step, but the motion provides the opportunity to debate some particulars of RBS’s business and some important aspects of the aforementioned lending practices, which occurred both before and after the crash. I am sorry to say that RBS, in particular, was found wanting in that regard.

I want to highlight certain negative practices that have been shown by independent sources to have occurred in RBS that affected its small and medium-sized business clients, particularly one business in my constituency. I want to place my concerns on the record and am keen to hear from my hon. Friend the Minister how such practices will be investigated and what action will be taken to restore public trust in RBS and the banking sector more widely in the run-up to any further share sales.

The Government will no doubt be aware of the report by the businessman Lawrence Tomlinson, to which the hon. Member for Edmonton (Kate Osamor) referred. It was published in 2013, when Mr Tomlinson held the position of entrepreneur-in-residence at the Department for Business, Innovation and Skills. Mr Tomlinson’s report considered the lending practices of banks and in particular the treatment of businesses in distress. It considered several banks in general, but took a particularly in-depth look at RBS’s turnaround division, the global restructuring group, or GRG. Tomlinson received large bodies of evidence on RBS’s practices, including from its business customers. The report found

“very concerning patterns of behaviour leading to the destruction of good and viable UK businesses”,

all for the sake of profit for the Royal Bank of Scotland.

[Grahame M. Morris (Easington) (Lab)]

I agree with the hon. Gentleman’s point about some of the business practices, but does he accept that the motion is a reasonable and moderate proposal, and the contention of my hon. Friend the Member for Edmonton (Kate Osamor) that we should consider other models, such as the Sparkassen model in Germany? Does he agree that bankers’ bonuses have been a significant factor in driving the misbehaviour that led to the downfall and the financial crash in 2008? Is it not true that the German banking system is geared towards supporting jobs and the real economy, and it would be a far better approach altogether if we did the same?

--- Later in debate ---

[William Wragg]

Following your lead, Mr Deputy Speaker, I will address one of those points, on bankers’ bonuses. Of course, bonuses should not be used to reward wrongdoing. I make my remarks and quote from the motion in the context of the UK’s financial sector.

Further examination of the report revealed that many businesses across the country, at least those among RBS customers, found themselves in circumstances in which the bank unnecessarily engineered default to move them out of local management and into its turnaround division, in order to generate revenue through fees, increased margins and devalued assets.

[Jo Stevens (Cardiff Central) (Lab)]

Does the hon. Gentleman agree that that is not a practice restricted to RBS, but applies also to Lloyds bank? I raised this in a Westminster Hall debate. My constituent Mr Kash Shabir was a victim of exactly that practice. Does the hon. Gentleman have any observations on that?

[William Wragg]

I agree entirely that the practice was not restricted to RBS. The case of my constituent involved RBS, but the hon. Lady’s constituent no doubt had a similar experience with other banks.

Tomlinson said that the practices at RBS’s turnaround division were typical. Once placed in this division of the bank, businesses were trapped, with no ability to move and no opportunity to trade out of their position. Good, honest and otherwise successful businesses were forced to stand by and watch as they were sunk by the decisions of the bank. The bank could then extract maximum revenue from the businesses, beyond that which could be considered reasonable, and to such an extent that it was the key contributing factor in the businesses’ financial deterioration.

[Hannah Bardell (Livingston) (SNP)]

I am struck by the comments made a moment ago by the hon. Member for Cardiff Central (Jo Stevens) about Lloyds TSB. Does the hon. Gentleman agree that we must learn from the bitter experience of the merger of the Halifax Bank of Scotland with Lloyds—a significant loss to the taxpayer, despite a spirited challenge in the Scottish courts? Does he further agree that it is not good enough to pour taxpayers’ money down the drain by short-selling our banks in a short-sighted manner, at a time when the austerity cuts are hitting the poorest and innocent taxpayers the hardest?

[William Wragg]

If I may strip away the rhetoric from the hon. Lady’s intervention, of course I would disagree with pouring away taxpayers’ money in such a fashion.

Tomlinson’s evidence showed that the process was not open or transparent, nor was it a proportionate response from the bank. During the process, businesses were completely in the dark as to what was happening around them until it was far too late. Most worryingly, the businesses affected were often perfectly viable, and, but for the action of the bank, would have made a positive contribution to the UK economy. If the businesses concerned had had more options for moving their banking facilities, and there was more transparency before entering this process, they would have been better protected from the bank’s opportunistic behaviour through which it manipulated the businesses’ financial positions for its own gain.

The reported practices of RBS’s global restructuring group, if accurate, were, on a generous interpretation, dubious and questionable, but it may be fair and truer to say that they were unethical and scandalous. If the findings of the report that I have just summarised sound shocking or alarming to colleagues, they should do. However, consider how much more shocking and alarming it was for the victimised businesses and business owners involved—for the honest and hard-working businessmen and women and their employees, who saw their hard work and investment, often spanning years, eroded from under them; for those who lost their businesses, their jobs, their reputations, and in some cases their homes.

This, unfortunately, was the case for a business in my constituency. Pickup and Bradbury Ltd was owned by a constituent of mine, Mr Eric Topping. It was a medium- sized, family-owned construction firm operating out of Romiley. It engaged in mainly commercial construction contracts, with clients including large retailers, shopping centres, schools, HM Prison Service, several NHS sites, and a host of other local businesses. It was a well recognised and respected name in the construction industry across Greater Manchester. However, in 1998 Mr Topping and Pickup and Bradbury Ltd fell victim to exactly the kind of practices I have outlined. I shall not detain the House with the full details of the case, particularly as Ministers at the Department for Business, Innovation and Skills are aware of the full details, which I have passed on to them.

It may be of benefit to the House, though, if I briefly outline the example. Pickup and Bradbury was forcibly moved by RBS into the global restructuring group after the bank claimed that the business owed it a significant debt in excess of £700,000. My constituent acknowledges that the business had some debt, but it was perfectly capable of managing and servicing it. However, the crux of the case was that although the business balance sheet at the time showed assets of over £1 million, after the restructuring group process RBS placed a valuation on the business at negative £1.1 million—a discrepancy of over £2 million. The upshot was that this led to the forced liquidation of Pickup and Bradbury, costing the jobs of all its employees and forcing Mr Topping to sell his home. He contends to this day that the business was viable, and would still be trading if it were not for the actions of RBS, or if he had been given time to switch to another bank.

[Catherine West (Hornsey and Wood Green) (Lab)]

I think of a similar situation in which a small businesswoman had borrowed from and had a wonderful relationship with the bank manager, but the bank branch closed and the bank manager went. Suddenly the loan was called in and she lost her business on the high street selling children’s clothes, then had to go on benefits and had other financial difficulties. What a knock-on effect that has had not just within the sector, but in the wider local economy.

[William Wragg]

I agree wholeheartedly with the hon. Lady’s remarks. The pattern has no doubt been repeated across the country in different circumstances, but with the same sorry result.

I know that the case in my constituency is not an isolated one, and the Tomlinson report suggests that the bank’s practice was widespread and systemic. RBS has failed to resolve the case of Pickup and Bradbury, and I am sure the same can be said of many hundreds of cases across the country. This is about more than just the numbers on a balance sheet; it is about people’s businesses, their jobs, their homes and their lives.

In addition to raising the issue on the Floor of the House today, I have previously written to my right hon. Friend the Minister for Small Business, Industry and Enterprise about this case. This is obviously a cross-departmental issue covering both the Treasury and BIS. Will my hon. Friend the Minister confirm, on the record, that she is aware of my constituent’s case and similar cases across the country? Can she give an indication of how many small businesses it is estimated fell victim to RBS in a similar way?

The Business Minister has told me that the Financial Conduct Authority and the Prudential Regulation Authority have been established by Parliament with legal powers to investigate this situation. I am also aware that two accountancy and consultancy firms, Promontory Financial Group and Mazars, have been appointed to carry out a skilled person review of the allegations against RBS. The FCA review is ongoing and I understand that it is not expected to report until the end of this year. Given that it is two years this month since the publication of the Tomlinson report, and in view of the fact that some of these cases of forced liquidation and destruction of viable businesses are over a decade old, that is an awfully long time to wait for justice or closure.

[Guto Bebb (Aberconwy) (Con)]

My hon. Friend will be disappointed to hear that at a meeting with RBS this morning it was confirmed that it is not expecting the FCA report until the new year, so the hope of having something in our Christmas stocking has been taken away.

[William Wragg]

I thank my hon. Friend for that intervention, and naturally I am disappointed to hear its content. Can the Government give any assurance about the timeliness of the report from the FCA?

The recommendations of the Tomlinson report call for more competition to remove incentives to make short-term decisions purely in favour of bank profit, rather than in the interest of longer-term customer relationships. When do the Government expect to produce their own full response to the Tomlinson report?

What steps are the Government taking to improve the lending practices and reputation of RBS in the light of what has happened? Let us not forget that they still own over 70% of the bank. I also want to give my hon. Friend the Minister an opportunity to give any message that she feels would be appropriate to the former owners of now liquidated businesses, including my constituent Mr Topping, while we await the reviews of third parties.

In conclusion, the motion before the House concerns the potential sale of further Government shares in RBS. I said at the outset that this is, on the whole, a positive direction, but my question still is this: how can we be comfortable proceeding while this long shadow still hangs over RBS’s reputation? I therefore call on the Government, while they still hold a large controlling stake in RBS, to use their position of influence to ensure that these matters are fully investigated, to deem what admission of wrongdoing is appropriate and, if necessary, to facilitate compensation and the issuing of apologies to those business owners affected by the scandal. I am at present minded to abstain on the motion, pending the Minister’s response, and I look forward to what the Government have to say.