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RBS (Small Business Lending)

Volume 507: debated on Wednesday 10 March 2010

I would like to draw attention to the disgraceful treatment that my constituent Mr. Derek Carlyle has received from the now publicly funded and publicly owned Royal Bank of Scotland. I first met Mr. Carlyle in January last year, when he undertook to highlight difficulties that he had encountered over the previous months in his business arrangements and dealings with the bank. I was horrified then, and I remain horrified today, by the inexcusable and underhand tactics adopted against him, both personally and professionally.

I congratulate my hon. Friend on obtaining such an important debate. I have been dealing with constituents facing similar problems. This week, I have been dealing with a small business man who simply cannot get access to lending to assist his trading. Given that the Government have supported the banks to ensure the recovery of the economy, is my hon. Friend not absolutely right to tell the banks that their behaviour is unacceptable?

I thank my right hon. Friend for his intervention and I agree wholeheartedly. As I report further to hon. Members, however, he will find out that my constituent’s case is not about a guy who could not get the funding; he had been promised the funding, but it was then withdrawn.

In introducing the debate, I should say that Mr. Carlyle was an established customer of the bank and had enjoyed an excellent working relationship with it over the years. Development funding had been provided for projects that were successfully completed. In 2007, Mr. Carlyle had a solid track record, achieving an average profit margin of 30 per cent. on each project, and one project in East Kilbride was still progressing. That year, an opportunity arose to purchase and develop land in the grounds of the renowned Gleneagles hotel in Perthshire. As was his habit, Mr. Carlyle approached the bank with this new business venture, which would potentially realise substantial profit, benefiting the bank and himself.

In March 2007 Mr. Carlyle met someone from the bank’s commercial centre to negotiate funding for the project in two parts—the purchase of the land and the building development of a £4 million house. It is pertinent to note that it was a condition of the sale of the land that the plots could not be resold, and were required to be developed by March 2011, failing which the land would return to the sellers. That is what they call a buy-back clause. Because of the buy-back clause Mr. Carlyle had impressed on the bank the fact that he could not accept funding for the purchase of the land if funding for the development would not also be made available.

The bank was very enthusiastic about the project, and agreed. On the strength of his past dealings with RBS, and being confident of its support, Mr. Carlyle undertook the purchase of the land, although the funding from the bank for the purchase—£845,000 and £560,000—was not released until August 2007. Initial building works commenced, with continued assurances from the bank that it would support the Gleneagles development project. Mr. Carlyle had initially used some of his own funds to get the project started, and had paid off some debts, as a result of that, from the sale of another property, while also repaying some funds to the bank.

On 12 August 2008, Mr. Carlyle and his solicitors were abruptly advised that the bank would not provide the development funding, and that it demanded repayment of the £1.45 million used to purchase the Gleneagles land by 10.30 the next day, or, it said, it would “destroy” Mr. Carlyle; and it advised him that he “should be clear about the chaos that would ensue”.

I welcome you to the Chair, Mr. Howarth. The hon. Gentleman has outlined something that is an exact mirror image of what is happening in Northern Ireland, through RBS, to the Ulster Bank, where facilities that have been agreed are withdrawn at the last minute. That affects many vulnerable businesses and the people employed in those small businesses. Does the hon. Gentleman agree that what the banks say privately or publicly to the Government is not what is happening on the ground?

That is very much the case. I thank the hon. Gentleman for making the same point that I hope to make to the House.

I know of examples in my constituency, as other hon. Members do in theirs, of companies, such as Crummock in Midlothian, that are beginning to be reluctant to discuss things, because of what the Royal Bank of Scotland has been doing. Those are long-established companies, which have had a long-term relationship with RBS, which has turned its back on them. My hon. Friend mentioned threats being made; could he give some examples?

Yes, I certainly will, as I develop my argument.

The reason given for the action was that there had been no agreement to provide the development funding, and that all the funds from the property that Mr. Carlyle had sold should have gone straight back to the bank; the bank was not happy about that. It claimed to have an agreement that the total funds from the sale should have gone back to the bank, but since then it has been unable to produce such an agreement.

The bank’s solicitors then embarked on a series of actions that is shocking. In a short space of time Mr. Carlyle’s bank accounts were frozen, his company forced into administration, his assets seized, and action to repossess his family home commenced, with arrestment and inhibition orders from the Court of Session in Edinburgh. Not satisfied with that, the bank manipulated a personal account used for school fees so that it became overdrawn, resulting in payment of Mr. Carlyle’s children’s school fees not being honoured. Furthermore, to make things more difficult for him, the bank prevented solicitors from acting on his behalf, and it was only with the bank’s approval that his current solicitors in Edinburgh were able to be appointed.

The project in East Kilbride was also the subject of seizure and was sold by the bank at a considerable loss, of almost half its value. The unjustified attack resulted in the chaos and destruction that the bank had intended, destroying the man’s business and causing horrendous damage to his personal life and reputation. The bank pressed on against Mr. Carlyle through the action it had raised in the Court of Session. Mr. Carlyle counterclaimed, on the basis that the promise from the bank to provide development funding was a contractual one, and that the bank was in breach of that contract, known as collateral warranty.

The Court of Session agreed with Mr. Carlyle. The judgment from Lord Glennie of 13 January 2010 found not only that the bank had failed to keep its contractual promise to provide the development funding, but that the conduct of the bank in the Court of Session fell far below the required standards. That is strong criticism from a judge. He also said that the Royal Bank of Scotland lacked “candour” in the proceedings, specifically in its deliberate failure to admit to key evidence in the Court of Session. If someone is described in a judge’s language as lacking candour, that might mean to some of us in the House that they were lying through their back teeth.

Since the beginning of August 2008 the bank has bullied and intimidated Mr. Carlyle’s usual solicitors, threatening them with destruction of their business practice, which resulted in their withdrawing from acting for him in this matter. That is the thing that I really want to point out to the House, and to the Government. Here were lawyers—and it is the case today—having to approve the person who was representing the person opposing them. The firm of solicitors whose business was threatened with ruin was a small one, with little option but to tell my constituent, “I’m sorry, I can’t carry on representing you.”

The hon. Gentleman will know that the Government are a major stakeholder in the Royal Bank of Scotland. Why does he think it is possible for officials of the bank to snub their noses in the direction not just of many Members of Parliament, and even the Government, but also the Prime Minister’s statements in this House? Surely that is totally unacceptable.

It is absolutely unacceptable, and I hope that my brief Adjournment debate will encourage other hon. Members to find out whether, as I suspect, there are many similar examples from their constituencies, and to bring those to the House.

The hon. Gentleman does not only his constituent but the whole House a service in bringing the matter before us, because it is one of the most extreme examples of something that I have heard of from my constituency experience; and I suspect that just about every other hon. Member who interacts with businesses in their community will be in the same situation.

Does the hon. Gentleman agree that what has been happening is made possible as the result of a policy of RBS in particular, of removing all decision making from the local branch, the point of contact that their customers—including me—have always enjoyed, and giving it to decision makers further down the line, who can come up with reasons for refusals that hold no water?

Order. I remind hon. Members that this is a short debate and that interventions should anyway be brief and to the point. Long interventions prevent other hon. Members from having the opportunity to speak.

I thank you for your guidance, Mr. Howarth.

One thing has really irked me. Another of Mr. Carlyle’s solicitors threatened by the bank found out that a letter concerning an alleged attempt to obtain substantial funds from RBS had been “concocted” by RBS staff. The solicitor threatened to report the incident to the police and the fraud office. Only then was the matter dropped. Sinister stuff.

The bank then pressed another large firm of solicitors to stop acting for Mr. Carlyle. I know which firm it was, but it would not be fair to name it at this stage; we may have to name it later, but we do not want to do so now. Mr. Carlyle was advised that no sizeable firm would act for him in a case against RBS. His current solicitors took the case only after saying to RBS, “Is it okay if we take the case?” They had to be approved by RBS before they could act. What sort of situation are we in?

The bank’s specialised lending services and recoveries department in Edinburgh delivered a one-sided report to Mr. Dickinson, the chief executive, in order for him to respond to a letter from me. Again, it was lack of candour to brief the chief executive, but I leave that to him.

In the spring of 2009, the bank falsely advised the Court of Session, the bank’s chief executive and Mr. Carlyle’s solicitors that the latter’s key witness, an RBS manager at the time, had changed her statement made in support of Mr. Carlyle’s claim, and that there was no point in going to court. That, too, was found to be completely false. Indeed, the woman in question—I have a copy of her statement with me—never made such a retraction. That was proved to be the case in evidence given to the Court of Session. That is what made Lord Glennie refer to a “lack of candour”.

Following the proof being given to the Court of Session in October 2009, and while awaiting judgment, the bank apparently conspired to influence a third party and its representatives to have Mr. Carlyle sequestrated for the small sum of £4,000, a sum unconnected with the bank. That was wrong and unfair; it was an attempt to destroy his ability to claim justice and reparation if he succeeded in his Court of Session counterclaim.

Despite admitting in court that the promise was breached, RBS has apparently decided to bring in another highly paid legal team that includes—get ready for this—the Dean of Faculty to represent it at the taxpayers’ expense, in order to examine Lord Glennie’s judgment.

The inexcusable and underhand tactics of bullying and intimidation by RBS personnel of individuals and organisations, no matter whether it is done in an uncontrolled manner or with the full knowledge and authority of the RBS directors, is wholly unacceptable. Once again, RBS personnel seem to believe that they are above the law and not accountable for their actions, and that the institution, with its bottomless pit of taxpayers’ funds, will bail them out. They had the power to bully and destroy—and to hide when caught.

The hon. Gentleman speaks of bullying smaller people and firms. May I tell the House about a firm in my constituency that had an order book of £3 million? It was owed £400,000, much of it by main contractors who were improperly withholding the money, and it owed others the lesser sum of £300,000. The banks forced that company into administration, and refused to lend to it. The banks and the main contractors cleaned up big time, and the small man was trodden all over. It is about time that the Government took action to stop such improper practices.

I am sure that the Minister is taking on board these interventions.

As regards Mr. Carlyle, I would urge RBS—via Mr. Dickinson, its chief executive—to follow up its admission in the Court of Session that it breached its promise and honour it by providing the reparation due to Mr. Carlyle for its wrongful actions once his damages claim has been quantified. The taxpayer should not be funding personal vendettas by bank personnel; nor should RBS be allowed to wriggle out of honouring the clear promise made to Mr. Carlyle.

On a wider note, I am sure that there are many without Mr. Carlyle’s determination and strength of character who have been mistreated, bullied and intimidated by RBS. I urge them to lodge a detailed formal complaint to not only the Financial Ombudsman Service but their local MP.

I received a letter from RBS yesterday. I understand that the Minister has a copy. It was one of those “pp” letters that we see far too often; although I know where it came from, I do not know who wrote it. It contains the same stuff—I was going to say “garbage” but I do not want to be too disrespectful—but it has the same garbage that the bank presented in its case at the Court of Session, which Lord Glennie said was “less than candid”. I shall disregard much of the letter’s contents, as it contains information that we already know. However, it also includes an invite to a meeting at my constituency office to discuss this and other cases; I look forward to that.

I ask the Minister to take all this information away. I do not say that he or the Government are responsible. When I came to this debate, I hoped that we were dealing with rogue managers and rogue directors at RBS, but from the interventions that I have taken—they were from Members from Northern Ireland and from many other parts of the country—I suspect that it is even more serious. It is not rogue people: it may be institutionalised. If so, it must be sorted; and we, as major shareholders in RBS, have a duty to sort it.

It is a pleasure, Mr. Howarth, to serve under your chairmanship. I congratulate my hon. Friend the Member for Lanark and Hamilton, East (Mr. Hood) on securing this debate. He is certainly right to say that bank lending is vital to business. Many businesses have continued to express anxieties and grievances on that question, and some of them were reflected in the interventions made on my hon. Friend.

As my hon. Friend noted, his constituent Mr. William Derek Carlyle has taken action on what he believes to be unfair practices. I listened carefully to what he said. He made some serious allegations about bullying, intimidation, and threats to solicitors and others. I am sure that he will find other avenues through which to pursue those matters. I am sure also that Royal Bank of Scotland will have listened carefully to my hon. Friend’s comments.

I did not mention the solicitors for that reason. However, if I need to mention them I shall certainly do so. Solicitors, and groups of solicitors, need to be defended against such behaviour. Lawyers must be free to represent their clients, regardless of what has happened. This case indicates that that was not so. There may be some legal questions about interfering with due process, and we may have to return to the subject.

I note what my hon. Friend says. He will be aware of the different routes through which he can progress these matters. He will appreciate that I cannot comment specifically on the particulars of the Carlyle case, because it is still subject to the court ruling. However, I hope to see a resolution of the matter—and, indeed, of other matters that have arisen.

I would like to address some of the broader issues about bank lending in the UK economy, and say something specific about RBS in response to the concerns expressed by hon. Members. I shall not dwell too much on the context, given the short time for my response, but it can be traced back to the reckless lending in which some in the global financial sector indulged in the years preceding the crisis. We have seen the first global financial crisis of the modern era, largely as a result of the emergence of the sub-prime crisis in the United States following the collapse of Lehman Brothers. Incredible action in the United Kingdom led to our substantial ownership of the Royal Bank of Scotland and the Lloyds Banking Group. We then took significant action to ensure continued lending, both to households and to businesses—the subject of the debate.

The latest Bank of England “Trends in Lending” report shows that net lending declined by £47 billion in 2009. That trend is not just relevant to the United Kingdom, but common to the United States, the eurozone and Japan. As the Bank’s analysis has shown, during past recessions and financial crises, bank lending typically remained weak in the early stages of recovery. That may reflect a number of factors, including the reappraisal of risk by lenders, investors and borrowers; uncertainty about the prospects for the economy; people and businesses choosing to pay off debt and restructure their financial positions, rather than taking on more debt, which impacts on the demand for finance by households and businesses; and financial institutions restructuring to deliver higher capital levels and more conservative loan exposures. Having said that, it is absolutely important that creditworthy businesses should not suffer from constraints on the supply of lending, especially as demand recovers in the economy.

Does the Minister accept that many banks throughout the United Kingdom are strangling small and medium-sized businesses? If they give a loan to such businesses, they impose such a premium that it is impossible for the businesses to get through this time of recession.

I want to respond to that accusation directly, because banks have received substantial taxpayer support and they must do all that they can to lend to creditworthy businesses and to support the recovery. I want to go on to give some of the available figures.

I only have a limited amount of time, so let me make some progress with my speech. If I have time, I shall then give way.

It is important that businesses have the necessary capital to invest in their factors of production, to invest in product development and to have the means to expand and grow, in particular as we—hopefully—secure the recovery. There should be opportunities for UK firms to compete successfully in the global marketplace, and barriers to finance should not prevent them from doing so.

I am dismayed that I continue to hear stories from hon. Members about companies that are not able to access the sort of funding required to help their businesses for the future. There is evidence out there that more lending is beginning to flow to businesses, which is encouraging. Surveys, such as those from the Department for Business, Innovation and Skills and the Bank lending panel, all suggest that around three quarters of businesses get finance from the first source that they approach—it is important to put that on the record.

Hon. Members will appreciate that nearly 6,000 small and medium-sized businesses have received more than £605 million so far in loans from banks through the enterprise finance guarantee, which the Government introduced. RBS is committed to lending through that scheme, as well as through the European Investment Bank discounted loan scheme, which I would recommend as a funding option for growing businesses that are looking to make capital investment, although the scheme has not been promoted nearly enough by the banks. Indeed, we as a Government could do more to promote the availability of those funds.

RBS data show that the bank is approving the vast majority of loan applications. RBS figures for 2009 show that the bank accepted 85 per cent. of all applications from SMEs. The increase in lending is of fundamental importance, but ensuring that customers are treated fairly is equally important. That issue has been raised by hon. Members, who should be aware that RBS has developed an SME customer charter. We worked alongside the bank to produce that charter, which set out the level of service that customers should expect to receive from their bank and includes features such as a 1.5 per cent. cap on overdraft and loan arrangement fees; ensuring that the price of loans or overdrafts reflects the cost of funding; a pledge to support business start-ups; and a programme of seminars to provide expert guidance.

We have taken actions, including on bank lending commitments. RBS has committed to lending £16 billion during the year ending this month and we are discussing its future lending commitments. We expect banks to continue to offer competitively priced loans, to ensure that businesses get a fair deal, but decisions about pricing or terms and conditions of loans to specific businesses remain commercial decisions for banks and building societies. It would not be right for the Government to intervene in such decisions. Any dispute between a bank and a business should be resolved by the parties involved, initially by going through the bank’s complaints procedure.

Does the Minister understand that the issue does not affect new companies alone, but well-established companies with long-term relationships with the bank? There is something wrong with the bank—the Select Committee on Scottish Affairs drew the conclusion two weeks ago that the Royal Bank of Scotland has a structural problem in how it deals with such businesses. The bank is virtually blackmailing some of the businesses that it has been dealing with for years, and is foreclosing on others.

I understand the ongoing concerns. My hon. Friend is right to say that there is an issue with existing businesses but, on RBS’s figures, 85 per cent. of loan applications, which includes existing businesses, are accepted at the moment.

I only have two or three minutes left, so let me respond with a few other things relevant to the debate.

I referred to the bank’s complaints procedure, but the Financial Ombudsman Service for small businesses is available, if people are not satisfied that they have received the right and appropriate treatment through the bank’s complaints procedure. Hon. Members will be aware that RBS also operates a business hotline, which assists viable businesses in accessing loans. It is designed to be a second pair of eyes for businesses whose loans are turned down first-time. The hotline number is 0800 092 3087. I understand that only two Members of Parliament so far have made use of it, but some 4,400 calls have been received from businesses. We can use the hotline in our constituency roles, to take up the cases of RBS business customers who are not getting a fair crack of the whip.

The hotline is clearly not applicable or appropriate in the circumstances to the case described by my hon. Friend the Member for Lanark and Hamilton, East, which went down the litigation route. He raised some serious allegations about the operation of the Royal Bank of Scotland. Undoubtedly, such matters will be determined by the courts. Certainly RBS is well aware of today’s debate. My hon. Friend said that RBS is happy to meet him, which would be a good way for him to pursue the matter.

Overall, the Government’s continuing actions are deliberately designed to address the flow of credit in the economy. We do not want to see credit constraints impeding recovery. We need to do all that we can to encourage lending. We have secured lending commitments from RBS and the Lloyds Banking Group, and we shall make further progress in that area.

Sitting suspended.