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Banking (Disclosure, Responsibility and Education)

Volume 542: debated on Monday 26 March 2012

Motion for leave to bring in a Bill (Standing Order No. 23)

I beg to move,

That leave be given to bring in a Bill to make provision for the collection from the UK banking sector of financial inclusion audits and data on financial transactions, including commodity trading; to make provision for further obligations on the appropriate financial regulator regarding financial consumer protection and education; and for connected purposes.

The Bill aims to improve the level of disclosure within our financial system. It would improve disclosure on how banks are addressing financial exclusion as well as improve disclosure within the UK’s commodities markets in the hope that we can rebuild trust in our banking system. A primary aim of the Co-operative party, for which I am a Member of Parliament, is its “The Feeling’s Mutual” campaign. Ever since the financial crisis of 2008 it has been fashionable in all sections of society to blame the bankers for everything. The Bill would seek to answer that question, first, by improving data collection within the banking system, and, secondly, by improving disclosure to regulators and the public.

First, the Bill would deal with the problems on the high street. I believe that everyone should have access to affordable financial services, but the sad reality is that that is not the case. The economic conditions following the financial crash have caused hardship for families and meant that more people have been driven into financial exclusion. At the same time, banks have become more reluctant to lend and give credit. As a result, doorstep lenders and illegal loan sharks, who charge extortionate rates of interest, have found their business picking up. That has made financial exclusion worse and at the same time has pushed more people into debt and poverty.

The impact of financial exclusion, which affects almost 2 million people in the UK, is that essential services become more expensive. This can take the form of the extra cost of paying utility bills without direct debit or the need for expensive, short-term loans to cover house repairs, for example, which can cause temporary financial difficulty and mean that people have to use the services of predatory and very expensive credit companies.

More broadly, households with no bank accounts face serious challenges in getting access to essential services such as energy, water, land lines and the internet. If people do not have access to basic bank accounts, things that the rest of us take for granted, such as receiving wages or benefit income, or paying the gas or water bills, become huge and costly obstacles to overcome. Not only do those challenges impact on the individuals concerned, but they have a serious impact on their families and members of their household. Faced with the scenario of their gas or electric meter running out before pay day, they might find it easier to borrow from a doorstep lender and to worry later about the interest charged.

People struggling to find work might also find insurmountable barriers put in their way when, without formal banking services, they seek employment. Currently, 9 million people in the UK do not have access to credit from banks, so the time is right to ensure that our financial institutions recognise their obligation to wider society. Two years ago, in response to those problems, my right hon. Friend the Member for Edinburgh South West (Mr Darling) announced in his Budget an obligation on banks to provide basic bank accounts. It is now time to disclose which banks are helping our communities.

This Bill would require banks to produce a report specifying whom they lend to, with the aim of revealing those who are still excluded from the financial products of mainstream banks, and of ensuring that everyone has access to affordable banking services. It would also make provision for the collection from the UK banking sector of financial exclusion audits.

The Bill would introduce a statutory duty on banks to comply with a financial audit, covering the number of current accounts and basic bank accounts and the amount of community development lending and investment. Each bank would be assigned a “social performance rating”, which would also take into account a range of factors such as branch presence in deprived communities, the take-up of basic bank accounts, environmental factors and community projects.

The sad reality is that some banks look with disinterest at things such as the basic bank account. The basic bank account does not credit score, so bank workers cannot sell products, and very few account holders are managed on to mainstream bank accounts. If banks had to disclose data that indicated how inclusive they were, however, they would be motivated to accord to basic bank account holders the same value as people who take out massive loans. Such inclusivity is crucial if we want to stop people being pushed into the hands of predatory loan sharks.

By scoring banks, we would also be in a far stronger position to judge the cost of bank closures in remote or rural areas. Rural closures can have a devastating impact on remote communities, and elderly people in particular—those more likely not to have access to internet or telephone banking services—can be left excluded completely from financial services. It is all very well closing a bank in a remote area and referring people to online services, but what use is that to a household with no internet access, or to people over 65 years old who might be unfamiliar with or unwilling to do simple things, such as checking a bank statement or transferring money, online?

When a bank closes a branch in a rural area, it often blames falling customer numbers, but no matter how few customers a bank has, they are still people who might be left without a local branch or point of contact. Data collection would reveal each bank’s presence in vulnerable or rural areas, ensuring that, before closing branches, they considered the impact on people and communities and the replacement measures they would have to put in place.

The second part of the Bill would ensure also that all information on financial transactions was recorded by banks and given to regulators in a standardised format. That would give an insight into the state of the market and make clear any warning signs, and it might even predict any future economic crash. It would also allow regulators to decide which were the good banks and which were the bad, thereby protecting the public purse. It would definitely allow regulators early on to identify the build-up of risk in our system, and then appropriate action could be taken, for, if the financial crash has taught us anything, it is the need to improve the systemic oversight and sustainability of financial services.

The Bank of England, in its new role, should be given statutory guidance to create a data centre to map the risks in our system. Parliament should tell the Bank to use the best technology available to obtain full disclosure from all market participants on the risks that they are taking. I am firm in my belief that this will rest on the information and analytical capabilities available to those charged with forecasting potential crises before they hit. Parliament should instruct the banks to use these data to disclose the full extent of financial speculation in the UK’s commodities markets.

The Bill would bring about important extensions to improve such disclosure in order to make public, for the first time, the true level of risk taking. With the prices of everything from petrol to bread squeezing hard-pressed families, it is absolutely crucial that we find out what is going on in the UK’s commodities markets. Lord Turner, the head of the Financial Services Authority, endeavoured to discover what was going on when he produced a report last year, and he found that despite the fact that traders have to report daily to the FSA their positions in the Brent oil market, none of the data is disclosed to the market in the UK. Lord Turner was in the position of having to look at the disclosure of speculation in the American market to infer what was going on in the UK. Apparently, data collected by the FSA are not even disclosed within the FSA.

With petrol prices in the UK hitting all-time highs, Parliament can no longer accept this poor level of data collection. We must demand that our regulators insist on proper disclosure within our financial markets. This Bill would give them that statutory guidance. Ultimately, the Bill is an opportunity to build trust in our banks. From the bank on the high street to the oil trading screens in the City, we need better disclosure as the first step. I commend the Bill to the House.

Question put and agreed to.

Ordered,

That Chris Evans, Tom Greatrex, Geraint Davies, Mr Gareth Thomas, Luciana Berger, Alun Michael, Gavin Shuker, Mrs Louise Ellman, Gemma Doyle, Cathy Jamieson and Jonathan Reynolds present the Bill.

Chris Evans accordingly presented the Bill.

Bill read the First time; to be read a Second time on Friday 27 April 2012 and to be printed (Bill 324).