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Data Transparency (Banking)

Volume 583: debated on Thursday 3 July 2014

Motion made, and Question proposed, That this House do now adjourn.—(Claire Perry.)

The debate is starting a little earlier than expected, but I am pleased to see that all are present and correct.

The debate is about the voluntary agreement for the disclosure of bank lending data for every community in Britain, which came into effect last December and has been, on the whole, well received. Thanks are due to Members of both Houses, the British Bankers Association, Her Majesty’s Treasury and the seven participating banks and building societies—Barclays and Clydesdale and Yorkshire banks, HSBC, Lloyds Banking Group, Nationwide building society, Royal Bank of Scotland and Santander—for agreeing to work together to create a voluntary framework for the disclosure of bank lending data. I echo the words of the Minister and welcome the positive engagement of the UK’s largest lenders to make this agreement happen.

The first tranche of data was released in December 2013, the second in April 2014 and the next is due in a couple of weeks. Among the advantages of disclosure is that it clearly identifies the availability of bank lending in all communities—who the banks are reaching and who they are excluding. At the time of its announcement the Chief Secretary to the Treasury said that the agreement

“is a major step forward in terms of transparency and should encourage competition by helping smaller lenders to identify gaps in the market and allowing businesses to hold their local bank to account where they aren’t lending.”

This is an important first step, but today I will ask the Minister to go further.

For the Community Investment Coalition, the objective of the disclosure is to create clarity about which communities are well or poorly served by mainstream banking institutions and the action that is required to fill the gaps in areas that are poorly served. As a result, it is hoped that every adult household or business will eventually have access to appropriate and affordable financial products.

Bank data disclosure, as I understand it, means providing information about a range of banking activities in defined geographical areas. The data show the ways in which banks invest the money that the public deposit with them. Disclosure of lending data can also provide an opportunity to deepen understanding of market trends and refine products and services better to serve local markets. Moreover, data disclosure highlights whether the main high street lenders are concentrating the provision of credit in certain areas, leaving other areas to become credit deserts, with businesses and consumers in these areas struggling to access affordable credit.

The voluntary framework is a major step forward in terms of transparency, as the new data will allow the public to see clearly how the bank and building society sectors are serving the wider economy. Publishing data in such a detailed way will assist competition, allowing new entrants such as credit unions and community development finance institutions to identify where there is unmet demand and pursue new business in those areas.

Disclosure of lending figures will, it is hoped, clearly identify those who are effectively excluded from the banking system. That type of financial exclusion is often localised, meaning that the framework needs to disclose information on a local area basis, and hopefully in a way that is consistent with local measures of diversity and deprivation. Without that type of local area disclosure, communities are left in the dark on how their savings are being invested.

At the time of the launch in July, the Government indicated that they expected more lenders, including banks, building societies, credit unions and other types of finance providers, to sign up to the voluntary framework. What progress has been made on improving the coverage of the voluntary framework and what new lenders have been, or are being, signed up?

As part of the voluntary agreement, the British Bankers Association and the Council of Mortgage Lenders jointly publish quarterly aggregated data detailing the outstanding stock of lending that has been committed to customers in three different categories: loans and overdrafts to small and medium-sized enterprises; mortgages; and unsecured personal loans to individuals.

Each postcode sector is broken down by category to show the exact lending being made to each. Wherever possible, any figures for an individual lender that either could not be attributed to a specific sector postcode or had to be redacted for data privacy or other reasons have been added to the area totals. In a small number of instances, data privacy reasons prevent the attribution of specific amounts to certain postal areas. That means that aggregate figures might not be exactly comparable across different postal areas. Therefore, sector postcodes do not necessarily map across readily or exactly to alternative geographic classifications.

If we are to make the most of the data released by the voluntary framework, surely they must be truly comprehensive and presented consistently, making them easy to analyse. They must also include all lenders, large and small, other than possibly an exemption for the smallest providers. Only that will give a fully inclusive picture of lending in all communities.

That is borne out by the experience of the wide range of organisations that are beginning to use these data to identify gaps in the supply of lending. They include: universities and academics working on financial exclusion; local authorities and local enterprise partnerships looking to extend access to affordable credit to support economic growth; and decision makers developing effective approaches to support innovation in the supply of affordable credit and the provision of financial services to all communities and businesses. For example, Birmingham city council has already analysed its local data and is now working with partners to fill the gaps in lending, for instance by supporting the development of local credit unions and community development finance institutions.

In response to concerns regarding consistency in the format of the released data, it has been suggested that that could be overcome if the framework scheme were to be managed by an independent organisation such as the Office for National Statistics. What more can the Government do to ensure the consistency of the data disclosed in the voluntary agreement, and what consideration is being given to bringing in an independent body to manage the scheme?

The methodology used for data collection centres on the postal addresses represented by Royal Mail postcodes. The data published reflect borrowing in live postcodes and give an up-to-date picture of its geographic distribution across Great Britain. However, there are no figures provided for Northern Ireland, Jersey, Guernsey or the Isle of Man. What efforts are being made to extend the voluntary framework to include the whole of the United Kingdom, not just Great Britain? For as long as the framework remains voluntary, it is open to many financial services providers to choose not to participate. There is also the possibility that those currently participating will pull out, for whatever reason. What assurances has the Minister received on future involvement in the framework? Is consideration being given—

Motion lapsed (Standing Order No. 9(3)).

Motion made, and Question proposed, That this House do now adjourn.—(Claire Perry.)

That rather surprised me, Mr Deputy Speaker. I should have realised that when we got to 5 o’clock that announcement would have to be made.

Is consideration being given to putting the framework on a statutory basis?

It is important to take considerable care in interpreting local-level figures, as they will not necessarily be truly representative of the current picture for lending as a whole. For example, personal loan figures for participating lenders together represent fewer than 30% of the total national unsecured credit market and only an estimated 60% of all personal loans. There are no figures for larger payday lenders or for credit unions. Similarly, SME lending figures relate only to borrowing through loans and overdrafts. Other forms of finance, including business credit cards and asset-based finance, are widely used by SMEs but are not included in the data. SME loans and overdrafts for participating lenders represent about 60% of the total national market for all lending to SMEs, but this does not include community development finance institutions. The picture for the mortgage market, which includes most buy-to-let activity, as well as borrowing by home owners, is slightly better, with participating lenders together reporting on about three quarters of the national market.

Recently, following the Minister’s predecessor’s speech to the Community Development Finance Association conference in Bristol, the Community Development Foundation wrote to him outlining the additional data sets that would help to better explain which communities struggle to access affordable credit. These include the number of applications and loans in each area; the demographics of applications, including age, gender and ethnicity; and, regarding the loan itself, the interest rate and length of the loan. Greater transparency on all these issues will help to inform strategy to promote competition. What steps is the Minister taking to ensure that the data enable an accurate understanding of patterns of lending and highlights communities that struggle to access affordable credit?

Recently, in a comment on the disclosure framework, the Minister, in launching the Business Banking Insight survey said that,

“postcode lending data has highlighted the more deprived areas where larger banks are often not willing to lend and that will enable; challenger banks, smaller building societies, credit unions and community development finance institutions to move into those areas and to offer finance to those customers who are crying out for support to make their business grow”.

With that in mind, what use is the Treasury making of the data on bank lending to promote greater competition and enable smaller lenders to pursue new SME business?

We would like to see further progress and a clear Government plan to increase the amount of data released, and a strategy to fill gaps in the provision of financial services where they exist. It is crucial that the Government and regulators start to use the data to inform policy and market interventions, and we would like to understand plans and time scales for this. Has the Treasury made any request to the Financial Conduct Authority to undertake an analysis of these figures as part of its objective to “have regard” to competition and accessibility to better inform policy and decision making? Is the Treasury developing a clear Government strategy to tackle the “credit deserts” in many of our communities up and down the country?

The release of more consistent and comprehensive bank lending data has the potential to make a significant contribution to tackling financial exclusion, generating more fairness in the provision of financial services, supporting the growth of the SME sector and benefiting consumers by opening the door to a more competitive market. I commend that to the House.

I am grateful to you, Mr Deputy Speaker, and to my hon. Friend the Member for Edmonton (Mr Love) and, indeed, to the Economic Secretary for allowing me to contribute to this brief debate. The Economic Secretary is a Minister of particular intelligence and sophistication, and I hope as a result she will be sympathetic to my hon. Friend’s request for clarity on whether the Financial Conduct Authority and, behind it, the Treasury and the Bank of England are really using the data on lending patterns that are being disclosed in order to identify the credit deserts across the UK which clearly exist.

One lesson from the United States, where similar disclosure of lending data takes place, is just how important the data are in identifying where credit unions or community banks—the community development financial institutions to which my hon. Friend referred—can help to plug the gaps. If the FCA or the Bank of England look with vigour at the lessons that can be learned from the data, that might help steer the work of the credit union expansion project being undertaken by the Department for Work and Pensions and the efforts of local enterprise partnerships to support CDFIs in plugging the lending gaps.

I support my hon. Friend in all the different points he made and urge the Minister to press the FCA to undertake open and rigorous scrutiny of the data following the forthcoming second disclosure, so that we can begin to get a sense of the emerging patterns and as a result better direct our resources to drive the expansion of alternative sources of lending in the credit deserts.

First, I congratulate the hon. Member for Edmonton (Mr Love) on securing this debate and presenting his case so eloquently. He was, of course, one of my partners in crime on the Treasury Committee, during which time together we held the Government to account. Therefore, given that this is our second debate together in as many months, I am very glad that he is doing just as good a job of holding the Government to account now that I am not on the Treasury Committee. I am grateful to him for that. The other thing that he and I share is a huge enthusiasm for greater competition, greater transparency and far greater choice and diversity of financial services for businesses and customers. We have worked together on that agenda for a very long time.

Before I get on to the hon. Gentleman’s specific points, I want to highlight the many measures that the Government are taking to try to improve that competition, choice and diversity. As he will know, we are currently consulting on whether to make the large banks provide referrals to challenger banks when they do not wish to lend to a small or medium-sized business. We are already looking at legislating through the small business Bill to require banks to share credit histories with credit reference agencies so that challenger banks with permission can look at other areas for lending. We are supporting peer-to-peer funding and crowdfunding.

Last week, in our bid to support the credit union movement, and quite apart from the funding from the Department for Work and Pensions, we put out a call for evidence to look at the future of the credit union movement and what is wanted from communities and the credit unions themselves. The Government therefore have a big agenda to promote precisely the transparency and competition on which the hon. Gentleman and I have worked very hard over the past few years.

The hon. Gentleman has raised a number of specific issues, but before turning to them I would like to provide a brief reminder of how far along we are with the work on postcode lending data and why we believe it is so important. As the hon. Gentleman has pointed out, the Government secured an agreement with the major banks last July to publish lending data across nearly 10,000 postcodes. It is worth reminding hon. Members that the measure has made the British banking industry into one of the most transparent in the world.

As the hon. Gentleman well knows, improving competition in banking is a No. 1 priority for many jurisdictions, not least the UK. The publication of the data will therefore play a big role in improving competition by enabling challenger banks, smaller building societies, credit unions and CDFIs to identify and move into areas that are not currently served by the larger banks. It will also mean that our economy is better served by their offering finance to customers who are crying out for support to help their business grow. I certainly believe that the project is vital, and that it will play a key role in improving lending in areas where it is currently lacking. I am sure that he agrees with that overarching sentiment.

I turn now to the specific points made by the hon. Gentleman and the hon. Member for Harrow West (Mr Thomas). On the comments of the hon. Member for Edmonton about expanding coverage across institutions, the Government made a clear commitment during the passage of the Financial Services Bill that the data would initially involve the lending of the seven major lenders. That decision was taken because of their dominance in the market. The Government also made it very clear that we intend to discuss with interested peers and the industry exactly how the data could be extended to cover other types of institutions, including banks, building societies, credit unions and other finance providers. It is, however, important to bear in mind that the cost of such a level of disclosure, particularly for smaller institutions, might be prohibitive and might increase the costs they pass on to their customers. We therefore want to consider the matter very carefully before we act.

With regard to expanding coverage across the country, the hon. Member for Edmonton will know that the first dataset did not include lending in Northern Ireland, due to the differing banking markets and reporting requirements for Northern Ireland banks. However, I assure him that the Government will ensure that any future extension includes the main Northern Ireland banks, and I confirm that the Government, with the British Bankers Association, are discussing with the Northern Ireland banks how the agreement might be extended to them.

I am sure that the hon. Gentleman will agree that it is important that due time is given for discussions to ensure that any agreement is proportionate and that data provided will be beneficial. I am also sure that he will welcome the news that, just yesterday, the BBA published composite bank lending data for Northern Ireland businesses and households for the first time. The Northern Ireland data have been sought after for some time, and their publication has been encouraged and helped by the joint ministerial taskforce on banking and access to finance.

The hon. Gentleman suggested that the framework in question should be managed by an independent organisation, such as the Office for National Statistics, but the BBA already collects and publishes a range of comprehensive data on lending to individuals, households and businesses, so it is very well positioned to agree the necessary standards on data release and accessibility. However, as he would expect, the Government will keep the situation under review.

The reality is that data provided through the BBA are not entirely consistent. Are Ministers discussing with the banks and the BBA how to ensure consistency in the provision of data through the voluntary agreement?

Yes, the Government are keeping the matter under review, and we will discuss exactly that with the BBA.

The hon. Gentleman expressed concern that postcode lending data do not give a full picture of lending in the UK, and suggested that a wider set of lenders and products might be included. For example, he noted that SME figures represent about 60% of the national market, covering loans and overdrafts only. Other forms of finance, such as business credit cards and asset-based finance, are not included at this stage. He is therefore right that it is important for public data to be as broad as possible, but as I have mentioned, we must bear in mind that, particularly for smaller institutions, the cost of making such disclosure might be prohibitive and might increase the costs passed on to customers and businesses. It is important to see postcode data as part of a wide range of data to which the Government, banks and businesses have access, on top of data from the Bank of England, the BBA and other surveys.

Those other surveys, including the SME Finance Monitor and the new Business Banking Insight, can also be of real importance. The latter, which the Government announced in the Budget and I launched just over a month ago, is a really useful tool for UK businesses, as it lets them see which banks are in a good place to offer them the products and services they need at the right prices and will give them a decent service in their area and their particular market.

Finally, the hon. Gentleman asked what use the Government are making of the data on bank lending and whether we have a clear strategy for tackling any credit deserts in UK communities; the hon. Member for Harrow West also raised that issue. I reassure them both that the Government regularly interrogate these data as part of our wider analysis of bank lending conditions across the UK. However, the full usefulness of the data will only really be known once we have been able to identify longer-term series and trends.

At the current time, the data do not appear to show any regional imbalances, but we will continue to monitor that. As the dataset grows and trends become more readily identifiable, we plan to make increasing use of the data. We will of course take action on the issue if we think it is needed.

Will the Minister give us a little more clarity on who is analysing the trends? I ask, having asked the Financial Inclusion Centre specifically to give me a sense of the bank lending data for London; its analysis suggested that there was a wide disparity among different postcodes—potentially 50% to 300% of the average per capita lending per postcode. As my hon. Friend the Member for Edmonton mentioned, my sense was that there was a need for one particular organisation to analyse those data.

As I have said, at the current time the data do not seem to show any major regional imbalances, but my officials, the Bank of England, the BBA and the banks themselves are looking at the data. If the hon. Gentleman wants to write to me on a specific point where he believes that there may be evidence of a distinct imbalance I would be delighted to look into it and respond to him. We will continue to monitor the data and ensure that as trends become more identifiable we can make more use of the data to assess potential areas where there is a lack of banking facilities.

In conclusion—

I apologise—when the Minister said, “In conclusion,” I thought I had missed my opportunity. The Financial Conduct Authority has an objective of looking at particular areas, specifically for the purpose of researching into credit deserts. Have Treasury Ministers had any discussions with the FCA on that?

I assure the hon. Gentleman that officials meet the FCA on a regular basis, as do I. If it will make him feel better, I shall make a point of raising that issue with the FCA the next time we meet to ensure that it is looking at it carefully.

I thank the hon. Members for Edmonton and for Harrow West again for raising this important issue. As they know—the hon. Member for Edmonton certainly knows this—transparency and competition are central to the Government’s work on financial services. My interest lies very much in that area, so the hon. Member for Edmonton and I are aligned on that. Although I am sorry that I cannot give him the answers that he wants right now, because the new policy has not been in place for long and we do not have enough material as yet and because of our natural reticence to increase the costs for smaller institutions in the early days, I hope that I have reassured him that we will continue to monitor the data and look for ways to improve the service. Ultimately, I am confident that we will end up with a banking system that better serves people and businesses up and down the country.

Question put and agreed to.

House adjourned.