Thursday 12 July 2018
[Mr Peter Bone in the Chair]
Banking Sector Failures
I beg to move,
That this House has considered failures in the banking sector.
It is a privilege to serve under your chairmanship and guidance, Mr Bone, as we find ourselves gathered to discuss the banking situation. I thank the Backbench Business Committee for facilitating this debate and the hon. Member for Stirling (Stephen Kerr), for co-sponsoring it.
On 10 May, I was proud to lead a main Chamber debate, in which I raised the section 166 report and called for full redress for the victims of profound financial misconduct. Today’s motion is deliberately phrased more broadly, to enable us to reflect our constituents’ many frustrations with the banking industry. I am therefore glad that we have been given a significant amount of time to discuss this issue. There will be a diverse range of submissions from Members who wish to discuss their constituency matters.
The all-party parliamentary group on fair business banking and hon. Members from across the House recognise that work is continuing within the industry, and with UK Finance and the Financial Conduct Authority, to drive higher standards and accountability. Hard lines need to be drawn so that we can not only solve the ongoing disputes, but prevent another conduct crisis in the future. It is our firm and unwavering position that things have not changed sufficiently to prevent the abuses of power we continue to see in the financial services industry and the surrounding supporting professional sectors and service areas of law, valuation, Law of Property Act receivership and insolvency. The APPG will focus on those areas with renewed vigour in the coming months.
Hon. Members and the APPG engage regularly with UK Finance and the FCA, and we see a genuine will to drive higher standards in the industry. We look forward to continuing to work together, and we appreciate the forthright relationship we have developed. UK Finance, in particular, has shown itself to be an industry leader, and we sincerely hope it challenges the industry to be the best it can be.
I want to focus on the banking industry’s failure to support small businesses, and on the erosion of trust between such businesses and banks. Small and medium-sized enterprises are pivotal to the UK economy. The Department for Business, Energy and Industrial Strategy highlights that they constitute 99.9% of businesses operating in Britain. They bring in £1.8 trillion in annual turnover and employ just over 60% of people in the private sector. They are the lifeblood of our nation’s economy, but worryingly, the critical bond of trust between them and business banking has never been lower.
From payment protection insurance complaints to the HBOS Reading fraud and the toxic culture at the Royal Bank of Scotland’s Global Restructuring Group, the industry has systematically failed small business across the UK. I want to discuss the attitude towards small business owners, the devastating impact of past misconduct, and the future.
I have spoken to small business owners, and the foundation of the problem is often simple access to finance—a problem highlighted by bank closures. Beyond the bricks and mortar of local banks lies a bond of trust between the business owner, the financial adviser and the bank manager. Since 2015, we have lost or are due to lose banks in Prestonpans, Tranent, Gullane, North Berwick and Dunbar in East Lothian. The inhabitants of those towns have lost their connection to a local banking service. The issue disproportionately affects Scottish consumers. Between 2015 and the end of this year, 368 branches will have closed in Scotland. For the 20 million people who still rely on face-to-face banking services, that is devastating.
Ferhan Ashiq, a local entrepreneur in East Lothian, has talked about some of the provisions he has had to use since the closure. He described them as painful. He has had to make a transition to alternative banking solutions, and he does not feel that enough resources are available for business owners who still rely on cash-based operations. Like many in East Lothian, he is unimpressed by the replacement bus bank service that rolls into town twice a week. The service is not fully accessible or reliable. Indeed, the very first day it was due to go to Dunbar, it failed to attend because it broke down. That is testimony to the fact that we should perhaps not believe everything we read on the side of a bus.
The effect has been that alternative funding sources have been developed, such as crowdfunding, which my constituent uses; peer-to-peer lending, which is facilitated by the Funding Circle—a firm that has created and sustained 19 jobs in East Lothian in the past 12 months—cyber-currencies; and even local stock exchanges. If we look at the history of banking, although the technology has changed, our main banks—I will not use the phrase “high street banks”, because it is becoming something of a misnomer—have followed the same pattern. They started with peer-to-peer lending and friends chipping in. Just as protection became necessary and our banks became more structured, so the world of alternative funding needs structure to its regulation and an understanding. It is not for the banks to provide that; it is for the Government to regulate so that confidence can continue to grow and develop, and not be challenged in those new alternative sources of funding, as it has been in traditional banking.
I turn to the ongoing conduct issues and our call for a full public inquiry into the treatment of businesses under financial duress. Recently, we have seen leaked reports from RBS and HBOS. There are ongoing issues with how Clydesdale bank and Yorkshire bank aggressively mis-sold interest rate hedging products and fixed-rate loans, which contained astronomical break costs. Those loans caused widespread financial distress. Rather than supporting businesses and putting things right, the banks sold the loans on to a private equity firm, Cerebus, and washed their hands of any responsibility for the damage that was caused. The consequences of those actions are still ongoing for many people. Bankruptcies and evictions from family homes are going on as we speak.
The Treasury Committee and the FCA have said on many occasions that there is work to be done if businesses are to continue to thrive and move forward. We very much look forward to the publication of the Treasury Committee’s SME finance inquiry report. The industry recommendations in the section 166 report into RBS highlighted key issues that the APPG on fair business banking has been raising for years. The report talks about unfair contracts, with contractual terms that are there to confuse customers. The Lending Standards Board has produced principles for lending contracts, and the APPG has set up a contracts working group to ensure that bank contracts match the public promise. We welcome the involvement and participation of financial firms in that.
The section 166 report also talks about the relationship between banks and third-party providers. There are consistent conflicts of interest. For example, insolvency practitioners and surveyors are motivated to work in the interests of the bank, rather than the business. That issue has been raised a number of times in debates, and with the insolvency service, banks and BEIS.
To make it crystal clear, the same mechanisms that were used by HBOS Reading, RBS GRG and Dunbar Bank, to name just a few, have not vanished, but are still being used today. There has not been a substantive change to prevent the systematic asset-stripping that was highlighted in the Turnbull report and the section 166 report on RBS GRG. Indeed, we still see cases on a weekly basis that demonstrate that the systems are still in place.
The right hon. and hon. Members who are members of the APPG are very clear that we need a comprehensive inquiry into turnaround practices, insolvency and financial institutions. The fact that HBOS Reading and RBS GRG were able to go on for so long indicates that there is a systematic failure, and we must learn lessons. The Government produced an excellent consultation on the review of the corporate insolvency framework back in 2016, and we encourage them to continue with that reform of insolvency, which is a key priority.
In the debate on 10 May, I raised the section 166 report, and called for full redress for those who have been victims of profound financial misconduct. I do not want to go over previous ground, but I want to highlight the impact of financial misconduct on working families, businesses and individuals, and the importance of redressing those profound losses.
The release report on the RBS GRG not only underlined the toxic culture that existed but, critically, identified the systemic failures that allowed it to thrive. Banking misconduct is a broad term that will no doubt be discussed by Members today. I want to stress, however, that for business owners across the country who have lost their livelihoods, their homes and their marriages, and more often than not have suffered in their health, this is not past misconduct; this greets them every single day when they wake up and is with them when they go to bed every night to try to sleep. It haunts them. The impact of the scandal has been so profoundly damaging that people have taken the appalling decision to end their life because they cannot face any more.
What really upsets me is that the people who lead those banks seem to have no honour, no decency. Where is the banking code? Where is the way in which bankers should look after their customers? It does not seem to be present at all. That is heartbreaking.
The hon. Gentleman makes a profound contribution. Our financial system is based on trust; our friendships are based on trust. Trust is how it started, and the present conduct of individuals within banks and the present systemic conduct of banks fracture that trust. That means we have lost something, because once trust is lost it cannot be got back—trust is given by someone but not necessarily offered again. The responsibility of this House and of financial services—this is genuinely the responsibility of everyone—is to ensure that we have answers to those questions so that at last, I hope, some people and some families find some peace and closure about events that have haunted their lives.
If I may, I draw attention to the Centre for Policy Studies’ report, “Fair Business Banking for All”, which was launched last night with the APPG. I thank the hon. Member for Thirsk and Malton (Kevin Hollinrake) for authoring the report and the APPG for supporting its publication and for an excellent night. Among many things, it recommends the establishment of a financial services tribunal not dissimilar to the employment tribunal system.
I am aware that the report’s proposals to enhance the legal rights of SMEs would require primary legislation, but some steps towards it would not. One recommendation is to redefine a “private person” under the Financial Services and Markets Act 2000 (Rights of Action) Regulations 2001. A small change, the extension of the definition of a private person to cover SMEs, would allow them to take action where now they cannot do so. An extension to cover insolvent firms, many rendered insolvent by the poor conduct of banks and financial subsidiaries, would give those SMEs—and the people who are the reality behind the company—a right of action when Financial Conduct Authority rules are breached.
The last recommendation of the report is about time limits, when companies have the extra hurdle under the limitation Acts of a six or five-year period, depending on whether they are based in England and Wales, or Scotland. The limitation can frequently be overcome, but it is simply another example of how barriers are placed in the way of those who feel the greatest sense of injustice. I fully support the recommendations of the report, notably the enhancement of SME rights.
I know that the Minister is aware of and appreciates the feelings across constituencies about this matter. I ask for his comments on the following matters. Even if we are dealing with the systemic failure of our banks and banking system, we still require a full and open inquiry to understand that failure. That inquiry would benefit financial institutions, the business community and, certainly, the wider economy. More than that, it would bring transparency and light to the people who have suffered. The inquiry might start to provide closure for individuals who have for too long battled against the Lernaean hydra that is the financial industry. A public inquiry would establish the facts. It would allow the industry to learn from past events, offer reconciliation and re-establish accountability after a scandal that gripped financial institutions not only in our country but globally.
First, therefore, will the Minister support cross-Bench calls for a full public inquiry? I realise that it is a big ask and will require a considered response, but it would be a positive step if he could at least support a joint cross-departmental taskforce to identify the extent of banking failings—impact, regulatory failings, missed opportunities —to get to the root cause of the problem and its future impacts. Such groundwork would not only be important in itself but could act as a foundation for a public inquiry.
Furthermore, on 10 May, the Minister who has joined us today—I apologise for quoting him in this—said:
“I am meeting Andrew Bailey regularly, and I hope that the FCA will conclude its investigation soon, by which I mean in the next eight to 12 weeks. As I mentioned in our debate on this topic in January, I do not wish to complicate the matter further or prejudice any outcomes while the FCA is investigating, but I am very clear that I expect it to conclude its investigations in a very short timeframe.”—[Official Report, 10 May 2018; Vol. 640, c. 979.]
Today it is exactly nine weeks since that assurance. I also ask for adequate funding and expertise in the investigation of financial fraud. Part of the imbalance in power in the system comes from the reality that the expertise needed to investigate those claims is expensive and in short supply.
I fear that the banking industry has developed a worrying culture that has facilitated a breakdown in trust between that industry and business owners throughout the country. The culture is rooted in institutional misdemeanours but exacerbated by the closure of high street banks and the loss of ATMs. We need a new banking settlement to ensure that business owners in all areas of the country have access to local banking services. Those same customers must also be given an assurance that they can trust the banking hubs and, if the trust breaks down, a tribunal will act as an investigator and a way of re-establishing it.
Small businesses are the lifeblood of our economy, which needs a trustworthy banking system to support and help SMEs to prosper. The economy is at the foundation of our society, and our society demands more from its banking system, from its financial services and—in reality—from its Government. I repeat a phrase that I have used in previous debates: the victims are not going to go away.
It is a pleasure to serve under your chairmanship, Mr Bone. I thank the Backbench Business Committee for making this important debate possible.
I also thank the hon. Member for East Lothian (Martin Whitfield) for his speech, which was powerful and insightful. The questions he asked deserve good answers. I also congratulate my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) on his work in producing that valuable report. As the hon. Member for East Lothian said, this issue will not go away. A cross-party coalition of Members of Parliament will continually bring it to the fore until there is justice for those who have been so obviously wronged.
I pay tribute to our nation’s entrepreneurs, in businesses that are small, medium and large. Those entrepreneurs should be celebrated, encouraged, nurtured and, occasionally, even lionised. They are people with aspiration, ambition, ideas and entrepreneurial energy and drive. They take the calculated risks that create something, which in turn creates wealth and prosperity. They create employment, they support families and they are the true engine of our economy. To care about the future prosperity of our country is to be passionate about entrepreneurs. We should foster the energy and ambitions of our businesses.
That is why this debate matters. The one thing that we have learned from the scandals at HBOS Reading and in RBS GRG is how frighteningly easy it is for businesses, small and large, to be parted from their assets—to be taken out of their business and erased from existence. Any small technical breach of a commercial loan contract can be seized on by a bank as an excuse to foreclose on a business, even if that breach has no impact on the business’s current performance or future success. The most common rationale for this extreme measure is the allegation that the value of the property that the loan is secured on has fallen. That means that the loan-to-value covenant is breached, which gives the bank the power to appoint a Law of Property Act receiver or to put the company into administration. There are many cases of businesses that have never missed a payment but the banks have still seen fit to move in and seize the company. At that point, the owners immediately lose control of their business and can only watch helplessly from the sidelines while it is asset stripped and destroyed.
It is really upsetting to think that companies such as GRG have these robbers—they are people who are set up to try to find something that they can use to screw their customers out of their life’s work. It is so appalling I cannot believe it can happen, but it seems to happen all the time.
My hon. and gallant Friend not only says the right things but says them with the passion and angst that we all feel on our constituents’ behalf.
At the stroke of a pen, and often based on a valuation that was instructed by the bank in the first place, a director or an individual loses immediate control of their business and their assets. To that end, I would like to share with hon. Members the story of one of my constituents, to add to the many other stories that have been and no doubt will be told today. My constituent’s name is John Roseman. I can do no better than to describe him in his own words from his LinkedIn profile, which I know are accurate from having met him. He describes himself as an “entrepreneur” and he is absolutely that. He fits the bill. He has
“vast experience in International Business in the High Tech Arena of Microelectronics, Solar, Oil & Gas, Cleanroom Environments & High Purity Manufacturing.”
John had a business, Sematek UK, that he describes as a
“Clean manufacturing service company specializing in turnkey clean environments, high purity gas, chemical and water installations, Mechanical, control and electrical engineering.”
His business had a turnover of £10 million and was based in my constituency. There are not so many businesses in my constituency that turn over £10 million, but John’s business did. He had blue chip clients across the world on every continent. His business was making money—it was profitable and had good margins. He came to see me in a surgery that I held in Dunblane, with a whole set of management accounts as evidence.
The success John had made of the business that he founded in 1990 was clear and obvious. But that all changed. Suddenly, in 2011, without any notice, John had the rug pulled from under his feet. RBS said it would like security on his existing facility, but no covenant had been broken and nothing substantial had changed, except that John’s business was becoming more successful and making more money. One day, the bank appointed someone to call on his business. John thought that he had come to do an inspection on behalf of the bank. But no, this was an insolvency practitioner, whose first words to John were that his facility had been immediately withdrawn and his business put into administration by the bank. John Roseman had another company called Mov-Stor. That business was not liquidated, but RBS GRG took all its assets and sold them on. It gave him a fraction of the true worth of that business’s assets.
I spent some time with John and he gave me permission to talk about his case today. His story is just one illustration of the brutal approach of RBS GRG and other banks to small and medium-sized businesses such as John Roseman’s.
It is interesting that when we discuss entrepreneurs in this country, we frequently talk about their inability to develop from an SME into a large company. We put that down to selling the idea abroad, but actually today’s debate and the effects of the finance show that perhaps there is another reason why they are unable to do that, which has nothing to do with their ability or out-of-the-box thinking.
The hon. Gentleman speaks well to that subject. Banks should exist to provide the capital that businesses need to scale up and become bigger, albeit for their own commercial interest, but I am sorry to have to say that is not how it works in this country.
The impact of the events on John Roseman was far more than just commercial. They had a devastating effect on him, his health—as I witnessed when I met him—and family, and his employees and their families. John’s business was stolen from him, and I make no apology for using that word.
My hon. Friend is making a brilliant speech. Does he agree that the common factor in a lot of these businesses was that they had assets or that the people had personal assets? The bank chose them deliberately, but then denied year after year that GRG was a profit centre, despite the fact that the skilled persons report determined that in 2011, GRG made £1.1 billion in profit on a turnover of £1.3 billion.
There can be no doubt about the nature of GRG’s operations. To say anything other would be a deceit about the part played by GRG. I apologise for having to use such unparliamentary language to describe the operations of a business, but that is the case too often in the examples that so many Members have had brought to us.
There was no failure in John’s business or model—they were a success. His business’s products and services were in demand. His customers certainly had not deserted him. But the Royal Bank of Scotland brought him down for its own purposes. He has still to get anything like an appropriate settlement in compensation for the way he was treated. John is cut from rock and the Royal Bank of Scotland should be warned that it can try to close his case, as it has told him, but he will not give up and will not go away. He wants justice and recompense, and he should be treated with more respect than he has been so far. As his Member of Parliament, I will support him as best I can.
John’s case is only an example; there are so many others. He suffered severe trauma. His health has been affected through stress and anxiety. He has suffered heart problems; he had heart surgery the week before his daughter was married. His marriage and his friendships have suffered. He said to me:
“My wife found it especially hard having to deal with the day to day situation and our marriage suffered seriously and was lucky to survive the constant pain, anger and aggression I was going through watching our family business and assets being stolen from us.”
That is the human cost, along with the human cost to his employees, his team and their families.
I repeat that, at the stroke of a pen, directors and shareholders suddenly have no voice and no right of reply, even if they never missed a payment but honoured their obligations. It is that easy. The customer gets no warning and has no ability to appeal. That can happen whether or not the valuation on which the supposed contract breach is based is correct.
Who determines that a property’s value has fallen? It is usually a surveyor from one of the bank’s panel of firms, which depend on banks for their business. They are hardly independent. Hypothetically, if a bank had a liquidity problem and needed to raise funds quickly, all it would have to do is engineer a bogus breach of contract—the rest would be history. Sadly, many banks are commonly accused of having done exactly that in the aftermath of the financial crisis.
As we can see, it is not just the bank involved—surveyors, LPA receivers and administrators all play their part. It is therefore imperative that those practitioners and their regulators are held to account for the roles they played—and continue to play—in the destruction of British businesses.
The hon. Gentleman is being generous with his time. The fact that the contracts the banks entered into with customers were so complex and so cleverly—I use that word carefully—worded that they misled individuals about the powers the bank had over them plays into the APPG’s cry for a much simpler, more straightforward and more honest contractual relationship between banks and individual customers.
Absolutely—complexity is a weapon in the hands of the banks.
RBS has been at pains to point out that Promontory did not find any evidence of deliberate undervaluation of properties. However, Promontory also stated in its report that in many cases it could not find any evidence that a valuation was correct. In other words, they were making it up as they went along. In such a cosy relationship, the surveyors, LPA receivers, insolvency practitioners and financial institutions all hold incredible power over the borrower. They used that power—they still can —to enrich their own firms and their balance sheet positions at the expense of viable businesses. Indeed, the section 166 report specifically refers to their searching out “opportunities” to default.
Insolvency was seen as an opportunity to get rid of troublesome complaints, as the voice of the individual businessperson is wiped out, and avenues for complaint or redress blocked, at the point of receivership or administration. In our last debate about this issue, which was in the main Chamber, I mentioned another method that some banks—Clydesdale, for example—have used to wipe out swathes of troublesome or just unwanted business customers: selling their loans on and letting a shady vulture fund, such as Cerberus, do the dirty demolition job for them.
We start with a situation where businesses have no effective protection against being badly treated by banks and their associates. Added to that, there is no real disincentive for banks and their associates to behave badly and even criminally towards those businesses, and nothing to stop the same banks and associates simply pulling the plug on them and hoovering up their assets to distribute among themselves. Businesspeople have nowhere—nowhere within their financial means, at any rate—to take their complaints about poor treatment that gives them a realistic chance of resolving their problems before their businesses and lives are consumed by them, or of receiving satisfactory compensation where they have suffered substantial loss or damage. On top of that, we repeatedly fail to take allegations of mistreatment and fraud seriously, and we refuse again and again to investigate and clamp down on bad and even criminal behaviour. Even on the rare occasions when we eventually investigate and prosecute, as in the case of HBOS Reading, we go after the foot soldiers, not the generals. It is not hard to see how that awful recipe of things combined to cause thousands of businesses to be devastated, their owners’ lives to be shattered and many jobs to be lost.
If we repeatedly fail to take allegations of mistreatment and fraud seriously, and we refuse again and again to investigate and clamp down on bad and criminal behaviour, there is no reason why such actions should ever stop occurring. I reinforce and second the questions the hon. Member for East Lothian asked, and I say to the Minister: please, for the sake of UK plc and the many businesses devastated by the issues I have tried to describe, let us take clear action to ensure that justice is served.
This is the third or fourth debate in which I have spoken in support of people running SMEs who have been utterly shafted—that is not too strong a word—by some banks. It is clear that quite a few SMEs are being denied justice in their many financial services disputes. I am amazed that that has not been fixed by now.
I have spoken up for my constituent Dean D’Eye and his family and friends, who have been terrorised by insolvency professionals working for the Global Restructuring Group and Dunbar bank. Mr D’Eye had his life’s work taken away from him. He had a development company in south London with a value of £140 million, as well as a thriving youth hostel business that employed more than 100 people. He was robbed of them by banks working like pirates. It is simply appalling that they have been allowed to get away with it.
I will not repeat the D’Eye family’s experience, which is already on the record, but it is instrumental in guiding the way I look at this issue. How can it be that our entrepreneurs are so badly served by some banks? There should be a healthy, supportive relationship between them, but sometimes that loyalty goes only one way. Some banks—not all of them—extort their SME customers in an incredibly predatory way. Some clearly have no humanity, no understanding and no common decency.
In the end, SMEs sometimes must take legal action against banks. Of course, they cannot match the legal armies banks put into the field against them. They simply do not have the resources, particularly as those very same banks have so often raided their accounts and taken moneys without their leave. We have a good—perhaps a great—justice system, but far too often SMEs simply do not have the money to access it.
I have read, and completely support and endorse the report by the co-chair of the all-party group on fair business banking, my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake). As suggested in the Hollinrake report—I do not think I am breaking the rules by calling it that—it is right and proper to extend to SMEs the right to take action under section 138D of the Financial Services and Markets Act 2000.
As many people present realise, the only way for an SME to get independent resolution of a financial dispute is to complain to the Financial Ombudsman Service or seek legal redress. However, the Financial Ombudsman Service’s powers for SMEs are small and, as I have explained, taking a legal route can be extremely costly. In truth, the Financial Ombudsman Service is not set up to deal with SMEs. The system needs to be revisited and adapted so that it can deal with them.
There is also a gap right now between the Financial Ombudsman Service and the courts that needs to be sorted out. One way to do that, as the hon. Member for East Lothian (Martin Whitfield) mentioned, would be to establish a new financial services tribunal specifically to help protect and guide SMEs. That is also recommended in the Hollinrake report. I totally support that idea, as I think everyone in the Chamber does.
Just to confirm, there is discussion about extending the authority and powers of the Financial Ombudsman Service, but even then 30,000 SMEs would still fall outside of it. A tribunal would even out the battleground between them and the banks.
How long would it take to sort out 30,000 SMEs?
We are all clear about the importance of a thriving SME sector, run by entrepreneurs with leadership, drive and determination. Almost everyone who has spoken has mentioned it, and we all agree. It is up to us, as legislators, to ensure that such people—the lifeblood of the prosperity of our nation—are fully supported by a banking infrastructure designed to help them, not screw them. In far too many instances that does not happen, and it is utterly disgraceful. It must be sorted out. Please, God, can Parliament sort it out?
I have the utmost respect and regard for the Minister, who is an incredibly good friend. I hope he can get his officials cracking to sort out this matter with immediate effect, because it is a bloody national disgrace.
It is a pleasure to serve under your chairmanship, Mr Bone. I thank my hon. Friend the Member for Beckenham (Bob Stewart) for his kind words. Although it is nice to have a report with my name on the front, it was written with co-operation and contributions from many people in the all-party group and outside it. It is wonderful to be associated with such an effective group, which has been one of the key bodies responsible for today’s debate. We would not be here without the all-party group. I have been associated with it for only a few short months, so I pay tribute to the many people who came before me. I thank the hon. Member for East Lothian (Martin Whitfield) and my hon. Friend the Member for Stirling (Stephen Kerr) for sponsoring today’s debate and for their superb contributions, which set out clearly the banking failures and abuses.
I have been lucky to have had the opportunity to start and build a business over 25 years, starting from small beginnings and building it into a large national organisation. I could not have done that without the support of banks, who in the main provide a good, vital service to businesspeople across the UK.
Businesses will often try to bend or break the rules—it is part of the entrepreneur’s DNA. Sometimes that can have a positive effect: creative destruction that finds new, more effective and cheaper ways of doing things that benefit consumers. Rule breakers such as Uber and Amazon present constant challenges to rule makers as regulations have to play catch-up to deal with new and better ways of working. However, sometimes breaking the rules can be very bad, particularly when they are broken so badly and with such immorality by those within an effective UK banking oligopoly of banks that are too big to fail, too big to sue and apparently too big to regulate.
In the last 10 years, particularly at Lloyds-HBOS and RBS, we have witnessed the most disgraceful, shameful episode in British banking’s 500-year history. Despite persistent and strenuous denials, those banks broke the rules to such an extent that they have been found guilty respectively of fraud and systematic mistreatment of their own business customers, which has led to the destruction of thousands of jobs, businesses and lives. In business, business is one’s life—it is not just about money. Those banks not only denied wrongdoing but used all the money, influence and power at their disposal to shut down and discredit anyone who tried to draw attention to their malpractice.
In 2013, Yorkshire businessman Lawrence Tomlinson, then the entrepreneur in residence at the Department for Business, Innovation and Skills, was the first to discover and report on the abuses of thousands of SMEs at RBS and its notorious restructuring division, GRG. Incredibly, its response to his report was to withdraw banking facilities to his extensive business empire—he was an RBS customer—putting thousands of jobs at his enterprises at risk. It even tried to convince its Coutts subsidiary to withdraw the mortgage on his home.
It is individuals such as Mr Tomlinson, Paul and Nikki Turner—they are in the Public Gallery—and my constituents, the Welsbys, as well as journalists and those involved in the all-party group, who have brought abuses to light, not our regulator. Why should it be down to individuals to hold these people to account? We are also grateful to some eminent people in the legal world, including the former Master of the Rolls, Lord Dyson, and barristers Richard Samuel and Jeff Golden, for their support in drafting the report, which gives it so much credibility.
Two months after the Tomlinson review, the banking regulator, the Financial Conduct Authority, commissioned a full “skilled persons” report, which was completed in September 2016. It decided not to publish the report, at least in part—according to leaked minutes of the board meeting—because of concerns that it might be taken to court by RBS. Instead, 12 months later, it published a summary of the report, which inexplicably reversed the principal emphasis from demonstrating “widespread inappropriate treatment” to
“isolated examples of poor practice.”
How can that be?
Power corrupts, and absolute power corrupts absolutely. With 90% of our business lending under the control of our big four banks, it is vital that our regulators hold this oligarchy to account. Yet, despite the banks’ chequered history of deception and denial, they are still allowed by the FCA to carry out their own internal compensation schemes and inquiries. There is little sign of action from the regulators or our fraud or crime agencies. Our regulators should be fearless protectors of banking customers and consumers, but actually they appear to be defenders of the banking faithful.
There was an interesting conversation at our launch last night. One of our officers spoke to one of the senior executives at Lloyds about our work—we are determined to call a spade a spade—who said, “Well, our good will towards you is wearing a little thin.” Our regulators, our Members of Parliament and our Ministers do not require Lloyds-HBOS’s good will to hold it to account.
The “Project Lord Turnbull” report, which the APPG published recently, makes serious allegations of fraud and cover-up against senior directors of Lloyds and HBOS. Those allegations must be investigated. I will name those people again: Andy Hornby, the chief executive; Sir Dennis Stevenson, the former chairman; James Crosby; Peter Cummings; Sir Ron Garrick; Mike Ellis; Peter Hickman; Hugh McMillan; Stewart Livingston; Ian Goodchild; Steven Clark; Andrew Scott and Tom Angus.
Those people must be questioned and investigated, as must those connected with those crimes, such as Rory McAlpine, the solicitor for the board of HBOS and then for the board of Lloyds Banking Group, who was repeatedly sent evidence of the fraud by Paul and Nikki Turner, and even confirmed to the Turners in writing that if their allegations were confirmed, that would amount to criminal conduct. He attended, I believe, six of the Turners’ 22 eviction hearings in the Cambridge county court—an odd venue, one might think, for the deputy chairman of one of the UK’s largest law firms. His comments in the Turnbull report show a surprising level of antagonism toward the Turners and also, potentially, a surprising disregard for the law.
There are also individuals such as David Crawshaw of KPMG, who was the reliable insolvency practitioner to Lynden Scourfield, one of the people found guilty of the HBOS fraud. These people must be investigated—
Order. I am sorry to interrupt the hon. Member when he is speaking, but I want to be assured that none of the cases he is discussing is live. They are not sub judice, are they?
Mr Bone, you make a fair point, but the report is in public circulation and has been for some time; this is nothing that you cannot read in public record on the internet.
The skilled persons report into RBS/GRG clearly refers to the abuses resulting from the priorities GRG pursued. That can only mean those in senior executive roles within that organisation: Derek Sach, Chris Sullivan and Nathan Bostock. To go back to your point, Mr Bone, I hope they are live cases and these people are being investigated, but the lack of evidence of any interrogation of these facts is the thing that most concerns us. The victims of the abuses must be questioned, at the very least, by our authorities, and if evidence of guilt can be established, prosecutions must follow. To our knowledge, no such questioning of victims has taken place. We need justice for the individuals who have been wronged, but we also need justice to ensure that those who are ultimately responsible are held to account.
Our major banks are so large and complex that I am sceptical that we will ever be able to regulate them effectively. As well as trying to stop these abuses from happening, therefore, we need a mechanism that offers redress to those abused when they do. The proposed solution of expanding the Financial Ombudsman Scheme is welcome, but will still leave many without access to justice. The FOS is an alternative dispute resolution mechanism; it cannot compel the release of evidence or attendance of witnesses, and judgments are made in private, so the guilty avoid scrutiny. The primary dispute resolution mechanism is the court, but who can afford to sue a bank?
The simple solution that we propose is to establish a financial services tribunal, as detailed by hon. Members on either side of the House, which would emulate the operation of employment tribunals so that the plaintiff does not have to stand the cost of the defendant’s legal fees even if they lose. If we give businesspeople confidence that they will be treated fairly if things go wrong, we can not only provide justice to those who have been wronged, but reverse the five-year decline in confidence and new borrowing from our banks and, crucially, deliver a timely boost to the UK economy.
It is a pleasure to serve under your chairmanship, Mr Bone. I congratulate the hon. Member for East Lothian (Martin Whitfield) and the hon. Member for Stirling (Stephen Kerr) on securing this important debate. I am delighted to speak for the Scottish National party and I share almost all the concerns that have been raised so far. I say almost, because I have a few more direct criticisms of the UK Government and what they could have done and should do in the future, but I will come to those in due course.
What I think we would find in common among those who have looked into the practices of the rogue banking sector is the palpable anger about the treatment of people who have found themselves in grossly unfair situations. The hon. Member for East Lothian started off by talking about the drive for high standards in the industry; there is a drive among some people who are committed to achieving that, but that drive must be reflected among those in positions of power. He pointed out the absolute failure to support small businesses, particularly given the percentage—99.9%—of businesses and £1.8 trillion figure that he outlined. I do not think it is often explained to a wider audience just how big and important the sector is, and it is vital across the nations of the UK.
The hon. Gentleman also made the point that trust in the banking sector has never been lower, and unfortunately I think that is the case. I say unfortunately, because I want to talk about the good parts of banking later on, but he is absolutely right. There is such a wide range of factors involved in the situation, and of course in the Scottish context the issue is quite disproportionate. I agree with his comment on that.
We are talking of trust. We are talking of despair—utter despair—in people. The despair with the banking sector is so great that that despair will be translated towards politicians unless we sort this out and help entrepreneurs. They have a right to expect us, as politicians, to sort this. Where else can they go but to us?
In typical, passionate fashion, the hon. Gentleman makes a strong point. He is right that more politicians should be angry about this, and not just the hon. Members in this room or in the debates we have had recently in the Chamber. This is a critical matter that many more hon. Members should be focused on and concerned about. The hon. Member for East Lothian talked about the Government’s role, and I will come on to agree with some of the things he said and add my own comments. The disgrace of the Global Restructuring Group, which has been well rehearsed many times, is a vicious application of sharp practice by the GRG—although there were others, of course, and it was not alone in that.
The hon. Gentleman talked eloquently about the lost businesses, marriages and homes, and the people who have been stripped of their dignity and, in some cases, even pushed toward suicide. He made some positive proposals for the legal rights of SMEs, which were repeated by other hon. Members. He also said, tellingly—this is important for people—that the victims are not going away. This is not going to disappear just because the banks want it to; it will continue to be brought up.
The hon. Member for Stirling talked about entrepreneurs, and he is right. Entrepreneurs are important around the nations of the UK as those who take the risks—that is what it means. Anybody who has been in business knows that entrepreneurs often have to take risks that go beyond the norm, putting houses and property on the line, and in certain circumstances putting their family on the line—as we have heard in the context of the unfortunate outcomes—to take opportunities in business. He talked about fostering energy and ambition, which is exactly what banking should do. In some cases it does, and I will come back to some of that later, but I agree that it has proved to be frighteningly easy to erase businesses through technical breaches. That has been one of the biggest complaints.
The hon. Gentleman highlighted the sneaky practice of banks using insolvency practitioners to do their dirty work. He spoke about RBS GRG’s asset stripping and loading up on the profits from that, as well as its brutal application by RBS and other banks. We can all pinpoint a constituent who has been hammered by these things, and the hon. Gentleman spoke eloquently about his constituent John’s business being stolen from him. A common theme from all the contributions was the health effects on such people, including stress, anxiety and even heart problems, with families being almost torn apart. Similar to the line about victims not going away—I mean that in a positive way—he talked about the human cost, and he asked the Minister directly for clear action to ensure that justice is served. I will come back with some asks for the Minister as well.
The hon. Member for Beckenham (Bob Stewart) spoke passionately, and rightly so. I do not say that in a glib way; he is right to be passionate and outspoken. He talked about people being terrorised by GRG and Dunbar Bank, about people’s lives’ work being taken away from them and the fact that there is one-way loyalty. Isn’t that true? In all of the cases we have heard about, that has been the situation—it has been a one-way street. Some of the banks have been predatory; there is no other way to put it.
The hon. Gentleman also talked about small and medium-sized enterprises being unable to match the legal armies of the banks. That is vital, because after the banks carried out this sharp practice—we do not know, but some may still be doing some of this without it coming to light—there was no real recourse. People do not have the ability to tackle it. By the nature of the problem, they do not have the money to access the rights for action. He pointed out that the Financial Ombudsman Service, as it sits, is not fit for purpose for SMEs. The hon. Gentleman said that small business is the life and blood of his nation, and I think that is even more acute in Scotland, where small businesses are even more central to the economy, as was mentioned.
I pay tribute to the hon. Member for Thirsk and Malton (Kevin Hollinrake) for his work. He made a point that I want to stress: banks provide vital services for businesses. When we criticise the people working in the banks, we talk about a fairly small number of key decision makers. We must appreciate that an army of people work in the banks who are good, hard-working, dedicated and honest people of great integrity who help people in their communities and in the wider business sector. I know that there is agreement around the room on that, but it is important to underline it.
As I said, banks provide vital services. When banks operate in the way they should, it is fantastic. When they operate in the ways we have seen, particularly with some of the decisions made at a corporate level over the past few years, it is absolutely destructive and no good at all.
The hon. Gentleman makes an excellent point about people working in those banks who have integrity. Through our work on the all-party parliamentary group, we met people at a senior level who were appalled at what happened within GRG. The second phase of the FCA investigation should now take place, to name individuals and find out was ultimately responsible. However, it is not apparent that a thorough investigation and questioning of such people, who could provide evidence on exactly what happened, is taking place. It needs be shown that it is.
The hon. Gentleman has highlighted that fact, and I think we all agree with him.
The other comments made by the hon. Member for Thirsk and Malton are worthy of highlighting. He talked about the banks being too big to fail, sue or regulate; well, isn’t that the case? We have seen that over recent years. He talked about how reports can suddenly change from saying that there are widespread problems to there being only isolated examples. How come? He also talked about the FCA allowing banks to undertake internal inquiries and compensation schemes, which, again, seems completely incompatible with its role. The hon. Gentleman also said that regulators should be fearless defenders, not complicit in allowing these practices to happen. I thank him for his comments.
I take the opportunity to pay tribute to my immediate predecessor, who worked with the APPG on the forerunner to this report. I am sure that this is the case, but does the Scottish National party agree on the need for a financial transactions tribunal along the lines of employment tribunals, which carry so much public confidence?
There is a need to tackle that. I will come on to exactly what my party proposes, which I think the hon. Gentleman will find favour with.
I do not want to lose the words of the hon. Member for Thirsk and Malton, who said—this is not a direct quote; I hope he will forgive me—that Ministers do not require the goodwill of the banks to hold them to account. That is important. Finally, he talked about the major banks being so large and complex that it seems impossible to rein them in. He mentioned a solution being a financial services tribunal, so that plaintiffs do not face a cost, win or lose. We have to consider that.
I understand that there is a bit of time left, so if it finds favour with hon. Members I will make a few more comments. I wanted to talk about all these issues, but I will start with the impact of some of the decisions made by the banks on local communities. People in rural areas have been hit by the closure of their banking services. My constituency alone has seen branches close in Inverness, Nairn, Aviemore and Grantown-on-Spey.
I was sent an appeal by the Badenoch and Strathspey Disability Access Panel. Its members felt so strongly that they got together to send their concerns. They wanted to communicate their concerns to Members about the adverse impact of bank closures on rural communities generally, and on the disabled members of those communities. They said:
“Recently the Royal Bank has closed its branches in Aviemore and Grantown, and the Bank of Scotland has closed its branch in Kingussie.”
For those unfamiliar with the geography of my constituency, those are quite disparate communities. Closing the branch in Grantown means that somebody wanting to access RBS services now has a round trip of more than an hour—in good weather—to Inverness to do so. They also say:
“Like the community in general, disabled people are very dissatisfied by the use of Mobile Banks, which offer only limited facilities for a few hours in the week. This causes problems of privacy, queuing (whatever the weather) and security, e.g. sums of money can build up between the visits of the bank and people are rightly worried about the safe keeping of them.”
They are worried about being seen in open queues are they go to mobile banks with piles of cash on them. Cash businesses often have to operate in rural economies. They also say:
“Disabled people have particular worries. The banks claim that Internet banking is a viable alternative, but many disabled people have no access to the internet. Furthermore, they find the option of having to undertake a return journey of between 20 and 30 miles (or more) to visit a proper bank distressing, because it either means depending on someone for transport or trying to use public transport, which is far from frequent in a rural community and which can be challenging to access for a person with a disability.
Finally, the banks have failed in their duty of keeping customers informed. How accessible are the sites chosen for the vans, how accessible is entry into the van, what facilities for the disabled are available in the van, e.g. for deaf or visually impaired people, and how well trained are the staff in dealing with the needs of disabled people? It may be that the banks have made adequate provision, but there has been no attempt to communicate this to disabled customers, who may be deterred from making use of the mobile bank. Incidentally, there has been an occasion when the mobile bank did not appear because of mechanical failure, but there was no system in place for the public to know what was happening.”
They were waiting in the cold for something that would turn up, without communication.
The disability access panel said of one customer that she uses a stick and walking from her house to the bank is a “big undertaking”. No seats are provided for people who are waiting,
“so she had to stand outside, which was difficult. The steps were very high—they did help her up the stairs but she doesn’t think she could do this every week. She asked for bank statements and was told they couldn’t do it…she would have to go to Inverness.”
They could only offer her the balance, just like at an ATM. The panel continues:
“She gave them feedback but they only noted it down on a bit of paper, she didn’t feel they took her complaint seriously.”
All I have had from RBS in response is that it has forwarded some information about the current situation. It is looking for a coach builder; it has not found one yet, but in the short term it is using a system called MyHailo, so customers will have a fob that they can press to get a member of staff from the van to come out. That answers very few of the criticisms that were made.
It is a disgrace that, despite being a 70% shareholder in the bank, the Government have failed to use their influence to represent Scottish communities and reverse devastating branch closures. The public bailed out the Royal Bank of Scotland; it cannot repay communities by simply abandoning them. It is a dereliction of duty that the UK Government did not make stronger representations to RBS about the impact that the closures will have on communities across Scotland and the other nations of the UK as they roll out. RBS branch closures have a devastating impact on Scottish communities, particularly, as I have said, in isolated rural areas. RBS has underestimated how much people reply on traditional in-branch banking services.
I wish to support what the hon. Gentleman has just said and add to it. The Royal Bank of Scotland and others who are party to the process of bank branch closures have underestimated the anger that those closures have caused in communities in my constituency and throughout Scotland. That anger towards the Royal Bank of Scotland is not going away. Real reputational and brand damage has been done to what was otherwise a great—a grand—Scottish institution.
The hon. Gentleman and I normally disagree on just about everything. Very occasionally, we find points of agreement, and it is impossible to disagree on this issue. There is palpable anger. I talked about the comment by the hon. Member for East Lothian about the failure of trust in the bank. That is at grassroots level. It is right inside the communities. How daft is it to have trust in the bank demolished at the very top level and right at the grassroots? It is just crazy behaviour; it is also harmful behaviour. It is clear to me that some people are just looking for a very short-term gain, so I thank the hon. Gentleman for his intervention.
There is more I could say on the rural issue, and there is a lot more that people would say, but I want to get on to the treatment meted out by RBS’s Global Restructuring Group to SMEs in the aftermath of the financial crisis.
I think that the hon. Gentleman and I will find that we can agree on a number of things this afternoon, and for that reason alone, this debate is noteworthy. He mentions the short-term gain that the Royal Bank of Scotland feels that it is making through the branch closures, but the amounts of money involved are minuscule in the context of the bank’s operations, and the damage that the closures are causing, if that were to be quantified—I am sure that it would have to be somehow—would be far greater than a few million pounds. The Royal Bank of Scotland must accept that it has a social responsibility that goes beyond mere pounds, shillings and pence.
This is becoming a habit, but I completely agree with the hon. Gentleman. I have cut my notes a wee bit shorter, but the point I was going to make was exactly that: the sell-off of assets does not make any financial sense in the longer term. If we believe that the vans are going to stay—that requires a stretch of the imagination—they still have to employ people and incur costs. When we hear figures of x million pounds, that sounds like a lot of money to some people, and in some contexts it is a lot of money, but in terms of the scale of the bank, it is a tiny drop in the ocean, so again, I agree with the hon. Gentleman.
As I said, I will turn to the treatment meted out by RBS’s Global Restructuring Group. In the aftermath of the financial crisis, it behaved in a completely unacceptable and disgraceful manner. I concur with hon. Members that it is also a disgrace that the UK authorities have failed to intervene. Following the credit crunch, GRG took control of 16,000 SME customers with £65 billion of assets in Project Dash for Cash. Following allegations of malfeasance, GRG was reportedly disbanded in August 2014. More than 12,000 companies were pushed into the bank’s controversial “turnaround” division; and between 2007 and 2012, the value of loans to customers in GRG increased fivefold to more than £65 billion. With the threat of foreclosure of loans, the banks seized control of customer assets cheaply from businesses that they claimed were failing even though they had not defaulted on any loan repayments.
When we state the situation as simply as that, we wonder how it can be the case, yet as we have heard, time and again it was. We have said this before in the main Chamber and other debates, but it is absolutely shocking that bank managers were able to increase their bonuses by identifying customers who could be squeezed in what RBS itself, in a 2008 email, called “Project Dash for Cash”. The leaked document disclosed that the taxpayers’ bank ran down businesses as part of a premeditated strategy to cut lending and bolster profits. People should be in jail for doing that.
RBS is not alone in being embroiled in this scandal. Several other banks, including Clydesdale, were caught in similar scandals.
The hon. Gentleman makes a very good point about the financial interest and financial benefit that some of the executives saw. He may be aware that Nathan Bostock, who was one of the senior executives at GRG and is now at Santander, where I understand he earns £4.6 million a year, is still getting a bonus from RBS—in terms of deferred bonuses—of £1.8 million this year. Despite what has happened at GRG and the fact that it came about as a result of the priorities of the management, that person still earns millions of pounds in the financial services industry.
That was a stunning intervention. This is not just about people getting away with it; it is about people being rewarded for it and continuing to be rewarded for it. In any other place, this would be a great national scandal, of huge proportions. The fact that not so many people know about it is still a real problem for the way we are operating across the nations of the UK.
As I said, RBS was not alone. Clydesdale bank was caught in similar scandals. National Australia bank, former parent to the Clydesdale and Yorkshire banks, will be forced to cover £406 million of PPI provision, under a divestment agreement. NAB was forced to save £1.7 billion for UK banking sector costs. Nearly 70,000 small firms, 8,372 of them Clydesdale Bank customers, took out what were called tailored business loans, which means that they are not eligible for compensation.
The Tomlinson report had already shown the damming practices conducted by GRG, saying that it
“artificially distresses an otherwise viable business”.
The report stated:
“Once in this part of the bank, the business is trapped with no ability to move or opportunity to trade out of the position—they are forced to stand by and watch an otherwise successful business be sunk by the decisions of the bank.”
We have heard testimony on that from other hon. Members around the Chamber.
I could say a lot more; I have a lot more to say, but I am wary of my voice dragging on through the debate. I have considerably more to input, but I will move on to the Scottish National party’s point of view. We demand that the UK Government create a permanent commercial financial dispute resolution platform to alleviate the situation for victims of mis-selling. We believe, as other hon. Members do, that the current system of commercial dealings with the regulator and litigation processes around mis-selling is, to say the least, inadequate. It is vital that every victim of mis-selling is given fair and equal access to justice.
We believe that asking the victims of mis-selling to take on the banks in court is not only immoral, but financially unworkable. The independent review process has been accused, as we have heard, of lacking in checks and balances. The role of the independent reviewer was to oversee cases, to ensure they are fair. Customers criticised the process, however, for the unaccountability of the reviewer, who would often fail to disclose the information that had been provided to them by the banks.
We call on the FCA and the UK Government to do all in their power to ensure that businesses, particularly small businesses, are informed about what they could be asked to sign up to and, critically, the consequences of doing so. It is time—the Minister has heard this from around the Chamber—for the UK Government and the FCA to step up to the plate to ensure that businesses get fair treatment and access to affordable justice.
The compensation scheme set up by RBS is simply not good enough. Given that many of the complaints were that sound businesses were being ruined, many company owners were also looking for compensation for consequential loss, rather than simply the fees they paid, which put them out of business. There is a separate consequential loss complaint scheme. By its nature, it is more complex and the calculation of loss is far more difficult. There are still questions, however, about the effectiveness of an ad hoc voluntary company compensation scheme.
We look to the UK Government to pick up where the FCA has failed and produce a comprehensive review into banking culture to ensure that history does not repeat itself for those customers. The SNP condemns the FCA’s decision to scrap its review on banking culture barely months after it was announced in 2015. It is vital that the Government take the necessary steps to ensure that the banking culture does not slip into pre-financial crash habits.
We fervently opposed the UK Government’s decision to scrap the reverse burden of proof, which had been recommended by the Parliamentary Commission on Banking Standards, and call for it to be reinstated in legislation.
There are many other points I could make, but I want to draw my remarks to a conclusion so that others can speak. I want to underline the key points I have made. It is a disgrace that the UK Government have failed to use their influence from their 70% stake in RBS to represent Scottish communities and reverse the devastating branch closure programme. The Royal Bank of Scotland has failed to consult adequately on closing Scottish branches, with no clarity on the required performance of the 10 given a reprieve, which seem to be set up to fail. The treatment displayed by the Royal Bank of Scotland’s Global Restructuring Group to SMEs in the aftermath of the financial crisis was completely unacceptable. It is a disgrace that the UK authorities have failed to intervene.
The Government must now create a new, permanent commercial financial dispute resolution platform, to alleviate the suffering of victims of mis-selling. The UK Government must pick up where the FCA has failed and produce a comprehensive review into banking culture to ensure that history does not repeat itself. I add, as a parting shot, that leaving the European single market will also be disastrous for the financial services industry.
It is a pleasure to serve under your chairmanship, Mr Bone. I thank my hon. Friend the Member for East Lothian (Martin Whitfield) and the hon. Member for Stirling (Stephen Kerr) for bringing this important matter for us to debate, discuss and tease out. I thank the hon. Member for Beckenham (Bob Stewart) and the hon. Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry) for their comments. I thank, of course, the hon. Member for Thirsk and Malton (Kevin Hollinrake), whose report set a good scene for us.
I want to briefly quote from that report. I know we do not have as much time as we would have, if the hon. Member for Inverness, Nairn, Badenoch and Strathspey had not taken up so much time, but I am not criticising that.
Order. That is not quite right. I think we have until 4.30 pm, so do not cut your remarks short because of that.
Okay. Thank you, Mr Bone. The report states:
“In the wake of the financial crisis, the banking sector’s reputation has suffered from a number of disturbing scandals, many of which have had a catastrophic effect on thousands of individual lives and livelihoods. They have also damaged confidence, resulting in reduced demand for business borrowing and, consequently, a slowing of economic growth.”
That encapsulates not just the context of those affected, but the broader sense of the economy.
This is not about bashing bankers. Other hon. Members have noted that many thousands of people work in the banking sector whose hands are clean regarding this. Let us not—we have not—go down the path of blaming everybody in the banking sector. My constituency has a large banking sector. Santander has a centre there with about 2,000 people. We all appreciate that it is not everybody in the banking sector.
It is about the morale of people who work for companies such as RBS. How could all those decent people, who are working really hard, want to be associated with these bloody criminals? They do not! It is really bad for their morale.
I think the hon. Gentleman should tell it as it is and stop holding back on these matters. Clearly, there is something rotten in the state of Denmark. The banking system appears, at times, to have fallen under the worst instincts of greed, instinct and, in some cases, a predatory capitalism, which others have alluded to.
This year marks the tenth anniversary of the Government bailing out the banks at the height of the financial crisis. In October 2008, the then Chancellor, Alistair Darling, announced £17 billion and, subsequently, £20 billion-worth of recapitalisation funds for Lloyds and RBS respectively. At the height of the crisis, taxpayers—everybody here and people in the Public Gallery—paid out of their own pockets, in one fashion or another, to the tune of £1.5 trillion. That is an awful lot of cash to come out of people’s pockets.
It is worth remembering that it was the ineptitude, at least, of certain bankers and the greed of others—not, I must say, a Labour Government—that trashed the global economy, leading to the UK financial sector receiving the largest taxpayer-funded bailout in history. That narrative has given many people a “Get out of jail” card. Blaming the last Labour Government is not helpful, because it takes attention away from the real culprits.
The taxpayers who funded the bailout of RBS and Lloyds have since found themselves rewarded by the Government, with the deepest cuts to public services. That has to be said, because it is a consequence of the banking crisis, too. There are consequences for individual businesses, for small and medium enterprises, but there are also consequences of that greed that we all—in one fashion or another, whether it is our brothers, sisters or parents—suffered. Let us not forget that, nor self-flagellate on this matter.
I have to tell the Minister, it is an inconvenient truth that the Chancellor has sold off taxpayers’ shares in Lloyds and part of our shares in RBS. According to the National Audit Office, the Government sold shares in Lloyds at a loss of £5.9 billion. The recent sale of 925 million shares in RBS left taxpayers with a £2.1 billion loss. That is a total of £8 billion taken out of the pockets of taxpayers and of small and medium enterprises. That money could have been used for compensation and redress. That is the fact of the matter. We should not be selling these things off when people are already queuing up to get back some of the money that was inappropriately taken from them; that is the context.
I turn now to the failures of the banking sector since the financial crisis. Several Members used their speeches to express concerns, for example about the number of banks closing in the high street, and those closures are happening despite the Government introducing the access to banking protocol to prevent closures. This issue about trust and confidence continues; we must have trust and confidence in our banks.
In 2015, the four big banks made £11 billion in profits from high street banking. It is clear that they are in a position to provide these vital services and curtail closures, which are contributing further to the decline of our high streets and leaving communities all over the country financially excluded. We were there for the banks when they messed up and they must be here for us in our communities now. We helped them and they have got to help us and our communities.
The next Labour Government are committed to ensuring that banks provide the financial infrastructure that businesses and communities need, and we will replace the access to banking protocol with alternative legal requirements. My hon. Friend the Member for East Lothian referred to those alternative legal requirements and he also raised the issue, as did others, of the Global Restructuring Group. It is worth my making a comment on that issue, too.
Apparently—indeed, evidently—the GRG was originally set up to support businesses that were in trouble and bring them back to financial health; apparently that was its original raison d’être. And where that was not possible, the GRG would manage the cessation of a business to protect the bank’s interests. There is nothing wrong with protecting the interests of a bank, if it is done reasonably, fairly and through the proper channels, and not with a predatory approach. However, thousands of small and medium businesses, many of which had been viable in the medium or long term, were put into the GRG and little attempt was made to help them. That has become apparent and these banks have got to recognise that that was the case.
I think the Tomlinson report has been referred to already today. It examined numerous cases of businesses consigned to the GRG and found very few examples of a business entering the GRG and then moving back out and into local management. It was a one-way street; it was a cul-de-sac for those businesses.
The Tomlinson report recorded strong evidence of RBS extracting
“maximum revenue from the business, beyond what can be considered reasonable and to such an extent that it is the key contributing factor to the business’ financial deterioration.”
So, the people who it was thought would help a business did not just fail to help it; they actually gave it a good kicking. That is the fact of the matter for many, many businesses. As I said, the very people who were expected to help save businesses did the opposite.
Of course, in their speeches today Members have cited a number of specific cases of businesses in their constituencies that were victims of this scheme, and “victims” is not too strong a word to use, because they were victims. There are heart-rending, heart-breaking stories of people that Members have brought to us today, and in our constituencies we have all encountered such cases, so these incidents are not isolated incidents.
All of that has meant that in certain situations the GRG effectively intervened in the valuation of assets, as has been indicated already today, triggered default and then took advantage of the consequences. Some businesses saw as much as a two-thirds reduction in their valuation in just two months. I repeat that—some businesses saw as much as a two-thirds reduction in their valuation in just two months.
I am aware that a complaints process is still ongoing between the RBS and its former business customers, and the victims of the GRG, as well as discussions about compensation. As I have said, many of us have been involved, to some degree or other, in this process. So I echo the calls made by hon. Members today and by my hon. Friends the Members for Norwich South (Clive Lewis), for Sefton Central (Bill Esterson), and for Stalybridge and Hyde (Jonathan Reynolds) in previous debates that this issue demands a full and independent public inquiry. Given the revelations in the Financial Conduct Authority’s section 166 report, there must be a comprehensive examination of all matters that could have led to practices that, at the very least, bordered on being illegal or were illegal. I know that the hon. Member for Thirsk and Malton was more robust in his approach to this issue than I have been, but I understand his sentiments.
The reality is that the Government’s response to what amounts to a scandal has been woeful at best, particularly when we consider the seriousness of the reports on this issue. Over the past decade, the relationships between banks and their customers have been damaged by a series of high-profile incidents. Business banking scandals, record fines and the closure of high street banks across the country have placed an insurmountable amount of pressure on this relationship.
The hon. Member for Thirsk and Malton says that one bank in particular is getting a bit tired of these indications. The suggestions that, in effect, we really ought not to be pushing this inquiry and that as a result their own good will is going, is frankly outrageous. It really is outrageous. Taxpayers were forced or required—whatever word that people want to use—to bail out the banks 10 years ago, and quite rightly they feel aggrieved by the continuing culture in some situations in the banking system, which too often treats customers as a commodity and not as customers, which is really not good for the health of the economy. The question is this: what is the purpose of finance? We have got to get a grip and realise that the purpose of finance is to benefit the nation and not just a few.
Things are in pretty dire need of change, which is why Labour are committed to creating a more diverse banking system, backed up by legislation. A Labour Government would create a national investment bank, similar to the ones already operating in Germany and the Nordic countries, which will bring in private capital finance to deliver lending power. The national investment bank would also support a network of regional development banks that would be dedicated to promoting growth in their communities. The banks will deliver the finance that our small businesses, co-operatives and innovative projects desperately need, and in a trusting environment.
We need action now. We have had passion and anger, and quite rightly so, but what we need now is action. We need to put matters right as soon as we can. We do not need any more talk; we need action now. So, in that regard, I turn finally to the legislative process. As you know, Mr Hanson, a good deal of parliamentary time has been spent in talk and debate on these matters, and in talk and debate on other matters, which may be relevant for some people but are not relevant to the health of our economy, our banking sector and our businesses, including our SMEs.
So I make an offer to the Minister today, to help restore trust in the banking system. Yes, let us have a tribunal system; let us have a dispute resolution system; and let us have access to all those things. However, let us also have a tribunal system that we can all trust and believe in.
I give a commitment from the Labour party that if the Government want to set aside legislative time to put that tribunal into the system, they will have our full backing to do that, because we must take action now—not tomorrow, next week or next year. We must take action now.
It is a pleasure to serve under your chairmanship, Mr Hanson. I start by acknowledging the work of the all-party group and by thanking my hon. Friend the Member for Stirling (Stephen Kerr) and the hon. Member for East Lothian (Martin Whitfield) who secured this important debate. Members have spoken with conviction and passion about some banks behaving in an appalling fashion. I recognise that there are outstanding cases that have not been resolved to the satisfaction of their constituents. I will address some of the issues that need resolution by Government in my later remarks. First, I want to examine specific points raised by Members and then I shall go through what I have done since the previous debate and what I see happening to try to address the work of the APPG. Hopefully, that will give the House some clarity today.
The hon. Members for East Lothian and for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry) referred to bank closures. It would not be right for us to have a debate on banking without addressing that important issue. I am aware that that is a concern for many Members. Obviously, closures are commercial decisions for the banks, taken by the management without intervention from the Government.
The Minister mentions commercial issues for the banks, but surely ownership of the bank, certainly such a large majority ownership, plays some part in the commercial process. Would it not have been correct for the UK Government to use the fact that they largely own the bank to make a decision to protect the people it is supposed to serve?
I thank the hon. Gentleman for that intervention, but I will take the opportunity to correct him. The Government do not have a 70% shareholding. We have a 62.4% shareholding. We do not have control of the day-to-day running of the bank, in the same way that the Scottish Government do not have control of Prestwick Glasgow Airport, yet they have a complete shareholding in it. We need to be real. There is a difference between ownership and day-to-day control. I want to address the practical issues because our constituents want to know what is being done to deal with these challenges. Before I go into that, I want to acknowledge that in previous debates I was challenged by Members from constituencies in Scotland. I will visit Scotland for four or five days at the end of August during the recess to address specifically the issues around rural banking. I went to look at the mobile banking units of one of the banks in Derbyshire in the previous recess, and I take very seriously the concerns about how effectively they function in terms of support for disabled people.
What sort of message does it send to banks when all these closures are happening and in 2016 the Government decide to cut, for example, the banking levy from £3 billion to £1.3 billion, sequentially, year on year? The Minister can try to duck the issue, but he gives a bung to the banks while they close their branches, and that is not acceptable.
I want to try to address our constituents’ concerns about bank closures and what the Government are doing to see that their services are provided. The Post Office and the banking industry have a commercial agreement that enables 99% of the UK’s personal and 95% of the UK’s business customers to carry out their day-to-day banking. I am concerned about the effectiveness of that arrangement, so I am determined that public awareness of those services should be greater. I am pleased that UK Finance and the Post Office have responded to my call for further action, particularly when the last bank in town closes, to make sure that the transfer of responsibility—
Will the Minister give way?
I will not keep giving way—I need to finish what I am saying. I will give way in a moment. Let me just finish this point.
The Government also support the industry’s access to banking standards, overseen by the independent Lending Standards Board, which commits banks to better communicate with customers and those who need more help when a bank closes. I am not seeking to duck any issue and I look forward to further engagement on this matter.
I appreciate the Minister’s giving way, and I appreciate that the issue is sensitive for many of us in rural constituencies. If the position is that the UK Government do not brook any interference or intervening in commercial decisions, how can it be the case that the Minister is listing a number of interventions that he is about to make in a commercial situation?
I was making it clear that, as a Minister, I do not make the operational day-to-day decisions about which individual branches should close. My responsibility is to see that consumers have access to the services they need, and I have done that through brokering the arrangement between UK Finance, which represents the banks, and the Post Office, which provides services when closures take place.
The hon. Member for East Lothian mentioned insolvency practitioners.
The Minister is being very generous in giving way. He talks about the issues around bank closures. One of the things that banks are doing to substitute for bank availability is moving us all online, so we are transacting more online through apps and the like. Colleagues have written on behalf of constituents to the all-party group to tell us about authorised payments and online fraud. Yet the banks themselves and the Financial Ombudsman Service are attributing gross negligence to the customer, despite the fact that they have gone to some lengths to try to prevent fraud. For example, the person on the other end of the phone knows their password, their maiden name—a degree of information that would not make that giving away of information gross negligence, yet they are being disadvantaged, despite the fact that the banks have pushed them online.
I am grateful to my hon. Friend for that intervention. The Payment Systems Regulator is doing a live piece of work to look at scamming and will report in September. It looks very much at culpability in such cases and I hope it will come up with a clear resolution that will give the public a better understanding.
If I may, given the luxury of additional time, Mr Hanson, I am going to try and reply to the points raised and then I will come on to substantive points. Insolvency practitioners are regulated by one of five recognised professional bodies. Legislation in 2015 introduced binding statutory objectives on these bodies, and the Insolvency Service has more sanctions available to it to deter and deal with poor conduct or performance. The insolvency code of ethics, raised through the Joint Insolvency Committee, is also expected to be revised and updated later this year, but I will be happy to enter into dialogue with the hon. Member for East Lothian about the specific issues and concerns that he has.
On that point, does the Minister accept that there is an inherent conflict of interest in the situation whereby we have a bank, what I will call a limited company, and individual shareholders? We have the bank instructing the professionals who then deal with the company, and that less than virtuous circle leads to an almost inherent conflict of interest for professional groups: the lawyers, the accountants and the insolvency practitioners.
I am happy to look carefully at the issues and the respective responsibilities and interaction between them that the hon. Gentleman raises. I fully accept the sensible point he makes.
I want to return to the case raised by my hon. Friend the Member for Stirling. Several specific cases were raised and my hon. Friend spoke passionately about his constituent’s case, which is illustrative of many of the experiences that sadly occur. Following my meeting, I received a letter from Ross McEwan in May that said that his complaints handling team would be happy to discuss constituency cases with Members. I encourage all Members to do so. I want to put this on the record. I particularly encourage my hon. Friend the Member for Stirling to raise his constituency case with the team. I am keen to understand what sort of response he gets and how satisfactory the process is.
As to the comments of the hon. Member for Bootle (Peter Dowd) about the sale of RBS shares, I am not one to enter into unnecessary partisanship in such discussions, because the issues are important, and I generally welcome the tone of the debate, but he must acknowledge that when the shares were purchased by the Government for £5.02 in 2008 it was not a rational economic choice. It was necessary for the Brown Government to secure the banking system. Therefore, to point out the difference in price, after the Government had taken advice from those who are stewards of the Government’s interest, based on value for money, is not really rational. Most consumers would not have purchased shares at the time in question; it was for the good of the nation.
Okay, so if we push the bank aside and forget that, how does the Minister explain the loss to the taxpayer in the sale of the Post Office, which was another billion or two pounds—or is that irrelevant as well? How does he explain the reduction of 26% in corporation tax for banks and other corporations, to 19%, when people in the Gallery cannot get a penny out of the Government?
I am glad that the hon. Gentleman has conceded the point on RBS. I want to focus on banks, and I was responding specifically on the matter of RBS.
I want to set out what the Government have done to address the issues that came to the fore during the financial crisis, because the regulatory framework and what has evolved over the past 10 years is a foundation for some of the outstanding challenges that we need to resolve. Since the crisis, the Government have reformed the UK system of financial regulation for the benefit of the industry and the people who rely on it. We have bolstered standards across the sector and taken strides to restore public trust in financial services. I acknowledge that there is more work to be done, and I shall come specifically to the issues raised in the report of the all-party group, and in other work. We have regulators armed with comprehensive powers and responsibilities co-operating to identify and address risks across the financial sector. The Financial Stability Board has praised the UK for its successful transition to a new regulatory regime, and the International Monetary Fund has applauded the UK’s more resilient system. We have implemented reforms to improve individual accountability in the financial services sector, and that includes the introduction of the senior managers and certification regime, which promotes individual responsibility.
My hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) set out a list of individuals about whom he has outstanding concerns; and it must be right to hold people to account. Where evidence exists for individuals having behaved criminally or in a way that needs further analysis, it must be brought forward. I understand that the shadow cast over the issue by outstanding cases needs to be resolved by the regulator. However, the SMCR promotes individual responsibility, holding senior managers to account for misconduct that occurs on their watch. It ensures that individuals at all levels can be held to appropriate standards of conduct. Both those things were key recommendations of the post-crisis Parliamentary Commission on Banking Standards. The SMCR was implemented for all banks, building societies, credit unions and Prudential Regulation Authority-designated investment firms in 2016. The regime will be extended to cover insurance firms from December 2018, and all other Financial Conduct Authority-regulated firms in December 2019.
I want now to talk about the core issue of SME lending. Despite significant improvements to the system at large, I am acutely aware that concerns remain about misconduct within the sector.
The senior managers regime is important, but it will not be effective unless the regulators or law enforcement agencies investigate, speak to victims, find out exactly what has gone on, establish the evidence and take prosecutions forward where guilt is demonstrated.
I agree, and will discuss the implications of that.
Many of the concerns that are raised relate to small businesses—sometimes microbusinesses, and sometimes individuals who have been working hard, with a perfectly solid relationship with their bank. Those businesses form the backbone of our economy, as several hon. Members have said this afternoon, and there has been justified anger, both within Parliament and beyond, about Global Restructuring Group at RBS, HBOS Reading and the mis-selling of interest rate hedging products. The case of GRG, and other cases from the crisis period, are unacceptable and I will continue to push for action. I shall explain what is happening.
I mentioned at the Backbench Business debate in May that the chief executive of RBS had committed to modifying the GRG compensation scheme. RBS will set up an independent appeal process for consequential loss claims. I acknowledge that the hon. Member for Inverness, Nairn, Badenoch and Strathspey mentioned that in his speech. I shall discuss with Sir William Blackburne how that process will operate when we meet next week. I understand the concerns about the need for it to work effectively. As has been mentioned, the assessment of consequential loss is a tricky issue, and I need to be sure that the process will be expedited as well as possible.
Treasury officials receive regular updates from RBS on the compensation scheme, and I am glad that progress is being made on direct loss claims, with a further 200 complaints closed and a further £4 million paid out since the last debate in May.
No one suggests that Sir William Blackburne at RBS or Professor Griggs at Lloyds are not decent people, trying to do the right thing, but is not the concern the fact that the compensation schemes are internal? It is not enough for justice to be done; it must be seen to be done.
I am happy to keep taking interventions, but I am getting to the points that are raised. I would like some flow in what I am trying to say.
I remind hon. Members that what happened at HBOS Reading was criminal behaviour—beyond unacceptable. It is right and just that six people have been convicted, and that they are serving more than 47 years in prison. In March 2017, following the conclusion of the criminal investigation, Lloyds set aside £100 million for compensation payments to 64 victims, and Russel Griggs was hired to review individual cases. Professor Griggs’s recent letter to the Treasury Committee set out that 170 offers have been made to affected directors, ranging from less than £100,00 to more than £5 million. In addition, Lloyds Banking Group has appointed Dame Linda Dobbs as an independent legal expert to consider whether issues relating to HBOS Reading were investigated and appropriately reported to authorities at the time by Lloyds Banking Group, following its acquisition of HBOS.
The FCA continues to conduct investigations into both RBS GRG and HBOS Reading. It cannot be the case—I made this point when I met Andrew Bailey, the chief executive of the FCA—that we allow those institutions to arbitrate on outcomes when there are significant outstanding and unresolved issues. I was pleased to hear that the FCA is likely to conclude whether there is any basis for enforcement action in the matter of GRG by the end of this month, in line with the indication that I gave on 10 May. I look forward to the conclusion of that investigation and the investigation of misconduct at HBOS Reading.
My hon. Friend the Member for Thirsk and Malton and others were right to say that these matters will not go away. In a characteristically passionate speech, my hon. Friend the Member for Beckenham (Bob Stewart) set the expectation that the matter should be resolved. I have been in this job for nearly seven months and have responded to three or four debates on the topic; I expect there will be more, because more needs to be done. We understand how important it is that SMEs have access to the dispute resolution with banks that they need.
I am glad that there are four pieces of work looking at that matter, as I mentioned at the report’s launch yesterday evening. The FCA is currently consulting on expanding eligibility for the Financial Ombudsman Service. I acknowledge the points made and the concerns about resourcing and sufficiency in that regard; they will need to be addressed. Richard Lloyd is reporting today on his independent review into the workings of the Financial Ombudsman Service, which was stimulated by the excellent work of the journalists for “Dispatches”. That review includes several recommendations, and the FOS intends to publish an update on the progress made by the end of the year.
UK Finance is also reviewing the access of SMEs to dispute resolution. There is a lot of expectation that UK Finance, as the representative of the four big banks, will respond thoroughly to some—I hope, all—of those issues. We need to find binding and enduring solutions to the issues that have been raised. Last night, the APPG published its work into the options for an independent financial services dispute mechanism. Those four strands of work will come together in the autumn, and the Government will consider them in the round.
I also want to respond to the point raised by several hon. Members, in particular the hon. Member for Thirsk and Malton, and say that the Government are determined to ensure that financial markets work effectively for SMEs and to enable competition in the market. Since the Government set up the Prudential Regulation Authority in 2013, it has authorised 16 new UK banks, but I acknowledge that those banks are nowhere near challenging the four biggest banks in scale and size. There is work to be done to examine how that can change, so there is greater competition in the sector.
On lending specifically, the British Business Bank’s programmes support more than £4.6 billion of finance to more than 70,000 smaller businesses through programmes such as the ENABLE guarantee, which encourages banks to increase their lending to SMEs by helping to reduce the amount of capital that banks are required to hold against such lending.
I acknowledge the work of the regulators in seeking to ensure that the banking system is stronger, safer, and better placed to support the wider economy than ever before. Some of the Government’s actions are leading to that outcome. I am aware, however, of the outstanding concerns that hon. Members have expressed. I look forward to responding publicly to the various pieces of work that address dispute resolution for SMEs in the autumn. Given that the report was published only yesterday, and that there are some significant ongoing parallel strands of work that are nearly completed, it is reasonable for me to wait to do so. I hope that will move the debate forward to a resolution that we and our constituents can have greater confidence in.
We need a banking sector in this country that enables lending, prosperity and growth in our economy, and when things go wrong we need to know that the resolution process will not be random, complicated and legally tortuous. Where we have legitimate examples of behaviour by banks that involves, or involved, malicious proactive interventions that were not justified on economic grounds, they need to be examined until they are resolved, so we can move forward with a more reliable system of regulating this vital sector of our economy.
I thank the Backbench Business Committee again for facilitating this debate. To pick up on the point about the anger that is felt across both sides of the House, the relatively small number of speakers in the debate in no way reflects the deep, passionate anger, annoyance and empathy that MPs feel for their constituents who have been victims. It is incredibly telling, and it is with huge respect, that we welcome so many people to the Public Gallery to witness this debate, which reflects one small part of this whole United Kingdom.
I thank the Minister for his thoughtful comments, and I extend an invitation to visit East Lothian and meet people who can give a different side, perhaps, of what suffering under the banks is like. The timetable that takes us to the autumn has been reiterated, and we will be back at that stage. The APPG’s excellent report proposes a tribunal, and puts on the table an option of facilitating primary legislation that could achieve that in the near future. That would be a significant step towards showing the public that we in this place understand their pain and have a proposal to put it right.
Question put and agreed to.
That this House has considered failures in the banking sector.