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The Exchequer Secretary to the Treasury (Mr David Gauke)
It is a great pleasure to serve under your chairmanship, Mr Robertson. I congratulate my hon. Friend the Member for Hexham (Guy Opperman) on securing this important debate. He raised some interesting and important points to which I hope to respond.
First, let me make it clear that the Government believe that it is important for consumers to be able to access an appropriate range of financial products and services, and that we are committed to fostering a strong, diverse and competitive banking sector. To achieve that, we must ensure that consumers can apply competitive pressure and hold their banks to account for the services they offer. In a competitive market, customers should be able to vote with their feet and switch their custom to banks that provide the best products and services for their needs. The Government are, therefore, committed to fostering diversity and promoting competition in the banking sector.
To help with the delivery of those aims, the banking industry has committed to introducing a fast, safe and hassle-free switching service, which will ensure that by September 2013 customers can switch accounts within seven days. That is further to transparency measures that are already being implemented more widely in the personal current account market, including making charges clearer on customers’ monthly statements, and providing an annual statement of charges for each customer.
As well as people having the freedom and information to switch banks according to their needs and wishes, it is important that new firms are free to enter the sector. I am pleased that we have seen a number of new entrants into the current account market in recent years, including Metro Bank, and it is essential that the regulatory regime facilitate that wherever possible. That is why the Chancellor announced in the banking reform White Paper that the Bank of England and the Financial Services Authority will conduct reviews of the prudential and conduct requirements for new entrants to the banking sector, to ensure that the requirements are proportionate and do not pose excessive barriers to entry or expansion for new, and prospective new, entrants. The conclusions of those reviews will be published in the autumn when the FSA and the Bank of England set out the detail of the new supervisory models for the Prudential Regulatory Authority and the Financial Conduct Authority, and the FSA and the Bank of England have committed to introducing the changes in advance of the new regulatory structure, where possible.
The Government are also committed to promoting mutuals and fostering diversity in financial services. By promoting financial mutuals, the Government are ensuring that consumers have an alternative model, which can provide competition to the shareholder-owned banks. Last Thursday, we set out the Government’s vision for the building society sector in “The future of building societies”. The document, which has been warmly welcomed by the sector, confirms the Government’s support for the distinctive alternative offering provided by building societies. It outlines the Government’s intention to remove unnecessary barriers to growth, and to help create a more level playing field with banks. In addition, in January the Prime Minister announced that the Government will introduce a co-ops consolidation Bill, which will raise the profile of the co-operative alternative and make it easier to adopt it as a corporate form. By ensuring there is an environment in which building societies can not only survive but thrive, the Government are facilitating a mutually owned source of competition for the big banks for many generations of home owners and savers, and supporting building societies with ambitions to expand their business models: for instance, into providing vital lending to small businesses.
Promoting diversity in financial services goes wider than banks and building societies. Credit unions can act as an excellent alternative, providing affordable financial services to people who would not otherwise be able to access them. This Government have taken action to help promote credit unions and their role of offering financial services to their communities. We have removed unnecessary burdens by bringing into force a legislative reform order giving a much wider group of people the ability to take advantage of the benefits of credit union membership. We have brought Northern Ireland’s credit unions under the regulatory oversight of the FSA so that from April, for the first time, the deposits of Northern Ireland credit union members will be protected by the Financial Services Compensation Scheme, enabling members to save with credit unions with confidence. We have also announced a credit union expansion project, which will invest £38 million to help credit unions modernise and grow in order to offer a real alternative to high-cost credit providers. Through all those actions, the Government are creating an environment where credit unions can offer an alternative and compete with banks to serve families and businesses that need to save and borrow for their future.
My hon. Friend discussed the Royal Bank of Scotland and advocated its playing a role in supporting the creation of local community banks. The Government’s shareholdings of RBS are managed on a commercial and arm’s-length basis by UK Financial Investments Ltd, a company wholly owned by the Government. UKFI’s overarching objective is to protect and create value for the taxpayer as shareholder, with due regard to financial stability and promoting competition. UKFI’s role is to manage the investments, not the banks. The banks retain their own independent boards and management teams to manage the banks commercially without interference from shareholders. Like all banking service providers, they must balance customer interests, market competition and other commercial factors when considering their strategy, so the Government do not tell RBS or any other bank where to operate branches.
On shares for the people—my hon. Friend explained his proposal in detail—UKFI will consider the full range of alternatives for investment and make its recommendations based on market conditions, an assessment of investor demand and value for money considerations. However, the ultimate decision to proceed with any transaction will rest with the Chancellor.
My hon. Friend also described the difficulties that local business can face in accessing finance from banks. I assure him that the Government recognise that small and medium-sized enterprises are fundamental to economic recovery. That is why the Chancellor launched two credit easing schemes in March 2012. The national loan guarantee scheme reduces the cost of borrowing for SMEs by 1%, and the business finance partnership will invest £1.2 billion through non-banking lending channels. Together, the schemes support SMEs in accessing cheaper finance while diversifying the range of finance resources available, stimulating the non-bank lending sector. At Budget 2012, the Government also extended the enterprise finance guarantee, which will enable over £2 billion of lending over the next four years to businesses with insufficient collateral or track record.
We continue to help UK businesses access the finance they need. That is why the Chancellor and the Governor of the Bank of England announced the new funding for lending scheme at Mansion House on 14 June. The scheme will support credit for the whole economy by making it easier for banks to lend to businesses and families. In return for additional new lending across the whole economy, the scheme will reduce bank funding pressures, which have been increasing due to instability in the international financial markets. We are working closely with the Bank of England on the design of the FLS and will release further details shortly.
As I mentioned in my opening remarks, the Government believe that it is important for consumers to be able to access an appropriate range of financial products and services and are committed to fostering a strong, diverse and competitive banking sector, a point raised by my hon. Friend. I hope that it is clear to him from the initiatives I have described that we are pursuing a substantial agenda in that area through both regulatory and non-regulatory means.
The regulatory landscape is changing, just as customers’ needs are, and the financial services sector will need to continue to evolve to take account of that. At the same time, it is important that it continues to meet the needs of ordinary customers, an issue that I know is close to my hon. Friend’s heart.
I thank my hon. Friend once again for raising these important issues and bringing them to my attention and that of the House, and I thank my hon. Friends the Members for Carlisle (John Stevenson) and for Warwick and Leamington (Chris White), and the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson), for their contributions.
Guy Opperman
Clearly, the disposal of RBS, in whatever shape or form, is ultimately for the Government and the Chancellor of the Exchequer, having considered a full range of alternatives, market conditions and value for money. If it is not commercially viable to return RBS to the private sector, will the option of returning it to a local banking organisation, as I have described, be considered?
Mr Gauke
My hon. Friend is absolutely right that that is a decision for the Chancellor of the Exchequer. All I will say at this point is that I am confident the Chancellor will want to consider all options, particularly in the circumstances my hon. Friend describes. Numerous factors would need to be taken into account in any decision, including value for money for the taxpayer.
The Government are clear that banks and building societies should serve the economy. I assure my hon. Friend that the issue will continue to receive the highest level of attention from Government. We are grateful to him for raising so many important issues in this debate.