Banking

Bill Esterson Excerpts

Wednesday 15th January 2014 Commons Chamber

[Bill Esterson (Sefton Central) (Lab)]

Like other hon. Members, I want to speak about some of my constituents’ experiences with the banks, particularly in relation to small business lending. The banks’ behaviour changed overnight when the global financial crisis hit, as a number of businesses in my constituency have made clear to me. They had been repaying loans for years and had never missed a payment, but suddenly the banks called in the loans—the hon. Member for East Antrim (Sammy Wilson) made this same point—and many good businesses went to the wall as a result. That is something I experienced, although our business did not fail, but only because we were able to bail ourselves out by using personal savings.

The problem today is that the banks are still not lending to small businesses. Most of the 4.7 million small business—those with fewer than 10 members of staff—that I meet are unable to borrow money from the banks. They will not lend to them, whether they are the high-tech growth businesses trying to develop the products we need to develop our export industry or the mainstays of our communities—the service firms that support local communities up and down the country. The banks are not lending, whether the companies have a good track record or a good business plan. It seems that the only firms that the banks are lending to—and even here we are seeing some problems—are the larger ones, the medium-sized companies that have significant assets against which they can borrow. I am afraid that the cost of living crisis, which is hitting many ordinary people in this country, is also hitting those who own or run small firms. It is just as bad for small businesses as it is for everybody else. The banks have a crucial role in turning that cost of living crisis around.

My hon. Friend the Member for Wrexham (Ian Lucas) mentioned the German system and how he would like to introduce something similar here, and I agree. Having met representatives of the Sparkassen, I must say that they have a lot to teach us. They know their customers, are based in the regions where they lend, understand the local economy and can lend only in that area. We could also learn something about bonus culture from the German system, because its regional banks’ remuneration is linked to the financial success of the economic area in which they lend. It is not something that we could introduce here directly, but we could certainly learn something about having a bonus culture that is manageable, proportionate, fair and based on success, and the right kind of success, rather than how much the banks lend. The banks in Germany are set up to produce jobs and growth and the banking system is designed to support small businesses.

One of the interesting things I learnt from the Sparkassen is that rather than us having to become better Germans, we should look at who created the German regional banking system—it was this country, after the second world war. We based it on the old stable and steady lending criteria that we used to have in the old regional banks. We developed the system in Germany using this country’s experience and expertise. It is something that I am afraid we moved away from after the big bang of the late ’80s.

We can learn from Germany, but there are good examples in this country too, such as the Merseyside Special Investment Fund. It provides equity and loan finance to small businesses in Merseyside, and it has been one of the few sources of such support to businesses since the financial crisis. Some of its customers switched to it having been turned down for loans by their banks. People who were unable to borrow from the banks have succeeded with MSIF. Indeed, local bank staff across Merseyside sometimes refer customers to MSIF because their own computer says no, so even they understand the problem. It is important to distinguish between banking executives and those who get large bonuses and the ordinary bank staff who do a great job up and down the country, day in, day out, in serving their customers in the retail sector—personal and business customers.

We can learn a lot from MSIF about how to lend. It does not just lend money but gives advice and management support. It understands the local economy and aims to support jobs and growth. It is not a bank, but it performs many of the functions of banks and is filling the gaps left by the banks. It shows what can be done in this country in just the way that the Sparkassen do in Germany. Those are two examples that we can learn from in supporting small businesses. Our proposal for regional banks has much in common with the German model and with what is going on in Merseyside.

I completely agree with my hon. Friend the Member for Denton and Reddish (Andrew Gwynne) about social responsibility. Within a few yards of my constituency office, we face the closure of one branch of a bank. He mentioned the role of post offices. I agree, too, that we should see post offices as another valuable element in our banking system, but unfortunately we also face a post office closure not far from my office. Perhaps Ministers in different Departments—those responsible for post offices and those responsible for banking matters—need to talk to each other, and of course to the banks as well.

Labour Members have the right ideas about regional banks and about how we could ensure that there is the lending to small businesses that is needed. There must be a change in the banks’ approach if we are to see the recovery and the investment in business that will lead to the exports that this country desperately needs to move forward in the short term and the long term. The banking system is crucial in this. Our proposed measures show the way forward. I hope the Government will pay attention to them and take the action that is needed, and not just carry on as they have during the past three years.

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[The Exchequer Secretary to the Treasury (Mr David Gauke)]

This has been a thoughtful and interesting debate. I particularly thank my hon. Friends the Members for West Worcestershire (Harriett Baldwin), for Bournemouth East (Mr Ellwood), for Northampton South (Mr Binley), for Redcar (Ian Swales), for Spelthorne (Kwasi Kwarteng) and for Hexham (Guy Opperman), all of whom made excellent and intelligent speeches. I am not sure that I would use quite the same words to describe the speech made by the shadow Chief Secretary, the hon. Member for Nottingham East (Chris Leslie), but I hope that he will not take that personally. I have a lot of sympathy for him—after all, he spent a number of years making speeches in debates like this one, saying that we were going too far, too fast, and that a plan B was needed. We do not hear quite so much about that now.

We have heard a fair amount about the cost of living in recent months, but Labour party spin doctors have been briefing the press that they are about to bring that campaign to an end, so where does Labour go now? How does it fill the vacuum that exists where an economic policy should be? The answer is, “With a bit of banker-bashing.” I could say, “Same old Labour”, but in reality the rhetoric that we have heard today and during the current Parliament is not consistent with what the last Labour Government did.

When it comes to dealing with the risks and excesses of our financial system, Labour is in no position to criticise us. It is extraordinary that the people who crashed the car now wish to give us a lecture on road safety. They left us with a regulatory system that had failed catastrophically—a system that had failed to identify risks, or, when they were identified, failed to do anything about them—and, when the crisis came, it was not clear who was in charge. But who was the special adviser in the Treasury who was running the show when the tripartite regime was established? The shadow Chancellor. And who was the City Minister in the run-up to the crisis? Again, the shadow Chancellor.

It was this Government who produced the Financial Services (Banking Reform) Act 2013 and implemented the Vickers report, and this Government who established the Financial Policy Committee, involving the Bank of England once again and providing clear lines of responsibility. It is this Government who have ensured that we ring-fence deposits, separating them from volatile investment banking, and it is this Government who have introduced a bail-in power that protects taxpayers, to ensure that shareholders and creditors, not taxpayers, are first in line to pay for a bank failure. It was the last Government who presided over a system whereby individual bankers could not be held properly to account. Under our laws—laws passed by this Government—reckless management of a bank could result in seven years in prison. Under the last Government, it could result in a knighthood.

[Bill Esterson]

Don’t worry, I’m not after a knighthood. The Minister’s party colleague, the hon. Member for Northampton South (Mr Binley), made it clear that the funding for lending scheme has failed and that lending to small businesses has fallen. The Minister’s comments have been notable in their failure to mention what he is going to do about funding for small businesses. Will he tell us now?

[Mr Gauke]

Gross lending is up, but one thing that will not help small businesses is if our interest rates rise prematurely because we do not have credibility. We have given this country economic credibility and that has helped to keep interest rates lower for longer.

Our system ensures rigorous scrutiny before someone can have a serious position in a bank. Labour’s system could allow someone like Paul Flowers to become chairman of a bank. While fines went back into the banking system in the past, now they go to support military charities and others.