Bank Branch Closures

Owen Thompson Excerpts

Wednesday 18th March 2020 Westminster Hall

[Owen Thompson (Midlothian) (SNP)]

I beg to move,

That this House has considered bank branch closures.

It is a great pleasure to serve under your chairmanship, Sir David. I will start my comments with a bit of nuancing. This debate was applied for and considered at a time before much of the current advice was put in place encouraging many of those in our communities who would be the natural users of a local bank branch to stay at home. Many of my comments calling for banks to remain open are therefore very much inclined towards the time when we get past the current situation and are returning to something of a more normal environment.

The debate is clearly taking place against the backdrop of an unprecedented public health crisis and grim news. One positive I already see emerging from that, though, is the mobilisation of communities to protect the most vulnerable among them. I hear tales of shops delivering groceries to older customers, of dog walkers dropping off prescriptions and of people sending kind messages to neighbours in isolation just to let them know that they matter. These are all hugely important to keep our communities functioning and working together through challenging times. It would be good to see the banks exhibit that same sense of public spiritedness, show a sense of responsibility to the communities they serve and at the very least call a halt to their closure programmes until we are through the current situation rather than quietly closing down branches never to open them again. I wrote to the Bank of Scotland urging it to consider that action.

The latest tranche of closures announced by Lloyds/Bank of Scotland comes after years of watching the vital network being decimated. Between 2012 and 2019, the UK lost 22% of its bank and building society branches. In 2017, about 10% of the rural population lived at least 10 miles away from their nearest branch. Scotland, with its highly rural population and more challenging demographics, saw a third of branches close in just nine years, with 610 closures between 2010 and 2018. The announcement in January from Lloyds Banking Group of 56 branch closures was still a little surprising as it came just a month after Bank of Scotland managing director Tara Foley was reported to have said at the opening of a hub in Glasgow that the bank was committed to its branch network and that branches were “not going anywhere.” Tell that to my constituents in Loanhead.

For hundreds of years, the Bank of Scotland was a respectable stalwart of the Edinburgh establishment, ahead of the field in finance and in finding innovative solutions to meet customer needs. Founded in July 1695 by an Act of the original Scottish Parliament, the independent one, the bank started opening branches back in 1774. It was the first bank in Europe to offer paper currency and, in 1826, fought a spirited campaign against attempts by the Westminster Parliament to outlaw its notes below £5. The campaign was much aided by the fantastic writer Walter Scott, whose head now adorns the bank’s modern notes, in tribute to that popular and successful campaign. I hope this campaign will be equally successful.

It is therefore disappointing to see the modern incarnation of this once proud brand making life so much harder for those who work with paper notes, wielding the axe so brutally against the communities that helped to build the bank. When the banks crashed in 2008, Lloyds Banking Group was one of the major recipients of the Government bail-out, to the tune of £20.3 billion and a 43% public stake. Now, public shares are paid back, profits are high and big bonuses have made a bit of a comeback. In 2018, Lloyds unveiled a £4 billion pay-out to shareholders, statutory profit before tax was up 13% and £464.5 million was given out in bonuses. Payment protection insurance pay-outs took its toll last year, with pre-tax profits down from £6 billion to a meagre £4.4 billion, so chief executive António Horta-Osório took one for the team, pocketing only £4.7 million, compared with £6.5 million the previous year. That is meagre, and it must be difficult to survive on such limited earnings. The idea that the bank cannot afford to maintain the existing branch network is therefore clearly nonsense.

My particular concern, as the MP for Midlothian, is the looming closure of the last bank in Loanhead. In fact, it affects not just Loanhead; that bank represents the only one in the communities of Loanhead, Bilston, Roslin, Rosewell, Straiton and Damhead. Many of my constituents beyond the town itself are clearly concerned about how they will access banking. The decision is staggering, with dire economic and social consequences for a town with a population of about 7,000 now, but set to rise rapidly with significant new housing developments. The Bank of Scotland has not taken that into account in coming to its conclusion.

Future growth will rely on start-ups and microbusinesses setting up in the area, so access to a banking service remains vital. About 20% of small businesses with turnover below £2 million use branches as their primary source of banking. Being able to get into the bank at a time suitable for them will clearly be critical. The sheer geography of Midlothian does not lend itself to a bank being even two or three miles away—the physical journey might not always be a straight or simple one.

The Select Committee on Scottish Affairs, in its 2019 report on access to financial services, stated:

“The impact of losing a bank is particularly is acute when it is the last bank in town”—

as in this situation. Statistics tell the same story. Research mapping branch closures against the British Bankers Association postcode lending data found that growth in lending to small and medium-sized enterprises was dampened by 63% on average in postcodes that lost a bank branch. When it was the last bank in town, that figure shot up to 104%. On average, postcodes that lose their last bank receive almost £1.6 million less in lending over the course of a year.

The Loanhead branch closing will without doubt damage this historic town economically, as it will the nearby communities of Bilston, Damhead and Roslin, all of which rely on that bank.

[Andrew Jones (Harrogate and Knaresborough) (Con)]

I congratulate the hon. Gentleman on securing this debate. I recognise that he is talking about the Royal Bank of Scotland and Bank of Scotland groups, but the issue is truly UK-wide. I particularly noted his points about the last bank in town closing, because I am seeing that in Knaresborough, in my constituency. Does he agree that access to financial services and advice, alongside the banking services that he described, is particularly important at a time of great financial uncertainty, when people are anxious about their financial futures because of the coronavirus emergency?

[Owen Thompson]

I absolutely agree with the hon. Gentleman. It is absolutely critical that people have access to the best possible advice, especially now, where none of us really knows what situation we will be facing in a month or two months, never mind next week. It is critical that there is access to information and advice, and that that is easily accessible for all our communities across the country, wherever they happen to be.

Losing the last bank in town will increase the financial exclusion of our older and less mobile residents. Being able to go to the high street to do their finances is an important part of staying independent for many people. It is a lifeline. It is fair to say that banking habits have changed and the Loanhead branch, like most, is certainly less busy than it historically was. The figures in the bank’s own closing branch review found a 4% drop in counter transactions from personal customers over one year and an 8% drop when businesses are included. To me, that appears to be a fairly manageable figure, especially when we consider the town is set to expand significantly in the coming years.

It is also true that the majority of the population will be able to do much more of their business online. I am not denying that, but we do not always want to do business online, and certainly there are a number of people in our communities who cannot do their business online. Most of us appreciate being able to check balances and do transactions whenever we want, although we do not necessarily like it when the IT breaks down or we stumble over the pass codes. Even with that change in behaviour, a significant number of bank customers completely rely on the local branch; they do not even have a digital option.

The bank’s review found that 76% of customers sometimes use other branches, internet or telephone banking. That leaves almost a quarter of their customers who never use those other methods and are solely reliant on the branch. Many of them are in older age groups—44% of customers were over 55, 26% over 65 and 13% over 75. It is quite clearly the older population who will face the worst disruption from the proposed changes. According to Age Scotland, 67% of people over 75 do not use the internet at all. Many older people expressed frustration with phone banking and lack of trust in digital options, and said that the cost of accessing the technology is in itself inhibitive. In some areas, fast enough connections are not even available.

I know that work has been done to improve banking services in our post offices and I welcome that. The post office network is a fantastic resource for our communities and it does whatever it can to pick up the pieces when a bank abandons a town. We are particularly lucky in Loanhead to have a very accommodating postmaster, who I have no doubt at all will do everything in their power to ease the transition for customers seeking another local place to perform day-to-day transactions, but the post office network is under pressure too. As great a job as it does, it does not have the resources, financial expertise or facilities needed to deliver the full range of bank services when the bank leaves town, nor should it be expected to do so.

Concerns were expressed to the Treasury Committee last year about the way the agreement with banks was operating, and that the Post Office would be put under added pressure, as it did not make a profit from those services. More than half of adults were unaware that they could even use it and said when asked that they would prefer to deal directly with their bank. There is a long way to go before that gap can be filled. We must protect for the future both the post offices and the branch networks. That is not just for the vulnerable, although that is a good enough reason to call a halt to this ruthless cull of face-to-face banking. Those who predict the relentless rise of automation sometimes forget another key factor—human nature. Digital banking has convenience on its side but will never replace the human interaction. It was predicted that e-readers, such as the Kindle, would kill off printed books. That did not happen. We see vinyl record sales booming for the younger generation, despite the ridiculous price tags and the simplicity of streaming. Digital and physical formats are finding a happy co-existence in the modern world; they complement each other, as they both have advantages and disadvantages.

The same goes for banking. There are many individuals who sometimes use a branch and sometimes use other means. We need both branch and online banking to thrive in a flexible, inclusive, modern society and we lose them at our peril. When IT goes wrong, as it does, we all return to the bricks and mortar of a branch. We need to protect those branches so that they are there for the future. The Treasury Committee in the previous Parliament warned that

“if no action is taken, the UK risks inadvertently becoming a cashless society. For a large portion of society, including some of the most vulnerable, this would have stark consequences.”

We have seen a rapid drop in free ATMs, as the reduced interchange fee made the business model less viable. Latest figures from LINK, the UK’s largest cash machine network, revealed that 1,300 ATMs were lost between the end of January and the beginning of July 2018. The consumer organisation Which? predicted that free cash machines would become a thing of the past, after it emerged that 1,700 ATMs switched to charging in the first three months of the year alone. We are being pushed towards a cashless society that we are not prepared for and do not want. That is not solely through consumer demand but financial incentives to go cashless, the creation of a cashless deserts and the continued running down of the branch network.

We are asking people to wash their hands a lot more these days, but it is no longer good enough for the UK Government to wash their hands of this serious issue. Like the politics of austerity, the decision to let things slide is a choice, not necessity. The current access to banking standard does not go far enough to protect customers from branch losses, and the alternatives just do not plug the gap. They will show customers how to sign into mobile banking or where to get a bus to the next town, but the loss of a branch is already a done deal.

Where the financial services markets fail, we need the Government to step up to the plate. We could introduce a public service obligation to protect the last branch in town, for example, and ensure that people have a right to a physical bank branch. The Treasury Committee agreed, saying that

“intervention by Government or the FCA may be necessary to force banks to provide a physical network for consumers.”

It suggested they could

“make changes to competition law to allow banks to share facilities”.

I would be keen to see that. For the Government to keep brushing this off as a commercial decision is to neglect their responsibility. There are options to intervene; in fact, they have a duty to do so, for the wellbeing of millions of citizens.

I look forward to the Minister’s response. I hope that we will see some action, and that the Bank of Scotland will reverse the decision to close so many branches.

--- Later in debate ---

[Owen Thompson]

I thank all hon. Members for their contributions. The sense of déjà vu among many, most or all Members regarding the situation with banks is certainly of note. It is frustrating that banks’ consultations are so flawed—they are simply box-ticking exercises—and I welcome the innovative thinking that the Minister has outlined. Hopefully, we can press that thinking on banks, but more needs to be done to make sure we maintain that face-to-face connection with our communities.