Financial Services Inquiry (Scottish Government Response)
Item 3 concerns our report on the way forward for Scotland’s banking, building society and financial services sector. Our report will be debated this afternoon, which I am sure will be of interest not just here but throughout the banking and financial sector. We have received several responses to our report and responses from Standard Life and the Royal Bank of Scotland have been provided today; we also have a response from Lloyds Banking Group. I thought that it might be useful for the committee to reflect on the Scottish Government’s response before the debate. I open the meeting to comments.
The Scottish Government’s response is disappointing. The covering letter started in such positive and glowing terms that I thought that we would find many areas of agreement, but then I discovered no responses to our recommendations on the Office of Fair Trading and updating the strategy for the sector. The pattern that I detected in the inquiry of the Scottish Government taking a fairly hands-off approach to the sector has been maintained in its response to our report.
There is an advantage and a disadvantage in the debate taking place today. We have the opportunity to go straight from this meeting to ask ministers why on earth they have not responded to the recommendations more clearly and positively. If we do not receive clear answers today—as has happened before—we might want to return to the report and seek answers in writing.
In the present flux between the Scottish Government responding to the report and the lack of clarity about how the Conservative-Liberal alliance Government will deal with things in London, we have a period for discussion about what we might see as best.
I have questions about why we think that the financial services strategy needs to change before we know the direction of new regulation and the new approach. I have no doubt that that will be a major part of this afternoon’s debate. The Government in Scotland has the problem of knowing exactly how its influence will be brought to bear and how much it will be allowed to have an influence.
I agree with Lewis Macdonald. I will take apart the response on two issues that are of interest. On the skills strategy, what we have had is regurgitated. We asked for something innovative and positive, but we do not have that—we are told how many colleges we have and what we are already doing, which is not what I wanted to hear.
The response on mutuals and credit unions does not even mention the co-operative development agency. That agency, which is part of Scottish Enterprise, should develop such institutions and set the strategy.
The Scottish Government’s response has glaring omissions. I hope that we can tease some of that out in this afternoon’s debate.
The timing of today’s debate is good. I have no specific points to raise now because I intend to raise them in the debate. I suggest that we see how the debate goes. The committee might feel that some questions are answered; some might not be answered. After the debate, we might take a view on what we want to do. We should have the debate first.
Ms Wendy Alexander (Paisley North) (Lab)
The purpose of the formal response that the Government is compelled to produce within eight weeks, which is part of the parliamentary process, is to answer the questions that the committee asks. The interesting point is that the Government answers the questions but disagrees with the committee. For example, the Government does not believe that the OFT should undertake an inquiry into small business banking in Scotland. It refers to the OFT’s letter.
The OFT makes it clear that it has work under way on personal current accounts and work coming up on entry into banking, but that it has absolutely nothing under way on access to finance by small businesses. We started by talking about the Scottish Investment Bank. The deep tragedy is that we got a letter about it after the cabinet secretary had already announced it to the Scottish Trades Union Congress. Of course, officials knew that that was inappropriate and wrong—it was entirely deliberate, cavalier and dishonest—yet we are told that the official who was drawing up the terms of reference for the Scottish Investment Bank did not know that the committee should have sight of them first. What does the response say? The Government is using more taxpayers’ money to find a substitute because it is not prepared to do anything structural to the market in Scotland. By all means, we can have the debate in the chamber; however, we take a different view.
The Government does not commit to any more competition of any kind in business banking beyond the planned divestments—all the new entrants, such as Tesco and Virgin, are involved in the personal account market. It is a huge issue and the committee took a brave stance on it. It is preposterous to say, “Sorry, but I don’t see the need for a vision,” when we have had the biggest collapse in the global economy for 60 years, precipitated by a banking crisis that compelled a bail-out involving more public money than has ever been invested in any sector and that has profound implications for Scotland because the size of our banking assets vastly exceeds the size of our economy, which is not the case in any other European economy. Meanwhile, the Government is calling for total control of these taxes and the question arises how it would cover any of this. The substantive debate should be about whether the Government wants more competition, what it is prepared to do to encourage that, whether it wants more divestments, how it wants the stakes to be disposed of—and whether or not they should be—and how it thinks that a five-year-old strategy needs to change in the light of experience.
I am worried that the Government says that it does not get involved in reserved issues. In fairness, its response says that if it thinks that something is in Scotland’s interests, it will go and lobby London as appropriate. However, the sin is one of omission of all the things in the report that the Government has not gone to lobby on, although it is happy to lobby on the European alternative investment fund managers directive, which is reserved to another area. I am shocked that, on the access to finance issue, the Government is prepared to say that it does not think that there should be any inquiry into business banking in Scotland. I feel that we should make that point strongly. The Government appears to have no position of any kind on divestments, competition, small business banking or any of the aspects of regulatory reform. We do not know what its position is.
I, too, was disappointed with the Government’s response. There were several areas in which the committee recommended fairly clearly that the Government should take a position; yet, it seems to have decided that it does not want to. Rob Gibson’s point is fair enough. There has been a change of UK Government and there is a new commission that will look into regulatory reform. Nevertheless, I would have thought that the key responsibility of the Scottish Government and the Financial Services Advisory Board would be to have a clear strategy on what Scotland wants to get out of that reform. That is what seems to be lacking. I do not believe that a strategy that was developed for the financial services sector as it was in 2005 can possibly still be appropriate for the market in 2010—that just does not make sense to me. At the very least, the Government should be willing to review it. If such a review revealed that it did not need major changes, that would be fair enough, but the Government is not even willing to review it.
The committee did not recommend a change to the membership of the Financial Services Advisory Board, as it thought that the current one was working effectively. The Government seems to be unwilling to consider that either. I am surprised that it does not seem to have a vision for the sort of banking sector that it thinks Scotland needs to serve Scotland’s economy. The response makes no reference to that other than through fairly meaningless statements about competition. If it has no clear vision of what it wants, that is a bit disappointing.
Those are personal comments; they are not made on behalf of the committee. It is up to committee members to express their views in the debate this afternoon; hopefully, others will participate and it will not just be committee members. We can consider after the debate whether we wish to take any follow-up action.
11:00
The purpose of committee reports is to reflect the views of the committee. That is not to say that reports bind individual members, but they invite the convener to reflect what the committee considered the big issues were. If we choose to say that we regret the fact that the Government takes a different view from us on the business banking strategy and the banking structure in Scotland, so be it, but the debate is our chance to showcase the issues that we think demand a response.
In opening the debate as convener, I must reflect the views of the committee. If I make comments that are personal, I will ensure that it is made clear that such comments do not necessarily reflect the views of the committee. Other committee members are free to comment more openly than I can. When I open the debate, I will at times be walking a tightrope.
Other members may have a different view, but I would have thought that if you, as convener, were to express your disappointment with the Government’s response, you would not be stepping outwith the remit of the report or the bounds of our discussion on the response this morning.
There are no further comments. I hope that everyone enjoys the debate. Before we continue in private, I remind members that in P1.02 at noon we are jointly hosting a seminar with Scotland’s Futures Forum on the issue of banking. One of the key speakers is Philip Augar, our former adviser on banking matters. Also speaking will be Ben Thomson and Mark Tennant, so it should be an interesting session. I hope that some of you will be able to come along to that.
At the next meeting, on 9 June, we will continue to take evidence in our international trade inquiry. We will hear from UK Trade and Investment and Scottish Development International.
11:02
Meeting continued in private until 11:19.