Economy, Energy and Tourism Committee

Meeting date: Wednesday, September 15, 2010

Official Report 303KB pdf

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Financial Services Inquiry (Update)

Item 3 is an update paper on the banking and financial services inquiry outlining some of the recent developments. Are there any comments on it or any issues that we may wish to take up with any of the people with whom we have been in correspondence?

The green investment bank is mentioned on page 5 of the update paper. I have been in correspondence with the Cabinet Secretary for Finance and Sustainable Growth, John Swinney, who fully backs the idea of campaigning to have the green bank’s headquarters in Scotland. I am awaiting further replies, but I have had an acknowledgement from the Treasury and a response from Michael Moore at a little more length.

I noticed in my mail today that the Edinburgh Chamber of Commerce is interested in having a meeting to discuss a campaign to bring the green investment bank to Edinburgh for Scotland’s benefit. I urge members to consider, on a cross-party basis, getting behind that move, because there are opportunities for us to lobby various cabinet ministers and to get business backing for it, as businesses would see the sense in having a green investment bank here, given the level of investments that are taking place or are being planned. I hope that the committee can take this forward together.

Do we have any information on the decision-making process that will apply?

I do not have any.

We do not at present, but we can certainly check that out.

It might be worth getting that.

We might be able to raise the issue with Chris Huhne when he comes before the committee in a few weeks, and in our informal meeting with Vince Cable. They both have an interest in the green investment bank, so the committee might be able to lobby on that directly.

Do members agree that the committee should support efforts to locate the green investment bank in Scotland?

Members indicated agreement.

Do members wish to raise any other issues?

Can I confirm that you just said that the meeting with Vince Cable is not a formal meeting?

Unfortunately, he is available only between 2 and 3 on the Thursday of the week in which the committee will meet Chris Huhne on the Tuesday. That clashes with a meeting of the Parliament, so it is not possible to have a formal committee meeting. It will be an informal meeting.

Understood. Will the discussion that we have with Vince Cable be recorded?

The detailed arrangements have not yet been agreed with his office but, once they are, we will let you know.

It would be helpful to know that in advance, because the nature of the discussion will be rather different if it is on rather than off the record.

Yes. I hope to meet Dr Cable on Saturday during the Liberal Democrat party conference to discuss some of the issues that the committee might wish to discuss with him.

So you will informally represent the committee at the party conference.

I will.

I apologise for being a couple of minutes late, convener.

The banking inquiry update is helpful. There are various things that I hope we can do to follow up. First, it would be good to have a meeting with Sir John Vickers.

Secondly, page 3 of the update paper lays out some proposals on small business finance. The final bullet point cites four schemes. I ask the clerks to provide a brief note on whether those are reserved or devolved. I for one do not have a clue on that, so that would be helpful.

Thirdly, page 4 has a bullet point on

“the OFT’s current review of barriers to entry”.

I presume that we will submit evidence to that based on what we said in our committee report. That would be useful, given how much of an issue we made of that in our report.

My fourth point might cover something that the committee has just discussed. We had an update on the green investment bank on 29 June, but there have been developments since then. As Chris Huhne is coming to speak to us, it would be useful to have a brief note on that—just a page or so—in advance of the Huhne meeting. Was that what you were talking about as I came in?

Yes, that has already been asked for.

Sorry.

My next point is on job losses. I was going to ask SPICe to provide a table of job losses and job creations, but it would be better if the committee requested that. My rough tally is that 3,500 jobs have gone in financial services recently and about 1,000 or so have been created. A table on job losses and creations would be helpful for the forthcoming meeting with Vince Cable.

In our letter to John Swinney, we requested the Government’s

“quantitative and qualitative analysis of the extent to which competition has increased”,

or decreased, in the three principal markets of personal accounts, mortgages and small business banking. However, we did not get that in the response. It would be useful to have whatever current data are available in advance of the meeting with Vince Cable. The Office of Fair Trading is offloading the problem on to the independent commission on banking. We would want to make the point that, particularly in small business banking, we have greater, rather than less, concentration and there is no evidence that any of the new entrants is changing that. It is reasonable to ask the Government to itemise what it understands to be the current level of concentration.

My final point is about our letter back to the OFT. The OFT referred to its review on barriers to entry into retail banking. Could we write another letter to ask it to clarify for us what it is doing on small business banking competition, which seems to be totally different and separate? I thought that the update was very helpful. We should keep a watching brief on all this for the remainder of the session.

09:45

Are there any other points? Are members content to do what Wendy Alexander suggested?

I am sure that we would all agree that it would be nice to see the green investment bank come to Scotland. However, I am keen that we find out the process before we make a formal submission of any kind. Otherwise, we could end up putting the cart before the horse.

Indeed. Do members agree that we should keep a watching brief on the banking inquiry and to leave it to the clerks and me to decide when it is appropriate to bring forward other reports?

Members indicated agreement.

Secondly and more specifically, do members agree in principle that we should make a submission to the independent commission on banking, on the basis of our inquiry report?

Members indicated agreement.

Obviously, we would bring any submission to the committee for approval before we submitted it.

Do members think that we should draft a submission on the green paper on business finance, for which the closing date is 20 September? We would have to clear the submission by correspondence.

I am not sure that we should respond as a committee to each and every consultation in this area. I accept that we have an interest in them all and we should certainly keep a watching brief, but, given that there are tight deadlines, and complex issues are involved, I would be inclined to say that we should see what the consultation produces and then see whether we want to respond.

If we were to make a submission, it would simply be to say how significant an issue this is. The meaningful point to establish is whether the four remedies that are proposed are United Kingdom-wide or specific to England and Wales.

We will certainly do that. We will come back to that issue once the consultation has been completed and responses have been evaluated. Likewise, do members agree that we should keep a watching brief on the consultation on the proposed banking levy, rather than make a response?

Yes, because we did not look at that specifically.

Further to Wendy Alexander’s point regarding jobs, as well as asking SPICe for its take on it, we should write to the financial services jobs task force to ask what it thinks the current situation is with net job numbers and gains and losses. We get the headline figures, but I suspect that what is happening on the ground might be slightly different. We do not know about little job losses caused by jobs not being refilled when they become vacant and so on. It might be worth getting an update from the task force about what the situation is and what it is doing.

I am sorry that I am late; I did phone in.

That was recorded.

As I looked through the various submissions on employment, what struck me was a statement towards the end of the Government’s submission about increasing enforcement through the amalgamation of the Serious Fraud Office with the various other bodies that deal with financial criminality. I believe that that is also a means of rationalising those none-too-efficient institutions, which are losing a lot of jobs.

Some of you might have looked at the Financial Services Authority’s report on the Royal Bank of Scotland’s compliance with computerised supervision of its transactions. It was discovered that, although it handles trillions of dollars practically every week, the Royal Bank did nothing to install the firewalls that it had been told to install until Mr Hester took over. That does not seem to be a very good argument for diminishing the number of supervisory people even more. What the Royal Bank was up to would, in America, have resulted in its board being seen in manacles. A little of that robust attitude to malefactors of great wealth would be no bad thing here.

Where was that? I missed it. What was the report that highlighted that?

I am surprised that you missed it, Wendy. It was the FSA report on compliance with computerised supervision by the Royal Bank, which it had failed to do for about 18 months, admittedly largely under the regime of Sir Fred Goodwin. It was done under Hester, but that was 18 months after it should have been done.

That report was published in the summer.

Yes.

Was there an associated fine?

There was a fine of about £5 million but, compared with the amount of money that was going through the Royal Bank’s accounts—the procedure was introduced because money could have been going to terrorists—and the profits that the bank made, the fine was infinitesimal.

I ask Christopher Harvie to provide a link to that document to other members of the committee, for their interest. I also remind members that they are not meant to have conversations with each other during the meeting.