Financial Services Inquiry
We move from dormant bank and building society accounts to dormant banks, perhaps. Item 3 is consideration of any follow-up actions that we might wish to take in relation to our inquiry into the banking and financial services sector following the responses that we have received and the parliamentary debate.
Members will have heard yesterday’s news about the Aegon situation. I place it on record that I have written on behalf of the committee to John Swinney to ask what steps the Scottish Government and the finance sector jobs task force will take in relation to that slightly worrying situation.
Paper 3 contains information about some of the correspondence that we have received on the future of banking commission. The Government has written formally to the Office of Fair Trading, as the committee requested, about the inquiry into competition in the banking sector in Scotland. I think that all committee members will welcome the fact that the Government agreed to our request. I invite comments from members.
The discussion that the Which? commission started is a good template for looking at the issue from the consumer point of view. However, amid all the views of commentators on the subject, I am still baffled by how the restructuring of the banks can be achieved. The nub of the argument seems to be about making commercial banks more competitive, but that fails to answer the question about where they will get their assets from in order to be able to lend. If we look back to models from the 1990s and earlier, we can see that the balance between debt and deposits was much more equal. However, in this day and age, how are we going to get from where we are to where might be a good place to be? I would like us to develop that issue.
The second point that I would like us to consider is how UK Financial Investments is operating. It was clear that the future of banking commission was unhappy with it, as we were, and we need to keep a watching brief on ways in which we can encourage it to be more proactive, because its hands-off approach has not worked from the point of view of the consumer in Scotland.
Numerous proposals have been made about remuneration. I do not know whether we will see anything of that sort from the wider banking commission that the UK Government is creating, but I would like us to have an input and to think about the matter in more detail. Given the ideas that we heard from Angus Tulloch and others about ethics and banking, and the suggestion in the Which? report about having a code of conduct in the banking industry, we should look to make an input to the UK commission about the Scottish experience.
I agree with much of what Rob Gibson said. Competition and divestment are critical issues. It is helpful and welcome that the minister has now taken on board the committee’s view on the OFT.
There are issues with the management of the public stake in the banks that are partly publicly owned, the divestment process and the direction from UKFI that is given to the banks that are in public ownership. I agree with Rob Gibson that we ought to maintain close scrutiny of how that process develops in the next few months, in so far as far as our programme allows.
Since we completed our report, I have had constituency experience of companies in the offshore sector finding that a long-established Scotland-based bank now regards offshore assets as no longer being security against which to raise a loan. As you can imagine, that has profound implications for a large part of Scottish industry. We will want to keep a close collective eye on such issues. The committee has written directly to the OFT on that matter. It would be worth while, perhaps not immediately but in the next couple of months, to follow up our letter and the representations in the minister’s letter and obtain a detailed response on that from the OFT.
The Scottish Government’s access to finance survey has been refreshed once, but it would be helpful to find out whether the intention is to refresh it again. The Government might well be planning to do so anyway, but it would be worth confirming that. That would start to show us a pattern that we could then compare against the previous two surveys. The committee should ask whether that is the Government’s intention; if not, we should ask whether it would consider refreshing the survey.
I am not sure how to put this because I am not sure whether it is for the committee to take a view on divestment as it is clear that we have no powers in that regard However, despite all the comments that the divestment of the TSB network in Scotland—comprising around 174 branches—might create a new Scottish bank or help a new local bank to emerge, from reading various analyses it seems obvious to me that nobody other than an already enormous bank will be anywhere near capable of taking on such a chunk unless it is somehow broken down into smaller parcels. I do not have a recommendation to make; I simply observe that, if that were to be done in a oner, it seems unlikely that there will be any excitement about a new indigenous bank in Scotland.
I agree with all the comments that have been made so far. We have no input into the activities of the Financial Services Authority and the Bank of England, but it would be good for us to keep a watching brief on the situation and how it plays out over the next year and beyond. We should keep an eye on what happens and its impact on the Scottish banking sector.
Ms Wendy Alexander (Paisley North) (Lab)
There are a number of useful suggestions at the end of paper 3. I want to build on those and on other members’ comments. We have quite a lot of unfinished business, some of which can be done in writing.
First, it is suggested that we express a view on the status of the divestment processes and the link to competition and new entrants. We should write to the Scottish Government to ask it to clarify the increase in competition, in terms of market share and new entrants, in the three key markets of personal accounts, business banking and mortgage that it has seen since the merger—there is no point in going further back than that—and what it anticipates will happen. Ministers are the only people who can provide that information, which would provide everyone with really useful context towards the end of next year. Information on market share in the three key markets would be particularly helpful, as that is where Scotland stands out from the rest of the UK.
Secondly, I agree that we should make a submission to the new independent commission, which could be based on the committee’s report. It is important that we do that. Similarly, we should write to the OFT to say that we welcome the developments there, for which we called, and to ask it to clarify what it understands the baseline position in Scotland to be, 18 months on from the injunction by the then Secretary of State for Business, Enterprise and Regulatory Reform. A robust letter to the OFT will give us a sense of whether it is willing to engage with us.
I have two further points, one of which relates to the UK Government and one of which relates to the Scottish Government. We should send the UK Government a carefully worded letter saying that there are two critical issues on which we would like to engage with it. The first is how it intends to divest the Government shareholding in the banks, and whether its policy is different from that of the previous Administration. The second, linked issue is the question of how we secure lending to the renewables industry and whether preferential lending is appropriate when there are two state-owned banks. We explored the issue in our energy inquiry, but it has become much more significant since then. That raises the interesting question of whether we should discuss the issue with Chris Huhne, the Secretary of State for Energy and Climate Change, who must be thinking about it, with Vince Cable, at the Department for Business, Innovation and Skills, or with Treasury ministers. It would be helpful for us to ask whether there is on-going discussion of how the Government shareholding might be used to promote a more active industrial policy with regard to renewables; we would not call it that, but that is what we mean. After yesterday’s budget, it is clear that there will be no public money, beyond our £182 million—or whatever it is—from the fossil fuel levy.
As members know, I have always had concerns about the fact that the Financial Services Advisory Board seems to change its mind about its role—whether it is a lobbying body or a marketing body—depending on circumstances. We should ask FiSAB whether it intends to make a submission to the banking commission and, if so, what that submission will say. It may be appropriate for us to write both to the Scottish Government—which, one anticipates, will make representations to the banking commission, as we will—and to the private sector chair of FiSAB, to ask whether FiSAB will make a submission. We should probe how the process will unfold, as that will crystallise the point that the interests of the Government and FiSAB are not necessarily at one. The convener and the clerks can get on with that work over the summer.
10:45
Given all that, we should perhaps schedule one or two sessions in our work programme before Christmas to allow us to follow up the issues with the OFT or with UK Government ministers. We would have some real meat for those sessions if we actioned that work now.
Having said nothing in the earlier session, I have had a lot to say about these matters; I will leave it there.
I was summoned by Jeremy Peat to a conclave—which I cannot tell you much about—in the New Club last Thursday. A big presence—not in the room, but discussed all the time—was John Kay and the notion of narrow banking.
The caveat to narrow banking is the ability of larger banks to hedge. That has always been a function of banking, and it is one in which Edinburgh latterly overindulged, with disastrous results. Most of the people at the meeting were not bankers, which was interesting. The main question that we discussed was how we can keep the network of financial services together in the absence—the kidnap, or whatever we call it—of the Royal Bank of Scotland and HBOS.
Investment in analysis of funding for renewables—which Wendy Alexander raised—is one possible way forward, because that is the natural area to which people would look for expertise, given the conjunction of experiment, investment, the nearness of the great fields and that type of thing. The hedging function plus the narrow bank function could be combined in that way along with insurance, which must now be enormously important in that area given what has happened in the Gulf of Mexico, which was another outside presence in the room.
On balance, we are in quite a good position, in that those various activities could orientate around the imminence of peak oil and the importance of carbon capture and storage and renewables as investment-hungry areas. They are probably better disposed of in Scotland than elsewhere, because of our nearness to the experimental coal face, so to speak.
One has to remind people that deep-water drilling originated in Scotland. Unfortunately we did not come up with the antidote to deep-water drilling mistakes at the same time, which is why BP—we should not call it British Petroleum—is in such shtuck.
I probably agree with everything that Wendy Alexander said; her suggestions are helpful. I would like us to consider the issue of access to finance and keep that under review during the coming months. Changes are happening, which we have discussed and which were evident in the budget yesterday. The budget was about cutting back the state and bringing about a greater reliance on the private sector, and if the new Government is going that way, we need to ensure that the private sector has access to finance. It is therefore even more important that we examine the issue. Like Lewis Macdonald, I have heard many examples of people in my constituency who are unable to get access to finance. That is crucial to the Scottish economy and we need to keep a close eye on it.
I thank everyone for their contributions; a number of actions have been suggested. One of the key issues—which several members raised—that we need to address in the very near future is how we can open up competition in the banking sector. Following the RBS divestment of its branches south of the border—the Williams and Glyn’s part of the operation—it has narrowed down to Santander, which does not suggest that competition is opening up, given that Santander already owns a large chunk of the market. There are serious concerns that divestment cannot sufficiently open up the system to new entrants, despite that being one of the conditions that is implied by the Commission’s rules.
We need to write to Vince Cable to ask whether that issue will be addressed by the new banking commission. We should make a submission to the banking commission based on our report, and we might want to ask Vince Cable for his views on that process.
I have previously written to Vince Cable to suggest that he might wish to meet the committee at some point when he is in Scotland. I hope that such a meeting will take place; unfortunately, by chance, he was up in Scotland the day before I sent the letter.
We should also write to the Scottish Government to ask whether it intends to make a submission to the banking commission, and whether it has any views yet on the future shape of banking in Scotland; unfortunately it did not give us a clear indication on that in its response to our report.
We should also follow up a number of other points that were raised. Unless there are any points that members think that we should not follow up, I suggest that it is left to me and the clerks to pick up the points and ensure that they are followed up. Is that agreed?
Members indicated agreement.
I say to the unfortunate people who have just come in that that concludes the public part of the meeting, so I am afraid that we have to ask them to depart.
10:51
Meeting continued in private until 11:48.