Financial Services (Banking Reform) Bill

Part of the debate – in the House of Commons at 8:21 pm on 11th March 2013.

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Photo of John Martin McDonnell John Martin McDonnell Labour, Hayes and Harlington 8:21 pm, 11th March 2013

There is another route and I will come on to it. The hon. Gentleman and I agree about the problem, but there is another solution. As he has said, regulation does not work with these institutions or the motivation to profiteer. I do not think that the new regulatory system—whether it be subject to a ring fence, an electrified ring fence or leverage ratios—will work. The reality is that as long as the banks are in private hands and have profit as their motive, they will aim to get around a regulatory system. The hon. Gentleman has mentioned how they will dig under and go around the fence. Like a chicken finding its way into the coop, they will always find a way. The regulatory regime proposed by the Bill is complex and, to be frank, virtually unenforceable. I think it will be almost impossible to execute the attempt to impose a firewall, as the Good Banking Forum concluded recently.

I agree with the hon. Member for Caithness, Sutherland and Easter Ross that we need to revisit the question of what role banks should play and what people want. I think that people and society want and need banks in which they can safely deposit their money and savings and which lend responsibly and provide credit to finance investment growth across the country. That is not what this Bill will secure and it is certainly not what is happening at the moment. The larger banks have an estimated £6 trillion at their disposal, but just £200 billion —3% of the overall total—is used to fund investment in this country’s industry. I do not think that a system of honest, responsible banking or long-term investment is deep in the culture. That may well have occurred at the earliest stages of capitalism but, many crises of capitalism later, we should have learned the lesson that this system is not working.

I believe that the only way to secure probity and to ensure that people’s funds are safe and secure and that we can invest in our economy in the long-term to create jobs is through a publicly owned and democratically controlled banking system. Of course, we own banks at the moment—we nationalised them. After Northern Rock, I remember standing up in the House to urge the then Chancellor of the Exchequer, my right hon. Friend Mr Darling, to nationalise the banks. The next day he said that he had nationalised three of them. I told him that I had been right and he said, “Well, you were bound to be right at least once in 30 years.” We nationalised those banks, but we have no control over them. They are not democratically accountable to Government, workers, investors or the wider community. That is why they are not investing and why people cannot secure loans.

We should take full ownership of the larger banks. We already own Northern Rock, RBS and Bradford & Bingley and a large part of Lloyds. We should take public ownership and control of the UK-based operations of Santander, Barclays and HSBC, and we should create a unitary industry. That would enable us to control investment, secure savings, stop the paying out of large bonuses and ensure that any surpluses are returned to the public by investing in the public good. That is secure and safe banking, which is what I thought was the House’s objective.

What would full nationalisation cost? An excellent piece of work for the Fire Brigades Union by Michael Roberts and Mick Brooks, which was published and launched in this House only a week ago, estimates that it would cost £55 billion at current market rates. That is 3% of GDP. We could ensure that there would be no need for any cash exchanges and could simply swap shares for bonds, thereby saving the public purse a large amount of money. The Co-operative bank and mutuals would continue to operate as alternatives, as would credit unions, because we have confidence in them as safe and secure banks. We could also—we called on the previous Government to do this—remutualise those banks that transformed themselves from mutuals into limited companies.

In that way, we could achieve the stated objectives of the Bill not through regulation, but through public ownership and control. I do not believe that regulation will work. The system has gone too far and the profit motive has overridden any sense of value or judgment in the City. Unless we take action now, we will be back in a limited number of years to deal with another banking crisis. To be frank, we have not even talked tonight about the shadow banking process, the scale of the transactions that take place within it or how we should deal with it. That is beyond all our controls at the moment.

I will finish by saying who we are taking action for. We are doing it for my constituents, some of whom are threatened with evictions or job losses or are having their welfare benefits or their services cut, all because of an economic crisis that they had nothing to do with. They did not cause it and did not contribute to it. It was caused deep in the financial sector of this country and across the world. My constituents deserve not reform of the banking sector in this country, but an absolute transformation of it, based on public ownership and democratic control.