Ring-fencing transfer schemes

Part of Financial Services (Banking Reform) Bill – in the House of Commons at 5:16 pm on 9th July 2013.

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Photo of John Mann John Mann Labour, Bassetlaw 5:16 pm, 9th July 2013

A vast amount of hard work has been diligently done for such a puny and inadequate set of proposals. Where does it leave us, if we look at the big picture? There is a debate about the Government’s failure to electrify the ring fence, although as I recall, the financial crisis started with Northern Rock and Lehman Brothers, where the ring fence would have made no difference whatever. What are we trying to address?

We have two banks in state ownership that are still in crisis. Clearly, the Government have no idea what to do with RBS, from who is running it and the Government’s cack-handed handling of Mr Hester’s departure, to what its role should be. Should RBS exist? Should it be broken up? How should it be broken up? Can it be broken up? How could competition emanate from breaking it up? We hear the word competition all the time. I was a signatory to the extremely modest bank account portability amendment that, rightly, was tabled. The structure of banking, however, remains pretty much as was. There is significantly less competition than there was 10 years ago. Building societies have been consolidated and about a third have vanished.

Where is the international level? This was not a British crisis, but today, as a consequence of the British LIBOR scandal, we have lost out to New York, which has played its political hand far more astutely than the Government and has grabbed business from this country. Frankfurt and Paris will be lining up to do the same. We are dealing with international banks, and the Government’s insular look at what should be done, presuming that British solutions will add to British competition, is a misnomer. We face problems with transparency in the UK dependencies, which, unlike any other country, we can influence. They remain totally opaque, specifically in relation to banking and subsidiaries—there is nothing there. On international banking agreements, the Government are hiding even from the modest proposals emanating from Brussels, of all places. This is not going to solve our problems. Competition has not moved forward, and there is no evidence that it will. The Government have an aspiration, but no strategy, for competition, so we remain with none. The problem of oligarchies running investment banking worldwide has not changed either; it remains as was—a fundamental weakness in the banking stranglehold over the rest of the economy—and totally unaddressed.

The fundamental issue that some posed at the beginning will remain the Achilles heel of all politicians and whoever is in government in this country from now on: if there is a further banking crisis and individuals—known as voters—are in a panic over their savings, there is no politician in any Government who would not bail out those accounts. No Government, whatever their colour, whatever the economic situation, would survive grabbing the electorate’s savings.

Most fundamentally, we have failed to create a concept of tiered risk for consumers to give them a choice. It has worked before. The classic example is a simple one, but a real one: the premium bond. When the premium bond was introduced, people knew that it was totally guaranteed; they knew it was not the best way of investing, but they bought them because they were absolutely guaranteed. We do not do that with our savings now. We have not created the options that would let our constituents say, “We’ll put X amount in here, knowing we’ll get a lower return than elsewhere, because the Government will give an absolute guarantee. And we can put Y amount in a middle-risk option, where there are some guarantees to certain levels, and we’ll put Z amount into something with great returns, but explicitly no Government guarantee.”

Our failure to create those options has created a fundamental weakness. I would not even describe that as radical; I would call it a rather conservative, with a small c, and moderate proposal, giving choice, creating markets and trusting people. We have not done that. At some stage, a future Government—not this one or the next one, I hope, or one in our lifetime—will face the dilemma again and will be forced to bail out a bank. There is the danger, however, that it might come more suddenly than that.