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Mr Steve Baker (Wycombe) (Con): I agree with the hon. Gentleman that this is a live issue on the right, and I, too, would like to see a much more diverse banking sector. Let me bring him back to the point made by my hon. Friend the Member for Horsham (Jeremy Quin). Is it not a problem for the hon. Gentleman and me, and for all those who want a more diverse, more co-operative and mutual banking sector, that the entire atmosphere of co-operative banking in the UK has been established by the circumstances of our own Co-operative bank?

Jon Cruddas: The hon. Gentleman seems to be hiding behind one example when all the evidence across western market economies suggests that more co-operative banking does indeed have a part play in creating a more resilient modern capitalism.

What does all this mean for RBS? The Government have presented an artificial choice between business as usual with taxpayer ownership and business as usual with private ownership. This could be deemed outdated thinking. We need so much more imagination and so much more ambition if we are really going to build a better banking system. We urgently need to nurture new kinds of bank that exist in almost every other developed economy—banks that are rooted in local communities, accountable to more than quarterly profit figures, focused on supporting real economic activity, and run with an ethic of public service attached to them. The reason this debate is so obviously important is that with economists the world over warning that the next financial crisis could be just round the corner, the stakes literally could not be higher.

1.54 pm

Jeremy Quin (Horsham) (Con): The number of compliments paid to Royal Bank of Scotland over the past few years has not been such to overtax the Hansard reporters, and I have no doubt that today’s debate will be no different. I have huge sympathy with my hon. Friend the Member for Hazel Grove (William Wragg) and the experience of his constituent. We will all have constituents with similar issues—I certainly do—and it is absolutely right that these things should be focused on and that the lessons from the mistakes must be learned. I am trying to take up the challenge of the hon. Member for Dagenham and Rainham (Jon Cruddas) by presenting an alternative viewpoint in addressing the subject of the debate that I congratulate the hon. Member for Edmonton (Kate Osamor) on securing.

As the Register of Members’ Financial Interests points out, I have had some familiarity with this sector. I therefore think it is appropriate that we at least acknowledge the huge transformation that has happened inside RBS over the past few years. With the encouragement of United Kingdom Financial Investments Ltd and my right hon. Friend the Chancellor, it has taken serious actions. It has dramatically shrunk its investment bank, and that will be welcomed in many parts of this House. It has sold off its overseas assets, getting rid of Citizens Financial Group in the US, and it is sorting out the mismanagement of the past. It is investing in IT systems finally to bring together the amalgamation of all the banks that form the business. With its capital now at 16%, I very much hope that it is now in the position that we all want to see whereby it can really drive lending into the UK economy and support our small and medium-sized enterprises.

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Grahame M. Morris: The hon. Gentleman is setting out an alternative view that RBS has changed and been reformed, but did not the LIBOR exchange rate-rigging scandal happen after it became a publicly owned bank? Has anything fundamentally changed in the bonus culture that drives such risk-taking and does not support jobs in the real economy?

Jeremy Quin: I acknowledge and appreciate the hon. Gentleman’s point. I would have a much better case if I could say that all the problems were pre-crisis, but they were not; I fully acknowledge that. There are clearly issues that were endemic in RBS’s culture, and I sincerely hope that it has got a grip on that now.

RBS certainly does have a grip on its corporate structure and how it is conducting its business. It is now far more focused back on the UK and on UK corporate lending. It is the largest single lender to UK corporates, the largest supporter of SMEs, and the largest provider of mortgage lending. That is what we all want to see and wanted to see when the stake was initially taken.

Clive Lewis (Norwich South) (Lab): The hon. Gentleman is saying that RBS has changed and improved its culture, but in The Times this week there was an article suggesting that it has been falsifying the mis-selling data that it has been giving out. I wonder what has actually changed if it is still misbehaving and, in effect, telling these porkies. Surely, in that case, it has not reformed itself and is just the same as it always has been.

Jeremy Quin: I have a lot of faith in the regulatory system that Ministers have put in place over the past five or six years under the coalition Government and this Government. What we need to focus on, as a House, is ensuring that we have the regulatory system that will deliver the results for our constituents and for the broader UK economy. I am nervous that the motion proposed by the hon. Member for Edmonton, although well intentioned, would delay support going into the economy.

I was serving in the Treasury when the stake in RBS was originally taken. I know that no hon. Member would be under any illusion that that stake was ever taken in a leisurely manner with a view to getting a tidy investment. The decision was taken by Labour with the very best of intentions, and it was the right decision to support the UK economy and the UK banking system at an absolutely critical moment.

George Kerevan (East Lothian) (SNP): Given the hon. Gentleman’s experience at the time, does he agree that there is still nevertheless an onus on the Treasury to ensure that the money paid out in acquiring RBS is paid back in full to the taxpayer?

Jeremy Quin: I understand the attraction of that argument. The hon. Gentleman is an economist of fine standing, and his point, which was also made by the hon. Member for Edmonton, is one to which we would all like the answer yes, but it is not as simple as that. The reality is that the value of a share is what people are prepared to pay for it. We know what the value of RBS is at present. A lot of actions were taken within RBS that might have been right for the UK economy but

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not have added to the value of the share price. If we are expecting RBS to act in the interests of the UK, that may not always be right for their share price.

Kelvin Hopkins (Luton North) (Lab): Will the hon. Gentleman give way?

Jeremy Quin: I will, but let me make one final point in rebutting the point made by hon. Member for East Lothian (George Kerevan), and then I am sure the hon. Gentleman will have another go. The Rothschild report is thorough—it is bigger than the two pages produced by the Governor of the Bank of England—and sets out why the taxpayer can expect to at the very least break even and probably make an overall profit on their investment in the banking system. That is a remarkable achievement, given that back in 2009, when the Labour party was in government, the Treasury was talking about a £20 billion to £50 billion loss.

George Kerevan: I thank the hon. Gentleman for letting me back in. I simply asked him whether he felt, given his experience, that the goal should be to try to maximise the return to the taxpayer, given what they put in. I accept they might not get it all back, but should not the goal be to maximise the return to the shareholder, who is the taxpayer?

Jeremy Quin: Of course, we must maximise the returns, but we must do so in the context of the broader picture for the UK. I acknowledge that the banking system is incredibly important to our economy, including what it can provide to the real economy.

Mr Baker: Will my hon. Friend give way?

Jeremy Quin: I will give way briefly to my hon. Friend, but I know that other Members want to speak.

Mr Baker: I am most grateful to my hon. Friend. Having listened to the debate, one of my advisers has texted me to say that according to the International Monetary Fund, as retrospectively analysed by Ewald Engelen et al, the taxpayer cost of saving the banking system was £500 billion, which is way more than the equity injected into it. Has my hon. Friend taken into account the IMF’s calculations, and does he think we will get that £500 billion?

Jeremy Quin: I am grateful for the wisdom and insight that has flashed on to my hon. Friend’s machine. His staff are very attentive and I look forward to them providing me with the IMF report so that I can go through it in great detail. I look forward to discussing it with him later. I am being intervened on from all sides. My hon. Friend makes me take on board the £500 billion mentioned by the IMF, while the hon. Member for East Lothian (George Kerevan) simply wants us to hit the five pounds tuppence per share. I am being pulled in different directions, but we all agree that RBS needs to be productive for the real economy.

That takes me to the heart of the motion tabled by the hon. Member for Edmonton. The long-delayed and long-drawn-out splitting off of Williams & Glyn from RBS has cost billions and taken a huge amount of management time. With the best will in the world, splitting up such organisations takes time, effort and

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money. I am really concerned that it could be an unnecessary distraction to try to pull a bank in as many as 130 different directions, as the hon. Lady proposes. I fear that the creation of multiple banks will lead to multiple dis-synergies and create entities that will find it much harder to access capital markets. It could be a very costly distraction and I am very nervous that it would not act in the interests of the broader economy. There are advantages that flow from a large, well-capitalised and well-regulated bank being able to spread its assets across the UK.

Although I wish the initial public offering of the Clydesdale and Yorkshire Bank well, if it goes ahead in the new year, I fear that investors prefer the spread of banks across asset classes and across the whole of the UK, rather than regional entities. One only needs to remember the passion in this place regarding the steel industry to recognise how a major problem can have a ripple effect on small and medium-sized enterprises locally and cause huge problems for a regional economy. I fear that capital markets would reflect those risks in a higher cost of capital and scarce resources, particularly in those very areas of the country where we all wish to see the maximum amount of lending.

Catherine West: It think we could be convinced if the number of loans being given to small businesses since 2008 had rocketed. Instead it is flat because, quite rightly, the banking sector is looking inwards, although that is not to be encouraged. What incentive can Government policy create to make banks lend to the small businesses that keep our constituencies going?

Jeremy Quin: I will make a negative point and a positive point. On the negative side, I do not think that tackles my concern that smaller banks would have higher costs of capital and scarcer resources, making them less able to lend to smaller businesses. I think the hon. Lady would agree—my hon. Friend the Member for Hazel Grove certainly would—that there is still a huge crisis in confidence in the major banks, and the last thing a lot of small businesses want to do is ask for a loan, because they are worried about the rug being pulled from underneath them. That process is going to take years to address.

Internationally, I do not think that the United States, given its overall funding strategies and the use of capital markets by corporates, presents Europe with a useful analogy. The caja banks in Spain were regionally focused and regionally driven, and they made huge investments in regional projects, but they have been a disaster and brought the Spanish economy crashing down. I acknowledge the historical success of Sparkassen and Landesbanken in Germany, but I fear that what happened to them during the crisis could happen elsewhere. The inability of Landesbanken to get local lending projects that more than met its cost of capital meant that it ended up taking on very risky investments in Europe, which helped to precipitate the Eurozone crisis

Mr Douglas Carswell (Clacton) (UKIP): And bonds.

Jeremy Quin: As the hon. Gentleman says, the wrong kinds of bonds in the wrong kinds of markets also inflated the credit bubble.

I fear that there are no overseas alternatives that would act as a panacea. There is no reason why we should not do something by ourselves, but I am worried

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that it would be a distraction at a time when we really want money to be flowing out of banks and into the real economy. For that reason, no matter how lonely it makes me, I oppose the motion.

2.6 pm

Mr Adrian Bailey (West Bromwich West) (Lab/Co-op): I congratulate my hon. Friend the Member for Edmonton (Kate Osamor) on securing this debate. I totally agree with her that, given the fact that RBS is a major public asset and that its proposed sale is of huge significance, the level of both public and parliamentary debates has been very limited. This debate will at least go some way towards addressing that.

I will not labour that point, but I will start from the perspective of the taxpayer, who has a huge interest in the issue. There are two specific but overlapping interests. The first, which has already been debated, is the issue of recouping the money the taxpayer has invested in the bank. The second is the need to ensure that, even if the bank is sold, it supports the wider community interest and the overall economy in a way that will boost the economy and future tax receipts. The sale as mooted does not seem to do either of those things.

I am grateful to the New Economics Foundation for some of the figures I will mention. From February 2014 to February 2015, RBS traded at an average of 349p per share, way below the UK Financial Investments assessment of the 482p per share needed to recoup the taxpayers’ investment. If we also consider the additional uncertainties about the costs of fines and litigation related to the mis-selling of products and the manipulation of LIBOR, we will see that there is a big question mark over what the market will stand.

Failure to recoup taxpayers’ money might, in certain circumstances, be justified if the returns from the capital receipt contributed substantially to public finances. The Government have committed themselves to using the money raised from the sale to pay off public debt, but, as things stand, interest rates are low and the amount that would be paid off would be modest. It is reasonable for the House to ask for an exercise to be completed calculating the amount that would be paid off compared with the amount the taxpayer may get as a result of restructuring the bank and of the investment in our wider economy and the increased tax receipts that would generate. That would not be a simple exercise, but, given the significance of the proposed sale of the bank, it is reasonable to expect the Government to perform it and to put it before the public and Parliament before they justify their decision.

I will make a few comments about the financial services industry in general. Britain is a world leader, and I would not wish in any way to detract from the industry’s crucial position in the economy. However, in fulfilling its secondary objective of underpinning growth in the rest of the economy, it has been much less successful and lags behind many of the banking services of our key international competitors. UK banks have increasingly favoured lending to other banks and for real estate, rather than to production sectors of the economy such as construction, manufacturing, transport, communications and retailing.

That has really been brought home to me by recent events. It is ironic: we have a Government who talk about the status of our financial services industry and

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are philosophically and ideologically committed to the free market and the capitalist process of wealth creation, yet when we need major investment in infrastructure and regional development, they have to cosy up to China, the foremost communist country on the globe. I do not think that there can be any clearer demonstration of the total dysfunctionality of our financial services market.

Kelvin Hopkins: It is ironic that the Government are intent on privatising, yet when they privatise they often sell off British assets to foreign Governments. Nationalisation is all right so long as assets go to a foreign Government, not to the British Government.

Mr Bailey: I take my hon. Friend’s point.

Mr Baker: I share the hon. Gentleman’s sense of irony, but is it not the case that communist China has such assets only in so far as it has adopted the market economy principles of private property rights and the freedom to make contracts?

Mr Bailey: I broadly agree with the hon. Gentleman’s thesis, but I do not think that he would agree with mine: that if we had the sort of financial services industry that was focused in the right direction, it would not really matter anyway what progress they were making.

George Kerevan: Is it not ironic that the Government are privatising the UK Green Investment Bank, which is a de facto regional investment bank with its headquarters in Edinburgh, and are instead about to invest £2 billion in the Chinese-led Asian Infrastructure Investment Bank to provide local area funding for infrastructure and companies in Asia?

Mr Bailey: The hon. Gentleman’s intervention reinforces the sheer incoherence, inconsistency and irony of the Government’s policies towards the financial sector.

I want to speak for a few moments about small and medium-sized enterprises. The Government talk about rebalancing the economy, first from service industries to manufacturing and then from London and the south-east to other regions. If we look at the economy, we see that that must be done through SMEs. They constitute 90% of our businesses, 60% of employment and 50% of output. Although those in manufacturing may represent only 12% of our total GDP, they are hugely significant and crucial to driving up productivity and in our export performance, which are key pillars in driving forward our economy.

It would be reasonable to look at our financial services sector to see what it delivers to help to drive forward the economy. Finance and investment are the fuel for this engine of growth, but the problem is that the fuel is flowing in exactly the wrong direction. Despite Government schemes to boost investment loans to small businesses, the number of such loans has declined. The level of lending is highest in London, which has the smallest manufacturing sector and the largest service sector, and lowest in the regions, where there is a higher proportion of manufacturing. Take my own region of the west

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midlands, the region with the highest manufacturing output: it receives 9% of investment while London receives 20%.

As was articulated by my hon. Friend the Member for Edmonton, one of the reasons behind the situation is the decline of branch banking. We have an over-centralised system. The demise of local banking and the growth of digitalisation have led to a consequential reduction in the local knowledge and insight required to understand the needs of both local communities and local business.

Kelvin Hopkins: Will my hon. Friend give way?

Mr Bailey: I will, but I am conscious that other Members wish to speak.

Kelvin Hopkins: It is tragic that Britain’s manufacturing as a proportion of GDP is about half that of Germany’s. Germany has used its banks properly; we have not. We now have an absolutely enormous balance of trade deficit simply because we cannot produce enough for our own use.

Mr Bailey: That was a well-timed intervention because my next comment was going to be that the opposite is true in countries such as Germany, where there is a tradition of regional banking, local engagement and long-term support for small businesses.

We would reasonably expect the Government, given their stated policy objectives of rebalancing the economy and boosting our exports and productivity, to look at the banking system as a whole and, given their ownership of RBS, to consider what they could do to address the gap in the market and achieve their policy objectives. Even their flagship British Business Bank seems to be replicating the sort of business-support models that have not previously worked. That market failure has led to the growth—I might add that that growth is very welcome—in community finance companies and peer-to-peer lending. They are playing a vital role in providing sources of finance in ways not addressed by the major, highly concentrated banks in this country. We would reasonably expect a Government who own RBS to look at its potential to support businesses.

The alternative Government policy seems to be to correct market failures through local enterprise partnerships and the regional growth schemes, some of which have been quite successful. One of the most successful schemes, operating through a community development finance institution under a £60 million regional growth fund programme, has outperformed nearly all other RGF schemes. What will happen? Nobody knows, because there is no commitment to fund it after 2016. The Government are selling off a bank that they control to the private sector, which has no record of supporting the very areas of business we most need for economic growth yet they are neglecting the sector that can deliver such investment.

In February, the British Business Bank commissioned a report on the community development finance sector. The report was supposed to be ready in time for the comprehensive review, but there has been a four-month delay and no report has yet been made. The sector therefore has no idea what its future funding support

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will be in continuing very effectively to deliver investment for small businesses that are being neglected by the existing banking sector.

To summarise quickly, we have a banking sector that is brilliant at making money, but fails to use its strength for the rest of the economy. The sector is over-centralised and fails to reflect the diversity of provision needed to meet the wider demands of our economy. Government schemes have failed to reach their full potential because they use existing banking structures. Where alternative structures exist, banks do not engage as they should. That is a major obstacle to delivering the Government’s policy objectives on exports, productivity and regional growth. In that context, the Government have a window of opportunity to make a change, and they have an enormous investment in a significant bank with the potential to drive such a change.

As it currently stands, the policy decision is based on political expediency, rather than the needs of the economy or the stated objectives of Government policy. Indeed, it actually contradicts elements of Government policy. I support the motion because it is time to think again.

2.20 pm

Mr Steve Baker (Wycombe) (Con): Some lessons of history are so well established as to virtually be axioms: the Government ought not to own banks and private enterprises ought not to be bailed out by the taxpayer. Unfortunately, the Government do own banks and those banks were bailed out by the taxpayer. I think that the taxpayer bail-outs, which involved the privatisation of profit combined with the socialisation of risk, together with all the conduct issues that we all know so well, have done a great deal to undermine faith in the market economy, which we know is the only way to sustain billions of people on the face of the earth.

Some of the issues that have come up today go to the heart of how we should structure a market economy. In my view, in a market economy there should be a plurality of ownership models for banks. One of the great mistakes of the 1980s was the demutualisation of building societies. [Interruption.] I see my hon. Friend the Member for Horsham (Jeremy Quin) nodding furiously in agreement, for which I am grateful. As a teenager, I knew instinctively that the mutual model aligned interests in a way that the shareholder model did not. I was opposed to the demutualisation, or carpet-bagging as it was called, that went on then. These days, I have more theoretical grounding for my views and I certainly believe that we should have a more diverse banking sector, with more mutuals and co-operatives.

I should say briefly that the systemic problems that have affected the entire banking system around the world, irrespective of ownership models, are symptomatic of far deeper problems in the institutional arrangement of money and banking, which I have talked about at great length on other occasions.

Kelvin Hopkins: The problems around the world derive from the fact that we have a globalised financial system with no boundaries between countries, so money can flow freely around the world. Had we been insulated from what happened in America, we might have survived rather better.

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Mr Baker: The hon. Gentleman knows that I often agree with him, but on this point I do not. I am an old English liberal free trader and I think that the fundamental problem is the chronically inflationary system of fiat money. I hope that he will forgive me if I talk instead about the Royal Bank of Scotland, because I have put the other issues on the record since my maiden speech.

I have two long-standing misgivings that come to a head in RBS. The first is about the effect that the international financial reporting standards have on our ability to see the true and fair position of banks. The other is about the stress tests. I am grateful to Professor Kevin Dowd, Gordon Kerr and John Butler of Cobden Partners for their advice, but any errors or omissions are my own. I should say that I have no financial interest whatever in Cobden Partners, although it was a spin-out from the Cobden Centre, which I co-founded to advance the ideas on which they are now working.

I have said many times that the IFRS allow, enable and encourage banks to overstate their asset values, and therefore their profits, and to understate their losses. In May, we conducted an exercise in which we compared the accounts of RBS with the statement of its accounts in the asset protection scheme. We believed that its capital was overstated by £20 billion. We had a meeting with RBS at which that was admitted.

If it is the case that the IFRS encourage banks to overstate their capital positions to such an extreme degree, I am not in the least convinced that we are selling something that we truly understand. Indeed, as the hon. Member for Edmonton (Kate Osamor) was opening the debate, on which I congratulate her, Gordon Kerr texted me to say that if we broke up the bank into 130 pieces, it would reveal its insolvency. I am not asserting the insolvency of RBS; what I am saying is that with the IFRS the way they are, we simply cannot know whether RBS is in the position it appears to be in.

In such circumstances, the paying of dividends, which has been proposed, would be extremely unwise. It would risk exposing taxpayers to future claims from stakeholders ranking superior to those common stakeholders. The claim will be that their entitlements have been improperly paid out as dividends, when those funds should lawfully have been held back and attributed to creditors and depositors. Tim Bush of Pensions & Investment Research Consultants, Gordon Kerr and others argue that we should have strong reservations about the integrity of the numbers and the ability of the firm to distribute profits under the law.

Ian Blackford: The hon. Gentleman is painting an interesting picture of the deficiencies of the IFRS. If we believe it for a second, does it not behove the Government to do a proper analysis of the true value of Royal Bank of Scotland, given that we own over 70% of it?

Mr Baker: I banged on in the last Parliament about the IFRS and their shortcomings. Indeed, I introduced a Bill to require parallel accounts to use the UK generally accepted accounting principles, precisely because I think there is a serious problem. I refer the House to Gordon Kerr’s book “The Law of Opposites”, published by the Adam Smith Institute, which not only covers this problem in detail, but explains how it feeds into the problem of derivatives being used specifically to manufacture capital out of thin air to circumvent regulatory capital rules.

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That is an extremely serious problem that might mean that the entire banking system is in a far worse place than we might otherwise think.

Jeremy Quin: I am genuinely curious about what my hon. Friend is saying. A lot of work was done on the balance sheet of RBS at the time of the asset protection scheme. Does he not think that any accounting issues would have been picked up at that stage?

Mr Baker: As I said earlier, we compared the asset protection scheme’s accounts with those of RBS and found a £20 billion difference in capital. When I write to my hon. Friend with the details from the IMF, I will introduce him to the people who did that work. I would be glad to sit down with him and my advisers and see what he thinks, because I recognise and respect his vast experience. I am, of course, only a humble engineer who sat in banks asking people how the system worked and found that they often could not tell me.

These concerns are not ones that I have made up. I have in my hand a letter from the Local Authority Pension Fund Forum that explains to our commissioner at the European Union in considerable detail over eight pages what is wrong with the IFRS. I would be pleased to share that with Members who are interested.

I am extremely uncomfortable with the idea that we understand the true and fair position of RBS, or indeed any other banks, because of the imposition of the IFRS. Particularly in relation to RBS, that has meaningful consequences when it comes to thinking about selling the shares. There are also consequences that we should consider when any consideration is given to paying out dividends.

Secondly, I want to raise Professor Kevin Dowd’s extended criticisms of the stress tests. He has made the point to me that under the 2014 stress tests, RBS had a projected post-stress, post-management action ratio of capital to risk-weighted assets of 5.2%. That was sufficiently poor that the bank was required to take further action on its capital position. Of course, it now wants to hand out dividends. That seems to both of us to make no sense. He continued:

“This 5.2% ratio compares to the 4.5% hurdle the Bank used, which is actually less than the 7% imposed on UK banks last year, and much less than the 8.5% to 11% minimum that will be imposed when Basel III is fully implemented in 2019.”

The range arises because of the counter-cyclical capital buffer. That is rather bizarre because it appears that RBS did not meet the Bank of England’s minimum requirements in the stress tests.

I am afraid that it gets worse. Because market events do not follow a normal distribution, there are severe problems with the risk-weighted assets measure that perhaps even render it useless. Therefore, the only measure that really makes sense is the leverage ratio, which is the ratio of capital to total assets, with none of the risk weighting. Under Basel last year, the absolute minimum leverage ratio was 3% and the Bank of England expected UK banks to meet that minimum. That 3% minimum was low. Some of my advisers suggest that a minimum of 15% is necessary, and possibly even double that for

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the bigger banks. That would be a radical departure. What did RBS achieve under the stress tests? It achieved 2.3%.

I am grateful for the work of Kevin Dowd, Gordon Kerr and John Butler at Cobden Partners on the IFRS and the stress tests. The problems that they have put in front of us are potentially extremely severe. I encourage the Government to meet my colleagues, to look at this matter again in great detail and to understand what has happened with this accounting, so that they can see what it means for our ability to see the true position of banks and how it incentivises structures that we subsequently find, as was pointed out earlier, are of no social value—structures that often serve to deceive and to create an impression of capital where there is none.

It is highly unlikely that RBS is in the state it appears to be in, and I agree with those who have called for diversity in ownership models. The challenges of providing those diverse banks out of RBS in its current condition are probably insurmountable, and I would welcome Government policy action to encourage mutuals and co-operatives. Above all, I encourage the Government to take all possible steps to establish the true position of RBS and the entire banking system, by comprehensively investigating the flaws in IFRS that have been well set out.

2.30 pm

Ian Blackford (Ross, Skye and Lochaber) (SNP): It is a pleasure to speak in this debate. I should declare that I am an ex-banker but one reformed, once described as a humble crofter on the Isle of Skye.

Calum Kerr (Berwickshire, Roxburgh and Selkirk) (SNP): Never humble!

Ian Blackford: I thank my hon. Friend.

I am grateful to the hon. Member for Edmonton (Kate Osamor) for securing this important debate, and I commend the hon. Member for Wycombe (Mr Baker) who provided the House with great detail about how he views the financial issues surrounding the Royal Bank of Scotland.

We keep hearing from the Government about their long-term economic plan, but to have any kind of effective economic plan we need a dynamic banking sector that is fit for purpose and engages in appropriate and responsible consumer and business lending. It is therefore important that we pay cognisance to what is happening to the money supply, and in particular the definition of broad money or M4.

Figures released by the Bank of England for the year to end September 2015 are a cause of some concern. Money supply fell by 0.6%, although I concede that that was largely a result of a fall in wholesale deposits. Worryingly, however, lending fell by 0.1%. There is concern that availability to bank lending for businesses and consumers is running below the rate that can be considered sustainable, and certainly below the level that is consistent with the delivery of sustainable economic growth.

There is also a legitimate debate about what kind of lending we should have, and about interaction with savers—many speakers have already raised that point. We must encourage industrial and commercial investment

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that focuses on innovation and skills, driving up wages and living standards, and we must have less focus on consumer debt. In Scotland, Scottish Enterprise has a limited but successful investment bank, and we must consider how to support and grow that model elsewhere in the UK.

Jeremy Quin rose

Ian Blackford: I will happily give way to my hon. Friend.

Jeremy Quin: I am grateful to be called an hon. Friend by the hon. Gentleman. I accept his point about the types of lending taking place. Does he share my concern that in making many banking decisions, bankers enjoy having an asset that they can grab hold of—a house, perhaps, or something that they can see, touch and feel? We are considering cash-flow projections. Perhaps this issue comes down to the heart of training inside banks, because to be comfortable with some of the new technologies and innovations, they must be able to understand those cash-flow projections exactly.

Ian Blackford: I agree with the hon. Gentleman and I could probably bang on about that issue for a considerable time. He is right. Banks that are lending, particularly to the business community, must understand the businesses to which they are lending. Too often that has been done by matrix, spreadsheets and ticking boxes, and not through a clear understanding of where the growth opportunities are in the economy. That must change, which is why I referred to the investment bank in Scottish Enterprise. We need sectoral skills and an understanding of where growth opportunities are in the economy. There must be more of an alignment of the interests of the country, the Government and the banks, and an appreciation of what we need to do to deliver long-term and sustainable growth.

Guto Bebb: The hon. Gentleman mentioned the investment bank in Scottish Enterprise. Wales has a similar institution, Finance Wales, which is operated by the Welsh Government. It charges penal rates of interest. Will the hon. Gentleman mention the rates of interest charged by the similar organisation in Scotland?

Ian Blackford: I confess that I am not aware of the individual rates charged, but the investment bank in Scottish Enterprise is quite constrained by its access to capital. I hate to make this point, but if the Scottish Parliament had more powers, it would increase our ability to ensure that that investment bank was properly funded.

We all understand the importance of improving capital ratios and establishing a more sustainable banking platform, but at the same time there has been a choking-off of credit to businesses and consumers, restraining our ability to grow our economy. The need for quantitative easing was clear, but it is right to ask how wider society has benefited from the Bank of England’s £375 billion asset purchase scheme.

Quantitative easing demonstrably helped the banks, but it has not fed through to greater activity to help the wider economy. If we contrast that with the pre-financial crash period between 2006-8, we see that M4 was increasing

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at an annual rate of close to 15%—levels that should have made alarm bells ring in the Government and the regulator at that time. Today we are living with the consequences of that failure, and that is why we are having this debate. The issue of banks being too big to fail, and the dislocation that took place in our economy as a result of the financial crisis, meant that the public were, rightly, angry at the behaviour of those responsible. We cannot and must not return to the circumstances that led to that crisis.

Of course, none of this was unprecedented. There was a significant banking crisis in the UK in the 1870s. It took a long time to recover from that crisis, and at the time it led to substantial change. In the US the Glass-Steagall Act was introduced in 1933. It prohibited commercial banks from participating in investment banking after the excesses of the 1920s, and that legislation remained in place until repeal under President Clinton. The Glass-Steagall Act was introduced for good reasons, and in my opinion its repeal added to the toxic cocktail that led to the financial crisis of 2007-08. In that context it is right to debate the relationship between commercial and investment banking, although we seem to have settled on ring-fencing as a solution to the challenges.

I understand why many people have supported ring-fencing, and perhaps it is worthy of ongoing debate. We know, however, that investment banking was not the only source of the financial exuberance that brought our economy to its knees. It is worth remembering that Northern Rock was the first failure in this country. That bank had absolutely no exposure to investment banking, and, as was the case elsewhere, simple bad practice—or indeed malpractice—was the issue. We must ask whether it is necessary or appropriate for our commercial banks, such as Royal Bank of Scotland, to engage in investment banking. There is no question but that we need a thriving investment banking industry in this country, and it remains today a source of jobs and wealth. The critical question, however, is whether such practices are appropriate for our high-street banks.

Jeremy Quin: I am pleased that the hon. Gentleman referred to the Overend and Gurney banking crisis of the 1870s and—this follows on from the remarks by my hon. Friend the Member for Wycombe (Mr Baker)—I believe it was only because of that crisis that banks had to report their accounts at all. Before that, such disclosure was regarded as rather a bad thing for a bank to do, because people might not trust it if it had to state exactly what its assets were.

On the investment banking arm of the Royal Bank of Scotland, does the hon. Gentleman think it appropriate for a commercial bank to provide investment banking capabilities to its corporate clients? There are many legitimate things about investment banking, such as foreign exchange providing support for exports, and derivatives are not always a bad thing—there are things they can do to help the export industry. There may be a synergy there, and I would be interested to hear the hon. Gentleman’s remarks.

Ian Blackford: I appreciate that there is an issue regarding what can be defined as investment banking. Of course corporate banking clients at RBS would require some of those facilities, but it is a question of how it is done.

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On 13 October the headline on the BBC was “Will Barclays make another push into Casino banking?” That is the real issue. We can debate and discuss the frailties that still exist in the Royal Bank of Scotland, and what it needs to do to improve its balance sheet, but when banks are in a better position than they are today and have strengthened balance sheets, what would prevent the likes of RBS—even in a ring-fenced scenario—from putting additional capital into investment banking? That is the problem. Over the past two or three decades the seductive charms of investment banking have led to investment banks going down that road. We must be careful about that and debate the best way we in Parliament can ensure effective regulation. It never worked. It was a fantasy. Sad to say, it could become a fantasy for many more in the years to come. We do not need our high-street banks to become casino banks, and if necessary we will need legislation to enforce that. Lessons must be learned. No more can the country be held to ransom.

I am conscious that others wish to speak, so in the short time I have left let me turn specifically to RBS. I want to see RBS back in private hands, but not at any price. As the motion sets out, there ought to be a wider review of the UK financial sector. We own RBS collectively and we have a duty of stewardship to make sure that it is fit for purpose for the decades to come. There needs to be a debate on this before the Treasury and UKFI unwind our position. We have a duty, having bailed RBS out, to get the best value for the taxpayer. I am delighted to support the motion.

2.40 pm

Guto Bebb (Aberconwy) (Con): It is a pleasure to follow the hon. Member for Ross, Skye and Lochaber (Ian Blackford). I associate myself with his final comments about RBS.

This is an important debate and I congratulate the hon. Member for Edmonton (Kate Osamor) on securing it. I put my name to the motion simply because I feel that this issue is worthy of debate in the Chamber. I am not ideologically opposed to seeing banks in private ownership—I am probably guilty of being ideologically of the view that banks should be in private hands—but it is important that we consider this issue in depth and in the round. It is important that we look at the track record of RBS and what we want from it, to ensure that we make the right decision.

In the context of the debate, my hon. Friend the Member for Horsham (Jeremy Quin) was quite brave to argue the case for RBS going straight into private hands at this point in time. Unfortunately, I do not share his confidence in the regulator, having spent three or four hours with the Financial Conduct Authority again this week. RBS still has a huge credibility gap with the general public and, more importantly, with the small business community. That gap needs to be addressed before we can entrust RBS to act in a manner similar to the way it acted in the past. I would be delighted to stand here today and say that the culture in RBS had changed completely. I am utterly convinced that within RBS there are individuals who are making huge strides to change its culture, but am I convinced that all the bad eggs have been removed? Am I convinced that

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all possibility of actions that are detrimental to small businesses within RBS has been removed? Unfortunately, the answer is no.

Andy Slaughter (Hammersmith) (Lab): I entirely agree with the hon. Gentleman that RBS made mistakes. It is still making mistakes, while largely in public ownership, in relation to funding for small businesses and branch closures. Does he not think that before it is returned to the private sector, if that is going to happen, it has to prove that it can run itself competently in the interests of its customers?

Guto Bebb: I would certainly say there is a need to look in detail at the way RBS is performing. There are questions still to be asked about the corporate culture within RBS and questions raised by the Banking Commission need to be looked at.

It is important to state that this is not a left-right political argument. There are think-tanks on the right that think we should look again at the UK banking model. There was strong agreement when my hon. Friend the Member for Wycombe (Mr Baker) stated that the loss of the mutual in the 90s was a mistake for the financial structure of the UK. This is not a left-right argument; it is about trying to get things right and ensuring that, as a result of intervention in the market that we did not want to make, we deliver a better banking system. It is important to state that the reason for intervention in the market was much wider than making a profit for the taxpayer: it was to ensure the UK economy was protected at a very difficult time.

Jim Shannon (Strangford) (DUP): I have been listening to the debate in my office. One thing that has not been mentioned yet is the position of Ulster Bank customers. The first time the computer glitch happened, the Democratic Unionist party went to meet the chief executive officer of the bank. For a number of days, people had no access to money. That has happened not once, but at least three or four times. Ulster Bank customers had no access to their bank or credit cards for days and sometimes whole weekends—no money. Does the hon. Gentleman not feel that the banks need to sort out their systems? Let us make sure they have a system that works and that customers have the quality service they deserve.

Guto Bebb: I am absolutely aware of the problems with Ulster Bank—not only computer glitches but undoubtedly questionable past behaviour—and I associate myself with the hon. Gentleman’s comments.

When hon. Members talk about the need to sell RBS shares at a profit, it is important to bear in mind the context. The intervention was not just to make a profit; it was an intervention to ensure that we protected the UK economy. It gave people confidence in the financial system.

We need to address some of the concerns specific to RBS from a small business perspective. I speak as the former chair of the all-party group on the mis-selling of interest rate derivatives, which now has the much snappier name of the all-party group on small business banking. I would be delighted if I never had to speak about RBS again in my entire life. I would delighted if I did not have to talk about the mis-selling of financial products for small businesses ever again. Yet again, as I mentioned

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earlier, I was with the FCA for three hours. I spent four hours in a redress meeting between a small business and RBS, and I have had various meetings with RBS staff in relation to some of the articles that have appeared in the press during the week. There are still issues that need to be resolved. The Treasury needs to have confidence that when it talks about moving RBS back into the private sector, it does so with a full grasp of the problems that RBS still faces.

One concern is that the excellent Treasury Committee report into small business banking and finance for small businesses has not, as yet, received a response from the Treasury. I asked a question about this, but as yet no response has been forthcoming. The report makes very critical comments about RBS, among others, and the potential liabilities still faced by RBS, among others. I am therefore at a loss as to why the decision has been taken to return RBS to private hands when the Treasury has not even responded to the concerns raised by the Treasury Committee. I would like to see that issue at rest.

Drew Hendry (Inverness, Nairn, Badenoch and Strathspey) (SNP): Does the hon. Gentleman agree that, when looking at new procedures and rules for transferring the bank back into private hands, we should be looking at ensuring that there is the opportunity to bring criminal prosecutions if people are behaving criminally with assets such as the Royal Bank?

Guto Bebb: If criminal behaviour has been identified, there should be criminal sanctions. My hon. Friend the Member for Bedford (Richard Fuller) stated clearly that the banking issue would not be resolved in the eyes of the British public until somebody had gone to jail. I am not advocating sending any innocent person to prison, but if criminal acts have been identified they should be pursued in the same way as any other UK citizen would face criminal sanction if they had committed a criminal act.

Drew Hendry: Does the hon. Gentleman agree that there needs to be provision for regulations, and that if jobs and livelihoods are put at risk because of the actions of those making decisions in banks, they should be part of the new regulatory process?

Guto Bebb: I would be careful about offering an opinion, because I do not think that risk should be criminalised; as small businesses understand, risk is inherent in business. If there is a clear effort to manipulate the situation, that is different, but risk is inherent. Most small businesses understand, when they take out a loan from the bank or ask for financial support, there is a risk involved if they cannot repay the money. I would want to see the definition and the detail before hazarding a further opinion.

On RBS, my concerns were touched on by my hon. Friend the Member for Hazel Grove (William Wragg). Now is a good time to mention the role of RBS’s global restructuring group, which, as a constituency MP dealing with businesses distressed by the mis-selling of interest rate hedging products, I have come across several times. The Tomlinson report was worthy of more attention than it received from both Front-Bench teams. I was fortunate enough in the previous Parliament to secure a debate in Westminster Hall on this issue, but I was

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disappointed with the response to the allegations in the report from both the Treasury and Opposition Front-Bench spokespersons. The report by Clifford Chance into the global restructuring group was given a very narrow focus by RBS—I am not saying we should dismiss it, but there is a question, given its narrow focus, about whether it is indicative of a problem with the group.

Of greater concern is the FCA’s decision to instigate a report into the group’s activities and the apparent further delay to that report. Given the sums of money at stake in the allegations of misbehaviour within the group, there is a question about whether the Government should be returning shares to the private sector; we do not know whether there will be significant liabilities arising from the FCA report. I have not been particularly complimentary of the FCA thus far, but I understand that the report has highlighted areas of significant concern about the group’s activities, so it is odd that the Government are proposing to sell RBS shares without first knowing about any potential liabilities arising from the report. I think there is much more to investigate, and I am glad that the FCA has finally concluded that that is worth doing, but the Government should be aware of potential issues arising from that report which could have a significant effect on the decision—and the perceived correctness of that decision—to return RBS to the private sector. I leave that word of warning with the Minister, and I would be delighted if she could comment. If she has a timescale for the report that is better than the one I heard this morning, I would be pleased to hear it.

I turn now to the sale of interest rate hedging products. This morning, I met a member of the RBS redress team whom I considered to be honourable, hard-working and doing his best for the businesses affected while trying to protect the bank’s interests. As a believer in the free market, I fully accept that if someone enters into a financial transaction, they accept a degree of risk, but they also expect the bank to work on their behalf, not against them, and to have their best interests at heart, rather than the interests of a commission-receiving salesman. When I meet someone who works for the bank in that capacity, I take them very seriously, and I understand that they are doing their best to deal with a complex situation.

None the less, the review into the banks that were affected, and particularly RBS, still leaves grounds for concern. Well over 50% of the derivative sales included in the FCA redress scheme were sold by RBS, so there is a huge potential liability if the review is shown to be inadequate. The FCA, in its response to the Treasury Select Committee’s report, clearly stated that it was minded to undertake a review of its own redress scheme, once all legal action had been completed. I am slightly concerned by that. If there are concerns about the implementation of its own redress scheme, I am surprised it is not willing to look at that until all legal action relating to the interest rate swap scandal has been completed. That means that the regulator is almost abdicating its responsibility to the courts. The whole point of the redress scheme was to avoid the need for small businesses without the financial resources to have to resort to the courts. They simply do not have the money. I am concerned, therefore, that the FCA seems to be admitting the need to review its own scheme but is not willing to do so until all court cases have been completed.

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Given that the FCA is at least admitting the need to acknowledge the concerns of the Treasury Select Committee, I am concerned that we might be returning RBS to the marketplace without being aware of liabilities that might arise from the redress scheme being found, to put it kindly, to be less than perfect. The fact that a significantly greater percentage of RBS cases have resulted in a “swap for a swap” outcome—where it is found that someone has been mis-sold this toxic financial product, but it is concluded that they would have ended up buying one anyhow—is a matter of concern. I am concerned in particular that the conditions of sanction, which are questionable, that were used by RBS to ensure that small businesses bought the protection are now being used to justify the finding that there was a legitimate condition of lending associated with the loans in question. I am not excusing any of the other banks involved, but RBS still has questions to answer. That is not to question the integrity of the team doing the work on behalf of RBS, but they are relying on questionable and concerning paperwork and legal excuses, and those concerns are shared by the Treasury Select Committee. They should be shared by those on the Treasury Bench as well.

Finally, on the stories in this week’s newspapers about the allegation of falsifying documents, it is important to take those allegations with a degree of caution, because they need to be tested and looked at. I nevertheless believe that the discrepancies between the paperwork made available through subject access reviews and other paperwork already supplied to small businesses undoubtedly raise questions.

I have been fortunate enough to have been subjected to several four-hour presentations highlighting discrepancies between, for example, the transcript of telephone calls held by RBS and the recorded transcripts held by the business. I grant that when a transcript of a telephone call is made, it will not be perfect, but when the RBS version is 94 words long and the business’s version is 594 words longer, one has to ask whether it is simply a mistake or whether something worse is going on. These are very serious issues that need to be looked at.

Similarly, I have seen emails in which half a sentence has disappeared and a capital letter has appeared in the middle of a sentence, turning its meaning on its head. Again, mistakes happen when information is transcribed, but I am not aware of mistakes happening when information disappears and capital letters appear. As I say, these allegations are extremely concerning. They are still allegations; they need to be looked at carefully. RBS has agreed that some serious issues need to be looked at, and I am confident that, in many cases, RBS will be able to explain why these discrepancies have occurred. I sincerely hope that it will be able to do that, because the thought that information kept by the banks about small businesses has been fabricated is truly shocking.

Let me return to my main point. RBS was brought into governmental control in order to save it from itself and make sure that the UK financial sector was protected—and, more importantly, that the citizens of this country were protected from what could have been a much worse outcome for our financial sector. In addition to ensuring that RBS is back to financial health, we have an obligation to make sure that behaviour within RBS has been rectified. I continue to believe that

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there is a question mark about that behaviour, and while it persists, I think we should be very careful before privatising or returning more of RBS to the private sector.

2.58 pm

Clive Lewis (Norwich South) (Lab): I thank the hon. Member for Aberconwy (Guto Bebb) for his detailed analysis, and I thank other Government Members for their progressive contributions to today’s debate, some of which have been quite surprising from the perspective of Opposition Members. I would also like to thank my hon. Friend the Member for Edmonton (Kate Osamor) for introducing the debate and for her thorough speech. In fact, it was so thorough that she has left me only slim pickings for my own speech.

I want us to take a step back and remind ourselves of the bigger picture of the role RBS plays and has played in our financial system, and of just how high the stakes are when it comes to sorting out our banking system. Let us not forget why we own RBS in the first place. This is the bank whose reckless profiteering and pursuit of growth at any cost brought the UK economy to its knees—a bank that in 2009 made the biggest loss in UK corporate history and taxpayers paid a high price for its hubris; a bank whose ill-fated takeover of ABN AMRO has become a byword for corporate over-reaching, and whose former chief executive officer, Fred “the Shred” Goodwin, has become a byword for greed and irresponsibility. It is somewhat ironic that the poster child for the failings of privately owned banks has now become the poster child for the Government’s ideological insistence that banks are better run in the private sector. This bank’s own track record hardly bears out that assertion.

The Government would have us believe that there is no real alternative to reprivatisation, and that anyone who says otherwise is a 1970s throwback who simply wants to keep RBS in its current form forever, but, as we have heard from other Members today, there are plenty of alternatives. As my hon. Friend the Member for Edmonton so eloquently argued, keeping RBS in public hands does not have to mean running it all from Whitehall. It could mean transforming it into a network of local banks, accountable to their local communities—banks run in the public interest and not in the interest of a narrow few; banks that simply do not engage in the kind of speculative and risky activities that caused the global financial crisis in the first place, but instead are mandated to stick to their core social function of providing capital for sound businesses and providing banking services for local people.

Whether we look overseas at the thriving local public interest banks in countries such as Germany, Switzerland and Japan, or closer to home at the proposals of “firebrand radicals” such as Nigel Lawson, the Archbishop of Canterbury and Virgin Money, there is no shortage of ideas when it comes to the structural reform of RBS. What is lacking is the political will on the Government Benches for serious change. Indeed, the most worrying aspect of the Government’s attitude to RBS is the broader direction of travel that it represents. We are essentially being told, “Move along now. There is nothing to see here. We have fixed the problems that led to the crisis, and it can never happen again. It is safe to return to business as usual.” That was evident from the manner in which the sale of RBS was announced.

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Jeremy Quin: Does the hon. Gentleman accept, though, that there have been dramatic changes in the regulatory environment? Happily, we will not be returning to 2003, because of the ring-fencing that has been introduced and the extra capital: RBS now has a capital base of 16%. Have there not been improvements in that respect?

Clive Lewis: I think that there have been changes, but as I said earlier, in an intervention, the fact that RBS is back again, and possibly about to be investigated for yet more fraud, does not exactly encourage me to think that those changes have been deep enough.

As I was saying, the sale of RBS was announced not to Parliament, but to a white-tie dinner full of City grandees, in a speech that also promised the City a “new settlement” on financial regulation. We are now starting to see what that “new settlement” looks like, with the Government caving in to economic blackmail from the likes of HSBC, which threatened to move its headquarters unless key post-crisis measures such as the bank levy and the ring fence between retail and investment banking were watered down—that, I think, answers the point made by the hon. Member for Horsham (Jeremy Quin); with the competition authorities ruling out action to break up big banks, even though they acknowledge that their customers are getting a raw deal; and with rumours that the Chancellor personally arranged the sacking of Martin Wheatley, the head of the Financial Conduct Authority, who has a reputation for being tough on bank misconduct.

Some commentators have even suggested that the Government’s desire for a quick sale of RBS is partly responsible for their magnanimous attitude towards the big banks: that the Government do not want to do anything that could damage the bank’s share price in the short term. If that were true, it would be incredibly short-sighted. We would effectively be trading in the chance to build a genuinely safer banking system in our haste to return to the pre-crisis status quo.

Andy Slaughter: My hon. Friend is making some excellent points. Does he agree that when RBS was mainly in the public sector, both the present Government and the coalition missed an opportunity to try to act responsibly? An organisation called Move Your Money—it is run from my constituency, and I think that it was mentioned by my hon. Friend the Member for Edmonton (Kate Osamor)—represents and campaigns for consumers, but it needs a partner in the banking sector that will do what local businesses and local people want.

Clive Lewis: I entirely agree. When we listen to the debate, we begin to feel that the Government are acting not in the interests of consumers, but in their vested banking interests. That seems to be their priority. We seem to be back to the pre-2008 mentality that the banks should be given whatever they want and we can have economic growth built on a house-price bubble fuelled by an oversized banking system without worrying too much about rebalancing our economy towards manufacturing or what we will do when the whole house of cards inevitably collapses.

We should consider, however, the effects on ordinary people like Andi Gibbs in my constituency who owned a business pre-crash. He was in effect mis-sold products by RBS and ended up with the now infamous global

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restructuring group. He not only lost his business; he lost his home, his wife, his family and his mental health. This is the price people pay when we do not get the banking system right. We now have a fantastic opportunity to get it right, and we must not squander it.

Drew Hendry: I made a point earlier about provisions for consequences for the people who take action that means that others with houses and businesses suffer through the malpractice the hon. Gentleman is describing. Does he agree that now is the time to look at having regulations that would put in place such consequences for people who take such action?

Clive Lewis: The hon. Gentleman makes an interesting point, and I agree we should be looking closely at the retribution that should be dished out to those who in effect ruin people’s lives; that is right and proper.

Successive attempts to persuade banks to lend more to small business have fallen flat, with some, like the enterprise finance guarantee scheme, actually being abused by RBS to exploit its small business customers. There could hardly be a clearer illustration of the fact that we have failed to get to the root causes of the problems in our banking system. The Chancellor and the banks may want us to move on and forget about the crash, but the British people have not forgotten. Whether it is mis-selling of PPI, mistreatment of small businesses or rigging the LIBOR and foreign exchange markets, they do not see that banks have really changed.

The warning signs of another crash are building. We may not have long to make sure our economy is better prepared than it was the last time. The Bank for International Settlements recently warned that we are living in

“a world in which debt levels are too high, productivity growth too weak and financial risks too threatening.”

In the UK, household debt is rising again, with the Office for Budget Responsibility predicting that, by the end of this Parliament, it will be higher than it was in 2008. Just last week, UBS warned that the London housing market is the most overvalued in the world and is in “bubble-risk territory”. In other words, the so-called recovery is not a sustainable one based on higher wages, higher productivity and creating new green jobs. Instead it is being driven by consumer spending propped up by ever-growing household debt, and fuelled by a banking system that still finds it more profitable to inflate house prices than to lend to productive businesses.

Having successfully rebranded a crisis caused by too much private debt as a crisis caused by too much public debt, the Government are now presiding over a new debt bubble that threatens to do exactly the same as what happened in 2008. Maybe instead of continuing to rely on the same institutions that got us into a mess in 2008, we should be promoting new types of bank, with ownership structures and business models that clearly distinguish them from the status quo: banks that are not beholden to the need to maximise profits, but which have a social mission and can genuinely put customers and the economy first. Our stake in RBS gives us a unique opportunity to do this.

When the history of this period is written, will the current Government be remembered as one who learned the right lessons from the crash, or as one who turned a blind eye and squandered the opportunity to build a better banking system?

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Several hon. Members rose

Madam Deputy Speaker (Mrs Eleanor Laing): Order. We have had plenty of time for this debate so I did not even suggest a time limit, thinking most Members would take approximately 10 minutes, but some, by taking a lot of interventions and having a lively debate, have taken considerably longer. I do not want to have to put on a time limit at this point on a Thursday afternoon, but it would be greatly appreciated if Members would take seven to eight minutes or less, because then everybody who wishes to speak in this and the next debate will have an opportunity to do so.

3.9 pm

Grahame M. Morris (Easington) (Lab): I should like to thank my hon. Friend the Member for Edmonton (Kate Osamor) for bringing this important debate to the House. I also want to thank the Backbench Business Committee for allowing the time for it to take place. I rise to speak in support of the motion. The risk of speaking quite late in a debate is that everything might already have been said, but I shall try to pick out a few points on where we are now and on the benefits of finding a real alternative to having another privately owned bank.

As we have heard today, and as we know from our own experience, the UK banking and financial system brought our broader economy to the brink of collapse in 2008. Indeed, we were just days away from the banks closing their doors and the ATMs—the cash machines—running out of money. That was caused not by a profligate Labour Government but by an under-regulated financial and banking sector that had no concept of social responsibility and that took reckless gambles with our economy and lost.

Today’s contributions from Government Members have generally been positive. Indeed, I have been quite surprised at how open Conservative Members have been to the ideas put forward in the motion, which is a reasonable one. We have also been hearing, however, that things have moved on and that RBS in particular has been subjected to major changes and is now a different entity. My view is that, for as long as we have a bonus culture in which bankers are financially incentivised by the prospect of receiving huge bonuses for a single deal—more than an ordinary working man or woman could accumulate in the whole of their working life—bankers will continue to take chances, to gamble, to fall foul of LIBOR schemes and to mis-sell products. We need to change that culture fundamentally, and we now have an opportunity to do that by creating an alternative system.

In the bail-out at the height of the crisis, the UK Government’s total support for the financial system exceeded £1.1 trillion and, as we have heard, the taxpayer-funded rescue package for RBS exceeded £45.5 billion. It is estimated that the privatisation proposals being put forward by the Chancellor of the Exchequer will cost the public purse £13.5 billion, which is a very considerable sum. I believe that the whole of Parliament, not just those on the Opposition Benches, should be affronted by the way in which this is being done. The announcement was made not to the House of Commons but in a speech at the Mansion House in the City of London. That is an affront to democracy. Our role is to hold the

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Executive to account, and we should have had a full debate in Government time on this issue. Now, however, we should look at some of the alternatives.

One of the downsides of RBS’s recent activities has been the number of branch closures, with 165 closing in the past year, a number of which were in my constituency. We have heard about the LIBOR scandal, and my hon. Friend the Member for Norwich South (Clive Lewis) has referred to other more recent scandals. The bank has also been implicated in undermining viable small businesses, as the hon. Member for Hazel Grove (William Wragg) pointed out. That has had scandalous consequences for the real economy.

I believe that, following the general election in 2010, the Government used the financial crisis as a way of justifying policies of austerity. Instead of focusing on the banking sector, learning the lessons and changing the political narrative, the Prime Minister and the Chancellor of the Exchequer successfully shifted that focus on to an apparent need to impose austerity. An economic crisis in the banking and financial sector was used to introduce a series of policies in which everyone was blamed, from public sector workers to the low-paid, the vulnerable, the unemployed, the sick and the disabled. Investing in our future, rebuilding our schools and hospitals, and increasing the numbers of doctors, police officers, teachers and nurses have now been caricatured as profligate spending. I am proud of Labour’s record, and I am never going to apologise for investing in the foundations and building blocks of a just, fair and decent society. We need a banking system that works for the real economy, and we have that opportunity if we choose an alternative way of looking at how we take forward RBS.

I implore the Chancellor to reshape our banking system. I ask him to consider the alternatives and not simply return RBS as the same London-centric, privately owned, commercial bank that mimics the existing banking culture and services in the UK. We do not necessarily want a state-owned bank run from Whitehall, and alternatives have put forward by various hon. Members, including my hon. Friend the Member for Dagenham and Rainham (Jon Cruddas). A real alternative would be to use our stake in RBS to create a local stakeholder banking network. That would be tasked with supporting small and medium-sized enterprises and rebalancing our economy, and it should have a public service mandate.

I had a walk through the City of London at the end of the recess, where I saw some of the fine buildings, with their images of industry—of ironworks, engineering and railway investments. We have lost that public service ethos. We instead have an idea of driving the investment banking arm, speculating in mortgages overseas, and of this drive to double-digit profits, which has undermined jobs in the real economy. There should be a specific duty to a particular locality, not a duty to maximise profits, but one to optimise returns to a range of stakeholders, including customers and the local economy. Such an approach would complement the Government’s stated devolution agenda, providing the regions with the financial power they need to support the SMEs that will deliver the economic growth and the new jobs that we need to rebalance the economy.

We should learn the lessons of the financial crisis. The large commercial banks withdrew credit from our economy and lending to the non-financial corporates—to

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manufacturing, construction and retail, for example—fell by 25% in the five years from August 2008. Germany experienced a similar collapse in lending from commercial banks, but its well-established local banking network, the Sparkassen, which colleagues have mentioned, and the local co-operative banks increased lending to domestic enterprises and to the self-employed over the same period by between 16% and 25%.

Time is short, so I wish to make only a few points in conclusion. The concentration of large, too-big-to-fail banks commercial banks leaves the UK uniquely exposed to another financial collapse. Returning RBS to that system would increase, not decrease, the risk to our economy. At the very least, the Government should consider the merits of the stakeholder model as a driver of growth, as well in creating a more stable banking system which can protect the real economy from future shocks. The Chancellor should not pursue a rushed policy of privatisation, which risks leaving the taxpayer worse off, not only through incurring a loss following the sale of the remaining shares, but, worse still, through continuing with an unreformed banking system that will condemn us, once again, to repeat the mistakes of the past. I support the motion.

Several hon. Members rose

Madam Deputy Speaker (Mrs Eleanor Laing): Order. Asking Members to speak briefly clearly does not work. I often say that it is a test of oratory: the shorter a speech, the more effective it can be. Let us try again with Mr Douglas Carswell.

3.19 pm

Mr Douglas Carswell (Clacton) (UKIP): Madam Deputy Speaker, I will take your advice exactly and speak for only a couple of minutes.

Helen Goodman: He has only just come in.

Madam Deputy Speaker: Order. If the hon. Gentleman had only just come in, I would not be calling him to speak. It is very kind of the hon. Lady to offer advice from a sedentary position, but it is not appropriate. I call Mr Carswell.

Mr Carswell: I congratulate the hon. Member for Edmonton (Kate Osamor) on securing this debate. She spoke incredibly eloquently—well done.

I am afraid that I cannot support the motion as it is far too prescriptive. It presumes to know what shape banks should take in the future. The German regional banking model, of which much has been said, could well be the future, but I am not sure that even Germany will necessarily have a German model of banking in 10, 15 or 20 years’ time. Equally, new technology might mean that we are able to do many of the things that banks currently do using platforms, which do not come with costly bonuses and buildings.

I very much favour the idea in the motion of a new model of banking. Since 2007, there has not been significant reform. Almost nothing has been done to rein in the worst excesses of fractional-reserve banking. It is this ability to conjure credit out of nothing that creates chronic malinvestment and credit bubbles in the

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wider economy and makes banks intrinsically unstable and in need of bail-outs—incidentally, I have consistently opposed those bail-outs.

In my paper “After Osbrown”—I do not intend to rehearse all the arguments on this occasion—I outlined the new model banking that I wished to see. After the Osbrown monetary and banking consensus has failed, and been seen to have failed, we will need change, but neither nationalising the banking system and the money supply nor imposing grand designs on the nature of banks, regional or mutual, are the answers. Claims that we need more retail banks as they are supposedly a safer bet than investment banks need to be taken with a large pinch of salt given that it was Northern Rock, a retail bank, that failed. I suspect that we will see dramatic change in financial intermediation and in the nature of money itself.

At the heart of the capitalist system is capital allocation, which does not use the pricing mechanism to allocate capital. That inconsistency cannot last much longer. We need fundamental reform to break up cartel banking. We must break up the cosy cartel presided over by central banks. We need to unwind quantitative easing, which is a subsidy for bankers. Thankfully, that will come about not as a result of politicians, House of Commons motions or ministerial insights, but because of technological change. Holding on to RBS shares will do nothing but hold up the changes that technology and market forces need to bring about.

3.22 pm

Helen Goodman (Bishop Auckland) (Lab): I am very pleased to follow the hon. Member for Clacton (Mr Carswell), who was admirably brisk.

The one respect in which this share sale is a disaster is its timing and price, which the Chancellor has chosen; according to the Chancellor’s own advisers, that means a loss to taxpayers of £7 billion. The taxpayer has been given no justification for that, and the National Audit Office should look into it, so I have written today to the Comptroller and Auditor General.

Before the sale, the Governor of the Bank of England wrote a two-page letter to the Chancellor, which said that selling the shares

“would promote financial stability, a more competitive banking sector and the interests of the wider economy.”

The Chancellor has relied heavily on that advice. I asked the Bank of England Governor about it on 20 October at the Treasury Committee. He said twice that

“the timing and valuation for the taxpayer…are entirely decisions for the Government.”

He also told us that his letter was based on analysis by the Bank of England, but he refused point blank to disclose the analysis. Will the Minister tell us today whether that analysis was passed to the Treasury?

I find that failure to disclose totally unacceptable; I hope that the Comptroller and Auditor General will be able to recover the information when he assesses the value for money of the share sale. The Rothschild document, which is one of the thinnest and weakest papers I have ever seen, at no point quantifies the benefits to the public of the sale. There might be some benefits to financial stability in the banking sector that are worth something, but how many? We should be told. I put it to the House that Ministers have been

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lobbied by their banker friends and funders in the City and that is why they are selling off the shares cheap, rewarding their cronies and cheating the taxpayer.

The Government have said repeatedly that they want to improve behaviour at the banks. In statements to the House in February, Ministers repeatedly told us that tax evasion promoted by the banks via Swiss accounts was a thing of the past, but RBS has 404 company subsidiaries located in tax havens. Evidence uncovered by The Guardian, but not yet published, from Coutts, a subsidiary of RBS, shows that that practice has continued throughout all the five years of Government ownership.

Alerted by a whistleblower, The Guardian met a senior manager at Coutts, which, incidentally, is chaired by a Conservative peer, Lord Douglas-Home. The manager offered to “park” undeclared money and help move a potential customer to Switzerland to avoid UK tax. During the meeting, the executive was recorded saying that he would accept a deposit worth 8 million Swiss francs on which tax had potentially been evaded, that he would accept funds without ensuring that the money was not the proceeds of a crime, that he would help a client pay

“as little tax as legal”

and that he would help a client move to Switzerland to avoid tax. The executive is a British national who ran a private banking team at Coutts International’s head office in Zurich. He was recorded saying:

“Basically, tax authorities are your enemy”.

Furthermore, these facilities and opportunities were advertised in the brochure by Coutts and, until The Guardian got in touch with Coutts, were on the Coutts website. Although under Swiss law tax evasion is not a crime and there is no obligation to report it to the authorities, in England it is illegal for a banker to deal with money that they know or suspect to be the proceeds of a crime.

When the head of UK Financial Investment came to the Treasury Committee, I asked him about this issue and whether he had problems with Coutts. He said, “Yes” and went on to say that “controversial” practices were “one of the reasons” for selling Coutts International. He also said that he had kept Treasury Ministers

“regularly informed of every conduct item we find out about”.

It would appear that, once Treasury Ministers were told, the Government, rather than tackling these malpractices and stopping them from taking place at Coutts, decided to wash their hands of the matter by selling the shares.

Taxpayers will want to know when Ministers were told about this tax evasion; what they did; what estimate was made of the tax losses; whether Treasury Ministers or officials alerted HMRC to the practice so that it could recoup the lost tax revenues; why the Minister told the House that the era of mass-market avoidance schemes was over; and whether we can have a systematic review of the 404 RBS subsidiaries located in tax havens. I submit that until we have answers to those questions, there should be no further sale of RBS shares.

3.28 pm

Dr Paul Monaghan (Caithness, Sutherland and Easter Ross) (SNP): I congratulate the hon. Member for Edmonton (Kate Osamor) on securing the debate and

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pay tribute to the ordinary people across the UK who work for the Royal Bank of Scotland and who have delivered a fantastic service in banks for many years. They are part of the community and very often their diligence and hard work is not recognised or rewarded.

The difficulty that I identify is with the Royal Bank of Scotland’s business model, encouraged by the UK Government, that has seen access and standards of customer service plummet in the past three or four years in particular. I shall set that in context and highlight three examples of branch closures in my constituency of Caithness, Sutherland and Easter Ross.

RBS recently closed a branch in Invergordon, a town in Ross-shire with heavy industry and a growing tourism sector. The loss of the bank is creating cash shortages, and business turnovers are starting to fall. The impact is obvious. The bank’s customers have to travel to other towns, where they conduct their shopping, pay their bills and undertake other aspects of their business. This is enormously challenging to the local economy in Invergordon.

The Royal Bank of Scotland has also closed a branch in Lochinver, a remote area of north-west Sutherland. It services a vast geographical area and is very busy with tourism. Customers there now have to undertake a 110-mile round trip to access their nearest bank. Businesses, too, have to travel that 110 miles to bank cash. The RBS branch in Lybster, too, has closed. It was arguably the centre of the town and a focal point for the community. Customers there have to travel over 40 miles to access the nearest bank, which is in Wick. Again, while they are there they conduct their shopping and other aspects of business, which has a negative impact on the local economy in Lybster.

Each of these communities feels aggrieved because of the way these branches were closed, with little meaningful consultation. Their economies are now marooned. Banks are crucial to our local economies. The structure of banking in the UK is failing our communities, especially those in rural areas. Empirical evidence exists to demonstrate that the business model currently implemented by the Royal Bank of Scotland and other banks, including the Bank of Scotland, is hurting small businesses and threatening the viability of high streets. Thousands of people in my constituency feel bitterly disappointed and let down by RBS and by the UK Government’s approach to the banking crisis more generally.

Correspondence that I have had with the Treasury and the Department for Business, Innovation and Skills evidences little interest on the part of the UK Government in challenging the business model of the Royal Bank of Scotland, and branch closures in particular, and the Treasury has declined to use its influence as the major shareholder to establish a more positive outcome. RBS claims that it has shifted from a global bank to a UK-focused bank with a strategy of building a stronger bank. My constituents see neither a UK focus nor a stronger bank. In fact, many now have no bank at all and feel distinctly disadvantaged.

The UK is virtually unique in Europe in not having a local or stakeholder banking sector. The UK is distinctive in having created a banking sector where people in my constituency and elsewhere are left dependant on large, commercial banks, with nothing left to plug the gap when these banks retreat. This is remarkably poor fiscal planning. The UK Government’s stake in the Royal

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Bank of Scotland provides an opportunity to address the structural problems observable in the UK banking sector and to guarantee communities access to banking services in the future. The New Economics Foundation, Civitas, ResPublica and Friends of the Earth, along with many other organisations, have all published proposals to use the UK Government’s stake in RBS to create a network of local banks. It is increasingly clear that UK taxpayers will never recover their investment through the re-privatisation of RBS. In fact, the likely loss to be realised is estimated to be around £13 billion, which is almost one third of the original taxpayer bail-out.

The UK Government must, as any sensible Government would, look for alternative options. They could develop a local banking model based on Germany’s Sparkassen—we have heard about them already; that could create 130 new local banks in England. Powers could be devolved to Northern Ireland, Scotland and Wales to allow those nations to restructure their banking sectors. The UK Government could transform Royal Bank of Scotland and NatWest into models of best practice. Based on the performance of internationally comparable local banking networks, a programme of localisation could have boosted the economy by £7.1 billion in 2008 and delivered additional benefits of more than £30 billion over three years.

It is not too late. I urge the Minister to be brave, innovative and ambitious and to order a full review of options for Royal Bank of Scotland before selling off any more shares at knock-down prices. The current programme of branch closures is helping nobody and looks very likely to become worse. I urge her to consider how local economies could be enhanced through the development of stakeholder banks, and how communities could be assisted to grow, prosper and develop. I also urge her to think about how the Northern Ireland Assembly, the Scottish Parliament and the Welsh Assembly could lead a revitalised banking service that is responsive to community needs, not corporate interests.

I have deep reservations about the timing and speed with which the UK Government are planning to sell their remaining stake in Royal Bank of Scotland. The reduction of the Treasury’s shareholding in the bank, without structural reform, will ultimately lead to a return to “business as usual” and a missed opportunity to learn the lessons of the crisis and ensure more customer and taxpayer protection. Structural reforms should be demanded as a condition of the sale. Should the sale proceed, it is vital that the taxpayer should receive the full £45.8 billion paid by the previous Government in 2008. The public must get every single penny back. I support the motion.

3.37 pm

George Kerevan (East Lothian) (SNP): I associate myself with the comments from hon. Members congratulating the hon. Member for Edmonton (Kate Osamor) on securing the debate. The advantage of having this debate is that we have moved the agenda forward, rather than looking back. Yes, we have castigated and held RBS to account, but the Minister should also note that Members on both sides of the House want to move the banking agenda forward.

We have spent seven or eight years, in the Treasury Committee and in the House, trying to refashion the regulatory machinery. In fact, the new regulatory machinery

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is yet to come into force, because it will be another two years before most of Vickers and the ring-fencing is in force, and another four years before it is fully operational. That means that we will have spent more than a decade trying to sort out the problems of 2007, and when we get there, we will discover that economic and banking problems have moved forward. Therefore, the advantage of today’s debate is that we have tried to start moving the agenda beyond 2007. I think that the Government should bear that in mind. That is why the motion, despite being drafted in very general terms, expresses the will of the House, which is that we need to look forward at how we can make the banking system more responsive, rather than simply protecting it from replicating the previous bubble.

I associate myself with the words of the hon. Member for Horsham (Jeremy Quin) and my hon. Friend the Member for Caithness, Sutherland and Easter Ross (Dr Monaghan). In criticising the strategy pursued by various managements of RBS, which hopefully was largely in the past, we should never extend the criticism to the work done by the ordinary workers in the branches and call centres. They have struggled to cope with the crisis of 2007-08, and with the various restructurings that have taken place. I remind Members that employment in RBS was around 200,000 when it was taken into public ownership, and now it is about 92,000, so there has been a massive shedding of labour.

Ian Blackford: It is interesting that my hon. Friend is referring to the challenges that some of the staff at Royal Bank of Scotland have faced. They are fully deserving of our support. Does he agree that we should reflect on the employees of RBS and other banks who were encouraged by their managements to own shares pre-the crisis, and who, among others, have suffered parlously from the mistakes by those managements?

George Kerevan: My hon. Friend, and old friend, makes a very good point. There is not a wall between the customer and the rank and file staff of RBS; they too are customers and shareholders, and they too suffered.

That brings me to where we go next. I do not think that Members of this House would stand in the way of returning RBS to private ownership. When the Minister replies, she must not define our difference of opinion as being that the Government support a return to private ownership while the rest of us are demanding that RBS stay in the public sector. That is not the issue. The issue is the emphasis placed by the Treasury and the various Treasury agents in their approach to the various generations of management in RBS. In public ownership, the key goal given to RBS management was to pay down the level of debt—to reduce the balance sheet. During that period, RBS reduced its balance sheet by some £1.3 trillion. To put that in numbers that people can understand, it is equivalent to the entire balance sheet of Lloyds plus the entire balance sheet of Standard Chartered.

Achieving that has required the management of RBS to focus only on internal issues. Of all the weaknesses that have been identified by Members—I agree with all of them—the central weakness is that the management has concentrated on RBS’s problems and not on the customer. I will explain how I would crystallise this debate for the Minister. In choosing when and how to

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send RBS back to private ownership, the test must not be, “Did we get all our money back? Is the Treasury satisfied? Has the balance sheet been paid down to a certain amount?”; it must be the impact on the customer and whether RBS has returned to a customer-led focus. I think that the current chief executive, Ross McEwan, and his staff are struggling to do that. Since the senior management was changed two years ago, there has been some refocusing. I remind the Minister that the proximate reason for the change in chief executive was that the then chief executive had disagreed with the pressure that he was being put under to get the bank ready for full privatisation when he was saying, “No, we need to restructure in favour of getting the bank ready to meet the needs of the customer.” The test is not about ideological machismo—are we in favour of private ownership or public ownership?—but the fact that the bank can be privatised and move forward only when it is capable of winning back its customers and its customers’ confidence.

The fundamental break with RBS’s customers has been the loss of faith of its small business customers. That has not changed; we have heard a number of examples today. Whether or not RBS was ultimately culpable, through the global restructuring group, in driving viable businesses to the wall, that is what RBS’s customers feel happened. Until that is resolved, the bank will never become the bank that we all want that can drive the economy forward.

The Government have to be very careful about how they approach privatisation in case they further break the confidence of small businesses. In August, when there was the first wave of privatisation in which the Government started to sell off their shares, that produced bad headlines yet again. I personally think there was evidence of short selling. The Treasury certainly lost more money than it needed to in trying to sell off 5% of shares. That brought further bad headlines, which cannot be allowed to happen again.

At this stage in the game, after seven to eight years of constant restructuring at RBS, it will not be easy to start again and ask RBS management and staff to have a whole new business model. We might come to that point, but I give a word of caution. If we look at the long and sorry history of the attempt to hive off Williams & Glyn, which is a disaster still waiting to happen, we will see that it is not possible simply to wave a magic wand and break up RBS into a dozen or so regional banks. I believe we need to create regional and stakeholder banks, but breaking up RBS may be more difficult than some Members imagine.

Williams & Glyn was not a standalone bank—it was a brand that was totally integrated into RBS. Hiving it off again has taken so long that the original investor, Santander, walked away. The RBS management has been forced to enter into a bizarre arrangement with Corsair Capital, which is an interesting name for the partner RBS has joined in order to bring in capital to Williams & Glyn and then float it off. I do not think that RBS will make any money when it is floated off, so the taxpayer and the Treasury will not get any more money back. Corsair Capital is an American group with a long history of consolidation in the banking world, so I do not think it will be very long before Williams & Glyn is bought by somebody else, precisely

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so that the Corsair group makes a return on its money and effort. In the end, therefore, we will be no further forward when it comes to small businesses.

I am being chided by you, Madam Deputy Speaker, so I will be brief in offering some practical suggestions.

Ian Blackford: Will my hon. Friend give way?

George Kerevan: I will not take another intervention, because I am mindful of the time.

The Government have to rethink the idea of extending the new bank surcharge, which they have applied to the larger banks, to the smaller banks and mutuals. If we want to strengthen the mutual stakeholder section, we need to reduce the bank surcharge on it.

There is a growing issue—we have not mentioned this today, but it is beginning to emerge in the banking community—of access to the interlink payment system that binds together all the banks. The electronic system, which relates to cashline machines, standing order payments and contactless payments in a shop, is commonly owned by the big banks, but it is very difficult for smaller banks, new challenger banks and, ultimately, stakeholder banks to access it. We need to open it up. Finally, we need to open up the pricing structure so that SMEs can see how much it costs them to run accounts with a bank

Members on both sides of the House have collectively offered suggestions to the Government. There should be no rush to judgment. Let us think about what we are doing. RBS must have a customer-led focus and we should not just look at what the Treasury wants to do in order to get its money back.

3.48 pm

Richard Burgon (Leeds East) (Lab): I congratulate my hon. Friend the Member for Edmonton (Kate Osamor) on securing this debate, and thank the Backbench Business Committee for giving Members time to discuss this important and topical issue in the Chamber. I am pleased that so many have taken part. It is a real pleasure to join the Minister and to respond on behalf of the Opposition for the first time in the Chamber.

We have discussed a proposal that asks the Government to consider suspending the further sale of their shares in RBS while a review is conducted of the UK’s financial sector and the case for new banking models. It is a simple motion and all Opposition Members support it.

This discussion of the causes and consequences of RBS’s bail-outs and of the Chancellor’s ongoing plans to sell off RBS, with a resulting cost to the taxpayer, has also been an excellent opportunity to discuss the future of RBS and of British banking as a whole, including the new models and structures that may benefit the British economy. The Government must engage in this debate, as my hon. Friend the Member for Dagenham and Rainham (Jon Cruddas) so effectively set out in his speech.

Labour Members want a thriving and dynamic banking sector that will best deliver for the economy and the electorate as a whole. In government, Labour decided to bail out RBS. That was a big decision—a £45 billion decision—but it was the right one given the calamitous situation in RBS, which my hon. Friend the Member for Norwich South (Clive Lewis) outlined so effectively. According to the National Audit Office, the decision was justified, and the price was backed by Institute for

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Fiscal Studies, but the scale of the bail-out—the money invested on behalf of the taxpayer—means that we cannot so lightly take a simple decision to return to business as usual.

The Chancellor argued in his Mansion House speech earlier this year that

“the easiest path for the politician is to put off the decision”.

I believe that the Chancellor has taken the easy decision to return, as I have said, to business as usual. The former shadow Chancellor my hon. Friend the Member for Nottingham East (Chris Leslie) said at the time that

“taxpayers who bailed out the bank will want their money back… The Chancellor needs to justify his haste in selling off a chunk of RBS”.

Both those points still stand: taxpayers still want their money back, and the Chancellor must still justify his haste.

Let us be clear that we cannot afford to get this sale wrong. The evidence of the Move Your Money poll, which was presented to us in the media this morning and by my hon. Friend the Member for Edmonton, shows that the public think the Government are getting it wrong: 82% of those polled agree, given their own interest as the majority shareholder in RBS, that this should operate in the public interest, and 58% believe that the bank should be restructured to serve local economies throughout the UK.

Jeremy Quin: Will the hon. Gentleman give way?

Richard Burgon: No, because I want to give the Minister as much time as possible to respond.

It is incumbent on the Minister and the Chancellor to set out why they are moving ahead with the sale. What evidence does the Minister have that it is the right thing to do? This is the first opportunity for a full parliamentary debate on the decision of the Chancellor to privatise RBS since his announcement to the City at the Mansion House in June. He did make a statement the following day, but informing the House was clearly something of an afterthought, as my hon. Friend the Member for Easington (Grahame M. Morris) clearly spelled out. At the Mansion House, the Chancellor announced a share sale even if it meant a financial loss to the taxpayer. The 5% stake sold on 3 August has already realised a loss of £1 billion, and some calculations suggest that the total losses if the entire stake is sold in this way could be about £13 billion, which is almost a third of the £45.5 billion total cost of the bail-out.

The Government have provided no real evidence of why RBS should be returned to the private sector in its previous form or why it should happen now. A 13-page report by the Rothschild Group and a two-page letter from the Governor of the Bank of England have been mentioned. The authors of the Rothschild report stressed that they had

“not sought to address the question of whether the government should sell its stake in RBS, but rather when it should do so.”

In other words, the review did not consider the full range of policy options. Will the Minister elaborate on how moving RBS shares from public to private ownership will promote financial stability, and on whether the relevant Bank of England Committee has endorsed that view? Will she publish any evidence she has received in support of that view?

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It is welcome that the right hon. Member for Chichester (Mr Tyrie), the Chair of the Treasury Committee, has asked to see the advice provided by UKFI to ensure that the taxpayer, as shareholder, is getting good value from this Government-owned company. I support that call. Is the timing of this sale in the interests of taxpayers or bank customers, or does the Chancellor just want to sell off another state asset quickly to make his borrowing figures look better? Was this decision taken purely for ideological reasons, or is it based on expert, independent advice? Will the Minister explain how the Chancellor arrived at his decision? In line with the call by my hon. Friend the Member for Bishop Auckland (Helen Goodman), will the Minister share the evidence, if she has any, with Members of the House?

I will turn to alternative models and structures for RBS and the future of British banking. I ask the Government to consider undertaking a full review of UK banking that questions how financial institutions have operated before and since the crash, and what other models might be considered to diversify the sector and deliver for the country by strengthening the economy.

There has been a much needed discussion of banking practices and reform over the past five years. We have had Lawrence Tomlinson’s report, Sir Andrew Large’s report on RBS’s independent lending, Sir John Vickers’ Independent Commission on Banking, and the Parliamentary Commission on Banking Standards and the work of the Treasury Committee, both under the excellent leadership of the right hon. Member for Chichester, to name but a few.

Given how badly things went wrong and the problems that still exist at the bank, the question we must discuss today is how we can do it better. We need to know not only why RBS failed, but whether it is delivering for the British economy now, and, if it is not, how we can do it better.

Labour was right to bail out RBS, but how has it operated since the Government became the majority shareholder? RBS has been bailed out, but there are still major problems with its operation, as the hon. Member for Aberconwy (Guto Bebb) indicated in his speech. It has cut more than 30,000 staff since 2008, many of whom were backroom staff on about £20,000 per year. It is closing branches faster than any other bank, and 90 of those it has closed this year were the last branch in town.

The Tomlinson report said in 2011:

“Returning RBS and Lloyds to full private sector ownership in their current form would be a return to the banking landscape of 2003, possibly with even less competition… Given the lack of any real change in the banking sector, there is nothing that will stop 2018 being the same as 2008 unless radical action is taken now.”

The Andrew Large report found that RBS was failing SMEs. He said:

“A perception has risen among some SMEs that RBS is unwilling to lend.”

I want to take this opportunity to touch on how RBS has been treating businesses. The House will recall the Backbench Business debate on 4 December last year on the Financial Conduct Authority redress scheme, in which hon. Members raised the serious concerns of businesses. My hon. Friend the Member for Liverpool, Walton (Steve Rotheram) stated:

“The only thing that is consistent and transparent is that the banks that caused the financial crash are profiting from selling products such as interest rate hedging products, which were

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bought by a company in my constituency, the Flanagan Group, and have caused it great difficulty.”

Similarly, my hon. Friend the Member for Newcastle-under-Lyme (Paul Farrelly) talked about one of his local businesses, DK Motorcycles, which had been “badly let down” by RBS, but had

“finally escaped the clutches of RBS”.

He talked about

“people from small businesses who feel bullied by their banks”.—[Official Report, 4 December 2014; Vol. 589, c. 480-84.]

Information that I have seen this week shows that the serious concerns of businesses such as Flanagan’s have not gone away. I therefore want to take this opportunity to ask the Minister whether she will meet me, concerned MPs like my hon. Friend the Member for Liverpool, Walton and businesses such as the Flanagan Group in his constituency to discuss the behaviour of RBS and what can be done to resolve the situation.

That leads me to the question that was put so well by my hon. Friend the Member for West Bromwich West (Mr Bailey) of whether selling RBS in its current form represents good long-term value for the taxpayer, taking into account all the economic costs and benefits. Is the Minister aware of those who say that the low price of RBS shares represents a belief among market participants that the reforms to guarantee its future financial health have not yet been concluded? Is the Minister satisfied that all necessary steps have been taken to return RBS to a state where it will not be in trouble again? Finally, is the economy best served solely by private shareholder banking, or is there a case for a more diversified sector that includes publicly owned and directed institutions, mutuals, co-operatives, social enterprises and regionalised banking? With so many fundamental questions yet to be answered, it is right that we engage in a wider review of the UK’s financial sector that considers the case for establishing new models of banking that might better serve our economy.

In conclusion, there are many alternatives. It has been proposed from a number of quarters that RBS be broken up to deliver regional banks, including by the Tomlinson report, the New Economics Foundation, Civitas and ResPublica, as Opposition Members have mentioned. We must discuss how regional banks can help to rebalance the economy—perhaps the Chancellor took the opportunity while visiting Germany to look into that.

It is our responsibility to map out the best way forward for UK banking, so that it delivers for the electorate and the economy as a whole. That means suspending sales of shares in RBS, which give away taxpayers’ money to private shareholders. It is incumbent on the Chancellor to explain why he thinks that is the right thing to do, and that means engaging with a real review of the banking sector and alternative models that will deliver a diversified and more resilient economy. How we treat RBS now will demonstrate whether we have learned the lessons of the crisis—

Madam Deputy Speaker (Natascha Engel): Order. I hope the hon. Gentleman is reaching the conclusion of his conclusion because we are way over time and there is a full debate to follow. If he could finish his speech now, I would be grateful.

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Richard Burgon: The scale of the bail-out and the money invested on behalf of the taxpayer mean that we cannot take a simple decision lightly and return to business as usual. The Labour party wants a thriving and dynamic banking sector that will best deliver for the economy and the electorate as a whole. We do not accept that the case has been made to sell the bank off now—at significant loss to the taxpayer—and that is why we support a full, independent review of all the options before further shares are sold, and we encourage MPs to support the motion.

4 pm

The Economic Secretary to the Treasury (Harriett Baldwin): I hope you will indulge me with a little time, Madam Deputy Speaker, to respond to a thoughtful and well-subscribed debate that has focused on the future of the banking system in this country. I congratulate the hon. Member for Edmonton (Kate Osamor) on suggesting this debate, and the Backbench Business Committee on securing time for it on the Floor of the House.

The 15 contributions that we have heard highlight the importance and impact of our banking sector, and show how integral it is to our long-term economic plan. I assure the House that a key element of that plan is a strong, healthy, more competitive and diverse banking sector. When the Labour Government acquired RBS, it was the largest single bank bail-out in the world at more than £45 billion—the price that was paid is a matter of historical public record. It was only ever intended as a temporary privatisation to restore financial stability to our banking sector, and I remind colleagues that in 2008, Gordon Brown stated:

“The Government will not be a permanent investor. Over time we intend to dispose of these investments in an orderly way”.

RBS is very different now from how it was then, and it has been restructured to focus on banking in the UK. It has shrunk its investment bank, and it recently completed the disposal of its US business, Citizens. The creation, by carving out RBS branches in England and Wales and NatWest branches in Scotland, of the historic Williams & Glyn brand will mean 314 challenger branches—more than twice as many as recommended by the hon. Member for Edmonton.

Seven years on, despite starting the process of selling shares in the summer, the UK Government—and therefore taxpayers—still own 70% of Royal Bank of Scotland. The easiest thing would be to leave RBS in state hands and duck the difficult questions, but no one in this debate has argued that the situation we inherited in 2010, with large chunks of failing banks in taxpayer hands, is something that we should maintain for ever. The right thing to do for the strength of our economy and for taxpayers is to start selling off our stake as part of a phased disposal programme. That is part of our long-term economic plan to bring down national debt and secure a brighter future for hard-working people across the country.

The hon. Lady was not a Member in the last Parliament, but I am sure she will recall that in June 2013 the Parliamentary Commission on Banking Standards, led by my right hon. Friend the Member for Chichester (Mr Tyrie), considered various options for dealing with the legacy of RBS as part of its wider review into the banking sector. Those included a radical restructuring

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of RBS and the creation of a number of regional banks. That option was dismissed by the Commission, which noted

“how difficult, expensive and time-consuming it can be to separate integrated activities”

of a bank.

The PCBS recommended that the Government undertake a review into the option of splitting RBS into a good and bad bank, and we acted on that. In November 2013 following the publication of our findings, RBS set out plans for the creation of an internal “bad bank”. It has now set out its new strategy to focus on its core British business. As I mentioned, it committed to sell off more of its overseas business, simplify its operations, shrink its investment bank and use the additional capital to support the British economy.

By the summer of this year, the strong progress RBS had made in implementing that plan had led us to a clear decision point. That is why, in July, the Chancellor sought the advice of the Governor of the Bank of England regarding the Government’s shareholding. It was the Governor’s view that

“public ownership has largely served its purpose”

and that

“it is in the public interest for the government to begin to return RBS to private ownership.”

He went on to say

“there could be considerable net costs to taxpayers of further delaying the start of the sale,”

and that

“Continued public ownership without a foreseeable end point runs risks, including limiting RBS’ future strategic options and continuing the perception that taxpayers bear responsibility for RBS’ losses.”

The Governor added:

“The Bank of England believes the interests of the people of the United Kingdom are best served by a vibrant, resilient and privately owned banking sector”

and that

“a phased return of RBS to private ownership would promote financial stability, a more competitive banking sector, and is in the interests of the wider economy.”

A lot of Members mentioned competition and choice. The financial services sector is now fundamentally stronger thanks to the Government’s reforms. A central part of the reforms has been to inject extra competition and choice into the banking sector, and specifically to help new challenger banks to enter the market. I mentioned already RBS’s process of divesting a new challenger bank, Williams & Glyn, but that is in addition to creating another eight challenger banks during the previous Parliament, including TSB, Metro, Virgin Money and Tesco Bank. During the election, we committed to ensuring 15 new banks would receive banking licences in the life of this Parliament. We are promoting competition between banks by boosting and helping to deliver the current account switch service. We have put competition at the heart of the regulatory system.

In the interests of time, I will respond to a few of the points made in the debate. On the FCA’s review of the Tomlinson report, which was mentioned by a number

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of colleagues, including my hon. Friends the Members for Hazel Grove (William Wragg) and for Aberconwy (Guto Bebb), my understanding is that the FCA review should be published between now and the end of the year. I will keep Parliament informed if I hear differently.

A number of colleagues spoke favourably about the German banking system. It is worth noting, however, that the German banking system also required £70 billion of capital injection, as well as £100 billion of guarantees, during the financial crash.

Colleagues mentioned a range of other important points. I can reassure the hon. Member for Ross, Skye and Lochaber (Ian Blackford) that we think ring-fencing, separating the actions of retail banks from those of their investment banking colleagues, is an important part of strengthening the regulatory system.

The hon. Member for Easington (Grahame M. Morris) mentioned the bonus culture. He will know that that was rampant under the previous Labour Government. It was brought very much under control under the previous Government, and that continues under this Government. He also said that we do not all want a state-owned bank run from Whitehall. I can only agree.

The hon. Member for Caithness, Sutherland and Easter Ross (Dr Monaghan) made some important points, with which I have great deal of sympathy, about the bank branches in his very large and very rural constituency. I pay tribute to the staff and pensioners of RBS, of whom he has 105 in his constituency. I have a wide range of points to make about the specific towns he mentioned, but in the interests of time it is probably better if I write to him.

Today’s debate was very much on the future of the banking system and the importance of having a strong, healthy, diverse and competitive range of choices in our banking sector for customers and businesses. I recognise that the issues raised in the motion are extremely serious, but the Government cannot support its proposals. They run contrary to all the evidence presented to us. Instead, we will continue to put in place our long-term economic plan, which is bringing stability and competition to the UK banking sector and delivering a better deal for hard-working people across the country.

Question put and agreed to.


That this House calls on the Government to consider suspending the further sale of its shares in the Royal Bank of Scotland whilst it looks at alternative options; and believes that this should take place in the context of a wider review of the UK's financial sector and that such a review should consider the case for establishing new models of banking, including regional banks.

Madam Deputy Speaker (Natascha Engel): Before I call Robert Flello to move the motion on the dog meat trade, I point out that we have very limited time, because of the length of the previous debate. I am not going to apply a time limit, but if the mover of the motion and the Front-Bench spokespersons can take about 10 minutes and everybody else five minutes, including interventions, we will get through everyone before 5 o’clock.

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Dog Meat Trade

4.10 pm

Robert Flello (Stoke-on-Trent South) (Lab): I beg to move,

That this House calls for an immediate end to dog meat trade cruelty; supports the Humane Society lnternational’s campaign to end the dog meat trade by working with government officials and local organisations in Thailand, Vietnam, the Philippines and China to raise public awareness and strengthen laws related to this trade; and calls on the Chinese government and Yulin and Guangxi officials to stop the Yulin dog meat festival where thousands of dogs are being cruelly bound, confined, trucked and slaughtered for meat.

I am grateful for the opportunity to speak about the cruel and barbaric trade in dog meat, which takes place most notably in China and south-east Asia, and I thank the Backbench Business Committee for granting it. I congratulate my hon. Friend the Member for Hayes and Harlington (John McDonnell) on his work in securing this debate before his promotion to the Front Bench, as well as many other Members in the last Parliament and this one. I also pay tribute to organisations such as Humane Society International, World Protection for Dogs and Cats in the Meat Trade, the Kennel Club, AnimalsAsia, and Soi Dog Foundation—to name but a few—and to the celebrities and public figures who have given their time and support.

It is impossible to say how many dogs are consumed in the dog meat trade each year, but Humane Society International estimates that about 20 million are killed in China, 2 million in South Korea and 5 million in Vietnam, with many of the dogs being sourced from neighbouring countries, such as Thailand, Laos and Cambodia.

Nick Thomas-Symonds (Torfaen) (Lab): Does my hon. Friend agree that there are two aspects to tackling this problem—first, persuading some countries to make the dog meat trade illegal; and secondly, putting pressure on countries where the trade is illegal to enforce the law?

Robert Flello: Absolutely. I wholeheartedly endorse my hon. Friend’s comments.

I am not a vegetarian, and as revolting as I find even the thought of eating a companion animal, I am not seeking to outlaw dog meat simply because I do not like it. However, this is not the humane slaughter of animals for meat in an abattoir, but a process in which animals are taken from their homes—often family pets are stolen—housed and transported in disgusting conditions in which they can often barely move and killed in the most excruciatingly cruel and painful ways.

I warn anyone listening that many of the things they will hear are deeply upsetting and disturbing. A quick search on the internet on this subject turns up some of the most graphic and horrifying images of animal cruelty anyone is ever likely to see. The methods used to kill the animals defy belief. Perhaps most sickeningly, there remains a belief that to produce the most tender and tasty dog meat, it should contain a high level of adrenaline and that the dog should therefore be stressed and fearful at the moment it is killed. It is common for the animal to be bludgeoned, hanged or electrocuted, and, in some

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cases, for the animal to be thrown fully conscious into a drum of boiling water—anything that ensures maximum suffering.

Gavin Robinson (Belfast East) (DUP): I commend the hon. Gentleman for shining a light on international barbarism within the dog meat trade, but does he agree it would be a missed opportunity not to show a level of introspection on the cruelty and barbarism in the UK towards animals, whether it be dog baiting, badger baiting, dog fighting or, as the hon. the Member for Dumfries and Galloway (Richard Arkless) has recently highlighted, the puppy farm trade between Northern Ireland, including my constituency, and his constituency in Scotland and the rest of the UK?

Robert Flello: As hon. Members will know, I secured a debate last September on the puppy trade, and I certainly accept we need to get our own house in order, but, although what we do in this country is appalling, what goes on elsewhere takes it to a whole new depth of despair and disgust.

Andy Slaughter (Hammersmith) (Lab): I would like to thank my hon. Friend not just for launching this debate, but for all the work he does on animal welfare. We do have high standards in this country, notwithstanding some abuses that go on. What does my hon. Friend think can be done at the Government level to ensure that countries that allow these abhorrent practices to take place begin to curtail them?

Robert Flello: I am grateful to my hon. Friend, and I will return to that point as my speech develops; I am conscious that I have only a few more minutes left.

It is important to note the cruel and inhumane conditions and the way in which these dogs are treated. When a slaughterhouse is used, the conditions are virtually without exception filthy, and dogs already in the poorest of health are waiting in areas covered in blood or faeces watching their fellow animals die. Investigations have shown that a large number of dogs in these facilities were wearing collars, suggesting dogs had been stolen rather than bred for the purpose of meat. It is likely, however, that those animals killed at official slaughterhouses represent just a small percentage of those killed. The vast majority of the killing occurs elsewhere—in even more unsanitary and inhumane conditions.

In some ways, I am loth to tell Members about the conditions, but we do ourselves and these dogs a disservice if I fail to touch on them. For example, families will often purchase dogs to slaughter at home. These petrified creatures are often tied to the back of cars and motorbikes, and dragged home barely alive. This is not an exaggeration; it is normal daily practice.

These dogs are not “farmed” in any sense that a sane farmer would recognise. Numerous reports suggest that, rather than raise dogs for consumption, violent gangs travel around stealing much-loved family pets. In a typical case, four trucks were stopped in Thailand carrying more than 1,000 dogs out of the country, 119 of which had already died of suffocation. Those who transport these dogs across hundreds of miles from country to country have only one concern: pack as many dogs into the trucks as possible.

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It is hard to describe the horrors these animals face from overcrowding, lack of food and water, heat and disease—barely surviving in their own waste. The thieves often poison the dogs in order to steal them and sell them to traders or restaurants, and they have no problem with turning their weapons—poison darts, crossbows or machetes—on the dogs’ owners if they are challenged or caught. This is big business, and the health and wellbeing of the animals or their owners is of no consequence to these people. Indeed, in some areas of China, up to 70% of villagers have lost a dog, with the majority believing that it was taken by a gang.

Now if this sickening cruelty is not enough to persuade Governments to ban this evil trade and enforce the laws, perhaps the health risks will persuade them. So unregulated is the dog meat industry that there is a huge risk to human beings from diseases such as cholera and rabies, with the latter found to be present in slaughterhouses and markets in China, Vietnam and Indonesia.

The World Health Organisation has raised serious concerns about the health risks to people eating dog meat. AnimalsAsia found that around 60% of village groups in China had vaccinated at best one in 10 of their pet dogs against rabies. It is thought that the dog meat trade now represents one of the biggest factors in the spread of rabies around the world. Investigations have uncovered a complete lack of proper vaccination or breeding records for the dogs that have even the most rudimentary breeding facilities. There is no quarantining—effectively nothing other than attempting to maximise profit.

It is hard reading, but I recommend the report commissioned by AnimalsAsia, which was based on four years research. It makes clear the truth behind the industry. It shows that the number of farms producing dog meat is far lower than advertised, with many dog-breeding companies referring to the same few companies; meaningful farming barely exists. To quote the report, the

“companies that claim to breed and raise their own dogs are seen as a source of ‘trustworthy’ dog meat by the public, but...not a single dog meat company’s dogs are from their own breeding farms. The dogs are all acquired rural dogs”.

That is a damning indictment of the industry for anyone who claims that it is in any way regulated or that a dog meat breeding or farming system is in place. Also in the words of AnimalsAsia:

“Our investigations strongly point to what everybody familiar with the industry has long suspected—that the vast majority of China’s dog meat comes from stolen companion animals and that misinformation and illegality is rife at every stage of the...supply chain.”

That is the reality of the issue we are dealing with here.

To be clear, this is issue is not just about an aversion to eating dog meat. I am not entirely unsympathetic to the argument that this is a tradition dating back centuries, and that dogs have a very different cultural role in many Asian societies. I do not believe that it is generally this House’s role to tell societies abroad what they should or should not do based on western sensibilities, but we cannot allow tradition to be used as a smokescreen for practices that are barbaric, cruel, inhumane and disgusting—any word we could pick would not come close to what we are discussing here today. The link between the consumption of dog meat nowadays and traditions in those countries is extremely tenuous, to say the least.