Banking Standards

Submission from Unite the Union (S027)

This response is submitted by Unite the Union. Unite is the UK’s largest trade union with 1.5 million members across the private and public sectors. The union’s members work in a range of industries including financial services, manufacturing, print, media, construction, transport, local government, education, health and not for profit sectors.

Unite is the largest trade union in the finance sector representing some 130,000 workers in all grades and all occupations, not only in the major English and Scottish banks, but also in investment banks, the Bank of England, insurance companies, building societies, finance houses and business services companies.

Executive Summary

· Unite has reservations that opting for a parliamentary inquiry over a Leveson style judicial inquiry is unlikely to address the cultural and ethical failings evident in the sector or lead to the delivery of root and branch reform of the financial services industry;

· Unite would wish to see remuneration systems overhauled;

· Unite has called for the publication of a report on pay ratios between executive directors and employees as part of company annual financial accounts.

· There are fundamental failings in the Boardrooms of banks in the UK with those in positions of influence displaying a staggering lack of competence and an innate inability to accept responsibility;

Unite supports:

- The introduction of a National Investment Bank to increase lending to SMEs, stimulate growth and focus investment on infrastructure projects;

- Changes to legislation that would enable the future prosecution of individuals identified in any failure in corporate responsibility;

- The complete separation of retail and investment banking at the earliest opportunity;

- Greater democratic control of the banks and financial institutions. The sector has proven that in recent years it is incapable of acting in the public interest and operates primarily to reward shareholders and a select group of individuals.

Introduction

1. While Unite welcomes the opportunity to respond to this call for evidence we do however have reservations that opting for a parliamentary inquiry over a more formal Leveson style judicial inquiry is unlikely to address the cultural and ethical failings evident in the sector or will lead to the delivery of root and branch reform required in the financial services industry.

2. Unite is in a unique position to provide an insight into the banking system from the position of the workforce. This gives access to the workings of the organisation which are not biased or tainted by the greed and excessive personal reward evident at the very top of many organisations across the sector but by a real ambition by the workforce, through their union, to change things.

3. Unite has responded to numerous consultations to the FSA, H.M. Treasury as well as Independent and parliamentary committees and yet has rarely been asked to elaborate, expand or clarify on any of the points made in our submissions. The issue of unfair pay systems, concerns over whistle blowing and corporate governance, and the potential for mis-selling have all been raised in previous Unite submissions as far back as 2007, (see links below [1] ) often before they were highlighted as areas of concern by these bodies.

4. Many of these issues related to cultural and ethical concerns. However, the sector and other ‘interested’ parties were apparently uninterested in such issues at the time.

5. The bailout of the banks and the significant impact this has had on every taxpayer in the UK has forced government and regulators to listen more carefully to those who raised concerns over such issues in the past and who aim to act in the wider public interest i.e. consumer groups, faith groups and trade unions.

Unite therefore has a few key concerns which it wishes to bring to the attention of the Commission.

6. Unite has recently produced a document – A Finance Sector for the Real Economy [2] which lays out Unite’s vision for the finance sector going forward. Unite believes that it is vital that the outcome of the financial crisis is a reformed banking and finance sector which supports a long-term outlook that meet the needs of society and the real economy. This should include:

· Stronger regulation, including the involvement of trade unions, as well as independent and academic experts;

· The introduction of a Financial Transaction Tax (or Robin Hood Tax) on speculative trading to help repay the damage caused by the financial crisis and curb the most risky transactions;

· Fair and transparent pay systems for all workers, including employee representation on remuneration committees;

· Employment security and an end to the jobs cull in the sector and the rush to outsource and offshore;

· A reassessment of performance management systems with greater emphasis given to service rather than sales and delivering fairness for both customers and employees.

Pay systems

7. There have been discussions taking place at many levels regarding tackling remuneration packages and other methods of reward. However, so far this appears to be limited to a review of the pay packages of high level and executive directors. Unite would wish to see remuneration systems overhauled.

8. The systems need to be changed but so too does the way pay is distributed. Pay distribution across the sector is unfair with those at the top earning upwards of 90 times the basic pay of those at the bottom. Unite has called for the publication of a report on pay ratios between directors and employees as part of company annual financial accounts.

9. The performance based remunerations system presently rewards target driven sales which can lead to inappropriate selling and pressures on the workforce to deliver unachievable levels of sales.

10. Unite conducted a survey within one high street bank in early 2012. The survey received over 10,500 responses: an unprecedented response level on a single issue.

- 85% of respondents reported that they felt stressed at work;

- 77% agreed that they generally suffer from symptoms caused by stress in the workplace including headaches, depression and anxiety attacks;

- 54% agreed or strongly agreed that they had an unfair pay system.

11. Asked what they thought were the major causes of stress at work responses included:

"Too many privileges for higher levels and not enough credit to lower levels who keep the bank running on a daily basis."

"Targets are not realistic and we are not rewarded fairly for the things we are achieving."

"Too much work with not enough time to do it, resulting often in unpaid overtime."

"Constantly feel worried about my job as everything is being ‘looked at’! and trying to juggle all the balls with not enough hours in the day to do everything."

"We have not learnt from all the mis-selling in the past!!! Recent changes to the system etc have not been fully implemented."

12. When asked what could be done to reduce stress some of the responses included:

"Set achievable targets with responsible budgets."

"Make targets more realistic and provide a culture that is driven by customer’s needs rather than sales pressures."

"Be more realistic and remember we are people, not machines."

"Give us back some pride in what we do and who we are".

"Improve on ‘trust’ culture so colleagues not afraid to speak up."

"Talk to us".

13. Unite is working with the company to address some of the issues raised in this survey. However it is clear that a wider issue which is evident across the sector is that the workforce believes that they should not be pressurised into selling products and services based solely upon profitability but on appropriateness and need, and certainly not through coercion or confusion.

14. The finance sector also has the largest gender pay gap across all industrial sectors of the economy. According to a 2009 report by the EHRC the pay gap between men and women working in the finance sector based upon mean full time annual gross earning is 55% compared with 28% in the economy as a whole. [3]

Professional standards

15. With regards to the issue of professional standards and the impact of this on public trust and expectations, Unite has witnessed conveniently selective memory recall by some individuals giving evidence to the Treasury Select Committee over the past few years, and who were also apparently unaware where their own responsibilities lay.

16. During his appearance before the Treasury Select Committee Bob Diamond, former CEO of Barclays, described ethics, integrity and values as "important". However John Thurso, MP suggested that "taking all incidents…it is possible to conclude there was a culture of unethical behaviour within Barclays". His assumptions are well founded. Some of the incidents he refers to include:

- Barclays has set aside £1.3 billion for mis-selling PPI;

- Potential £450 million pay out for mis-selling financial products to small businesses;

- Blatant tax avoidance systems which it has been reported could have cost the Treasury as much as £500 million;

- LIBOR fixing involved basically illegally fixing the inter bank borrowing rate. A practise overseen by Jerry Del Missier, former chief operating officer of Barclays, who has gone on to receive a £8.75 million exit package from Barclays.

17. These were not honest mistakes but show unethical behaviour and market abuse on a massive scale which reflects negatively on Unite members and the wider workforce in Barclays Bank.

18. Unite would also argue that it was not just a few bad apples in the trading room floors of the banks that went unnoticed, but fundamental failing in the boardroom with those in positions of influence displaying a staggering lack of competence and an innate inability to accept responsibility.

19. According to the British Social Attitudes Survey published in December 2010 people’s views about banks have been transformed by the banking crisis. In 1983, 90% believed banks were well run - far above the figure for a variety of other institutions including the police and the BBC. By 2010 just 19% believed banks are well run.

20. Coupled with this was the government bailout of the banking sector which has led the country to borrow the largest amount since records began. This increased debt has led to austerity measures which have had a dramatic impact on living standards for households across the UK.

21. The national debt is now around 65% of GDP, the highest level in UK post-war history; in 2011 unemployment reached its highest peak in 17 years with 2.7 million people unemployed. According to the Council of Mortgage Lenders, 2009 saw a peak in home repossessions with around 13,000 homes being repossessed. In 2011 around 160,000 people were in mortgage arrears. We also witnessed the highest level of personal and business bankruptcy in a decade; and youth unemployment at 22.2%.

22. To add insult to injury banks have awarded excessive bonuses, provided rewards for failure and guilt edged exits to those responsible for many of the decisions which have had such a negative impact on the sector and the economy. These payouts have infuriated our members and the rest of society. Quite clearly, we are not all in this together.

23. Professional ethical standards are vital to bring much needed shot of credibility back to the banking sector. This must be supported by robust penalties for misconduct or inappropriate behaviour, up to and including criminal prosecution.

24. In 2009 the FSA introduced changes to increase penalties and fines levied at individuals and companies who fail to reach acceptable standards of behaviour. While the fines on the banks are substantial, [4] in most cases they are affordable and therefore Unite would deem such fines to be inappropriate alternatives to criminal prosecution. It is therefore not clear that such fines are a credible deterrent.

25. At the 2012 Unite policy conference delegates agreed to campaign for changes to legislation that would enable the future prosecution of individuals identified in any failure in corporate responsibility.

26. The sector has a long way to go to rebuild confidence and trust and Unite believes that we cannot allow dishonest and reckless behaviour to become the standard by which the UK finance sector conducts itself.

Interests and Influence

27. The banks exert significant influence over the country’s elite networks and this is coupled with extremely successful lobbying by interest groups of the present government, which itself has also derived a significant proportion of its funding from the City. According to a recent report by the Bureau of Investigative Journalism, [5] funding of the Conservative party from the City rose from 25% in 2005 to make up 50.8% of the party’s total funding in 2011.

28. The report goes on to highlight that the influence is also embedded in the very system set up to bring change to the sector with Martin Taylor, former Chief Executive of Barclays Bank on the Board of the Independent Commission on Banking.

29. The relationship between the City, government and the UK’s elite networks must shift in order that the public can regain trust in the financial system and the sector must show that it is willing to act in the wider interests of society.

SMEs

30. Despite enormous taxpayers bailouts and huge sums made available through Quantitative Easing to increase lending to small business, the banks have resolutely stalled on acting in the public interest.

31. It is clear from figures from the Federation of Small Business that banks are continuing to limit lending to small businesses, making funds available on unfavourable terms thereby limiting take-up while claiming they are meeting demand.

32. Banks are trying to redress the situation, but for some it is too late. According to the latest quarterly survey from the Federation of Small Business, 4 in10 small businesses applying for credit are being refused. [6]

33. The most recent initiative introduced by the Government to reinvigorate lending to business is Funding for Lending. It is too early to say whether this new initiative will stimulate lending where other initiatives have failed. However, there are already those who have criticised the scheme as unlikely to attract new lenders who have already been refused credit on other terms.

34. Critics have suggested that the scheme appears to favour those able to put down substantial deposits as security or existing borrowers seeking more favourable interest rates, rather than, for example, first time buyers with small deposits.

35. The inability of SMEs and entrepreneurs to access or increase funding at this time is one reason why Unite supports the introduction of a National Investment Bank. Such a body would act to increase lending to SMEs, stimulate growth and focus investment on infrastructure projects, such as a house construction programme and supporting a joined-up manufacturing strategy.

Vickers Review

36. The recommendations of the Independent Commission on Banking for a ring fencing of the constituent parts before 2019 is not only inadequate it is potentially damaging to the long term stability of the sector and the economy. Unite policy is for the complete separation of retail and investment banking at the earliest opportunity. The Vickers Review also completely failed to consider the impact of remuneration and performance based pay systems (although admittedly, this was not in its terms of reference).

37. Unite also supports greater democratic control of the banks and financial institutions. The sector has proven that in recent years it is incapable of acting in the public interest and operates primarily to reward shareholders and a select group of individuals. It does not act to serve the interests of real economy and yet it is a vital component in the functioning of society.

38. The finance sector needs to change and through the introduction of robust regulation together with fairer and more transparent pay systems which are built around moral and ethical values which reflect the needs of society it is possible to do so.

39. Workers in the sector want to work for successful and responsible organisations, and to deliver a professional service for a decent wage, but they also want to feel valued, be rewarded for their work and to be treated fairly and with dignity and respect.

20 August 2012