Last Updated: 21 February 2011
Created: 21 February 2011
The banking sector is seeking to move from retribution to recovery. It is fashionable to ‘bash the banks’; in fact at a public meeting in Swindon last week I was asked, “Why don’t we hound them out of the UK”? However, the reality is that banks are central to the economic recovery in terms of business lending and tax revenue, so this is an issue I have taken a keen interest in.
Last week it was confirmed that HSBC, Barclays, Royal Bank of Scotland and Lloyds Banking Group have all signed up to the Project Merlin deal, which covers lending, bonuses and transparency. There is understandable anger at the level of bankers’ bonuses. To a certain extent there is a limit to what the Government can do, as the majority of the banks are international companies, free to set their own bonus levels. That said, it was disappointing that the former Government, when rushing in to bail out RBS and Lloyds, did not put in place stringent terms and conditions relating to bonuses. Project Merlin has now secured an agreement that total bonuses for the banks’ UK-based staff will be lower than they were in 2010, and rightly so.
On lending, in a nutshell, the banks have committed to lending more money in 2011, especially to small businesses. The four banks, plus Santander, will commit to making £190bn of credit available to businesses, up from the £179bn they lent in 2010. Of this, £76bn will be made available to smaller businesses. That represents an increase of £10bn, or 15% on the previous year, and this will be crucial to the recovery needed in our economy. It is also essential that staff have the authority to make commonsense lending decisions based on local knowledge, beyond the “computer says no” mentality which has all too often prevailed.
The previous government’s one-off Bank Tax was simply not enough. We have announced a permanent levy on banks’ profits, increasing our initial proposal by an extra £800m this week, to raise £2.5bn annually. As it stands the banking sector will expect to pay over £20bn in taxes per year, rightly making a long term contribution to repairing our wrecked economy. In addition, I have been working hard in Parliament to press for further improvements, including driving up customer service, greater transparency on interest rates and charges, and further help for first-time buyers.
This is perhaps one of the areas of greatest concern, with many people struggling to get access to a mortgage to buy their first home. I fully support exploring a range of initiatives - including shared ownership, product innovation and mortgage insurance - which could all potentially play a part in addressing this crucial issue.