John McFall's Blog

This Week – Future of Banking Commission meets; the Annual Financial Inclusion Conference; Bankers’ Bonuses; BoE Governor delivers inflation report.

Financial Inclusion Conference
On Monday I delivered a speech the Transact Annual Financial Inclusion Conference hosted by Toynbee Hall. The Transact project seeks to widen the debate around the issue of financial inclusion and raise its political profile.

It was satisfying to witness an energetic approach being taken to what is an urgent issue, and it was encouraging to see so many like-minded delegates.

Recent Treasury Committee Meetings
The Committee heard from Mervyn King last week. The Bank of England Governor has always been useful and informative in his appearances at the Committee. He also praised the quality of our reports and claimed they have resulted in helping to reform the banking sector.

The need for productive engagement with the Bank of England and other regulators such as the Financial Services Authority has been important in helping to get to the bottom of the banking crisis.

We continued our investigation into the Too Big To Fail inquiry, this week taking evidence from Lord Turner, Chairman of the FSA. It was interesting to hear his thoughts that the Barack Obama endorsed model of ‘narrow banking’ does not go far enough. He gave us his perspective that regulators must be proactive in achieving a tighter and safer financial services sector.

Future of Banking Commission
The recently launched Commission has got off to a flying start in recent weeks. On Thursday the Commission, made up of parliamentarians including myself, David Davis, and Vince Cable, also took evidence from the Governor along with senior academics and representatives of prospective new entrants into the banking sector.

Ideas for the long term reform of the banking sector were discussed, but with the consumer placed at the heart of any major decisions that would be made. It was interesting to listen to the views of experts and their suggestions for safeguarding the deposits of customers.

Daily Politics
I appeared twice this week on BBC’s Daily Politics show. On Monday I spoke about the Icelandic bank Landsbanki in 2008. I discussed the issue of the British Government compensating the savers who have lost out, but not yet being able to secure the return of this money from Iceland.

On Tuesday I was speaking about the devaluation of the pound in the foreign exchange markets at the start of the week. I do not agree that this is either the start of a sterling crisis or a reaction to Labour’s recent progress in the polls. In fact, as the Governor of the Bank of England said only last week, we should not take three or four day market movements as evidence of fundamental change. In addition, a more competitive pound is good for exporters. You can view the shows here and here.

This Week; Mervyn King at the Treasury Select Committee; Government announces growth figures; Burns Night Dinner

Mervyn King at the Treasury Select Committee

The Governor of the Bank of England this week appeared before the Committee, contributing to the ‘Too Important to Fail’ inquiry. The Governor’s appearances at Treasury Committee evidence sessions are always insightful. He firmly believes in restructuring the banks by creating a division between customer-facing banks, and ‘casino’ investment banks – as recently proposed by President Obama in the United States. He did admit that such a change would be complex, however, and therefore an ”arbitrary timescale” should not be enforced.

The inquiry has so far been fruitful in providing the Treasury Select Committee with a range of perspectives. Banks that are ‘too big to fail’ confront us with a major challenge in the wake of the financial crisis. Drawing on a range of experts helps us to expand the debate and reach considered conclusions.


The UK economy emerges from recession

The Government made the encouraging announcement this week that the UK economy has emerged from recession, reporting that the economy is now growing at a rate of 0.1% per year. I spoke about this on BBC Radio Scotland and told listeners that this is an indicator that we are on the right track. But we must not rash cuts public services and jobs. The figures show that investment from the Government has paid off; many people’s jobs are being protected and unemployment is falling and never reached the levels that we saw in the 1980s and 1990s. Taking the support away now would risk another downturn.


Meeting of Scottish business representatives

I also met Scottish business representatives at a Burns Night dinner this week. I spoke about Scotland’s economic crisis and the challenges that we face.

Scotland’s economy has been hit particularly hard by the downturn. Our financial service sector in particular has been badly affected; many employees of RBS, HBOS, and the Dunfermline Building Society are having their jobs threatened at a particularly difficult time.

For future growth, we require investment in services and technology, particularly green technology. This will kick-start the recovery, but the challenge will then be to maintain it. In the long-term we can ensure a more dynamic and diverse economy by investing in innovation. Scotland is well placed to develop ‘green’ technology for example, as an important exporter of renewable energy. We must consider our potential in the years to come, there is a wealth of opportunity to be benefited from.

This Week: Presbyterian Mutual, Banks 'Too Important to Fail,' and Gaby Logan show

Treasury Select Committee visits Northern Ireland Assembly

The Treasury Committee held an evidence session this week in the Northern Ireland Assembly at Stormont. (Watch this on Stormont Live on BBC iPlayer - skip forward to 54:45.) We investigated the October 2008 collapse of the Presbyterian Mutual Society, which led to 10,000 customers losing their life savings. Many of the savers who were affected rightly told us that they feel completely forgotten since the bank collapsed, and their predicament is yet to be resolved.

We have received hundreds of letters from distressed savers who have suffered badly since the collapse of the bank. It is clear that, wherever the blame may lie, it is not the savers who are at fault. There must be political will, both at Westminster and at Stormont, to solve this crisis. The Treasury Select Committee we will be pursuing this issue further.


Committee Inquiry into ‘Too Important To Fail’

This week the Treasury Select Committee held the first session of its inquiry into the issue of banks which are ‘Too Important to Fail.’ A number of experts have told the committee that there was ‘implicit guarantee’ from the Government for the large banks – that is, an understanding that the Governments would always step in to support large financial institutions if they ever came close to collapse. This guarantee, witnesses have said, caused the banks to take on more risk, knowing that the Government would soak up any big losses. We saw this most prominently with Northern Rock and Royal Bank of Scotland.

This week, the Committee has taken evidence on how we can minimise this risk and prevent banks from becoming ‘too important to fail.’ Professor John Kay spoke to the Committee about the idea of splitting the banks: separating low-risk retail banking activities (our everyday current accounts and loans) from high-risk investment ‘casino banking’, to protect people’s savings and ensure that the taxpayer only stands behind the useful parts of banks.

The Treasury Select Committee is thoroughly investigating the advantages and disadvantages of this ‘narrow banking’ model being applied in the UK. This is a particularly topical issue after President Obama announced his own plans to split the banks in America this week. We will be keeping an eye on Obama’s plans for the banks over the coming months.


Radio 5 Live

I also participated in a discussion on the Gabby Logan Show on Radio 5 Live (click to listen) this week, after Prime Minister’s Questions. The differences between the major parties are becoming sharper as we approach the general election, and political issues such as taxation and the family have come to the fore.

This Week: Consumer Champion Award; Committee Inquiry into Bonuses; Future of Banking Commission

Which? Consumer Champion Award 2009 Presentation

On Tuesday I was presented with the ‘Which? Consumer Champion Award 2009.’ It was an honour to receive this award. We cannot allow ourselves to forget how the economic downturn affects ordinary consumers in their everyday lives.

This year, I have continued to work hard to achieve a fairer deal for consumers in the financial industry. I have called for action on issues such as supposedly ‘capital-secure’ savings products and the financial companies’ dealing with bereavement. In the past, I have worked to ensure that free cash machines are provided in low income areas.

The Treasury Committee, which I chair, has also had the consumer at the top of its agenda. The Committee has recently inquired into the practices of Credit Reference Agencies and the treatment of customers who find themselves in mortgage arrears. Throughout the banking crisis, we have been keen to give the public a voice. At the beginning of our banking crisis inquiry, we asked the public for their questions which we put to the authorities.

I am proud of what we have achieved in recent years, and hope that the Committee has helped to build a bridge between ordinary people and businesses.


Executives give evidence to the Treasury Committee

Eric Daniels of Lloyds, Gary Hoffman of Northern Rock, and Stephen Hester of RBS all appeared before the Treasury Select Committee this week in a public evidence session. As one part of our inquiry, we looked into the issue of pay and bonuses in what was a thorough evidence session.

Bank lending continues to be a pressing issue as the recovery gets under way. Families and small businesses require access to funds in order to sustain growth and restore health in the recovery. The relationship between banking and the rest of the economy is out of sync, and we must look to refashion the financial architecture.


Future of Banking Commission

I have launched the ‘Future of Banking Commission’ along with David Davis, Vince Cable, and the consumer watchdog ‘Which?’.

The Commission plans to put consumers at the centre of reform of the banking industry, and will hold a series of evidence sessions where members of the public, as well as senior industry figures, will be interviewed.

Leading figures such as economist Roger Bootle, former regulator Clare Spottiswoode, and the Abbot of Worth Rt Rev Christopher Jamison, also join us on the commission.

The Commission is an exciting development and I hope that the inquiry captures the public’s interest as an opportunity to put forward views on how the financial industry can work for the benefit of their customers.

This Week - Scottish Parliament Committee appearance, Speech on the Pre-Budget Report

Appearance before the Economy, Energy and Tourism Committee

This week I gave evidence to the Scottish Parliament’s Economy, Energy and Tourism Committee in my capacity as Chairman of the House of Commons Treasury Committee. The MSP’s were inquiring into ‘The way forward for Scottish banking’ and were considering what future challenges Scotland’s financial services should be prepared for in the economic recovery.

I offered my view that, in the current climate, we have a good opportunity to change the culture of the financial services sector. We need banks to be more attuned to social needs and more understanding of the human cost of the banking crisis. I also agreed that there is a case for increasing the communication between Holyrood and Westminster in tackling the crisis. Meetings between committees would be mutually beneficial to exchange ideas and gain a greater understanding of each other’s work.


Pre-Budget Report Debate

On Thursday the House of Commons debated the Pre-Budget Report that was delivered in December. This is a new and permanent aspect of parliamentary business that has been implemented on the Treasury Committee’s recommendation. As I told the chamber yesterday, I welcome this important step forward in parliamentary scrutiny of the public finances.

The debate was effective in sharpening the dividing lines between the parties over the economy and the public finances. I highlighted the importance of tackling youth unemployment, and making it one of our priorities throughout the recovery. The government has taken welcome steps in supporting 18-24 year olds, and I urge it to remain vigilant in this endeavour. Child poverty is also an important issue which must not be forgotten in these difficult economic circumstances.

I also called for more transparency from the Government on the public finances, particularly on the plans to halve the deficit within four years. It is important that cuts in spending are not made until the economic recovery is secure. However, people and businesses will need detailed information on the Government’s plans, sooner rather than later in order to maintain credibility.

This Week The Future of Banking Commission, Chancellor at the Treasury Committee , Too Big to Fail Inquiry

The Future of Banking Commission
Reform of the UK’s financial services sector will not be complete until we have achieved a restoration of public trust in banks. That is why this week, David Davis, Vince Cable and I launched the Future of Banking Commission. We have on board a number of highly respected experts, such as Roger Bootle, Claire Spottiswoode and Philip Augar, and in an advisory capacity Rt Rev Christopher Jamison, Abbot of Worth. This will be an independent body supported by the consumer group Which?.

My article on this appeared in the Herald and on the Guardian website; I spoke on the Today programme and Wake Up to Money.

The commission will work alongside industry experts and stakeholders to ensure a wide discussion on the direction of the banking sector. However, for the first time, we will consumers at the heart of banking reform, providing a forum for the public to have their say. Banks need to be aware of the social costs of the crisis, so we are providing an opportunity for ordinary people to voice their concerns in this process.

Our main objective will be to establish a wide-ranging debate on developing banking practices fit for a post-crisis sector. I want to see an alignment in the interests of consumers, banks and investors. The commission will strive to widen the debate and lay down a blueprint for the future of financial services.

We will ask the big questions that still persist in UK banking, such as to what extent the taxpayer needs to stand behind the banks; whether the current system of bonuses encourages too much risk taking; and whether there is a need to introduce more competition into retail banking. There is now a genuine opportunity to diversify the banking sector and promote new ways of thinking.


Treasury Committee Pre-Budget Report Inquiry
This week the Committee held evidence sessions into the Treasury’s Pre-Budget Report that was presented last week.

The Chancellor told us that it would be a ‘profound mistake’ to prematurely consolidate the public finances by making cuts before the economic recovery is secured. Cutting now would risk a generation who would leave the workforce and struggle to get back in. I have also made this point before: putting the recovery at risk could create serious problems for generations to come.

That is why youth unemployment is also a pressing issue. Young people are more important than ever during the downturn, as they are vital for creating a dynamic workforce in the future. Skills and training are rightly a priority for the Government during the recovery.

The Chancellor added that the government are in ‘no hurry’ to sell the part-nationalised banks, as the best deal must be ensured for the tax-payer. This is also encouraging.


‘Too Big to Fail’ inquiry
The New Year will see the Committee launch an inquiry into the issue of banks being ‘Too Important to Fail’. Because of the cost to the tax-payer after the recent crisis, we cannot afford to bail-out the banks again. We will be seeking evidence on how we can reform and then regulate the banking system and avoid pumping huge sums of money into banks that are still on life support. We need to move from this situation to one where the banks are fit for purpose in 2010, one where the wider interests of society are served.

This week: Pre-Budget Report

Wednesday saw the Government’s Pre-Budget Report and I welcomed the proposals as a step in the right direction. The report is used by the government to inform us about its intentions regarding the public finances in the years ahead. Often it is used for new announcements such as the 50% super-tax on bonuses that we saw this week.

The Government has indicated that it will continue to invest to avoid putting the recovery at risk. I welcomed the measures to increase youth unemployment and help small businesses in this difficult time as these are issues that I have campaigned for. As I told the House of Commons yesterday, it is only the government that is keeping the economy going right now. With the banks still struggling with bad debts, government is the only show in town.

The Pre-Budget report was encouraging, in part because there were no hasty and reckless decisions to make cuts early before the recovery is well underway. There is a need for a plan to reduce the deficit, and the Government has provided this. But at times, the debate about the budget deficit has been misinformed. Public expenditure always increases in a downturn as tax revenues fall and benefit payments rise with unemployment. We have not yet even approached unaffordable or dangerous levels of public debt, so there is no need to panic. It is more important that the government should support people and businesses through the downturn. Investment must also continue - this is essential for recovery. Training and equipping people with skills is necessary to heal our economy and create a dynamic workforce. The Report was certainly a step in the right direction.

I also welcome the Government’s commitment to fairness. There are some tax rises planned for the future – this is responsible as we will need to put the public finances on a sustainable footing. But with the Government’s tax measures announced this week, over half the extra contribution needed will come from the richest 2% of individuals – those with the broadest shoulders must take the biggest burden.

Welcome also are the Government’s plans to protect the front-line public services that ordinary people rely on. If we were to go down the route that David Cameron and George Osborne have set out – and go for immediate, savage cuts in spending – then we would all suffer. For example, Child Trust Funds would be one of the first services to disappear. 4,500 people in West Dunbartonshire would lose out if they were withdrawn.

The Government’s Business Support Scheme has been extended, which is extremely welcome news for West Dunbartonshire businesses. This scheme allows businesses to defer tax payments if they run into trouble. The scheme has already helped 140 firms in West Dunbartonshire and I am happy it will now go on to help many more. Measures like these – as well as the Government’s Enterprise Finance Guarantee Scheme, which allows small businesses to get the finance they need – mean that the rate of business insolvencies is about half what we saw, proportionally, in the last recession in the 1990s.

Finally, I fully agree with the Government that there must be a tax on banker’s bonuses this year. The profits that banks have made in the UK have only come about because of the taxpayer’s generous support – both to rescue the banks from disaster, and to support the economy in the recession. It would be extremely unfair for these profits to then be paid out in the form of excessive bonuses. This is not a populist or punitive decision against the bankers; it is simply a fair one.

This week (20th-27th Nov) - Veterans, Knoxland Primary, Secret Loans and Bank Directors

Armed Forces Veterans

On Saturday I was honoured to attend a ceremony held by the Armed Forces Veterans Association at their new headquarters in Alexandria. I was presented with a plaque in recognition for my support of the association. The Association later officially opened their new headquarters building, which unfortunately I wasn’t able to attend. I am however extremely grateful for the presentation and the work of the Veterans Association in West Dunbartonshire. I hope to continue to work with them in raising awareness and fundraising and wish them every success in their new building.


Knoxland Primary

Earlier this month, I visited Knoxland Primary School in Dumbarton where the pupils gave an excellent presentation on my life and career as part of their Famous Scots Project. The pupils were very articulate and reminded me of some of my achievements that I had forgotten about! Following the presentation there was a question and answer session where the school children asked me some great questions ranging from what it is like to speak in the House of Commons to what I would be if I wasn’t an MP.


Bank of England’s ‘secret loans’

When Mervyn King gave evidence to the Treasury Committee this week, he revealed that the Bank of England had acted covertly as the ‘lender of last resort’ to bail out RBS and HBOS back in the autumn of 2008. The bank implemented Emergency Liquidity Assistance totalling £61.6bn. I have spoken on the news about this this week.

We have to remember what happened when Northern Rock got into trouble. The Bank of England was unable to keep its emergency assistance secret – so very quickly, we saw people queuing in the streets for their money: the UK’s first bank run in 150 years. So the Bank of England faced a tough decision. There was a need to provide assistance to RBS and HBOS to avoid a collapse – but if the alarm bells had gone off in public, we could have witnessed a much larger bank run – and possibly a collapse of confidence in the entire UK financial system. That would have had serious effects on our jobs and our communities.

Nevertheless, there are important questions for the Government to answer over the way that this operation was handled. As Chairman of the Treasury Committee, I have asked important questions about the way Parliament was informed about the loans, along with Edward Leigh, the Chairman of the Public Accounts Committee, Edward Leigh MP.


The Walker report on banks’ directors

Sir David Walker released his final report on corporate governance in the financial sector (i.e. on the Boards of Directors of UK banks). I have spoken on the news this week about it. Questions have been raised about why the banks’ directors did not do more to question the way the banks were being run, ahead of the crisis, and Sir David’s report was meant to address this.

I feel his report offers banks far too many get-out clauses. Most of its rules would be implemented on a “comply-or-explain” basis – leaving us likely to get a lot of explanations, and little compliance. There are doubts as to whether it will strengthen bank’s directors against its executives.

Sir David appeared before the Treasury Committee earlier this month to give evidence on his interim report.

This Week (12th-19th November) Opening of St. Peter the Apostle High School, The Queen’s Speech, Letter from the FSA

I recently attended the opening of the St. Peter the Apostle High School. The high school is an amalgamation of two very successful Clydebank schools, St. Andrew’s and St. Columba’s. The school is now open to pupils and has a bright and modern building equipped with brand new facilities. It will be an excellent environment for pupils to learn in.

Back in Westminster, this week featured the Queen’s Speech. The speech, written by the government, sets out the legislative agenda for the year ahead.

My involvement in the proceedings was during the afternoon, when the house began the new session with the first day of a debate that considers an ‘Address in Reply to Her Majesty’s Most Gracious Speech’ (or the ‘Queen’s Speech debate’). I spoke on the role of government, which is a dividing line between Labour and Conservatives as the election approaches.

I gave my view that ‘big government’ did not lead us into an economic crisis. Indeed, the Government’s fiscal measures saved us from the abyss – without them, we could have faced not just a recession, but a depression. The financial crisis was caused because government was too small in regulating the financial industry. Poor regulation and oversight meant that reckless financial practices went largely unnoticed.

I finished my speech by saying that Government must not press ahead with spending cuts too boldly or too quickly. Ordinary people are understandably still angry about the economic situation, which they did not cause. Whilst I welcome the Government’s commitment to setting out a plan for reducing the budget deficit, I urged them to consider the social dimension of any cuts they propose.

This week, I also received a reply to a letter that I sent to Hector Sants, the Chief Executive of the Financial Services Authority. I had brought to his attention the subject of financial companies treating bereaved customers somewhat unfairly, often without a proper procedure in place to help them. I welcome Mr. Sant’s assurance that financial firms must indeed treat bereaved customers fairly, and that this is an issue that the FSA will pursue.

This Week - Remembrance Sunday, Steven Levitt's Freakonomics Seminar, Childcare Vouchers Debate

My weekend was spent in my West Dunbartonshire constituency, and I attended local Remembrance Day Services. The services were held in Dumbarton, Duntocher, and Bonhill Cenotaph in Christie Park Alexandria, and all had a particular poignancy as the fighting continues in Afghanistan. I also attended a rededication at the Clydebank Blitz Memorial. The 1941 blitz was a tragic episode in local history and it is important to remember the war that civilians fought at home in the Second World War.

On Monday I chaired a Henry Jackson Society seminar with Steven Levitt, one of the authors of the best-selling book Freakonomics and this year’s follow-up to it, Superfreakonomics. Freakonomics sold 4 million books worldwide and is sold in 35 different languages. The seminar was an opportunity to hear about Levitt’s unconventional (and often controversial!) economist’s approach to all kinds of issues – he discussed everything from tax evasion to football players. I took the opportunity to question Levitt on his chapter on climate change, which has recently caused heated debate.

I also attended Hector Sants’ speech in Bloomberg on the recent work of the Financial Services Authority. The speech was extremely encouraging and I agree completely with the FSA’s stance that recent events have warranted ‘intensive supervision’, this is a more proactive approach to regulation, intervening to ensure results. I hope that we can work together to ensure that this approach works and do not let financial services return to ‘business as usual’.

This week I also appeared on Newsnight and BBC Breakfast to discuss the press comment on the government’s plan to end the tax relief on childcare vouchers in 2015. The money would instead pay for universal free nursery places for 2 year-olds. The vouchers are only available to employees of 1 in 5 firms – so they cannot be accessed by most employees, and half of the budget actually only provides for 6% of the population. So there is a strong case for revisiting this issue and ensuring that the overall provision is increased and more parents can access childcare services. The Government says it is in ‘listening mode,’ so a thorough debate can be had on this issue.

It is important to remember what the Government has done in government for early childcare provision. It has undertaken the biggest expansion in early year’s education since 1945, having invested £25 billion since 1997, and opened 3,000 Sure Start centres that have helped over 2,000 children. The Government has a proven record as a champion for parents and their children.