§ Motion made, and Question proposed, That this House do now adjourn.—Mr. Gummer.]10.28 pm
§ Mr. Marcus Fox (Shipley)
It is with some trepidation that I introduce this Adjournment debate, which is concerned with The People's Bank, which to many people might imply that it is related to the People's Republic of China. I hasten to assure the House that it is nothing of the kind. The People's Bank is concerned with the Provident Financial Group, which is based in the city of Bradford.
At this stage I must announce that I have not brought my notes with me because the Adjournment debate came on so quickly. Therefore, I can hardly blame the Minister for not being here. In a sense I am not quite as unbriefed as he is.
The Banking Act 1979 was introduced because of the secondary banking collapse in 1974. It was felt that protection should be given to those who innocently put their money into financial institutions. Under the Act, the Bank of England had to accord recognition to any organisation that wished to use the name "bank". Sensibly, the Bank of England is operating a screening process, but I am concerned about the way in which it is doing so.
We have a creditable banking institution in Britain. The major banks provide services in the High Street that people are satisfied with, but the services do not reach everyone. About 40 per cent. of our adult population—some 17 million people—do not have a bank account, which hardly shows that the system is working, yet the Bank of England is removing from certain organisations the right to use the name "bank".
One criterion in the Act is that whichever organisation seeks to use the title must be of sound financial standing. In addition, it must operate a wide range of banking services or—and this is crucial—it must provide a specialised service. Last year the Bank of England decided that the People's Bank, which is based in Bradford, should not use the title. The Old Lady of Threadneedle Street must come down from her pedestal. She behaves as if the People's Bank has sprung out of thin air. It has not. It is part of the Provident Financial Group—in the old days known as the Provident Clothing Co.—which has been a byword in my part of the world for 100 years. It has more than 400 branches in the United Kingdom, 10,000 agents and 1 million customers. I can remember the Provident being in Yorkshire all my life.
Its claims go further. [Interruption.] I must ask my hon. Friends to listen carefully. I have no notes and am speaking from my heart. In the secondary banking collapse the group maintained its reputation, which was not easy. The people who had invested money with the group continued to do so. It came through the crisis with its reputation enhanced. The way in which the Bank of England is operating the 1979 Act is incredible. During that period some banks were in difficulty. They had to take to the lifeboats. I shall not specifically mention those in difficulty, because some of them are household names in banking. Some of the 300 banks that have been recognised had recourse to the Bank of England's rescue operation.
This company passed through that period unscathed but has been told by the Bank of England that it cannot use the 862 title "bank". It is perfectly natural for the leading cheque trading company to offer its customers a sophisticated service. That is all that it seeks to do. The People' s Bank was bought in 1971. It was not until 1978 that the bank opened branches on a fairly large scale. The customers responded. One should consider the great "unbanked" of this country.
I am glad to see my right hon. Friend the Financial Secretary. He will have no difficulty in replying to the debate. He knows that this issue has been before a tribunal. Shortly, the tribunal's findings will be on the Chancellor of the Exchequer's desk. The Provident Financial Group has 1 million customers. It is natural that it should say that it needs to provide a wider service. Its customers want such a service.
What sort of service can be provided? With 10,000 agents calling weekly, people will be able to save on a regular basis. The bank now has 10 branches. There are branches, not only in Yorkshire—which is my main interest—but in the Midlands, Hanley, Wolverhampton, Dudley, Washington and Bristol. The head office is in Yorkshire. Therefore, I must kill the idea that the People's Bank is a small operation.
My right hon. Friend the Secretary of State for Social Services announced yesterday a system whereby those entitled to benefits could have them paid into a bank. Incidentally, I note that the Under-Secretary of State for Health and Social Security is on the Front Bench. That concept must be right. Later in his statement my right hon. Friend made it clear that we should move away from cash transactions and go towards the transmission of money through the banking system. Therefore, if people are to receive their benefits, they must have bank accounts..
My right hon. Friend the Financial Secretary knows about the subject of this debate. He should keep in close touch with the Secretary of State for Social Services. My right hon. Friend the Secretary of State implied that more people should have bank accounts and that people should be more sophisticated. Hon. Members have often advocated that the weekly wage should be paid not in cash but through the banking system.
The company has been established for 100 years and has £140 million in assets, but the Bank of England has decided that it does not have the necessary financial standing. That is nonsense. The Bank of England must realise that the 1979 Act was not intended to enable it to operate a closed shop or to protect the High Street banks, which have been in business for many a long year and yet have left many people without the benefits of the services which I have described. [Interruption.]
The Opposition should be careful about showing hilarity on the subject. Many of their constituents would benefit from the services of the People's Bank.
§ Mr. Fox
No. I refuse to give way. This is an Adjournment debate.
The services offered by the People's Bank include being open six days a week from 9 am to 5 pm, including Saturday. If that does not qualify under the Act as a specialised service, I do not know what does. The bank gives 2 per cent. interest on current accounts and a much higher rate on deposit. Its success is such that between August 1978 and December 1980 more than 15,000 863 accounts were opened. The need is there. Amongst the 300 recognised banks are some strange names, such as the Well's Fargo Bank. The People's Bank is worth far more than the Well's Fargo Bank.
I remember my school days and the Yorkshire Penny Bank Ltd. It was established in the 1800s by a philanthropic capitalist—such people existed in those days—who wanted to protect his workers from the money-lending fraternity. At school we were encouraged to put a penny a week aside. When we had saved £1 an account was opened at the Yorkshire Penny Bank Ltd. It cost the bank £2,000—a lot of money—to provide that service. The success with the help of teachers was such that in one year 2 million transactions took place. The Yorkshire Penny Bank Ltd. is now a big bank in every sense of the word and is recognised as such. Under the 1979 Act it would never have got off the ground.
How can a bank offer a wide range of services if it is not allowed to start operating? The Bank of England is trying to prevent it. I do not blame the Minister because he has not yet seen the submission from the tribunal. Parliament never intended to stop new entrants into banking. It never intended that a closed shop should operate, and yet that is what is happening.
I make no apology for raising the issue tonight.
Many people in this country are still outside the so-called Establishment. I consider myself to be part of the Establishment. I do not use the word in any derogatory way. I simply mean that we do not open up all our institutions as we should do. The banking fraternity is a classic example. I imagine that my right hon. Friend will say "But if they have to remove the word 'bank' from their title they can still operate as licensed deposit takers". That is the expression used in the Act. That will not do. What is a licensed deposit taker? Imagine that 10 sign writers appear in the branches that I have described, in Washington new town, in Bristol, in Swindon and other places, put up their ladders and scrape off the word "bank". What will that do as far as confidence is concerned?
There are hon. Members in the Chamber who are much more able than I in coining words and phrases. I know of no word other than "banking" to describe the services involved in this field. If anybody can suggest another word, I will accept it, but it will put the banks in what can only be described as a secondary position.
This financial institution has been going for 100 years, with an unblemished record of success, with profits of £8 million this year and £140 million worth of assets. It wants to open six further branches this year and eight more every year from now on. The Bank of England has got it wrong. It had better look very carefully at the way in which it is recognising banks of the sort that I have described. There are more than 300 on this list.
In view of what took place yesterday, it would be a great disservice to many of my constituents if this bank were treated in this way. It does not deserve it. It has every right to continue to use the term "the People's Bank." Parliament, in its wisdom, should encourage more people to open bank accounts and to be thrifty. I should have thought that my Government, my party of all parties, would want to see this service extended.
When we think of the problems facing Barclays, the Midland, National Westminster and Lloyds, we cannot 864 pretend that the major banks are succeeding in providing the service for which many of our constituents are asking. The People's Bank is providing a unique service. It it is tapping a market that no one else has gone for, and I believe that it will be able to do so with increasing success. I wish it every success. I am staggered that its submission to the Bank of England for recognition was turned down and that no appeal tribunal has sat. I do not know what report has been made to the Chancellor of the Exchequer. In all fairness, the Bank of England ought to allow this bank to continue as it has done so successfully.
§ The Financial Secretary to the Treasury (Mr. Nigel Lawson)
The House knows full well the strength of feeling of my hon. Friend the Member for Shipley (Mr. Fox) over this matter. The People's Bank to which he has referred is in the part of the country that he represents with such distinction. It is right that he should bring this matter before the House.
This issue stems from the Banking Act 1979. [Interruption] That Act was introduced by the previous Government—which the ill-mannered semi-sedentary intervention from the Opposition Front Bench might not have led the unwary to understand. That Act provides for a statutory framework for the authorisation and supervision of deposit-taking institutions by the Bank of England. It is the Bank of England's responsibility under the Act—
§ Mr. Lawson
I am not giving way.
The Bank of England has to implement this Act. The Act lays down a two-tier system of recognised banks, on the one hand, and authorised deposit takers, or licensed deposit-takers, on the other hand. In reaching its decision, the Bank is required to judge each application against the minimum criteria for deposit taking institutions, which are set out in the Act. These criteria, which were approved by Parliament during the passage of the Banking Act through Parliament in early 1979, are laid down in schedule 2 to the Act—part 1 for the recognised banks and part 2 for licensed institutions.
The criteria which are set out in part 1 of schedule 2 provide that the distinctive attributes of a recognised bank are not only the high reputation and standing that an institution will have built up over time in the financial community, but the provision in reasonable depth of a wide range of banking services in this country.
There is a provision for appeals. Under section 11 of the Act, an institution which is aggrieved by a decision by the Bank, as is the case with the People's Bank, can appeal against the decision to the Chancellor of the Exchequer. The Chancellor is then required to refer all these appeals for a hearing before persons appointed for the purpose. The appointed persons are then required to hear the appeal and submit a report to the Chancellor with their recommendations for the determination of the appeal.
In deciding on an appeal under section 11 of the Act the Chancellor is obliged to act in a judicial capacity, and in no other capacity. That is not necessarily quite the end of 865 the road, because under section 13 of the Act an institution, or the Bank of England, may appeal to the court on a point of law—I emphasise that—arising from a decision by the Chancellor on an appeal under section 11
I turn to the specific appeal by the People's Bank. On 9 September last year the People's Bank lodged an appeal to the Chancellor against the Bank of England's decision to grant it a full licence instead of recognition. This appeal was heard on 15 and 16 January this year before the persons appointed by the Chancellor for the purpose. These are professional people, altogether outside Government.
I can confirm that the appointed persons submitted their report to the Chancellor last week, with their recommendations for the determination of the appeal. The Chancellor is now considering the report and recommendations and will be announcing his decision very shortly. In those circumstances, because the matter is to that extent sub-judice—as I emphasised, the Chancellor has to act in a judicial capacity; that is the law—I am sure that my hon. Friend will understand that it would not be right for me to comment on the Bank's decision in this case. However, I assure my hon. Friend that I shall draw the Chancellor's attention to the points that he has made in this debate.
I have little time left. I turn briefly to the provisions of the Act which deal with the use of banking names and descriptions. My hon. Friend was particularly concerned that the People's Bank would not, if the decision goes against it, be able to call itself a bank any longer. That does not mean that it will not be allowed to continue in business. Of course it will, and long may it do so. If an institution wishes to start up, it will be able to do so. Indeed, the scope of the two-tier system set up under the Act is relatively limited. Nothing whatever in the Act 866 prevents a licensed institution from offering or providing any type of banking service, but it cannot call itself a bank. That is set out in section 36 of the Act.
One of the main reasons for that distinction is that it reflects in a more codified form the informal system of supervision and surveillance which existed prior to the passing of the Banking Act. It is an integral part of the two-tier system that the two tiers should be clearly identifiable as such by members of the public. [Interruption.] Although hon. Members on the Opposition Front Bench are sniggering, the protection of depositors, particularly small depositors, should be a matter of some importance to us all.
Clearly, there would be no point in any two-tier system if the institutions that had not gained recognition as a bank were none the less able to represent themselves as such. The provisions of section 36 dealing with banking names and descriptions are, therefore, a natural concomitant of the two-tier system. They enable depositors to distinguish between the recognised and the licensed sectors.
Under the provisions of the Act, any depositor can be certain that any institution that holds itself out to be a bank and accepts deposits from the public has both a high reputation and standing and offers a wide range of banking services to the investing public. That is surely of value and benefit, particularly to the small depositor.
There are bound to be cases on the border line whenever a two-tier system of any kind is established. It is impossible for me to comment on this specific case because of its sub judice nature and the fact that the papers are at present before the Chancellor. I can only repeat that the Chancellor will certainly read what my hon. Friend has said and take it fully into account when he makes his judgment.
§ Question put and agreed to.
§ Adjourned accordingly at three minutes to Eleven o' clock.