UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 650-iii

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

Northern Ireland Affairs Committee

Banking Structure IN NORTHERN IRELAND

Wednesday 16 October 2013

Wilfred Mitchell OBE and Roger Pollen

Evidence heard in Public Questions 171–237

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Oral Evidence

Taken before the Northern Ireland Affairs Committee

on Wednesday 16 October 2013

Members present:

Mr Laurence Robertson (Chair)

Mr Joe Benton

Oliver Colvile

Lady Hermon

Kate Hoey

Naomi Long

Dr Alasdair McDonnell

Nigel Mills

Ian Paisley

David Simpson

________________

Examination of Witnesses

Witnesses: Wilfred Mitchell OBE, Northern Ireland Policy Chairman, Federation of Small Businesses, and Roger Pollen, Head of External Affairs NI, Federation of Small Businesses, gave evidence.

Q171 Chair: Mr Mitchell and Mr Pollen, thank you very much for joining us again. As you know, we are conducting an inquiry into the banking structure in Northern Ireland and the overall performance, so your evidence will be very welcome. Thank you very much for all the written evidence you have submitted-all the reports that you have submitted-which make very interesting reading. Would you like to make very brief opening introductions, please?

Wilfred Mitchell: Chairman, thank you for the opportunity to appear here today and to speak on behalf of Northern Ireland’s typical business sector. Some 99% of the typical businesses that make up our private sector are described as small businesses. In Northern Ireland, this means they are of major importance and impact, not only to the economy but to the actual fabric of society. They employ people within both urban and rural catchments.

Small businesses face many challenges that simply do not affect big businesses, which is why the Federation of Small Businesses came into being and why so many small employers and smaller business owners have joined. The FSB is the largest business organisation in the United Kingdom, with around 200,000 members, of which around 7,000 members are in Northern Ireland.

We survey our members regularly, so that we can understand the issues affecting them and we can speak on their behalf. The issue that we are addressing in your current inquiry-banking structures-is one that is frequently highlighted by them in a number of ways. People say, "If it isn’t broken, don’t fix it." Clearly the banking sector, overall, is broken, and in Northern Ireland in particular, so we welcome the fact that you are looking at it, ideally so that it might be fixed better than before it was broken and be more difficult to break again.

Mr Chairman, we would like to look briefly at three areas: at the banking landscape viewed through the eyes of a typical business owner, outlining the route from where we were to where we are now, and to where we could be in the future.

A few years ago, banking worked for businesses. There were branches across the country. Banks had staff who knew businesses and their owners, as well as the market in which they were working. Lending was carried out on a sensible and practical basis, and there was not much bureaucracy attached to getting credit. Then, looked at through the eyes of a typical business owner, a tsunami hit the business world and the economy. Locally, catastrophe hit. Losses in the Irish banks sent not just ripples, but shockwaves into the Northern Ireland banking system, with a particularly damaging effect on smaller businesses.

The banking landscape changed forever and, since then, our membership surveys show that there is concern about the nature of the relationships that typical businesses have with their banks, and this is closely linked with the structure of our banking system. To move on to the next stage, I will pass to Roger to describe the current situation, as experienced by our members.

Roger Pollen: In the main, small businesses in Northern Ireland-as Wilfred describes them, the typical businesses-are less well served by the banks now than they used to be. As you know, our big four are different from the GB big four banks. Three out of our four have significant issues that affect the role they can play in supporting and servicing that typical business sector.

If you look at those banks, First Trust was put up for sale a number of years ago and was unable to find a buyer. The Bank of Ireland stages an annual celebration of small businesses, which is welcome, but they are not seen as an especially dynamic player in the banking market. They damaged their reputation badly when they had to be rescued by the Irish state and subsequently they rode roughshod over some customer groups, including mortgage holders for whom they had increased the previously agreed fees. Ulster Bank has an uncertain future. As a parent company, RBS suffered its own state rescue, and performance under the Ulster name-which includes some shocking write-downs in the Republic-remains challenged. There has been some dilution of their small business contact as they move to address the cost base. The seemingly most robust of the four is Danske, yet they appear to be withdrawing service and direct contact between business customers and the bank in the Republic, which raises questions as to their parent company’s longer term commitment to the Northern Ireland market.

This lack of connection with the GB big four means that funding initiatives that are developed here in GB, such as Project Merlin or Funding for Lending, really only trickle down into Northern Ireland at best and, even where they do, there is neither competition to lend nor, to date, lending figures to demonstrate how effective the schemes are being.

Some observers in the banking sector suggest that Northern Ireland is overbanked. The growth in internet banking has allowed many services to be delivered without the input of face-to-face staff, and with the decline in the property sector, there is certainly a different demand for services. However, there is real concern amongst small businesses about effective access to finance. There is a lot of misinformation around on this subject. Businesses repeatedly tell us that they find the banks unhelpful and unwilling to lend, yet the banks tell us that they have plenty of money to lend but the businesses are reluctant to take on debt.

Without more facts on this, it is impossible to understand the appropriateness of current banking structures. If we cannot do that, it is impossible to understand the market failures that exist and the corresponding market opportunities. Let us be clear: it has not been for want of asking questions that we have not been able to establish more of the facts of bank lending.

Earlier this year, the British Bankers’ Association issued a press release advising that they were making lending data available on a postcode basis, and they made repeated reference to the UK and to UK banks. Unfortunately, however, their publication did not include any information on Northern Ireland. Now, this is regrettable because it is valuable information in understanding the borrowing landscape, which can then set the framework for a better informed discussion around banking structures. Indeed, Anthony Browne, the BBA’s chief executive, was quoted as saying-and I will quote him here, Mr Chairman, if that is okay-"These figures show that from Aberdeen right down to Truro the UK’s banks are putting over £100 billion into the engine room of the economy, the SME sector. Bank finance is supporting jobs and growth up and down the country." The press release also noted that, "The publication of regional data will provide greater transparency, helping the Government and businesses to understand the borrowing landscape for SMEs across the UK, thus contributing to better evidence-based policy making."

Given the BBA’s recognition of the value of such data-in their words, "to understand the borrowing landscape for SMEs across the UK" and to inform policy making, alongside the oft-repeated references in the press release to "UK lending,"-we had hoped that this would signal a commitment on their part to present the data on a similar basis for Northern Ireland. Regrettably, however, and despite telephoning their office on the day that the press release was issued and writing subsequently on two occasions, none of our requests to establish why information for Northern Ireland has not been published have been responded to, nor our request to find out if and when it will be published. This is despite our local banks suggesting that there is no significant barrier to them doing do.

Postcode lending data is valuable in establishing many factors, amongst which will be assessing apparent market failure and corresponding market potential and opportunity, so we want to see similar data published for Northern Ireland to help inform the debate. Now, I note from the BBA’s submission to this Committee that they suggest that they are making the data available in private. Perhaps they have shared with you why they cannot do so publicly in Northern Ireland, because we really believe that would help the debate and help understand the market situation. The Competition Commission carried out an investigation in which the banks previously committed to making more data available to help transparency. That, I think, was 2002, so it would be helpful to see it soon.

Q172 Chair: Have you almost finished? We do not have a huge amount of time and we do want to explore things with a lot of questions.

Roger Pollen: I am nearly drawing to a close. I will just simply say that, in surveying our members, they are very keen to see the maintenance of a branch network. They are not looking for the Captain Mainwaring-style of bank manager to be retained, but they do want to see branches available, not just for lending money, but also for providing access and support, and for helping businesses to navigate their way around the system. Do you want more at this stage?

Wilfred Mitchell: It depends what-

Chair: I would prefer if we could move on to questions now. We have a lot of questions we want to ask, but they were very useful opening statements from both of you. Thank you very much.

Kate Hoey: That was very, very helpful as a summary to me.

Chair: Can Ian just clarify something? Sorry, Kate.

Q173 Ian Paisley: You mentioned a point I wanted clarification on. At the start of this, I also declare my financial interests and my registered interests. Something jarred with me, Roger, in what you said about the bank issues. I did not disagree with anything you said about First Trust, Bank of Ireland and Ulster Bank in terms of perception. But you said that there was a perception that Danske had a lack of commitment to Northern Ireland and was pulling out.

Roger Pollen: No, I did not. What I said was that they have removed their direct contact in the Republic, so that people have to work through a telephone contact process, rather than direct banking. That would therefore raise concerns over the commitment to banking in the North-nothing more, nothing less. It raises concerns over it.

Q174 Ian Paisley: There is a very important issue that we have to get to grips with, and obviously we do not want to say anything that affects economic stability either. Some of these banks are 90 years old in Northern Ireland’s history; some of these banks have a long service. The fact that their shareholder happens to be overseas really does not affect their business operation in many regards. Most of the big businesses in Northern Ireland are foreign owned by foreign shareholders, whether it is engineering, air transport, any of those things. Even our airports, my goodness: they are all foreign owned. We have to be very careful about the shareholder issue, so that we do not damage the credibility of an existing business by things that come out. I just think, for a point of clarification, that should be on the record.

Roger Pollen: Just to reiterate what I said: I said that, seemingly, the most robust one of the four is Danske.

Ian Paisley: Yes.

Roger Pollen: Yet they appear to be withdrawing service and direct contact between business customers and the bank in the Republic.

Ian Paisley: In the Republic, okay.

Roger Pollen: Which raises questions as to their parent company’s longer term commitment to the Northern Ireland market.

Q175 Kate Hoey: I just want to get back to a very basic question before we go into all the other detail. I am personally confused-I am sure you are not-about how we define a small business and a medium business, because there are different definitions. Can you just clarify for us exactly how the FSB defines small? Is it the same as the Companies Act definition? Is it the turnover size? Can you just make it as simple as possible: what is a small and medium business?

Wilfred Mitchell: We recruit our membership-we will recruit people that employ up to 249.

Q176 Kate Hoey: So you do not follow the 50 employees’ issue?

Wilfred Mitchell: No, but that is what we will recruit and that is who we will represent, up to that.

Roger Pollen: It is usually up to the "M" part of SME, but we would actually find that a significant majority-80% plus-are certainly fewer than 10 employees.

Q177 Kate Hoey: Who would you turn away, then? Anyone who is employing more than-

Roger Pollen: 250.

Wilfred Mitchell: 249. It takes in most of Northern Ireland.

Roger Pollen: It takes in 99% of private sector companies and businesses in Northern Ireland.

Q178 Oliver Colvile: For those people who might have seen me last week, I was pretty persistent about this. Can I just have an understanding from you: do you believe that the Northern Irish economy needs to be rebalanced? Are you in favour of that or against it?

Chair: Order. We are talking about what the size of a business is-small or medium-sized business-at the moment.

Oliver Colvile: Yes, forgive me.

Chair: Is it relevant to this part of the-

Oliver Colvile: Yes it is, because it goes on to say, that being the case, how do you end up by making sure that you get some larger businesses involved in it, with some small businesses too?

Roger Pollen: As a private sector membership organisation, of course we want to see the private sector grow. We recognise that it needs to grow substantially for that rebalancing to take effect. There may be a debate or an argument as to whether you want to shrink the public sector to get there or whether you want to grow the private sector. That is another argument for another day. Certainly, the private sector in Northern Ireland is too small by anybody’s measure and there needs to be a number of measures brought into play to help grow that, one of which would be the devolution of corporation tax powers, but others will be just more direct assistance and removing barriers to let indigenous businesses grow further.

Wilfred Mitchell: A lot of people are surprised that we support corporate tax in the smaller sector, but we can see great gains for small businesses in Northern Ireland if there is inward investment.

Q179 David Simpson: You are both very welcome; it is good to see you again. I also start by declaring my interests in banking with the Danske bank. My own company banks with them-very keen interest rate; however, we will move on. Last week, we heard from the British Bankers’ Association. That in itself was an experience, but we will not go into that. They maintain regular contact, they tell us, with the Northern Ireland Executive. Is that the case for the FSB?

Roger Pollen: As I said earlier, we have certainly had quite a lot of one-way contact with them. We have called them and we have written to them. We have had the letter acknowledged with an indication to respond to it, but we have not had any response to the questions that we have raised, which were not even asking for action; they were just asking for clarification as to why action had not taken place.

David Simpson: I just noticed, as they are leaving, that a number of MLAs were sitting behind you. You should be putting pressure on the MLAs to make sure you do get contact with the Northern Ireland Executive as regards the banking issue, because the FSB represents a large percentage of the SMEs right across Northern Ireland, so I think you have a voice that needs to be heard within that. The other side of it is the-

Lady Hermon: Sorry, I think Mr Pollen was responding to the suggestion that, in fact, it was contact with the BBA-the British Bankers’ Association-rather than the Executive itself.

Roger Pollen: That is correct.

David Simpson: Wilfred, I interrupted you-apologies.

Wilfred Mitchell: I was just going further. We did have some indirect contact with them, jointly with the University of Ulster. They would have chaired meetings. Initially, those meetings were controlled by the BBA, and as things-surveys-kept being revealed, eventually they used the phone system to come in, and eventually they were disconnected, especially when you were getting to the key questions. We tried but we were not successful.

Q180 David Simpson: Have you, as an organisation, had any contact with Her Majesty’s Government-i.e. through the Northern Ireland Office? As regards the difficulties with banking, have you met with the NIO, the Secretary of State or the Minister of State or anyone in relation to this?

Roger Pollen: We have raised issues on behalf of members in various forums. As I say, the trouble is-and I do not want to necessarily keep on going on at the BBA-the real issue is a lack of information and a lack of data. Our members are telling us some things about relationships with banks and about their ability to access finance. The banks are telling a different story. The evidence you have had presented to you clearly shows that there is a conflict there, and what we are looking for at this stage is to get more information, so that the debate can be more helpful and more informative.

Q181 David Simpson: Will you have any input into the establishment of this joint ministerial task force?

Roger Pollen: We would very much hope so. The Secretary of State announced that recently and we are keen to understand more about what it is actually going to focus on and achieve. There have obviously been initiatives developed through Ministers at home through particularly DETI and the Invest NI schemes to find access for businesses, which is very welcome. The problem may be, though: why does the system need to provide that solution? It would suggest that the traditional banking system is not working as well as it should be.

Q182 David Simpson: Have the terms of reference for the task force not been made public yet? Do we know exactly the terms of reference for that task force? I have not seen them, so I am only asking the question.

Roger Pollen: We have not seen them yet.

David Simpson: Again, going back to what I said earlier, an organisation such as yourselves, with who you represent, surely should have an input in some shape or form in relation to that.

Q183 Naomi Long: I just want to probe something with you if I could, because you have talked a bit about lack of information. I know you are going to be questioned later about the postcode issues, which have already been referred to in terms of breakdown of lending, but one of the issues that has been raised with me by small businesses in my own constituency is the definition of new lending and the gap that exists between what the banks qualify as new lending when they say they have lent, and what we would understand, if you like, in lay terms as new lending. Is that something that is being raised with you? There is this issue that if you, for example, have a £100,000 loan and you extend it by £10,000, it appears as £110,000 of new lending when, in fact, it is really just £10,000 of actual new money. The same would be true, for example, where terms and conditions on an overdraft were changed: it would appear as new lending when it is not additional funds for the business. Is that something that would be helpful for you as an organisation to monitor how businesses are engaging with banks? Would that level of detail be useful for your organisation and for your members?

Roger Pollen: The short answer is yes, it would be. The reason I would say that is that, at the moment, there is a lot of anecdote and survey evidence. For example, if somebody renegotiates their overdraft at the end of a year, is that now regarded as a new facility in place and therefore adds to the lending figures that the banks can stand behind? It is the absence of detail on that that makes everybody suspicious about what the actual picture is, but it also makes it very difficult to work out the sort of answers you are looking for regarding the structural responses and changes that might be brought in to respond to that situation, because nobody is quite clear what the situation actually is.

Q184 Mr Benton: You have probably answered my question before in response to David Simpson, but I want to talk about the establishment of the joint ministerial task force. Although we cannot be specific about terms of reference and so on-I accept that response from you-its main drive and focus is to see that small businesses are given equal opportunity along with their other UK counterparts, in terms of banking facilities. I think that would be the main emphasis. I do not think it is an unreasonable question, bearing in mind that perhaps we do not know the terms of reference etc. You must have some expectancy, some hope, about the task that they are going to do, and you must have some idea as to how this task force could be of assistance to small business in Northern Ireland. That would be the question I would want to ask you, in the light of your response to David.

Roger Pollen: It seems to me that the attraction of it, without knowing its terms of reference-we are all shooting in the dark slightly-is that it helps to escalate the banking needs of the SME community right to the heart of Whitehall, the Treasury and other places where influence might be brought to bear in a way that will not happen if it does not exist. Without knowing its terms of reference, that at least is what is attractive about its potential. It escalates our issues up to a place where there may be positive influence brought to bear on them.

Wilfred Mitchell: If we had been able to continue on, we were going to talk about what we think best practice is in other places. We are looking at the Small Business Administration in America and we are doing a comparison between what happens there and what happened in Germany. I think we have the figures there-the statistics-to show that.

Roger Pollen: We do, and I am not sure if this is the point to come on to that.

Wilfred Mitchell: Part of what we were saying was we thought things were broken. We do not think we will get back to exactly where we were before the crash. We think we will get to only 50%, but it is the other 50%: and we need to be offering small businesses, who are not experts on finance, easy access. We have to be quite radical on how we go about that, and we think there are models in Germany and the United States.

Roger Pollen: The Government’s role in this seems to me to be unclear but interesting, and that is why the ministerial task force has potential. TSB has been spun out from Lloyds TSB, but it is now operating simply on a GB basis; it is not operating in Northern Ireland.

Nigel Mills: Lloyds is not operating in Northern Ireland.

Roger Pollen: No, but TSB historically did, and it is not there now under this new roll-out. Banking is different from almost any other business activity, in that Government effectively stands behind it as a guarantor. If a supermarket were to decide to downsize somewhere, the Government probably would not have an interest in that and we probably would not be asking for them to do so. It would simply be a business decision. However, the banks are different, and the role that they can play to support and assist the local economy and the small business sector particularly is different because of that role of the state standing behind them.

We are looking at solutions that might come forward, and delivery. Wilfred has talked about the Small Business Administration in America and we are looking for a model that could work for the UK. In America there is a network of local banks that the Small Business Administration can direct funds through. We wonder whether it is worth exploring the prospect of using TSB to open up a presence in Northern Ireland as well-perhaps through acquiring the Allied Irish banks, or the First Trust banks, that have put themselves up for sale-so that you can have another of the main banks in GB having a presence in Northern Ireland and making available across the whole of the UK the funding schemes that are developed in the Treasury here for GB banks.

Wilfred Mitchell: I can give the figures; I have found them now. Between 2007 and 2010 there was a 24% fall in the number of successful loan applications made by SMEs in the UK. This was compared to only a 9% fall in Germany over the same time period. In 2010, America’s Small Business Administration actually increased credit to small businesses through its loan programme.

Q185 Mr Benton: On the point of not knowing exactly what the terms of reference are going to be, can I pose the question in another way to you? The problems that your small business members will have with banking facilities will be well established and well known. Would it be inappropriate to suggest to you that some all-embracing corporate list, if you like, of problems that are now hitting small businesses in Ireland could be submitted prior to knowing the terms of reference?

Again, I do not intend any cynicism about this, but when a fresh start is made, so to speak, you do sometimes get hesitancy-sometimes it is wilful; sometimes it is deliberately delayed. I am not suggesting any of that. However, I would have thought that the plight of small business now in Northern Ireland-and, indeed, in the UK-is quite serious. I suggest it would not be inappropriate to have a format ready for presentation to the new body that is going to be set up. I do not know whether you think that is a worthy suggestion or not.

Wilfred Mitchell: There is a lot of merit in that, but what is missing in Northern Ireland is there is no risk being taken at all, when loans are given out, compared to a business start-up in America. We are risk averse. Very often you get money when you do not need it.

Q186 Dr McDonnell: Wilf and Roger, you are very welcome. Thank you for the stimulus in the good evidence you are giving us. You touched or began to touch on it there, Wilf, in terms of 2007-2010 and the decline of successful applications for finance. You mentioned a 22% decline in the UK-

Wilfred Mitchell: It was 24%.

Q187 Dr McDonnell: Have you any idea how much of that related to Northern Ireland? Was Northern Ireland 30% or was it 20%?

Wilfred Mitchell: I do not have the figure, but you can rest assured it was higher in Northern Ireland quite comfortably.

Q188 Dr McDonnell: On that point-you may have evidence; it may be anecdotal or factual-is your impression that small businesses in Northern Ireland are more or less likely to apply for finance compared with businesses in Britain?

Roger Pollen: Looking at our survey evidence at the moment, they are slightly less likely-slightly. Part of that is to do with the perception of their likelihood of success or otherwise.

Dr McDonnell: It was just slightly less likely. You think it is prejudiced in the sense that they have that-

Wilfred Mitchell: Certainly, people who had difficulty in the past are not going back because of their initial experience.

Q189 Lady Hermon: If that is the case, are they switching? Are your members switching from one bank to another? We are now told that it is much easier to switch banks if you get rejected.

Roger Pollen: No, the evidence in the survey showed a lot of intention to switch and very little follow-through on it. The ease of switching I think only came in last month, so we have not surveyed back to see whether people have followed through with that yet.

Lady Hermon: Yes it did; it is early days.

Q190 Naomi Long: We are aware of the reasons that have been given to us by others for a reluctance to borrow across the UK: things such as the economic climate, people feeling it was not the right time to borrow, people on principle not wanting to cede control over part of their business to someone else, and perhaps get funds elsewhere. They think the process is a hassle, too expensive and whatever. The thing that you mentioned, the discouragement that people have: they have a perception that they will be turned down or they have previously been turned down and therefore do not go back. Do you have any evidence as to what the main reasons in Northern Ireland would be? Those are factors across the UK; which ones do you think are in play in the Northern Ireland case? What is specifically deterring businesses in Northern Ireland? Is it the same as the rest of the UK? Are there different factors at play? What is your sense of that from your membership?

Wilfred Mitchell: I am responsible for two or three regions in England, and they have not experienced the recession in parts around Gloucester and Edinburgh to the same extent. I speak to some of my counterparts and they do not have any difficulty. I know the north-east of England and other places are, but by and large they have not experienced the same economic downturn that we have. They are complaining because things are not as good as they were. That is a different thing. The price of our housing is a clear indication in comparison.

Q191 Naomi Long: Is property overhang a big part of that for small businesses, as it would be for larger businesses, because people maybe have purchased property closer to the top of the market or a lot of their investment was in property? Is that having an impact that is differential compared to the rest of the UK? I am just trying to tease out whether those are issues.

Roger Pollen: You are looking to tease out a lot of detail that we have not yet teased out. There are so many ways you could dissect that detail. We are finding anecdotally that a lot of people are not going looking for new funds because they do not really want to bring a new spotlight to bear on the existing lending that they have in place. Whether it is property overhang or whatever it might be, if it is working at the moment they would rather just let it carry on like that.

Wilfred Mitchell: One indication to your question: I am from around the Cookstown area, but I am told young people every Monday morning and Friday evening are leaving the Omagh area and rural areas to go to Edinburgh or London for work on the construction sites. That is an indication-where they are going and why they are leaving.

Q192 Naomi Long: I know from my experience and background in construction that that is the experience of a lot of people working in the sector. They are working elsewhere and not in Northern Ireland. You mentioned this issue about people essentially wanting to keep their heads down and not put the spotlight back on their business. Anecdotally we have been told as a Committee, and I have been told by businesses in my constituency, that one of the reasons they do not apply for finance is not that they do not think they are a good prospect or that there would not be value in them borrowing and being able to do things with their business. They feel that, when they go in to extend a loan or a facility, it opens up what they have in terms of the contract and the agreement that they have to change that may be detrimental to them. They may come away with no more money but with worse terms and conditions on the existing finance that they have available to them. It would be interesting to know: is that something that you hear anecdotally? Is that something you have hard evidence of? This has been raised with us, but trying to get that information is incredibly difficult.

Roger Pollen: Anecdotally, yes, we would concur with that. We get the same feedback coming in to us. In terms of evidence, the point I made earlier about the Bank of Ireland, it is firmly on record that they did renegotiate previously agreed rates. Therefore it is out there; it is well known that banks may change the terms on which you have entered into debt with them, and on that basis I think people will be cautious about taking their affairs in and having them re-examined, unless they really need to do it.

Q193 Naomi Long: Have you any insight into whether that is something that the Bank of Ireland have done in isolation, or whether there are other banks who also do it, and indeed whether there are banks who have not been doing it? Again, the banks themselves would probably say that they each manage their loan book in a different way. Do you have any insight into which banks are involved in that kind of practice?

Wilfred Mitchell: Maybe not, but we had a satisfaction survey and there seemed to be fewer complaints about one bank over the other three.

Q194 Lady Hermon: Are you able to mention on the record?

Roger Pollen: I think it would unwise.

Wilfred Mitchell: We have a survey and it is mentioned in it.

Q195 Oliver Colvile: I thought we were going to have a scoop then, for a second. What a shame. Now, when small businesses are looking at where they are going to go to borrow money, where do you think they go? Do they just go to the bank or do they go to other places?

Wilfred Mitchell: Some of the information we are getting is anybody that is developing is trying to use up any savings they have, or they go to relatives.

Q196 Oliver Colvile: They do not look at other organisations that may have money to lend and would be interested in investing?

Wilfred Mitchell: There are a few incentives coming from Invest Northern Ireland. This is at early stages.

Roger Pollen: However, in the main, businesses in Northern Ireland tend to be slightly traditional and conservative in where they look for finance, if that is where you were going with this. The FSB nationally has looked at a range of alternative financial provision, including peer-to-peer lending and so on. There is much less evidence of there being an appetite for that in Northern Ireland, so whether it is available or not is not yet clear. There does not seem to be an appetite for it.

Q197 Oliver Colvile: My understanding is that interest rates in Northern Ireland are lower than they are here, for want of a better expression, on the mainland. Is that right?

Roger Pollen: I do not know. I do not know what your interest rates are.

Q198 Oliver Colvile: Your survey in February 2012 stated that in the Northern Ireland Federation of Small Businesses-of which I am a member, not in Northern Ireland, but here in Britain; I just need to make sure we know that-members are paying a considerably lower interest rate than the FSB members in the UK generally. Why is this? Why are GB members not up in arms about preferential treatment for NI SMEs? Secondly, have you noticed any SMEs in this country, because it may be the case that interest is slightly lower in Northern Ireland, rushing off to come and do business in Northern Ireland rather than necessarily doing it here on the mainland?

Wilfred Mitchell: If we go back to what we were talking about earlier, the price of housing and different things, their assets. I am aware of a house that has sold in the Cookstown area that would have been worth £350,000.

Oliver Colvile: Right.

Wilfred Mitchell: It has just gone for £130,000 three or four years later as the first offer. That is not happening over here. If somebody has assets they are not going to put it over there because they do not know when the economy is going to rise. It has not gone down here to the same extent.

Q199 Lady Hermon: Before I move on, can I just pick up on one point, and that is the reply that you gave just now to my colleague, Mr Colville, in relation to Invest NI. Was I right in gaining the impression from your reply that Invest NI may increasingly become popular as a source of finance for your members as an alternative to banks? You seem to hint that Invest NI was increasingly a favourable option. Is that taking it too far?

Wilfred Mitchell: No, if people have projects they want to do and the banks have turned them down, they will revisit the application for the project more favourably.

Q200 Lady Hermon: Is that Invest NI will revisit the application more favourably?

Wilfred Mitchell: Yes.

Lady Hermon: Mr Pollen, you are nodding in agreement there. Would you like to put that on the record?

Roger Pollen: Yes, I am just getting clarification. If people are still looking for funds they will go to Invest NI if they have been turned down by the bank. If it has been a reasonably bankable proposition, Invest NI seems likely to be responsive to that.

Q201 Lady Hermon: Is that an increasing trend that there is more confidence perhaps in Invest NI than there has been in banks?

Wilfred Mitchell: I think it is too early.

Roger Pollen: It is probably too early to say, but Invest NI has certainly been promoting the fact that they have put in place a funding continuum, so there is much more awareness now that there are new funds available than was the case in the relatively recent past. I suspect that there will be more appetite for people looking there.

Wilfred Mitchell: They are definitely more active in looking at where the problems are.

Q202 Lady Hermon: That is very good to hear; that is very encouraging. Just moving on to a completely different topic, I am very pleased that you survey your members regularly and that gives you an up-to-date impression. From the most up-to-date survey that you have, what would be the main criticisms, frustrations and concerns that your members would have in Northern Ireland with the local banks in Northern Ireland? If you had a priority list, what would be the top three concerns, frustrations, annoyances with the banks? Is it the lending? Is it poor conditions; is it harsher terms and conditions?

Roger Pollen: I do not think we have asked the question in that way to have that league table, as it were. If I can extrapolate the information we do have, it is concern over the prospect of bank closures, concern over loss of direct relationships with bank management, and also the concern over the probable unavailability of funding.

Wilfred Mitchell: It depends when you ask that question. If you asked that question in 2007 and 2008 and you ask it now, it has slightly changed

Q203 Lady Hermon: Yes, I did say in fact in your most recent survey rather than one in the past. In the context of your survey, who actually frames the questions when you are out surveying your members in Northern Ireland?

Roger Pollen: We use an organisation called Research by Design, so that they are independently constructed; they would then do the analysis of them as well. We do that in the main for almost all of our surveys. We did one on banking relationships, which we developed in association with the Centre for SME Development at the Ulster Business School. That would be one of the unusual ones, in that it sat outside the Research by Design contract that we have.

Q204 Lady Hermon: When you do survey your members, what volume of responses would you have from your members in Northern Ireland?

Roger Pollen: For the research on the banking relationships, we got around 8.3% or 8.4% response of those to whom we directed the consultation.

Lady Hermon: That strikes me as being extraordinarily low.

Roger Pollen: No, I think that would be statistically where you would want it to be.

Wilfred Mitchell: The university accepted it as being an indicator

Roger Pollen: We directed the survey to around 4,000 people through-

Lady Hermon: When you say people, you mean your members, small businesses.

Roger Pollen: Yes, and we got about 385/390 responses, from memory, but it was in that region. It was below 9% but above 8%.

Q205 Lady Hermon: Is that the regular response rate to your surveys?

Wilfred Mitchell: For that one.

Roger Pollen: I am surprised you are surprised. That is a good response rate in surveying.

Lady Hermon: I just thought that when small businesses are so concerned and so critical of the four main banks in Northern Ireland, that when they were given the opportunity to respond to a survey asking specifically about the relationship to their banks that there would be a much bigger uptake in response to it. I am genuinely very surprised.

Wilfred Mitchell: That is why I was saying to you: it depends when you ask. In 2007 there was a bigger response. People are getting weary and tired, and they think they cannot do anything about it. Apathy is setting in.

Q206 Naomi Long: Just on that point, does it also perhaps reflect the fact that when businesses are under stress, often filling in a survey is not the top priority. Talking to some businesses, I would agree that they are apathetic about the likelihood of change, but they are also weary. Some of them may have actually disengaged to some degree from their banks, so they are not going and asking for loans and maybe do not have a lot of information to share. I am just wondering: are there reasons why that has dropped from 2007? Is that part of it?

Roger Pollen: You have hit the nail on the head. That is exactly it. There is a degree of weariness and a degree of, "What’s the point?" and also, if they have not had a lot of contact recently with their bank, are feeling that they do not have a huge amount to contribute to the questions we are asking so they do not feel they are adding to the discussion.

Q207 Nigel Mills: I always thought happy people did not fill in surveys but people who had something to complain about were more inclined to submit them, but there we go. Can I take you to the Better Business Finance scheme, or support, whatever we call it? We had the British Bankers Association-sorry, there are far too many "Britishes" and "Bs" in this question. We had them last week, and they were setting out that perhaps the take-up of the BBF Scheme was not as extensive in Northern Ireland as they might have hoped. Do you have any thoughts on why that might be?

Q208 Roger Pollen: Sadly we do not have any evidence or detail on what lending uptake is because of the failure of the BBA to put the data. They are the only ones that have the oversight to collate the data and put it in the public domain. If they come out with a statement like that I would like to see them supporting it with information so that we can then all reflect on the issues around that. However, we cannot comment because we just do not have the data.

Q209 Nigel Mills: Are you not conscious of the appeals and mechanism being widely used, then? It is not something you would suggest to your members if they come to you that perhaps that is something they ought to do?

Roger Pollen: I believe that on a UK basis there has been a very high level of success for those people who have appealed lending decisions, but that the numbers appealing them have been very low. As I say, we are short on detail.

Nigel Mills: But you do not direct your members to that process if you think they might benefit?

Roger Pollen: It is not something that comes forward to us by members raising the query. That may be back to the issue of people not wanting to go around advertising the fact they have been turned down for finance.

Q210 Ian Paisley: I add my welcome to you, Roger and Wilfred, for this important session. We took evidence from the British Bankers’ Association, and they indicated to us they had entered into a strategic partnership with UK Business Angels Association to help businesses gain a better understanding of where they might get asset support and options for investments apart from with banks. First of all, are you aware of that partnership with UK Business Angels Association to make businesses in GB move away? I am more aware of how they can get help by angel investors. Do you believe that such a programme might be usefully extended to Northern Ireland?

Roger Pollen: I was only aware from having read their submission to you. I was not aware beyond that, and I see that they are saying they are going to look at how such a programme could be extended to Northern Ireland. We are not aware of any-

Wilfred Mitchell: Two or three years ago they had a conference in Belfast.

Lady Hermon: The BBA?

Wilfred Mitchell: Yes, I think along with the Chamber of Commerce. They were going to take people aside and go through everything. I think it has fallen apart.

Ian Paisley: Is that a BBA organised conference?

Roger Pollen: It was, yes.

Wilfred Mitchell: Yes, joint with the-

Ian Paisley: I am not entirely surprised, given the quality of evidence last week, that that was the case: that there is not that great communication across the whole of the kingdom about what might be available, or indeed the follow-up of what might be available, so I appreciate your answer.

Q211 Lady Hermon: Mr Mitchell, could I just ask you to clarify, what exactly fell apart?

Wilfred Mitchell: I think there was going to be mentors and a lot of assistance given. This was right at the peak of the recession. People were going to go round and act as mentors, mentoring. They were keen; this was what was all going to happen.

Lady Hermon: And this was presented at the conference. Do you recall round about when this conference took place?

Wilfred Mitchell: It was two or three years ago or maybe more.

Lady Hermon: Perhaps you could furnish us with details of that conference and the pledges that were made at it. That would be helpful.

Q212 Oliver Colvile: I am a small businessman in Northern Ireland and I want to expand my business, and so therefore I can go to one of three places, can I not? I can go to the Business Angels, which we talked about earlier. Two, I can go to the bank. It is probably more likely I will go to my Northern Ireland bank, but if I do not get anywhere with that I could then potentially go somewhere else: I come here to Britain mainland and talk to the banks here. Alternatively, I might end up going to southern Ireland to see whether I could actually do it. Do you have any ideas as to whether or not any of your members, when they are seeking to try and expand their business and they want to actually take a loan out-if they cannot succeed in getting it from the banks in Northern Ireland and they have not been able to get any of the Business Angel money-do they then approach some of the other banks here, or do they go to Southern Ireland and say, "We go there, or for that matter go to America"? As you can probably understand, internet banking is very much the big thing. Has that produced more competition for the banks in Northern Ireland?

Roger Pollen: I would answer this way: we have not got survey evidence to show what the trends are within that, but I can give you three anecdotes. One of our members was setting up a business that is entirely focused on exports, and could not get banked in Northern Ireland, and went across to England. He set out his stall, got banking facilities and was very happy, and he has set up a business that employs 20 plus people now.

Another one, who had a large business in Northern Ireland and had good banking facilities there wanted to acquire a new business in the Republic. He went to his existing bank, and they were not interested. They saw that it was a business outside of the competence that they associated with him, and decided not to bank him. He went to one of the Republic’s banks and effectively walked in off the street to them, set out his stall and got the funding that he wanted.

A third one had tried quite hard to get VC funding-venture capital funding-had tried to get bank funding, had been unsuccessful with both and ended up going to the States where their main customers were and got their customers to provide the funding, not as an equity stake but simply as lending to the business that was supplying them with the products and services that they wanted.

Q213 Oliver Colvile: Are you suggesting that there is a lack of imagination occasionally?

Roger Pollen: I was suggesting they were three examples of good imagination.

Oliver Colvile: No, I mean within the banking sector in Northern Ireland: they are not willing to look outside the box and think about that as well.

Roger Pollen: Yes. They were three good examples of businesses that are all doing well and all employing good numbers of people-somewhere between 20 and 50 each-which have had to go somewhere else to get that finance.

Lady Hermon: And have found imaginative solutions to their problems.

Roger Pollen: They were imaginative in-

Oliver Colvile: Can you congratulate your members for doing that and thinking a bit more cleverly?

Q214 Dr McDonnell: I just want to touch on another aspect, namely that of late payments. Are late payments as significant, more significant or less significant than access to finance? Do you feel Northern Ireland has a worse problem around late payments than the rest of Britain, or that, for instance, the economic situation allowed, encouraged or tolerated big business not paying up in time as well? I am not talking just about big business, but right across the spectrum.

Roger Pollen: A lot of businesses require debt facilities simply to cover the gap until they get the money in for the sales they have already made. Cash flow, therefore, is a key part of the issue. Within that is the speed of payments or otherwise. At the time that the Patton Group collapsed, we did a quick survey-it was not as robust a one as the Research by Design ones-but we sent a questionnaire to our members just to get some sense of how many and what type of businesses had been caught up in the wake of that and the effects on them. That was quite a shocking illustration of the extent to which companies had felt obliged to extend credit terms to a large customer, a customer they had never expected would go under. They had extended the credit terms simply because they felt they had no choice other than to do that. Obviously, when the main company went down, they all suffered a lot of damage.

On the back of that, we have picked up quite a lot more disquiet amongst people about late payments, and some practices coming in to mask those late payments, which we are looking into at the moment. We are not really ready to put out more into the public domain on that, but just ways that latepayment practices can be hidden or disguised, so that the payer maintains quite a good track record. It is something we are looking at; it is something that we are getting back as being an issue.

Dr McDonnell: You will have evidence later on that?

Roger Pollen: We will have evidence later on that.

Wilfred Mitchell: Some people are reluctant to say too much because, even though it is late, the payment is quite a key part of their income. They do not want to jeopardise the renewal of a contract.

Q215 Dr McDonnell: I would be keen and I think my colleagues would be keen to decipher where exactly we were on that pitch, in terms of whether late payment is a big problem for general small business, between each other. Is this a particularly big problem for the big businesses like Patton?

Wilfred Mitchell: I think what Roger was referring to earlier is that some people are able to adjust their payments to make it look as if it is not a late payment.

Q216 Dr McDonnell: I would also want to look at whether businesses, for instance, in the rest of Britain are slow to pay in Northern Ireland. That is another separate issue, where we may be way over there and half forgotten about. The other thing I would want to bring it on to is to take it beyond the business and the bigger business: why is it that government, Northern Ireland councils and quangos of various sorts seem to be slow to pay small and medium businesses? Have you any solution or have you guys pressed on that?

Roger Pollen: We have looked at some of it. There are some councils-I know Wilfred has already made reference to Cookstown-but Cookstown Council has an exemplary record for paying on time. The whole ethos within there is to support small businesses. They do lots of events that are supportive of businesses and helping businesses to access public contracts; then when they get public contracts they pay the bill on time. It is as simple as that. There should not be any major systemic reason why all councils cannot meet that same standard that has been set by one.

It has actually been set by more than one; I think Newtownabbey Borough Council also has an exemplary record on public procurement and driving that into local small businesses. As far as I am aware, their payment record goes hand in hand with that, along the lines of Cookstown. If it can happen in one or more, there is no reason why it should not happen in others. I suspect it is one of those things, from the FSB’s point of view, that because of the reorganisation of local government is probably an issue that we cannot justify spending resources on, at the moment, until that reorganisation has taken place, and then we will look at what the shape of the new landscape is and see where we need to bring pressure to bear.

Dr McDonnell: Really what you are telling me is that late payments are not as big a problem as we might think it is.

Roger Pollen: I would not make that conclusion.

Dr McDonnell: You would not draw that conclusion. Do you think late payment is as big a problem, in terms of small business, as access to finance? I know from personal experience that late payments can destroy cash flow. In many cases, small businesses are looking for finance only to cover cash flow. That is really why I am coming at this.

Q217 David Simpson: Chairman, can I just come in on that point that Alasdair has raised? In the onepage briefing that the FSB gave the Committee, it said that 4,000 businesses closed in 2008 at the start of the crisis, as a direct consequence of late payment, and that FSB is currently trying to negotiate with the Government a social clause, in all national, regional and local government contracts. That is the very point that you raised about Newtownabbey and Cookstown. I understand-I stand to be corrected-but I think in Europe, France and a couple of other countries put in a clause on payments to small companies, because larger companies were holding off the money. What I take from this is it is a big issue where big companies are not paying.

There are stories, of course, that the like of councils or whatever will pay the lead contractor and the lead contractor is not paying the small businesses, so that causes some major difficulties. Certainly if FSB is looking at putting in a social clause within the contracts of all government, I think it is a good idea. On Alasdair’s point, from this briefing, late payment certainly seems to be a big issue. If you had 4,000 companies close in 2008 simply because of late payments that is a big issue.

Wilfred Mitchell: Up until the last two years, the FSB nationally would name and shame the big businesses. We have done that for about 10 years.

Q218 Ian Paisley: I want to turn to the RBS and Ulster Bank situation. You did mention that, and I think you have quite rightly identified that it has an uncertain future, by all accounts, which is rather unfortunate. Do you believe the Banking Reform Act will have any particular implications for Northern Ireland, in view of the RBS/Ulster Bank situation?

Roger Pollen: One of the things I want to get across is we certainly did not come here to bash the banks.

Ian Paisley: That has been very clear in your evidence, to be fair. You have not done that.

Roger Pollen: We said BBA was separate to that.

Oliver Colvile: You can have a bash at them.

Roger Pollen: The banks themselves have come through a horrendous situation; they are still working their way out from it. Whatever happens, whatever the landscape looks like after they have got themselves stabilised, we need to ensure that there is a robust and effective banking system to support what we hope will be a growing small business economy-and hopefully rapidly growing small business economy, if we get further foreign direct investment and we see an escalation of growth. We need to make sure that the banking structures that are left there are appropriate, not just for what we have at the moment, which to be fair is a business sector that has suffered an awful lot of damage; we have lost an awful lot of companies over the last five years. It is the banking structures that are appropriate for what we see emerging from that and where we want to see it going. I do not know if that answers your question.

The whole issue around Ulster Bank is very difficult, because one of the other concerns we have is that there are an awful lot of backoffice jobs in Northern Ireland-quality, highpaid jobs in the banking sector. If there was some sort of restructuring that suddenly made those less relevant or less needed-for example if Ulster Bank was to become simply an Ulster Bankbranded branch of RBS, and all the back office was done here-that would have a major impact on the economy in terms of losing quality jobs. What we would be looking at is if it is possible to reverse it and turn it the other way round, and have a lot more of the backoffice functions for RBS and others delivered in Northern Ireland, where the economy is very competitive and the skills base is very well suited to that.

Wilfred Mitchell: One of the core problems in Northern Ireland is, apart from maybe Danske Bank, decisions are made, but control over what happens in Northern Ireland happens in Dublin or London.

Q219 Naomi Long: You have said one way that, potentially, the Ulster Bank situation could be resolved that would be beneficial to Northern Ireland. The other potential solution that has been discussed or mooted, in terms of what might happen and the speculation around that, is that the Irish Government would essentially take control of Ulster Bank, which would be removed from RBS and then swapped for some of the British loans and investments that NAMA has. What impact do you think a solution that looks like that would have on the banking sector and on small businesses and mediumsized businesses, in Northern Ireland?

Roger Pollen: It is hypothetical, so one of the things you would have to look at is whether that would even be allowed by the EU, given the stake that the state currently has in the other banks in the Republic. If it were then to take on another one, the logical move thereafter would be to remove some of the competition within the sector that it owned. I do not see that that would be good for everybody, and I also do not think that it would be likely to be allowed under EU rules. It is outside our remit and our pay grade.

Q220 Naomi Long: For example, there are issues that you may not influence in the decision, which could have implications. For example, if NAMA, for whatever reason, decided to start selling off their property portfolio much quicker than they have been, that would not directly impact on small businesses but it would have an indirect impact, which I am sure you would have a view on. Do you have a view on how that scenario, albeit a hypothetical one, could impact on small businesses in Northern Ireland in terms of access to finance or their normal operations, or do you just think that that is not something that would necessarily impact directly on small businesses given the fragile state at the moment?

Wilfred Mitchell: Certainly if the banks called in the debts, some existing businesses that are employing people would have difficulty.

Q221 Oliver Colvile: What would be the consequences for Northern Ireland small businesses that were banked in Northern Ireland if Ulster Bank or whatever bank were to end up being in foreign ownership? Do you think that would have any consequences on those businesses?

Roger Pollen: If I get the question you are asking, I think we will go back to the point that your colleague Ian made earlier. Ultimate ownership is not really the issue; it is the ability to respond to the opportunity that is present in the market where it is operating. If we look at Santander, as I understand it, the parent company is based in Spain and it has a huge footprint in the UK market. The ownership does not affect that.

Q222 Oliver Colvile: I should declare an interest: they have my mortgage. Consequently, they actually operate completely independently of what happens, as I understand it, down in Spain too. What effect do you think the sale of bank assets by NAMA has had on Northern Ireland businesses and most certainly property values?

Roger Pollen: I am sorry, the sale of?

Oliver Colvile: The sale of bank assets, so that is bits of land ownership and stuff like that too; what effect do you think that would have on Northern Ireland businesses and property values?

Wilfred Mitchell: Our view is we are not sure that we are seeing the full effects of it.

Roger Pollen: It seems that it is being handled in a managed and controlled way and that the timing of sale is not destabilising the market. The fact is that people know there is an awful lot of property not yet sold, and NAMA has a horizon. Whether that is people sitting out of the market for a while, until they see that the organisation comes under pressure to offload, there do seem to have been some good strategic moves where they have invested in properties to move them forward. We have seen construction jobs coming as a result of that and quality properties being delivered. As Wilfred says, it is probably too early to see the whole picture.

Oliver Colvile: I also think that the southern Irish taxpayer is very keen to make sure that they get value for money out of any of those things. They have to manage in a controlled manner, rather than anything else. I would be interested to know what impact it would have on Northern Ireland, but thank you very much to you for that.

Q223 Lady Hermon: I have a couple of questions that are quite different. You have hinted at your criticism of the British Bankers’ Association as we have gone through the evidencetaking session this afternoon. Would you like to crystallise the main reasons, since they are not here to defend themselves? Would you crystallise the main criticism that you would have of the BBA, as it affects your members?

Roger Pollen: We are a membership organisation and the members wanted to get information on lending to small businesses in Northern Ireland by the banks there, so we contacted them in July.

Lady Hermon: This year?

Roger Pollen: This year.

Lady Hermon: On behalf of your members?

Roger Pollen: By telephone, on behalf of the elected members, to try to get more information on that picture. They undertook to call us back and did not. We then wrote a few weeks later, and they received the letter, acknowledged it and undertook to respond to us the following week.

Lady Hermon: In detail?

Roger Pollen: In detail, and did not respond. That was at the end of August, so the response should have been expected at the beginning of September. We then wrote again and have had no acknowledgement of that correspondence or response to it.

Q224 Lady Hermon: Is that typical of the relationship that you have had over the years with the BBA? Is that unusual?

Roger Pollen: What we have found from speaking to the banks there is that there seems to be, from what I understand in talking to them, an acceptance that information could be made available. They just need to find a consistent way of presenting it, so that they are all presenting the same picture and one can be compared to another. The BBA seem to us to hold the ability to be the arbiter of that, the presenter of that consistent information. For some reason, despite having acknowledged that that same information is very useful to policymakers in GB, they have not made it available for Northern Ireland, nor have they said why they have not made it available, nor whether they are going to make it available. Their members do not see any real reason for it not being published, and yet they, as the organisation that has those members within it, have not been doing so.

Wilfred Mitchell: I have been at dinners that they have hosted. After dinner, there are general conversations and, as far as they are concerned, the blame is with the small businesses not having a proper business plan. They are taking a risk in getting involved. It is really that small businesses need to be educated to produce proper business plans.

Q225 Lady Hermon: Who precisely would be taking the risk? The indication was given to you that somebody would not take the risk. Who would not take the risk?

Wilfred Mitchell: They would not take the risk with small businesses, because they say, when analysed, there is too big a risk in their business plan, if they are looking for money.

Lady Hermon: That is the banks in Northern Ireland?

Wilfred Mitchell: Yes.

Lady Hermon: That is anecdotal.

Wilfred Mitchell: That is what the BBA says.

Lady Hermon: Sorry, the BBA is saying on behalf of the banks-

Wilfred Mitchell: That is what the problem is in Northern Ireland for small businesses.

Q226 Lady Hermon: A completely different question, and actually it is precipitated by a very interesting example that you gave to us a little while ago, Mr Pollen, and that was in relation to the imaginative solution to a borrowing problem by a business in Northern Ireland. The first part of the question is: when the Irish Republic suffered what was a very, very severe financial crisis and banking crisis, did that affect the lending, to the best of your knowledge? Did it affect the lending by banks in Northern Ireland to companies in Northern Ireland, or did it have no impact at all? What you said in reply to a question earlier on suggested that, in fact, the client from Northern Ireland who had an issue that he could not access lending in Northern Ireland could easily just walk into a bank in the Republic of Ireland and get a loan.

Roger Pollen: I did say that that was one instance; it was not a trend that we were reporting. That was simply an example of somebody who had found the local banks unable to respond, despite his track record, and had gone to a bank in the Republic, which then looked at his track record, evaluated him and his business idea on the basis of that, and then given him banking. Now, if you were to draw any conclusions from that-and it would be very risky on just one example-but if you were to draw any conclusions from that, it may well be that the attitude of the bank in the Republic was to say, "We are open for business and, if somebody is coming in with a good idea and a good track record, and they seem to be able to pay back the money that they are borrowing, then we want to bank them."

Q227 Lady Hermon: Your organisation really would not have the depth of knowledge to respond in detail to the question I am asking. Did the economic crisis in the Republic of Ireland impact on lending to your members, during that crucial time, in Northern Ireland? Am I right in saying that, in fact, your surveys would not reflect that sort of detail?

Roger Pollen: They would not have been focused to ask that question.

Wilfred Mitchell: We cannot answer that.

Lady Hermon: I thought that was going to be the answer, but I asked it anyway. It is on the record; thank you.

Q228 Naomi Long: We discussed earlier about transparency of the lending information for banks, and you touched on it in your initial presentation. Could you just clarify for us, first of all, you have already said that you think that the banks should have to make their lending data available, either on a postcode or a constituency basis. Could you maybe elaborate a bit on that? My understanding is that the Executive actually has no powers to command the banks to do anything. It is simply done by cooperation and collaboration, because it is a reserved matter. Do you think that either the Executive should be discussing that with the banks and making that request or, alternatively, if they are not making progress, the Northern Ireland Executive should actually be raising this with Treasury, in order that Treasury will ask them to do that for Northern Ireland?

Roger Pollen: I believe the Finance Minister made a submission to you, in which he said he was meeting with Anthony Browne in September, and that that was one of the issues he was going to raise-the provision of that data. There was another submission to you, I think by the Ulster Business School, which suggested they would like to see that information collated, crunched and presented by the Northern Ireland Statistics and Research Agency.

Our position is that the data would add information to the debate that might move us more to a better suited banking structure for small businesses. In the absence of that data, we are not going to get to the better or the ideal banking structure. Wherever the pressure needs to be brought to bear to get the information into the debate, we think it should be brought. We have raised the issue. Many politicians have raised the issue. There is a great frustration about the continued failure to put the data into the public domain. It took quite a long time to get it produced on a GB basis.

Our concern around the BBA-to add one final point to the point we made earlier-is the fact that the press release they issued on it seemed deliberately to mix the terms GB and UK in it to convey the impression that lending data was being made available across the UK when, in actual fact, there was a clear piece being omitted. There was no reason given for why it was being omitted.

Q229 Naomi Long: In terms of that specific question of the reasons why it is being omitted, you have talked a bit about that, but do you have any insight as to why there is that resistance?

Roger Pollen: No.

Q230 Naomi Long: Or why it would be more difficult to do in Northern Ireland than in GB? I am unclear: if it can be done by postcode in UKwide banks for the GB portion of their business, and their systems are standardised, I do not understand why it cannot be done in Northern Ireland. For the Northern Ireland banks, I would accept that, if they are only banking in Northern Ireland or in Ireland and they are not doing that more generally, it may require them to put in more work. Have you had any insight or feedback, in terms of what the rationale is?

Roger Pollen: The banks tell us that they would not have any great difficulty in making the information available. The concern that some of them have expressed is that it would need to be done on a consistent basis so that there is fair comparison, but one would have thought that that is not unduly difficult to deliver. I understand that the information is being made available confidentially to the Finance Minister, to the Department of Finance personnel and to the Economic Advisory Group, but I do not understand why the Finance Minister then does not feel that that is sufficiently beneficial, so that he is continuing to raise it. Presumably they are not getting it in enough detail. To go back to the question about whether it can be presented like that, I suspect there is a genuine concern over releasing data which, in a small area on a postcode basis, could be clearly identified almost on an individual business.

Q231 Naomi Long: Is that significantly different from the situation in some regions in GB?

Roger Pollen: As we understand it, the release was done in conjunction with the Information Commissioner in GB to ensure that it was not being done in such a way that people could be identified and their lending could be identified. Therefore, it seems that you could just aggregate slightly more, and therefore not highlight anybody individually.

Naomi Long: That is constituency rather than postcode.

Roger Pollen: Constituency could well be one solution.

Chair: There may be a vote in five minutes’ time, in which case I think we will end the Committee, because we have asked quite a lot of questions. Can I come to you in a minute, Sylvia?

Lady Hermon: Just before we move on; it is specific to this. It is just to say, in fairness to BBA-and I have no working relationship whatsoever with BBA-the evidence that we received from Anthony Browne last week said, "It’s not that Northern Ireland is excluded. It is just a different set of banks and a different set of operational requirements, which is why it is basically a year behind what is happening in GB…It is a phased approach, rather than exclusion." It was just to pick that up. That was the evidence that was given to us last week.

Q232 Nigel Mills: Can I take you to the topic of branch closures? Clearly there have been some and there are rumours of some more. The banks usually defend this as just commercial needs and there is less demand for branch use with internet banking. Therefore, it makes sense for them to have a smaller estate. Is that something, as businessmen yourselves, you could see some sympathy for or are you not sympathetic to that argument at all?

Roger Pollen: I suppose there are a couple of issues there. Our members tell us that they would like to see the branch network maintained, because they value relationships with the managers there, so they can not only access finance, pay in and take out money, but they can actually get other services from the branch network. They provide a fairly valuable role in communities as well, anchoring businesses and playing their part in the social fabric.

Banks are different from other businesses. As I said earlier, they are not like a retailer that may decide that they have overextended themselves and could do with fewer stores in a particular area. Banks have a slight public responsibility, because of the role that the state provides in ensuring that they are guaranteed. We are sympathetic-you asked the question-we are very sympathetic to them running the business and balancing their books, but they do have a role that is slightly different from that of a normal commercial company. If they simply downsized to the point where they cut out all the places where they do not feel that it is a particularly good return on investment, you run the risk, in a haphazard manner, of undermining the banking support that small businesses and the entire economy needs there.

Q233 Lady Hermon: As someone who has, in my constituency of North Down, already experienced the closure of what were Northern Banks under Danske management, how would your members feel if in fact the Ulster Bank, on top of those closures-and that is in North Down, and I am sure there have been closures across rural areas as well-how would it impact on your members if, on top of those closures, we then perhaps have closures by Ulster Bank?

Roger Pollen: We saw it in Dromore, County Tyrone, where the last bank was closed. There were other banks relatively nearby, but if you have businesses that are dealing in cash and wanting the bank cash and so on, that puts a whole other set of burdens on them.

Lady Hermon: I agree entirely.

Roger Pollen: The risk then is that there is an unseemly dash to the door to be the ones to close your branches first, so that you are not closing the last branch in town. I saw that Jim Brown, in his investment update, on 2 July, did set out that they had an intention to close a number of branches within Ulster Bank. We are sympathetic to that. As Wilfred said, we are not looking at retaining things or going back to the way things have always been, but we are just concerned that there is not an unseemly dash to close banks as being the costly part of the business, without actually taking cognisance of the overall economic environment, in which our members and most of the private sector would operate.

Q234 Lady Hermon: What can you effectively do on behalf of your members? Do you write to the heads of the banks before closures? What do you do?

Roger Pollen: That is why we flagged up the idea of the Government potentially using its position and its role with TSB to extend its footprint into Northern Ireland, not in terms of increasing provision and competition, which probably would not actually help anybody in the sector, because it would mean more people fighting over the same slice of cake, but actually by way of at least ensuring that there is quality competition that is feeding in the initiatives that are made available to banks, through banks in GB.

Q235 Kate Hoey: Can I just ask you one question? Do you agree that no one should have to be made to have a bank account these days? If people want to pay their electricity bills by cash, they should not be discriminated against.

Roger Pollen: I do not think that is something that the FSB would have a view on.

Kate Hoey: That is all I wanted to know.

Q236 Chair: We have to go and vote now, as you can hear, but I think we have reached the end of the questioning. I was going to ask a final question: what would be the one thing you would like us to recommend, when we get to the end of the session? Is there any one thing?

Roger Pollen: That serious consideration is given to extending the TSB network as a UKwide bank, partly so that we also have a route to deliver mechanisms that might come about if Government were to develop small business administration along the lines of the one that is in America. That is two things.

Q237 Nigel Mills: Do you think maybe Northern Ireland was overbanked? Is adding another competitor-?

Roger Pollen: That is why we suggested it might be done by the takeover of the First Trust Banks. They put themselves up for sale and nobody bought them so, without increasing the provision, it may be that there is an opportunity there to increase the footprint of a GBbased bank.

Chair: Thank you. I am sorry; we will have to close the public session. Thank you very much for your evidence today.

Prepared 22nd October 2013