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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 650-xii
House of COMMONS
TAKEN BEFORE the
Northern Ireland Affairs Committee
The Banking Structure in Northern Ireland
Wednesday 12 February 2014
Sajid Javid MP and alison cottrell
Evidence heard in Public Questions 818-875
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Taken before the Northern Ireland Affairs Committee
on Wednesday 12 February 2014
Mr Laurence Robertson (Chair)
Dr Alasdair McDonnell
Examination of Witnesses
Witnesses: Sajid Javid MP, Financial Secretary, HM Treasury, and Alison Cottrell, Director, Financial Services, HM Treasury, gave evidence
Q818 Chair: We will open the public session. Minister, you are very welcome, as is your colleague, Ms Cottrell. Thank you very much for joining us. As you know, we are carrying out an inquiry into the banking structure in Northern Ireland. Can I thank you for you written submission, which is a very comprehensive document and very useful? Thank you for that. We have had a few apologies today, so far, so I do apologise for the low number of Committee Members here. I hope the quality will make up for the lack of quantity, but that is for others to judge, I am sure. Minister, would you like to add anything, before we start questions, to the statement you have made?
Sajid Javid: If I can just start, Mr Robertson, by saying that it is a pleasure to be here in front of your Committee. It is the first opportunity I have had to do that; I look forward to many more. I just wanted to say that, as you know, one of the key focuses of the Treasury at the moment is, naturally, helping Britain recover from the great recession, which was the deepest the country has seen for a hundred years.
Kate Hoey: With the greatest respect, do you mean helping the United Kingdom to recover, not just Britain, as that would exclude Northern Ireland?
Sajid Javid: Of course, the United Kingdom recovering from the great recession. Northern Ireland is a very important part United Kingdom, and so of course we are very focussed on making sure that that recovery touches all corners of the UK. Having a stable and healthy banking sector is an important part of that recovery process, which is why I think this is a good opportunity to talk about the Northern Ireland banking sector.
Q819 Oliver Colvile: First of all, welcome, Minister, and also Ms Cottrell. Thank you for coming.
Based on the evidence available to HMG, do you consider that Northern Ireland is open for business or are you rather disappointed by the way in which the banks have been operating?
Sajid Javid: I would say overall that Northern Ireland is open for business. The UK as a whole is open for business. Clearly when one takes a close look at the Northern Ireland banking sector, there are some obvious differences between the banks that operate there and those in the rest of the UK. The typical lenders you might see on the high street outside Northern Ireland are not present in the same way in Northern Ireland, but there are other banks that operate there. Given the history of the development of the banking sector, and also the fact that Northern Ireland shares a land border with the Republic of Ireland, there is good reason to think there would be differences, but do those differences mean that Northern Ireland is, in some ways, closed for business? I do not think so.
Q820 Oliver Colvile: Have you had any representations on capping the share of markets for the banks, as well? If you have, what impact do you think that would have on the Northern Ireland economy?
Sajid Javid: Capping market share is certainly not a Government policy in any way. There has been some recent public discourse about that, including, in particular, comments by the Leader of the Opposition, which you may be referring to. It is something to which the Treasury has not really given much consideration at this point, but my early assessment would be that, if there was some kind of arbitrary market share, however defined in respect of banks, it would be detrimental to the banking sector as a whole. Although it would be hard to talk specifically about the impact on the Northern Ireland banking sector, if I applied it to the UK as a whole, for a start I could see how it could make banks more reliant, in terms of raising capital, on the wholesale banking sector, which might make it more volatile.
Q821 Oliver Colvile: You have not had any representation from Northern Irish banks at the moment?
Sajid Javid: No, I am not aware of any representations from Northern Irish banks.
Q822 Oliver Colvile: Is there any evidence to suggest that bank funding is readily available to customers for working capital or asset purchase finance, which of course will help the economy to grow? The big issue, which everybody else seems to know that I have been talking about all the time, I am afraid, is rebalancing the Northern Ireland economy. How do you feel that has an impact, too?
Sajid Javid: It is fair to say that the Northern Ireland banking sector, like the banking sector in the rest of the UK, has gone through a very challenging and difficult time over the last few years. That has certainly manifested itself, for example, in issues around capital and making sure that banks have enough capital. Over the last year especially, the banking sector overall in the UK, including Northern Ireland, has improved significantly in terms of its access to capital. One way to observe that is if you look at the funding costs of the banks, when they do raise capital, whether it is in the form of equity or if they are accessing debt financing to lend.
However, this is something that, since 2010, the Government has been very concerned about, in thinking about what it can do to help banks lend more to a sector, particularly to the business sector and households. As the Committee may be aware, there are a number of programmes in place that are UKwide that are helping. For example, there is the Funding for Lending Scheme, or FLS, which two banks in Northern Ireland are part of and they have drawn down on that scheme. Had that scheme not been in place, there would be every reason to believe that there would be less lending going on in the economy.
Q823 Ian Paisley: Minister, just coming in on that one, once again I would say you are very welcome, you and your colleague.
As you know, there are about 13,000 mortgages across Northern Ireland and the Republic of Ireland that would be described as "in danger". There is a suggestion that they would be parcelled up and sold on to hedge funds and private equities to sort out their funding problems. Those hedge funds and private equity firms in the Republic of Ireland are not regulated; in fact, many of them are unregulated in the Republic of Ireland, and yet that would affect a number of customers that were previously customers of British banks in Northern Ireland. Is there any way in which we could protect those customers, if they find that their assets are parcelled up and sold on to private equity firms?
Sajid Javid: First of all, in terms of how any bank manages its balance sheet, ultimately it is going to be a commercial decision for that bank. Naturally, there are rules and regulations around how such management can take place. Now, I am not aware directly, although I have heard others talk about what you have just referred to, of any bank that is engaged in that or any of the detail, but all the banks in Northern Ireland are regulated by the PRA and the FCA. They all have to abide by the rules of those regulators. I know it is something that the regulators would take a very keen interest in to make sure that, to the extent they do engage in activity, they actively balance their balance sheet so it is done in a proper way.
Q824 Lady Hermon: It is delightful to see both of you here this morning to give us evidence. As a matter of curiosity, may I just ask, Minister, if you are familiar with Northern Ireland in terms of being able to visit it regularly?
Sajid Javid: I have visited Northern Ireland twice, and once whilst I was a Minister.
Q825 Lady Hermon: Good. As to the relationship between the devolved Administration, particularly the Department of Finance and the Finance Minister-would you meet frequently?
Sajid Javid: Yes. I have met Mr Hamilton to discuss the banking sector in particular and other financial matters. I have met his predecessor as well, and I have also had a number of discussions with the Secretary of State for Northern Ireland on this particular issue. We do meet regularly. We are very open to having as many meetings as necessary and, as you may also know, we also have a task force that we have set up, together with the Northern Ireland Executive, to look at banking issues and access to finance in particular in Northern Ireland. It is chaired by my right hon. Friend the Secretary of State. At the ministerial level, we have the task force, and at the working level, officials like Ms Cottrell and others are engaged on a very active basis in looking at issues.
Q826 Lady Hermon: The perception in Northern Ireland is that somehow it is perceived to be in the periphery. It may geographically be at the edge of the United Kingdom, but really it is at the centre. Are you reassuring people in Northern Ireland that Northern Ireland is very much on the radar within the Treasury?
Sajid Javid: Yes, absolutely. There is a team in the Treasury that is focused on a regular basis on Northern Ireland. We have Northern Ireland specialists in the Treasury on the economy in general, which includes looking at the banking sector. As I said, as a ministerial focus, having this task force is an important part of making sure that, whatever the existing issues are, if there are future issues, we look at them quickly and act promptly.
Q827 Lady Hermon: Is there a dedicated team within the Treasury that looks only at Northern Ireland, the economy of Northern Ireland and the banking structure?
Sajid Javid: There are officials who are Northern Ireland specialists on the Northern Ireland economy.
Q828 Lady Hermon: How large a team would that be?
Sajid Javid: I would not know the size of the team.
Alison Cottrell: The team itself looks at the devolved regions and administrations, so it is not Northern Ireland–specific as a team, but there are people within that team who focus on Northern Ireland. As the Minister says, it is an issue that is very central to our thinking. If there are ways that we can help change the perception that Northern Ireland is somehow on the periphery, from this Committee, then that would be extremely helpful.
Lady Hermon: I would suggest it is lovely to have Ministers from the top down. The Prime Minister is always very welcome in Northern Ireland.
Sajid Javid: One thing I would like to do and have already suggested to the Northern Ireland Executive, and I know the Secretary of State supports, is have a ministerial meeting of the task force in Northern Ireland. That would maybe get more people, get a bit more focus and try to change some of the perception that you refer to.
Q829 Lady Hermon: This is a question that we were going to come to later this morning, but since we are talking about the task force, can I ask whether you in fact believe that the membership should be widened to involve business representatives?
Sajid Javid: This task force is a ministerial task force, so it is rightly focused on action that the Government can take, but I think the voice of business is important when we discuss the banking sector and the finance sector more generally. It is important-perhaps we will come on to this later-when we talk about access to finance and being open for business in Northern Ireland, as elsewhere in the UK, that that is not just about the banking sector. One thing I would like to see is more competition from what you might call nonbank actors in that sector.
Going back to your question, business representation in the debate is very important. I have not thought too much about whether it should necessarily be part of the ministerial task force, but I would be openminded to look at any representation.
Q830 Lady Hermon: Certainly we have received evidence during this particular inquiry that there are some voices that feel that, in fact, they are not represented and should be represented within the task force. May I just clarify something that you said just a moment ago? Did I misunderstand you when you indicated that, in fact, you would like to see the ministerial task force meeting in Northern Ireland? Has it not actually met in Northern Ireland?
Sajid Javid: No, there has not been a meeting so far of the Ministers in Northern Ireland. Including myself, we have not met in Northern Ireland.
Lady Hermon: We insist unanimously.
Sajid Javid: You do not need to insist; I have already offered it before you got there.
Q831 Lady Hermon: Could I just ask a couple of points about the actual structures of the banks in Northern Ireland? Is Treasury happy with the evidence we have received? We understand that the main banks operating in Northern Ireland are organised as separate managements and separate boards in Northern Ireland, as compared to their main banks operating elsewhere. Does Treasury regard them as operating as separate units within Northern Ireland?
Sajid Javid: It is fair to say that the main banks-let us say the top five banks-have different structures in how they operate. First of all, as I mentioned, they are all regulated by the same regulators. That clearly is the right sensible approach. For example, to pick a couple of banks, Ulster Bank is part of the RBS Group and therefore is very much linked by decisions that are made in the mainland, at least by its senior officers of the RBS Group, while First Trust Bank is part of the AIB Group and therefore has a closer link to Dublin and so forth. Obviously Northern Bank has its links to Denmark. Most of the banks-actually, I think all of the top five banks-are part of larger groups, so you would expect that some of their actions and priorities would be set by some of their senior officers operating in other jurisdictions.
Q832 Lady Hermon: Following on from that point precisely, is it a concern for Treasury that Danske Bank’s headquarters are in a foreign jurisdiction? Likewise, the main headquarters of one of the main banks is in another jurisdiction, the Irish Republic. Is it a concern for the Treasury that the main banks have all their headquarters outside the jurisdiction of Northern Ireland?
Sajid Javid: I do not think I would think of it as a concern. First, it is a reflection of modern banking structures; it is not unusual. Secondly, although Ulster Bank, for example, is a part of the RBS Group it is a subsidiary of the RBS Group, so it does have its own board and its own senior management team. Clearly that is very focused on its business in both Northern Ireland and the Republic of Ireland.
Q833 Dr McDonnell: You are very welcome and thank you for the evidence.
There is a point that I wanted to probe. It is easy to understand, following on from Lady Hermon’s point, the RBS structure cascading down from RBS, NatWest and Ulster, but the Bank of Ireland and First Trust are AIB. When they gave evidence, they made it very clear that their operations were regulated in London through, if you like, fully independent or semidetached subsidiaries as the Bank of Ireland UK or AIB UK. How does that sit? Do you feel comfortable with that structure? Does that structure meet all the regulations and all the requirements?
Sajid Javid: Yes, it does. It certainly meets all regulations and all requirements. I would be quite comfortable with that structure. The two banks you referred to-First Trust Bank, which is part of AIB, and Bank of Ireland-operate throughout the UK. They have a subsidiary that is their UK subsidiary, and clearly a large part of those operations are the operations in Northern Ireland. The structure is perfectly compatible with our banking and finance regulations, and it is not unusual.
For example, a growing bank in Northern Ireland of recent times has been Santander. As you know, Santander’s UK operations again are headquartered in London, but it operates throughout the UK. It has built up a growing presence in Northern Ireland, which is welcome from a competition point of view, but Santander ultimately is a Spanish bank. Although the group might be a Spanish group, their UK operations are still regulated by UK regulators and that is the case in Northern Ireland as well; it is regulated by UKwide regulators.
Q834 Dr McDonnell: Are they exactly the same? Is their regulation exactly the same as a UK bank?
Sajid Javid: Yes.
Q835 Dr McDonnell: I appreciate your comments about Santander, because I am aware of them too, but the message we got from the First Trust, for instance, was very clearly that AIB UK was fully regulated and controlled from London, but the only meaningful connection with their Dublin base was a shareholding connection rather than a regulatory connection.
Sajid Javid: Yes, so AIB UK is fully regulated by the PRA and the FCA.
Dr McDonnell: And fully accountable to British standards?
Sajid Javid: That is correct.
Q836 Kate Hoey: Minister, you mention in your memorandum and you mentioned earlier the Funding for Lending Scheme. Particularly in the memorandum, you talk about the £80 million of loans to 500 businesses through Ulster Bank. You also mentioned earlier a second bank. Do you actually have similar information from all the banks?
Sajid Javid: No. Ulster Bank and Bank of Ireland and, to be complete, the Progressive Building Society have signed up from Northern Ireland to the Funding for Lending Scheme. The Bank of England has all the numbers from all the banks, as you would expect, but when the numbers are published they are published on an aggregated basis, so they are not broken down on a perbank basis. However, each bank is then free to release whatever information it wishes. In the case of Ulster Bank, they have released that information of their own accord, but we do not have numbers that are public for Bank of Ireland. What I can say is that, in total, Funding for Lending throughout the UK is around £23 billion.
Kate Hoey: Each bank should be able to give that information.
Alison Cottrell: Just to correct, when the bank publishes the FLS data, it does put the bankspecific data on its website. What the Minister is referring to is Ulster Bank’s specific part broken out of RBS. The bank will give the RBS data, but Ulster Bank actually just volunteered its share of that lending.
Kate Hoey: The Bank of Ireland could do so.
Alison Cottrell: The bank data is on the Bank of England’s website. You will not see Ulster Bank, but you will see the other participants in Funding for Lending by bank.
Kate Hoey: It should be possible to get that detail somewhere.
Sajid Javid: You can get Bank of Ireland data, but what you will not be able to tell from that is how much is in Northern Ireland and the rest of the UK.
Q837 Kate Hoey: You say yourself in the memorandum that ways of boosting lending in Northern Ireland have not been as successful as elsewhere in Great Britain. Have you thought of why that might be and what we can do about it, or do you not think it is significantly different?
Sajid Javid: One factor is that it is certainly fair to say that the entire UK suffered from the banking crisis and that clearly had a knockon impact to lending, especially in the early years. There are very positive signs, especially in the last year, of things getting much better. In the case of Northern Ireland, it had the double problem of its neighbour having not only a banking crisis, but one of the biggest banking crises at that time. We all know the consequences in the Republic of Ireland of that banking crisis. Given that at least two of the major banks that are operating in Northern Ireland are also big Republic of Ireland banks, there was also going to be a knockon impact from that as well.
In fairness, Northern Ireland was hit at both ends, with the crisis in the UK and an even bigger banking crisis in the Republic of Ireland. That just shows you to what degree the Northern Ireland economy is integrated, not just with the rest of the UK but also the Republic. It is fair to say that, back in 2010, when the Treasury decided to offer a bilateral loan to the Republic, one of the things utmost in our mind was the integration between Northern Ireland and the Republic of Ireland. We felt it was in the best interests of the UK as well to help the Republic at that time.
Q838 Kate Hoey: Can I just ask you-it is not quite related to that, but just while I have you here-if you are absolutely clear that every single note used in Northern Ireland banks, which are eligible and are pounds sterling, can be used anywhere here? No shop, no taxi or no anything should refuse a banknote that is from Northern Ireland.
Sajid Javid: As I understand it, there are four banks in Northern Ireland, I believe, that can issue notes, as officially controlled by the Bank of England. That is legal tender throughout the UK.
Kate Hoey: Any place, for example in the Palace of Westminster, that said it did not like to take a £5 Northern Bank or Ulster Bank note would be completely wrong.
Sajid Javid: I have used one myself in the Members’ restaurant. I think they actually prefer them, to be honest, because they do not see enough of them.
Alison Cottrell: I think we may need to check whether it is legal tender.
Lady Hermon: There is a legal technicality about the definition of legal tender.
Alison Cottrell: Yes, I think it is accepted rather than legal tender.
Kate Hoey: Sorry, what are you saying?
Alison Cottrell: I am not sure if it is legal tender, but it is clearly a currency that is accepted.
Kate Hoey: It is illegal for someone to refuse to take it. This happens quite often.
Alison Cottrell: Yes, I know; I have had it myself.
Chair: I think it probably happens more outside the Commons. They are more educated as to the fact that-
Kate Hoey: I am not talking about the Commons; I am talking generally. A Northern Ireland citizen coming over here to part of the United Kingdom using a British bank Northern Ireland note should not have any problem. You would support them if they took that up legally.
Alison Cottrell: Yes, the notes are backed by the bank.
Q839 Dr McDonnell: Chair, very quickly, I wanted to ask on the Funding for Lending Scheme, you mentioned that Ulster Bank and the Bank of Ireland are signed up to that. Have you any idea why First Trust and Danske have not taken advantage of the opportunities therein?
Sajid Javid: I could not tell you specifically why they have not. First of all, it is a voluntary scheme, so each bank needs to decide whether it fits its own requirements, in terms of the funding. It is not a costless scheme; it provides what I would say is lowcost funding from the Bank of England in return for collateral. There are certain requirements that need to be met, then those funds can be lent. Without knowing the very specific detail of the balance sheets of the other banks, it is hard to know why they have not take part in the scheme, but it is something that is available at any time for those banks to take part in, if they change their mind.
Q840 Dr McDonnell: Could you remind us of the ratio of the collateral? Is it 50:50?
Sajid Javid: No, it is not quite 50:50. The Bank of England sets the rules and they do change over time. For example, just at the end of last year, the Bank of England changed the rules again to focus the schemes on SMEs and to withdraw it from household lending. From the beginning of this year, it is an SMEfocused scheme. It is not just the ratio of collateral that it is important; it is also the type of collateral that can be used as well. That is something that, as the Treasury, although we have agreed the broad parameters with the Bank of England and we fully support the scheme, it is run operationally by the Bank of England.
Q841 Ian Paisley: Minister, as you know, Her Majesty’s Government was very gracious to the Republic of Ireland and loaned it £3.2 billion at the beginning of the financial crisis. In your view, if that loan had not been made to the Republic of Ireland, what do you think would have happened to its economy?
Sajid Javid: You would understand it is hard to speculate what may or may not have happened. What is clear, if I may just focus on the facts, is that there was a request from the Republic of Ireland; we considered it carefully and one of the key drivers for the UK making that loan available was the integration of the economy of the Republic with the rest of the UK, but in particular with Northern Ireland. Part of our motivation was that it was in our own economic interests that the Republic has a speedy recovery from its economic problems.
Q842 Ian Paisley: I note that Sweden and Denmark made bilateral loans also. In your memorandum, you indicate that the Republic of Ireland’s Government will be asked to repay the loan in full with interest. As somebody who represents Ballymena, it is the phrase "with interest" that interests me. What is the interest that will come back to the United Kingdom?
Sajid Javid: I am afraid I do not have the information with me on what the interest rate is.
Q843 Ian Paisley: Is the loan being serviced at the moment?
Sajid Javid: The loan is being serviced, yes.
Q844 Kate Hoey: When is it meant to be completely paid back by?
Sajid Javid: I do not have the terms of the loan with me.
Q845 Ian Paisley: Would you come back to us with that?
Sajid Javid: Absolutely. I would be more than happy to write to the Committee with details of the terms of the loan.
Q846 Ian Paisley: On the same area, the issue of NAMA has been of considerable interest to this inquiry. Would you support us in seeking a meeting with NAMA before we conclude our inquiry? Do you think that would help us fully understand the structural issues that pertain to banking in Northern Ireland?
Sajid Javid: First of all, there is nothing to stop the Committee from asking NAMA for a meeting. If I could be helpful with that, I would certainly try to help in any reasonable way. If the Committee feels that there is important information from NAMA, then that would be welcome.
Q847 Ian Paisley: On page 2 of your submission, you indicate that approximately 3% of NAMA’s property profile is located in Ulster. Although this is a small percentage of NAMA’s entire portfolio, it represents a very significant part of Northern Ireland’s property book. In fact, one estimation is that mortgages alone are about £1.8 billion and a further £3 billion of distressed businesses. It is more than £4 billion-worth probably. Is Her Majesty’s Government confident, therefore, that NAMA will be continued to encourage a phased and orderly release of those assets back on to the marketplace? How concerned are you that NAMA has to really roll up and close over the next three years, so that that phased and orderly release of assets back on to the marketplace can actually be phased and orderly?
Sajid Javid: I would be reasonably confident about that for a couple of reasons. First of all, I cannot see why it would be in NAMA’s interest to have what has often been referred to as a "fire sale" of assets. What is in NAMA’s interest is that there is a controlled, orderly liquidation of assets. Certainly from that point of view, if you think it is in its interest, that is reassuring. Secondly, also reassuring are the recent words of the chairman of NAMA, who told the Northern Ireland Chamber of Commerce in October 2013 that-he specifically said this-it would not engage in a fire sale of Northern Ireland assets. That backs up my view of what is certainly in their interest. Thirdly, the improving economy, both in the UK, including Northern Ireland, and in the Republic as well would help them support the idea of having a more orderly sale of assets.
Q848 Ian Paisley: Have Her Majesty’s Government and the Treasury considered offering NAMA the prospect of an asset swap for some of the more lucrative and potentially lucrative jewels that it now holds? Instead of seeking the repayment of part of that loan, it could be swapped for some of those assets.
Sajid Javid: It is not something the Treasury has looked at.
Ian Paisley: They have never considered it or would you not consider it?
Sajid Javid: I am not aware of the Treasury considering that. I cannot speak for anything before my time as Minister, as I may not be aware of it, but I am not aware of an asset swap consideration.
Q849 Ian Paisley: Would you consider it given potentially some of those assets could be very lucrative for the Northern Ireland economy and indeed Her Majesty’s economy?
Sajid Javid: I would consider any constructive idea that might help the situation, but obviously I need to think about the longterm interests of the UK taxpayer as well. I would be very openminded looking at new ideas, which is one of the reasons I welcome this inquiry and am very interested in looking at your final report.
Q850 Ian Paisley: Finally, have any formal meetings been held between representatives of the Government and NAMA and, if so, can you indicate to us which Departments were involved? Is it the Northern Ireland Office, HMT or BIS?
Sajid Javid: Not at ministerial level; I am not sure about Treasury level. I hesitate to speak on behalf of other Government Departments-especially perhaps the Northern Ireland Department has had meetings-but it is something I am happy to probe further into and get back to the Committee, if that would be helpful.
Q851 Oliver Colvile: Minister, as you know, when assets are allowed back on to the market, that can, if it is not managed properly, have a major depression upon the value of that asset. Have you had any conversations with NAMA, or has the Treasury had any conversations with NAMA, about how that is going to be managed, so that we do not suddenly find-putting it topically-there has been a sudden downpour and suddenly there is a depression in the value of those assets in the first place?
Sajid Javid: As I say, I have not had any conversations with NAMA. I am not aware of Treasury officials having these discussions with NAMA on that issue, but I do think again it is important to emphasise one has to think carefully about what is in the interests of NAMA as well. As you say, if assets were sold without regard to market conditions, in what one might call a "fire sale", then that would not be in the interests of NAMA either.
Q852 Oliver Colvile: Can you just remind me, because I cannot quite remember this, what the maximum amount of money was that the Southern Irish Government could have been lent? Do you remember what that was? It was £10 billion. In fact, the southern Irish Government did not borrow the full amount of money that the British Government had ended up voting for. You are saying that that should be repaid, obviously with interest and things like that. Do we have a timetable for when that £3.2 billion is due?
Sajid Javid: It is not information I have at hand now, but I will be happy to come back to the Committee.
Chair: My recollection was Parliament only agreed the first £3.2 billion, I think. I am not sure; I think there was the option to reconsider further amounts, as I remember it, but maybe that could be clarified.
Q853 Dr McDonnell: I just wanted to tease out other points here around the Dublin dimension. When the loan was made to the Irish Government, one of the conditions was that nothing would happen that would adversely affect UK operations of Irish banks, in particular Anglo Irish Bank, and then we had the merger of the Anglo Irish Bank into the Irish Bank Resolution Corporation, and that was later liquidated. It is our understanding there was a bit of turbulence around that. Could you give us any information on that, or did that all proceed smoothly?
Sajid Javid: My understanding is it has gone smoothly. I am afraid I just cannot give the Committee more information on that. If I knew, I would say so, but it was not something I was involved in at the time. I was not a Minister at the time. I can certainly ask my colleagues and get more information that is available, but I am not aware that there were any problems with the terms of the loan. We have no concerns whatsoever in terms of the timely and proper repayment of that loan.
Q854 Dr McDonnell: The concern was that perhaps it all happened so suddenly and precipitously that some people certainly felt that there should have been more consultation.
Following on that then, the legislation that was introduced in Dublin was that people employed by the IBRC, which was the successor of the Anglo Irish Bank, were able to transfer into Capita as that organisation was wound up, whereas those employed in Belfast did not have any rights and were made redundant. We have again had some turbulence around that and some serious concerns expressed. While you may not have had any jurisdiction on those matters, did you make representations? Were there any questions asked or can you do anything-it is a bit late, I suppose, at this stage-to offer those people any comfort?
Sajid Javid: Yes, that is something I am aware of. I have not had any discussions with the IBRC on that particular issue. I am not aware of any Government officials having those discussions. It is ultimately a matter for IBRC, but it is worth pointing out that employees in the UK do of course qualify for their statutory redundancy payments throughout the UK, from the UK Redundancy Payments Office. It is also a settled principle that employees qualify for these statutory redundancy payments from the country from where they actually work and pay their taxes. Of course, in the case of Northern Ireland employees that is the UK.
Q855 Oliver Colvile: I understand that both Ulster Bank and Danske Bank have seriously impaired property assets in their loan books. I just wonder whether or not the Treasury believes that these two banks will deal with these assets in a phased and orderly fashion, which is rather similar to what I have talked about earlier, but it is also finding out about what Danske Bank is going to do.
Sajid Javid: It is certainly a fair comment that, given the economic problems and the amount of exposure that all Northern Irish banks had to the property sector, this represents a large portion of their troubled loans. In the case of Ulster Bank, the Committee will be aware of the recent announcements by the RBS Group as a whole of what it has set out as its new direction, which includes having what is generally referred to as an internal bad bank to deal with a lot of these problem loans. A significant portion-I think approximately £9 billion-worth-are from Ulster Bank and will form part of this internal bad bank within the RBS Group. That is the right way to deal with problem loans: to have a specialist group of people whose only focus is to work on these loans, and to treat their customers fairly, and also to remember again that it is in their commercial interest to manage these loans properly and to deal with them in an orderly way. I cannot see why it would be in their interest to have any kind of fire sale.
Q856 Oliver Colvile: You are proposing, as I understand, to restructure the Royal Bank of Scotland to the RBS and also, as part of that, Ulster Bank as well. Would you be willing to share with us where you have got to on all of this, what we are proposing to do and what the impact will actually be upon the Northern Irish banking system?
Sajid Javid: First of all, just to be clear, it is not a Government proposal. This new direction that has been set out is RBS’s plan. As you know, the senior management at RBS changed in recent months. They then took a fresh look at what should be their longterm strategy and they set out this new direction. It is worth pointing out, however, that that new direction is something that the Treasury is happy with, the Bank of England is happy with and so is the UKFI-that is the independent body that holds on to the shares on behalf of the UK Government. That is the first time all parties have come together and said they are happy with this new focus.
As part of that focus, RBS has said that it will now concentrate much more on the UK as a whole. As well as setting up this internal bad bank to deal with the problems of the past, they have also set out plans to sell some of their assets that are nonUK assets, such as their interest in Citizens Bank, a large US bank. That is welcome because it will mean more capital eventually in the UK that can be applied to UK households and UK businesses.
With regards to Ulster Bank, RBS did say at the time that it set out its strategy that it wants to review its operations across the UK, which includes Ulster Bank. That review is currently ongoing and its objective is to have a bank that is sustainable for the long term. It is fair to say that Ulster Bank, like many other parts of the RBS Group, was badly run in the past. That is why the bank started to fail, so they are drawing lessons from that and looking at how they can make it much more sustainable and able to contribute to the Northern Ireland economy for the very long term. In terms of this review, they will start publishing some of the results on 27 February, so quite soon. Until then, I am not even aware what is in this report but, at that point, those conclusions can be shared with others, including the Committee.
Q857 Oliver Colvile: Do you share with me the view that we have allowed the banks to get far too big and, actually, we allowed too many mergers to end up taking place during the course of the last 10, 15 or 20 years?
Sajid Javid: I share those sentiments, and I think that we did not regulate the banking sector properly. The changes that were made to regulation back in 1997 were very wrong. They directly contributed to the banking crisis our country experienced.
Oliver Colvile: It has created a big mess that we are clearing up.
Ian Paisley: Was that a partypolitical point?
Lady Hermon: It sounded like it was.
Q858 Kate Hoey: Minister, can I just probe you a little bit about page 7 of the stuff in your memorandum about competition and the effect that that could have on a relatively small part of the UK, Northern Ireland? All the banks in Northern Ireland are reviewing their branch networks at the moment. Do you feel that this could actually lead to a lessening of the bank service, particularly in rural areas?
Sajid Javid: First of all, it is perfectly understandable why banks are reviewing their operations, I think it is fair to say not just in Northern Ireland, but throughout the rest of the UK. Where you have international banks in Northern Ireland, such as Northern Bank-I think Danske Bank is reviewing its operations internationally as well. The review itself is not a cause for concern for me. Going back to my previous conversation, where banks have realised that they have had problems in the past and made mistakes, it is sensible that they reflect on that and have these types of reviews.
From my own specific assessment and my understanding of the banking sector more generally, if I may remind the Committee, before I came to Parliament in 2010, I worked for banks for 20 years and I do draw on that experience. They were not retail banks, but still it was close to this sector. If you look at the list of banks, especially the top five banks that operate in Northern Ireland, in terms of the size of their balance sheet, the lending that takes place and the number of branches that they have, it looks like a bank sector that has a good degree of competition, but I think it can benefit, like the rest of the UK, from more competition. That is why the UK Government, UKwide, has been very concerned about how we can promote more competition in this sector overall, which will benefit Northern Ireland also.
For example, the regulators have made some changes on bank capital and bank liquidity that will help the creation of what we call or refer to as "challenger banks", so new banks trying to enter that market. We have also recently announced the creation of a payments regulator; this is to do with the payment systems. Think of this as the hardwiring of our financial system, which any new competitor would need to have fair and clear access to. That is one of the motivations of creating that regulator.
There is more we can do as well, for example to help with more nonbank competitors, such as peertopeer lending and crowd funding. There are a number of peertopeer lenders, for example, that operate in Northern Ireland. In fact, all of the major ones operate in Northern Ireland as well as in the rest of the UK, and we have already taken action on the regulatory front to help promote this sector. The regulation will come under the FCA from April this year for the peertopeer sector and we are looking at what else we can do to help grow this area as well.
Q859 Lady Hermon: Could I just ask for one small point of clarification? The Committee is very familiar with references to the main four banks in Northern Ireland. Several times there have been references, Minister, to the five top banks in Northern Ireland, but without actually naming all five of them. Just for clarification purposes, would you just read out, so we all know exactly which banks you consider the top five?
Sajid Javid: Yes, basically I am including the four plus Santander.
Q860 Kate Hoey: Would you like to see Santander, Barclays and HSBC, which are much bigger in GB, have a bigger presence in Northern Ireland?
Sajid Javid: These would be commercial decisions for the banks that you mentioned. The reason I have included Santander-I looked at the information earlier-is that, if you look at the number of branches, it has 31 branches already in Northern Ireland, versus 35 for the Bank of Ireland. It is not far off in terms of what you might include in the big four. In my understanding, it is a bank that has been growing its presence in Northern Ireland. It already has 1,100 staff approximately, and its market share of the personal current accounts is approximately 11%. That is from a pretty low base. As I understand it, it is a bank that is very focused on the SME sector and lending in the SME sector, and sees a lot of opportunities there. This kind of competition is welcome.
Q861 Kate Hoey: We might come on to this a bit later. Do you support those people who are very keen to always have a local branch fairly near them, even with modern technology and access to banking? There are a lot of people, particularly in farming and rural areas, who do not wish to bank by using new technology.
Sajid Javid: Absolutely. Having physical access to banking facilities is very important, especially in the more remote areas. One other thing I would note, which I think helps, is that it is my understanding that, in Northern Ireland, the Post Office, which has around 480 branches, allows access to banking accounts in any of the other banks. You can deposit funds, withdraw funds and so forth directly through Post Office accounts. That is welcome.
It reminds me of something linked to a question that Mr Colville asked earlier about market share quotas. One of my concerns is that, if the UK ever had a quota policy on market share, however defined-let us say it is based on personal bank accounts-then I would expect that, in order to meet a quota, the banks would look at shedding their least profitable customers first, who will often be their more rural customers. There is effectively a crosssubsidy of branches from the more profitable to the less profitable. It could be a very unhappy outcome for people who are living in remote areas and often relying on the one or two, if they are lucky, bank branches that operate in that area. That is something worth keeping in mind as well.
Oliver Colvile: Another fine mess you have got me into, as they say.
Q862 Ian Paisley: We have been looking throughout the inquiry at the lack of availability of detailed regional data. Some of that is to do with definitions. For example, should there be a standardised definition of what is new and what is rollover lending, in your opinion? We think there is a wee bit of smoke and mirrors with this: that a lot of this is new lending, but actually it is rollover lending, where people are brought in who have said, "We’ll give you the same money that you have currently borrowed, but change the interest rate on you". A lot of companies feel that they are being, to put it frankly, screwed by the banks.
Sajid Javid: The most important thing is making sure we have as much information as possible that is readily available, and so questions or concerns that you and others may have become a bit redundant. What do I mean by that? For example, I am very keen for the banking sector as a whole to get more information on lending. You may know that, in December of last year, for the first time, banks published lending data at a postcodelevel basis. It was the first time such granular data had been available. That was their first data set for that, but it did not include Northern Ireland. The reason the banks had given for that was that they said there is a different structure there; there are different rules around how they collect data. While I can accept and we can all see for ourselves that there is a different structure to banking, I do not think that is a good enough reason not to have that kind of data. I can accept it might take a little bit longer. For the next data set, I would like to see postcodelevel data for Northern Ireland being published as well.
Secondly, we also announced at the autumn statement back in December a consultation on SME lending data, because one thing that we think would help promote competition in this sector is, if more data was available, then potential competitors, be they peertopeer lenders or other types of lenders, could then analyse the data, see where there is most demand, what type of demand it is and they may be more likely to have confidence in setting up their businesses. I would like that data set to be extended to make sure it includes Northern Ireland as well.
Q863 Ian Paisley: That is very helpful. A couple of those issues I want to come back to you on. Specifically on the definition of new and rollover lending, this is something, which the banks have told us, we are lending out hundreds and millions of pounds now. Whenever we dig down in with our constituents and with our clients, we find that actually it is the same money that they already had borrowed. We want to know if it is possible to get a proper definition so that, whenever we look at this data that you are seeking, it is very clear to see if it is new money, if it is the economy growing, or existing rollover loans.
Sajid Javid: Can I ask Ms Cottrell to come in on the definition that is used?
Alison Cottrell: You are quite right this is a minefield. It would make life a lot easier if we did have some consistency of definitions. One thing that may be useful to add into the mix here is thinking always, "What is the information that we are trying to extract?" in each case. For example, where you get differences, as you mentioned, at times is between some statistics on lending in the economy and then the statistics we use in various government schemes and things like that.
If for example in a Government scheme we were incentivising banks to lend to, say, completely new customers with completely new lending, the risk is then that, if you are an existing customer, you were coming to the end of the term of your loan and you wanted to roll it over, the bank would say, "Actually, no; I am going to give preference to this person over here." Therefore, you have to go off to another bank, because the lending to you would not score in this scheme. With some Government schemes, we have included rollovers so as not to disadvantage existing customers who wanted to continue with their term. However, when we are looking then at how much net new lending is happening in the economy, clearly you would not want to include it. Inevitably, we are going to end up with different sorts of definitions across different stats. If we could get clear definitions across different banks that would be extremely helpful.
Q864 Ian Paisley: In seeking those definitions, is it for Her Majesty’s Treasury, the Bank of England or the BBA to set out what the standard definition is?
Alison Cottrell: It depends what the statistic is, who is collecting it and the purpose. Where it is a Government scheme, clearly that would be something we would look at as the Treasury. Where you are looking at a Bank of England statistic or a national definition, and again depending on what the question is you are asking about the economy, that would be for those bodies. The main thing is just to be clear what the question is and why we are asking for this information.
Q865 Ian Paisley: Thank you very much. That all sounds very helpful. Back to your earlier answer here, Her Majesty’s Government believes that regional lending data for Northern Ireland should be made publicly available. I welcome what you have said about that already. What sort of timescale would we have that material available to us? Will we have that this quarter or will we have to wait for the second or third quarter in 2014?
Sajid Javid: I would expect in the second or third quarter of this year. In the current consultation we are having, it is quite clear that we expect to see the publication of this data and the conversation is really about the best way to publish it and the best type of data to publish. When the consultation process is over, we expect to act quite quickly on that. I hope, by the second or third quarter of this year, we can have much more of this data available.
Q866 Ian Paisley: Just for our clarity, you actually have the power to insist that that information is published. Am I correct?
Sajid Javid: We do have certain powers to ask the banks to publish the data, yes.
Ian Paisley: It is not a power you would want to use; you would rather do it by agreement. I can understand that.
Sajid Javid: One thing we do have to balance to request the data with, which is perfectly reasonable, is the commercial sensitivity of certain types of data. That is why it is often much easier to get data in an aggregated form. It would not be in anyone’s interest, in the long term, if banks were being asked to publish data that is clearly commercially sensitive, because that is proprietary information and I do not think it would help the growth of the UK banking sector overall. We are always concerned about getting the right balance, but certainly it is our view that, in the past, there has not been enough data published, and banks have been holding back data when there was not a commercially sensitive reason to hold it back. That is why we have worked with the banks on the postcode data, for example, and this new data set. The banks have been co-operative. I wish, in a way, that they had been asked earlier under previous Governments for this kind of data-it would have helped-but we have started the process and it is going in the right direction.
Q867 Ian Paisley: One of the points the banks put to us to show their reservation was not just the commercially sensitive argument, which I understand, but the fact that, in Northern Ireland, the postcode is so specific. In fact, in parts of Tyrone, it would probably be down to two or three farms or two or three houses in a rural dispersed location, indeed like the Glens of Antrim. Therefore, it would be unfair to the customer. How do you overcome that in terms of regional lending data, for example in the highlands and islands? If it is possible to do it there, would it be possible to do it in another area?
Sajid Javid: I quite agree with you. You make a good point. Even if that was, let us say, a key concern of the banks, I am sure there is a way to work around. That may be by aggregating certain postcodes or something, so I am sure there is a workaround. The key point is to get much more of this data out, for all the right reasons.
Q868 Ian Paisley: We had some discussions about this with the British Bankers’ Association. I must say, publicly, I was not impressed by the BBA. I do not know how you feel about them. Is the Government having discussions with the BBA as to how that information would be managed?
Sajid Javid: Yes. We have done and we have made progress. I actually would say they have been constructive discussions. We have a dialogue on a number of issues with the BBA and other industry organisations, and we do not hold back on asking for what we think is in the best interests of everyone else.
Q869 Lady Hermon: I wonder if I could just ask you to reflect upon the role of credit unions in Northern Ireland. How do you see those expanding? How do you see their value to customers in Northern Ireland?
Sajid Javid: One thing I am certainly very impressed with is how many people versus the rest of the UK actually join credit unions in Northern Ireland. That is very healthy. You may know that the UK Government has an overall ambition for what is called the Credit Union Expansion Project, which is led by DWP, to help credit unions grow or help them modernise in the rest of the UK. The reason I specify the rest of the UK is that a large part of this area is devolved, with regards to Northern Ireland, and this is actually one of the few areas-in fact the only one I can think of in the finance space-where there is a devolved element to it.
Q870 Lady Hermon: Why is that? Why should that particular area be devolved?
Sajid Javid: I am not entirely sure of the history to it, but it probably has something to do with the fact that-this is my understanding-some 37% of adults in Northern Ireland are members of credit unions, which compares to 1.5% in England and 6.8% in Scotland. Maybe just given the size of the sector, the number of residents in Northern Ireland who have actually joined credit unions was a reason to have a different approach. A number of the projects, therefore, that are taking place under this Government are not relevant to Northern Ireland; there is the expansion project and also, recently, we changed the rules around the amount of interest a credit union can charge per month, raising the cap on interest, because many credit unions in England, Scotland and Wales were actually losing money on most the loans that they were making, so that is why we changed the cap.
One change that we have made that has helped credit unions in Northern Ireland is that we have allowed the Financial Services Compensation Scheme to be expanded to cover credit unions in Northern Ireland, which previously was not the case. That is certainly a very helpful development.
Q871 Lady Hermon: It is very helpful. That was the problem over the Presbyterian Mutual Society, which was not a credit union, but a mutual. Could I go a little further and ask about the drafting of the agenda for the joint ministerial task force, and whether the issue of credit unions and how they are different in one part of the United Kingdom as compared to the rest should perhaps be an item on that agenda?
Sajid Javid: Yes, it should be. It is a very good idea and it fits in with the kinds of issues that the task force should be looking at. Clearly it would require co-operation from the Northern Ireland Executive to want to look at that in more detail, but it is something I would be happy to look into.
Q872 Lady Hermon: You obviously have not seen my script here and could not read my handwriting, but the next question was: how does the task force come to draft its agenda? In order to respond to the evidence we have taken from businesses, particularly from banks, they want to be able to feed into the task force. What is the point of having a ministerial task force if they cannot hear directly from banks and from businesses? How is the agenda for the task force actually communicated? How is it brought together? When the agenda is drafted, is there any communication or collaboration with banks, the five main banks that you have named this morning? How does it work? It is such a key organisation; how do you draft your agenda? What collaboration is there with the banks that you are going to be discussing at this task force? It just seems to me to be much more sensible to have an agenda that is put out well in advance of the meeting. Since the last meeting was on-correct me if I am wrong-8 October 2013, would you like to take this opportunity to announce when the next ministerial meeting will be of the task force in Northern Ireland? You agreed it is going to be in Northern Ireland. Do you know when it is going to meet?
Sajid Javid: We have not set a date for it that I am aware of, because we have to make sure that all the key people can make it to the meeting and so forth; we have not set a date at the moment.
Q873 Lady Hermon: How many key people are there on the joint ministerial task force? It is ministers who meet; how many sit on that task force?
Sajid Javid: It is important to make sure that certainly you have the Chair of the task force, the Secretary of State.
Lady Hermon: For Northern Ireland?
Sajid Javid: The Secretary of State for Northern Ireland; that is correct.
Lady Hermon: He spends a great deal of time in Northern Ireland. I pay tribute to him for that. The Secretary of State for Northern Ireland is already in Northern Ireland. Who else sits on the task force?
Sajid Javid: There are four Ministers on the task force. There is the Minister for Enterprise and Skills, the Minister in Northern Ireland of Enterprise, Trade and Investment, and the Minister for Finance.
Q874 Lady Hermon: They are both in Northern Ireland, so really the diaries that in fact we are talking about co-ordinating are very limited indeed. It just strikes me that this very important task force, a task force of Ministers, met for the first time I think on 8 October and has not met since. There is no indication today, for this Committee, that you could announce. I am very pleased indeed-and please do not misunderstand me-you are going to meet in Northern Ireland. That is really important for Northern Ireland, but to announce the date would be even more encouraging.
Sajid Javid: 26 March.
Lady Hermon: Excellent. Thank you, Ms Cottrell.
Sajid Javid: I just had that moment of inspiration. I knew it was there somewhere-26 March. I do think it is important. The task force is important.
Ian Paisley: You will miss PMQs on 26 March.
Lady Hermon: It is well worth missing.
Sajid Javid: The task force is very important and rightly so, but we must not get carried away in thinking it is the only important thing. The task force could meet every week, but that would not necessarily mean that we can help with all the issues and the challenges that we have discussed today. What is just as important is the action that is going on, with the Northern Ireland Executive, the Government here in the UK and other interested stakeholders at all other times. The task force is there really to agree on the priorities and the focus, but it does not mean to say that the UK Treasury and, indeed, the Northern Ireland Executive are not focussed on these issues, day in, day out. I would not want to think that, just because the task force were to meet even more often, somehow the problems and issues are being dealt with. What is far more important is the action that we are actually taking on the ground.
Oliver Colvile: I agree with you: I think it is actually about making sure you have business to do, rather than just having a meeting for the meeting’s sake.
Alison Cottrell: I was just going to say that I think those points are very good ones and they are actually as much, if I can take them away, for the officials working group that supports the ministerial group. The point about whether credit unions should be on the agenda in terms of setting that agenda is something we should take away.
Q875 Lady Hermon: There certainly was a degree of frustration expressed to us by CEOs of various banks. They are very grateful to have this task force. Its name implies that they are there to do the work and the business in favour of Northern Ireland, promoting growth in Northern Ireland and rebalancing the economy in Northern Ireland. It would be really appreciated by those businesses and banks to be able to see the agenda well in advance of 26 March. That would be very helpful indeed. I do appreciate that.
One last point is coming back to post offices. Thank you, Minister; post offices are enormously useful in Northern Ireland. They are useful throughout the United Kingdom, but in Northern Ireland we have had to face a large number of bank closures in little villages and rural areas. Customers in those areas do go to their post offices. We have a particular issue, and it is one that in fact you, as a Minister, identified earlier on, when you talked very wisely in my view about giving a key loan to the Irish Government at the time when they needed it. Our relationships with the Republic are so close. Along the border with the Republic of Ireland we have post offices, which may be the only facility in that town or in that village, because the bank branch has closed. All of the five main banks in Northern Ireland do not offer, through post offices, the full range of banking facilities that would be offered at a bank branch.
Could the Treasury look at increasing through post offices and putting pressure on all of the main banks in Northern Ireland to offer the full range of banking activities that are offered through a bank branch that are not currently offered through a post office? That would be very helpful. The other issue is of course euros-they used them in Republic of Ireland-coming into Northern Ireland, going into a post office and the exchange rate is different and therefore people take their custom elsewhere. There are two issues. If you are not able to reply fully on this occasion, perhaps you would take those issues away.
Sajid Javid: I will reply a little, but I will take them away as well and think further about these two important issues. On your main point about whether these post offices can offer a fuller range of services, first of all, that has to be a decision for the main banks to see if that is something that they can make progress on. It is a commercial decision, rightly so, for them. On a practical level, a full range of services would include things like having a business loan adviser, a mortgage adviser and an investments adviser. It would be hard to see how all those banks could put those facilities in every post office in a rural area. I just think that it might be impractical.
Lady Hermon: A wider range.
Sajid Javid: If the question is around whether they could just do more for the post office, it is a perfectly legitimate question and I am sure that the banks are probably listening carefully to this Committee. It is something that I can make sure I raise with them as well.
On the question of FX and exchange rates, again that is really ultimately a commercial decision for these banks about what rates they can offer and how competitive they are. It really comes back to the whole issue of competition in the sector. Again, that is not just physical competition but online competition and through other sources. The more competition we can have in the finance sector, the better things can be in terms of competitive pricing.
Chair: Any final questions? No; I think we have exhausted the subject. Minister, thank you very much. Ms Cottrell, thank you very much for joining us.