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Queen’s Speech

My Lords, I shall make some observations around the Financial Services Bill. I shall focus on customer rights and protection, particularly customer engagement. I support the Government’s general approach to improving things for customers through the FSA and regulation. It is credible to believe that improved regulation will lead to more appropriate behaviour towards customers by the banks. Within the FSA, that is led by the "treating customers fairly" initiative. However, the weakness is that this initiative offers little in terms of customer service or bank-to-customer relationships, an issue to which I shall return. A heavy reliance on the FSA can prevent the Government and others from thinking and acting more widely to support customers, and from taking initiatives to promote diversity in the sector. I accept and welcome some of the more positive statements that have been made by the Government regarding the mutual sector, but there is a strong case for promoting existing mutual provision and a more vigorous and thorough exploration of how new mutuals could be encouraged and created. In the context of the billions of pounds of taxpayers’ money spent on propping up failing banks, there would be taxpayer support for how alternatives could be provided by mutuals and how those alternatives could be taken forward. There are three reasons for that. First, there is considerable evidence that a more diverse financial system and wide range of different types of financial institution is likely to be stronger than one in which almost every institution is influenced by the same management philosophy, the same corporate structure, the same reliance on global capital markets and the same concentration on pursuing growth of return to ordinary shareholders—in other words, the banking herding instinct. My second reason concerns building societies, in particular. Their risk appetite, despite one or two well known exceptions which we have heard of before, has been much lower than that of the banks. Building societies have proportionately less than two-thirds of the arrears cases of the mortgage market as a whole, which is because they lend more carefully. Furthermore, building societies cannot fund themselves from the wholesale market in the risky way that banks such as Northern Rock were able to do. Finally, building societies have a natural advantage over plcs in that they do not pay dividends to shareholders and can use those funds to pay higher savings rates or lower mortgage rates. The best buy tables published by Moneyfacts, for example, show that 83 per cent of the savings accounts most consistently paying high rates are from building societies. A deeper and more comprehensive case could be put for that. Customer involvement and customer engagement is the hallmark of the mutual sector. Customers, or members of mutuals, can attend annual general meetings. They can vote on the boards of directors and on directors’ remuneration, and can take part in a whole range of ongoing participatory activities. I am arguing strongly that these practices need to be listened to and carefully scrutinised by the banks, which might learn a lot more about how to involve their customers. I realise that customers do not own the banks, that shareholders do, and that shareholders can attend AGMs and the board, but more stakeholders should be considered. I am confident that the trade unions have basic rights to put the views and opinions of staff to the executives who run the banks. But the customers, many of whom are longstanding and consistently have considerable financial stakes, have hardly any means of engaging meaningfully with the boards of banks. I should like that to be remedied and for the Government to stand up for customers much more strongly than they have in the past and to think carefully about being the champion of three things. First, I should like to see the equivalent of an AGM for the customers of banks. Obviously, it cannot be the same as an AGM, but there should be the opportunity for a group of members to engage with the chief executive and the directors to discuss how the bank is performing and what exactly is happening at the bank of which they are important stakeholders. Secondly, I should like to see annual customer meetings in each region where a bank has more than 10 branches. Those meetings could easily be organised by volunteer or selected members who would not meet directors, but would meet managers for the same kind of dialogue. Thirdly, I should like every bank over a certain size to have a consultative council of customers of the bank that would meet at least four times a year with the chief executive and other principal directors. These measures would bring the executives of banks into meaningful and direct relationship with their customers in a way that does not happen at the present time. It would mark a huge improvement in the way that banks treat their customers. I hope that my noble friends will think carefully about taking some of these ideas forward. These proposals are not exceptional or unusual in the mutual sector; they are used widely and easily. I believe that, in the present climate, it is time that the banks started to think in a different way, using a new view and a different paradigm, about how they actually engage with their customers. Marketing, advertising and focus groups are all very well and have their place, but in the future people are going to want a lot more than that out of organisations that have done what the banks have done over the past 12 months.