Miliband Unveils Plans to Fix 'Broken' Banks

Last week, Labour leader Ed Miliband outlined plans to overhaul the banking industry by forcing major banks to give up significant numbers of their branches in a bid to increase competition in the industry.

The proposals, announced on Friday 17^th January by Miliband, would mean that the “big five” banks including HSBC, Barclays, RBS, Santander, and Lloyds Banking Group would all be forced to give up a number of their branches, while two challenger banks would be created in an attempt to stimulate competition within the troubled banking industry.

Drawing comparisons from the “big six” energy providers, Miliband added that “too much power is concentrated in too few hands” and could consequently have a detrimental impact on jobs and enterprise.

The Governor of the Bank of England, Mark Carney, has dismissed the benefits associated with reducing banks’ market share stating that the strategy “would not result in substantial improvement to competition”.

As politicians and committees quarrel over the future of British banking, MPs have today blasted banks for their failure to support businesses, arguing that despite the government’s attempts to boost lending through the Funding for Lending scheme, small and medium sized businesses are still struggling to access funding.

The Funding for Lending scheme was launched in 2012 by the Bank of England and HM Treasury, to help encourage banks and building societies to lend money to businesses, aimed at helping businesses gain access to much needed funding, hopefully allowing these businesses to thrive and ultimately contribute towards the recovery of the UK economy. 

While December’s Christmas shopping trends proved fruitful for retail figures, with the fastest annual sales growth in more than nine years being recorded by the Office for NationalStatistics (ONS), and December’s sales were up 2.6% compared with November, there is still need for banks to support SME’s and smaller businesses to help fuel a strong economic recovery.

The banking industry has also faced criticism last week as consumer group Which? has called on banks to make it easier for consumers to compare the costs of running their current account with different banks. Research by the consumer group found that only six of 18 volunteers thought a typical consumer would be able to compare the charges.

Which? Executive Director Richard Lloyd commented:

“Consumers are faced with a myriad of complicated charges for using an unauthorised overdraft, and it’s virtually impossible for people to calculate and compare the cost of running a current account”

Research by Which? has once again flagged up failings within the banking industry, whose consumers continue to suffer as a result of their practices and greed. While Miliband’s proposals have been met with cynicism from select parties, it seems quite clear that the banking industry is in desperate need of an overhaul if we are to hope for a better future in banking.

Inflation Falls as Ombudsman Warns of Complaints Backlog

The Financial Ombudsman Service (FOS) has warned that it could take in excess of 18 months to resolve the thousands of PPI complaints submitted by disgruntled consumers across the UK.

According to the FOS, 400,000 complaints regarding Payment Protection Insurance (PPI) remain unresolved, and it is anticipated that 60,000 of these complaints could take more than 18 months to settle.

During the previous financial year, an additional 1,000 members of staff were taken on by the FOS to deal with the influx of PPI complaints, and it is expected that the ombudsman will recruit a further 1,000 people to help deal with the backlog of complaints in the forthcoming financial year.

While customers await the outcome of their complaints with the FOS, the rate of inflation in the UK has fallen to 2% for the first time since November 2009. Figures from the Office for National Statistics (ONS), measured by the Consumer Prices Index (CPI) fell from 2.1% in November to 2% the following month.

Lower food and non-alcoholic drink prices have helped inflation fall back to the target rate set by the Bank of England, however the recent energy price hikes from the ‘big 6’ may have an negative impact on this figure in coming months. Equally, the cost of living in the UK continues to rise at twice the rate of wages in the UK, while house prices have risen by 5.4% across the UK in November, compared with the same time in 2012.

Earlier today, Labour urged the PM to block attempts by Royal Bank of Scotland to offer bonuses to their bankers of up to double their salary, after it was reported that the bank will appeal to the EU in order to be granted permission to pay their bankers up to this limit.

Shadow Treasury Chief Secretary, Chris Leslie commented:

 "At a time when families face a cost-of-living crisis and bank lending to business is falling, it cannot be right for George Osborne to approve a doubling of the bank bonus cap”

During Prime Minister’s Questions in the Commons today, David Cameron confirmed that there would be a limit to cash bonuses of £2,000, and stated that he would reject any proposals by RBS to increase its overall pay and bonus bill.

As a part-nationalised institution, RBS’ bonus debate is of course one that is going to be sensitive to tax-payers, who are suffering the rising cost of living and the repercussions of major banking scandals, while bailed out RBS mull over 200% bonuses for their investment bankers. 

PPI Payouts Help Boost UK Car Sales

New Car sales in the UK have recorded their best year since 2007 according to data released this week. The news points to a rise in consumer confidence, while analysts have made a direct link between mis-sold PPI payments and the rise in UK car sales. Automobile sales in the UK were up 10.8% on 2012, compared to the rest of Europe where sales have vastly underperformed.  

More than £12 billion has so far been paid out by UK banks to victims of the mis-selling scandal, and the compensation has no doubt acted as a welcome boost to personal income for many consumers across the UK. However, the scale of impact may in fact be further reaching than a windfall for customers, as BBC business editor Robert Peston highlights:

“Over 18 months or so, banks have paid out around £12bn to those mis-sold the credit insurance... It represents an economic boost equivalent to circa 1% of GDP - which is big. It is a bigger direct fiscal stimulus than anything either government has attempted since the crisis of 2008”

So while the mis-selling of PPI has arguably caused misery to millions of people who were misled by their bank into paying for a product which they did not want, or one that they could not use, there is perhaps a silver lining to this story. The compensating of PPI customers has ultimately helped to encourage momentum within the recovering UK economy through repaying significant sums of money to consumers during a period in which credit has been scarcely available, encouraging consumer spending.

According to industry experts, the economy is now gathering momentum with lending conditions improving, business confidence growing, and falling unemployment. Yet despite the improved economic conditions, trust in banking remains to be a sensitive subject.

At the end of 2013, Antony Jenkins, chief executive of Barclays concluded that it could take between five and ten years to rebuild trust between consumers and Barclays bank. The chief executive made the announcement in a speech on New Year’s Eve, pledging to rebuild the trust that has been damaged as a result of the banking industry’s numerous scandals including Libor rigging, PPI mis-selling, and money laundering.

While it is encouraging to hear that Antony Jenkins is committed to better practice within the industry, banking scandals unfortunately remain prolific. On Thursday it was decided that York based insurance company, CPP will compensate seven million people who were mis-sold insurance for their credit cards by the company. CPP was fined £10.5 million in 2012 by the then regulator, the FSA and pay-outs are expected to begin in spring this year. 

As the economy continues to build momentum following years of austerity and the economic crisis, we hope that the likes of the Libor, PPI, and recent CPP scandal will be left in the past alongside the recession. We can now hope to look ahead to a robust economic future, free of banking bad practice and scandal- as idealistic as that may seem!