Business Banking Resolution Service

[Mark Pritchard in the Chair]

I beg to move,

That this House has considered the Business Banking Resolution Service.

It is an extraordinary pleasure to serve under your chairmanship, Mr Pritchard, and to welcome the Minister, shadow Ministers—the hon. Member for Hampstead and Kilburn (Tulip Siddiq) and the right hon. Member for Dundee East (Stewart Hosie)—and an extremely able Parliamentary Private Secretary, the hon. Member for Totnes (Anthony Mangnall), who will no doubt pass notes diligently.

I hope to outline how and why the Business Banking Resolution Service has failed to restore trust between small and medium-sized enterprises and their lenders, or to resolve a meaningful number of complaints. I also hope to outline alternative proposals that might achieve those goals. According to “Scale up to level up”, a 2021 report by the all-party parliamentary group on fair business banking, 73% of small businesses would rather grow more slowly than borrow. That is a worrying trend that needs to be reversed.

Empowering businesses to borrow with confidence can only be good news for our economy. A healthy SME lending market depends on trust and confidence that things will be put right if they go wrong. As has been stated in this place many times, most transactions between businesses and their financial service providers, including the majority of commercial lending, are neither regulated nor covered by consumer protection laws. The power imbalance between SMEs and banks and other large financial firms leaves small businesses vulnerable to poor treatment. It is, therefore, vital that SMEs have access to independent and effective dispute resolution services when they are in dispute with their lenders. The Treasury Committee’s 2018 “SME Finance” report was clear on that:

“We must introduce a system for dispute resolution and redress that gives the UK’s SMEs the confidence to engage with financial services providers, safe in the knowledge that they are not vulnerable to exploitation and mistreatment.”

I congratulate the hon. Member on securing this debate. Support for the BBRS is limited; many have stated that a new alternative resolution scheme should be created. Does the hon. Member agree that any new scheme should seek not to burden the tribunal system, by requiring parties first to seek agreement through mediation services?

The hon. Lady makes a valid, important and sensible point. I will touch on a suggestion towards the end of my remarks.

In the course of its inquiry, the Treasury Committee considered the long-standing and very large gap in provision of a financial dispute resolution service for SMEs, between those eligible to refer a complaint to the Financial Ombudsman Service and those with access to enough money, appropriate legal representation, and sufficient courage and time to be able to sue their bank. A similar shortfall was identified in the APPG’s “Fair Business Banking for All” report.

We should not underestimate the hon. Member’s point about the unreasonableness of expecting those who find themselves in that situation to have huge amounts of courage. I want to make that point on behalf of my constituents who have huge amounts of patience, courage and grit to right what in their case has been a very significant wrong. They would absolutely like to see an independent tribunal service. They describe the current system as a shambles and I do not disagree with them. Their trust is completely shattered by any measure. All of the resolution processes have failed. Does the hon. Member agree that there are people all over the UK who deserve significantly better?

Absolutely so. The courage of those small and medium-sized business owners is not to be underestimated. I have dealt with constituents whose cases go back decades. They have had more than patience; they have had the utmost resilience. Many would have given up by now, but such is the injustice—the wrongs that we need to right—that we must, on their behalf, respond with similar courage.

The expansion of the remit of the Financial Ombudsman Service in 2019 to include more SMEs and increase the maximum award level narrowed the gap to some extent, but did not close it. Neither has the gap been plugged successfully by the ad hoc redress schemes established by banks in the years following the 2007 financial crisis for those impacted by scandals such as the interest rate hedging product mis-selling, the mistreatment of small business customers by the Royal Bank of Scotland Global Restructuring Group and the HBOS Reading fraud.

The schemes that have been set up have all been heavily criticised for, among other things, a lack of independence and overly restrictive eligibility criteria. It was against that backdrop that the BBRS was established as a voluntary initiative to the specifications of, and funded by, seven participating UK banks. It was intended to help rebuild trust among the SME community by resolving historical and contemporary disputes between banks and those businesses. It thereby filled a gap in dispute resolution and redress.

Does that list extend to Lloyds bank? I have a constituent who is a reasonably successful property developer and was encouraged by Lloyds bank to take out larger and riskier loans. He took independent advice, only to find that the person advising him was on commission from Lloyds bank. The ultimate outcome was that he was foreclosed upon, and his life was ruined. That example shows, in all its gory colour, that the current system of resolution is not working.

I am afraid that the hon. Gentleman highlights one of many cases across our constituencies. I perfectly well understand his constituent’s sense of injustice. Hopefully this debate will at least give us an idea of the way forward.

The BBRS followed from the Walker review, commissioned by UK Finance, which identified a gap in dispute resolution and recommended that a voluntary scheme be established. It recommended action to deal with legacy disputes and contemporary complaints by providing speedy resolution for larger SMEs’ ongoing financial complaints. A proposal to set up a financial services tribunal was made at the time by my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) and the Treasury Committee in its 2018 report. The Treasury Committee report noted strong cross-party support for the proposal. For a number of reasons, including a lack of parliamentary time and the significant costs involved, the Walker review did not support the creation of a tribunal.

The BBRS was also established to ensure the excesses of the financial crisis were not repeated, and that record keeping and data flows about SMEs can be used to monitor bank behaviour and culture, and can provide an early warning system for customer mistreatment. That was a key purpose of the Walker review, beyond providing a new mechanism for dispute resolution.

A 2019 letter to Stephen Jones, the then CEO of UK Finance, the then Chancellor of the Exchequer, Philip Hammond, made Her Majesty’s Government’s position on the nascent scheme abundantly clear. It stated:

“If it transpires that the scheme is not bringing resolution to a meaningful number of complaints…then I would expect there to be further discussions around the scope of and eligibility for the backward-looking scheme.”

That gets to the nub of the issue.

Despite forecasts that more than 60,000 legacy cases would be eligible for review, take-up and financial payouts have been minimal. Does the hon. Gentleman agree that further action must be taken to support businesses in bringing forward legacy claims, and that there should be a six-year time window?

As ever in these debates, the quality of interventions is superb. The hon. Lady pre-empts exactly what I was going to say. If she will forgive me, I will come on to that in a moment, but her point is perfectly valid.

It may not surprise anyone following the story closely to learn that the BBRS has failed to resolve a meaningful number of complaints. By the former Chancellor’s standards, I think it is fair to say that the BBRS has been an abject failure and has certainly not given UK SMEs confidence to engage with financial service providers.

As just mentioned by the hon. Member for Rutherglen and Hamilton West (Margaret Ferrier), it was estimated by the then chief executive of UK Finance that more than 60,000 historical complaints would be eligible for review. However, by May of this year, the BBRS had made direct adjudications on just 28 cases resulting in financial awards. In that same time, it has been involved—whatever “involved” means—in the award of 56 financial settlements between banks and claimants. That includes cases where the dispute has resulted in a settlement following, but not necessarily because of, the involvement of BBRS. Even being generous, the BBRS has been involved in a maximum of just 84 financial awards in nearly two years out of an estimated potential of 60,000. Plainly, the quantity of resolved cases is very disappointing, to say the least.

Naturally, that raises questions about value for money. The BBRS cost more than £40 million to set up. By May of this year, according to its own data:

“Substantially more than £1 million of financial awards have been made to SMEs as a result of BBRS intervention so far”.

In other words, a maximum of between £1 million and £2 million has been paid out since the launch of the BBRS. Bear in mind that it cost £40 million to set up. Would it not have been easier to simply divide that £40 million and dish it out randomly? The BBRS has proved to be very poor value for money.

It is a pleasure to serve under your chairmanship, Mr Pritchard. I congratulate the hon. Member for Hazel Grove (Mr Wragg) on bringing this debate before us. He is absolutely right: businesses need access to a proper, functioning dispute resolution service, but I fear that the BBRS is not it. He was also absolutely correct that redress cannot be left only to those with the time, money and patience—or, as he said, the bravery—to sue the banks. The hon. Lady the Member for Rutherglen and Hamilton West (Margaret Ferrier) made the most salient point that barely a few dozen of the 60,000 legacy cases that were potentially liable to be investigated or taken up by the service have been resolved. That is a problem.

Are we assuming that those legacy cases fit the criteria set out by the hon. Member for Hazel Grove (Mr Wragg)? Many of our constituents will be nowhere near those criteria, but their lives and businesses lie in tatters. Are they not included? Are they not in anybody’s thinking, in terms of the resolution that they deserve?

They ought to be in people’s thinking. The figure of 60,000 is commonly used. Of course, the eligibility criteria include that they must not be eligible for the FOS scheme, as was very properly referred to by the hon. Member for Hazel Grove. However, let us assume that it is a big number, in the tens of thousands, and let us hope that, at the very least, businesses do not fall through the cracks between this service and the FOS. It would be a different problem entirely if people were not eligible for any kind of access to at least one of the redress systems.

The hon. Member for Hazelgrove laid out a bit of the background. I want to go through some of that again briefly, given that it is quite important in terms of what the Government may choose to do next. The BBRS was set up in 2018 to help SMEs resolve disputes with their banks free of charge. Many high street banks, including Lloyds, NatWest and HSBC, took part in the scheme, and it has been operating—although I use that word loosely—since 2021. It was created after a spate of banking scandals involving the mistreatment of thousands of companies, including, as we know, the Royal Bank of Scotland’s GRG, and similar operations at other banks in the aftermath of the 2009-10 financial crash.

The eligibility criteria, which have been mentioned, are that the dispute must have occurred after 1 April 2019, and that the SME must have an annual turnover of up to £10 million per annum and a balance sheet of up to £7.5 million, and must not be eligible to take the complaint to the Financial Ombudsman Service. Many stakeholders have noted that the scheme has not been successful in helping SMEs to resolve their disputes, despite costing—as we have heard—tens of millions of pounds to set up, which was paid for by the industry. One of the main issues with the scheme is the narrow eligibility criteria for SMEs to use the service. The recent figure was only 35, but even 50 or 60 would still represent a tiny fraction of the number that could be resolved.

When the Business Banking Resolution Service was introduced, it was marketed as an accessible service. However, data shows that, by March last year, only 776 businesses had registered with the BBRS. Does the right hon. Member agree that this suggests that either the Business Banking Resolution Service was difficult to use or, alternatively, the service was not publicised effectively?

It could be a combination of both, although it is instructive that Andy Agathangelou, the founder of the Transparency Task Force, called the BBRS an “abysmal failure” that is not “fit for purpose”, so I certainly think that the opaqueness and lack of advertising might be significant factors in how few businesses have sought to use it and what happened to those that did. He also said that some small businesses are “convinced” that the BBRS is

“a mechanism through which banks have found justification for not making payments”.

Even if that is not true, if the perception among the SME community is that the service, which was put in place to resolve their disputes, is being used for contrary purposes, that alone would be a huge problem for the BBRS.

My right hon. Friend is making a very helpful speech. The point he is making feeds into the wider point about the huge imbalance in power, influence and resources that exists between the banks and those seeking redress. On his point, the behaviour of some banks has been quite shameful—I am speaking from my own casework here—so whatever happens from here on in, it is imperative that new arrangements are fair, genuinely independent and transparent, so that businesses can be confident that they really are going to work.