Hansard

I, too, thank the clerks, our adviser and all those who gave us evidence. I also thank the convener and my fellow committee members.

I am pleased to contribute to today’s debate, in which I hope to outline not only what issues our local and national economy faces but what should be expected from Scotland’s Government and from our banking and financial services sector. An important point is to consider what lessons can be learned from the past to instil confidence in the future of the industry.

The Economy, Energy and Tourism Committee’s report results from the committee’s directive that our inquiry should establish a clear picture of the effects of the financial crisis on all parts of the financial services sector with, as Wendy Alexander said, a view to providing a vision for the future of the industry. That is an important point. As the convener has outlined, the committee’s inquiry sought evidence on the issues that comprised the recent difficulties in the financial sector in Scotland, including access to finance and—an important point—what the future structure of the sector should look like. Although Scotland has a distinguished history in financial services that dates back over many years, our report concentrates on the impact of the global financial crisis and on the way forward for the financial services industry in Scotland.

We heard many examples of how, as a result of the financial crisis, home owners and small and medium-sized enterprises have found that banks are increasingly risk averse. The impact on lending has meant that many first-time buyers and small businesses have struggled to obtain finance. We have seen the impact of that on Scotland’s housing market. Loans from the wholesale banking arm of Lloyds Banking Group, which deals with businesses, fell by £43 billion. A recent Institute of Directors survey found that 60 per cent of firms—in industries across the economy—were turned down for a loan in 2009.

The Scottish economy is dominated by small and medium-sized enterprises, which make up 99 per cent of all businesses and employ more than 1 million people. Small and medium-sized enterprises have been struck particularly hard both by the financial crisis and by the subsequent economic recession. Like other colleagues, I have come across many examples of that in my constituency. Surveys of businesses, such as the Scottish Government’s “SME Access to Finance 2009” report, point to changes in the conditions attached to finance and the higher cost of obtaining a loan. Fife Chamber of Commerce & Enterprise has made strong representations on that issue.

The Scottish Government survey that was published in March 2009 showed that, while demand for finance had risen, the supply had become constrained, in particular for microbusinesses, high-growth firms and specific sectors. As convener of the cross-party group on construction, I know that the construction industry is most definitely one of those sectors. The committee heard of many small and medium-sized firms that were refused access to finance and subsequently went into liquidation.

Although the committee recognises that some banks in Scotland needed to improve their risk assessment procedures, we consider that the problems associated with access to finance by businesses have compounded the effects of the recession. The committee believes that banks need to take a more engaging role with small and medium-sized enterprises and calls on Scottish banks to reassess their lending policies and, importantly, their relationships with their business customers. In the light of that evidence, we believe—many previous members have reiterated this point—that the Scottish Government must call on the OFT to conduct a formal investigation. It is important that we tackle access to finance for small and medium-sized enterprises to ensure that they are not excluded from contributing to Scotland’s economy or penalised for the banks’ previous risk strategy.

Furthermore, there must be reform of bonuses within the sector. In its submission to the committee, the Scottish Trades Union Congress expressed the view that that bonus culture encouraged excessive risk taking in an already fragile system. Her Majesty’s Treasury also noted that, in some areas of banking, staff were incentivised through the possibility of very large rewards to pursue risks that, although profitable in the short term, did not take account of risks in the long term.

To help to develop a sound basis for more engagement in the financial sector, the committee calls on the Scottish Government to develop a far more detailed and publicly available vision for sustainable growth of the financial sector in Scotland. My colleague Wendy Alexander spoke eloquently about that. The Government’s vision should include a blueprint for the type of banking sector that we would like to see in Scotland, and a strong emphasis should be placed on increasing competition and providing greater diversity among the players in the sector. I urge the Government to commit to exploring how mutuals, co-operatives, savings trusts and credit unions can be supported further and local initiatives developed. We have a once-in-a-generation opportunity for reform.

In particular, we ask the Government to engage in the development of regulation that would support such diversification. I draw the minister’s attention to the fact that the Government’s response to our report makes no mention of the role of the co-operative development agency, which is aligned to Scottish Enterprise and must surely be central to any diversification strategy. I ask the minister to clarify what role the co-operative development agency will play.

During our inquiry, many witnesses emphasised the importance of education, skills and training, and I am disappointed in the Government’s response, which gives us a rundown of work that has already been undertaken and tells us how many colleges and universities we have. However, I welcome the increase in the number of modern apprenticeships and the establishment of the financial services gateway, and look forward to hearing how the gateway’s programme of action will address the future skills requirement of the sector. We need a vision for the next five to 10 years, not just a regurgitation of past policies.

I make a plea to the Scottish Government to bring forward a vision that supports a banking sector that is fit to serve Scotland’s economy. It must support the call for the OFT to carry out a formal inquiry into Scotland’s financial sector and must quickly produce a vision that is fit for purpose and for the times that we find ourselves in. It makes no sense to move forward in the way in which the Scottish Government has suggested. I also ask the minister to tell us more about the Scottish Investment Bank, which Gavin Brown talked about. The role of the SIB is extremely important, as is that of the Scottish Futures Trust in making finance available to business.

My final point is a plea for transitional relief for the nurseries in my constituency that face increases in business rates of between 30 and 200 per cent. I ask the minister to address that issue and the others that I have mentioned so that we can support our businesses and our economy in a manner that is fit for the times that we find ourselves in.

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