Chuka Umunna MP

Today, a letter calling for the remutualisation of Northern Rock has been published in the Guardian.It is signed by Chuka and MPs from all sides of the House of Commons and a number of leading figures from academia, trade unions, the third sector and financial services bodies.

To find out more about the remutualisation campaign, follow this link.

The letter’s text and a full list of signatories is below:

The three-year anniversary of the nationalisation of Northern Rock fell last month (Unions call for the Rock to remutualise, 10 March). We welcome the government’s recognition of the need for robust competition and choice in the financial services sector, demonstrated by its commitment to bring forward detailed proposals to “foster diversity in financial services, promote mutuals and create a more competitive banking industry” in the May 2010 coalition agreement. We believe a thriving mutual sector adds to the diversity and strength of the UK’s financial sector. In light of consolidation in the sector following the financial crash of 2008, the time has come to give serious consideration to the role of mutuals in diversifying and democratising financial services while empowering consumers.

When considering what to do next, we call on the government to give equal and due consideration to a mutual option for the future of Northern Rock by requiring UKFI to undertake a feasibility study and seek advice on remutualising Northern Rock plc.

Chuka Umunna MP (Lab)
Gareth Thomas MP Chair, Co-operative party
Alan Beith MP (Lib Dem)
Andrea Leadsom MP (Con)
Jonathan Evans MP (Con)
Catherine McKinnell MP (Lab)
Andy Love MP (Lab Coop)
Adrian Coles – Director General, Building Societies Association
Peter Hunt – Chief Executive, Mutuo
Prof Jonathan Michie – President, Kellogg College, University of Oxford
Len McCluskey – General Secretary, Unite
Philip Blond – Director, ResPublica
Neal Lawson – Chair, Compass
Tony Dolphin – Senior economist, IPPR
Peter Holbrook – Chief Executive, Social Enterprise Coalition

Chuka has contributed an article to the Guardian’s Comment is Free pages making the case for the remutualisation of Northern Rock.

To read Chuka’s article, follow this link.

Chuka has tabled an Early Day Motion in Parliament calling for the remutualisation of Northern Rock. The cross-party motion, which is backed by Liberal Democrat and Conservatives as well as Labour MPs, calls for the government to undertake a feasibility study and seek advice into remutualising the state-owned bank.

Northern Rock operated as a building society, owned by its members, until it demutualised in 1997. After its collapse in 2007, it was nationalised in February 2008 – three years ago this month.

Chuka was interviewed on the Today Programme on BBC Radio 4 last week on the remutualisation campaign – listen here.

To read the text of Chuka’s EDM and a list of MPs who have signed it, please follow this link.

A cross-party campaign has been launched calling for the remutualisation of Northern Rock, which was nationalised three years ago following its collapse as a retail bank.

Northern Rock was formed in 1965 by the merger of two smaller mutuals: England Northern Counties Permanent Building Society and the Rock Building Society, formed in 1850 and 1865 respectively. It continued to grow and operated as a traditional building society until it demutualised and floated on the London Stock Exchange in 1997. It was listed on the FTSE 100 for the first time in 2000.

Having been highly exposed to subprime lending in the US, it emerged that Northern Rock had received emergency financial support from the Bank of England and a bank run on its branches followed in September 2007. After its collapse, Northern Rock was nationalised by the then government in February 2008. Northern Rock PLC is now managed by UK Financial Investments, the company established by the government to manage the taxpayer stakes in part or wholly state-owned banks including Northern Rock PLC, Lloyds Banking Group and RBS.

On January 17, UKFI issued an invitation for expressions of interest from corporate financial advisers to work with UKFI and Northern Rock in the evaluation of strategic options for the company’s future. However, the government is yet to outline a position on what form the future of Northern Rock will take. In May 2010, the coalition agreement promised to “bring forward detailed proposals to foster diversity in financial services, promote mutuals and create a more competitive banking industry”.

The remutualisation campaign launched today, which is being spearheaded by Labour Treasury Select Committee member Chuka Umunna MP, has the support of Conservative and Liberal Democrat MPs including former Liberal Democrat leader Sir Menzies Campbell and Jonathan Evans, who served as a minister under John Major. Influential Labour backbencher Jon Cruddas and leader of the Green Party Caroline Lucas are also signatories.

Organisations including the Building Societies Association and the trade union Unite are also backing the call for remutualisation.

Mr Umunna has tabled an Early Day Motion calling on the government to carry out a feasibility study into remutualising Northern Rock PLC and to seek further advice on this option. The EDM notes the consolidation which has occurred in the financial services sector since the financial crash of 2008 and financial mutuals strong record for customer satisfaction and links with the communities which they serve.

Additionally, mutuals’ democratic structures – which make them accountable to their customers rather than shareholders – provide a model for democratising financial services and empowering customers. Mutuals’ traditional business model excludes the kinds of risky investment which characterise many other firms in the sector.

Commenting, Mr Umunna said:

“The government has made clear its support for mutuals and diversifying the financial services sector in the Coalition Agreement. We are calling for ministers to honour this commitment and ensure a feasibility study is carried out into remutualising Northern Rock.

“If we are serious about changing the way the sector operates and its attitude, what better way to start than by remutualising Northern Rock PLC and giving life to the mutual sector.”

Chuka Umunna MP, a member of the House of Commons Treasury Select Committee, has called on the government to give proper consideration to the remutualisation of Northern Rock, following the invitation to corporate finance advisers to tender to develop and execute a strategy for returning Northern Rock Plc to the private sector.

Today UKFI has issued an invitation to corporate finance advisers to advise on returning Northern Rock Plc to the private sector. The bank was taken into full public ownership on 18 February 2008 by the previous government.

Mr Umunna, who on 21 December 2010 gave a wide ranging speech in the House of Commons making the case for mutuals and specifically arguing for the remutualisation of Northern Rock, said:

“The Coalition Agreement said the government would bring forward proposals to foster diversity in financial services, create a more competitive banking industry and that it would promote mutuals.

“In view of the promises made in the Coalition Agreement it would be wrong for there to be a presumption in favour of re-privatizing Northern Rock, which UKFI’s invitation to tender suggests is the case, without proper consideration being given to remutualisation.

“If the government is serious about promoting mutuals, what better place to start than with the remutualisation of Northern Rock?”

During the 21 December 2010 debate the Minister (responding in the absence of Mark Hoban MP, the Financial Secretary to the Treasury) Robert Goodwill MP said:

“The Government will bring forward specific proposals to foster diversity and increase competition, and I am sure that that will include a role for the mutual sector.”

Mr Goodwill went on to say that Mr Hoban would write to Mr Umunna setting out the government’s position.

Chuka Umunna MP has accused Business Secretary Vince Cable of being “in government but increasingly out of power” following his failure to introduce a disclosure scheme for City pay or take further action on bonuses despite repeated promises to do so.

In May, the coalition agreement promised to “reform the banking system to avoid a repeat of the financial crisis, to promote a competitive economy, to sustain the recovery and to protect and sustain jobs” but this week it emerged that bonus payouts are set to go ahead while no deal has been reached on increasing lending to businesses.

Sir David Walker’s review of the financial services sector, set up under the previous government, recommended new rules on the disclosure of bankers’ remuneration within pay bands above £1 million in December 2009. Legislation was passed to allow this scheme to be introduced but has not been put into place by the new government.

This is despite the fact that, in its June Budget the coalition government pledged to take forward these proposals with “action to tackle unacceptable bank bonuses” including a consultation on the remuneration disclosure scheme.

Last month, during a Treasury Select Committee hearing RBS chief executive Stephen Hester told MPs that he would not oppose the introduction of a remuneration disclosure scheme and that implementing one unilaterally would not disadvantage financial services sector in the UK.

This morning, Chuka Umunna MP asked Mr Cable why despite his promises to increase transparency, no action had been taken. He said:
“On 23 November the Business Secretary said: “Transparency is key to creating confidence in any commitment from our banks to behave more responsibly on pay”.
“Yet his efforts in Cabinet to implement a City pay and bonus disclosure scheme have come to nothing. On 19 December he was still claiming: “There is much more disclosure in some other Western countries, and this is something we can do, something I can do.”

“Yet the Chancellor will not allow him to do anything. Does not the Government’s inaction on this issue demonstrate that we have a Business Secretary in office but increasingly out of power?
He went on to ask Mr Cable on whether he thought the £4 million package reportedly being received by outgoing Lloyds CEO Eric Daniels was acceptable.

Banks are set to pay out billions of pounds in bonuses after reports that the government will not be taking any further action on the issue, it has emerged.

According to research by Reuters, the profits of the UK’s top five banks soared in 2010 to £37bn and are predicted to rise to £51.7bn in 2011. The profits of taxpayer-owned Lloyds Banking Group and RBS are set to more than double in 2011 to £6.5bn and £5bn respectively. In addition, the Centre for Economics and Business Research forecasts that more than £7bn will be paid out in the current bonus season.

In May, the Conservative led government’s Coalition Agreement’s first section promised tough action on excessive remuneration in the financial services sector: “We will bring forward detailed proposals for robust action to tackle unacceptable bonuses in the financial services sector”.

In a speech on financial services given on 26 October 2009 in London Docklands, the then Shadow Chancellor George Osborne said: “It would be inexcusable for banks to pay out big bonuses to their staff, when there are so many businesses that need that cash.”

“It is time for the government to act – and act decisively. We cannot wait for the Prime Minister’s promised land of a new responsible bonus culture which looks more remote than ever.”

On 14 August 2009, Mr Osborne told The Guardian: “It is totally unacceptable for bank bonuses to be paid on the back of taxpayer guarantees. It must stop.”

Chuka Umunna MP, who sits on the Treasury Select Committee, commented:

“Ministers’ attempt to portray themselves as innocent bystanders while banks pay out millions in bonuses will simply not wash whilst the government’s austerity package begins to bite and thousands of public sector workers are being sent redundancy notices.”

“Although ministers have talked the talk on bonuses, this has not been backed up with any action apart from a timid bank levy set at an unacceptably low level and they have refused to implement a remuneration disclosure scheme to expose irresponsible City pay practices – this is despite the fact at least one major bank chief executive has indicated that such a scheme is a measure they could live with.”

“In 2009 the Chancellor said government should act in light of unacceptable bank bonuses stating that we could not wait for ‘ promised land of a responsible bonus culture’ but, now in power, he chooses to sit on his hands.”

Treasury Select Committee member Chuka Umunna MP has commented on the revised Q3 GDP figures released today, with growth having been revised down by 0.1% to 0.7%.

Mr Umunna said:

“These figures underline the continuing uncertainty over the future prospects of our economy and the government’s approach.

“Given this uncertainty and the fragility of the recovery, these figures call into question the severe austerity measures which the government is implementing.”
On November 25 when giving evidence to the Treasury Select Committee, monetary policy committee member Dr Adam Posen voiced concerns over the government’s austerity package, saying that it is “rare that an austerity programme is this large”, adding that “it is unusual for an economy to be contracting this much when it is not yet under crisis”.

“It is my personal assessment that the short-term effects of the government’s fiscal plans will be quite contractionary.

Chuka appeared on BBC Panorama this week discussing the banking sector, its obligations to society and the need for measures to tackle excessive remuneration. Alistair Darling, former City Minister Lord Myners and economist Will Hutton also appear.

To watch the programme, follow this link

Last month, Chuka spoke in a debate on the future of banking and financial services. An abridged transcript of his speech is below:

I, too, congratulate my right hon. Friend the Member for Oldham West and Royton (Mr Meacher) on initiating this important debate. I welcome the fact that we are conducting it in a reasonably non-partisan way. I have listened with interest to the comments of my fellow Treasury Committee members, and the last three contributors in particular. Although I do not agree with everything that has been said, there is much common ground.

There is no magic bullet when it comes to reforming financial regulation. The previous Government made a good start; it is absolutely crucial that the coalition Government build on that.

Lloyds Banking Group chief executive Eric Daniels was unapologetic about the large interest rates and charges applied to authorised customer overdrafts while giving evidence to MPs on the Treasury Select Committee this morning.

The hearing was part of the Committee’s inquiry into competition and choice in the retail banking sector.

According to the Bank of England’s monthly statistics on quoted interest rates, in October the average interest rate on overdrafts stood at 19.09%.

Mr Daniels was asked by Labour MP Chuka Umunna how he could “possibly justify” charging 38 times the Bank of England base rate in overdraft, and in response said:

“By and large overdrafts are a very low return product. They are not something that we make a lot of money from. We use the product as a service to our customers, but it’s not necessarily something that we would greatly enjoy – in other words, it’s not a high return product.”

Lloyds Banking Group Executive Directer Helen Weir, who was also giving evidence, when asked by Mr Umunna whether

When Mr Umunna put it to the bank bosses that customers felt ripped off by the charges, Lloyds Banking Group Executive Directer Helen Weir said that “it is not a product that delivers excessive returns”, but went on to confirm that they are “profitable”.

Commenting after the hearing, Mr Umunna said: “It is outrageous that ordinary customers are being required to pay such high rates on overdrafts when the Bank of England base rate remains at a record low.

“It is clear that banks are making profits from overdrafts, and the government needs to do more to ensure that banks treat consumers fairly, particularly given the taxpayer’s stake in the UK’s leading banks.”