The debanking scandal is a national disgrace

One of an MP’s most important responsibilities is to champion the small businesses in their patch.

I certainly take every opportunity to shout about the smaller firms in my West Worcestershire constituency.

From the fantastically successful tree-growing business Frank P Matthews to the emerging corridor of cyber technology startups, small and medium-sized businesses in my part of the world offer so much to our economy.

But there is no getting away from how tough the pandemic and energy crisis have been for those running small businesses.

Critical government support has been delivered but they need to know that their banks will also support them through such a challenging period.

Our Treasury Committee asked smaller businesses up and down the country to tell us about their experiences with lenders, and I was taken aback by what we were told.

One particular issue we heard about, I’m sure in no small part thanks to the campaigning of this very newspaper, was debanking.

During our investigation, we found more than 140,000 small business accounts were closed in the last year alone – with many firms being given little or no notice before they were debanked.

There can be good reasons for closing or denying accounts for businesses, including signs of money laundering or prolonged inactivity, but we found there were still thousands of accounts being closed under the disconcertingly vague justification of ‘risk appetite’.

Representatives from the pawnbroking industry told the committee more than half of the companies in their sector couldn’t get a bank account.

Even more disturbing was when the boss of Handelsbanken couldn’t tell us if they would give an account to BAE Systems – despite the company being one of the biggest suppliers to the Ministry of Defence.

How on earth have we got to the position where a company working to preserve our national security can’t be assured of access to a bank account? Banks’ shareholders demanding environmental, social and governance policies may inadvertently be putting national security at risk. This cannot go on.

It is wrong that banks in this country can systematically debank legitimate firms or industries because their board turns its nose up at their line of work.

If their work is legal then they should be able to access a bank account. Most lenders couldn’t even tell us exactly what had been considered before the accounts were closed.

Something has to change, which is why we have asked the Financial Conduct Authority to force banks to send it their debanking data – including the reason for each account closure.

Following the revelations uncovered by our inquiry, we have received assurances from the Government that they will be legislating to crack down on unfair debanking. We keenly await the opportunity to scrutinise this urgent work when it is presented to Parliament.

Another particularly troubling issue, which we received a lot of complaints about, was the Business Banking Resolution Service (BBRS). For the uninitiated, this is a scheme set up by seven major banks to give smaller firms an official forum to raise unfair treatment by lenders.

Unfortunately, asking the banks to take charge of the initiative fatally damaged its integrity in the eyes of the business community.

A lot of small businesses we spoke to saw this as a deeply conflicted system which deliberately made it difficult for them to settle grievances.

Whether or not banks were directly influencing the decisions made by the BBRS is neither here nor there. An initiative such as this lives and dies by its ability to clearly demonstrate its independence and fairness. The fact is, nobody trusted it and therefore barely any firms used it.

The Government should now be in the process of working out what to replace it with. That must be done speedily and in a way which puts integrity at its core. We can’t have another situation where banks are seen as able to bury their own mistakes.

Small businesses employ 16.7 million people in this country, generating £2.4 trillion a year for the UK economy.

We’re not asking lenders to wave a magic wand and solve all of the problems facing small businesses but one thing for sure must change – banks must stop making a tough landscape for small businesses needlessly tougher.

Dame Harriett is a Conservative MP and chairman of the Treasury Select Committee