Official Report: Minutes of Evidence

The Chairperson (Mr O'Toole): I welcome Roger Pollen, head of the Federation of Small Businesses (FSB) Northern Ireland — he will be known to many people here; Alan Lowry, policy chair of the FSB; and Ross Boyd from Ross Boyd Chartered Accountants (RBCA). Thank you for coming to brief the Committee. Please, feel free to make a brief opening statement, Roger.

Mr Roger Pollen (Federation of Small Businesses): Thank you for the opportunity to give evidence on behalf of many thousands of members of FSB on the issue of the banking and financial services landscape. I am joined by two FSB members who have relevant perspectives to share. Alan Lowry is managing director of Environmental Street Furniture: he is a business owner and policy chair of FSB Northern Ireland. Ross Boyd is managing director of RBCA, a leading chartered accountancy practice. Hopefully, they will bring useful perspectives on all the things that you want to look at.

FSB is the largest business representative organisation in the UK, with around 165,000 members. We have about 6,000 here in Northern Ireland. Those members come from all sectors of the economy and range from sole traders to businesses with hundreds of employees. Given that diversity, the range of banking services that they require is vast. Business banking and the availability of financial services affect every small business, so they are constantly on our radar, especially as the landscape continues to evolve in the digital era. For example, just over a decade ago, we, in collaboration with the Ulster University business school, conducted a study of the relationship between SMEs and their banks. By way of a foundation, I think that it would be helpful to summarise a few of the key findings from that 2013 report, and we can build on that.

That study showed a low satisfaction rating across practically all aspects of the business-banking relationship, with business owners expressing dissatisfaction around the quality of service and highlighting the lack of competitive charges, obscure cost transparency and a feeling of banks having a poor understanding of their market and failing to provide useful contacts. There was also negative feedback on the issue of access to finance, with respondents reporting an over-rigorous application process and a general lack of appetite from banks to lend to SMEs. That was the context a decade ago. In summary, the other useful finding from the study was the need for a balance between local banking infrastructure and online services. Effectively, the way in which businesses wanted to access their banking support became characterised as "bricks and clicks".

The Chairperson (Mr O'Toole): Roger, will you say a tiny bit about the balance between who was more interested in bricks and who was more interested in clicks? Intuitively, one imagines that the more traditional types of retail would be more interested in physical branches.

Mr Pollen: It is exactly that. To bring us up to the present day, because this is a perennial issue that we keep hearing about, we decided to go back out to market. We recently commissioned a report from CARD Group Research and Insight to survey a lot of businesses and get a current understanding of where we are and the current state of play. I suppose that that is the bit that you want to get on to next: what are people feeling, hearing and saying now? The survey is live in the field, which means that it has not closed yet, but, because we were coming here today, we asked the CARD Group to give us a snapshot of where we were up to last Friday. We had a very good, statistically robust response rate up to that point and will share some of that with you.

The majority of banking now happens online and through apps, which, I suppose, is the first change from before. There is very positive feedback about online challenger banks, for example. One business owner said that the application to Starling Bank took just 30 minutes to complete and was approved within 24 hours. By comparison, their application to one of our local banks took eight weeks from start to approval. Therefore, the challenger banks are coming in: the move to digital is providing very real competition. We may come on to whether that is a good thing. Despite online usage being very strong, our survey also showed that more than 20% of our respondents visit their local branch at least once a week. Again, that goes back to the diversity of businesses. Some businesses may never go near their branch, but more than 20% of them, because they are on the high street or whatever, have a need to go as frequently as more than once a week.

The Chairperson (Mr O'Toole): Do we know why most of them are visiting? Is it mostly to deposit cash?

Mr Pollen: A lot of it is to deposit cash. Quite a lot of it is to find out about other services that are available, including insurance and different mitigations that the bank can be the conduit to.

The Chairperson (Mr O'Toole): So, it is not just the physical depositing of cash, which, as people say, you can do at a post office.

Mr Pollen: No, it is not. Also, there are quite a lot of reservations about the depositing of cash in somewhere as open as some of the alternatives to bank branches. Bank branches have a sense of security, privacy and discretion about them, more so than if you go more openly into a what is, effectively, a shop to deposit cash.

The Chairperson (Mr O'Toole): If you own a pub or a shop in a small town, it is not that there is suspicion or anything, but you might want the privacy of a bank. Is that what you mean?

Mr Pollen: You might want the privacy of a bank. You might also find that you are a competitor of the business that hosts the banking services, and you might not want to be walking in every week and, effectively, showing how you are performing. It goes back to the privacy that traditional bank premises used to provide to businesses that came in.

The second point — this is consistent with a decade ago — is that, despite the prevalence and uptake of online banking, a personal relationship manager or a point of contact with relevant and, preferably, local knowledge came out as something that people want to have. We find that some banks that are owned by larger businesses elsewhere may have different parameters and different systems that do not take account of our local situation. So, I think that there is an appetite for local branches bringing local knowledge to lending decisions and everything else, because they understand the context.

The Chairperson (Mr O'Toole): We have the traditional, local big four banks, some of which have disinvested. Certainly, they have all closed branches. Do Bank of Ireland, AIB — formerly known as First Trust — Ulster Bank and Northern Bank, which is now Danske Bank, still have a degree of dominance in the market?

Mr Pollen: They very much do, yes, but with the challenger banks coming up very strongly on the rails but doing a different thing. Therein lies the problem. I do not think that that has anything to do with an appetite to see our existing banks diminished by the incoming challenger banks. We want to get our existing banks to step up and become those challenger banks, providing the same level of quality and range of services. So, a local bank being able to accept an application in 30 minutes and have it approved in 24 hours should be the ambition. The local banks should be aiming for that so as not to be cut out by others accessing this market from elsewhere, because that, ultimately, diminishes the overall banking provision here.

The third point that we found coming out of the survey, which, as I said, is up to last Friday and is not complete, is that access to finance or services through traditional banks remains a challenge. We found that 27% of respondents so far have had to take out a personal loan for business transactions and that 32% have had to use a personal account for business transactions. A big issue is where the business owner is, effectively, having to put their domestic life and that of their family on the hook to sustain their business banking, and that is deeply unwelcome. I think that we saw the use of personal guarantees (PGs) suspended during COVID, and we definitely want to see a return of that suspension. It would be great if the Committee were to come on board with that.

The Chairperson (Mr O'Toole): Is it higher here than in other parts of the UK?

Mr Pollen: I do not know what the level is in other parts of the UK, but that number struck us as being very high: over a quarter — almost a third — have had to take out a personal loan or use a personal account.

The Chairperson (Mr O'Toole): Did you say 37%?

Mr Pollen: Twenty-seven per cent took out a personal loan for business transactions, and 32% have had to use a personal account for business transactions.

The Chairperson (Mr O'Toole): Obviously, those are not business loans but are specifically personal loans.

Mr Pollen: Yes. I am sure that colleagues will come in on that as we go into some questioning.

The Chairperson (Mr O'Toole): Quite possibly, those will be secured against a home.

Mr Pollen: Yes, which is not the home for just that business owner.

The other thing that is worthy of looking at is that, by extension, several respondents in the survey have been turned down for bank accounts or other products, yet most have not been given a reason for their rejection. That is disappointing, obviously, particularly if you are able to go into a bank and —.

The Chairperson (Mr O'Toole): Sorry to interrupt, but I will ask questions as we go. Do we have a sense of whether there is a trend upward or downward with those things?

Mr Pollen: I do not know yet. I do not think that we have enough data. As we prepare the report, which we expect to be ready around the end of the year or early next year, we will be happy to come back to the Committee to share and unpack the findings, if that would be welcome.

It is fair to say that the business banking landscape is vast. Navigating it needs many inputs, from the individual banks and UK Finance to the Financial Conduct Authority (FCA) and, locally, the banking round table led by the Finance Minister. All those contributors have weighting and influence, but none has overall control. The challenge is to find a way to blend the inputs most effectively in order to establish and maintain a banking ecosystem that supports our small businesses and communities. We need a strong, growing private sector, which, in turn, needs a vibrant banking and financial services landscape to underpin it. We are pleased that you are looking into that. It is vital that we have that foundation.

I hope that that was a useful initial scene-setter. My colleagues can add a lot of lived experience to your inquiry.

The Chairperson (Mr O'Toole): That is really helpful. Thank you, Roger. I appreciate your giving us initial raw data. I apologise for peppering you with detailed questions on data that is, as it were, hot off the press.

It would be helpful to get an initial sense of this from Alan and Ross, who, as well as being FSB members and, in your case, Alan, chair, are business owners and operators: how have you seen the business banking market in Northern Ireland change in recent decades? I am not presuming anything about your age, but I imagine

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Mr Alan Lowry (Federation of Small Businesses): I'm off [Laughter.]

The Chairperson (Mr O'Toole): — that you will be able to give more than one decade of insights

Mr Lowry: I have owned my own business for 13 years. During those years, the landscape has shifted considerably. I set up a business because I lost my job. I had the choice of looking for another job or setting up a business, and I decided to set up my own business. I got an agreement from one of the big four local banks on what it would lend me, got an account set up, got up and running and started trading with money that I put into the business myself. Within three months, I went back to the bank to ask whether I could start to draw down the amount that it had offered me, and I was asked to show my accounts for the first three months' trading. I said, "Well, there isn't really anything, because we are only getting set up", and the bank withdrew the facility that it had given me, saying, "We are no longer willing to lend you the money". No reason was given other than that it had changed its mind. I had to find another bank immediately, which you do not want to do when you are trying to set up a business and employ people. We moved to one of the other big four.

The Chairperson (Mr O'Toole): Was that for a loan or working capital?

Mr Lowry: It was a loan and a drawdown and overdraft facility. The first bank just said, "You can't have it any longer".

The Chairperson (Mr O'Toole): You were starting to use the loan for —.

Mr Lowry: I was going to draw it down because we had staff to pay and no sales coming in. We were a sales company, but we had no sales for the first three or four months.

The Chairperson (Mr O'Toole): You were starting to use the overdraft.

Mr Lowry: We needed that money. The money that I had put in from my savings had gone.

The Chairperson (Mr O'Toole): The bank just withdrew the facility.

Mr Lowry: It just withdrew it, and we ended up moving. We moved to one of the other banks, which we are still with, and we enjoy a good relationship with it.

The Chairperson (Mr O'Toole): Is it another member of the big four?

Mr Lowry: Yes, it is another member of the big four. That was the only option 12 or 13 years ago. A lot of the new banks, such as Revolut and Starling, have appeared only since then.

Nowadays, most of the big four banks offer a relationship manager, which Roger touched on, on the basis of the level of debt that you have, not necessarily on how much growth you can potentially get. As a small business, when I had little debt, I could not get a relationship manager to help me with the information that I needed and the other things that the banks could offer to help me to grow my business. When we got to COVID, I had to take a bounce back loan and, eventually, a coronavirus business interruption loan scheme (CBILS) loan to keep my business afloat and pay my staff. Suddenly, I got a relationship manager, because I owed the bank so much money. You could almost say that I got a relationship manager/debt collector.

The Chairperson (Mr O'Toole): Yes, of course.

Mr Lowry: That leads on to another important point. Obviously, we had the Budget last week, which we may touch on later. A lot of pressure is coming for small businesses. If, like mine, a business is export-focused, it needs a lot of money to develop. The headroom that I have in a bank is limited because I still have a CBILS loan, which I had to take out to keep the business open. I am paying that back over five years. That level of borrowing affects the amount that the bank is willing to lend to you to do other things. If I were to see, suddenly, an opportunity for a great project in America, Dubai or anywhere else that I do business and needed to borrow money from the bank to fund that project, the bank would limit my borrowing because of the CBILS money that is still being paid back.

The Chairperson (Mr O'Toole): Is CBILS not partly underwritten by the state?

Mr Lowry: It is. There are no personal guarantees, which is great, but it still limits my ability to borrow money.

The Chairperson (Mr O'Toole): You are not personally liable for CBILS, because it is —.

Mr Lowry: I am not personally liable. I think that the CBILS loans were up to £350,000 at the time, and there were no personal guarantees. We have probably paid back half of that, but it still limits the headroom that other small businesses and I have to borrow the additional money that we might need to grow our businesses.

The Chairperson (Mr O'Toole): You recounted a couple of experiences. It is interesting. The big four are still the dominant players for businesses. In your case, that was one operator, and it sounded like you were talking about a time that was a few years after the first global financial crisis.

Mr Lowry: It was, yes.

The Chairperson (Mr O'Toole): If that was the context, that operator may have been very cautious —

Mr Lowry: It was wary.

The Chairperson (Mr O'Toole): — or wary of any lending. The upshot is that an offer was peremptorily withdrawn months into the relationship.

It sounds like your general view is that, with the second example, the bank did not feel obliged to build up a relationship that involved helping you, incentivising you to grow your business and opportunities or offering you products that would help you in doing that. It sounds like it was very passive.

Mr Lowry: Yes. The information is there, if you want to look for it, but the banks do not offer it; they do not go out of their way to help. As a business owner and someone who represents 6,000 local small businesses, I want the banks to facilitate and help with that journey. It is OK putting all the information out there, but it is like the internet: you can find anything if you know what you are looking for, but you need to know what you are looking for. Not every small business ends up picking the right route by which to borrow money, because the information is not always available. We navigated that reasonably well.

As I said, I have two issues with the bounce back loans and the CBILS loans. One is that, from our perspective, CBILS loans had to be taken. If I had not been able to take that loan, I would have had to close the business and pay off all my staff, because we had no income. It was an extraordinary debt, even though it is now taken as being a standard debt. My other issue is that the bounce back loans were on the basis of a guaranteed percentage interest rate, but CBILS was not. That meant that, as soon as the interest rates started going up following COVID —

The Chairperson (Mr O'Toole): Is that pegged to Bank of England base rates?

Mr Lowry: — the CBILS rate went up as well. We pay about £1,000 more a month than we did when we took the loan out, because no guarantees were given against it. Although there were no personal guarantees, it puts a lot of businesses under pressure. Then, there are the additional costs and issues that came out of last week's Budget announcement.

As Roger said, it is a really challenging landscape for small businesses. By chance, I got an email from Revolut this morning — other banks are available, I am sure. I scrolled down because it had all these offers for businesses: "Click here for a free month"; "Click here for £50 a month", "Click here for £500 a month" and so on. There was no explanation of what might assist someone who is naïve about the funding landscape in determining what might suit them. Looking at it, you would say, "I can get a bank account for free," but clicking did not actually do anything; it was just a number. That whole landscape is hard to navigate.

The Chairperson (Mr O'Toole): FSB is UK-wide. Is there a sense in which banking services that are offered to small businesses and microbusinesses in Northern Ireland are suboptimal? How do the services here compare with what there is across the water and, if you have this information, over the border? That would be interesting to hear.

Mr Lowry: We do not have the exact information, but banking is a lot more controlled here because we have the big four. We do not have as much choice as in England, Scotland, Wales and even the Republic of Ireland. We are limited by the offering here. Most of our members and most of our business owners are reluctant to change banks. Even I am reluctant to change banks.

The Chairperson (Mr O'Toole): Behaviourally, is that more commonly the case here than in England, Scotland and Wales?

Mr Lowry: It is better the devil you know, to a certain extent. The attitude is, "We know what we are getting with this bank, so maybe we should stay with it". That causes a problem. Most of our business owners are entrepreneurs and want to get out and do stuff. Banking is secondary to that. You need to get out and do what your business is about, whether that is selling street furniture, as mine is, or running a butcher's shop, a hairdresser or whatever. You want to be about your business, not about your finances.

The Chairperson (Mr O'Toole): Is the whole point of having good business banking not about being able to say, in the case of running a butcher's shop, for example, that you want to extend the shop and add a deli counter, and the bank saying, "We can help you with a loan or with working capital". Sometimes, banks can have an effect. Do you have any experience of that, Ross, as a business owner and an adviser, in the sense that you are an accountant?

Mr Ross Boyd (Ross Boyd Chartered Accountants): Yes. We advise lots of businesses. My experience goes back long enough to have been doing that before 2008, when there was definitely a transition.

The Chairperson (Mr O'Toole): I cannot believe that. You do not look that old, Ross.

Mr Boyd: Thank you very much. I will note that carefully on my pad.

The market has changed a lot. Money and regular banking facilities were easy to get. They are not easy to get now. The challenger banks open accounts very quickly, but they might just say no. That was not the case three years ago. I will go through my journey a bit, because I can talk more easily about that than I can about clients and because it takes in some of that.

When I set up my business in 2010, we went to one of the big four banks. I asked for some debt to set up the business, which is consistent with what Alan said. I was told no, because I had no experience of management, but I was given a bank account very readily. That took about six weeks to set up. We carried on for a couple of years having to fund the business ourselves. I took a mortgage holiday: effectively, I said, "Right, I'm not going to pay my mortgage for six months to allow me to cut my costs". Effectively, I lived on my wife's wage. That is the sort of thing that small businesses are doing at start-up. Two or three years later, the bank contacted me and asked whether I would like to borrow some money. I said, "But you've taught me how to operate without borrowing money".

As it happened, in about 2013, we moved to another of the big four banks, largely to do with its having a better online banking facility. That is one of the stories here: online facilities are really important to small businesses. They want to reduce the time that it takes them to do their business administration, because they want to be making and selling things. The online banking in that one of the big four meant that it was a better institution, so we moved to it. Earlier this year, when we were looking to make an acquisition — again, we had had no facilities throughout that period — we went back to that big four bank and said, "We'd like to borrow money. We've never borrowed money before. We'd like to acquire this other profitable business". It said no. We then went to the other three. Two were not very interested, and one was quite interested. We had a 12-year relationship in which we were never in default and never had debt, but we have had to move bank, which we are in the process of doing. Bear in mind that we are a firm of chartered accountants, so we have access to skills that others may not be able to access easily. That process of moving all the bits and pieces takes three to six months. About five years ago, we decided, mainly because we get asked about it by clients so often, to test new online products ourselves, and, if we survive, we are inclined to say that they are OK for clients. We went with an online bank, in parallel with one of our local big four, about five years ago. The bank fees are nil, which is quite nice. It was really easy to set up. I was going to say that the application process took minutes, but it certainly did not take hours. We had a bank account overnight. We now use that as a bank account for most of our trading. It has a very good euro facility, which is an important component of banking for business in this part of the world.

The Chairperson (Mr O'Toole): Of course.

Mr Boyd: Traditionally, our experience of the big four in that regard has not been good.

The Chairperson (Mr O'Toole): That is odd, because all of them were, at one point, all-Ireland in some form or another. It is mad. You would think that they should be good at —.

Mr Boyd: It is a complicated conversation if you go to a bank such as Danske Bank, which is owned internationally, and say, "Right, you can't do euros very easily". That is an odd conversation, but that is the reality. The challenger banks generally offer you a Google exchange rate or very similar, and you pay £2 or €2 a month, which is a very low fee to have that extension on those accounts. There are real advantages with those.

However, it is about the level of regulation that they are under and whether they have the right checks and balances. That is part of why it started in 2008. We must remember Northern Rock and things like that. People are in business to make money. That money is possibly in property, but, hopefully, it is mainly in the bank. Therefore, they want it to be secure. They want safe, secure banking. They are not always comfortable with the challenger banks on that issue. We have been subject to regulatory enquiries from the challenger bank that we work with. I challenged it earlier this year. That was upheld on appeal, and we got a refund.

The Chairperson (Mr O'Toole): Was that the challenger bank that you use?

Mr Boyd: Yes. It started enquires. Because it sets up bank accounts so easily, it does not do a whole range of checks and balances —

The Chairperson (Mr O'Toole): Yes, the Know Your Customer (KYC) steps.

Mr Boyd: — in the same way that one of the local banks would. As those challenger banks have become increasingly regulated, they have come back to their customers with a whole range of questions. The questions are not quite done by text messages, but it is in-app.

The Chairperson (Mr O'Toole): They increasingly use AI.

Mr Boyd: They use AI. I will give you an idea of some of the questions. I responded to questions from that challenger bank solidly for six weeks, until I said, "Hold on a minute, this is using up too much of our time". I challenged it, and that was upheld. People present the experience of challenger banks as being all good, but there are issues that need to be carefully considered.

We ended up paying a margin of 3% on the bank debt that we took out this year with one of the local big four banks. If we had used our challenger bank, that would have added another 4%, but it would have been readily available. The bank debt that we got is all secured through PGs. A key point is that, from conversations with the local banks, they are very unexcited about lending to trading businesses. They want you to borrow for a property: something that they can readily see, touch and secure.

The Chairperson (Mr O'Toole): Is it specifically local banks that are more interested in lending against an asset rather than to a trading concern?

Mr Boyd: Correct. I was asked repeatedly, "Is there a building in the business that you are buying?".

The Chairperson (Mr O'Toole): Is that because of their anti-money laundering regulations? You can launder money using property as well.

Mr Boyd: It is purely a way of securing the debt. It is a real bugbear for small and medium-sized businesses, because lots of businesses do not have property. My company does not have any property; it rents its offices. You do not have that security to offer, which dulls the local interest considerably. The banks then look for security, which comes back to Roger's point. In fact, it probably would have been cheaper for the two other directors and me to remortgage our houses, because, ultimately, that is how the security mechanism works.

The Chairperson (Mr O'Toole): Are you saying that you would have to give security on your personal house, so you might as well remortgage it?

Mr Boyd: You would get it at a considerably lower rate than what we are currently paying.

The Chairperson (Mr O'Toole): Because your mortgage rate would be lower.

Mr Boyd: That is what drives the stats showing that small businesses say, "I will just take a personal loan. It is quick and easy to get one online, and then I put it into my business". Small businesses are an extension of those people. They see it as the same thing.

The Chairperson (Mr O'Toole): They are entrepreneurs and want to move quickly. There is a bit of a pattern: while there is a consistent reliance on and predominance of the big four legacy banks, there is not necessarily — I do not want to completely intuit what you are saying — the service to match the level of loyalty to them.

Mr Boyd: I am not sure of the stats on local businesses using a local bank or a challenger bank, but I think the number using local banks is still pretty high.

The Chairperson (Mr O'Toole): From those examples, it does not necessarily sound like their experience is always one of amazing customer service.

Mr Boyd: It is hard to see how it could be, because the local banks are trying to compete with low- or no-cost competitors. One way of doing that is to cut their service provision. We are probably in an unusual position because of what we do, but lots of small businesses are looking to their banks and others for advice.

The Chairperson (Mr O'Toole): That precipitous cost-cutting would presumably — I am putting words in your mouth and speculating — include closing bank branches. Therefore, they are, in a sense, removing what is arguably the USP of legacy banks, which is that they offer a more bespoke service, local knowledge and relationships in a way that a challenger bank cannot.

Mr Boyd: There is a tension there: which small business is not going to use online banking nowadays?

The Chairperson (Mr O'Toole): Yes, if you are starting up, you are of the digital native generation.

Mr Boyd: Therefore, you are going to your branch less. Then again, think about the sectors: which small business is not getting some cash? That is why they have to go to a bank once a week or once a fortnight. That tends to happen in a regular pattern: they go to make a deposit on a Friday or whatever. There is a tension between needing to have somewhere to go to do that and wanting to use online facilities to lower costs and improve internet banking, internet shopping or whatever it happens to be.

The Chairperson (Mr O'Toole): I am going to bring in colleagues.

Ms Forsythe: Thanks very much for coming to give evidence today. What is the FSB's view in general on what the closure of local bank branches means for small businesses? What feedback have you had from your members on the use of banking hubs?

Mr Pollen: We go back to the statistic that, for every 10,000 people in Northern Ireland, x will start a business, whereas, in England, that is 2x, and, in America. it is 5x. Our entrepreneurial appetite and the whole environment that we create is not really what it could or should be, especially if we are to try to meet all the ambitions that the Executive have set out in their Programme for Government to grow the economy, create good jobs and everything else. You cannot look at one bit of it in isolation. We need a good — I was going to say indigenous — local banking system to provide support and advice at the time the business needs it.

I was looking back through that 2013 survey and noticed that, in the dissatisfaction section, 60% of respondents stated that they had considered switching providers, but only 9% went ahead and did it. That, perhaps, speaks partly to the difficulty of doing it, but also to people putting a value on what they have before they think about jumping ship and going elsewhere to something that seems shiny and better but does not necessarily bring everything with it.

It is very difficult, because banks are private businesses in their own right and they have to make a profit and be accountable to shareholders and so on. In some way, however, they also have a bigger responsibility to play their part and to help everybody else to create that ecosystem. We are in the space of trying to encourage everybody to do things for the right reason. That is why, at the start, I said that everybody can influence the landscape but nobody controls it. Even the FCA does not control it; it has a very strong influence. It is a challenge to try to get people to make the provision where it is wanted now and where it may be wanted in future.

On banking hubs, we are getting a cautiously enthusiastic reception for what is there. I think that you have one in your constituency, if not two.

Ms Forsythe: There are two, and soon to be three.

Mr Pollen: You are probably the expert: can I ask you some questions? [Laughter.]

I say "cautiously", because the concern is that they are being put in as a stopgap to allow the last bank in town to close. What is the future of the hub itself? Will its provision be diminished over time as well? In theory, they ought to be a really good alternative, especially where there is not, perhaps, the population density to justify the provision that we used to have. If they are done right — that is, perhaps, where we can get a statutory influence as to what banking hubs should look like — they will be good.

The FSB nationally did a report on high streets. You may have seen a section in that that focuses on how those hubs could be more formalised, better resourced and so on, so that they represent a positive, proper and almost statutory response to the fact that other people have left the field.

Ms Forsythe: Thank you. There was interesting feedback in the data gathered on the Kilkeel hub. A lot more businesses are engaging with that hub than other hubs in the rest of the UK. It will be really interesting to gather that information going forward.

Alan made a point about relationship banking and the difference that that can make. How you are seeing the engagement? There is a reduction in positive feedback on the banks' relationship banking. Do you feel that that is putting extra pressure on government services? You have local councils and the likes of Invest NI really having to step up and work more with businesses in a space where banks would have done so before.

Mr Lowry: Probably the best way to frame that is to say that it is not very joined-up. We probably hear that about a lot of things that go on here. One of the reasons that I want a personal business manager for my business is that I want to have somebody whose butt I can kick if something goes wrong. If I suddenly get a fee into my account or something does not go out of my account, I just want somebody who I can ring up. I do not want to ring an 0800 number and wait for four days for someone to come back. I want to ring, text or WhatsApp somebody. I am in the privileged position that I have that, but I know a lot of other businesses that do not.

Invest NI does a lot of really great work, but it only does really great work for you if you are a client, and most Invest NI clients either come from FDI or are people who want to export. Again, I am in a privileged position in that I am a client of Invest NI and we get a lot of help, but the help and advice that Invest NI gives is not in any way linked to the help and advice that banks will give. Another division of that would be UK export finance that comes through the Department for Business and Trade office and is then hosted by Invest NI and comes through to the bank. Once again, that is not very joined-up. I have had a few experiences of wanting to borrow money to do export contracts and ending up having the same conversation with four different people just to try to get them to talk to each other. They all need to talk to each other, but they do not necessarily do that.

One of the things about small business owners in this country is that we are very resilient, because our livelihood is on the line. We almost fight to find a resolution. We do not say, "Oh, that didn't work. I will just go home and have my tea". We will keep fighting to do it, and I think that a lot of people have found solutions because they have fought to find that solution. However, not everyone will do that, and not everyone will have the connections that I was privileged to have to be able to do it and to get those answers. There is probably a piece of work to be done on the whole umbrella that sits over that. If you are a business in Northern Ireland and you want to get into exporting, do you talk to your council, do you talk to DBT, do you talk to Invest NI or do you talk to Stormont? Where does that actually sit? The financial piece then almost comes after that once you get an idea of what you need to do, how you need to do it and what support there might be.

Speaking to your earlier question about the branch network, the branch that I bank with shut down and the bank — it is one of the big four — moved me to another branch. It did not matter. I never went anyway — it just happened to be somewhere I used to live — and we use a different branch. However, we have had instances over the last 24 months of FSB members' accounts being closed by their bank and a cheque being sent to them for the balance of the money that was in their account with a letter saying, "We no longer want to provide your banking facilities".

Ms Forsythe: Without any consultation?

Mr Lowry: Without any consultation. We know that. We have seen that across the UK as well, I believe.

Mr Pollen: Yes. We would very much welcome the Committee's support in calling for the data on enforced account closures to be published quarterly so that we can get a proper and robust picture of what is happening and, thereafter, the reasons for those closures. That would enable us to be much more open and transparent about it.

Ms Forsythe: It would be really good if we could support the call to get that data. I was going to ask you about quantification of that and what scale we are talking about. As you say, it is not that easy to open a new bank account. If you get a letter to say, "Your bank is being closed. Here is a cheque to settle it", where are you going to lodge it? You will have to open a new bank account, and you will have cash flow issues in the meantime. That is very concerning. Thank you for bringing that up.

Alan, you mentioned that you just want to lift the phone and speak to someone about your business. Do you see any difference between the services in Northern Ireland and those in the rest of the UK, as regards businesses being able to access a person, or is not being able to get access to someone a universal issue?

Mr Lowry: It is hard to speak to that, to be honest with you, because most of my experience has been here, and when we deal with our 6,000-plus members here, it is about local issues. As I mentioned earlier, because there is so much more opportunity to deal with different banks when you go across the water, particularly in England and Wales, it is hard to say. It is probably the case that some banks are better than others, and it is probably also the case that some areas are better than others. It is probably similar to here in that, if you are in rural and agricultural areas, you will not get the same level of support as those in London, Birmingham or Manchester. As Roger said, if we collated more information on that, particularly around support from business managers or relationship managers, and also on accounts being closed for apparently no reason, or no given reason, that would help us to paint a much better picture of the landscape and what that looks like.

Mr Pollen: The flip side is that, apart from account closures, there are branch closures, so you are never dealing with a static or constant environment. The Consumer Council probably spoke to the number of branches that have closed over a period. Where you may well have a good relationship with your branch and the manager there, it is utterly out of the control of that branch and that manager that those premises may be closed and you may lose that link. That is unplanned, it is haphazard and it is deeply unsettling when it happens.

Ms Forsythe: Definitely. It is really important that we do anything that we can to gather Northern Ireland data and, when we speak on a UK-wide basis, to isolate the Northern Ireland data. Whilst the matter is not devolved, one reason why the Committee is keen to do the inquiry is to identify the specific issues that relate to here.

I want to speak to your previous point about sustainability and business banking, and people having to reach into their personal finances. Is that basically because of cash flow? Is it as simple as that?

Mr Boyd: I gave the example of start-ups. There is a common conversation in our business when we speak to someone in start-up. They have often had a job and a personal bank account. They have been brave enough to, I guess, take the leap and set up their own business. They do that using their personal bank account. We tell them that they should go and set up a business bank account. They see that as part of the setting up of a business. Most people who do that now will use a challenger bank because it is so easy and quick. The one thing that happens to anyone in start-up is that they have no time. They are the director of everything. You will have heard those sorts of analogies. That is why they tend to operate in a personal facility initially. As I said earlier, it is easier to get personal finance. Most people who run a business will be able to hit Google and ask, "How do I borrow five grand?". You will get a whole load of responses, but they will all be about personal loans. That is a lot easier than going to one of the big four, where you may not be lucky enough, like Alan and I, to have a relationship manager who you can email. You walk in and have to queue up. It is a slow process. It might be a slow "No", which is the worst process.

Because I knew that I was coming here, I spoke to a few clients about that. It is relevant because we are talking about Northern Ireland versus elsewhere in GB, rather than, say, South of the border. In the examples from those whom I happened to speak to, the view is that there is just a more competitive market in GB. "In GB, people want to lend to you because they want your business": that is the sound bite that I was hearing from the straw poll of clients whom I spoke to before coming here. That is not the sense that you get in Northern Ireland. "You are lucky to get a loan here" is probably how I would phrase it.

Ms Forsythe: Absolutely.

On a wider piece and the Budget statement, the increases to the minimum wage and employers' contributions have hit hard across the sector. Have you had much chance to speak to the membership to get feedback on that?

Mr Pollen: We have had a fair amount of input. I am trying to present a balanced picture here. The increase in the allowance for employers' National Insurance was welcome. That will benefit a lot of businesses in a particular sector, typically those that employ up to five or six people, subject to the wage bill. That has been welcome. The retention of the £1 million business asset disposal relief threshold is also welcome.

However, that has to be balanced with the fact that there were increases to National Insurance itself, that there were changes to the structure around it, and that the tax rate on business asset disposal relief has moved from 10% to 14% to 18%. It is different here as well. Again, this is where we will call on the Committee to, hopefully, echo our call to the Executive. In England, they are going into the fourth year of discounted rates for retail, hospitality, leisure and tourism businesses. There has been a 75% discount for each of the past three years. Northern Ireland had the money for that in the block grant, but did not choose to deploy it for businesses. This year, England has reduced the discount, but it is still a 40% discount. That is a big win for small businesses in England. We will get some money for that here. Are the Executive seeing the need amongst the businesses that face cost pressures from banking, National Insurance rises and all the rest of it? Are we going to do anything to assist them and try to keep them afloat?

Ms Forsythe: Thank you.

The Chairperson (Mr O'Toole): Those are fair questions. I am conscious, members, that we need to get on to our Budget briefing; we have a busy day today. I ask that members be brief and answers be brief, fascinating as the evidence is.

Mr Carroll: I have a quick question on cash-only businesses, which were touched on earlier. I have had direct experience of wanting the option to use a card in a small business, normally a corner shop, and being told, as others have, I am sure, that it is too expensive given the general bank costs. You mentioned some of the tiered levels of charges; that was useful. Have you a rough estimate of what corner shops and small businesses generally pay for general bank transactions?

Mr Lowry: If we take any credit card transactions, we have to pay 1·5% to the credit card company. It used to be 2% for American Express cards, but I think that that is down to 1·25%. That is one of the reasons why nobody takes American Express cards. A lot of bank fees are down to negotiation when your annual bank renewal comes in, Gerry. I am not sure if you know any more about that, Ross.

Mr Boyd: I am glad that you answered on the commission on machines. The use of Amex in Northern Ireland is much, much lower because of the higher fees. There are cheaper ways to get bank services using apps and clever point-of-sale systems. Bank fees are highly variable, Gerry, particularly for cash businesses. For a small business, there is a substantial difference between making cash lodgements and, possibly, cheque payments to a bank every day, and the full use of an online bank with some sort of modern point-of-sale system: you are probably talking about a difference of thousands of pounds per year.

Mr Pollen: Gerry, I would not want to use this opportunity to plug FSB and its member services

but one of the benefits that a lot of members receive is free business banking. It is specifically for banking cash. It is delivered through the Post Office and has been popular over the years. We saw a big change in behaviour through the pandemic, when there was a move away from cash in some places. However, what is interesting is the demand that there still is for cash. It is about the cash infrastructure. A lot of people spend cash, so businesses receive cash. It is two sides of the same coin: no pun intended. The cash management infrastructure is still vital to those businesses. A lot of people use cash for their budgeting, and businesses use it to make sure that they get paid properly and have the money in their hands. Cash still has a major place in the economy, but it may be an evolving place.

Mr Carroll: Thank you. I appreciate that figure, Ross. I did not realise that it was in the thousands, generally speaking. I appreciate that there is some variation, but that is useful.

Mr Boyd: Gerry, I am saying that as an accountant who looks at accounts. When we review a set of accounts for a small business and see banking fees and charges of £1,000 or a couple of thousand, that is a collection of all the charges that they have gathered. They are transaction charges: writing a cheque is more expensive than an online payment; and lodging cash is more expensive than receipt by card. When you see them collectively, you see that it can be a couple of thousands of pounds for a small business in Northern Ireland.

Miss Hargey: There is an emerging theme, even from the Consumer Council presentation earlier, around how financial power is used and who has ownership of it. When you work in a global system, it is about how we can shift that. We would be keen to look at what role we as an Assembly, local government and, obviously, Westminster can play, taking into account, as well, the island economy.

The big issue currently is that financial wealth is held by a minority but local wealth is generated by workers and by local enterprise, particularly small enterprise here. I think that there is an issue with locality and population. There are bigger stresses for us here than what there may be in other areas. As you said, one of those is competitiveness and having more people in the arena to bargain with. We are keen to see whether there are pros and cons and what we could potentially do differently if you were creating something here. The issues are not unique. Scotland is now looking at a community wealth-building approach, and Wales is doing the same. There are councils in England that are doing something similar. Whilst a report was done on it here in 2022, it has not been lifted much further.

You talked a lot about the local ecosystem; that issue of locality and looking at local economic development and how we can recycle that wealth for the greater good in the locality. What could be done, or what do you see as being the challenges or opportunities with building that ecosystem? What is needed? Are legislative changes or policy changes needed? We know that the Economy Minister has laid out a new economic direction. Is that the kind of direction of travel that you see as being a good thing? Are there gaps in other Departments and in councils? What does that mean to your membership? What support is needed, and what does the advice look like? Are there skills gaps and shortages, particularly as we will see a massive change in technological advances with AI and all those things in the next decade? Importantly, what infrastructure is needed to future-proof some of this? If you have thinking around that, I am keen to hear it. As we get into the inquiry, we will get into a bit more substance on these issues as we move forward.

Mr Pollen: I will kick off with a quick response and then let my colleagues fill in. As head of FSB, I really take my hat off to our members, who have taken the initiative to go out and have risked their own money and put their whole effort, livelihood and life on the line to create a business. The rate of people doing that here is not high enough.

The answer to your question is in many ways a tapestry. There are so many stitches in it that eventually make up the picture. The funding has been cut for Young Enterprise. Young Enterprise is a very good vehicle for understanding initiative-taking and the thought processes for people to go from where they are to thinking about starting a business as a route to their livelihood. You talked about skills. Absolutely, skills are important to fit into other people's businesses and then, potentially, to go on and consider starting their own business.

There are other things that the public sector can do to assist without a huge amount of cost, including prompt payment so that bills are paid on time. Cash flow, again, is part of the issue that we are looking at here. Cash flow is massively impacted by people not seeing the need to pay bills on time. I know that a lot of effort and a lot of thought and comment about that has been raised in the Assembly in recent times. That is really welcome. That is one of the measures. The business rates, which we touched on, are a huge upfront burden on somebody who is thinking of starting a business. As soon as they go into premises, they have to pay that bill. Regardless of whether they have any money coming in from any sale or for their own wages or anything else, they have to pay their rates to the Government. So, we have to think about how we can be a bit more entrepreneurial as an Administration and as a society here to encourage that.

I have two final points. One is around infrastructure, and it is linked to my final point, which is about speed. People who were involved in the early stages of proposing certain infrastructure projects are now retiring. Those include the York Street interchange, the A5 and the sewerage system for Belfast. We can all reel them off because they are so familiar, but they have not moved. It is a glacial speed. How do we expect people to think, "I am going to get out and start a business" in the midst of that? Funny enough, one of our local banks, Northern Bank, as it then was, ran a series on its bank notes. On the £10 note was John Dunlop, an innovator who created something that went on to become a great business and which had a global impact. Harry Ferguson was on the £20 note. He created the three-point linkage on the tractor. On the £50 was Davidson, who was an innovator on air conditioning, and, on the £100 note was Sir James Martin, who worked on the ejection seat. There is also Frank Pantridge. Those are all people not just from Northern Ireland but from County Down who saw a problem, innovated a solution and created a business around delivering that innovation and bringing it to market and having an effect to change the world. We have a good track record in doing that. However, we have to try to remove some of the barriers that we constantly put in the way of those sorts of people.

Miss Hargey: What collectively can be done using the power that you, as local enterprise, and workers have? Had those innovators come along now, the banks or those who hold financial power maybe would not have lent to them. What can you do collectively around bargaining, competition and changing their habits in where they do and do not put risk? At the minute, they are risk-averse compared with those across the water or in the South. Can more be done collectively? What can we do collectively to challenge the current system?

Mr Boyd: I am conscious that I am somebody who set up a business from a spare bedroom, and it is now in the city centre. People are setting up businesses, working hard and taking risks. Some people are having success, and some, unfortunately, are not. That is just the reality of it. I am very conscious of this, because I was looking at it this morning. American management consultant Peter Drucker said that "culture eats strategy for breakfast", lunch and dinner. I am conscious of who I am speaking to in terms of "we" and "you". We need to encourage people. That needs to happen throughout everything that we do. We need to make the point to local banks that value is created through people taking a risk and, hopefully, being successful. You only have to look at the valuations of the largest companies in the world and in America to see that they are entrepreneurial successes. They all will have had many roadblocks, but people got on with it and did that. Last week's Budget is very difficult for small businesses. Many established small and medium businesses are reeling from that, but it will not stop entrepreneurs out there who have an idea from doing something. We need to talk about it positively in everything that we do and write.

The Chairperson (Mr O'Toole): Paul, we are conscious that we have had an expansive chat, which we wanted to have, but we are now —.

Mr Frew: Just to clarify, you talked about the difference between your card-payment businesses and your cash-going-to-the-bank businesses. You said that it was a £1,000 difference. Did you mean that it is £1,000 more expensive to have a card machine?

Mr Boyd: No, cash. I know that there has been a lot on social media about cash being cheap. Cash is only cheap if you do not go to a bank and instead collect the money and pay your suppliers from that. Certainly, that is not how most businesses are run. They get their cash and put it somewhere safe, which is a bank, and then they pay suppliers from the money in the bank.

Mr Frew: Is that more expensive than the card transaction model?

Mr Boyd: Yes.

Mr Frew: OK. I asked the Consumer Council about my concern around the availability of choice for consumers when paying for services and goods. I saw a trend towards card payment only, but now we are seeing a slight trend — this is anecdotal on my part, based on life experiences — towards cash only, with some businesses accepting cash only. Do you have any grasp of the trend? I worry about the loss or lack of choice between cash and card payments and the move to one or the other. Is there a trend?

Mr Boyd: It has matured. Five years ago, pre-COVID in 2019, the trend was towards less and less cash, almost to the point of saying, "We assume there'll be no cash at a point in the future". That has reversed quite a bit. Roger made the point that people say, "If I have £100, I know I have £100. I am budgeting for £100, and that's what it is. I have it in my pocket". Once you get into the complicated world of personal finance, in particular, where money, credit cards and all sorts of things come in, people find it difficult. Cash is here to stay. Small businesses choose to operate in cash for various reasons. Cash will not disappear to nothing. It is needed for a whole bunch of reasons.

Mr Lowry: There was a trend towards what was termed "a cashless society" until people understood what that meant. Then, all of a sudden, they did want it any longer.

Mr Frew: Something intrigues me about unexplained account closures. Is there an issue for businesses that try to open another account when they have an unexplained account closure? Does that affect —?

Mr Lowry: We probably need to do a bit more research on that, Paul, and come back and confirm —.

The Chairperson (Mr O'Toole): In fairness, I am not sure that these guys are the best to ask. We will, at some point, have UK Finance in front of us. I am conscious that we need to move on.

Mr Frew: My last question is about the Budget and the tax burden on businesses with regard to National Insurance. What is your inkling at this time with regard to small businesses? Will they add on the burden to the consumer in the cost of selling, or will they resort to job losses?

Mr Lowry: From my perspective, it will probably be a mixture of both to a certain extent. If a business can not pass on those additional costs, it will not. It will try to meet them. However, businesses have been hit with so many extra costs that a lot of them are right on the line with regard to whether they will be profitable or lose money. If it gets to that stage, it has to be passed on. That is where we are. Every business will have to make its own decision on that. Undoubtedly, you will see price increases from some, because they have just got to the stage where there is no money anywhere else to do it.

Mr Pollen: The final point is that this is only the start of it. We are also seeing a lot of proposals for legislation coming down the track that will add on lots and lots more cost and act as more disincentive. We have to be really careful. What are we trying to achieve here? If there are vibrant businesses that can put spare money back into the kitty, that is one thing. If we just think that we can take all the money out of those businesses up front to pay for things, we will do an awful lot of damage.

Mr Frew: Thank you.

The Chairperson (Mr O'Toole): Indeed. We would like to continue talking to you about the financial services piece, because there is clearly lots more evidence. You can tell by the nature of that conversation: lots of questions and very good answers. Thank you very much for sharing your experience, as well as the policy perspective. We also want to continue to hear from you on some of the Budget questions, including non-domestic rates and potential policy levers. We may seek more input.

The Committee Clerk: Chair, we may look at having an event around that. Members will have a chance to talk about that next week at our strategy session. We are looking to hold an event.

The Chairperson (Mr O'Toole): We will probably know more detail about it then.

Mr Pollen: We would be happy to participate in whatever you look at —.

The Chairperson (Mr O'Toole): We would like to get your input in that.

Thank you very much, Roger, Alan and Ross. We really appreciate your time.