Banks will face huge fines if they do not treat their customers fairly, under a crackdown to be announced by the Government today.
Ministers have decided to turn the voluntary code of practice operated by the banks into a legally-binding one, amid mounting concern that they are flouting their own rules during the credit crunch. The move follows claims that small businesses and individual customers have had the terms and conditions of their loans and overdrafts changed overnight by their banks.
Small firms have complained to ministers that they have received letters or emails unilaterally changing agreements, demanding that homes are put up as collateral for loans and giving customers just 48 hours to sign up to such new arrangements. "There is mounting evidence that the banks are not sticking to their own code," one government source said last night.
A statutory code, opposed by the banks, will be announced by the Chancellor, Alistair Darling. It will complement a Banking Bill in the Queen's Speech today – which aims to prevent a repeat of the crisis which engulfed banks this autumn. The new code will be policed by the Financial Services Authority. The watchdog is expected to be handed powers to impose unlimited fines on banks which breach the code and to take "enforcement action" against those who refuse to change bad practices. The most severe punishment under the existing code is public censure by the board which oversees it.
Although a legally-binding code would not force the banks to lend more to businesses and householders, ministers will increase the pressure on them to "unblock" the system.
Gordon Brown will say the measures in the Queen's Speech will help businesses and families through the recession in a "fair" way and ensure Britain emerges in a strong position.
Plans to give 4.5 million parents the chance to work flexibly will go ahead next April. The move was trumpeted by Mr Brown in his draft Queen's Speech in May. But Lord Mandelson, the Business Secretary, ordered a review after rejoining the Cabinet in October. His rethink provoked a backlash from women ministers including the Commons Leader Harriet Harman, the Treasury Chief Secretary Yvette Cooper and the Solicitor General Vera Baird. They argued it was even more important in a downturn to allow mothers to work flexible hours.
Some business groups urged Lord Mandelson to scrap plans to allow parents with children up to the age of 16 the right to request flexible working hours. At present, it applies to parents of children up to the age of six. But Lord Mandelson has changed his mind after other business organisations told him they were more worried about other new government regulations.
The package of about 14 Bills will include a right for 22 million workers to ask their employer for time off to train. Other bills will set up a constitution for the NHS; enshrine Labour's target to abolish child poverty by 2020; drive up standards in schools and give local representatives more control over police. Trailing a key theme of the Queen's Speech yesterday, Gordon Brown promised "fair rules" to build strong communities, including a "one-strike" rule for people who fraudulently claim benefits. They will lose their handouts for four weeks if they make a bogus claim. At present, the sanction applies only if they are caught twice.
But the Government faces a backlash over its Welfare Reform Bill, which will force almost everyone who is not working and on state benefits to prepare to enter the labour market or face benefit cuts. The only exemptions will be single parents whose child is under one year old and the severely disabled. An alliance of 50 academics urged ministers to think again. Professor Ruth Lister of Loughborough University said: "This further ratcheting up of conditionality is likely to create hardship and be counterproductive in the face of recession."
Fiona Weir, chief executive of One Parent Families/Gingerbread, asked: "Why is the Government waving a big stick over parents of very young children, rather than setting up the childcare, training, flexible working and employment-retention help they need?"