The mistreatment of some companies by Royal Bank of Scotland's business turnaround division has destroyed their owners' lives, it has been claimed.
Lawrence Tomlinson, entrepreneur-in-residence at the Department for Business, was giving evidence to the Treasury Select Committee following the publication of a report in which he accused RBS, which is 80% owned by the taxpayer, of profiting from small businesses' property assets by forcing them to collapse and charging higher fees.
Tomlinson said the majority of the 23 cases of alleged bad practice by UK banks related to RBS' Global Restructuring Group (GRG), which, he said, changed from being a division tasked with turning around failing businesses into a "debt collection agency".
Comparing the bank to a "vampire", the Yorkshire entrepreneur told MPs that he believed the mistreatment was systematic with GRG officials incentivised to shut companies down rather than revive them.
He related one example of a 20-year-old company trading with £1m profits that was referred to GRG. It withdrew overdraft facilities which led to the business owner having to make staff redundant.
"[Businesses] are kept in GRG and as soon as they get any cash to invest and grow it is just taken away," Tomlinson told MPs. "We have seen people's charges being exactly the amount of profit they have made."
One whistleblower told Tomlinson: "I can't remember the last time I had a business go to GRG and come back."
Questioned about what he believed an Financial Conduct Authority (FCA) investigation into the report will find, the advisor to business secretary Vince Cable added: "The FCA will be shocked by the treatment of businesses and the lives that have been ruined."
Tomlinson called for reform of the banking industry and the introduction of greater competition.
"The banks have become bigger than too big to fail...[and] bigger than too big to regulate. We need a change of the banking landscape so businesses can grow. The bank should grow its business not to the detriment of the [customer] but with the [customer]."
Before his report, Tomlinson was approached by 200 companies alleging mistreatment by RBS but since it was published, he said the figure has grown to more than 1,000.
An RBS spokesperson commented: "The vast majority of businesses that have gone through GRG have had a positive outcome, either returned to the main bank, moved to another bank or paid their debt back with only a minority facing insolvency.
About Dan Martin
Dan Martin has 10 years experience as a journalist writing about entrepreneurs and the issues that affect them.
After three years working as a researcher for Sky News, he joined BusinessEurope.com as a reporter. This was followed by two years working as news editor for Startups.co.uk during which time Dan also contributed to Growing Business magazine. In 2006, he joined Sift Media as business editor before being promoted to editor of BusinessZone.co.uk. He also has responsibility for UK Business Forums, the UK’s most active online forums for small business entrepreneurs. In addition, Dan founded The Pitch, BusinessZone.co.uk's nationwide competition for small business owners. He host the grand finals in 2009 and 2010 in front of an audience of 300.
As well as interviewing many entrepreneurs, Dan has written content for leading business organisations such as the Department for Business, Enterprise and Regulatory Reform, British Chambers of Commerce, Forum of Private Business, Investors in People and Business Link for London. Among the publications that have quoted Dan are The Times, Mail On Sunday, Financial Times, Personnel Today and Bristol Evening Post. His articles have also been published by publications including eGov Monitor, Virgin Express in-flight magazine and Personal Success.
Dan regularly speaks at events about small business and social media issues. Among the events he has presented at are the National Federation of Enterprise Agencies' annual conference, Learning Technologies, Publishing Expo and World of Learning. He has also chaired high profile debates featuring senior representatives from Business Link and the Federation of Small Businesses and Dragons' Den judge James Caan.
Dan was named the 10th most influential political blogger on Twitter by the Independent and won the public award for best B2B tweeter at the Golden Twits 2010. He also organised the Bristol Twestival, part of a global Twitter driven charity initiative, in February 2009 and March 2010. Volunteers from 175 cities around the world organised events using the social network. In total, $350,000 was raised for charity: water in 2009 and $500,000 for Concern in 2010. In Bristol, £1,500 and £5,600 was raised.