Toby Fenwick is a research associate of CentreForum, the liberal think tank.
The British economy is growing again, but a lot of Britons aren’t feeling it. This has forced Ed Miliband to abandon his original claim austerity would choke off growth, and led him to conjure up a “cost of living crisis”.
Luckily for his opponents, it is easy to lampoon Miliband’s proposals: an energy price freeze has led to the pre-emptive increase in prices, and raises the spectre of open-ended subsidy cheques from the Treasury. Similarly in banking policy: producing banker-bashing soundbites in bonus season is easy, but it is harder to stop rhetoric damaging the value of the public’s unintentional £66 billion investment to bail out RBS and Lloyds.
Miliband’s latest plan to create “challenger banks” begs both philosophical and practical questions.
First, the plan suggests that there is insufficient competition in the small business banking market. It is supposedly this lack of competition that is resulting in small businesses being denied lending. This is an untested assertion, which, as the Business Secretary Vince Cable has rightly pointed out, ignores the fact that there are already challengers (Santander, Metrobank, Handlesbank, NBNK) in the marketplace.
Second, Miliband’s logic demands that the banks are colluding to withhold lending from viable small businesses (SMEs), that is, the banks are conspiring not to maximise profitability – a wholly laughable proposition. As Peter Hoskin wrote on these pages, the SME Finance Monitor doesn’t show large unmet SME lending demand.
As a solution to the financial crisis, Miliband’s prescription is bizarre: increase the number of small banks with higher risk appetites to undertake more, riskier SME lending. This is risible.
Worse for Miliband, the Treasury Select Committee showed earlier in the month how complex it is to “sell bank branches” – in this case, the 631 Lloyds branches tranferred to Co-op to satisfy EU state-aid rules. Indeed, Miliband describing them as “branches” misses the point: these are new businesses created by transferring customers between the old and new banks, requiring separate product lines and IT systems to deliver them, and the building of new brands. Labour’s solution that asserting something will make it so simply doesn’t bear scrutiny.
It remains important for the government to get best value for our unwanted investments in RBS and Lloyds. Unlike Royal Mail, we need to get the best possible price, and I’d like to put some flesh on the bones of the “all in it together” rhetoric.
There is a solution that delivers both: the Portman Capital-CentreForum proposal for a broad scale share distribution that has garnered support from the Centre for Policy Studies (CPS) and Policy Exchange, and has been praised by the Treasury.
We can and should share the benefit of an improving economy. Committing to distributing the shares in the forthcoming Budget will get the best price for the government, and removes government from running a key part of the economy which it regulates. This would also mark actual progress towards resolving the fallout from the financial crisis and showing that we are all in this together.
It also would draw a sharp contrast with Miliband’s empty rhetoric and unworkable plans.