Greg Clark is Financial Secretary to the Treasury and MP for Tunbridge Wells. Follow Greg on Twitter.
Last week, I spoke at the Future of Regional Banking conference in Gateshead. Organised by Hexham MP Guy Opperman, it was a superb event – and I was delighted to be part of something that combines the two halves of my ministerial role: banking reform and returning power to local communities.
Guy’s ambition, which I share, is to encourage the creation of new banks, rooted in their local economies and challenging the incumbents. As the Parliamentary Commission on Banking Standards has made clear today, banking has become far too concentrated in the hands of ever fewer competitors, whose decision-making has become too centralised and lacking in the local and personal knowledge that a diverse economy needs.
There’s a parallel here with the century-long flow of political power from the cities and shires of England to the over-mighty establishments of Westminster and Whitehall. I grew up in the North-East during the 1970s and 1980s, when the sense that industrial, financial and administrative influence was draining away to London was palpable. It wasn’t a new phenomenon, of course, just the continuation of decades of disempowerment – a period in history that stands in stark contrast to an earlier age of confident local leadership.
The town of Middlesbrough, where I was born and bred, rose from nothing in the 19th century. No permission from London was involved, just the extraordinary vision and determination of its founding fathers. Most notable among them were Henry Bolckow and John Vaughan, who built the blast furnaces that drove the astonishing expansion of the town. William Gladstone, visiting Middlesbrough, called it “an infant Hercules” – an apt description for a place whose industry would lead the world.
Bolckow and Vaughan weren’t only industrial leaders, but political leaders too. Both men served as Mayors of Middlesbrough and Bolckow was elected unopposed as the town’s first Member of Parliament. As with the other great centres of Britain’s industrial revolution, local growth went hand in hand with local decision-making.
But in the century that followed, things would change. Bolckow Vaughan and Dorman Long (Bolckow Vaughan’s rival and successor) eventually became British Steel and the focal point for the decisions determining the town’s future shifted from the banks of Tees to the banks of the Thames.
It was similar story across the land – a nation of proud and largely self-governing towns and cities became one of the most centralised countries in the western world. The last Labour Government represented the final, failed surge of centralisation and on taking office in 2010, the current Government set about turning the tide.
In next week’s Spending Review, we will be accelerating this process as we negotiate deals with every part of the country to return power and resources to the business and civic leaders of our towns, cities and shires – so that policy making increasingly becomes something that is done in – not done to – each locality. I am thrilled to be leading that work, building on the success of the eight City Deals we have already concluded, and galvanised further by Michael Heseltine’s landmark report, No Stone Unturned.
On banking reform, I am determined to pursue the same drive away from centralisation and concentration. Even before the financial crisis, we had too few banks serving UK businesses and customers; and the forced mergers made necessary by the impending threat of insolvency furthered narrowed a restricted field.
In replacing Gordon Brown’s disastrous system of financial regulation, we have been clear that the new regulatory bodies – the Financial Conduct Authority and the Prudential Regulatory Authority – must not solely see themselves as regulators of incumbents. The regulators have been given an explicit responsibility to advance competition, including the removal of barriers to market entry. They have started by reducing by as much as 80 per cent the capital required by new entrants, reflecting the much reduced systemic risk that a smaller bank contributes to overall financial system. They have also sped up the process for approving a new bank.
Then there’s the crucial issue of the payment system that is used to transfer money to, from, between and within banks. Currently this is controlled by the major incumbents, presenting a potential barrier to market entry. By bringing the system under regulatory control we will ensure that new entrants, including regional banks, can access it in a fair, non-discriminatory fashion.
If there’s one lesson we ought to learn from recent experience it is that Britain does not benefit from concentrations of power. Whether in the worlds of government or finance, we need decentralisation and competition to restore the balance and serve the common good.