On 16 January a very interesting article appeared in the Financial Times. It was written by Philip Stephens, associate editor of the FT. And its message was simple and direct: the banking system is – still – broken.
‘The bankers have got away with it. They have seen off politicians, regulators and angry citizens alike to stroll triumphant from the ruins of the great crash. Some thought the shock of 2008 might change things. We were fools. Bankers are still collecting multimillion-dollar bonuses even as they shrug off multibillion-dollar fines.
Nothing can dent bankers’ divine right. The basic structure of the system – with its perverse incentives, too-big-to-fail institutions and too-powerful-to-jail executives remains untouched.
The universal banks, combining straightforward commercial banking with high-risk trading, live on. The result is that the organising purpose of banking – to provide essential lubrication for the real economy – remains entangled with dangerous and socially useless speculation.
Taxpayers are still providing big subsidies in the form of guarantees that, perversely, encourage banks to take more risks. In the absence of real competition, a self-sustaining oligopoly of senior bankers continues to set its own rewards.’
The Banking system – remember it? That’s the one which played such a major part in bringing about the world-wide recession of 2008 onwards. Important as the last Labour Government was, we are modest enough to feel it didn’t quite have the clout to achieve that – a world-wide recession required world-wide financial causes, and the banking system was high up among them.
And it remains in desperate need of reform – a reform it is certainly not getting under this Tory/LibDem Coalition Government.
It’s that need – and in particular the need for real competition in banking – that Ed Miliband promised to tackle on 17 January.
In a major speech, he announced Labour’s willingness to take on the banking system.
He wants to break up the banks, cut them down to size, bring in new competitors, increase choice and value for customers and make it easier for small businesses to get loans.
And he wants to do this as part of a vision and policy which looks to the root causes, not just the symptoms, of our economic problems. - which doesn’t just tackle deficit reduction, but looks to shift the whole way our economy works and rewards people.
Miliband nailed what lies at the heart of the Coalition’s economic policy
“Their economic policy is not the solution to the cost-of-living crisis. It’s part of the problem. They believe in a race to the bottom. Low wages, low skills. ’
In contrast, Labour will offer Britain a ‘race to the top’ where we all earn our way to a higher standard of living.
‘Over the coming months, Labour will be setting out the long-term changes we need. So we earn and grow our way to a higher standard of living.
– A One Nation industrial policy serving every region of Britain.
– An end to the fast buck with a new culture of long-termism, from our infrastructure to our takeover rules to the stock market.
– An education policy to help provide skills, training and a career to all of our young people, not just the 50% who go to university.
– A plan to build 200,000 homes a year by the end of the next Parliament, so we can tackle the housing crisis.
– Taking on the vested interests in every broken market to get a fairer deal to help consumers.
– And building a banking system that serves the real economy.’
The speech was a taster of the new vision which Labour is assembling.
And its particular object was one specific broken system – the banking system.
– a banking system which has been ‘a poor servant of the real economy. ’ – where jobs are created and sustained.
Labour’s plans for the banking system include
– A Green Investment Bank, with proper powers to invest.
– A new British Business Investment Bank, supported by a network of regional banks in every region of the country.
– And we’ve said very clearly if the big banks can’t demonstrate real culture change by the time of the next election they will see their high street and casino arms broken up.
“But to really change our banking system, we have to tackle a decades long problem in British banking: too much power concentrated in too few hands. Britain has one of the most concentrated banking systems in the world. Just 4 banks control 85% of small business lending.”
“The next Labour government will act. On day one of the next Labour government, we will ask the Competition and Markets Authority to report within six months on how to create at least two new sizeable and competitive banks to challenge the existing high street banks.
In America, by law, they have a test so that no bank can get too big and dominate the market. We will follow the same principle for Britain. And so under the next Labour government we will establish for the first time a threshold for the market share any one bank can have of personal accounts and small business lending. Preventing mergers and acquisitions over this threshold. After decades of banking becoming more and more concentrated, Labour will turn the tide.
I want to send a message to our small and medium sized businesses: Under a Labour government, you will no longer be serving the banks. The banks will be serving you.”
You can read the whole speech here.
This was an important speech – and it was the speech of a future Prime Minster. It was concerned with the economy’s long-term needs not short-term fixes.
It could not have contrasted more strongly with George Osborne’s actions on the same day.
In a typical gimmicky way, Osborne announced plans to up the minimum wage – when only two days previously the Coalition had voted down the proposal to ‘strengthen the minimum wage, crack down on rogue employers and restore the value that the minimum wage has lost over the past three years’ - a vote incidentally, in which our own Mr Mulholland trooped obediently through the lobbies with his Tory friends.
Well, we’re very pleased George Osborne has changed his mind – even though he did so only to make a short-term party gain – to try to divert attention from Ed Miliband’s speech. Whatever his motives, a strengthening of the minimum wage is precisely what Labour wants.
And what Osborne actually made clear is just how far Labour is now setting the agenda – and how far he is scrambling along, trying to keep up.
Ed Miliband’s Labour Party is offering a real analysis and a new vision of the future.
The questions are about how the economy, how the system works. Those were the questions 2008 threw up. Those are the questions Labour is determined to tackle.
There will be no long-term answers to the standard of living of all of us until and unless those questions are addressed.
Labour is doing just that.
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