It is a lovely spring morning in 2015 and you are on someone’s doorstep. There is a delightful breeze and you clutch your canvas cards to make sure they don’t blow away.
The lady on the other side of the front door gives you a big smile and asks you about jobs – she recognises that the coalition has made important strides towards making us all a little less reliant on the City of London.
“But how are you going to do it?” she asks. “If small business entrepreneurs are the engine of the economy, how exactly are you going to support them? Doesn’t every party say they are going to – and then look what happens?”
Now, pause for a moment and consider. It is tremendously important that you have an answer here.
It doesn’t matter if you’re not on top of the detail, as long as someone is. But there has to be a policy engine behind your economic engine. There has to be a real shift you are offering: and it needs to be an economic answer, not just a training answer.
And you must also be a little careful. Ed Miliband is proposing – in the teeth of opposition from Ed Balls – that the big banks should be broken up.
But for the Lib Dems next year, I hope the answer will go beyond re-arranging our existing banking infrastructure into different shapes. The issue isn’t just competition, it is choice.
Because we need – and if the Lib Dems have anything to do with it, we will get – an effective local banking infrastructure like the rest of Europe and North America.
And it will be paid for by the big banks, on the grounds that – in the sectors and places where they are unable to lend – then they must help build an infrastructure that can.
Nor is it just about lending. Local economies have long since lost control of their own deposits, because there are no local banks where you can deposit them to lend them on to local enterprise.
We need to give local economies back some economic assets by beginning to redress the balance.
Why is this important? Well, let me tell you, in case the lady asks.
Because there are 4.8m SMEs in the UK, and 90 per cent of those are small, and – partly because of changes to the Basel banking regulations – it now costs banks more to lend to them.
Nor do they have an effective means of assessing their risk from regional office, where the software resides.
It isn’t their fault. This is a change forced on the big banks, but they have been withdrawing money from the SME sector steadily since 2008.
There was £4.3bn less in outstanding loans to SMEs at the end of last year compared with the beginning – and half of that was withdrawn by RBS alone.
We need to stop blaming the banks for this and work out what can be done about it. Every other country in Europe (except Hungary) has gone back to pre-crash levels of money lent to SMEs – but it is still falling in the UK, even now.
But then, the rest of Europe has local banks, designed to do this job.
Yes, there are 30 new challenger banks awaiting approval by the regulator – but only one of these is planning to provide current accounts.
A bold political party like the Lib Dems will provide this answer on the doorsteps: we accept that the big banks can’t do the job – so we are planning to provide local banking, and to do so as quickly as the job requires.
“Well, that sounds very sensible,” says the lady on the doorstep. “Good luck!”
* David Boyle is a former Lib Dem parliamentary candidate and the author of Tickbox (Little, Brown). You can buy the book from Hive or Amazon.
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8 Comments
The answer I would give is that LibDems in government have introduced reduced employers National Insurance contributions, that see small businesses pay around 80% less NI for their first 5 employees, which saves the business about £2000.
“she recognises that the coalition has made important strides towards making us all a little less reliant on the City of London”
Manufacturing still about 8% below pre-crash.
Headline GDP- 1.3% below pre-crash.
Rebalancing=
George Osborne with a hard hat on.
Vince Cable talking a good game in the Sunday papers.
Something about apprenticeships (which she assumes means young people going into skilled trades, not older people who already work for supermarkets being put on rebranded in-house training).
More evidence of those big strides made rebalancing.
http://www.landregistry.gov.uk/__data/assets/pdf_file/0004/76117/HPIReport20140224.pdf
Average England and Wales property prices & percentage change on year:
National average: £168,356 +4.2%.
London: £409,881 +10.2%
South East: £223,128 +6.4%
North East: £98,292 +1.9%
East: £182,263 +4.8%
East Midlands: £127,344 +4.8%
West Midlands: £132,068 +2.0%
Wales: £116,894 +0.8%
South West: £176,308 +2.6%
North West: £108,845 +2.6%
Yorkshire & The Humber: £114,910 +0.3%
Thanks for the article. I sympathise with what the author is trying to achieve, but unfortunately I cannot help but come to different conclusions. I do not have a free market ideology, but when I try to think objectively about a credible solution to create a local banking system I can’t think of much else besides deregulation. How can the state build a credible solution when it has no money and many of the banks still have a massive black hole in them? The idea of creating a nice bank that lends to people it likes (such as local small businesses) rather than people who it thinks will pay them back has got to end and looks like going down the route of the Co-op.
Thankfully Vince revamped the apprenticeship funding regime he inherited from Labour – the incentives for supermarkets to rebrand established older employees as trainees is much, much smaller now and similar train 2 gain scam also axed.
Dave,
I would like to take up one point you make “Nor is it just about lending. Local economies have long since lost control of their own deposits, because there are no local banks where you can deposit them to lend them on to local enterprise.”
Banks don’t need deposits to lend money – they just need adequate capital. To quote from the recently released Bank of England Report Money creation in the Modern Economy
“Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits” … “In normal times, the central bank does not fix the amount of money in circulation, nor is central bank money ‘multiplied up’ into more loans and deposits.”
As the Guardian article on the BofE report The truth is out: money is just an IOU, and the banks are rolling in it/a>
“What this means is that the real limit on the amount of money in circulation is not how much the central bank is willing to lend, but how much government, firms, and ordinary citizens, are willing to borrow. Government spending is the main driver in all this (and the paper does admit, if you read it carefully, that the central bank does fund the government after all). So there’s no question of public spending “crowding out” private investment. It’s exactly the opposite.”
I would also point out the growing importance of peer-to-peer lending in the SME sector supported by the Libdem inspired British Business Bank, and the ability of this new source of finance to bypass the capital constraints of the large commercial banks.
I have to say I agree with Chris Manners about the big strides towards restructuring – lack of, that is. The Lib Dems have made some arguments, but rather limply and I doubt that 1 voter in 100 identifies us with that plan. It’s been a solo effort by Vince Cable to far too large an extent.
That said I agree with the what David says. We need not more competition between identikit banks but more variety and choice between different sorts of bank including local/regional development banks, peer-to-peer lending and mutuals.
As a potentially quick interim measure to restart lending to small business the government should consider restricting the percentage of loans they can make on property or secured on property. This percentage would have to start at a low number (perhaps 10% in the first year) because I don’t think the banks actually have the staff or systems to do more than box ticking on property-based loans any more. It should then increase by 10% a year up to, say, 50%. The effect is that the banks would have to make lots of loans to small businesses since if they don’t lend they have no continuing business.
“Thankfully Vince revamped the apprenticeship funding regime he inherited from Labour – the incentives for supermarkets to rebrand established older employees as trainees is much, much smaller now and similar train 2 gain scam also axed.”
Have you got a link on that, Richard?
Doubtless the problem was around before, but there are far more apprentices now, and a heck of a lot of them are older established workers. Maybe the proportions of these pseudo-apprenticeships is lower but I’d be surprised if the number of them was.