Move your money: We need new models of banking, not just new banks

Introducing "competition" to banking won't work if it's just Tesco Bank taking over

Another week, another banking scandal. More tokenistic contrition from bankers, feigned outrage from politicians and protestations of ignorance from regulators. Feel familiar anyone?

But this time its different. The revelation that Barclays, and pretty much every other global bank, has been systematically rigging interest rates to bolster their profits has changed British banking for good.

Most importantly, it has broken the widespread consumer apathy that characterised our retail banking market.

Since the financial crisis there has been a steady flow of consumers out of the big 5 and into mutuals such as building societies, the Cooperative and credit unions – 2.8 million all in all.

But in the wake of the Libor scandal this trend has increased exponentially with Nationwide reporting an 85 per cent week-on-week increase in new account enquiries, the Co-operative 25 per cent and some of the smaller ethical banks and credit unions an increase of over 200 per cent.

Significantly, the other big banks have not reported a similar surge in footfall. In fact, customers are starting to leave not just Barclays but all the big banks in favour of mutual and ethical providers.

A recent YouGov poll found that 83 per cent of respondents thought "the other banks are just as bad as Barclays". People realise the problems in our banking system are systemic and so they are moving to a meaningful alternative.

There are rumours that both RBS and Barclays have been called into the FSA to discuss the number of depositors moving. People are beginning to move their money in significant numbers. That hurts the big banks which are increasingly dependent on deposits for funding as the markets dry up in the shadow of the storm in Europe.

The Libor scandal has also changed the political landscape around banking reform. This banking scandal is swiftly becoming a political crisis as the Bank of England, senior regulators and politicians from both sides of the House become embroiled.

No one should be surprised that greed and self-interest in the City has had a corrosive effect in Westminster. The sheer concentration of wealth and power in such a small number of institutions means that the establishment must do whatever it takes to keep the gravy train going – irrespective of how destructive the banks' behaviour has become. And not least of all because we rely on the banks to keep our speculative housing market inflating and thus home-owning voters feeling wealthy, despite their stagnating real incomes.

The defence mechanism on both sides of the House has been mindless mud slinging and political point scoring. Last week both parties have tried to pull back from these playground spats as it becomes apparent that they are only further eroding any remaining trust the public have in politicians to fix this problem.

This is the background against which Miliband’s speech earlier this week must be judged. In his description of "stewardship banking", Miliband cited "a banking system where no one bank feels either too big to fail or too powerful to be challenged. But where all banks face real competition and customers have proper choices."

His solution? To force banks sell off branches to create more "challenger" banks. Miliband is right to argue that there must be more competition in our retail banking sector as more competition means more choice for consumers – but it must be meaningful choice. Banks continue to close branches in low-income areas because they’re costly to run, their main value being as a sales floor for more complicated and profitable products. The only "challengers" able to buy up branches will be the ilk to Tesco Bank, or more of the same.

The traditional banking model is not working for swathes of our society. Not only small businesses but also entire communities and geographical areas, which are becoming credit deserts.

These can be profitable markets to serve. It is this market opportunity which high cost and payday lenders, which are becoming all too ubiquitous on our high streets, are taking advantage of. But there is another way.

The UK has a thriving sector of local and mutual financial institutions, from the big building societies down to local community finance institutions and credit unions. These institutions have already proved that there is a different way of doing things, and don’t need public subsidies that run into hundreds of billions.

Reforms must be focused on supporting and growing the socially responsible financial institutions already out there and already working. It must also enable consumers to drive change by making it easier to switch and forcing the banks to be fully transparent in terms of both their lending and investments and the way they market their products.

Politicians, local authorities, business and the third sector can all play an active role in this. Leading by example and moving their own accounts in order to strengthen socially responsible financial institutions as well as build trust and confidence in them.

The public have woken up to what a better banking system looks like. It may not be radical but it could be revolutionary Now its time for our politicians to do the same.

Metro Bank, a new bank launched recently. But is it a true competitor? Photograph: Getty Images

Louis Brooke is a spokesperson for Move Your Money UK, a not for profit campaign group, promoting alternatives to the big banks. He is also communications manager for London Rebuilding Society, and co-founder and chairman of educational resource company now>press>play.

Photo: Getty Images
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Why are boundary changes bad for Labour?

New boundaries, a smaller House of Commons and the shift to individual electoral registration all tilt the electoral battlefield further towards the Conservatives. Why?

The government has confirmed it will push ahead with plans to reduce the House of Commons to 600 seats from 650.  Why is that such bad news for the Labour Party? 

The damage is twofold. The switch to individual electoral registration will hurt Labour more than its rivals. . Constituency boundaries in Britain are drawn on registered electors, not by population - the average seat has around 70,000 voters but a population of 90,000, although there are significant variations within that. On the whole, at present, Labour MPs tend to have seats with fewer voters than their Conservative counterparts. These changes were halted by the Liberal Democrats in the coalition years but are now back on course.

The new, 600-member constituencies will all but eliminate those variations on mainland Britain, although the Isle of Wight, and the Scottish island constituencies will remain special cases. The net effect will be to reduce the number of Labour seats - and to make the remaining seats more marginal. (Of the 50 seats that would have been eradicated had the 2013 review taken place, 35 were held by Labour, including deputy leader Tom Watson's seat of West Bromwich East.)

Why will Labour seats become more marginal? For the most part, as seats expand, they will take on increasing numbers of suburban and rural voters, who tend to vote Conservative. The city of Leicester is a good example: currently the city sends three Labour MPs to Westminster, each with large majorities. Under boundary changes, all three could become more marginal as they take on more wards from the surrounding county. Liz Kendall's Leicester West seat is likely to have a particularly large influx of Tory voters, turning the seat - a Labour stronghold since 1945 - into a marginal. 

The pattern is fairly consistent throughout the United Kingdom - Labour safe seats either vanishing or becoming marginal or even Tory seats. On Merseyside, three seats - Frank Field's Birkenhead, a Labour seat since 1950, and two marginal Labour held seats, Wirral South and Wirral West - will become two: a safe Labour seat, and a safe Conservative seat on the Wirral. Lillian Greenwood, the Shadow Transport Secretary, would see her Nottingham seat take more of the Nottinghamshire countryside, becoming a Conservative-held marginal. 

The traffic - at least in the 2013 review - was not entirely one-way. Jane Ellison, the Tory MP for Battersea, would find herself fighting a seat with a notional Labour majority of just under 3,000, as opposed to her current majority of close to 8,000. 

But the net effect of the boundary review and the shrinking of the size of the House of Commons would be to the advantage of the Conservatives. If the 2015 election had been held using the 2013 boundaries, the Tories would have a majority of 22 – and Labour would have just 216 seats against 232 now.

It may be, however, that Labour dodges a bullet – because while the boundary changes would have given the Conservatives a bigger majority, they would have significantly fewer MPs – down to 311 from 330, a loss of 19 members of Parliament. Although the whips are attempting to steady the nerves of backbenchers about the potential loss of their seats, that the number of Conservative MPs who face involuntary retirement due to boundary changes is bigger than the party’s parliamentary majority may force a U-Turn.

That said, Labour’s relatively weak electoral showing may calm jittery Tory MPs. Two months into Ed Miliband’s leadership, Labour averaged 39 per cent in the polls. They got 31 per cent of the vote in 2015. Two months into Tony Blair’s leadership, Labour were on 53 per cent of the vote. They got 43 per cent of the vote. A month and a half into Jeremy Corbyn’s leadership, Labour is on 31 per cent of the vote.  A Blair-style drop of ten points would see the Tories net 388 seats under the new boundaries, with Labour on 131. A smaller Miliband-style drop would give the Conservatives 364, and leave Labour with 153 MPs.  

On Labour’s current trajectory, Tory MPs who lose out due to boundary changes may feel comfortable in their chances of picking up a seat elsewhere. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog. He usually writes about politics.