Labour's right to join the economic debate is under attack

Osborne's attempt to create a sense of equivalence between Fred Goodwin and Ed Balls is a threat to

George Osborne's speech had two distinct purposes. The first and most obvious was to show that the government is not complacent about the stagnating economy and the effect it is having. This he aimed to do with a rash of announcements, the most significant of which is surely the interest in "credit easing", by which the Treasury lends directly to firms. As my colleague George points out, this looks like a tacit admission that Project Merlin - the deal between government and the banks to increase the supply of private sector credit - is failing. It is worth adding that other devices that were meant to stimulate the economy by disbursing government cash, notably the regional growth fund, are also implicitly belittled by this move. The growth fund has yet to actually hand out any money.

The second of Osborne's tasks was to reinforce the coalition's central political message about Labour's responsibility for creating the crisis. This Osborne did with a sleight of rhetorical hand, embarking on what sounded like an attack on the bankers but blended seamlessly into an attack on the shadow chancellor. The aim is to create some sense of equivalence in people's minds between the dereliction of responsibility shown by the likes of Fred Goodwin at RBS and the fiscal management of the last government. It is a crude device but one that poses a big threat to Labour. Osborne doesn't want to beat the two Eds in an argument on the economy, he wants to trash their moral credentials to even participate in an argument about the economy.

Given how effective the Chancellor has already been in promoting his account of Labour profligacy as the prime cause of austerity, Miliband should be worried by this renewed assault on his entitlement to have a view. The argument Miliband made in his conference speech - that the Tories' economic analysis represents the last gasp of a failed model of irresponsible free market capitalism - requires a degree of historical and ideological perspective that many voters don't bring to bear when apportioning blame. Labour badly needs a sharper rebuttal.

One other point on Osborne's political calculations: The heavy emphasis on the failings in the eurozone was inevitable, but the tone, essentially blaming continental governments for creating the conditions that are now holding back the UK economy, was new. The Chancellor clearly felt the need to lash out at "Europe" in some way to appease the large numbers in his party who see the single currency crisis as an opportunity to renegotiate Britain's whole settlement with Brussels. But I sense another element to this argument. Osborne lavished praise on William Hague for his 2001 election campaign dedicated almost entirely to demands to "save the pound". The Tories lost by a landslide. Now that the euro is in dire trouble, Tory strategists are sensing an opportunity to salvage some credibility from their wilderness years. This isn't so much a eurosceptic argument as part of the Tory "decontamination" agenda. Osborne seems to be re-branding old political failures as a kind of foresight.

The Chancellor doesn't just want to monopolise economic argument in the present and future, he wants to rewrite the past too.

Rafael Behr is political columnist at the Guardian and former political editor of the New Statesman

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Let's turn RBS into a bank for the public interest

A tarnished symbol of global finance could be remade as a network of local banks. 

The Royal Bank of Scotland has now been losing money for nine consecutive years. Today’s announcement of a further £7bn yearly loss at the publicly-owned bank is just the latest evidence that RBS is essentially unsellable. The difference this time is that the Government seems finally to have accepted that fact.

Up until now, the government had been reluctant to intervene in the running of the business, instead insisting that it will be sold back to the private sector when the time is right. But these losses come just a week after the government announced that it is abandoning plans to sell Williams & Glynn – an RBS subsidiary which has over 300 branches and £22bn of customer deposits.

After a series of expensive delays and a lack of buyer interest, the government now plans to retain Williams & Glynn within the RBS group and instead attempt to boost competition in the business lending market by granting smaller "challenger banks" access to RBS’s branch infrastructure. It also plans to provide funding to encourage small businesses to switch their accounts away from RBS.

As a major public asset, RBS should be used to help achieve wider objectives. Improving how the banking sector serves small businesses should be the top priority, and it is good to see the government start to move in this direction. But to make the most of RBS, they should be going much further.

The public stake in RBS gives us a unique opportunity to create new banking institutions that will genuinely put the interests of the UK’s small businesses first. The New Economics Foundation has proposed turning RBS into a network of local banks with a public interest mandate to serve their local area, lend to small businesses and provide universal access to banking services. If the government is serious about rebalancing the economy and meeting the needs of those who feel left behind, this is the path they should take with RBS.

Small and medium sized enterprises are the lifeblood of the UK economy, and they depend on banking services to fund investment and provide a safe place to store money. For centuries a healthy relationship between businesses and banks has been a cornerstone of UK prosperity.

However, in recent decades this relationship has broken down. Small businesses have repeatedly fallen victim to exploitative practice by the big banks, including the the mis-selling of loans and instances of deliberate asset stripping. Affected business owners have not only lost their livelihoods due to the stress of their treatment at the hands of these banks, but have also experienced family break-ups and deteriorating physical and mental health. Others have been made homeless or bankrupt.

Meanwhile, many businesses struggle to get access to the finance they need to grow and expand. Small firms have always had trouble accessing finance, but in recent decades this problem has intensified as the UK banking sector has come to be dominated by a handful of large, universal, shareholder-owned banks.

Without a focus on specific geographical areas or social objectives, these banks choose to lend to the most profitable activities, and lending to local businesses tends to be less profitable than other activities such as mortgage lending and lending to other financial institutions.

The result is that since the mid-1980s the share of lending going to non-financial businesses has been falling rapidly. Today, lending to small and medium sized businesses accounts for just 4 per cent of bank lending.

Of the relatively small amount of business lending that does occur in the UK, most is heavily concentrated in London and surrounding areas. The UK’s homogenous and highly concentrated banking sector is therefore hampering economic development, starving communities of investment and making regional imbalances worse.

The government’s plans to encourage business customers to switch away from RBS to another bank will not do much to solve this problem. With the market dominated by a small number of large shareholder-owned banks who all behave in similar ways (and who have been hit by repeated scandals), businesses do not have any real choice.

If the government were to go further and turn RBS into a network of local banks, it would be a vital first step in regenerating disenfranchised communities, rebalancing the UK’s economy and staving off any economic downturn that may be on the horizon. Evidence shows that geographically limited stakeholder banks direct a much greater proportion of their capital towards lending in the real economy. By only investing in their local area, these banks help create and retain wealth regionally rather than making existing geographic imbalances worce.

Big, deep challenges require big, deep solutions. It’s time for the government to make banking work for small businesses once again.

Laurie Macfarlane is an economist at the New Economics Foundation