Acting like an opposition while in government can only take you so far

In a more hostile media climate, the coalition's shifts would be portrayed as crass opportunism and

Tomorrow David Cameron will complete the beauty parade of party leaders offering their take on crony capitalism, following on from Ed Miliband's conference speech, which he amplified last week, and Nick Clegg's call for a "John Lewis economy". Expect Cameron to balance a fierce rhetorical attack on boardroom excess ("fill your boots capitalism") with plenty of warm words about the virtues of proper markets and a nod towards the sunny possibilities of "popular capitalism" -- a theme that all Tory leaders since Eden and Macmillan have returned to, along with a good few of their Labour counterparts.

The speech comes in advance of Vince Cable's forthcoming proposals on reigning in executive pay, timed to pre-empt the City bonus season, and it tops off a concerted three week campaign by the coalition to wrestle the theme of "responsible capitalism" out of Labour's hands. Turn the clock back four months, to when Miliband was being derided for his conference speech, and it is clear that this is not a theme that Conservative strategists will have been planning to major on. It has rudely intruded upon their preferred narratives of deficit reduction, broken Britain, and the Big Society.

Leave to one side for a moment your views on the policies (or lack of) to deal with so-called crony capitalism and consider what this episode tells us about the governing habits -- statecraft would be too grand a term -- of the coalition, in particular the Conservatives. A blitz of pamphlets, articles, speeches and briefings have made clear their determination to close down the rhetorical political space that Labour was seeking to occupy. As an orchestrated act of attempted political land-grabbing it has certainly been of the predatory variety. There is, of course, scope for plenty of cynicism about what this will achieve and whether the rhetorical arms-race that has gathered pace will actually lead to any real change. But it has left us in no doubt of the Conservatives' resolve not to be outflanked.

Which brings us to another revealing episode, seemingly unrelated, from last week: the Conservatives' misadventures on the reform of child benefit. At their party conference in 2010, George Osborne, in an attempt to secure his then message of"'we're all in this together", announced that any household with a higher-rate tax payer would see all of their child benefit payments axed. The result? A family with three kids relying on a single earner on £45k would lose around £2.5k; whereas a household on £80k (based on two earners each on £40k) wouldn't lose a penny.

Last week, some 15 months after this announcement and with the implementation date of next January starting to loom large, David Cameron opined that "some people" say that there is a "cliff edge issue". It's a bit unclear who he thinks the "other people" are. Indeed, their proposal creates a cliff-edge so high and steep that safety warnings should be put up for miles around. Nor is it the case that this was a technical problem that has been unearthed after months of forensic analysis by fine minds. Any official advice in DWP and HMT would have made ministers completely aware of all of the problems with the proposal -- the shortcomings are so obvious that any minster with a passing knowledge of the tax and benefit system wouldn't have needed these warnings. The lack of attention to detail, and willingness to sacrifice longer term policy coherence at the altar of short-term political positioning, is revealing.

Do these two recent episodes make a larger point? My sense is they do. Cameron and Osborne, when worried about an issue, still think and act like an opposition. They are swift, intensely political, and relentlessly focussed on their opponents. Whatever their underlying ideological convictions, they travel fairly lightly -- as oppositions tend to -- and, on issues other than their lodestar of deficit reduction, are willing to shift ground quickly to avoid being beached on the wrong side of public opinion. Crucially, however, they are susceptible to mistakes. Notably mistakes of the sort that you can get away with in opposition -- those that bite at some point in the future, at the point of actually having to deliver a policy.

Practicing this approach to politics when in power is both a strength and a weakness. The former because they can move quickly and in a united fashion to exploit a political opportunity or close down a threat, something that many parties quickly lose the capacity to do when in office. The latter because this style of governing, particularly when combined with a loose grip on policy detail, results in flaky decisions and vaulting U-turns (never mind creating turmoil for voters).

What does this mean for their political prospects? For now, not much. Given the intense media focus on Labour, and the generally benign mood towards the coalition, these episodes are smiled upon as evidence of agility and responsiveness. Yet in a more hostile media climate they would be portrayed as crass acts of opportunism and incompetence. And the question as to what the coalition, and the Conservatives in particular, are actually "for" other than deficit reduction would be asked far more pointedly.

Twenty months into office, it is time for the Conservatives to find a better balance between their opposition-like tendencies and the realities of governing. They need to achieve this before, as will happen sooner or later, the media environment turns.

Gavin Kelly is a former adviser to Downing Street and the Treasury. He tweets @GavinJKelly1.

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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