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Modernising the monarchy? Hardly, says Laurie Penny

The way the royals are reported is like a Disney film.

In our storybook world, royalty open hospitals with their shiny-haired brides, rather than stomping in muddy wellingtons over democracy.

The true purpose of the British monarchy, as the late Douglas Adams might have put it, is not to wield power, but to distract attention away from it. We can be curiously coy about the way privilege works in this country: consider, if you will, the horrified reaction to the news that Prince Charles has been allowed to dabble in the affairs of government.

Parliamentary loopholes have meant that the unelected heir to the throne has been granted power of veto over matters that affect the private interests of the Duchy of Cornwall, including road safety, planning and environmental policy. We are shocked by the reminder that the royal family is more than a tinselly relic to bring in the tourists: it actually has political influence and some of its members are uncouth enough to use it.

While all of this has been going on, there has barely been a day when the young Duke and Duchess of Cornwall have been absent from the front pages. It's as if the loveliness of the Duchess, wafting in designer gowns around various official engagements with her subtly balding beau and the international media in tow, were enough to distract the world from a nation creaking with corruption and civic breakdown.

In Britain, we are comfortable with the trappings of power as long as they are phrased in the manner of a fairy tale. At the end of last month, changes to the royal succession were made, to much fanfare, to ensure that female firstborn will be able to inherit the throne. "Put simply, if the Duke and Duchess of Cambridge were to have a little girl, that girl would one day be our queen," said David Cameron, with all the political gravitas of an episode of Jackanory. This "modernisation", which, like most recently hailed feminist triumphs, makes cosmetic alterations to the existing system while ensuring that nothing of relevance changes, is as clear a message as any that the House of Windsor intends to squat in its position of privilege for many generations to come.

Giving it welly

The real story of power and privilege in Britain is far murkier than the Disney-princess version peddled by the tabloids. In this storybook world, royalty open hospitals with their shiny-haired brides, rather than stomping in muddy, expensive wellingtons over the democratic process.

It is worth noting, in these circumstances, that the word "privilege" actually means "private law". It means that wealthy or aristocratic influences are allowed to bend the rules to suit their own interests - and this goes on all the time behind the closed doors of Whitehall, not just with the Windsors. Documents leaked to Private Eye showed that the permanent secretary to HM Revenue and Customs personally shook hands on a deal that let off the investment bank Goldman Sachs £10m in unpaid interest on a failed tax-avoidance scheme.

The Ministry of Defence is only just staggering away from a scandal in which it emerged, among other things, that a lobbyist who had paid a reported £20,000 in expenses to Liam Fox's aide was granted face-time with the arms sales minister. Time and again, private law trumps the public interest, yet we allow ourselves to be distracted by a fairy tale of functioning democracy.

This is no time for sugarplum politics. Behind every modern fairy tale is an ancient fable of thuggery, hierarchy and blood, and the story of modern Britain is no different.

Laurie Penny is a contributing editor to the New Statesman. She is the author of five books, most recently Unspeakable Things.

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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