Some post-Question Time clarifications

I seem to be the Marmite man. People love me or hate me!

Thanks to all those people who posted messages of support, praise or congratulations either on this blog, the Question Time blog or on Twitter after I made my debut on that show last night. But as one tweeter pointed out, "@ns_mehdihasan is like Marmite." Indeed. I seem to have upset, annoyed and angered lots of people on the right, as well countless Lib Dem apologists. What can I say? That's life. Don't take it so personally. Let's agree to disagree.

QT is a great show and I had great fun appearing on it (even though Iain Dale thinks I didn't smile enough. Sorry, Iain!). But it's not a format that lends itself to forensic examination of policies or arguments, and despite the fact that I speak at ten words per second (thanks, David Prescott!), even I couldn't challenge or clarify some of Simon Hughes's claims.

For the record, I like and admire Simon Hughes and felt sorry that he had to defend the indefensible. Where is David Laws when you need him, eh? Oh, and while I'm at it, Michael Heseltine is my second-favourite Tory -- after Ken Clarke, who's my favourite (I know, I know, but I just can't help it!). It's a shame I've had to have a go at both of them in recent BBC panel debates. Where's Michael Gove when you need him?

So here are some post-QT clarifications:

1) Simon Hughes kept pointing to the Tory/Lib Dem proposal to raise the income-tax threshold to £10,000. He seems to believe this is a perfectly progressive policy. But he knows, as the IFS and others have pointed out, that such a policy will cost £17bn, of which only £1bn will go to the lowest earners. He also knows that the poorest people in Britain will not get a penny from this policy because they tend to be out of work and not paying any income tax to begin with. Oh, and as the Fabians' Tim Horton has pointed out, this policy is no longer funded by redistributive measures such as the mansion tax and the scrapping of higher-rate pension relief.

2) Hughes could not address the main issue: why did the Lib Dems agree to Tory cuts in spending this year, despite campaigning against such cuts? Aren't such cuts, to quote Vince Cable, a "smokescreen" for public-sector job losses? This is an unforgivable concession, in my view.

3) Talking of concessions, Hughes claimed that Labour had offered nothing and that the Tories had moved the most. I'm confused. In the end, the Tories adopted the Labour manifesto pledge to legislate for a referendum on AV (not PR!) but promised to campaign against AV in the actual referendum itself. How is that a better deal than a Labour referendum on AV which the Labour Party actually then backs? He also got lots of applause on the topic of civil liberties -- but omitted to mention that Labour negotiators had offered to drop ID cards in return for a deal with the Lib Dems.

4) I'm not an opponent of coalitions or coalition politics. I had hoped for a hung parliament because (i) I didn't believe Labour had earned the right to govern on its own, after 13 years of ups and downs in office, and (ii) I naively assumed that such a scenario might bring about a progressive realignment on the centre left and hasten electoral reform. I was wrong. And I'm angry that a coalition of Labour tribalists and Lib Dem power-seekers betrayed the progressive, anti-Tory majority in this country. But let me be clear: unlike Melanie Phillips, I have no problem with coalitions and think coalition government, in theory, can actually have a positive impact on the nation and on the economy. I just think this coalition is a coalition of convenience, unprincipled and unstable. But I hope, for the sake of the country, that I'm wrong and the optimists and apologists are right.

Mehdi Hasan is a contributing writer for the New Statesman and the co-author of Ed: The Milibands and the Making of a Labour Leader. He was the New Statesman's senior editor (politics) from 2009-12.

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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