A very British anomaly

It's time to end the historic right of Anglican bishops to sit in the House of Lords.

One thing above all stood out from Rowan Williams's evidence yesterday evening to the Parliamentary committee looking at proposals to reform the House of Lords, and that is that the Church of England is very keen to maintain its peculiar historic privilege of having bishops in the legislature. Indeed, he and the church he leads see it as a vital part of their wider role in British society.

The present situation might be seen as anomalous, he conceded (albeit "a constructive anomaly"). There were no ecclesiastical representatives deputed from Scotland (where the Presbyterian church also has official status) or from Wales or Northern Ireland, where there are no established churches. In a multi-faith society the absence of automatic representation for other religions might also be seen as problematic. Williams wouldn't object were some mechanism found for incorporating Jewish, Muslim or Hindu leaders, though he foresaw problems in identifying such leaders. But he didn't seem to think of this as much as a priority, in any case, since the religious voice was so well represented already by himself and by his fellow Anglican prelates.

It's at times like these that you realise the centrality of its legal establishment to the Church of England's sense of itself. The word is not ill-chosen. The church is indeed part of the British Establishment, and it shares vital characteristics with other parts of the country's ruling elite: an air of benignity and good intentions, impeccable good manners, a ready espousal of progressive ideals (more recently coupled with an enthusiasm for fashionable jargon), above all a sense of unshakable entitlement to its own historic privileges and a rat-like cunning in preserving them.

A perfect illustration of the latter came in what was by far the most newsworthy part of the Archbishop of Canterbury's presentation -- his suggestion that the first women bishops be fast-tracked into the House of Lords, thus avoiding a long wait until one of them achieved the necessary seniority. The church, he said, was "very conscious that one of the reproaches that can be laid against the bench [of bishops] is that it's not exactly representative in gender terms."

A lovely piece of Williams understatement, that. The implication is that a quota of Anglican bishops that did include a woman would be somehow more legitimate -- and thus have more of a right to be part of the legislature -- than an all-male one. But this is neither a good argument for having bishops in the House of Lords, nor for ordaining women bishops.

Another classic piece of Anglican chutzpah was Williams's claim that the job of the bishops was not to represent the interests of the Church of England at all. In fact, they were "bishops of the realm", uniquely able to provide a "faith perspective" on legislation. Williams was at pains to point out that the bishops weren't just there for the Anglicans, or even for the Christians. They formed a focus for "the web of relationships in communities they serve". They were able to "bring their experience to bear on all aspects of civil society". They had a "unique capacity to express common values". They even had (in their dioceses) "something like constituencies".

All this may be true. I'm sure that bishops, on the whole, are wonderful people. And I wouldn't deny that faith leaders have a part to play in the wider debate surrounding proposed legislation -- as do the leaders of other interest groups in the country. Nor is it unreasonable that when crossbench peers are appointed -- assuming that a future second chamber is not to be wholly elected -- present and former faith leaders be considered as candidates. But it's something else entirely to argue that a particular subset of religious leaders should also be ex-officio legislators.

In what was perhaps his most audacious comment in favour of the status quo, Rowan Williams suggested that for him and his fellow prelates to be ejected from a reformed second chamber (something that doesn't form part of the present reform proposals) "would be to send a signal that the voice of faith is not welcomed" in the legislative process. It would represent, in other words, not just a snub to the Church of England but for religion as a whole.

But that's nonsense. In no other democracy would such a confusion of religious leadership and law-making even be imagined. Bishops, and other faith leaders, play a valuable and significant role in society. So do members of both houses of Parliament. But it is in no sense the same job. Taking bishops out of the House of Lords would free them to devote more time to their diocesan responsibilities; to become better bishops. Sometimes the only thing to do with an historical anomaly is to end it.

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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