Gove opens a new front in his education revolution

GCSEs to be scrapped but will a two-tier system improve standards?

In its early days, the government was nicknamed "the breakneck coalition" for its relentless drive to transform education, health, welfare, justice, planning, policing - almost every arm of the state. Since then, most ministers have since struggled to maintain momentum, with one exception: Michael Gove. The Education Secretary's quiet revolution means that nearly half of all secondary schools in England are academies, the biggest transformation of the system since the 1960s. Now, with local authorities and teaching unions in retreat, Gove has opened a new front in his war on the status quo.

The Daily Mail has the news that GCSEs will be scrapped in favour of O-level style exams, and that the National Curriculum will be abolished. Those due to start their GCSE courses in September 2013 will be the last to do so. From 2014, the Mail reports, "pupils will begin studying for ‘explicitly harder’ exams in English, maths, physics, chemistry and biology". Less academic pupils will sit "more straightforward" exams akin to the old CSE. In Gove's view, the current system has failed pupils as teachers have encouraged them to take subjects such as food nutrition in a bid to meet the requirement for all to obtain at least five GCSES graded A* to C (a target that will now be scrapped).

So, what to make of it all? The Mail has predictably welcomed the move, with an editorial declaring that "dumbed-down GCSEs" will be replaced with "rigorous O-levels". But others are more sceptical, rightly questioning whether the creation of a two-tier system will improve standards. The old grammar school system divided pupils into winners and losers at 11, the new system will do so at 14. Moreover, Gove's determination to create a more "rigorous" education system is seemingly contradicted by his plan to tear up the National Curriculum. If schools are free to choose what they teach, how will he ensure a minimum standard?

For now, these questions remain unanswered. In response to the Mail's scoop, the Department for Education has simply remarked: "We do not comment on leaks." What is clear is that Gove has yet again managed to set the terms of debate. As Fiona Millar remarked this morning, "Labour must stop being a commentator on Gove policies and come up with some bold clear alternatives that look to the future not the past."

Finally, one might also note that there was no mention of scrapping GCSEs in the Conservative manifesto. The government's desire to pursue policies for which "no one voted" (in the words of Rowan Williams) is well-established but as Andrew Lansley discovered, the lack of a mandate can prove costly. Given recent experience, the coalition would be advised to proceed cautiously.

Pupils wait for school buses in the playground at the West London Free School. Photograph: Getty Images.

George Eaton is 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