Miliband should U-turn on a third runway before the coalition does

The Labour leader is missing a political opportunity.

There is more consensus in Britain’s economic policy debate than either Labour or the Tories like to admit. As my colleague George Eaton notes here, the Chancellor has discreetly embraced the Keynesian proposition that public spending on infrastructure (albeit hidden from the national balance sheet via loan guarantees) is needed to spur growth. Labour, meanwhile, are formally committed to a version of fiscal austerity – spending cuts and tax rises – over the long-term, only not at the same breakneck speed as the government.

There is also an emerging consensus that the UK needs a state-sponsored infrastructure upgrade as part of a strategic plan to boost international competitiveness. What that might mean in practice is less certain. One project that always comes up in the discussion is the expansion of airport capacity, which generally includes the idea of building a third runway at Heathrow. It is a project for which business leaders routinely clamour. The last Labour government gave its approval; the incoming coalition – honouring pledges made in opposition – killed the idea. Many Tories are now repenting that decision.

A coalition "aviation strategy review" which would consider reviving the Heathrow expansion has been delayed until the end of the year, largely because the Transport Secretary, Justine Greening is famously hostile to a third runway. Her Putney constituents don’t fancy having any more Jumbos booming over head. That problem might have been foreseen and some Tory MPs mutter that David Cameron ought to have thought of the potential conflict of interest when appointing Greening to the Transport portfolio. That he didn’t, say the Tory grumblers, is evidence of his cavalier attitude to appointments. (In the next sentence they usually point to the promotion of Chloe Smith to the job of economic secretary to the Treasury – a role sneerily said to have been given as part of a campaign of positive discrimination in favour of young women to rebalance the appearance of the Tory front bench away from older men.)

Greening’s opposition to a third runway at Heathrow is also said to have damaged her once close relations with the Chancellor, who is desperate for any ready measure that will noisily advertise his commitment to growth. Runway expansion has solid support among Tory MPs. A recent pamphlet by the Free Enterprise Group, a fiercely pro-business faction of Conservatives mostly from 2010 intake, called for not one new runway but two. The Lib Dems, meanwhile, remain opposed. Cancelling the third runway was an explicit commitment in the coalition agreement.

Significantly, that promise was contained in the section headed “Energy and Climate Change”. Opposition to aviation has traditionally been bundled up with arguments about the urgency to reduce the nation’s carbon footprint. Rightly or wrongly, the green agenda has now been well and truly trumped by craving for economic growth (and it was never that prominent among voters’ concerns). In political terms, the case against Heathrow expansion is getting harder to make.

There are members of the shadow cabinet who think Labour should swing behind the idea. It was, after all, their plan in the first place. But Ed Miliband, as former Secretary of State for Energy and Climate Change, is known to have been squeamish about the policy in government. In the race to be Labour leader he claimed to have considered resigning over the matter. Backing a third runway now would be a very personal U-turn.

That might well be a risk worth taking. Labour’s line at the moment is to offer constructive engagement with the government to help develop an aviation strategy – recognising the need to expand capacity and ready to consider all options. A third runway at Heathrow is not ruled out but the party is unwilling to go into specifics. Yet.

There is a political opportunity being missed here. Backing Heathrow expansion would show a capability to take specific policy decisions – and not altogether easy ones – instead of loitering behind well-intentioned, vague pieties. It would also sow a bit of discord in the government ranks, which is what the opposition likes to do. The point about the need for more airport capacity has effectively been conceded, so the environmental argument is much diminished. Ultimately reducing the UK's carbon footprint will be as much a question of cleaner planes as fewer flights. Eventually, the government will U-turn on the third runway. Miliband would be smart to get in there first.

British Airways aircraft at Heathrow's Terminal 5. Photograph: Getty Images.

Rafael Behr is political columnist at the Guardian and former 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