We need a proper British Investment Bank, not Osborne's half measure

The Chancellor's small business bank is too modest to make a significant difference to growth.

The latest growth initiative from George Osborne is a state-backed small business bank. The Chancellor said over the weekend that the difficulties small businesses face when trying to get the credit they need to keep going or to expand is one of the biggest problems holding back the UK economy. He has already tried to ease this problem with "Project Merlin" (lending targets for commercial banks), a national loan guarantee scheme and most recently the "funding for lending" initiative. Depending on your option, his latest idea can be seen as building on these previous schemes, or an acceptance that they were not up to the task of getting credit flowing in the economy.

But will it work? That will depend very much on how ambitious the Chancellor chooses to be – and the first signs are not encouraging. The bank is being described as a "one-stop shop": bringing together in one place all the various schemes and initiatives designed by government to help small businesses. No doubt this will be helpful for small businesses, making it easier for them to find a way through the Whitehall maze. But what small businesses really want is an increase in the amount of credit available to them and a reduction in the cost of that credit. It is not immediately apparent that the Chancellor’s new bank will deliver on these aims.

Other countries have national investment banks of varying descriptions, including the KfW in Germany and the Small Business Administration in the United States, and the Chancellor’s idea seems most closely modelled on the latter. But importing wholesale the model of any one overseas bank is unlikely to be the best approach.

What we need in the UK is a fully-fledged British Investment Bank designed to suit the particular circumstances of our economy. This Bank should be set up to tackle two longstanding problems: a tendency to invest less in infrastructure (as a share of GDP) than comparable economies and a shortage of financing, particularly long-term financing, for small and medium-sized businesses.

There are a number of important questions to be addressed before such a Bank could set up – and, like the Green Investment Bank, it would need to secure EU state aid approval - but some of the parameters should be clear. The Bank would be 100 per cent state-owned. Its remit would be to increase lending for infrastructure and to SMEs. And its governance structure would have to ensure there was a clear dividing line between where the role of the government ended and the activities of the bankers began.

More controversial would be the capitalisation of the Bank and its ability to raise additional funds in the capital markets. The Green Investment Bank will have an initial capitalisation of £3bn and will not be able to borrow money at least until the government debt ratio is on a downward trajectory (because its activities count as part of the public sector). The same consideration would, no doubt, prevent the current Chancellor from creating a fully-fledged British Investment Bank.

But there is a qualitative difference between the government having to borrow because its current spending commitments are greater than the sums it is prepared to raise in taxes and a BIB raising funds in asset markets to use to finance infrastructure projects that will generate a stream of income in the future, or to lend to small businesses. A British Investment Bank should not be held back by the vagaries of the UK’s accounting practices. Its activities (and those of the Green Investment Bank) should be excluded from the government’s target fiscal measures and it should be free to raise funds up to a pre-determined leverage ratio

The government would, though, have to provide the new Bank with its initial capital. One option would be tell the Bank of England to do another round of quantitative easing specifically for this purpose. Alternatively, the funds would have to be found by cutting other spending, increased taxation, the sale of government assets or extra borrowing. Given the Chancellor’s unwavering adherence to his fiscal plans, this is likely to be a stumbling block to any hopes of a British Investment Bank in the next few years.

And this is now the biggest problem facing the UK economy. Because the Chancellor will not spend more money boosting aggregate demand in the economy, whether directly through infrastructure spending or a temporary tax cut or indirectly by capitalising a British Investment Bank with a directive to lend to small businesses, he is reduced to indirect schemes like funding for lending or the pension infrastructure plan. These require shifts in behaviour by the banks and pension schemes if they are to work. Unsurprisingly, they are not as effective as more direct approaches.

The Chancellor’s state-backed small business bank fits into the same pattern. It is a half measure, bringing together existing initiatives, rather than the creation of the fully-fledged British Investment Bank that the economy really needs.

Tony Dolphin is Chief Economist at IPPR

Chancellor George Osborne plans to create a state-backed small business bank. Photograph: Getty Images.

Tony Dolphin is chief economist at IPPR

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The Tinder dating app isn't just about sex – it's about friendship, too. And sex

The lines between sex, love and friendship are blurrier than ever, as I found out quickly while using the app.

The first time I met someone using Tinder, the free dating app that requires users to swipe left for “no” and right for “yes” before enabling new “matches” to chat, it was an unqualified success. I should probably qualify that. I was newly single after five years in a committed relationship and wasn’t looking for anything more than fun, friendship and, well, who knows. A few weeks earlier I had tried to give my number to a girl in a cinema café in Brixton. I wrote it on a postcard I’d been using as a bookmark. She said she had a boyfriend, but wanted to keep the postcard. I had no date and I lost my page.

My Tinder date was a master’s student from Valencia called Anna (her name wasn’t really Anna, of course, I’m not a sociopath). When I arrived at the appointed meeting place, she told me I was far more handsome IRL (“in real life”) than my pictures suggested. I was flattered and full of praise for the directness of continental Europeans but also thought sadly to myself: “If only the same could be said about you.”

Anna and I became friends, at least for a while. The date wasn’t a success in the traditional sense of leading us into a contract based on exclusivity, an accumulating cache of resentments and a mortgage, but it had put me back in the game (an appropriate metaphor – people speak regularly of “playing” with the app).

According to Sean Rad, the co-founder who launched Tinder in late 2012, the service was invented for people like me. “It was really a way to overcome my own problems,” he told the editor of Cosmopolitan at an event in London last month. “It was weird to me, to start a conversation [with a stranger]. Once I had an introduction I was fine, but it’s that first step. It’s difficult for a lot of people.” After just one outing, I’d learned two fundamental lessons about the world of online dating: pretty much everyone has at least one decent picture of themselves, and meeting women using a so-called hook-up app is seldom straightforwardly about sex.

Although sometimes it is. My second Tinder date took place in Vienna. I met Louisa (ditto, name) outside some notable church or other one evening while visiting on holiday (Tinder tourism being, in my view, a far more compelling way to get to know a place than a cumbersome Lonely Planet guide). We drank cocktails by the Danube and rambled across the city before making the romantic decision to stay awake all night, as she had to leave early the next day to go hiking with friends. It was just like the Richard Linklater movie Before Sunrise – something I said out loud more than a few times as the Aperol Spritzes took their toll.

When we met up in London a few months later, Louisa and I decided to skip the second part of Linklater’s beautiful triptych and fast-track our relationship straight to the third, Before Midnight, which takes place 18 years after the protagonists’ first meet in Vienna, and have begun to discover that they hate each others’ guts.

Which is one of the many hazards of the swiping life: unlike with older, web-based platforms such as Match.com or OkCupid, which require a substantial written profile, Tinder users know relatively little about their prospective mates. All that’s necessary is a Facebook account and a single photograph. University, occupation, a short bio and mutual Facebook “likes” are optional (my bio is made up entirely of emojis: the pizza slice, the dancing lady, the stack of books).

Worse still, you will see people you know on Tinder – that includes colleagues, neighbours and exes – and they will see you. Far more people swipe out of boredom or curiosity than are ever likely to want to meet up, in part because swiping is so brain-corrosively addictive.

While the company is cagey about its user data, we know that Tinder has been downloaded over 100 million times and has produced upwards of 11 billion matches – though the number of people who have made contact will be far lower. It may sound like a lot but the Tinder user-base remains stuck at around the 50 million mark: a self-selecting coterie of mainly urban, reasonably affluent, generally white men and women, mostly aged between 18 and 34.

A new generation of apps – such as Hey! Vina and Skout – is seeking to capitalise on Tinder’s reputation as a portal for sleaze, a charge Sean Rad was keen to deny at the London event. Tinder is working on a new iteration, Tinder Social, for groups of friends who want to hang out with other groups on a night out, rather than dating. This makes sense for a relatively fresh business determined to keep on growing: more people are in relationships than out of them, after all.

After two years of using Tinder, off and on, last weekend I deleted the app. I had been visiting a friend in Sweden, and took it pretty badly when a Tinder date invited me to a terrible nightclub, only to take a few looks at me and bolt without even bothering to fabricate an excuse. But on the plane back to London the next day, a strange thing happened. Before takeoff, the woman sitting beside me started crying. I assumed something bad had happened but she explained that she was terrified of flying. Almost as terrified, it turned out, as I am. We wound up holding hands through a horrific patch of mid-air turbulence, exchanged anecdotes to distract ourselves and even, when we were safely in sight of the ground, a kiss.

She’s in my phone, but as a contact on Facebook rather than an avatar on a dating app. I’ll probably never see her again but who knows. People connect in strange new ways all the time. The lines between sex, love and friendship are blurrier than ever, but you can be sure that if you look closely at the lines, you’ll almost certainly notice the pixels.

Philip Maughan is Assistant Editor at the New Statesman.

This article first appeared in the 26 May 2016 issue of the New Statesman, The Brexit odd squad