Clegg must give a straight answer

Hints are not enough -- the Liberal Democrats must clarify their position on a power-sharing agreeme

Quite the centre of attention yesterday, Nick Clegg moved today to make his voice heard amid the cacophony, writing an article in the Times, and declaring on Radio 4's Today programme that "I'm not a kingmaker . . . The people are the kingmakers."

Yesterday's speculation centred on what the party would do in the event of a hung parliament -- something our Leader this week calls on the Liberal Democrat leader to clarify.

But did he clarify anything at all?

Ostensibly, he remains committed to the position of "equidistance" from both parties, established before Christmas. His Times piece, along with the usual Lib Dem fodder that a vote for them is not wasted, shows a real -- and probably valid -- edgy feeling that the very public attempts by both Cameron and Brown to align themselves with the Lib Dems could remove a portion of their vote.

But what about the question on everyone's lips: Where would the Lib Dems' alliances lie if a power-sharing agreement became necessary? Despite the fighting talk that "the Liberal Democrats are not for sale", Clegg remains frustratingly reticent, writing:

We will respect the will of the public. The voters are in charge and the decision is theirs. If voters decide that no party deserves an overall majority, then self-evidently the party with the strongest mandate will have a moral right to be the first to seek to govern on its own or, if it chooses, to seek alliances with other parties.

Come on, Nick. This is spectacularly vague -- as I pointed out yesterday, it all depends on how you define the will of the public.

His second point is that, in the event of a hung parliament, the actions of the Lib Dems will be governed by their commitment to four central principles: fair taxes, a fair start for children (with smaller class sizes and a "pupil premium" favouring poorer children), a sustainable economy, and clean politics.

But hang on a minute -- aren't some of these goals completely incompatible with those of the Tories? The fair-tax proposal centres on raising the point at which people start paying income tax to £10,000, by increasing taxes on the rich. This doesn't sound like a great fit with cuts to inheritance tax that would enrich the country's wealthiest 3,000 estates.

And on cleaning up politics, Clegg says he wants to "stop tax avoiders from standing for parliament, sitting in the House of Lords or donating to political parties". I can't help but wonder whether this sounds a little pointed, given the dubious tax status of Lord Ashcroft, Conservative peer and donor extraordinaire.

As my colleague James Macintyre suggests in his fantasy politics piece in this week's magazine, Labour is the more natural ally for the Lib Dems. Clegg's comments today imply that he feels the same way -- on the Today programme, asked if this was a "centre-left agenda", he replied: "It's a fair agenda, yes." In yet another tantalising hint, he said of the Tories: "At the moment, of course, the differences are more striking than the synthetic similarities."

From a political perspective, perhaps it is astute -- necessary, even -- for Clegg to hedge his bets, refusing to publicly rule out a union with the Conservative Party now in case the Lib Dems come to regret it later. But, as he wrote today: "In the event of a hung parliament, the British people also deserve to know how the Liberal Democrats will respond."

Everything Clegg has said today implies that a Lib-Lab pact is more likely than a Conservative one. Now he must come out and say so.

 

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Samira Shackle is a freelance journalist, who tweets @samirashackle. She was formerly a staff writer for 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