The wrong questions are being asked about banking reform

How the Vickers Commission fluffed its lines.

It is extraordinary that more than three years into the biggest global economic breakdown for nearly a century, precipitated by a financial crash, virtually nothing has been done to reform the banks which were the major cause of it. It is even more extraordinary that the two initiatives that have been taken -- the Vickers Commission and Basel III -- are so ineffective as to be risible.

Vickers didn't even ask the right question, which is: how can public control of the money supply be regained? The question it did ask -- how can retail High Street banking be separated from casino investment banking? -- it fluffed, by proposing the erection of Chinese Walls which City financial engineering will have little trouble quickly getting round.

The international Basel Commission on Banking Supervision, a private body made up of (guess who?) central bankers as well as a few regulators, was little better. It proposed increasing capital ratio requirements on banks from 7 per cent to 10 per cent, though capital ratios have little influence over bank lending. Besides, it did not demand this change till 2019, even though the chances of another financial crash within the next 8 years are very real.

The reason why banking reform is urgent isn't just the risk of another finance conflagration, but because banking policy has played a major part in the continuing and relentless decline of the British economy over the last half century. Previously bank credit had been rationed by quantity, but from the 1971 Competition and Credit Control reforms it was increasingly rationed much more flexibly by interest rates.

That began the staggering rise in broad money in the economy from miniscule quantities in 1963, to £2.2trn today. Then in 1979 exchange controls were lifted, and at Big Bang in 1986 all controls over consumer credit were abolished and housing finance was de-regulated.

These measures have given the banks enormous powers and privileges. They can create wealth out of nothing simply by making loans to businesses and householders, and they can decide who uses it and for what purpose. If they fail to meet their liabilities, they are not even penalised; someone else pays up for them. The first £85,000 of an individual's deposits are covered by guarantee underwritten by the State, and even in the event of a major financial collapse they are bailed out by the implicit taxpayer guarantee. In the current crash, that amounts to over £70bn in direct bailouts and a further £850bn indirectly in loan guarantees, liquidity measures and asset protection schemes.

The charge sheet against the banks is that they have used these powers -- particularly in the neoliberal era since 1980 -- recklessly and in self-interest, which has done huge long-term harm to Britain's economy. By the issuance of loans they are now responsible for generating over 97 per cent of the money supply, and have used this privilege to allocate just 8 per cent to productive investment. This means that 11/12th of bank lending goes towards mortgages, real estate and business, foreign investment, high-risk speculation and financial intermediation.

This has been a significant cause of Britain's long-term decline. Last year the UK balance of payments deficit on trade in goods reached an unprecedented £100bn; equal to 6.8 per cent of GDP. British manufacturing, the lifeblood of the economy, has been systematically hollowed out. Britain remains low in productivity and innovation, and output per worker is still 40 per cent below US levels, and 20 per cent below Germany and France. Within the OECD only the UK had a lower share of GDP spent on research and development in 2000 than in 1981.

Of course, not all this can be laid at the door of the banks. But a great deal can. UK banks' relationship with industry is far more distant and unhelpful compared with Germany's Mittelstand.

The City has relentlessly driven short-termism at the expense of market share. The UK banks have used their control of the money supply to regularly generate unsustainable asset bubbles which destabilise industry and, when they crash, beggar the taxpayer. They have engineered a massive mis-allocation of global capital into tax havens which, worldwide, now shelter over £11trn of global wealth. They have exacerbated inequalities between the super-rich and the rest, the growing disparities between regions, and the crowding out of manufacturing by finance.

And by setting up a huge and powerful shadow banking system, buttressed by the proliferation of credit derivatives and securitisation, they have deliberately evaded public controls in order to boost their own selfish interests to the detriment of the nation.

So what should be done? Above all, control over the money supply must be brought back into the public domain. This is not a partisan objective. Direct credit controls have been used by many of the most successful countries over the last century; notably Japan, Korea and Taiwan after the Second World War.

Unproductive credit creation -- for example, speculative transactions like today's lending to hedge funds -- was firmly checked. Consumer loans which would trigger inflationary demand for consumer goods or draw in increased imports were discouraged. Priority was given to investment in plant and equipment, key services, and enhanced productivity via new technologies and R&D.

Of course other reforms are urgently needed too. These should include control by public authorities over potentially toxic and dangerous financial derivatives, a clean separation of retail from investment banking and specialist banks for infrastructure improvement; as well as development of the new digital green economy and reform of credit rating agencies.

But the key issue, so far ignored, is to restore accountability to the banking system via public control over the money supply.

Michael Meacher is Labour MP for Oldham West and Royton.

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Rising crime and fewer police show the most damaging impacts of austerity

We need to protect those who protect us.

Today’s revelation that police-recorded crime has risen by 10 per cent across England and Wales shows one of the most damaging impacts of austerity. Behind the cold figures are countless stories of personal misery; 723 homicides, 466,018 crimes with violence resulting in injury, and 205,869 domestic burglaries to take just a few examples.

It is crucial that politicians of all parties seek to address this rising level of violence and offer solutions to halt the increase in violent crime. I challenge any Tory to defend the idea that their constituents are best served by a continued squeeze on police budgets, when the number of officers is already at the lowest level for more than 30 years.

This week saw the launch Chris Bryant's Protect The Protectors Private Member’s Bill, which aims to secure greater protections for emergency service workers. It carries on where my attempts in the last parliament left off, and could not come at a more important time. Cuts to the number of police officers on our streets have not only left our communities less safe, but officers themselves are now more vulnerable as well.

As an MP I work closely with the local neighbourhood policing teams in my constituency of Halifax. There is some outstanding work going on to address the underlying causes of crime, to tackle antisocial behaviour, and to build trust and engagement across communities. I am always amazed that neighbourhood police officers seem to know the name of every kid in their patch. However cuts to West Yorkshire Police, which have totalled more than £160m since 2010, have meant that the number of neighbourhood officers in my district has been cut by half in the last year, as the budget squeeze continues and more resources are drawn into counter-terrorism and other specialisms .

Overall, West Yorkshire Police have seen a loss of around 1,200 officers. West Yorkshire Police Federation chairman Nick Smart is clear about the result: "To say it’s had no effect on frontline policing is just a nonsense.” Yet for years the Conservatives have argued just this, with the Prime Minister recently telling MPs that crime was at a record low, and ministers frequently arguing that the changing nature of crime means that the number of officers is a poor measure of police effectiveness. These figures today completely debunk that myth.

Constituents are also increasingly coming to me with concerns that crimes are not investigated once they are reported. Where the police simply do not have the resources to follow-up and attend or investigate crimes, communities lose faith and the criminals grow in confidence.

A frequently overlooked part of this discussion is that the demands on police have increased hugely, often in some unexpected ways. A clear example of this is that cuts in our mental health services have resulted in police officers having to deal with mental health issues in the custody suite. While on shift with the police last year, I saw how an average night included a series of people detained under the Mental Health Act. Due to a lack of specialist beds, vulnerable patients were held in a police cell, or even in the back of a police car, for their own safety. We should all be concerned that the police are becoming a catch-all for the state’s failures.

While the politically charged campaign to restore police numbers is ongoing, Protect The Protectors is seeking to build cross-party support for measures that would offer greater protections to officers immediately. In February, the Police Federation of England and Wales released the results of its latest welfare survey data which suggest that there were more than two million unarmed physical assaults on officers over a 12-month period, and a further 302,842 assaults using a deadly weapon.

This is partly due to an increase in single crewing, which sees officers sent out on their own into often hostile circumstances. Morale in the police has suffered hugely in recent years and almost every front-line officer will be able to recall a time when they were recently assaulted.

If we want to tackle this undeniable rise in violent crime, then a large part of the solution is protecting those who protect us; strengthening the law to keep them from harm where possible, restoring morale by removing the pay cap, and most importantly, increasing their numbers.

Holly Lynch is the MP for Halifax. The Protect the Protectors bill will get its second reading on the Friday 20th October. 

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