Could Tory rebels be unleashed on Clegg's Lords reform?

Unglamorous changes to the upper chamber could end up as a chew toy for frustrated Tory backbenchers

Of the many things a government might want to make a priority at a time of economic crisis and international instability, reforming the House of Lords is an eccentric choice.

Most of the public, it is safe to say, is uninterested in how the upper chamber works. Within the minority that understands the Lords, a still smaller number is so affronted by the lack of electoral accountability there as to want immediate constitutional redress. There is no clamour for a reform, which, as the Times reports this morning, will require protracted trench warfare between the government and recalcitrant peers, most of whom would end up at some stage facing eviction from a mostly elected legislature. Not surprisingly, a large number of ennobled turkeys are against a Bill for More Christmas.

The Times reports that a hardcore of 20 Tory peers are threatening to go on strike - sabotaging the whole legislative programme for the next parliamentary session if plans to create elected peers go ahead.

The reform is only being mooted because Nick Clegg needs - or at least feels he needs - a concrete constitutional reform in his legacy, having failed to secure a change to the electoral system. A Lords Reform Bill is planned for the Queen's speech in May to give Lib Dems some badge of institutional modernisation when, in the run-up to the next election, they draw up their balance sheet of manifesto pledges implemented and promises jettisoned in coalition. It would, in any case, be a purely symbolic victory for the party faithful. No-one seriously thinks the creation of an elected second chamber will earn the instant gratitude of tens of millions of citizens.

But from where the Lib Dems are standing, even modest trophies are better than none. Can they even secure that much? The prospect of a fierce rebellion among peers is certainly a problem, not least because it plays to fears among Conservative MPs in the Commons that the whole issue is about to snarl up the legislative works. This objection surfaced just before the parliamentary recess in Deputy Prime Minister's Questions (the mostly unwatched monthly cousin to the headline-grabbing weekly PMQs session). Back bench Tories have been pestering Clegg on the question of why, when the economy is plainly the issue that must take precedence, he seems determined to waste everyone's time (as they see it) with a reform that is, at best, half baked. It isn't yet clear what powers the elected peers would have relative to their unelected bench-fellows and how their relationship with the Commons would change.

One prospect that worries senior Lib Dems is that David Cameron's relations with his own backbenchers will get testier as time goes on. The warm glow of Tory admiration for the PM's European (non) veto in December has already worn off and there is increasing irritation with the number of concessions perceived to be granted to keep Clegg's party happy. At some point, Cameron will have to find some pressure valve to enable his party's rebellious rank and file to express its fury. What better mechanism than a vote on Lords reform? It is an issue on which most people would expect the Conservative party to take a conservative view and that will animate few passions outside Westminster.

Downing Street could never be seen actively to encourage a rebellion against a government Bill, but Cameron could decide how ruthlessly he wants to whip his MPs in favour. As one Lib Dem close to Clegg put it to me recently, Lords reform could be used as "the bit of the garden where it is safe to let them off the leash for a bit." Essentially, Cameron would put on a show of trying to help Clegg get his reform but would not invest too much of his own political capital in forcing it through an unhappy Commons.

Meanwhile, Labour's position is still officially to like the idea of Lords reform in principle but to sneer at Clegg's plan of an 80% elected chamber as not ambitious enough, although in reality this is high-minded cover for wanting to retain the option of making the Lib Dem leader squirm. So a half-decent Tory rebellion could see Lords Reform defeated in the Commons. The whole thing has the makings of a disaster for Clegg - another "miserable compromise" on a constitutional change that no-one can get very excited about, sabotaged by Tories itching to rein in Lib Dem influence and a Labour party disinclined to ride to the rescue.

Rafael Behr is political columnist at the Guardian and former political editor of the New Statesman

Getty
Show Hide image

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