The progressive case against Lords reform

We know democracy is deeper than elections. We should honour that.

We know democracy is deeper than elections. We should honour that.

The House of Lords needs changing. But does it need this particular reform? Labour pledged this week that it will back Liberal Democrat proposals for an 80 per cent elected chamber. There are five reasons why the left might not think this is such a good idea.

1) Elections are not always and everywhere good. There are certain advantages to having legislators that are insulated from polls, Twitter tidal waves and yes, even voters. Experience demonstrates it breeds conviction politics. Whips are less of a threat, and amendments are more likely to be introduced and won. Significant changes - including blocking the government's attempts to limit trial by jury - have been won by the Lords. The welfare and NHS legislation is just the latest example.

Even if you agree with the principle that Lords should face the electorate, the current proposals would only allow future Lords to serve one term for fifteen years. As Lord Dobbs points out, this means that they will never be subject to genuine electoral accountability. When you can't get re-elected, you may as well do what you were going to do anyway.

2) You shouldn't look at how to design a chamber until you've decided what that chamber is for. At the moment there are whole bunch of unanswered questions. As Jesse Norman astutely points out (£), it makes no sense to consider the issue of electing the House of Lords before we've resolved devolution in Scotland. Who exactly will be governed by the House, and how? Do we want the Lords to be a pool of specialist knowledge providing scrutiny as it does now, or do we want a stronger check on an executive that is often criticised for having too much power, making us more like the US?

If electing our Lords really does give the second chamber more legitimacy, then power will be more dispersed and that may well result in more paralysis. People are already frustrated with governments for not being different or radical enough. With a rival second chamber, this may well get worse. What if the left wanted to come in and set up a universal care service? Or pursue more meaningful devolution? Radical agendas will almost certainly be harder to implement.

3) Ironically, we may see a decrease in diversity. Think of disabled peers like Baroness Jane Campbell. It is much harder for them to fight and win an election than it is to get an appointment. Similarly, we can say goodbye to crossbench MPs and the valuable independence they bring. To get elected to the Lords, you'll have to be a member of a political party - and presumably we'll be presented with candidates who couldn't quite make it to the first chamber.

Democracy is about a lot more than being able to vote. One of the most common criticisms of politicians is that we come from increasingly homogenous backgrounds, turning politics into a career rather than a service. Standing for election often requires wealth. Increasingly you have to be in a position to offer free labour through internships and live in London. Right now the Lords is relatively diverse, at least in terms of experience. If we create an elected second chamber without addressing who stands for election and how, we can expect more of the same.

4) Lords reform is not the public's priority right now. No one talks about the constitution on the doorstep. People are worried about their jobs, their homes and their families. We've already had the AV referendum - spending our time debating technical legislation may look like more navel gazing, especially when the Lords are relatively popular. Research by Meg Russell at UCL shows that the Lords were held in higher esteem than the Commons even before the expenses scandal broke. Shaking it up risks making politics look less relevant, not more.

5) It may hand a huge amount of power to the Liberal Democrats. If the second house became more significant, the LibDems' role as kingmaker would become even more important. And let's not forget that this whole programme is their deal anyway. As Andrew Neil points out, Lords reform is their prize for supporting the Conservative's constitutional boundaries that damage Labour.

Hereditary peers are embarrassing, but what if we could find some way of making appointments with legitimacy. What if we had a chamber that was picked to be more representative - the head of trades in industry, charities, our leaders in art, business, and education. That would bring the wealth of British experience to the table in decision making, whilst preserving a distinctive second chamber that didn't rival the first. The public already believes that legislative scrutiny and listening are more important than votes. We know democracy is deeper than elections. We should honour that.

Rowenna Davis is a journalist and author of Tangled up in Blue: Blue Labour and the Struggle for Labour's Soul, published by Ruskin Publishing at £8.99. She is also a Labour councillor.

Rowenna Davis is Labour PPC for Southampton Itchen and a councillor for Peckham

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