Will the Sparks light up SME lending?

Ed Miliband is a man with a plan.

George reports that Ed Miliband is to take inspiration from the German Sparkassen system, and establish a new network of regional banks in the UK.

Miliband, and his shadow business secretary Chuka Umunna, are positing the new banks—apparently to be anglicised as "Sparks"—as a solution to Britain's lending crisis. The idea is that by devolving state-supported lending to SMEs down to the regional level, the banks may be able to use their local knowledge to get more return on their investment—helping the business with strong links to the local community and a record of job creation, rather than just the one which has the healthiest profit/loss ratio.

The move is supported by many. David Green, the director of the Civitas think-tank, says that, "the Sparkassen were a major factor in helping Germany bounce back from the recession so much more quickly than the UK, which has been held back by the coalition Government's miserable failure to learn the most obvious lessons from overseas."

But the problem with Britain's SME lending is more complex than just greedy bankers. The ever-perceptive Dan Davies sums it up in just a few tweets:

 

 

 

 

 

 

 

 

The meme of "greedy bankers not lending to embattled small businesses" is a strong one, but as Davies says, there are far more structural problems when it comes to that market. Basicall

What we should really be looking for in the Sparks, then, is whether they can overcome those problems. They clearly can't fix our housing market, and if defaulting on a business loan locks you out of the housing market forever then risk aversion on the part of the business owners is understandable. At the same time, to remove that barrier—to let SMEs take out loans which don't require personal guarantees—is inviting fraud.

The big hope for the Sparks is that they will be able to crack down on fraud in other ways. If their regional basis really does render them better-placed to work out whether a particular application is fraudulent than commercial banks, then they could stand a chance of making un-guaranteed loans profitable. Alternatively, of course, the government could decide that, in a recession, the profitability of the banks is no longer an issue. The Sparks could be run at a loss, deliberately making riskier loans than is commercially sensible, until growth picks up.

That wouldn't work as a stated policy, because the minute it was announced that they would be deliberately amenable to fraud, fraud would shoot up. But if Labour were more interested in fixing the economy than getting credit for fixing the economy, it could be a smart way to go.

A German Sparkasse. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Why isn't Labour putting forward Corbynite candidates?

Despite his successes as a candidate, the organisational victories have gone the way of Corbyn's opponents. 

The contest changes, but the result remains the same: Jeremy Corbyn’s preferred candidate defeated in a parliamentary selection. Afzhal Khan is Labour’s candidate in the Manchester Gorton by-election and the overwhelming favourite to be the seat’s next MP.

Although Khan, an MEP, was one of  the minority of Labour’s European MPs to dissent from a letter from the European parliamentary Labour party calling for Jeremy Corbyn to go in the summer of 2016, he backed Andy Burnham and Tom Watson in 2015, and it is widely believed, fairly or unfairly, that Khan had, as one local activist put it, “the brains to know which way the wind was blowing” rather than being a pukka Corbynite.

For the leader’s office, it was a double defeat;  their preferred candidate, Sam Wheeler, was kept off the longlist, when the party’s Corbynsceptics allied with the party’s BAME leadership to draw up an all ethnic minority shortlist, and Yasmine Dar, their back-up option, was narrowly defeated by Khan among members in Manchester Gorton.

But even when the leadership has got its preferred candidate to the contest, they have been defeated. That even happened in Copeland, where the shortlist was drawn up by Corbynites and designed to advantage Rachel Holliday, the leader’s office preferred candidate.

Why does the Labour left keep losing? Supporters combination of bad luck and bad decisions for the defeat.

In Oldham West, where Michael Meacher, a committed supporter of Jeremy Corbyn’s, was succeeded by Jim McMahon, who voted for Liz Kendall, McMahon was seen to be so far ahead that they had no credible chance of stopping him. Rosena Allin-Khan was a near-perfect candidate to hold the seat of Tooting: a doctor at the local hospital, the seat’s largest employer, with links to both the Polish and Pakistani communities that make up the seat’s biggest minority blocs.  Gillian Troughton, who won the Copeland selection, is a respected local councillor.

But the leadership has also made bad decisions, some claim.  The failure to get a candidate in Manchester Gorton was particularly egregious, as one trade unionist puts it: “We all knew that Gerald was not going to make it [until 2020], they had a local boy with good connections to the trade unions, that contest should have been theirs for the taking”. Instead, they lost control of the selection panel because Jeremy Corbyn missed an NEC meeting – the NEC is hung at present as the Corbynsceptics sacrificed their majority of one to retain the chair – and with it their best chance of taking the seat.

Others close to the leadership point out that for the first year of Corbyn’s leadership, the leader’s office was more preoccupied with the struggle for survival than it was with getting more of its people in. Decisions in by-elections were taken on the hop and often in a way that led to problems later down the line. It made sense to keep Mo Azam, from the party’s left, off the shortlist in Oldham West when Labour MPs were worried for their own seats and about the Ukip effect if Labour selected a minority candidate. But that enraged the party’s minority politicians and led directly to the all-ethnic-minority shortlist in Manchester Gorton.

They also point out that the party's councillor base, from where many candidates are drawn, is still largely Corbynsceptic, though they hope that this will change in the next round of local government selections. (Councillors must go through a reselection process at every election.)

But the biggest shift has very little to do with the Labour leadership. The big victories for the Labour left in internal battles under Ed Miliband were the result of Unite and the GMB working together. Now they are, for various reasons, at odds and the GMB has proven significantly better at working shortlists and campaigning for its members to become MPs.  That helps Corbynsceptics. “The reason why so many of the unions supported Jeremy the first time,” one senior Corbynite argues, “Is they wanted to move the Labour party a little bit to the left. They didn’t want a socialist transformation of the Labour party. And actually if you look at the people getting selected they are not Corbynites, but they are not Blairites either, and that’s what the unions wanted.”

Regardless of why, it means that, two years into Corbyn’s leadership, the Labour left finds itself smaller in parliament than it was at the beginning.  

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.