PMQs review: Cameron falls into Labour's "bedroom tax" trap

By repeatedly insisting that the "bedroom tax" was not a tax, the Prime Minister gave the phrase new life.

One of Ed Miliband's boldest decisions since becoming Labour leader has been to target the coalition's welfare cuts and today's PMQs saw an all-out assault on the "bedroom tax". For those unfamiliar with the term, it refers to the government's plan to cut housing benefit for those deemed to have more living space than they need, such as a spare bedroom. Social housing tenants with one extra room will lose 14 per cent of their benefit, while those with two or more will lose 25 per cent.  

The government argues that this is another necessary measure to reduce the ballooning housing benefit bill (which is largely due to extortionate rents and substandard wages) but Miliband highlighted the case of a mother with two sons in the army who would lose out while they were away "serving their country". He went on to warn that two-thirds of those affected are disabled (many of whom require an extra room due to their disability) and that it would encourage social housing tenants, "the most vulnerable", to move to the more expensive private sector, wiping out any savings from the policy as the housing benefit bill rises. Miliband also smartly contrasted the Tories' "bedroom tax" with their opposition to a "mansion tax", brandishing a letter from the party to Conservative donors asking them to contribute to a fighting fund against a "homes tax". 

Cameron gave little ground in response, pointing out that there was a £50m fund to deal with "difficullt cases" and bluntly asking why it was fair for social housing tenants to receive money for an extra room when private tenants did not. For a self-described "compassionate Conservative", it was a rather compassionless reply. As Cameron's answers became increasingly ill-tempered, Miliband deftly weaved in a reference to last night's vote on equal marriage: "He shouldn't get so het up. After all, he's got almost half his parliamentary party behind him." Unsurprisingly, the line went down well with both sides of the House. 

The PM's best moment came when he remarked of Miliband: "we know all the things he's against, we are beginning to wonder what on earth he's for?" If Labour is opposed to the "bedroom tax", the "strivers' tax", the "granny tax", the "toddler tax", how would it reduce public spending? Would it introduce a "mansion tax"? Miliband gave the stock reply that "the clue's in the title - Prime Minister's Questions - he's supposed to try and answer them". But this riposte, while acceptable in 2010, is less impressive halfway through the parliament, with Labour MPs increasingly troubled by the perceived lack of policy detail from their leader.

After Miliband had used up his six questions, Labour MPs continued to challenge Cameron over the "bedroom tax" in a well coordinated assault. An increasingly exasperated Cameron repeated that the "bedroom tax" was not a tax but, in doing so, he unwittingly repeated Labour's attack line. Whether the PM likes it or not, when voters hear him refer to the "bedroom tax" that is what they will call it. Across the floor, Miliband and Ed Balls smiled contentedly in response. Their work for the day was done. 

David Cameron leaves 10 Downing Street in London, on February 06, 2013. Photograph: Getty Images.

George Eaton is political editor of 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