Are UKIP a lost Tory tribe or masked villains? Cameron needs to decide

The Conservatives are caught between advertising their cultural affinity with UKIP and denouncing its members as closet extremists.

The Conservative Party needs to decide whether it thinks UKIP is a respectable outfit. (Other parties also need to make that choice but, in the run up to county council elections this week, it is the Tories who are feeling the most heat from a UKIP challenge.)

Broadly speaking, there seem to be two different approaches the Conservatives are taking to Nigel Farage’s insurgent rabble: they present them as a lost tribe or as masked villains.

The "lost tribe" hypothesis is set out with customary ebullience in a column by Boris Johnson in today’s Daily Telegraph.

According to this view, Farage and friends are really Tories who got lost on the way to the polling booth. They are capitalising on general contempt for politics and mid-term distaste for the incumbent administration that happens to be Conservative. The good news, Johnson argues, is that Ukip’s success is therefore misallocated vindication of Tory politics. The best response is a gentle cajoling of errant rightwing voters back towards the mother ship in time for a general election.

The "masked villain" hypothesis is that UKIP are a pernicious force; a sinister band of far-right nutters who have tricked or seduced sections of the electorate with lazy populism. This is the view implied by Ken Clarke’s attack on Farage’s outfit over the weekend as a "fringe party" of the right attracting "waifs and strays" as candidates.

Conservative headquarters has been looking at some of the people standing for UKIP in Thursday’s poll in the hope of exposing them as closet extremists. It turns out the party has picked up some former British National Party members and activists. UKIP's official line is that fascists are not welcome and that the Tories are smearing them. The natural riposte is that a party that cannot recognise a distinction between smear and scrutiny has something to hide.

There is some overlap in the lost tribe and masked bandit views. Both see UKIP voters as natural Tories. The difference is that the former woos them back by emphasising proximity, the latter by exposing difference. The lost tribe view says "we are all Tories really, why vote for the second rate imitation when you could have the real thing." The masked villain view says: "Look what lies behind the façade of respectability – behold the beast! recoil in horror!"

Both approaches have their hazards. The danger of the lost tribe approach is that it ignores or plays down the extremist element. If, for example, Boris Johnson believes Farage is really a Tory and that many UKIP types are really Conservatives, where does he file the more conspicuously bonkers element? Presumably Johnson doesn’t want to blur the boundary between ideological fellow travelers and the kind of person who blames Zionist bankers for the Holocaust? 

Meanwhile, the danger of the lost tribe hypothesis is that swing voters who already see Tories as a bit swivel-eyed and intolerant will find confirmation of that prejudice in the assertion that Faragism is the natural continuation of the Conservative spectrum. That vital constituency of people who in 2010 were not persuaded that David Cameron had brought his party to happy accommodation with the 21st Century are unlikely to have their minds changed in 2015 if they are told voting Tory is like voting UKIP-lite.

But then, the danger in the more aggressive anti-Farage approach is that it risks insulting that section of the electorate already flirting with Ukip. Trying to tug at the supposed mask in the hope of exposing something uglier beneath it only works if the hidden beast agrees to be noisily beastly for prolonged periods. The odd BNP member turning up as a council candidate embarrasses UKIP, but Farage himself simply isn’t a Nazi and no amount of sneaking up behind him and trying to pin swastikas on his back is going to change that. What’s more, Ukip like nothing more than to be able to say that the mainstream political and media establishment is closing ranks to attack them because it is afraid.

An unmasking strategy assumes a degree of moral authority on the part of the unmasker that voters don’t accept. When the Tories – or indeed Labour and Liberal Democrats – accuse UKIP of not being the respectable and credible organisation it pretends to be, they take as their benchmark of respectability and credibility a political settlement that, by definition, UKIP-leaning voters have rejected. People are drawn to UKIP out of anxiety, dismay and loathing of the more familiar parties. Why would they then turn to those parties for their professional guidance about what is and isn’t an appropriate receptacle for their protest?

The Tories can advertise their cultural affinity with UKIP and alienate voters who see Farage and friends as the very caricature of everything they rejected about Conservatism in its fly-blown descent from power through the mid-90s. Or they can attack UKIP as an ugly deception practised by closet extremists – an approach that risks insulting chunks of the core Tory vote. There is always the possibility that they end up doing both.   

Nigel Farage shows a mug that was presented to him before signing a book of condolence for Margaret Thatcher at the museum in Grantham. Photograph: Getty Images.

Rafael Behr is political columnist at the Guardian and former 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