Osborne surfaces as Duncan Smith petition passes 100,000 signatures

A rare speech from the submarine Chancellor as more than 118,000 people challenge his cabinet colleague to live on £53 a week.

With the government under fire on welfare, the submarine Chancellor has surfaced. George Osborne will give a rare speech today attacking the "vested interests" opposed to welfare reform while boasting that the changes announced in the Budget mean that 90 per cent of working households (around 14m households) will be better off by an average of £300 a year. Osborne's figures, however, do not include unemployed families (a jobless couple without children will lose around £150 a year) and Labour is rightly pointing to the fact that the average family will be £891 worse off a year as a result of the cumulative effect of tax and benefit changes introduced since 2010.

Expect Ed Balls and co. to also take yet another opportunity to remind voters that the biggest tax cut of all has gone to the highest earners. The reduction in the top rate of income tax from 50p to 45p this Saturday will benefit the UK's 13,000 income millionaires by an average of £100,769 a year and all high earners by at least £42,000. Whether or not they accept the economic logic behind the tax cut, an increasing number of Tory MPs recognise that it has made every austerity measure that much harder to justify.

Meanwhile, Iain Duncan Smith's claim that he could live on £53 a week (fisked by Alex yesterday) has given every journalist in the land a licence to ask the Work and Pensions Secretary's colleagues whether they could match his frugality. Treasury minister Greg Clark told Radio 5 Live this morning that anyone earning "the comfortable wage" that an MP has would "certainly struggle" to live on that amount and Osborne can expect to be asked the same question if and when he takes questions after his speech to Morrisons workers.

The petition challenging Duncan Smith to "prove his claim" has garnered more than 118,000 signatures - in excess of the 100,000 required to trigger a debate in Parliament (although it was not put forward for consideration). And the Chancellor's dubious description of the benefits system as "generous" (prompting the inevitable rejoinder: have you tried living on £71 a week?) means he is vulnerable to similar scorn. 

George Osborne leaves number 11 Downing Street in central London on March 19, 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