The real lessons for Labour and the Lib Dems from the 2010 talks

It wasn't ideology that led the Lib Dems to reject coalition with Labour, but the reds' near-complete lack of preparation.

I've just finished reading Andrew Adonis’s 5 Days in May: The Coalition and Beyond and it has given me food for thought both about how the 2010 coalition negotiations proceeded and what lessons we might learn for any potential future coalition discussions.

Having already read David Laws’s 22 Days in May and Rob Wilson’s 5 Days to Power and having watched various radio and TV programmes about the 2010 negotiations, I already had a reasonable idea about how they went. But it was interesting to get a Labour perspective on the talks.

The fairly settled view from Lib Dems is that Labour were unprepared for discussions and some members of their negotiating team and parliamentary party seemed to be mentally ready for opposition, rather than seriously trying to make the necessary compromises to stay in power.

One figure, however, in all the accounts that I have seen, heard and read, who clearly did want to try and make the negotiations work was Gordon Brown. There is no doubt in my mind that he really did want to see a Lab-Lib coalition. Unfortunately, because he had not properly prepared the ground for any such discussions, having been so used both as Chancellor and PM to working majorities, he was destined to fail. The passion with which Brown tried to make the discussions with the Lib Dems work comes across in Adonis’s book as almost tragic, but given how much we already know about what a tribalist was, he cuts a contradictory figure, desperately trying to convince Nick Clegg of how a radical Labour-Lib Dem coalition could deliver.

A telling vignette from 5 Days in May is how Peter Mandelson, Ed Miliband and Ed Balls all discussed with Adonis how they had never come across Andrew Stunnell before and did not know who he was. He had been Lib Dem MP for Hazel Grove since 1997 and a frontbench spokesperson for almost all of that time. This demonstrates a shocking level of engagement by Labour with the party that they were supposedly attempting, in good faith, to form a government with.

An important theme from the Adonis book is that of how the question of 'the numbers' seemed to be eminently solvable in the view of Brown and some other senior Labour people. Despite the fact that Labour only had 258 seats and the Lib Dems 57 (so a total of 315 vs the Tories' 306, with a majority requiring 326) Brown was convinced that most of the minor parties would fall into line. I’m not sure if I would describe this as wishful thinking or self-delusion but the idea that a 'rainbow coalition' or even a minority coalition that took the votes of the SNP, Plaid Cymru, Caroline Lucas, the SDLP and the DUP all pretty much for granted would have been plain sailing, and was somehow an obvious and equal choice to the stability of a solid working majority with the Conservatives, is optimistic in the extreme.

It also suggested to me a level of arrogance, perhaps fostered by 13 years in government, within senior Labour ranks that the minor parties would come to heel. The Lib Dems were doing the responsible thing in not assuming that all these smaller parties would stay in line and instead considering that any deal with Labour would be on the basis of a minority government which would have been very difficult to control. This was not least because a number of Labour MPs spent the five days of the coalition negotiations making it clear that there were things they would not agree to or vote for. So far from Brown being sure of being able to deliver his 258 MPs, it was far more likely that the total would regularly fall short of that depending on which issue the vote was on.

A good example of this is how during the first formal discussion with the Labour team, Adonis highlighted how Labour was open to a proportional representation option being on the AV ballot paper. But I know from my own personal discussions at the time that Labour MP Tom Harris would never have voted for a bill that included a PR option in the referendum. He told me categorically. It was also clear to me that he was not alone in this respect and there were a number of Labour MPs who would also have defied party whips to defeat this. Labour was negotiating on something it would never have been able to deliver on.

So what lessons can we draw from the various accounts of the 2010 coalition negotiations? I would say the most important thing is preparation. Both the Lib Dems and the Conservatives wargamed a number of scenarios before the 2010 election. They approached coalition negotiations professionally and with the clear purpose of forming a stable government that could last for a whole parliament. Contrast this with Labour, which didn't even start seriously planning for coalition until after the result was announced. And it made a big difference. The Lib Dems did not take Labour as seriously as the Conservatives as potential partners, not for ideological reasons (as Adonis seems convinced of), but primarily because the reds had not done the basic groundwork. So the key lesson from 2010 for Labour is to be open to the possibility that there will be a hung parliament in 2015, long before it actually happens, and to plan, war-game and prepare in advance for this outcome. Even just making sure the basics, such as having enough backchannel communication between key players. Happily, there are signs that Ed Miliband gets this now and is preparing the ground for just such an eventuality.

Another important factor is to be realistic about what can be achieved. Brown's offer of PR on the AV referendum ballot simply could not have been delivered by him in the circumstances he found himself in. Indeed the numbers made any alliance at all very tricky. If the maths makes things difficult, parties should be open about this. That is the only way that good faith can be maintained.

The final lesson to draw for now is more related to how the current coalition has played out. The Lib Dems have been reasonably disciplined in keeping their troops in line and ensuring that most items from the coalition agreement have gone through, even when, as in the case of tuition fees, they have gone directly against what the party wanted. Whatever you may think of the individual policies, this has been done in the name of coalition cohesion. By contrast, the Conservative backbenches have been much more restive and have forced defeats on measures such as Lords reform in defiance of their party leadership.

The various processes that the Lib Dems had (and have) in place to facilitate buy-in from the parliamentary and wider membership were seen by both Labour and Conservatives in 2010 as somewhat eccentric. Indeed, one of the reasons Brown found it so hard to get hold of Clegg on several occasions during the five days is because the Lib Dem leader was in one meeting or another keeping colleagues closely informed of what was happening and consulting them. But it is hard to argue that the legitimacy those processes conferred on the coalition from a Lib Dem perspective is anything other than a very good thing. I was one of the party members who voted in the special conference convened towards the end of May 2010 and it certainly gave me a feeling of ownership which has been sorely tested over the last three years. It is not a panacea and we enter a grey area when measures that were never in the coalition agreement are legislated on, sometimes to the chagrin of myself and my fellow party members. But a complete lack of any such process within the Conservative Party has led to a widespread feeling amongs its members, both in parliament and more widely, of a lack of legitimacy in the current coalition.

There was no modern precedent on which the parties could draw three years ago and they were, to an extent, flying blind. But in 2015, should such discussions become necessary, that will not be the case. All parties should learn the lessons from those five heady days in May 2010.

Mark Thompson is a political blogger and commentator who edits the award-winning Mark Thompson's Blog and is on Twitter @MarkReckons.

He is also co-host of the House of Commons podcast, which this week discussed the 2010 coalition negotiations 

 

Nick Clegg and Ed Miliband attend a ceremony at Buckingham Palace to mark the Duke of Edinburgh's 90th birthday on June 30, 2011 in London. Photograph: Getty Images.
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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