A Labour U-turn on free schools? It's not that simple

Stephen Twigg's speech was neither a capitulation to Gove’s agenda nor a ferocious reaction against it.

For a policy intervention to count as a U-turn, two conditions must be met. First, a party needs to have been moving clearly in one direction. Second, after the manoeuvre, it needs to be advancing in the opposite direction. Labour’s announcement today on education policy matches neither requirement.

The opposition has been painfully ambivalent about coalition school reforms, which have their genesis in the Blair-era policy. Labour has been unsure whether or how to salvage some of its intellectual property from Michael Gove’s zealous pursuit of academies and free schools.

Today, Stephen Twigg has tried to bring some clarity to Labour’s position. It isn’t easy. The shadow education secretary has both repudiated and acquiesced to coalition policy. The acquiescence is in accepting that the frenetic advance of academies and the creation of free schools under the current government would not be reversed. A Labour government would, however, apply brakes to Gove’s speeding juggernaut.

Twigg says:

Labour will not continue with Michael Gove’s Free Schools policy. Existing free schools and those in the pipeline will continue. But in future we need a better framework for creating new schools …

There will be no bias for or against a school type- so new academies, new maintained schools, new trust schools - all options. A school system based on evidence not dogma.

But then again, he also says:

Labour strongly believes parents have an important role to play in calling for and setting up new local schools. … Labour started the academies programme to bring outside energy and expertise into the schools system, we want to extend that to parents.

That sounds like a dilute version of existing policy.

The real element of repudiation is subtle but intellectually important. Twigg argues that new academies or free schools should not be set up in areas where there are already sufficient school places. Adding such excess capacity, Labour argues, is wasteful (because limited resources should go to areas where there is insufficient supply and classrooms are overcrowded) and divisive (because parents, it is feared, use free schools to segregate their children from neighbours whom they deem undesirable).

According to Twigg, Labour would change the emphasis in the academies policy from expansion of volume – rejecting Gove's habit of measuring success by the sheer number of schools breaking free from local authority control – to collaboration between schools and enforcing fair admissions policies.

But for Gove, excess supply of school places in some areas is not some accidental by-product of the system, it is the logical extension of the market mechanism that is meant to improve standards. New schools are supposed to arrive on the doorstep of established ones and compete for the attention of parents. The process that Labour sees as chaotic and divisive is, in Conservative terms, the positive force of creative disruption that will unleash innovation and, through increased competition, drive up standards.

This is now the essential division between Labour and Conservatives on education policy. Academies and free schools will be part of the landscape regardless of who wins the next election. But under a Tory education secretary the anticipated mechanism for improving performance in weak schools will by market forces. Education providers, including eventually profit-making private-sector companies, will compete for the custom of parents hoping to send their children to whichever institution appears to offer the best prospects.

And under a Labour education secretary, the expected mechanism for improving performance in weak schools will be intervention, directed by government, in the form of partnership with other, more successful schools. Crudely speaking, the Conservatives like free school and academies because they are supposed to give complacent local authority schools a kick up the backside, while Labour can live with free schools and academies if they give local authority schools a helping hand.

One result of today's announcement is that Labour’s education policy now officially lacks ideological purity. It is neither a capitulation to Gove’s agenda nor a ferocious reaction against it. Twigg’s soggy middle-way position will disappoint dogmatists on both sides of the debate, which is probably a sign that he is standing in about the right place. 

Shadow education secretary Stephen Twigg speaks at the Labour conference in Manchester last year. 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