PMQs review: Cameron still lacks answers on living standards

If the PM wants to dismiss Miliband's energy price freeze as "a con", he needs to come up with a superior policy.

Ed Miliband arrived well armed at today's PMQs: food-bank use has tripled, pay growth is at its lowest level on record and the number of people working part-time because they can't find a full-time job has reached a new high. But after last week's floundering performance, David Cameron put up a better defence. He was able to boast that unemployment had fallen in every category and that there were now a million more people in work than in 2010 (a statistic you can expect to hear every day from now on). The PM also finally settled on a line of attack against Miliband's proposed energy price freeze, branding it a "price con". It is doubtful whether those forced to choose between heating and eating will agree, but this appeal to cynicism is an improvement on last week's red-baiting.

In response to Miliband's questions, all of which were on living standards, Cameron strikingly argued that the best way to improve voters' incomes is to "cut taxes". As was reported earlier this week, the Tories are set to mimic the Lib Dems and pledge to raise the income tax threshold to £12,500. But for voters who are seeing their wages fall by an average of 2% in real-terms, a promise from the government to take a smaller chunk away is unlikely to prove sufficient. The Tories need a plan to increase the minimum wage and to spread use of the living wage, a subject on which they remain oddly silent.

If he wants to dismiss Miliband's energy policy as "a con", Cameron also needs to devise an attractive policy of his own. He currently boasts that the government is ensuring consumers are put on the lowest tariff but figures show that only 10% will benefit from this. Others in his party pin their hopes on a bonfire of green taxes and regulations but these account for just a fraction of the average bill. Polling shows that 75% of the public don't believe that rising bills are due to green levies. Miliband also delivered an effective riposte to the charge that his environmentalism was to blame for excessive prices: "They’ve been floundering all over the place and they blame the last government and green levies. Who was it who said: ‘I think green taxes as a whole need to go up’? It was him as leader of the opposition ... I look back at the record on the energy bill of 2010. Did he oppose the energy bill of 2010? No. He supported the energy bill of 2001. You could say, Mr Speaker, two parties working together in the national interest."

Until Cameron devises a policy with as much appeal as Miliband's price freeze, it is still Labour that will look like the party with answers on living standards.

David Cameron leaves Downing Street earlier today. 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