What Salmond could learn from Miliband

The Labour leader has displayed a willingness to confront "vested interests" generally lacking in the Scottish First Minister.

Ed Miliband's conference speech may or may not turn out to be the game-changer his supporters hope, but there's little doubting the scale of the Labour leader's ambition. By reaffirming the right of the state to intervene in the market, Miliband is kicking against the constraints Labour imposed on itself during the Blair era and, in the process, attempting to fashion a new post-crash consensus. From a Scottish perspective, it's interesting to contrast Miliband's increasing stridency with Alex Salmond's tepid response to the crisis of neo-liberalism.

When Miliband challenged Rupert Murdoch's reactionary influence over British media and political life, Salmond remained strangely loyal to the News Corporation chairman. When Miliband attacked corporate tax avoidance, Salmond handed Amazon £10m worth of Scottish government money and encouraged the company to establish distribution centres in Scotland. Where Miliband has pledged to rein in monopolistic energy companies, Salmond opposed George Osborne's windfall tax on North Sea oil profits. Since becoming leader, Miliband has displayed a willingness to confront "vested interests" generally lacking in the Scottish First Minister.

In other respects, however, Salmond continues to outflank Labour on the left. The SNP's defence of universal benefits, resistance to public-private partnerships and opposition to nuclear weapons have undermined Labour's claim to speak for progressive opinion in Scotland. Moreover, when it comes to the issue of defence, Labour swings sharply to the right. Last week Jim Murphy, Labour's shadow defence secretary, ridiculed SNP plans to reduce Scottish defence expenditure by £800m - a policy any truly social democratic party would welcome.

Of course, Miliband and Salmond operate in different political contexts. Miliband is trying to seize the opportunity presented by the financial crisis to move the terms and conditions of British debate in a more radical direction. He faces determined opposition not just from the Conservative Party but from the right-wing press and large sections of the English electorate as well. In Scotland, the right has been weak for years and shows little sign of renewal. Hostility to the Conservatives is entrenched. As much as their supporters might deny it, the ideological divide between Labour and the SNP at Holyrood is far less pronounced than that between Labour and the Conservatives at Westminster.

But here's the problem: competition is a good thing in politics. It forces politicians to be innovative. The absence in Scotland of any meaningful challenge from the right has allowed Scottish politics - and with it Scotland's so-called "social democratic consensus"- to grow stale. In line with its Labour-Lib Dem predecessor, the SNP government has taken steps to preserve what remains of Britain's post-war welfare settlement, not radically extend or improve it. Fourteen years on from the founding of the Scottish Parliament, there remains a paucity of Scottish think-tanks and policy units. With the exception of the chronically under-funded Jimmy Reid Foundation, the Scottish left has no equivalent of the IPPR or the New Economics Foundation.

The suspended state of Scottish social democracy is also a reflection of Holyrood's limited remit. The Scottish Parliament can, to some extent at least, mitigate the effects of Tory austerity but it is powerless to pursue an alternative economic strategy. Perhaps independence would enhance the quality of Scottish political debate by testing the strength of the main parties' social democratic convictions - with full control over welfare and economy policy, an independent Scottish government would have no excuses for failing to tackle Scotland's poor social record and lagging growth rates.

That's not to say Holyrood is simply an infant version of Westminster. Since 1999, the Scottish Parliament has passed various pieces of legislation - including on climate change, homelessness and land reform - which, in terms of their radical ambition, far outstrip anything Westminster has produced in recent years. Yet, increasingly, Scottish political discourse feels like one long rhetorical appeal to some ill-defined idea of "social justice". With the independence debate now well underway, Salmond has a unique opportunity to change that. He might benefit from a dose of Miliband's political courage.

Scottish First Minister Alex Salmond addresses a rally of pro-independence campaigners on September 21 in Edinburgh. Photograph: Getty Images.

James Maxwell is a Scottish political journalist. He is based between Scotland and London.

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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