Ed Miliband's banking reform speech: the full details

In another no-notes speech, the Labour leader will promise to introduce a cap on banks' market share and to create two new challenger banks.

So well-trailed has Ed Miliband's speech on the economy been that it is easy to forget he hasn't actually delivered it yet. That, and George Osborne's announcement that he favours an above-inflation rise in the minimum wage, means Miliband may struggle to command the attention of the media tomorrow. But the speech, which I'm told by a Labour source he will deliver without notes, is an important guide to the narrative he will pursue in the months to come. With average wages likely to outstrip prices at some point this year, he will seek to reframe the "cost of living crisis" as a long-term problem that will only be solved through long-term changes to the economy. Here's the key passage:

This Government thinks it is all going to be OK because this year the forecasts say that average wages will eventually overtake prices. Let’s hope that happens. But I really warn this Government: if they think a few months of better statistics will solve this crisis, they are just demonstrating again that they have absolutely no idea about the scale of the problem or the solutions required.

This cost-of-living crisis is about who gets the rewards, not just the averages: ordinary people or just those at the top? It is about the nature of work and whether it is secure or insecure. It is about the prospects for people’s kids and the quality of jobs. It is about decent homes at affordable prices. It is about a strong sense that this cost-of-living crisis has been coming for a long time.

As expected, Miliband will cite the banking sector as an area that will need to be dramatically reformed if the economy is to deliver sustained increases in living standards for the majority of the country. The intention is to deliver what his chief strategist Stewart Wood calls a "supply side revolution from the left". He will say: "At our Party Conference in September, I talked about how we will reform Britain’s broken energy market.  The big energy firms didn’t like it. But it is broken. And only Labour will put it right.

"Today, I want to talk about another broken market: Britain’s banking system. There can be no bigger test of whether we are serious about building a new economy and tackling the cost-of-living crisis than reforming Britain’s banks.

"Part of the reason we rely too much on low paid, insecure work is that the small and medium sized firms - that could create the good, high paying jobs of the future - can’t get the finance they need.

"Of course, financial services are an important industry in itself. But for an industry that calls itself a ‘service’, it has been an incredibly poor servant of the real economy. Not just since 2010 - or 2008 - but for decades in this country. We need a reckoning with our banking system, not for retribution, but for reform."

Taking inspiration from the US, where banks are subject to a national deposit cap of 10% and a state-level cap of 30%, he will pledge to introduce a legal limit on the market share any one bank can have of personal accounts and small business lending.

If we carry on as we are, we will end up stuck with the same old banks dominating our high street: the old economy. In America, by law, they have a test so that no bank can get too big and dominate the market. We will follow the same principle for Britain and establish for the first time a threshold for the market share any one bank can have of personal accounts and small business lending.

Labour sources insist that the party has no exact figure in mind, rejecting the 25% limit reported by Newsnight on Tuesday, instead stating that they will be guided by three main aims:

1. To improve the price and quantity of lending to small businesses

2. To improve service to all customers

3. To create at least two new challenger banks with significant market shares

Miliband will announce that Labour will instruct the Competition & Markets Authority to report within the first six months after the election on how to implement this plan, ruling on:

  • How many additional branches the big banks will need to sell off and other regulatory changes needed to bolster competition
  • The timetable for the divestment of branches beginning within six months of the report and completed within a five year parliament
  • The maximum threshold for future market shares which would automatically trigger another CMA  investigation if breached - and prevent any merger or acquisition taking place which exceeds that threshold.

He will conclude: "I want to be clear about the difference this will mean: this is not about whether we should have new banks - that is the question this Government is still asking - but about how. It is not about creating new banks that control some tiny proportion of the market. But new banks that have a substantial proportion and can compete properly with existing banks. And we are not asking whether existing banks might have to divest themselves of significant number of branches. We are asking how we make that happen."

"After decades of banking becoming more and more concentrated, Labour will turn the tide. I want to send a message to our small and medium sized businesses: Under a Labour government, you will no longer be serving the banks. Instead, the banks will be serving you: you will have a better chance of getting the support you need to grow your business, employ more people, at decent wages, making profits and helping Britain succeed."

In response, we can expect the Tories and the Lib Dems to reply that they will take no lectures on banking reform from a member of the government that presided over the biggest financial crisis in modern history. To this, Miliband will remind the Tories that they were calling for less, not more, regulation before the crash, while also acknowledging the failings of the last Labour government in this area (as he has done many times before).

But while many in Labour will welcome Miliband's renewed commitment to a transformed economic model, some are disappointed by the absence of a clear "retail offer" in what is his first speech of the new year. With the Tories making landmark pledges such as the guarantee to preserve the triple lock on the state pension and coming out in favour of a large increase in the minimum wage, the pressure is likely to grow on Miliband to offer more doorstep-friendly policies sooner rather than later.

Miliband will say the banking system has been "an incredibly poor servant of the real economy." Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

Getty
Show Hide image

Brexit has opened up big rifts among the remaining EU countries

Other non-Euro countries will miss Britain's lobbying - and Germany and France won't be too keen to make up for our lost budget contributions.

Untangling 40 years of Britain at the core of the EU has been compared to putting scrambled eggs back into their shells. On the UK side, political, legal, economic, and, not least, administrative difficulties are piling up, ranging from the Great Repeal Bill to how to process lorries at customs. But what is less appreciated is that Brexit has opened some big rifts in the EU.

This is most visible in relations between euro and non-euro countries. The UK is the EU’s second biggest economy, and after its exit the combined GDP of the non-euro member states falls from 38% of the eurozone GDP to barely 16%, or 11% of EU’s total. Unsurprisingly then, non-euro countries in Eastern Europe are worried that future integration might focus exclusively on the "euro core", leaving others in a loose periphery. This is at the core of recent discussions about a multi-speed Europe.

Previously, Britain has been central to the balance between ‘ins’ and ‘outs’, often leading opposition to centralising eurozone impulses. Most recently, this was demonstrated by David Cameron’s renegotiation, in which he secured provisional guarantees for non-euro countries. British concerns were also among the reasons why the design of the European Banking Union was calibrated with the interests of the ‘outs’ in mind. Finally, the UK insisted that the euro crisis must not detract from the development of the Single Market through initiatives such as the capital markets union. With Britain gone, this relationship becomes increasingly lop-sided.

Another context in which Brexit opens a can of worms is discussions over the EU budget. For 2015, the UK’s net contribution to the EU budget, after its rebate and EU investments, accounted for about 10% of the total. Filling in this gap will require either higher contributions by other major states or cutting the benefits of recipient states. In the former scenario, this means increasing German and French contributions by roughly 2.8 and 2 billion euros respectively. In the latter, it means lower payments to net beneficiaries of EU cohesion funds - a country like Bulgaria, for example, might take a hit of up to 0.8% of GDP.

Beyond the financial impact, Brexit poses awkward questions about the strategy for EU spending in the future. The Union’s budgets are planned over seven-year timeframes, with the next cycle due to begin in 2020. This means discussions about how to compensate for the hole left by Britain will coincide with the initial discussions on the future budget framework that will start in 2018. Once again, this is particularly worrying for those receiving EU funds, which are now likely to either be cut or made conditional on what are likely to be more political requirements.

Brexit also upends the delicate institutional balance within EU structures. A lot of the most important EU decisions are taken by qualified majority voting, even if in practice unanimity is sought most of the time. Since November 2014, this has meant the support of 55% of member states representing at least 65% of the population is required to pass decisions in the Council of the EU. Britain’s exit will destroy the blocking minority of a northern liberal German-led coalition of states, and increase the potential for blocking minorities of southern Mediterranean countries. There is also the question of what to do with the 73 British MEP mandates, which currently form almost 10% of all European Parliament seats.

Finally, there is the ‘small’ matter of foreign and defence policy. Perhaps here there are more grounds for continuity given the history of ‘outsourcing’ key decisions to NATO, whose membership remains unchanged. Furthermore, Theresa May appears to have realised that turning defence cooperation into a bargaining chip to attract Eastern European countries would backfire. Yet, with Britain gone, the EU is currently abuzz with discussions about greater military cooperation, particularly in procurement and research, suggesting that Brexit can also offer opportunities for the EU.

So, whether it is the balance between euro ‘ins’ and ‘outs’, multi-speed Europe, the EU budget, voting blocs or foreign policy, Brexit is forcing EU leaders into a load of discussions that many of them would rather avoid. This helps explain why there is clear regret among countries, particularly in Eastern Europe, at seeing such a key partner leave. It also explains why the EU has turned inwards to deal with the consequences of Brexit and why, although they need to be managed, the actual negotiations with London rank fairly low on the list of priorities in Brussels. British politicians, negotiators, and the general public would do well to take note of this.

Ivaylo Iaydjiev is a former adviser to the Bulgarian government. He is currently a DPhil student at the Blavatnik School of Government at the University of Oxford

0800 7318496