Labour set to avoid promising EU referendum in general election manifesto

Party sources tell the NS that they do not expect Labour to change its stance on a referendum before May 2015.

One likely consequence of the European elections in May will be to reopen the debate over whether Labour should commit to holding an EU referendum at some point after 2015. Despite consistently criticising David Cameron's pledge, Ed Miliband and Douglas Alexander have been careful not to rule out the possibility of eventually matching it. A few months ago, several MPs told me that the party could come out in favour of a referendum after the elections as evidence that it had "listened and learned" to UKIP supporters (not least if Nigel Farage's party wins). 

But based on more recent conversations with Labour sources, the odds are now solidly against such a pledge. One senior strategist told me that he "does not expect" the party to go into the European elections with one stance on a referendum and into the general election with another. Instead, he said, Labour would highlight the uncertainty over Cameron's referendum pledge, such as the absence of a realistic renegotation plan, and remind voters that he has a record of broken promises in this area. The party will also do "much more" to outline its new stance on immigration, the key driver of support for UKIP. 

Separately, one shadow cabinet minister told me that Miliband was "instinctively opposed" to a referendum whenever the issue was discussed. This is not least because he recognises that he has a good chance of being in power after the next election and does not want the opening years of his premiership to be dominated by an unpredictable vote. A public decision to leave the EU in 2017, against Miliband's wishes, would badly damage his authority. 

Cameron's charge that Labour is unwilling to "trust the people" is one that some in Labour fear will haunt them during the general election campaign. Yet there is no evidence that the Tories' pledge will succeed in winning back significant numbers of voters from UKIP, most of whom have far wider grievances, or that it will define the election in the way that some Conservatives hope.

As polling by Ipsos MORI regularly shows, the EU does not even make it into the top ten of voters' concerns. Lord Ashcroft's recent study of Tory-leaning voters found that an EU referendum is "a sideshow" for most of them. He noted: "A surprising number of those we spoke to did not realise it was even on the agenda, and were nonplussed when they found out it was. Those for whom it is important know all about it (though they sometimes doubt it will come to pass even if the Tories win). But to make it a major theme of the campaign would be to miss the chance to talk about things that matter more to more people." If there is an electoral cost to Labour from refusing to match Cameron's promise, it will likely be too small to make a difference. 

Far from being a clever ruse to enhance the party's standing, a Labour pledge would shift the debate back onto Tory territory and allow Cameron to claim that a "weak" Miliband is dancing to his tune. As the Labour leader himself said when James Wharton's EU referendum bill was being debated in the Commons: "I think what we see today is the Conservative Party talking to itself about Europe when actually what they should be doing is talking to the country about the most important issue that people are facing, which is the cost of living crisis. That’s what Labour’s talking about; that’s the right priority for the country." 

Miliband and Alexander have long made a coherent case against a referendum. As Tory MPs continue to disregard warnings from Ashcroft and others not to "bang on" about Europe, they should hold their nerve.

Ed Miliband with shadow foreign secretary Douglas Alexander at the Labour conference in Brighton earlier this year. 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