Nigel Farage meets locals and party officials during a visit on April 23, 2014 in Yarm. Photograph: Getty Images.
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Farage looks like a bottler - and he only has himself to blame

After foolishly boasting that victory in the Newark by-election would force David Cameron to resign, the Ukip leader marched his troops back down the hill. 

Having marched his troops to the top of the hill, Nigel Farage has just marched them down back down again. After stoking speculation that he would stand in the Newark by-election by boasting last night that David Cameron would have to resign if he won, the Ukip leader has just told the BBC that he won't be running after all. He said outside his home in Bath: 

It was only 12 hours ago that Patrick Mercer stood down, so I haven't had long to think about it, but I have thought about it, and we're just over three weeks away from a European election at which I think Ukip could cause an earthquake in British politics, from which we can go on and win not just one parliamentary seat but quite a lot of parliamentary seats.

For that reason, I don't want to do anything that deflects from the European election campaign, so I'm not going to stand in this by-election.

I want to focus the next three weeks on winning the European elections and also I don't have any links with the East Midlands. I would just look like an opportunist, and I don't think that would work.

Were he being honest, Farage would have admitted that there was one big reason why he chose not to stand: he feared he would lose. The Tories currently enjoy a majority of 16,152 in Newark and a lead of 25,636 over Ukip (which polled 3.8 per cent in 2010). Even with the momentum that would follow victory in the European elections, overcoming that deficit would have been a daunting challenge. Ukip briefed this morning that it fears the elderly, middle-class Conservative vote is "solid", and it is almost certainly right. 

Farage made the right call. But having allowed, and even encouraged, speculation to run out of control, he has been unavoidably damaged this morning. There was no need for him to boast that he was powerful enough to topple Cameron, or to declare that winning a Westminster seat would "transform the landscape" for Ukip. He could simply have told reporters that he would "sleep on it" and decide in the morning. 

Farage may well still lead Ukip to a remarkable victory on 22 May (indeed, the polls suggest he is almost certain to). But right now the politician he most resembles is Gordon Brown after the election that never was in 2007. For the first time in weeks, Ukip's momentum has stalled. 

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