Hard ball: anti-World Cup protests in Sao Paulo on 25 January. Photo: Getty
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Football’s murky economics, a quiet renationalisation and a fond farewell to a friend

Peter Wilby’s First Thoughts column. 

The real puzzle about the World Cup is not why football’s governing body Fifa chose to stage the 2022 tournament in a country that has little interest in the game and has temperatures sometimes touching 50°C in summer – see the alleged financial bungs detailed by the Sunday Times – but why any­body wants to host the thing at all. To most inhabitants of countries that bid “successfully”, the World Cup is about as welcome as a plague visitation.

Even in football-mad Brazil, the imminence of this month’s World Cup caused riots on the streets. The Brazilian government has spent £2bn on stadiums alone; they were supposed to cost a quarter of that, with business stumping up most of the money. South Africa, which hosted the 2010 tournament, recouped only a tenth of what it invested. The American host cities for the 1994 tournament lost an estimated $9.26bn (£5.53bn). At least Germany didn’t lose money in 2006 but the boost to the economy was an almost invisible 0.07 per cent, tourist revenue being largely wiped out by Germans fleeing the tournament.

Whether or not money finds its way into the bank accounts of leading football officials – as the Sunday Times alleges – is, in a way, beside the point. International sports tournaments are just machines for transferring resources from taxpayers to multi­national corporations and for allowing officials of sports governing bodies, their relatives and hangers-on to stay in posh hotels and travel in limousines.

Inspectors inspected

You’d need a microscope to find the newspaper reports but Sir Michael Wilshaw, head of Ofsted, has made a highly significant move. Next year, he will sack the private firms that carry out inspections of schools and colleges and instead employ inspectors “in-house”. After 25 years, school inspections have been renationalised.

The three firms being shown the door include Serco, which scoops revenues of more than £4bn a year from running outsourced public services such as prisons, transport, health and waste disposal across the world. In 2011, it made £238m in pre-tax profits and paid its chief executive £1.86m but has since fallen on harder times after various scandals. The third-party firms were accused of making erratic judgements in schools, employing poorly qualified inspectors and failing to follow the latest guidelines.

I doubt most parents realised that schools weren’t checked by the respected HMIs of old; they would have been alarmed to discover that, in one of the dafter manifestations of late Thatcherism’s anti-statism, the job had been privatised. I’d be surprised if Michael Gove, the Education Secretary, approves of Wilshaw’s move. I warned Gove that this man, though traditional in his educational views, would be trouble.

Mind your language

More examples of how, as I wrote a few weeks ago, rows over “inappropriate language” dominate the news: Prince Charles comparing Vladimir Putin to Hitler; male critics calling an opera star “unsightly”; a Labour MP repeating Gordon Brown’s “bigoted woman” description of Gillian Duffy; Joey Barton on BBC1’s Question Time comparing voting Ukip to choosing the best of four ugly girls. I don’t approve of such comments and think it right to hold public figures to high standards of taste and manners. But I can’t help feeling we should perhaps save our anger for other issues. Our rulers in government and the corporate sector must be relieved we don’t.

 

Muscles from Brussels

“Brussels tells UK to increase taxes”, screams the Daily Mail headline, reporting the European Commission’s opinion that the UK should find something less regressive than council tax to control the housing market. Thus is the view subliminally implanted that the commission is an overpowering bossy-boots. The headline should read “Brussels urges UK to increase taxes”.

 

After the storm

My friend Peter Dunn has died at 80. Formerly an Observer, Sunday Times and Independent journalist, he was a frequent contributor to the New Statesman during my editorship. His most memorable piece, in 2003, considered whether there was “something worryingly adrift in the mind of Anthony Charles Lynton Blair” – or, in short, whether the then PM was a psychopath.

Blair’s sanity had already been questioned. But Peter researched it exhaustively, talking to psychologists and psychiatrists, and we made it the cover story. It created a brief storm and the magazine’s then proprietor, Geoffrey Robinson, a close ally of Gordon Brown, was assumed to have instigated it. Robinson was innocent. The idea came entirely from Peter’s fertile and mischievous mind. I shall miss him terribly.

Peter Wilby was editor of the Independent on Sunday from 1995 to 1996 and of the New Statesman from 1998 to 2005. He writes the weekly First Thoughts column for the NS.

This article first appeared in the 04 June 2014 issue of the New Statesman, 100 days to save Great Britain

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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