Power of two: Ed Miliband and David Cameron at the State Opening of Parliament in June. Photo: Getty
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Leader: The end of the “two-party” party

The Conservatives and Labour could once boast of membership of over two million. Today the figure for both is under 200,000. The decline has deleterious practical effects for them.

In 1951, 97 per cent of the electorate voted for one of the two main parties in Britain. By 2010, this had fallen to 65 per cent – and, according to a new poll published by the psephologist and Tory peer Michael Ashcroft, just 59 per cent of those who vote in May’s general election will opt for the Conservatives or Labour.

Rather than seeking to expand their electoral base, both main parties are defensively pursuing core vote strategies. As George Eaton writes on page 22, “Unable to inspire itself, Labour has never seemed further from inspiring the country.” Little better can be said of the Conservatives. Relentless tub-thumping on immigration, including the notorious “Go home” vans, demonisation of welfare recipients and “banging on” about Europe of the sort David Cameron once railed against have combined, in the argot, to retoxify the Conservative brand. The latest ruse from George Osborne was to send letters to taxpayers showing them how their money was spent. In and of itself, such transparency should be applauded but lumping unemployment benefit, in-work tax credits, disability living allowance and public-sector pensions under the banner of “welfare” was disingenuous.

The Conservatives and Labour could once boast of membership of over two million. Today the figure for both is under 200,000. The decline has two deleterious practical effects for them. First, it reduces their campaign funds. This is particularly problematic for Labour, which will be outspent by at least two to one in the election. It also matters for the Conservatives, increasing their dependence on hedge fund managers and leading to the drip-drip of donation stories that reinforce the perception of them as the party of the rich. The second consequence is a lack of activists on the ground, limiting the parties’ ability to mount powerful campaigns outside their heartlands. The collapse in membership could be disastrous for Labour in Scotland: the SNP now has more than 80,000 members, compared with less than 10,000 for Labour north of the border.

The Blair government’s decisions to devolve power to Scotland and Wales and introduce proportional representation in the European elections were a boon to challenger parties. But if these decisions accelerated the growth of insurgent parties, they are not singularly responsible for them. The spasm of “Cleggmania” at the last election and the rise of the SNP, Ukip and even the Green Party are manifestations of the long-run simmering loathing of the political class. Both the Conservatives and Labour have been acquiescent in this.

In many ways the decline of the two main parties is deeply unsatisfactory. It is not good that the Conservatives appear to have written off most of Scotland and much of the English north; the same is true for Labour south of London. Given the scale of the social and economic challenges that the UK faces, the prospect of no government (even a coalition) having a mandate after the next election is worrying. Britain remains lumbered with a voting system that is a two-party relic in a multiparty age.

It could be worse. In the US, on 4 November, the Democrats suffered a bruising result in the midterm elections, confirming that Barack Obama will govern for the last two years as a hugely diminished president. But if this was a protest vote, it was not clear what the US public was protesting against. In an exit poll, just 19 per cent of voters said that they approved of Congress, yet they opted to return the overwhelming majority of these congressmen to office. This owes nothing to satisfaction with them. It is the result of the financial, constitutional and administrative barriers to entry that the Democrats and Republicans put up to prevent the rise of challenger parties.

While Britain does not follow the proportional voting systems favoured by continental Europe, it does allow for a more pluralistic politics. The duopoly of Labour and the Conservatives cannot be maintained indefinitely unless they find new ways to engage with voters. If that is bad news for both main parties, it also means that the British electorate has never been more empowered. 

This article first appeared in the 06 November 2014 issue of the New Statesman, Running out of Time

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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