One of Labour's most effective operators. Photo:Getty
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Why Labour is playing for a draw as far as business is concerned

Labour's policies deserves a better relationship with business that it has. But its aggressive rhetoric has done it unnecessary harm.

On Monday Ed Miliband launched a brave if somewhat forlorn attempt to neutralise some of his more strident business critics in the run up to May 7th.  By making an appeal to pro-EU sentiment the centrepiece of his election manifesto for business, the Labour leader attempted to play up fears that a future Conservative government would preside over an EU exit, with all that would mean for the dampening of trade and investment.

As an electoral tactic, reinforced by a full page advertisement in the Financial Times, the move was only partially successful.  Grumbles quickly emerged from business leaders like Siemens UK boss Juergen Maier who had been quoted in Labour’s ad saying “The prospect of a referendum that may or may not happen, at a date yet to be decided upon, with a choice between two unknown options, is profoundly worrying for business leaders”. 

Individuals and their companies did not deny the quotes, which were all in the public domain.  But there was clear irritation at the apparent co-option of business voices in the Labour Party’s election campaign - particularly as the business leaders in question were given very little opportunity to prevent the inclusion of their quotes in such a partisan communication.

Frosty Relations

The communications between Ed Miliband and the corporate world have been somewhat testy ever since his infamous caricaturing of businesses as either predators or producers in a party conference speech in 2011.

And in a pre-election skirmish in January that was clearly calculated to undermine Miliband’s business credentials, the Daily Telegraph carried a critical interview with outspoken multi-billionaire Stefano Pessina, chairman of high street chemists Boots.  Pessina – an Italian citizen who pays his personal taxes in Monaco – was quoted saying that if the Labour Party acted in government as it speaks in opposition “it would be a catastrophe.”  

Some commentators believe that  Miliband came off better in the ensuing controversy, pointing out that it is not for foreign tax exiles to tell the British people how to vote.  However, it was not long before Miliband was forced to defend his personal approach to tax planning and indeed the tax practices of his small band of business supporters in the right wing press. 

Meanwhile, other British business leaders accused the Labour leader of stifling debate by making personal attacks on Pessina.

Unfortunately, in a Newsnight interview around the same time Shadow Chancellor Ed Balls struggled to recall the name a business supporter he had met earlier that day. 

It seems safe to say that the business community will not be coming to the rescue of Ed Miliband in time for May 7th, save for a few Labour-created peers in the House of Lords and individuals like Simon Franks, the philanthropist co-founder of on-line movie business LoveFilm, and Dale Vince of green energy firm Ecotricity.

It was all very different under New Labour.

The Cosy Years

Tony Blair’s biographer John Rentoul described how much the former Prime Minister was fascinated by entrepreneurs, identifying with their reforming instincts and propensity for risk taking.  Blair was also keen to attract alternative sources of party funding as New Labour sought to reduce its financial dependency on the unions. 

His team pursued business endorsements assiduously in the run up to the landslide victory in 1997.  Building on the party’s long term seduction of business leaders, dating back to John Smith’s ‘prawn cocktail offensives’ of the early nineties, Body Shop founder Anita Roddick was one obvious target for the New Labour team.  At that time she was one of only two business people recognisable to the general public, the other being of course Richard Branson.

Roddick had long been courted by the Liberal Democrats and took some convincing that it was worth her while switching sides in order to defeat the Conservatives.  But like many people in the mid-1990s she was despairing of the visibly fragmenting Conservative government of John Major.  She had felt particularly let down by Major’s lack of action on behalf of Ken Saro Wiwa, the Nigerian environmental and human rights activist executed by military dictator Sani Abacha in 1995.

Labour’s first TV broadcast of the meticulously executed 1997 campaign was a masterstroke. It focused on why big business was delighted by the prospect of Prime Minister Tony Blair.  Anita Roddick’s interview led the broadcast followed by comments from Terence Conran of Habitat and Chair of Granada TV Gerry Robinson. Labour never did get a plug from Branson, who restricted himself to a photo-op with Blair standing next to one of his red locomotives.

Of course it all ended in tears.   In his damning history of the rise and fall of New Labour, The End of the Party, Andrew Rawnsley catalogues how allegations of corporate influence started early for  Blair, with the appearance of a direct conflict of interest over relations with Labour donor Bernie Ecclestone and the protection of tobacco advertising in Formula One racing.  The story broke in 1998 but dated back to a personal meeting between Ecclestone and Blair just a few months after his election.

The perception of favouritism to business donors and lenders persisted throughout Blair’s time in office, reaching a low point with the ‘cash for honours’ scandal in 2006.  Despite receiving a knighthood, Anita Roddick gave up on Blair over the Iraq war

Too Late to Tango?

It is interesting to speculate whether the Blair and Brown governments would have played out differently if they had paid less attention to business leaders as sources of cash and instead paid more serious attention to supporting the growing movement for socially and environmentally responsible ‘stakeholder inclusive’ business practices.

Blair certainly had sufficient popular support - and the parliamentary majority - to effect progressive reforms to corporate governance and regulation, but he and his ministers had no interest in that particular form of modernisation. 

Perhaps a less timid company law review in the early years of New Labour might have tempered some of the excesses of ‘financial capitalism’ that caused the Great Recession of 2007-9.   However in all likelihood such reforms would not have had a material impact on the global banking madness that precipitated the financial meltdown.  

Although Gordon Brown was among its most hubristic cheerleaders, light financial regulation was not invented by New Labour.  And countries with more effective systems of corporate governance and regulation such as we see in northern Europe were not immune to the crash.  Casino banking can only be prevented by effective system-wide regulation as Brown has now accepted

So with the benefit of hindsight, how is Labour is to learn the lessons of the Blair/Brown years and the deeply troubled relations with big business they represented?

In my view it is unhelpful to create simplistic caricatures of business people.  The predator versus producer commentary was a divisive mistake and should have been withdrawn.  Businesses are social institutions, just like political movements - neither wholly virtuous nor completely venal.

That is why Labour must continuously emphasise principles of good corporate governance, regulation and transparency, creating real forums for effective policy making with business organisations both in opposition and in government.  Businesses need help navigating the rampant forces of globalisation, competition and social and environmental change through high level dialogue and engagement with political leaders.

The Labour party should also champion cross-party initiatives to support small business and entrepreneurship, which are the real drivers of a productive and competitive economy.  To his credit Chuka Umunna has been particularly effective in this regard. 

And finally political leaders should avoid like the plague any action that implies preferential treatment for any source of promised support whether that is from individual business leaders or any other special interests, and this should apply before, during and after their time as government ministers.

Ed Miliband and Chuka Umunna have provided solid evidence that this is the general approach they favour.  So it is a pity that their good work to date has been drowned out in the absence of more cordial and constructive relations with the business community.

But we can perhaps forgive the Labour Party for not focusing on pre-election celebrity endorsements this time around.  It would do them no good in government and is probably not what the public is looking for. 

David Wheeler is President and Vice-Chancellor of Cape Breton University in Canada.  He was an academic advisor to the British Labour Party between 1986 and 2001 and worked at The Body Shop International from 1991 to 1998.  He is writing here in a personal capacity.

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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