by Peter Jefferys
Behind the noise of this summer’s events – the riots; phone hacking; Gadhafi’s fall – the great economic issues facing Britain have been largely muted. Of course had this not been a summer of scandal, war and looting, the huge losses and gains on the stock market and the dearth of growth worldwide would be much firmer in the public consciousness. People are already feeling this deep crisis through its ramifications: the rising costs of living and terrible jobs market. We are in a highly precarious position, with many comparisons made to the scale of the crisis in 2007/08 and we must pay close attention to the solutions being offered by the Government and our shadow team.
It is equally vital, though, for Labour to look beyond the day-to-day fluctuations of markets and even quarterly growth figures in order to form a vision for the future of the economy. The Shadow Chancellor has offered a sharp critique of the Government’s economic strategy, but Labour must also have a positive alternative for fairer financial services. A vision that would appeal to voters and reduce the risk of future crises – after all, financial services are at the heart of the current problems.
This is much more than simply advocating ‘banker bashing’ – short term measures of retribution on the city of London. We would do well to remember that financial services are integral to our economy and to the lives of citizens, access to credit and banking services are import right across the economy and our society. Rather, we need to think about long-term, sophisticated changes of emphasis in what sort of financial services we support.
Nowhere is this clearer than with the future of Northern Rock. Labour advocated an approach in the 2010 manifesto that would have seen Northern Rock depositors take back ownership within a new ‘Co-operative Building Society’. Re-mutualisation would reverse the failed Tory policy of allowing Building Societies to become risky shareholder owned banks and create a much safer organisation, unlikely to require a future taxpayer bailout. The Chancellor, however, has decided to flog-off the Rock with no consideration of its future business model. We have a petition to stop the sale here.
Beyond Northern Rock, we are campaigning for a greater emphasis on the role of financial mutuals – such as building societies and credit unions. Financial mutuals are member owned, rather than shareholder owned, meaning that business decisions are taken in the long-term interests of customers, rather than the short-term interests of capital. Labour did much in power to support financial mutuals, but more is needed to increase the diversity of financial services provides. Labour should support the creation of a ‘diversity index’ and corresponding diversity threshold for UK financial services, in order to ensure that such services are not dominated by a few, pseudo-monopolistic plcs.
We are also advocating a new international approach for the rating and regulation of financial products and services. Labour should support much needed reform to Credit Ratings Agencies (CRAs), the bodies which severely mis-rated financial products in the run up to the banking crisis and recently caused unnecessary woes through a downgrade of American sovereign debt, initially based on a $2 trillion miscalculation. The current business model of ratings agencies is a classic conflict of interest – CRAs rate the quality of financial products but are paid for by the same institutions that create and sell those products.
Just yesterday, the former head of Moody’s launched a stinging attack on CRAs, suggesting that there is a longstanding culture of intimidation and harassment within the companies from management to analysts, ensuring that ratings match the needs of clients (large financial institutions).
Given the failure of CRAs to adequately rate debt in the run up to the crisis and the current unnecessary pain caused to the American economy, the time is rife for reform of CRAs. The Co-operative Party advocates the creation of a UN backed mutual Credit Ratings Agency, to be funded by contributions from investors, member countries and debt issuing organisations. The mutual structure would ensure that no one funder has undue influence, giving far greater credibility to ratings issued. This is a great ambition for Labour to get behind, as it puts democracy at the heart of the international financial system.
These policies offer the basis of a co-operative vision for the future of financial services that Labour could get behind. Injecting democracy and other co-operative values into financial services would provide a positive Labour Co-operative alternative to the Coalition’s inaction and de-facto endorsement of the status quo.
Peter Jefferys is the policy and campaigns officer of the Co-operative party
