Labour needs to back finance not attack it

By Paul Crowe

Everyone hates a banker these days, right? Overpaid, greedy, venal poster boys (and girls) for the gross distortion of our economy and values.

As Dave Mathieson pointed out on Monday it’s not just British bankers who are busy corrupting their national standards of decency and fairness either. The Spanish bankers are also at it, with Santander and BBVA dishing out eye-watering bonuses that will have many City types wondering what exactly their overseas brethren did to end up with both the weather and the cash.

It’s hard not to recoil when looking at the sheer magnitude of some bonuses and then the gap between top and bottom.

But here’s the problem. Words are powerful, especially on a subject as emotive as this. Attacking injustice is fine, but “bankers” has become a term of abuse that is applied without distinction and as a result ends up tarring everyone working in financial services.

This is unhelpful for the debate and dangerous for Britain’s prospects for two reasons. First, it stigmatises a hard working section of society and second it sets a political context where mindless attacks on financial services are seen as a legitimate response to the crash of 2008.

Some facts. Over 1,000,000 people in this country work in financial services. It contributes over £54bn of tax revenue, over 11% of the government’s total tax receipts and earns over 10% of the UK’s national income.

The vast majority of those people are not Ferrari driving, champagne guzzling clichés. They work in places like Halifax and Coventry, work long hours for average wages and feel devalued by the rest of their countrymen.

Whether they are counter staff in a bank branch, project managers in a regional office or IT support staff in a call centre, these are the real bankers.

Banker-bashing protestors in the City of London have claimed to be speaking for the 99% over the 1%. But when using “banker” as a term of abuse they are attacking the 99.9% of hard-working staff rather than the 0.1% who receive the headline grabbing bonuses.

Beyond alienating nearly a million workers, this sets a dangerous political context.  Within the Labour party there is talk of “rebalancing the economy” away from financial services. As if the success of finance is somehow bad for the British economy.

Rebalancing is a seductive word. It implies some form of automatically self-correcting mechanism. That jobs lost in financial services will be replaced by employment in an industry more politically virtuous.

This is dangerous nonsense. When the Tories talk about rebalancing the economy away from the public sector, it is nothing more than code for public sector job cuts. Nothing is waiting for those laid off from the local authority, health trust or police. That’s why unemployment is currently headed towards 3 million.

So when, on the left, we offer our own talk of balance, we should avoid the populist route of taking a hatchet to financial services and shrinking a productive sector of the economy. Instead, the Labour party and its supporters should consider a longer term vision – a stronger, more diverse economy brought about by nurturing British Industry. Of course, critical to such activity is the credit and support only a strong, integrated financial sector can provide.

The UK is an acknowledged world leader in financial services. Just as in the past the UK was a leader in making cars, ships and textiles. Hundreds of banks and financial institutions from all over the world flock to Britain because it was and currently remains the best place to do business.

But there’s nothing that pre-ordains this will always be so.

If a future Labour government goes to war with finance in pursuit of a mythical rebalancing of the economy, the cost will be felt in the dole queues and in Britain’s international competitiveness.

Many members of the Labour party remember and shudder at the thought of what Mrs.Thatcher did to manufacturing industry in the 1980s. But in the current climate, the party is drifting dangerously towards a neo-Thatcherite attitude that substitutes finance for manufacturing.

Even though the prevailing wind is blowing against banks, its time for a bit of political courage from the Labour party. We shouldn’t just pander and opt for the lazy, comfortable platitudes of class warfare.

Actions have consequences and the Labour leadership would do well to pause before endorsing policies that will scythe into one of this country’s truly world class industries. As with Britain’s past industries, it doesn’t take long to lose the edge and fall back.

The Labour party needs to take a deep breath and consider the hundreds of thousands of people whose jobs are at stake in finance. We need to remember that financial services have a key role to play in the future growth of all our industries. And most of all, we need to develop balanced and strategic policies for the financial sector, not simply hop onto the banker-bashing bandwagon.

Paul Crowe is an entrepreneur. He runs a business that was recently placed amongst the top 40 fastest growing British private companies in the Sunday Times Fast Track 100.

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19 Responses to “Labour needs to back finance not attack it”

  1. Finally. Some sense.

  2. Gareth says:

    “shudder at the thought of what Mrs.Thatcher did to manufacturing industry in the 1980s”

    What Thatcher did was force that industry to become more productive. That resulted in more manufacturing OUTPUT (in time), but fewer jobs. Those jobs were replaced with service industry jobs. Would it be a bad thing if the financial services industry suffered the same fate? It’s not obvious why.

  3. swatantra says:

    This is a brave article to publish at this moment in time when bankers have achieved the pts, even lower in the public esteem than politicians.
    But Crowe makes an important point. Its no point in killing the goose that lays the golden egg, or decimating the financial services sector for ideolociacl reasons in the same wy that Thatcher decimated British Industry becaiuse she had issues against certain left wing unionists.
    Labour has to come to an understanding with the financial sector. Britain has expertise in this field. We have to capitalise on this. Let them work, but only within ethical limits and let it be known that some of their profits will be creamed off in a FTT to help rebuild the social structure that Thatcher destroyed in the 80’s.
    Labour has to come to love ‘business’ otherwise as Country we are going nowhere.

  4. Ben Cobley says:

    This is a pretty threadbare argument.

    I think we can surely manage to distinguish the crazy excess at the top and in investment banking/trading from branch staff and financial services as a sector.

    And whoever talked about taking a “hatchet” to financial services? No one I have heard, and certainly no one of sane mind or disposition.

    As for this old tripe about losing competitiveness (or “the edge”), we would do well to reflect on where this got us – to a situation where we required unprecedented taxpayer bailouts of these institutions, but also one where even in the “good times” the money train of the City was hugely distorting the economy and seeing a huge transfer of assets from the bulk of the population to a gilded, overworked few.

    This is madness incarnate, and it is no good for anyone.

  5. Ian Greener says:

    A mix of silly and sane that doesn’t stand up. Yes, ‘bankers’ covers people earning below average pay and the lunatics that destroyed the economy during the 2000s. But the point is that the profits generated by the large investment banking firms of the 2000s have now been shown, pretty clearly, to be illusory – they were paper profits wiped out completely in 2008/9, and leaving the industry needing billions of taxpayer money. This was not down to bog-standard retail banking, but was due to frankly stupid practices (originate and distribute) introduced on mortgages and banks not investing in businesses, but instead seeking returns by buying and selling financial instruments they did not understand.

    I have no problem with Labour supporting business that has some kind of purpose in generating real wealth for the economy. Retail banking does this (at least when it is done well). The problem is that banking has been corrupted to include a range of practices that have nothing to do with the rest of the economy. This doesn’t create wealth for us, and leads to the ridiculous rewards bankers give themselves while generating nothing of lasting value.

    We need to differentiate between different types of banking – yes. But that does not excuse the practices of the 2000s, or mean that Labour has to support them.

  6. John Moran says:

    You make the mistake of assuming that when people use the term ‘banker’ they include the foot soldiers of the financial services industry. I do not believe that this is the case. It is the excesses of a small minority in the City that is the cause of popular anger not the salary of the girl behind the counter at the local building society. You are right to defend the latter (it is they after all who are suffering job losses) but you are wrong to corral them into a defence of the obscene pay and bonuses of the City.

    It is similarly misleading to use the total GDP contribution to of the whole financial services sector to defend the City. They are not one and the same.

  7. Tim Sewells says:

    The financila crash was caused in the main by top banking executives, fuelled by outragous compensation levels, loading up on exotic mortgage-backed securities in pursuit of short-term profits exponentially-larger than those to be had fulfilling banks’ intended role – ensuring capital and debt flow in the real, productive economy.

    That they have since escaped any meaningful regulation, either here or in the USA, is testament to the level of regulatory capture they achieved during the ‘boom’.

    Labour should be entirely supportive of real, productive banking; and should campaign for a UK version of Glass-Steagall to ensure that never again will casino speculation threaten to shut down the retail and commercial banking sector.

  8. BenM says:

    “Some facts. Over 1,000,000 people in this country work in financial services. It contributes over £54bn of tax revenue, over 11% of the government’s total tax receipts and earns over 10% of the UK’s national income.”

    A fact: the banking clean up has cost GBP1/2trn and rising. The financial crash cost 1.5 million jobs and 7pc of national output. Why are these not mentioned here?

    If the public sector can take a 700k redundancy hit, financial services can take one too.

    The “financial services” industry is one that needs chopping down to size. Starting with the Financial Transaction Tax. We just cannot afford it any longer.

  9. pg says:

    @ben cobley re talking about taking a hatchet to financial services. I’d like to untroduce you to benm above.

  10. Ben Cobley says:

    @pg Nice bit of selective quoting. If I am allowed the same grace I will say “no one of sane mind or disposition”.

  11. pg says:

    @ben cobley. A good point, well made

  12. Mark says:

    Funny how everyone seems to be agreed on the “fact” that it was the financial services industry alone which caused the financial crash. Many MPs now like to peddle that lie by arguing how their constituents are paying such a high price for the banking collapse which had “nothing to do with them”. This is pure non-sense. In one of the few more honest appraisals, I would like to quote Nick Brown, the Labour MP for Newcastle East, who in Monday evening’s Parliamentary debate on the financial services bill, rightly made the point that this mess was caused by a good old fashioned credit bubble. The fact that UK households gobbled up £1 trillion in debts so that they could live out the Thatcherite (and New Labour) dream of endless (and mindless) consumerism actually had quite a lot to do with the average man and woman on the street. The structural public spending deficit run up throughout those years – with the support of both Labour and Tory frontbenches – provided another £1 trillion extension of that debt binge. Weening the Great British Public off of their love affair with debt and correcting the long-term imbalances in government policies which Labour supported throughout it’s 13 years in power – loose monetary policy, loose fiscal policy, poor regulation of the credit market – actually goes to the heart of this debate. But let’s ignore all that shall we because that involves difficult home truths, like having to make permantent cuts in public services we could never afford in the first place. Far easier to just go back to moaning about Fred Goodwin’s pension.

  13. David Mathieson says:

    Financial services are an integral part of the UK economy and a robust banking sector is essential for the future of the City. Which is why we need to have an open debate about what that means so here are three quick points.

    1. A viable financial services industry – intermediaries which marry up savings and investment – is not just legitimate but essential for any economy. As Lord Levene, a distinguished City banker, argues though, banks must remember that they are there to serve the wider community and not just serve themselves. Does this always happen? Not according to Adair Turner of the Financial Services Authority who famously described certain (highly profitable) parts of the industry as ‘socially useless’. I have no idea of Levene or Turner’s poltical sympathies but they are not part of Occupy.

    2. Gillian Tett, Deputy editor of the FT, had a typically acute analysis in the paper last week headlined ‘Forget the Bonus Culture – the Pay Squeeze is Coming’. The percentage of turnover creamed off by fees and commission (including bonuses) in the industry peaked at over 10% just before the crisis – much as it did before the 1929 crash. But they fell during the 1930s and look set to do so again.

    3. The charge that Labour is now anti-City or financial services just does not stick. Few if any in the party criticise the subsidies and state aid which our Labour government provided to this sector of the UK economy – a tax payer bailout without precedent in the history of Britain. But we do agree with the Governor of the Bank of England when he said that an aweful lot of people who were in no way responsible for this crisis are now paying the cost.

    Legitimate questions are being asked about the future of the City and financial services across the political spectrum. It would be bizarre for Labour to sideline itself from that debate.

  14. figurewizard says:

    Mr. Crowe makes a seriously valid point. Most people still harbour understandable resentment against the banks and the senior executives who run them but then so do most of the people in other countries too because banking has become a truly global industry.

    The people running the major banks here today though are a very different breed to their predecessors who failed their businesses so catastrophically. Like him or not Stephen Hester is an outstanding example of that new breed, who has his grip on a clear plan to detoxify RBS’s balance sheet with the long term aim of restoring it to solvency and recovering tax payers’ cash.

    The onslaught against him would have meant a less dedicated chief executive heading for the exit. Given the parlous state of the nerves of the financial markets this would have cost the rest of us dear. Jumping onto a populist bandwagon in order to score points against the government to thereby somehow improve faltering poll ratings is not a useful way of running an opposition.

  15. Ian Blackburn says:

    Its not just the bankers. Top 100 footsie companies CEOs have had equaly massive pay awards. What is it that the party does not understand? That people who have lost jobs, had wages frozen or cut, are seing benefits taken away, working tax credit rules changed, fear among the poor, disabled and elderly over how little money they have. Does our own party believe we are all in it together as well? Quite a few of our shadow cabinet and MPs have come out and say they too think the cuts in welfare are correct. Not a blanket cut they are not. Darling now asks us to lay off the bankers. Understand this. the people are furious at why the poor are taking the blame and the cust while those at the top are detached from them. Cuts are fine. But make sure they are accross all sectors. Greek people are rioting because they are taking the hit because those in charge and the bankers screwed the country. Same here. The poor are takiing the pain/ Perhaps if our parties advisors got out more they too would feel the anger.

  16. Nick says:

    Does our own party believe we are all in it together as well?


    The problem is you caused it. The reason for the cuts is government debt. That includes all the off the book debts, and its not just PFI.

    So you can’t have it Ian. There is no money.

    So instead look at what is going on. It’s a shift to fascism. Targeting individuals. From Brian Haw to Fred the Pleb, government is targeting individuals with laws and the force of the state. They are oppressing people, and Labour did it, Lib dems demand it, Tories too. It’s pure fascism by politicians. You’re no doubt going to be on the list at some point. Government will do you.

    The reason is back to the debt. They don’t want to talk about their mess. It is inevitable that it ends up with massive cuts, Greek style because that is what they choose, or massive cuts because they can’t choose and they can’t pay their debts.

    So in the mean time, they will attack individuals or small groups as a distraction.

    Swap the word banker for black or Jew in lots of the statements, and you will see the real thinking. It is the new Antisemitism, the new racism.

  17. Mike Homfray says:

    We certainly shouldn’t be happy with the importance of financial services within the economy. Labour should always be intrinsically suspicious of high finance and capitalism

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