Labour needs to stop fiddling and get on with the big stuff

by Rob Marchant

The opportunity for Labour to score party points against the Tories on the economy is clearly diminishing. While that is difficult rather than disastrous, our reaction is important.

Last week, FT’s Janan Ganesh tweeted a characteristically shrewd observation: influenced by campaign groups, Labour seemed to have furthermore abdicated responsibility for forming a competing macro policy. It had therefore embarked on a series of eye-catching micro initiatives with social aims – intervening in energy markets, stopping payday loans and so on – but had gone quiet on the economy at large.

While many of these measures are fully respectable and positive in themselves, they are hardly a substitute for a robust macro policy, clearly distinguished from the coalition’s. And the obvious danger is that while the coalition looks strategic, we look, to put it bluntly, like tinkerers rather than players.

The culmination of all this micro thinking came last Friday, with Miliband’s statement on banking reform.

Now, banking reform is important and, on the face of it, an ideal place for Labour to make a difference. Why? Because we know (i) that it needs reform, and (ii) that the Tories will soft-pedal on anything which affects City friends and donors – that’s the reality. So far, so good.

But this noble end doesn’t mean that this is the right means. Because, here’s the thing: Labour has straight-facedly announced that the centrepiece of its solution is to create not one, but two new high street banks.

When it comes to critiquing this idea, one’s immediate instinct is to return it to the oven, just to complete the other half of the baking.

Let us not even quietly note, as John Rentoul did on Saturday that, even though better regulation is clearly required in general, the specific case against banks as uncompetitive quasi-cartels is “not proven”. Or that, as the British Bankers’ Association fairly pointed out, customers might not actually want be forced to go through the hassle of changing providers.

Let’s think about what such a policy might mean.

Banks are not generally “new” businesses. Some businesses are bricks and mortar, or plant and machinery, but banks are not. Banks trade off assets, yes, but some of them are not as tangible as you might think.

They are built up from intricate collections of relationships, people and transactions, usually over long periods of time. You do not create a new bank overnight; they are invariably created from older ones (for example, the “new” megabank ING was born out of a merger of two older Dutch institutions over twenty years ago, whose original constituent parts are mostly Victorian).

It is one thing creating an empty bucket, into which you can throw assets such as branches; it is quite another to create a bank.

They are the culmination of years, sometimes centuries, of building up trust and reputation, off which they trade. Now, arguably reputations have suffered a bit of a battering in recent years, but the idea that you can just “create” a bank is bizarre. You cannot just buy a building, stuff it with cash, and try to get people to walk in the door. You will still need to get someone to take it on who knows what they are doing, and a set of existing relationships. You may even have to entice another bank to create it, at your own cost.

So, we are still light on detail, but it seems the mechanism would be forced divestment of branches by the existing big banks to new “challenger” banks. As the FT also points out, Lloyds and RBS “were forced to offload branches following their 2009 government bailouts, both struggled to find buyers for the new businesses and have so far each racked up more than £1bn in costs splitting them out.”

So, a pretty inspiring track record, then. Even experienced banks couldn’t manage to do what they were being asked, let alone new ones.

What is entirely beyond doubt is that you cannot just magic up a new bank or two and expect it to work. Indeed, the crowning daftness of this idea comes from the fact that these new banks would undoubtedly require some kind of government handholding not just at the beginning, but in their ongoing management for some considerable time until they settled down.

And what does the government – especially a Labour government, all but bereft of real-world experience of business, let alone banking – actually know about running a bank? All right, the last government took over RBS as a last-ditch response to an international crisis, and gave itself a massive headache to sort out in the process. But why would you do that to yourself voluntarily?

Furthermore, if this does not signal a return to the Labour’s disastrous 1970s record on dubious state-backed enterprises, it is difficult to see what does. Indeed, in another FT piece, Jim Pickard notes the “spooky” similarities between Labour’s recent policy and agenda and its 1979 manifesto, where the much-trumpeted “cost of living” agenda also featured heavily. Gulp.

No, the net perception to any casual observer is of just another example of how we have ceded the “serious” ground of macroeconomic policy to the Tories, to concentrate on a raft of measures which amount to a lot of well-meaning tinkering. And all in a pre-election year, just at the point when it seems that the government’s macro strategy is doing a good impression of finally coming good.

As we pointed out three years ago, it matters not a jot that our strategy would have been better; “yes, the recovery may have come but we would have done it more quickly” is hardly a convincing rallying call. As the City wags say: Harry Hindsight, the greatest trader of them all.

If this sounds a little bad-tempered, that’s because it is. This comes across not as economic policy, but a self-indulgent wander up Wonk Lane by people with considerable experience in the academic theory of finance and none in its practice.

The economy is still the only story which matters, which means the big stuff. And while our modest poll lead is burning away, we, like Nero, are fiddling.

Rob Marchant is an activist and former Labour Party manager who blogs at The Centre Left


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9 Responses to “Labour needs to stop fiddling and get on with the big stuff”

  1. Mike Stallard says:

    Here is a point of view from an admittedly right wing person. I always relish it when someone from the left wing comments on a right wing blog because it is a change and it makes me think. (I have the honour of already being banned from Labour List.)

    The banks are in a hopeless position. The problem is the debt. The banks are the machinery which is handling a national debt which under the last three administrations, of both parties, has been creeping up until it is now approaching £1,500 billion pounds. That means that interest rates have to be kept really low because the government has borrow – from the banks – to keep going.

    If the worst happens, then you can kiss goodbye to Police, Teachers, NHS staff, local government and even – God forbid – MPs! They will all be out on the rainy streets demonstrating and looking for cardboard for their night’s shelter.

    If the debt could possibly be brought down, then the banks could be free to function once again like they did under Mr Mainwaring of Dad’s Army fame.

  2. Henrik says:

    Rob, I feel your frustration. I’m very much afraid that your Party’s internal focus has left it still unfit for Opposition, never mind Government. At no point has anyone from Labour stood up and painted a picture of Britain post-2015, if Labour were to win the next election, which is anything other than a sort of “not quite as miserable as it is now, plus we’re not evil Tories, oh and this time, this time, we won’t screw up the economy” extended whine.

    With an economy moving again and a senior leadership team who appear to have some trouble gaining any sort of traction with the electorate (who seem to feel they’re, you know, odd) – and a complete lack, as you note, of a compelling narrative, I think you can forget 2015.

    You have until 2020, now, to sort out all that internal baggage and fight the war for the soul of the Party. Is it to be ideologically pure and a party of the left, somehow dodging the convenient slander that it is the party of the public sector worker and the workshy (note, I’m not conflating these two), or is to be a pragmatic centrist party, almost indistinguishable, except in matters of fine tactical detail, from its opponents?

  3. Ex-Labour says:

    It was Labour who encouraged banks to merge and take over other struggling banks during the financial crisis, so the utter hypocrisy of Miliband now wanting to tinker with the banks in yet another state intervention is I’m afraid typical of him.

    Labours financial accumen and judgement is poor, with Labour economists such as David Blanchflower getting just about every prediciton wrong, Labour saying nothing about the role of the Crystal Methodist at the Co-Op etc.

    However I have to agree fully with your main point which I take to be that Miliband and Labour actually need to come up with a strategic financial policy and set out their direction. All Miliband is doing is cherry picking a few populist causes and making a statement without any knowledge or method of doing what he says.

    Perhaps, as Dan Hodges said recently, Labour have lost the welfare arguement and should shut up about it. Well, it seems they know they have lost the financial arguement and certainly dont want to speak about it.

  4. paul barker says:

    With Unemployment falling faster than any time since Blairs New Dawn your problems have just got worse. What exactly are Labour moderates planning to do ?

  5. John reid says:

    When Blair came in it was the first time ever A Labour govt inherited the economy in a good state, 45′ The War, 64 Reginauld Maulding apologising to Jim Callaghan after leaving office, and 74 not necessarily due to Heath,but the Middle East,

    So yes unemployment didn’t fall a great deal,during Blairs time, baring in mind it tripled during the 80’s ,unemployment was always going to fall in the 90’s, as for unemployment falling one, it as also due to coming out of a recession,caused by bankers,let alone that wit the amount of people now homeless or using food banks,they’re not on the records so don’t count as being unemployed,

  6. Stephen Hildon says:

    “The economy is still the only story which matters, which means the big stuff.”

    Like what? Employment maybe down but people are being forced to take lower paid jobs than they had before. Also new graduates are not able to get the sort of work the new graduates of 10 years ago were able to walk into. Both of which cause low growth for a few years. Osborne still hasn’t been able to match the growth rate in the 2010Q2 when he took over from Darling.

    “And while our modest poll lead is burning away”

    No it isn’t.

    You are very verbose at saying what Miliband is doing wrong but are not able to offer anything positive about what he should be doing.

  7. Robert says:

    Rob makes some good points about new banks but can they do any worse than the old banks? I do not know what he means by ‘big stuff’. I suspect that the truth is that he dislikes Labour’s move away from Blairism to something that resembles traditional social democracy.

  8. Madasafish says:

    Of course Labour have a coherent economic strategy and it’s a vile calumny to suggest they do not.

    It’s called tax and spend. Unchanged. Every Labour Government does it.

    Ed Balls said it quiet clearly .. we’ll spend more, tax more and borrow more.

  9. @MikeStallard: I don’t think banks are doing that badly, really.

    @Henrik: Think the answer is “neither of the above”.

    @StephenHildon: Ha! So our poll lead (poll of polls) has not dropped from around 10% to around 5% on average over the last year? Check out the data.

    @Robert: big stuff = macroeconomic policy. Can you tell me in one sentence what Labour’s current stance is? Because I can’t see what it is myself.

    @Madasafish: to be fair to Balls and Miliband, they actually said they will only increase spending for capital investment rather than expenses. Problem is that most people won’t understand why that’s any different from “spending more”.

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