Comment: Miliband misses the point on big banks
He is certainly not afraid to take on those whom he sees as the enemies of the people. Yet this constant call to man the barricades is out of date, self-defeating and lacking in credibility.
Frankly, political interference rarely works, whether through the nationalisation programmes in the 1960s and 1970s that created the sort of bloated monoliths that Miliband is now trying to dismantle, or the attempt at imposing mutuality on to the banking system via a deal involving Lloyds and the Co-operative Group. That went well, didn’t it?
The coalition has learned some of these lessons, easing off on the bonus issue and a full break-up of Royal Bank of Scotland. But the banks remain a target for politicians looking for easy targets that play well to the man in the street, and as we near the UK general election we can only expect them to take more shots, however misdirected they may be.
By demanding a cap on market share and the creation of at least two more challenger banks through enforced asset disposals, Miliband is making the mistake of believing politicians can somehow create a “fairer” and more competitive market.
He has promised that on day one of a Labour government he will order the Competition and Markets Authority to instigate an inquiry, although he has already decided what its conclusions should be. The thought of yet another review of banking will send a collective groan across the country.
On the face of it, more competition is a good thing, but only if it yields benefits for the consumer and those providing the products. If it spreads customers too thinly then it impacts on the profitability of each company and their ability to invest. So what is the result? They push up their prices to make up for the loss of business.
It also encourages the weaker players to seek out merger partners, leading us back to where we were before more competition entered the market. The truth is that most sectors tend to gravitate to a core number of players. Accountancy has its big four, so do the supermarkets. Law firms are heading in the same direction.
Evidence from overseas suggests the big bank model still works. Australia and Canada are each dominated by four banks, all well capitalised and regulated. The UK has five. The coalition has created two more – TSB and Williams & Glyn – and there are others emerging such as Sainsbury’s, Tesco and Virgin Money. But Miliband wants more.
His actions so far have actually done little to help the sector. Following his announcement on Friday shares in the banks fell, hitting the value of pensions and savings and setting back the prospects of putting Lloyds and RBS fully back into private hands.
Investors in the banks, including those mentioned above which are pencilled in for flotations, are likely to be more cautious because they now do not know exactly what they will be supporting. At the very least they are likely to insist on lower valuations to take account of this uncertainty.
By playing on the public’s continuing distrust of bankers Miliband is in danger of reviving old Labour ideas for achieving wealth distribution which are inappropriate in an era when technology, not unions battling bosses, determines much of how the economy operates.
He talks about forcing banks to offload branches but he ignores the changes taking place such as the move to online banking and the emergence of alternative funding models. RBS is poised to close branches in order to modernise its business model.
The real problem in banking is not that there are too few of them but that they require further reform to root out bad practice. If Miliband turned his attention in that direction he might do us all some good.