Nationalised RBS is best for Britain, suggests Cable

BUSINESS Secretary Vince Cable has proposed keeping Royal Bank of Scotland mostly nationalised “as a ward of state”, acting as a domestic business bank.

The suggestion was contained in a leaked letter from the Liberal Democrat Cabinet minister to Prime Minister David Cameron and Deputy Prime Minister Nick Clegg, which was also scathing about the coalition’s industrial policy and vision for the future.

The letter was part of a barrage of economic policies from the Business Secretary which appeared to try to influence the Chancellor’s Budget in two weeks’ time.

Tories in the coalition complained Mr Cable has brought negotiations between the two parties out into the open following Mr Clegg using a speech last month to call for the tax threshold to be raised.

RBS is still 83 per cent owned by the taxpayer following its £45.5 billion bail-out in 2009 and there has been criticism that the former international giant is still worth less than the money the last Labour government ploughed in to save it.

The new proposal by Mr Cable came as there were angry exchanges in the Commons over RBS outsourcing more than 200 Edinburgh jobs to India during Treasury questions.

In his letter, Mr Cable insisted that RBS cannot be returned to the market as a private business in its current shape, even though it has already dumped its investment arm.

He appeared to suggest that it remain in effect an arm of government to help boost investment in the UK.

He wrote: “My suggestion is that we recognise that RBS will not return to the market in its current shape and use its time as ward of state to carve out of it a British business bank with a clean balance sheet and a mandate to expand lending rapidly to sound business.”

The suggestion looked set to cause friction with the Treasury – where Tory Chancellor George Osborne is believed to support putting the bank back into private hands as quickly as possible.

After the letter emerged last night, Mr Cable insisted he had merely been “floating an option”.

He said: “There is a real problem with funding SMEs [small and medium-sized enterprises].

“The particular initiative the government is taking at the moment is the so-called credit easing initiative, the Chancellor is going to set out all the details of that in the Budget.

“But there are various other options and I was floating some in that letter.”

He added: “When there are any specific proposals we will talk about them in more detail.”

In the letter Mr Cable also said the government “badly needed” an initiative that would give confidence to businesses that “expansion would not be choked off by the banks”.

RBS declined to comment on Mr Cable’s letter, but it is understood that its details have surprised the bank.

RBS has in the past 12 months already changed from being an international to a mostly domestic bank and is now responsible for 48 per cent of business lending in the UK of all the banks even though it represents a quarter of the overall domestic market.

John Walker, national chairman at the Federation of Small Businesses (FSB), said he welcomed “the debate that the Business Secretary’s letter will bring”.

He added: “As the FSB has long said – tinkering around the edges will not help.

“We need bold action – such as he suggests on RBS – and as such have called on the government to establish a small business administration to fully champion the needs of small businesses.”

In the letter, Mr Cable said the government lacked a “compelling vision” of where the country was heading beyond sorting out the “fiscal mess”

.A lack of lending to smaller and medium-sized businesses remains a political hot topic after the government’s “Merlin” agreement with the country’s largest banks failed to funnel enough credit to smaller firms.

Labour said that the letter was evidence that Mr Cable himself does not have a proper business strategy for the future and that the coalition has been unable to look beyond austerity measures.

Shadow business secretary Chuka Umunna said Mr Cable’s letter underlined “the extent to which the Department of Business lacks clout”.

“It is becoming increasingly clear that David Cameron and George Osborne have become roadblocks to the modernisation and reform needed to create a more productive economy,” he added.

There was agreement from business leaders that the government needs to rethink its strategy.

CBI director general John Cridland said: “We need to learn lessons from the past, look again at how to make industrial policy work in practice, and put it firmly back into our plans for stimulating growth.”

Stephen Tetlow, chief executive of the Institution of Mechanical Engineers, said: “Vince Cable is saying what we’ve all been saying for some time: if we want a vibrant, sustainable, world-beating industrial sector, then the vision must stretch well beyond the vote-catching life of a parliament.”

In the Commons yesterday the decision by RBS to cut 200 jobs in Edinburgh and create 250 in India was raised by Labour Edinburgh North and Leith MP Mark Lazarowicz during Treasury questions.

Mr Lazarowicz argued that “billions of pounds of taxpayers money” had not been ploughed into RBS for the bank to outsource jobs and he asked the Chancellor to intervene using the government’s majority share.

But Mr Osborne told him that the government had no plans to change the arms-length model created by Mr Lazarowicz’s fellow Labour Edinburgh MP Alistair Darling, the former Chancellor.

Afterwards Mr Lazarowicz said: “George Osborne did not appear to show any sympathy or understanding for those who face redundancy.

“What is particularly worrying is that RBS did not previously outsource jobs overseas in this way, and this could be the thin end of the wedge.”

He added: “I do not expect the Chancellor to get involved in the day-to-day running of the bank, but this is a major shift in policy and the government should get involved and make it clear that this is unacceptable.”