All aboard the Milibandwagon?

Emboldened by his (sort-of*) success attacking the “Big Six” energy companies, Ed’s next target is the “Big Five”. I sense a theme here.

Well, hasn’t this one got us all talking? I suppose that was the point.

Labour Party leader Ed Miliband’s latest quest is to force a fire sale of bank branches come 2015. The idea is to inject a little more competition into the market (of which currently 85% resides in just five discrete banking groups) by setting up independent “challenger banks” – and, in so doing, give consumers the ability to vote with their feet (or wallet) and keep the “Big Five” (HSBC, Barclays, RBS, Santander and Lloyds Banking Group) in check.

Naturally, this announcement has prompted a wide range of reactions, from vociferous agreement (columnist Simon Kelner’s ‘righteous vengeance and furious anger’) to predictable dismissal (City A.M. editor Allister Heath’s silly Milly… run along and leave economics to the grown-ups), to some lighthearted lampooning by the BBC.

Cheap shot…EMRH

It’s a populist move, no doubt; as the economy starts to eke towards recovery, questions echo louder about where all that austerity has really got the general public. With much of the electorate still struggling to make ends meet, news of hundreds of Barclays staff being paid over £1m in bonuses (£) is an understandably easy and common target for public ire.

Banker-bashing is a predictable source of short-term political capital, but it’s a double-edged sword. Playing this card will work against Miliband unless he maintains his momentum – either he gets the ball rolling on some viable social change on which he can capitalise in a year’s time, or it’ll fizzle out and he’ll lose some serious political face. I see why he’s chosen to do so: Ed had a moderately successful Q4 last year, gaining sympathy from the Daily Mail’s ill-advised hack job about his father and using that to finance his push to tackle the Big Six energy companies.

*Whilst this resulted in only limited success (any savings passed onto the consumer would be at the expense of the environment – if indeed there are any actual savings), Ed managed to steer the debate towards addressing the monopolistic titans in market sectors previously deemed too critical to national recovery to touch, and got token concessions from David Cameron. His motives even received some earnest cross-party support from Sir John Major. It’s a start – but not enough to win an election. He may have stolen a march on Cameron and forced him to react, but he failed to generate enough public anger to actually change much.

And so he turns to the banks. A likely target, and one with a history of manifest public anger. Repeatedly.

…or bullseye?

It’s not entirely misplaced. Heath’s exasperated protestation that

[Labour’s] first target is RBS, even though the bank has now changed beyond recognition since Fred Goodwin’s disastrous days

is utter codswallop. In the past year and a half alone, RBS has been accused (so far accurately) of Libor manipulation, mis-selling exchange rate swaps at their customers’ expense and, of course, flogging PPI. In addition, it has yet more scandals in the pipeline: not only is it not lending enough to small-and-medium sized companies (making those taxpayer-funded bonuses even harder to justify), but it is also apparently “deliberately and systematically” pushing them into default so it could harvest their assets on the cheap.

There’s also some precedent to this. Back in late 2008, Lloyds TSB was only allowed to acquire collapsed rival HBOS with special dispensation from the Government (For The Good Of The Realm), despite strong anti-competitive reservations from the Office of Fair Trading. Barely one year later, the resultant entity (Lloyds Banking Group) required further stimulus and, in return, agreed to sell 600 branches within four years in order to allay EU (and OFT) anti-competition fears by allowing new blood into the market. Together with some divestiture by RBS, roughly 10% of the UK consumer banking market was to be auctioned off to make way for “at least three new banks”, to provoke lenders into actually courting their customers with competitive offers. We’ve yet to see this happen, although, despite the Cooperative’s disastrous attempt at buying 628 branches falling through, plans are still underway to separate TSB from its parent as soon as a new buyer can be found.

Finally, there’s a related legal argument to be made here, which arguably applies to all the Big Five. In essence, anti-competitive behaviour is a big no-no both in the EU and here in the UK. The current Treaty Articles prohibiting cartel behaviour and abuses of a dominant market position (101 and 102 TFEU respectively) have been around in various guises since 1972, and expressly forbid any such cross-border nastiness:

Article 101 prohibits practices which may affect trade between Member States [resulting in] the prevention, restriction or distortion of competition within the internal market, and in particular those which:

(a) directly or indirectly fix purchase or selling prices or any other trading conditions;
(b) limit or control production, markets, technical development, or investment; [or]
(d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage…”

Article 102 prohibits “Any abuse by one or more undertakings of a dominant position within the internal market […] in so far as it may affect trade between Member States. Such abuse may, in particular, consist in:

(a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;
(b) limiting production, markets or technical development to the prejudice of consumers;
(c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
…”

Substitute “between Member States” with “within the United Kingdom” in Article 102 and you’ve pretty much got a verbatim copy of s.18 Competition Act 1998.

Is it just me, or aren’t these provisions somewhat familiar? I swear I heard of something like this (alleged to have been) happening in the banking sector recently…

So, what does this mean for Ed?

Is there a point to all this? Is it leading anywhere? Does Ed have a plan at all? Well, it’s certainly consistent Miliband M.O. As Polly Toynbee points out:

“Miliband has hammered out from the start his critique of a system that delivers for the top few while squeezing everyone else.

“Plainly, he is making headway: why else would the ultra-political George Osborne snap out his wish to raise the minimum wage on the eve of this speech?”

For that, at least, you have to have a modicum of respect for the man: consistency is hard to come by when discussing electable political “values”. Whether you agree with them or not, Miliband’s politics can be seen to stem from an academically coherent, rigorously thought-out political ideology. That’s the key word, long since left to mothball: ideology. It’s Old Labour with a modern twist – redistributive socio-economics that attempts to balance meritocracy, mobility and morality – “Responsible Capitalism”, as he calls it. The crux, however, lies in challenging the very ethos on which Cameron and Osborne are rebuilding Britain: on the backs of the electorally irrelevant.

Taking on the economic system as a whole is a massive gamble, but it may well be the one wildcard he has to play. For when the political middle-ground has a counter-move for every move, how is he going to make his mark? After all, as Toynbee points out:

“If he can’t convince voters that the economy is seriously awry for future growth and for ordinary incomes, why would they choose Labour?”

Either that, or it’s a colossal mistake which will only lower his credibility for clutching at straws. Only time will tell.

2 thoughts on “All aboard the Milibandwagon?

  1. Good man Mr Kemeny for being so ruthless with such a tricky topic and for successfully unraveling the issues therein. A triumph of a post.

    Two key issues come to mind:

    1) If Labour was to create ‘challenger banks’, would this not lead to yet more politicized economics and the myriad of closed door, in-pocket personal debts/vendettas associated with such a highly problematic proposal? Surely Britain needs a political party free of silent partners?

    2) Is this not highly hypocritical given Milliband’s political beliefs and the supposed direction of a real Labour party?

    Straw-grasping blustering by a desperate man… or a lunatic playing with fire?

    • Thank you Mr Finlay; good of you to throw in your two cents and some highly shiny coppers they are. Please allow me to address your queries sequentially, thus.

      1) Not necessarily.
      a) There is nothing inherently linking plurality in the financial marketplace with increased insider dealing; quite the contrary, I would hasten to venture. If we look at another industry, the media, consolidation/conglomeration of ownership has, reducing competition, in fact allowed for further politicisation of – here – news/information. As we depend on a structured financial system as much as we do on regular source of information, why would the situation be any different? If the federal government were to force an auction of satellite signal bandwidth to enable independent news networks to flourish, do you think Fox News would become more powerful?
      b) I do see your point, however, but it’s not caused by the competition (or lack thereof) in the marketplace. That’s human error, and would continue regardless — just this way the bargaining positions are/would be a little more egalitarian.
      c) “Surely Britain needs a political party free of silent partners?” — totally agree. But let’s be realistic. That’s why I’m disaffected.

      2) I don’t understand your meaning. New leader, new politics, new party — at least that’s what they tell us. Yes, Miliband hasn’t done enough to distance himself from the disastrous consequences of James Dean New Labour, but by no means is he a Blairite. There’s nothing to suggest that his words betray his motives (yet) or that his past conduct shows his intent is otherwise. He’s untested — only elected in 2005 he’s not had time to act in a way that would now show him to be a hypocrite.

      3) “Straw-grasping blustering by a desperate man… or a lunatic playing with fire?” Or a Pyromancer? Who knows? It’s too early to tell and a little unfair to be forced to choose between two evils just yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s